Tips for Investing in Properties During Inflation
In simple words, inflation is an indicator of a general rise in the prices of goods and services. In times of high inflation, prices grow faster than usual, leading to many special economic conditions, when governmental entities like the federal reserve start interventions with their macroeconomic tools. All the markets are affected by inflation and measures governments take to deal with it.
While Investors and ordinary people look for safe and profitable investments, stock markets, cryptocurrencies, and commodities could get risky. This is because changing financial situations like controlling mechanisms (such as interest rates and etc) can change or even get out of control quickly and badly. There are, however, some other certain investment types that are highly immune to the unstable economy.
Even gold as a safe haven for investors can get too risky since historically it does not follow inflation trends and can lose value when everything is getting more expensive. So, the big question is: What is the best investment option during the inflationary period? Can you expect profitable investments and a good return on investment with low risk in this situation?
Rising Inflation in the Post-COVID World
Like every aspect of life, the outbreak of the COVID-19 pandemic shook the global economy, starting a new era in economics, trade, and investment. Every nation in the world, whether developed or developing, went under special economic conditions.
Some of the commonly-felt economic effects of Covid on the world’s economy are:
- Rise in Unemployment
- Inflation (Hyper-inflation in some countries)
- Recession
- Severe drop in the tourism industry
- A global shift towards shopping at home
Among all the economic consequences of Covid-19, inflation is the most-felt trend globally. Additionally, the global landscape of the world after the outbreak of the pandemic has fueled inflation. All the major economies in the world have announced special measures to control the spread of inflation. The housing market also was affected by and affected inflation.
One main reason for such a big effect is a shift in the working culture and global acceptance of hybrid working conditions that cultivated the major move in the housing market.
Real Estate Investment During Inflation: Principal Reasons
Many financial experts think that real estate forms a unique financial instrument that should be included in a diversified investment strategy. This is due to the fact that real estate prices are often unrelated to other asset classes. Along with the chance of capital gains, real estate investments can also generate income through rents or mortgage payments.
Unlike commodities and stocks that are highly volatile during shaky times, the real estate market, as a brick-and-mortar investment, is a stable market with an invariable demand. This market lures attention in tough times, and investors with different profiles start investing in commercial and residential real estate. Some of the most important factors that affect the real estate market during inflation are:
Rising Prices
The core effect of inflation on the economy is the fast rise in prices. Every day, people wake up to new prices. Consumer prices have surged in all categories in 2022, especially in the energy sector where even a 50% increase is reported in some countries.
Since the purchasing power of people drops and they get more risk-averse, their spending behaviors change towards investment and putting priority on expenditures. Housing prices also have jumped in most countries.
The energy price cap has just raised to a new record high, which means that costs for the typical household will rise by £700 and are certain to rise much more significantly in the future. This will directly affect the housing market and real estate prices, making real estate investment more attractive in the upcoming years.
Commodities Are Getting More Expensive; So Are Properties
Real estate developments require massive amounts of materials such as Iron (steel), cement, and petrol-derived materials. Any rise in the price of every single commodity directly or indirectly affects the price of building materials and properties. In other words, the real estate market is highly affected by even tiny changes in commodity prices.
Prices of steel, one of the most important materials in the construction industry, have surged significantly in recent years, rising from about 900$ to just below 2000$ in a 3-year period from 2019. This significant jump in the prices of building materials has put delays on many developments, since building prices have surpassed the predictions of some construction companies and they simply can't afford to continue building the projects they have in hand, limiting the future supply of properties.
As a result of jumping prices of materials and a narrow supply of properties, real estate prices are foreseen to soar significantly in the coming years. This is one of the reasons why professional investors are rushing to the real estate market to seize the opportunity before it gets too late.
Rents Overtake the Inflation
As a global norm, rent prices are one of the first indicators of a wave of inflation coming. In many cases, due to massive increases in the demand for rentals, increases in the costs of renting properties overtake inflation. Seasoned investors know this and specially invest in properties in times of inflation to grab a piece of the rental market growth.
