Invest in Apartment, A Good Way to Hedge Against Inflation
In economic terms, inflation is defined as a rise in the general level of prices of goods and services in an economy over a period of time. When prices rise, each unit of currency buys fewer goods and services, eroding real consumer purchasing power. Although deflation also is a risk to the economy, moderate inflation is much more prevalent over the course of modern history.
As inflation levels began to ramp up and the purchasing power of each unit of currency begins to take a hit, investors may be wondering how they can avoid this monetary backlash and avoid losing value on their investments to inflation. One way to do so is through investing in hard assets such as apartment buildings. Investing and building wealth through apartment buildings is a great way to hedge against inflation because of rents, which is the source of an apartment investor’s gross income in the investment, rise along with inflation.
Real estate, in general, is always a great investment, but the benefits of doing so are greatly augmented during times of rising inflation.
Investors widely consider commercial real estate an asset class that can help offset the impact of inflation over the long term. In fact, that benefit is regularly cited as one of the advantages of adding real estate to a mixed-asset portfolio of investments.
Academic literature on the inflation-hedging benefits of real estate are mixed, but generally, agree that private real estate is at least a partial hedge against inflation.
The ability to adjust rents over time is typically credited for real estate’s inflation-hedging benefits. Typically, robust economic growth should result in higher inflation and therefore stronger rent growth.
All in all, it is safe to say that real estate will not be pushed down due to inflationary pressures. As an investor, it is important to diversify your portfolio and owning stable hard assets like apartment units is one way to diversify risk and guarantee stable returns on your initial investment in the short and long run.