Inflation has cropped up as a big issue!
For a while, the Federal Reserve was saying, This is transitory, but they're starting to think this is going to become more of a long term situation.
Inflation is a term that everybody knows. It's also closely linked to real estate investing. Simply, inflation is the rise in the cost of things; the dollars in your hand are worth less. So five years of inflation at 5% means, if you had $100, in five years, it's only worth $70. $30 have disappeared, essentially.
Real estate is our favorite asset class because it acts as a natural hedge or defense against inflation. The cost of living is one of the biggest components of inflation. The cost of living is going up, but we are renting out living to people that were actually winners in that inflationary environment.
We hear a lot of good things and a lot of bad things about inflation. Overall, is it safe to say that the inflation we've seen as of late is a net positive for real estate investors?
On the whole, it is fair to say that it's a good thing for real estate, because real estate is historically one of the asset classes that has benefited the most from inflation.
There are pros and cons.You could say that the cost of doing construction or renovation on the property might cost more, but the expenses are a smaller portion of the whole picture than the revenue from tenants. So overall, we think of inflation as being positive.
But you don't just take my word for it.
Let me share with you a little bit about a quote from the Wall Street Journal: Owners of residential and commercial real estate, the Wall Street Journal said, are often better off during times of rapid inflation than owners of stocks or bonds.
Inflation makes construction more expensive. On the one hand, that can be a bad thing, but it also makes it hard for your competition to build new properties to compete with you.
So in that sense, inflation can help you as an apartment building ambassador.
We think of inflation as a positive thing as owners of multifamily real estate. Do we expect this trend of rising inflation to continue? And for how long?
Not even the Federal Reserve has a good idea how long the inflation has cropped up over the last six months will last.
We believe they're starting to think this is gonna become more of a long term thing. But we also think it's going to be a bad thing if you keep cash in your pockets.
It's a good thing to be invested in quality inflation hedged asset classes, like multifamily.
We have a great tool to calculate inflation and its effects on real estate investing. If you're interested in learning more about that, download the tool at www.themichaelblank.com/inflation.