Ever-rising Demand Despite Inflation
Purchasing power drops during inflation and most of the markets lose demand in these difficult times. However, people don’t leave their homes! This means the demand never stops for real estate in inflation times. On the contrary, in some areas demand rises due to shifts in social and economic conditions.
For example, due to socioeconomic changes in the patterns of cities during inflation, people tend to keep a safe zone for themselves and their families, thus they start pouring money into the riskless state of owning a property. A rise in demand has one simple meaning: Potential for an increase in prices.
Devaluation of Debts
When inflation rates grow, it is inevitable that currency values, including the value of the dollar, would fall as a result of the situation. Consequently, your existing debt will become cheaper as a result of the rising inflation. This is especially beneficial for those who have debts to the banks.
Verdict: Real Estate Investment Makes Totally Sense During Inflation
As we discussed, the main reason for property investment during inflation times is:
- Prices Growth
- Devaluation of Debts
- Steady Demand
- Limited Supply
- Growing Rental Cashflow
- Sticky Price (Immune to Sudden Fluctuations)
In conclusion, we advise investors to put their money to work, avoid risky investments, and invest in real estate with good cash flow (even if it is not a short-term strategy). There is no question that investing in residential or commercial real estate can be a good hedge against inflation, even though property development can be expensive. Real estate investors can benefit from inflation if they take the proper precautions when evaluating the properties.
Property Investment in Inflation: Top 6 Tips
If you have decided to invest in real estate, you need to consider some investment hints to protect your valuable investment and get the best return on your investment. Although real estate investment seems attractive during inflation, it can be tricky too. You need to be careful when it comes to making investment decisions.
1. Count on the Rental Income
In a market where your debt is getting cheaper and rental income (income from rental property) is putting inflation behind (see the factors above), the cash flow created by rental income would help you stay in the market and get a higher ROI.
If you have invested in countries with higher Gross Rental Yield, you will enjoy a sweet income in comparison to your investment. According to numebo.com, the gross rental yield is 5.59% in Turkey while this is 2.83% and 3.61% for France and Canada respectively, which means Turkey has more attractive rental income rates. When it comes to selecting income-generating properties, you should consider the following factors:
- Make Sure the House Is in a Reputable District
- Make Sure That the Maintenance Fee is Worth It
- Land and Deed Control
- See How Long it Takes You to Value the Home
- Try to Be Involved in Projects at the Pre-Launch Phase
- Always Go For the Brand-New Properties
- Get Things Repaired That Will Cause Problems in The Long Term
- Don't Limit Yourself to only the House option!
Read more about income-generating properties →
2. Choose the Right Place
One of the most crucial decisions you would make before investing in properties is selecting the right place to invest in. The real estate development project you choose, the neighborhood, the city it is located in, and the general conditions of the country of the project are all important factors. Indeed this is the decision that might change the entire direction your investment will head.
If you are interested in purchasing new developments, make sure you buy a project from a reputable developer. This is especially important during global inflation since only well-funded and managed projects are reliable options. At Propline, we only offer projects that are developed by reputable construction companies.
3. Consider Dual Citizenship
Many investors decide to relocate and make investments with better terms. For example, a great portion of retired individuals in western European countries choose Turkey for living and real estate investment. Not only does it provide great rental income for them but also it helps them save a lot of money while living with higher standards.
If you are considering immigration while investing, or benefit from citizenship by investment, ask yourself the following questions before immigrating:
- Will There Be Someone I Trust Where I Go?
- Am I Sure about Where I Want to Move and Live?
- Are the Terms Suitable for Me / My Family?
- What Is the Investment Value of the Property I Will Purchase?
- Am I Going to Be Accepted?
At Propline, we are committed to making sure that immigration and investment experiences outside your comfort zone would be smooth and enjoyable.
