Inflation, the modern-day wealth killer, has been rising higher and higher across the globe each and every year. According to the IMF’s central forecast, inflation is predicted to rise sharply towards the end of 2021. In fact, inflation is nearing a 30-year high in the U.S, and in the U.K the Bank of England expects that inflation will rise another 4% this winter, reaching the highest level in a decade. So, how can you stay ahead of this? Let us take a look at how you can hedge against inflation.
While the stock market is most people’s go-to when it comes to wealth building for the future, it is only beneficial if the year-on-year growth of your savings is higher than the inflation rate. If not, inflation will diminish the value of your returns. The second form of investment that most people turn to is gold. This is because it appreciates in value against the global currency, making it a safe bet to combat inflation. That being said, recently we have seen that there is an even better alternative to gold and the stock market— the real estate industry.
Here is how real estate helps you hedge against inflation
- Long Term Investment With High Returns
Since the supply of real estate is limited and the demand is constantly increasing day by day, its worth is bound to grow over the years, making it one of the best long term methods to increase the value of your money. Over the past decade, the cost of an average American home has risen from $173k to $257k, which is a 48.55% hike. Following this rapidly growing upward curve, RenoFi has predicted that the value of an average home in the U.S. will be worth $382k by 2030, making the housing market a stable, high-return long term investment. Another advantage is that unlike other assets in an inflationary environment, real estate moves in the same direction as inflation, with rising prices and no decrease in demand.
The most common way for investing in real estate is through rental properties. This refers to buying a residential or commercial property and renting it out to tenants. If you’ve invested in a vacation home, you can rent your property on sites like Airbnb, Vrbo or TurnKey. Hosts that list their properties on Airbnb make, on average, about $924 a month, according to research conducted by Earnest. “You can set-up an Airbnb with your existing space and you can make a decent side income,” says Danny Rusteen, former Airbnb employee and founder of OptimizeMyAirbnb.com
Another option is house flipping, where you buy a dilapidated property for a low cost, fix it up and then sell it for a much higher price. Of course, if investing in a rental property is currently out of your budget, worry not, here are two alternative methods that provide you with the opportunity to make real estate an asset in your portfolio:
- REIT Or Real Estate Stocks
Real estate investment trusts (REITs) are specialized companies that own, operate and finance real estate projects. Just like real estate ETFs, REITs are traded on global stock exchanges and one can invest in them with minimal capital. It is a passive and liquid way to grow your income as inflation rises. RealtyMogul offers accredited investors who are looking for consistent dividends an investment option known as Mogul REIT. If you have a smaller risk appetite, you can always opt for a real estate mutual fund instead.
- Real Estate Crowdfunding
This method of investing in real estate operates through peer-to-peer financing. Real estate crowdfunding, often known as property crowdfunding, allows a small group of investors to pool in their money together to invest in real estate projects. The money is raised through an online crowdfunding platform where the property buyer borrows funds from investors looking to invest capital in the real estate market in exchange for high returns. Fundrise is one platform that allows you the option to start investing in real estate with as little as $500.
To conclude, as entrepreneur Marshall Field once said, “Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.”