Real Estate Ownership as a Hedge Against Inflation
By Rachel Duck
Real estate can be a great hedge against inflation, as its value tends to rise over time along with the overall economy. Read more for three ways in which real estate investment can help hedge against inflation.
Real estate can be a great hedge against inflation as its value tends to increase over time with the overall economy. Here are three ways real estate investing can shield you from inflation:
1) Appreciation: The value of a property can increase over time, which means that the value of a property increases as inflation increases. This can be especially true for properties located in areas of high demand and limited supply. As inflation rises, the cost of building new homes could also increase, increasing the value of existing properties.
2) Rental income: Real estate investors can generate income from the rental of their properties. In an inflationary environment, the value of rental income may increase with general price levels. This can provide investors with stable cash flow that is less vulnerable to the effects of inflation than other assets such as bonds or cash.
3) Leverage: Real estate investors can use leverage to increase their returns. By taking out a mortgage to purchase a property, investors can benefit from an appreciation in the property's value by paying only a fraction of the purchase price. This can increase your return on investment, especially in an inflationary environment where property values are likely to increase over time. Because mortgage payments are fixed, inflation can reduce the actual cost of debt over time.