Every Realtor has to suffer the inflation storm one day or the other. The Reason? Inflation affects everything! From the burger you purchase on your way home, to the furniture you have in your house. Nothing can escape from the clutches of inflation. But before you get to know how inflation affects Real Estate, you need to have a good idea about Inflation.
What is Inflation?
Inflation, in general, refers to the overall increase in products and services available for your use. These can be services or products that you have for your daily use, or maybe properties that can prove to be source of substantial passive income.
So… What does it mean? How does it affect me?
Well, you won’t be able to buy the products and services for the same price you used it yesterday. They, having gone through inflation, are currently in a much greater rate for sale. So, you would most likely be at a disadvantage if you are on the buying end. But if you are the seller, then it is a whole other story entirely.
For one, it greatly affects the buying power of money. This will reduce the demand and greatly increase the supply. An unbalance. Let’s say you’ve seen a property for 5,000$ for example, it would be at a price of about 10,000$ during inflation at best. This is not an accurate estimate, but you get a general idea don’t you?
Bricks Do Matter!
A Building has a lot of materials that go into it. Bricks, cement, stones and a lot of other things. But these things are privy to inflation and do undergo a rise in cost price. This rise in price, cumulatively, increases the overall price of the building. Inflation affects both products and services. So, the cost of constructing the house is going to go up as well. But that doesn’t mean you can’t build the house yourself if your up for it. Just another option if you want to save a bit of money. But ultimately, inflation inevitably increases the price of new buildings due to the low amount of constructions, which in turn leads to the rise in the prices of existing houses.
You Don’t Want That Debt By Your Side
The ages of Inflation is one of the darkest of ages where you do not want to get a loan. Inflation affects everything! Even bank services. You should plan the time in which you plan to get a loan. The Reason being, banks are more likely to increase the interest rates which will increase the interest rate of your loan on a monthly basis. By the end of inflation, you will not even be able to save the money that you need to pay the bank.
Because most of it will be spent on paying the increased interest rates. This means, people who are having a difficult time in meeting ends of their own, will have an even tougher time. Buyers are often prone to skepticism during the times of inflation due to the increase in property prices. These are the ways in which Inflation affects Real Estate and now how to escape inflation!
How You can Turn the Tides to Your Favor
Prices of both properties as well as services increase now don’t they? What if you already are in possession of a property for a fixed rate of interest for a set mortgage? The price of the property is set to increase as well. During inflation, the value of money decreases as well. So, it leads to a win-win situation where you are actually paying less.
If you are in possession of a property, then leasing it out to potential tenants is the best deal you can get. You have invested in the property for a fixed interest. You are getting the tenants to pay the rentals for a higher price due to inflation so by the end of the tenure, you are both the owner of the property and have successfully made a huge amount of profit, even after paying off the debt.
Flex Your Land Lord Powers
Here comes the fun part. The part where Realtors can make money from inflation. People mostly want to buy a property rather than become a tenant. But the same cannot be said during inflation. Since, the buying value of a property increases greatly, people would want to settle for something less costly and affordable. During times like these, they wouldn’t mind paying a little extra in order to stay in the same area for a longer time.
You can flex your land lord powers by raising your rentals to meet the inflation rates and at the same time, gather a great deal of profit for yourself. Once you establish a property that has a higher potential to generate a lot of income just from the rentals, you can sell the property for a greater price. Of course you can also refer the flipping side of real estate if you want to make this work out for you.
Wrapping it Up!
With the establishments of Real Estate Investment trusts(REITs), Real Estate Crowdfunding and airbnb, many Realtors are making use of this phenomenon to take a huge advantage. Advantage, in the form of sales for a greater price or rentals for a higher rate. Depending upon the kind of property, the amount of profit you incur can also greatly differ. Even if you are just starting out as a small investor, you can very well seize the opportunity and make yourself a great passive income.
I hope you now know how inflation affects Real Estate and if you need anything, feel free to leave a comment and I would be more than happy to help you out.
Frequently Asked Questions
Before inflation, when the price of the houses and properties is low, then, there is a growing demand for properties. As, the demand for properties slowly increases, the price of the properties increases as well. The effect of inflation is more prominent in cities where there is a small amount of land for occupation.
Inflation is one of the most profitable times one can benefit with Real Estate. Based on how inflation affects real estate, you, as the owner of the property can benefit from the rentals that the tenants are giving you due to inflation.
There are a lot of causes for inflation. The most common cause for inflation is the increase in demand for a particular property in which case customers are willing to pay an even greater price in order to be in possession of a particular property.
The short answer would be negative. Since housing prices were increasing at a rate of twice more than the usual inflation rate during the past few years. Properties tend to see a greater increase in pricing rates during inflation when compared with other services.
Inflation refers to the phenomenon in which the prices of products and goods, within a particular economy, will be on a steady rise as time goes on as demand increases with more people willing to pay more to take ownership of a particular property.