How To Profit From Inflation
June 29, 2022
The U.S. economy is seeing the highest inflation rates ever since the late 1980s and this inflation is driven by both, demand and supply side factors including supply chain disruptions, shift in spending patterns and re-opening impact. These factors will continue to drive inflation in the coming quarters but as the pandemic disruption fades, the underlying pressure will also fade and the supply will meet the demand.
If you are wondering how to profit from inflation, you are at the right place. Even if inflation remains, but as long as it does not damage the economy, then property will continue to benefit. With every 1% rise in inflation, there is a 1.1% rise in total returns and this leads to a lower cap rate in property sectors. This essentially means that commercial real estate will not only protect you from high inflation but will also provide better returns in times like today.
How Inflation Affects Asset Values
Inflation can be damaging to fixed rate assets such as debt securities since it will devalue the interest payments as well as the repayments of the principal amount. Long term fixed rate investments can be more vulnerable to inflation than short term debt since the impact of inflation on the value of future repayments will be higher. Choosing the right investment strategies during inflation is important and this is where commercial real estate makes all the difference. It becomes a top choice during inflation since it generates increased lease income. You can buy commercial real estate directly or invest through real estate investment trusts (REITs) or a specific fund.
Commercial Real Estate Remains A Solid Investment Despite The Risk Of Inflation
High inflation can cause issues in several industries and affects the overall economy. In times like these, what makes commercial real estate desirable is that it has an income generating potential. The amount that a tenant is willing to pay will increase during the inflationary period and it will reduce the risk associated with the resale value of the property.
Another reason commercial real estate makes sense is the low interest rates. By taking advantage of the rates, you can reduce the risk of purchasing a property. It might require some effort to find the right property and a low maintenance tenant, but it can become a rewarding investment in the long term.
The best way to beat inflation is by investing in assets that continue to generate income and Commercial Real Estate investing is a top choice for many.