History has revealed that rental properties are a safe investment, especially in turbulent economic times where inflation runs rampant. Under conditions like this, inflation worries mount, and investors are often drawn towards rental properties as tangible, income-producing assets that can effectively safeguard their wealth. With this in mind, we will explore why investing in rental real estate is an inflation-proof strategy. But before we dive in, let’s capture the heart of the topic in a quick summary to get the ball rolling:
Are rental properties a safe investment when inflation is high? Yes, investing in rental real estate is a safe investment choice during periods of high inflation. This is because Buy and hold properties are hard assets that maintain intrinsic value regardless of economic fluctuations, and as inflation rises, rental income increases accordingly, acting as a hedge against inflation. Additionally, as purchasing power decreases due to surging prices, more people look to rent rather than buy, further validating its position as a secure investment avenue.
Why is Rental Real Estate a Secure Investment in a High-Inflation Environment?
Investing in rental real estate offers numerous financial advantages that make it a wise strategy for those seeking to protect their wealth, and it’s widely recognized as a reliable shield against inflation due to its unique characteristics that we will discuss below:
Rental Real Estate Enables You to Invest in a Tangible Asset that Doesn’t Decline with the U.S. Dollar
The U.S. dollar was previously backed by gold, which gave it real measurable and tangible value. Yet, as we look at the present-day scenario, we find the dollar backed by nothing but debt and the strength of the U.S. military – a fact that certainly doesn’t inspire much confidence.
It gets worse, though – the government has injected an excessive amount of money into the system over the past few years. They created more money out of thin air during the last two years than in the last few decades, and pumping money into the system like this devalues the dollar even further. Keep in mind, that when a government prints too much money, it can become worthless.
Even foreign nations are realizing that the dollar is not strong, and they are hesitant to put money into the U.S. economy. In addition to this, the rise of the BRICS nations has the potential to decline the U.S. dollar even further.
Printing too much money, like they have, causes inflationary pressure. The end result is that we are in an unstable economy with a dollar that’s plummeting in value as high inflation hangs over our heads. All the while, our wealth is being threatened if it’s not in a secure investment vehicle. So, when considering this economic turbulence and high inflation, it’s evident that placing your hard-earned funds into anything associated with the dollar or the economy could be a risky move.
401k Retirement Funds Can Tank During Economic Instability
When it comes to investment risk, a great example can be drawn from the height of the COVID pandemic, where many people saw their 401k retirement accounts that are tied to the success of Wall Street tank beyond belief. Some lost more than half their savings, and this led to a great number of people postponing their retirement plans. Also, investors who put their money directly into Wall Street lost thousands and even millions of dollars when stocks fell dramatically. Additionally, those who placed funds in an interest-bearing savings account, which is highly susceptible to inflation, saw its value decrease over the past few years, when their goal was to have it rise in value.
As you can see, if you want to safeguard your life’s savings, you need to take a different approach, and this is where investment properties come into play. Rental properties are a safe investment when inflation is hitting hard, as well as when the economy takes a turn for the worse. Why? Because buy and hold properties are tangible assets, something that has physical substance, not tied to the U.S. dollar or the economy, and an asset that you personally have complete control over. We put together an entire article on this if you want to dive into the topic further – Rental Real Estate is a Smart Investment Vehicle for Your Retirement Plan.
In other words, the value of real estate is tied to the physical property itself and the land it sits on, not to the monetary value assigned to it by the financial market or the consequences of inflation. You’ll see proof of this when you read my article on how one rental market did during turbulent times: Lubbock Recognized as Recession-Proof City and Maintained a Strong Texas Rental Market Throughout Pandemic.
Before you move to the next section, take a moment to watch this video I put together that dives into the effects of inflation:
Demand for Rental Properties Soar in Inflationary Climates
When the economic landscape experiences an inflationary climate, we know it can harm the general public, businesses, and retirement accounts. But what about the rental industry? Does that take a hit too? No, actually, it doesn’t. As we pointed out, rental properties are a safe investment when inflation is high because they are tangible assets not tied to the U.S. dollar. However, there’s another reason this type of investment asset survives economic hits, and that’s the fact that when inflation is in full swing, the demand for rental properties skyrockets. One factor contributing to this common trend includes the shifting attitudes towards homeownership.
You see, as inflation continues to rise, homeownership becomes increasingly out of reach for many, especially for the younger generations. High property prices, coupled with an inflation-driven increase in interest rates, which, by the way, reached a 22-year high recently, make it difficult for potential homeowners to secure affordable mortgages. According to Fed Chairman Jerome Powell, you may see rates rise even more. In a speech given recently, he stated:
“We are prepared to raise rates further, if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
Even with these high rates, smart investors are ahead of the game when it comes to paying off their mortgages. This is possible because they implement proven strategies. With that in mind, if you’d like some real-world tips on how to pay down your mortgage quickly, then be sure to pick up my book on the subject. You’ll find it on Amazon –
Tentative Homeowners are Priced Out and Funneled into Rentals
Along with interest rates discouraging potential home buyers, inflation causes housing materials and labor prices to surge, which also discourages development. This circumstance results in a diminished housing inventory, which leads to an increase in home prices. In fact, Goldman Sachs recently predicted a 1.8 percent rise in prices before the year’s end, and a 3.5 percent hike in 2024. Consequently, the steep interest rates and purchase prices funnel tentative homeowners into rentals. Are you starting to see the big picture of how rental real estate is a safe haven in an inflationary environment?
