Defend Against Inflation With Real Estate

Real Estate Investing 101
Yannik Cudjoe-Virgil

Real estate has historically been the “safe-haven” for investors looking to hedge their portfolios in inflationary environments. The federal reserve is the national watchdog for inflation in the U.S. economy, and sets rates to encourage or discourage consumer spending. The Fed's natural target for inflation is 2% per year, but according to the US Inflation Calculator the average inflation rate between 2001 and 2020 was 4.62% - which is over the Fed's target. This is bad news for your money sitting in the bank.

Additionally, since the onset of the coronavirus pandemic, the U.S. injected $5.2 Trillion dollars into the economy - which accounted for 25% of U.S. GDP in 2020. This massive stimulus influx can certainly weaken the U.S. dollar and eat away at the buying power of your savings. Therefore it should come at no surprise that inflation is the “silent killer” of your money. However, real estate has the ability to protect and grow your wealth in inflationary environments due to value appreciation and cash flow.

Here is an example of investing into a cash flowing asset over a 10-year period, vs. parking your money in the bank and at risk of inflation:

Scenario #1

Assume $50,000 stored in the bank earning 0% interest. With an inflation rate of 2% per year for 10 years, you lose (-$10,950) in purchasing power.

Scenario #2

Assume $50,000 invested in real estate with an annual yield of 8% per year, and asset appreciation of 3% per year – in a 10-year hold period (before sale). Your cumulative cash flow would be $40,000 and appreciation gain of $17,195.82 – for a total profit of $57,195.82.

This is a great example of how you can use real estate to counter inflation and protect your wealth. Real estate is a great way to escape the volatility in a turbulent economy and receive monthly cash flow and value appreciation on your investment.

Photo by: Frimufilms