Investing in a Time of Rising Inflation

July 31, 2021 By: Jack Knatch

Inflation is inevitable, and with it comes higher prices and higher interest rates. This has the potential to cool off the real estate market. Anyone looking to buy or sell a property, especially real estate investors, should be prepared for changes in the near future. Namely, it’ll be more expensive to borrow money, so you’ll have to be smarter about what you invest in.

Wondering what you should do to prepare?  Here are some tips for preparing for inflation as a real estate investor. 

Look Towards the Demand

Real estate is always in demand because people always need shelter. That means that real estate is a bit less risky than many other markets when prices are rising, and it tends to keep up with inflation over the long term. However, you can still think about the specific segments of real estate that are going to be in the highest demand. These segments are likely to include affordable housing options such as multifamily properties, senior housing, and mobile home parks. These tend to be recession-resistant and they are currently in short supply, making them a good place to invest. 

Make Long-Term Income Your Priority

For many people, investing is all about the long-term goals. If the housing market cools down along with rising inflation, it will be even more important to focus on investing for the long term. Skip the short-term rehabs for now and don’t look for fix-and-flips, as the material costs are high right now and it may not pay off. Instead, look for investments that have the ability to bring you reliable income over a longer period of time. As previously mentioned, it’s a good idea to focus on properties that are insulated against a downturn such as multifamily properties, senior housing, and mobile homes.

Don’t Build New

Right now, the cost of lumber and other materials is already sky-high in most places. As inflation causes prices to rise even more, it could get even worse. That means it isn’t a great time for most investors to focus on new builds. Instead, turn towards existing assets. This way, you won’t be as impacted by material costs that will only get pricier as time goes on. If you still plan to build new, spend extra time planning ahead to minimize the impact of rising material costs.

Look At Trending Submarkets

As inflation rises, places that are already expensive to live will become even more expensive. This includes cities like New York, Chicago, California, and other major metropolitan areas. These areas are already high-cost, but they may become downright unaffordable for many more people. You should be looking away from these major areas and investing in places that have lower costs of living and lower taxes. Many investors are already heading this direction since last year’s COVID pandemic led to countless people leaving metropolitan areas to find homes in a more peaceful, less crowded setting.

Keep On Investing

While no one enjoys inflation, you’re in a good position as an investor: real estate has proven to be a strong hedge against inflation. If you’re looking for mortgage lenders who are experienced at working with real estate investors, visit HelpWithMyLoan to get access to 300+ trusted lenders!