Does the word inflation set off the panic alarms in your head? The consumer price index puts the highest increase at 9.1% for 2022, which was the most significant 12-month increase in inflation since 1981!
Naturally, busy physicians want to leverage their income to make high returns and build generational wealth as accredited investors. However, at the same time, these inflation numbers can put a severe roadblock on your investing goals and cause hesitation. Rather than having a knee-jerk reaction to inflation, it’s crucial to understand how it impacts the real estate market. There are some unique and lucrative investment opportunities for accredited investors, even during times of high inflation.
That’s why in this blog, we’re going to look at what inflation is and how it impacts property investments. In addition, we’ll look at why multifamily real estate investing is a more robust investment class than the stock market during times of high inflation and the benefits of real estate investment during this time.
What Is Inflation?
Inflation has been making the rounds in the media again recently. It can pose a significant problem to households with plans to build more generational wealth—but what is inflation? How does it impact the economy?
Inflation is an economic term that refers to a rise in prices, meaning consumers (like you) end up paying more money for fewer goods or services. This phenomenon is referred to as a decline in “purchasing power,” meaning the value of your money decreases over time.
This economic situation can be caused by:
- Rises in production costs
- Higher demand for goods and services
- Fiscal policy (i.e., printing more money means sellers and service providers are more confident of increasing prices as there’s more money in circulation)
- Unprecedented events such as the Covid-19 pandemic
In the words of the famous economist Milton Freedman, “Inflation is caused by too much money chasing after too few goods.”
How Does It Impact the Property Market?
Inflation impacts every level of the property market, from first home buyers to mortgage rates and investment opportunities. Because of this, there is undoubtedly a correlation between the property market and inflation.
Some of the ways this correlation shows include:
- It is more expensive to build, buy, and pay tradespeople concerning a property. This means that many first-time homebuyers or property investors are prolonging their decision to purchase a house (or are being priced out of the market).
- It’s more expensive to borrow from the bank, leading to a rise in rental demand.
- Mortgages increase, meaning the price of housing goes up.
However, during higher inflation, the rental property market typically performs well as there is a greater demand for renting. In addition, property investments generally perform well as rent increases are justified to match the inflation rate.
Due to these factors, there’s significant importance on timing and choosing a suitable asset class. For example, now may not be the best time to purchase an individual property for renting as a property investor. However, other options (like multifamily rental properties) could be good investments.
What Should I Do During High Inflation?
If you’ve considered becoming a real estate investor or would like to learn more about how to invest in multifamily real estate, now is the time to start.
Real estate has proved a safer asset class during varied economic uncertainty. For example, some statistics indicate that 90% of all millionaires became so through real estate investing through varying periods of economic activity.
One of the underlying reasons for this is that real estate is a tangible asset—a key point of difference between stocks and real estate. In addition, the ultra-wealthy understand that a diversified portfolio includes physical assets (especially those uncorrelated with the market’s wild swings).
Because of this, multifamily syndication real estate can generate returns for investors through rental payments and appreciation. Remember that property value can still increase over time during periods of high inflation.
Therefore, when planning your investing strategy, a safer option is to consider multifamily property investment during periods of high inflation. Be sure to focus on any debt secured by the investment group, as fixed-rate longer-term loans prove a more durable option during inflation.
Is Multifamily Syndication a Hedge Against High Inflation?
Through the opportunity to invest in real estate syndication (group investments), you can invest passively in real estate opportunities and reap many benefits such as cash flow, equity, appreciation, and tax benefits without risking a purchase in an inflationary market. Plus, syndication real estate investors, also known as limited partners, are only limited to their investment amount.
In addition, you’ll hold no responsibilities regarding time commitments or additional stress that come with being a landlord.
Multifamily properties are traditionally resilient in inflation environments thanks to the increased need for renting spaces/ Therefore, these properties can be considered a hedge against inflation.
When choosing to invest in a syndication like Viking Capital, you also have a team of property experts who understand how to mitigate inflation, rising labor and material costs, and the additional impacts of inflation. In addition, at Viking Capital, we focus on value-add opportunities, creating an attractive upside for our investors.
Because of our research and strategy, we maintain excellent returns from our multifamily investment opportunities.
Multifamily Real Estate Investing During High Inflation Is Smart!
Inflation affects the purchasing power of a currency, meaning a decrease in the value of your hard-earned money. While many investors may be initially put off by the high inflation markers, multifamily real estate investments present a rare opportunity to earn excellent returns while hedging against inflation’s negative impacts.
As an accredited investor, considering real estate syndication is a smart move to diversify your portfolio and invest in a robust, tangible, and historically consistent investment option. If you’d like to learn more about how syndication in multifamily investing can build generational wealth—even during high inflation—reach out to the Viking Capital team today!