Investing Strategies In Real Estate During Inflation | Think Realty | A Real Estate of Mind
Media ArticleInvestment StrategyMultifamilySingle Family

Investing Strategies In Real Estate During Inflation

As with any investment, there are risks associated with any strategy, but there are steps that can be taken to limit those liabilities. 

In real estate, investors’ best advantage is the ability to leverage money from a lender into a profit. The way it works is this; an investor seeks out a loan from a bank or other lender at a rate that makes sense for the borrower. 

The advantage is that the borrower can now access much more cash than they would otherwise and can turn that money into short or long-term profits through real estate. 

Real estate typically appreciates at a higher rate than inflation, coupled with low lending rates, and the investment opportunities that exist are incredible. That said, investors need to formulate a strategy in order to eliminate additional risks and maximize the investment opportunity. 

To start investing in real estate, you need to understand the market trends in the area in which you plan to purchase property and the various investment opportunities, such as buying a home and upgrading it to sell for the maximum dollar. 

This strategy is one of many and is known best as a fixer or fix and flip, providing short-term profit opportunities if done correctly. 

For the investor, you can consider buying a property with the intent to sell it much further down the road as it appreciates in value, otherwise known as a buy and hold. Or you could buy a property to rent it out and make residual income over time, known as buy and rent. 

If you have a construction background or a person to work with, consider finding a property below market value, fixing it up, and selling it at a higher-than-market price, known as fix and flip.  

Finally, there are two options that investors have that don’t require the investor to take a physical assignment of the property. Assignment is the term used in the business to transfer ownership from one entity to another at the close of a transaction.

The most popular way to avoid assignment is through REITs, which stand for Real Estate Investment Trusts, and are a way for mutual funds to pool investors to purchase various real estate interests from commercial to residential. 

And then there’s wholesaling, which is the process where an investor agrees with a seller to purchase the property before immediately turning over the rights to another buyer. 

Ideally, with wholesaling, the investor would have a buyer before making a purchase agreement. 

More importantly, the investor would utilize a real estate wholesale contract to secure the secondary buyer and protect the investor from liability. 

With inflation rising and no end in sight, how can investors utilize these investment vehicles for real estate to make money? The easy answer is that real estate provides a value that other investments don’t because they are stable investments, rarely losing money. The projections are that homes and rentals will continue to be in demand, causing their values to rise. 

 

Buy And Hold

The buy-and-hold method is typical for individual investors to get into real estate investing. It is the most simple of investments. It requires a person to buy a property and hold on to it for years as it appreciates in value. 

The benefit is that, historically, in the long run, the value of a home increases at a rate that will outgain any inflation rate for the life of the investment. 

 

Buy And Rent

Buy and rent is another strategy that individual investors take with a purchased property. In this instance, an investor buys property with the intent to rent or lease it out, making residual income for the length of the rental agreement. 

This type of investment takes a little more know-how than buy and hold. To be successful as a rental investment, you’ll need to factor in potential vacancy (meaning no income), maintenance and upkeep costs, and any costs like property taxes and insurance. 

The benefit is that rentals will always be in high demand, and the rental income will continue to rise to keep with the cost of inflation, making your investment grow with the inflation rate over the years. 

 

Flip Properties

Flipping properties is a way to make money quickly, but only if you have the know-how and a strategy. 

To make this type of investment work, you need to find a property below market value, fix it up on a budget that doesn’t eat into your profits, and sell it at a price above market value. The difference between the purchase price costs to upgrade and the selling price is the profit margin for the investor. 

 

Wholesaling Real Estate 

Wholesaling is similar to buying a property with the intent to sell it, the difference being that you never actually own the property. When discussing this investment, there is much to learn about wholesaling real estate for beginners. The process is simple, but you need to understand the laws in your area before you begin. 

To start, an investor would find a property below market value, make a purchase agreement, and have a secondary buyer with whom the investor would sell the rights at a markup before the close of the transaction. 

 

REITs

REITs allow people to pool their resources and invest in various real estate opportunities like large residential and commercial real estate. Often REITs are managed like mutual funds. Everyone contributes a set amount or an amount at a ratio and receives residuals to those investments based on the ratio and percentage of ownership in the REIT. 

Real estate is an investment that historically has only appreciated over time, making it one of the safer opportunities to invest in, especially when inflation is high and the threat of a recession looms. 

 


Leave a Reply