5 Ways Real Estate Performs Well Against Inflation

Marcus and Millichap just released a special video that discussed 5 ways that real estate is the perfect hedge against inflation, an inevitable force we should all pay attention to, especially considering that the money supply is 26% above pre-pandemic levels.

This timely video is important for any active or passive investor to understand real estate’s unique characteristics as well as the economic situation that further emphasizes the strength of this investment vehicle. The video can be found here and below is a summary.

  • Rents/Values Mark to Market: As costs rise, real estate values tend to mark to market, which means that they align to current market rates and prices.
  • Higher Costs to Slow production: Higher construction costs tend to raise property values as it slows construction.
  • Increases Replacement Value: As construction is slowed, costs continue to rise as well as replacement values.
  • Revenues Rise as Rents Adjust: Leases and rents are adjusted to market rates.
  • High Liquidity Helps Financing: Elevated liquidity makes it easier to borrow and interest rates are exceptionally low.

The downside to real estate’s inflation-proof characteristics is that market liquidity, low interest rates and inflation resistance is brining more money into commercial real estate investing. This increase in capital and investment activity is driving up property values such as industrial, apartment and self-storage. The higher demand causes downward pressure on cap rates.

While this imbalance of buyers and sellers makes it tough for buyers of commercial real estate, investors who currently own assets and considering selling have a unique opportunity to sell in a hot market.

Altogether, now presents a unique opportunity to invest in commercial real estate such, as apartments, for both current active and passive investors as well as working professionals who have never invested in real estate. The report reminds investors that over time markets will adjust and interest rates will go back up. This creates a unique opportunity right now for investors to participate in the investment activity.


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