4. Count on Reliable Property Managers and Protect Your Property
Properties are living things; They need care and attention! Additionally, there are many legal and technical issues that make investments in property a difficult process. As a result, many investors give up investing in real estate and search for other options. Property management is a service offered to remove the bumps and flatten the road for property owners and investors. The main benefits you can get from services included in property management are:
- Finding Better Tenants (Long-term and decent tenants)
- Better Renting Strategy (Pricing and Occupancy-Wise)
- Avoiding Legal Complexities
- Avoiding Overspending in Maintenance and Repairs
- Professional Rental Income Collection and Accounting
- More Efficient Marketing
- Protecting the Value of Property
- Peace of Mind
- Higher Degree of Freedom
As you can see, benefitting from Property Management services can turn your investment journey into a pleasing profitable experience, adding security and confidence to your investment.
5. Prepare for the Post-Inflation Period
By making investments in real estate developments that are located in the right areas with a master plan in mind, make sure your return on investment is not a result of trends and is truly sustainable.
Also, you need to make sure that the properties you have invested in are in the right conditions, so they do not get undervalued when you want to sell them. Quality investments always keep their value and downward trends do not affect them too much. When the inflation wave passes, if your property investments are in good condition, you will have the chance to benefit the most from them. Every inflationary economy is followed by a growth and recovery period, so having a quality investment portfolio would help you be agile and enjoy the highest possible returns on your investments.
6. Be As Quick As You Can
Time is of the essence for buyers, according to experts, at least if they want to avoid further hits to affordability with more Fed rate hikes and higher prices on the horizon.
According to analysts, rising inflation means that cash now holds more value than it will in the future, assuming inflation continues to rise. Buying now might be more affordable than waiting until later, especially if home prices keep rising," Simply put, if you purchase now, you secure a price and mortgage payment in current dollars rather than less valuable future dollars.
Customers who purchase soon may also be able to avoid soaring rent costs, which in many locations are rising more quickly than home prices. According to Realtor.com, the median asking rent increased 17% from March 2021 to last month.
You will be able to profit from the increase in home prices if you purchase now. Waiting to buy might not save you much if you end up spending a lot of time paying someone else's mortgage at exorbitant rates because rent prices are rising along with home prices.
Key Takeaways
Although investment in properties during inflation times makes a lot of sense, you need to take into account several factors before making any investment decisions. These include:
- Making Plans for Rental Income
- Investing in an Appropriate Location
- Investing in an Attractive Project
- Benefitting from Second Citizenship
- Using Property Management Services
- Making Decisions as Fast as Possible
- Preparing for the Post-Inflation Period
Making the right decision during special economic times is crucial for investors. Not only one can protect their investment during inflationary periods, but they can also get great returns on their investments. Property investment, if done correctly, can be one of the most successful investments in the post-covid world.
For those who are starting out, the best time to invest is yesterday, but tomorrow will never be too late. Don’t let inflation intimidate you! As long as you are confident with your numbers and you know your target property market, I think you’ll be on the right path.
Propline: With You in Every Step of Investment
Propline is a Prop-Tech venture, providing services for property investors and owners. With a high-quality, diversified, and branded portfolio, you can select the best properties both for investment and living. With our safe and secure procedures, you can ensure that your money will be kept by third-party insurance companies until you get the deed.
If you are interested in investing in or buying high-quality properties, from the best developers, and in the best locations, you just need to contact us now and get detailed guidance from our experts who speak your language.
Tomorrow Might Be Late! Timing Is Everything!
The best time for investment in properties during inflation times is yesterday! Every single day, prices go higher and money loses its value. In these times, people try not to take risks, so they keep their properties and if they buy one, they are not planning to sell it in a short time. So, the chances you have today might be out of reach tomorrow!
FAQ
What Should I Invest In During Inflation?
Avoiding risky investments, and secure and verified investments are suggested during inflation. One of the best options for protecting your money during inflation is investing in real estate.
Does Inflation Increase The Value Of A Property?
Considering the fact that you have selected a verified property for investment, not only does your investment get valued as inflation rises, but also it keeps its value for post-inflation times.
What Happens To Real Estate During Inflation?
The real estate market is one of the only markets that benefit the most from inflation. Prices of properties rise alongside inflation and also rental income provides a sweet of rental cash flow.