Pertaining to a rise in demand, be sure to dive into this informative article that we put together – Rental Real Estate Trends: Increased Demand & New Construction Property Boom.
The bottom line is that a countless number of people are turning to the rental market, triggering an unprecedented demand for rental properties. This soaring demand in times of high inflation presents lucrative opportunities for property investors because, as other sectors grapple with the challenges of inflation, real estate investors reap the benefits of an extremely secure investment and growth in the midst of economic uncertainty.
Inflation Drives Up Rent Prices Yielding Increased Cash Flow
Inflation is universally perceived as an economic enemy; however, it can act as an ally for real estate investors. As inflation surges, the cost of living swells in tandem, pushing up the prices of goods and services. Rent prices are included in this upward path of inflation, spiraling upward in response to rising costs. This inflation-driven increase in rent prices can yield an increased cash flow for real estate investors, and this undoubtedly makes rental properties a safe investment when inflation is high.
Tenants are Willing to Pay Higher Rents
When the cost of living inflates, tenants are willing to pay higher rents, and in many cases, rental agreements include clauses enabling landlords to increment rent in line with inflation to make sure their rental income keeps up with the rising cost of living.
It’s also worth noting that if the inflation comes down by the time you own the property, this cash flow increase is even more valuable as it raises the return on investment.
Additionally, the value of properties tends to climb with inflation. This means that the market value and the resale value grow over time in an inflationary environment. So, not only does the investor enjoy a steady, inflation-proof income stream from rents, but they also witness a growth in the underlying asset value. The investor can then take that property with increased equity and roll it into another rental property. This is perfect because it’s always a good idea to grow your portfolio, and our article on this explains why – Investing in Multiple Rental Properties Can Create a Hedge Against Inflation & Preserve Your Wealth.
Pro Tip: Invest in Rental Properties that Have a Positive Cash Flow From the Start
It’s important to note that investors should always focus on properties that will have a positive cash flow. So, make sure not to get caught up in a bidding war that lands you a higher-priced property, and don’t feel like you have to somehow settle for less because of today’s economy. Instead, shoot for a double-digit internal rate of return.
Be sure to do the math correctly by factoring in all your expenses, like property management fees, taxes, and the like, so you don’t end up in the red each month. And when it comes to taxes, there are many substantial deductions you can take advantage of that will enable you to keep more money in your pocket. You’ll find this book on the topic helpful, and you can grab it from Amazon – Tax-Free Wealth. I’ve read it more than a few times and it’s helped me funnel more of my cash flow into my retirement account instead of the pocket of the IRS.
Even if the cash flow isn’t huge at first, know that if it’s at least cash flow positive, you’ll eventually reap the benefits. For example, after the tenant has paid off your mortgage, you’ll be in full cash flow mode, and a steady stream of income will funnel into your retirement account. This means that while others may have to work past retirement because their 401k unexpectedly drained due to the economy, know that your rental properties are a safe investment during times of high inflation, economic downturns and recessions.
Related to this, listen to what one of our clients has to say as he discusses his experience with making sure he’s prepared for economic turbulence – Recession Proof Your Investing – An Interview with Jarrett.
Morris Invest Resources & Programs
- The Freedom Number Cheat Sheet
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- The 90-Day Financial Empowerment Bootcamp
- Morris Invest & SDIRA Program Overview
Safeguard Your Wealth by Investing in Rental Real Estate as a Hedge Against Inflation
For those who would rather not wait on the sidelines anymore, worrying that their money is being depleted instead of growing, know that Morris Invest can help safeguard your wealth during this time of high inflation. Our team can assist those interested in taking the next step, and put them on the path to owning a lucrative cash flowing rental property that will flourish in this inflationary environment.
Should you consider collaborating with Morris Invest, now or in the future, be aware that our new construction rental properties present the opportunity to own a rental in the vicinity of highly ranked school districts, as well as preferred low-crime locations that provide a multiplicity of job opportunities. This includes large universities and healthcare systems that employ thousands of workers who need a place to live. We only offer rentals in the best markets to ensure a secure investment with a positive cash flow, and our clients are seeing a double-digit internal rate of return because of it.
Even if you live out of the country you can take advantage of this hot real estate market. Head over to our article – Best Strategies for Buying U.S. Real Estate if You’re a Foreign Investor if you’d like to dive into this topic.
Morris Invest Takes Care of Every Detail For You
We make it super simple to own a rental property; we take care of everything – from assigning a professional property management company to placing a reliable tenant. If this has sparked your interest, and you would like to ensure your money is safe from inflation and anything else the economy throws your way, we recommend scheduling a free 30-minute call with Morris Invest. Our team would love to speak with you to discuss your dream of owning an income-generating rental property.
If you would like to begin investing in real estate, but feel that your current financial situation may not allow for it, consider an option that could help kickstart your journey in this sector. Connect Invest, who we have partnered with, offers the opportunity to begin investing in real estate with as little as $500. It can provide a vehicle to grow your existing cash while pulling together the rest of your down payment. If you’re interested, head over to Connect Invest’s website to view their video that breaks down the process.
Before you go, grab a cup of coffee and watch my video on how many individuals have a fear of running out of money during retirement – it’s an eye-opener:
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