Real Estate Investing in a Hyper-Inflation, High Interest Rate Market

Traditionally, real estate has been a hedge against market volatility and inflation. When inflation rises and interest rates rise, real estate values and returns also increase.

In fact, Tom Brady on Mynd.co calls real estate investing a refuge from high inflation. Real estate can also prove to be a hedge against stagflation. Stagflation is when there is high unemployment along with high inflation, and people earn less while having to spend more on basic services and goods.

Despite economic downturns, recessions, and stagflation, the price of real estate typically keeps pace with rising consumer prices. This link makes many properties inflation-proof investments

Is now the right time to invest? How can you get started investing in real estate in light of the current market? What should you do to maximize your investment if you’ve already purchased properties as an investor?

Learn how to make the most of your investment properties in a hyper-inflation, high interest rate market with these tips.

Understanding how real estate acts as a hedge against inflation is vital to understanding the effect inflation has on returns.

When inflation rises, more opportunities for investors also arise because monthly rental payments increase. Demand for rental homes also goes up as more people are unable to afford to purchase a single-family home for themselves.

There are many reasons why real estate acts as a hedge against inflation, three of which are:

With a rise in inflation, homeowners see appreciation as housing values and prices rise. According to Freddie Mac , the country currently is short 3.8 million houses, which puts further upward pressure on housing prices.

Rents on single-family homes have been steadily increasing over the past two years, while pressures from inflation and increasing interest rates have pushed them up, along with the prices of rental properties.

With a fixed-rate mortgage, payments don’t increase or decrease over time; however, inflation affects the value of the money that is paid back in the future. Equity grows along with inflation. This link means that returns on real estate investing also grow.

Short-term inflation has no significant impact on mortgage rates or real estate returns because mortgage rates are more closely linked to the 10-year Treasury bill. The rate on the 10-year T-bill was just above 3% in June 2022, up from 1.3% in December 2021

As these Treasury rates rise, demand for loans and refinances falls. However, the impact on investors is reduced because they are already locked into lower rates.

In addition, increasing inflation brings with it higher rent growth, which contributes to an increase in rental real estate value. Investors benefit from collecting the higher rent and reducing their tax burden by writing off expenses and taking depreciation on properties.

Dennis Bron, Vice President of Growth for Mynd , says that for these reasons, in times of high interest and high inflation, real estate is still a safe investment with solid returns — including fractional CRE investing and ownership through a REIT.

With all the talk lately about increasing interest rates, many people are contemplating their options for when economic growth slows, and the housing market sees a downturn.

Many experts are hinting of a recession on the horizon, which has many would-be investors wondering how they should think about passive real estate investing. While some home shoppers and investors consider waiting for property prices to drop before they buy, others warn that waiting could be a mistake

Normally, when a recession looms, the Fed pours money into the market. However, currently, this is not going to happen because of the high inflation. This inflation is going to take time to come down, and if investors wait to make their move, they could end up pricing themselves out of the market

This possibility is especially likely if rates continue to rise and real estate prices don’t drop enough to make up for the high loan costs.

People often wonder where the best place to invest money is during a recession, during market downturns, and during other times of instability

While some people might first think of investing in the stock market as the way to go, many others choose to invest in real estate instead. Real estate can offer lower risk, provide better portfolio diversification , and yield better returns

For those wanting to minimize the risk of passive real estate investing, there is good news. Safeguarding your investment against economic downturns and recessions can be done if you are proactive.

An economic downturn can make it difficult to focus on long-term goals, especially when market conditions can change rapidly. However, you can minimize your risk by taking action and:

In addition, you may want to consider delaying personal expenses, such as elaborate vacations or huge purchases, and saving your money instead.

• Watching your expenses (both fixed and variable)
• Setting short-term goals for your propert
• Going digital and replacing on-site meetings with online ones
• Sticking to your business plan
• Getting to know your tenants
• Not scaling back marketing or branding efforts
• Always staying informed and up to date
• Diverting free cash flow from investment properties to increase equity reserves

Many experts also recommend “stress testing” your property. This work involves running different scenarios or “what ifs” to gauge the fragility of your investments.

Stress testing can include visualizing what would happen if your tenants pay late, your vacancy rate increases or your property values decrease. Measure how long you’d be able to still have cash coming in to give you an idea of whether you have enough money in your capital reserve account.

There are three main reasons you should still consider investing during this time:

• People will always need housing
• Recessions give rise to bargains
• There is a low correlation between real estate and stocks

Downturns in the market from rising interest rates can create opportunities for real estate investors, and with a sound strategy, they can maximize profits.

Regardless of what the economy is doing, people will still need a place to live. Demand for rental properties typically remains steady or rises during a recession. There is often a limited supply of housing available during these times, which puts investors in a good position for a steady stream of passive income, even with rising interest rates

If the housing market does slow down due to rising interest rates, opportunities often open up for investors to snag properties at excellent discounts.

Traditionally, the stock market has a low correlation to real estate. In other words, even if there is volatility in the stock market and a recession results, there is a limited carryover to the housing real estate market.

With high inflation and interest rates, it’s a lucrative time to learn about REITs, fractional CRE investing, real estate investing in general, and what it could all do for you in this market.

You might think there’s little point to learning about passive real estate investing in a hyper-inflation, high-interest rate market unless a person has hundreds of thousands of dollars on hand to invest.

But the truth is that you don’t need an enormous amount of capital to invest in real estate. There are options available that don’t require an immense amount of capital, two of which are fractional investing (including fractional CRE investing) and REITs.

Fractional real estate investing, particularly fractional CRE investing (commercial real estate investing), has become a popular solution. Using this strategy, groups of people invest in a property and each owns a “fraction” of the real estate

REITs (real estate investment trusts) are also on the rise. A REIT is a company that owns or finances income-producing real estate. Investors can buy shares of a REIT to gain access to that real estate, adding the property to their investment portfolio through the shared ownership.

Investing in commercial real estate is an attractive option, especially in times of an economic downturn, thanks to opportunities to invest through REITs, real estate crowdfunding platforms, and fractional CRE investing programs.

If you’re interested in residential or commercial real estate investment opportunities through one of these avenues, consider using an online crowdfunding platform, like RealtySlices , which is the top platform that creates low-cost, simple solutions for people who want to access real estate.

Other platforms include Crowdstreet, RealtyMogul, Cadre, and Fundrise.

High Interest Rate Markets

Contrary to what some believe, you don’t need a lot of capital to invest in real estate. Right now is the best time to invest, even in the current economy. Real estate investing provides a strong hedge against economic downturns, inflation, and high interest rates.

You can begin passive real estate investing now with small amounts of capital by participating in real estate investing with REITs, crowdfunding investments, or fractional CRE investing.

If you want to beat inflation, you don’t have to be a millionaire to make money in real estate. Start investing in fractional real estate now.