Real estate investing is a great way to build long-term wealth.
However, inflation is at an all-time high, and according to some experts, it’s only going to get worse.
So what’s a beginner real estate investor to do? Don’t worry! Emmanuil Grinshpun has some bright ideas. He is an experienced and successful real estate investor who likes teaching his knowledge online.
In this post, we’ll discuss Grinshpun’s tips on investing in real estate during periods of high inflation and making the most of it. Stay tuned!
Does Real Estate Investing Make Sense During Inflation?
This question boggles the mind of many would-be real estate investors. On the one hand, inflation can cause the prices of properties to increase, which can lead to higher profits for investors.
On the other hand, inflation can also make it difficult to get a loan for a property purchase, and it can eat into your profits if you’re not careful.
But the answer to the above question is a resounding yes!
Emmanuil Grinshpun believes real estate investing is one of the best ways to protect yourself against inflation.
Here’s how he backs his claim:
Increased Property Values
One of the main advantages of investing in real estate during periods of high inflation is that property prices are likely to increase. This is because, as the cost of living goes up, so does the cost of housing.
Therefore, if you purchase a property during a time of high inflation, you can expect the value of your property to increase along with inflation. And as we all know, the property’s value is directly related to its rental income potential.
Rental Income Goes Up with Inflation
Another reason real estate investing makes sense during periods of high inflation is that rental income tends to go up along with inflation.
If you own residential and commercial properties, you can expect the rent to increase as the cost of living increases. And since your mortgage payments will remain the same, your profits will go up!
So, rental properties are a great way to hedge against inflation.
Have Control Over Your Asset
Investing in real estate is also a great way to get control over your asset. While stocks and bonds are subject to the volatility of the markets, real estate is an easily manageable physical asset.
This means that you’re not as susceptible to the effects of inflation. You can choose when to sell or rent your property.
Hence, you get more control over your assets even when you buy real estate during inflation.
Now that you know why it makes sense to invest in real estate during periods of high inflation, let’s learn how to make the most of your investment.
How to Invest in Real Estate Amid High Inflation?
Here’s what Grinshpun suggests you should do to increase your real estate returns during inflation:
Invest in Rental Properties/Vacation Homes
Rental properties are always in demand. People change jobs, migrate from one place to another, and go on vacation all the time. All of these factors contribute to the demand for rental properties.
And as we saw earlier, rental prices usually go up during periods of high inflation. So, investing in rental properties is an excellent option if you’re looking to make a quick profit.
Buy, Renovate, And Sell
This is a strategy that always works, regardless of the economic conditions.
All you need to do is find an undervalued property, renovate it, and sell it for a profit. This strategy works especially well during periods of high inflation because the value of your property is likely to increase after you renovate it.
Look for Distressed Properties
Another great way to make money during periods of high inflation is to look for distressed properties. These properties are either under foreclosure or seized by a bank or money lender when the homeowner falls behind monthly mortgage payments.
Such properties can be bought at lower prices, and you can either sell them for a profit or rent them out.
However, it can be tricky to find distressed properties for sale, so you would need to keep your eyes peeled for such opportunities.
Control What You Can
You can’t control inflation and its impact on rents or interest rates. However, you can control the structure of your deals and how you build your portfolio.
Here’s what you can control:
Duration & Structure Of Real Estate Deals: Focus on property deals with short-term leases as they will benefit you by charging rents as per current market prices (mark-to-market). Or you may also increase your revenue with the increasing demand by adding inflation-adjusted annual bumps to all your leases and contracts.
Other Assets: Broaden your perspective and look beyond inflation.
Fast-growing trends such as digitization, e-commerce, and relocation to less-populated areas are some factors driving real estate valuations.
Keep an eye on such low-supply assets; wherever these assets grow, real estate will also grow!
Debt Structure & Duration: Amid inflation, you can also benefit from levered assets with longer-term fixed-rate debt. Your debt will reduce with the inflated currency price.
These are some of the things you can do to increase your real estate investment’s ROI even amid inflation.
Now let’s see how you can hedge against inflation from already owned properties.
What If You Already Own Property?
If you already own a property but the rising inflation worries you, here are some positive points to calm your nerves.
The first and foremost thing that protects you against inflation is the appreciation of your property. Even if there’s a rise in costs, such as taxes, repairs, and maintenance, the increased value of your property will more than offset those costs.
There is another way to take advantage of your property’s appreciation and access additional cash that can be used for investments or other purposes.
What is it?
You may complete a cash-out refinance of your property. This means you can take out a new loan against your existing property and use the amount to pay off other debts or make renovations to this property.
More Rental Income
If you own a rental property, the rental income you receive will also increase along with the inflation. However, make sure you’ve structured the deal in such a way that the rents increase in line with inflation every year.
Defer Capital Gains Tax
You may also leverage the 1031 exchange to defer capital gains tax.
This is a straightforward and highly-beneficial strategy. Sell the current property and use the proceeds to buy another one right after it. The capital gain from the first deal (sale) will be balanced by the second deal (purchase).
However, Grinshpun advises everyone to know the rules regarding the 1031 exchange before you make any move.
Emmanuil Grinshpun’s Final Thoughts
Real estate remains a valuable investment even during periods of inflation.
Remember, inflation is not always a bad thing for real estate investors. If you play your cards right, you can use inflation to your advantage and make a tidy profit from your real estate investments.
Just remember to focus on what you can control, learn about the tax benefits, and choose the terms and structures of your deals wisely. You’ll be able to maximize your ROI even during inflationary periods.