Over the past four years or so, we’ve seen individuals and industries across various sectors struggle with significant financial difficulties due to inflation and other factors. If we look back to when the brunt of it started, which was when the pandemic hit, many businesses closed down, employees were let go, prices began to rise across the board, and the national debt spiraled out of control with a free-for-all government spending spree. It felt like the beginning of the end for our economy, and we’re still attempting to climb out of this destructive financial hole we were pushed into.
But in the midst of all this financial turmoil, one group of people not only kept their head above water, but actually thrived and came out on top, and this would be those who invested in real estate.
Economic Challenges Paved the Way for Real Estate Investors to Prosper
In June of 2020, the inflation rate was a mere 0.6%, only to rise to a staggering 9.1% two years later. The latest includes a hotter-than-expected inflation report with the numbers increasing by the most in nearly 1-1/2 years. Mortgage rates have followed right along, starting at 3.10% in 2020, jumping to 5.34% in 2022, and we’re currently seeing a rise and fall around the 7% mark.
The stats paint a picture of continued economic hardship as inflation drains the bank accounts of individuals and businesses. To make matters worse, high mortgage rates along with skyrocketing property prices have made owning a home unreachable for many. On top of this, high prices for building supplies, as well as regulations, and the fact that sellers are not placing their properties on the market, has all contributed to a housing shortage.
These economic challenges have caused unprecedented financial damage for many. However, on the other side of the spectrum are real estate investors who have actually benefited during this time of economic hardship. Below, I’ll discuss why this is the case.
Why Real Estate Investors Profit During Times of Inflation and Economic Downturns
Rental real estate owners tend to prosper in times of widespread economic devastation. One reason for this is that rentals are an excellent hedge against inflation, to the point where investors have noticeable financial gains while others are struggling to keep afloat. A hedge against inflation is just one piece of the puzzle, though, so let’s dive in to find out more:
Real Estate is an Asset Not Connected to the U.S. Dollar or the Economy
Property investors hold an asset that’s not connected to the U.S. Dollar, which detaches it from the ups and downs of what’s going on in America, as well as around the globe. What I mean by this is that rental properties won’t take a dive in value when concerning news is released by the media, when a natural disaster hits, a pandemic, or when inflation erodes our purchasing power and eats away at the value of our savings.
As an example, on the opposite side of placing funds into rental real estate, you’ll find the most common investment strategy, which is a retirement fund called the 401(k). Now, because this type of retirement account is attached to the stock market, which is swayed by how the economy and the U.S. dollar are doing, it can tank in the blink of an eye. You may have lost thousands of dollars when the pandemic made its appearance, so you know what I’m talking about. The bottom line is that any investment attached to the U.S. dollar or Wall Street is a risky place to store your hard-earned funds.
Rental Properties Tend to Rise in Value During Times of Inflation
When it comes to inflation, liquid assets such as a savings account lose value, while tangible hard assets such as gold and other precious metals, and real estate tend to rise in value.
High home prices have been hitting Americans hard the past four years. As an example, in 2020, the typical price of a single-family home in the state of Massachusetts was $469,028. In 2024, the average price rose to $642,818. So, as many sectors were suffering financially over the past four years due to rising costs, real estate investors increased their net worth and gained valuable equity that they could use as leverage to purchase more investment properties.
Related Article: Investors Buy to Secure Equity as Home Prices Continue to Rise
Property Values Surge When Housing Inventory is Low
Real estate values generally rise when there is a low inventory, and this is part of what’s going on with the affordable housing crisis. But what’s deemed a crisis to millions of Americans is actually a profitable situation for real estate investors.
What’s happened over the past four years is that mortgage rates have risen to unprecedented levels, keeping current homeowners with low rates from putting their homes on the market. This makes sense because a property owner with a mortgage rate of 3.3% would be crazy to sell and buy a new home with an interest rate close to 7%. Because of this, there are less houses on the market for potential buyers to choose from.
In addition to this, inflation has affected the cost of building materials, and construction companies had put the breaks on projects knowing the homes might not be marketable due to higher prices. Building regulations also played a part in stopping the production of new housing.
Related Article: Home Affordability Crisis – Lowest Level in Nearly Two Decades Drives Up Demand for Rentals
This all equates to competition and bidding wars over the houses that are available, and with such high demand, prices are driven up to unaffordable levels. Again, this just increases a real estate investor’s net worth. It also allows them to take advantage of the fact that those who can’t afford to buy a house or can’t find one will be funneled into a rental property.
Rental Property Owners are Profiting Off the High Demand for Rentals
With mortgage rates at near record highs, house prices too expensive to consider, and inflation hitting the wallets of average Americans, many are turning to rental properties to live out the American Dream.
These people recognize that renting is more affordable and convenient than buying a home, and investors are coming out on top financially because of it. The shift has pushed the demand for rentals through the roof and there are literally waiting lists to get into decent rental properties. This scenario certainly places investors in a financially secure position.
Related Article: Build-to-Rent Properties Are a Good Investment with a Surging Demand
Rental Rates Rise in Times of Inflation and When Demand is High
Along with property prices increasing, it’s a given that when inflation hits and when the demand for rentals is high, that rent hikes take place. Rental rates have increased rapidly in recent years, to the point that U.S. citizens are dishing out more than 30% of their paychecks on rent.
In addition to this, rental rates are 33.4% higher than they were before the pandemic hit. This equals increased rental income, ROI, and cash flow for real estate investors.
Related Article: The Driving Factors Behind the Ability to Charge Higher Rental Rates
Increase Your Net Worth Even During Economic Downturns
As you can see, not everyone has to suffer financially when the economy is not doing well. Those who play their cards right by investing in rental real estate can secure their wealth, grow their portfolio, and retire early.
If you’re interested in investing in an asset that’s a hedge against inflation and grows in value while the U.S. dollar declines, then feel free to contact Morris Invest. We offer build-to-rent properties in lucrative markets, with a tenant placed for you. Also, we’re a full-service investment company that takes care of all the details from A to Z to make your dream of owning a cash flowing rental property easy to obtain. Take a moment to head over to our Morris Invest & SDIRA Program Overview page for more details on how we can help you get on the path to financial freedom and security.
Also, before you go, dive into the following video that details the affordable housing crisis:
