Welcome to Strategy Saturday; I’m Charles Carillo, and today we’re going to be discussing Real Estate Investing as a Hedge Against Inflation. Real estate investing has long been considered one of the best inflation hedges. In this episode, Charles discusses how best to hedge inflation with income-producing real estate.

TALKING POINTS
• Inflation refers to the general increase in the prices of goods and services in an economy over time, resulting in a decrease in the purchasing power of a currency. When inflation occurs, each currency unit buys fewer goods and services than before.
• Historically, real estate has been considered a good hedge against inflation, but why?
o 1. Appreciation of Property Value: Real estate values tend to appreciate over the long term. As the cost of goods and services rises with inflation, the value of real estate may also increase. Property values often keep pace with or outpace inflation, giving investors a potential hedge.
o 2. Rental Income Increases: In an inflationary environment, the cost of living and rental prices may rise. Real estate investors who own rental properties can benefit from increased rental income, which can be adjusted over time to match inflation rates. If investing in commercial rental properties, focus on your NOI by pushing income and managing expenses to help drive your property’s value.
 A side note here is that when inflation goes up, your expenses will also increase. It is up to the property owner to maintain the quality and condition of the property while not overspending. Keeping your rental units at market rent ensures that your tenants will not be hit with large rent increases in the future.
 One of the great benefits of multifamily properties is that we sign tenants on 12-month leases. Each year, we negotiate a new lease. This allows landlords to increase rents as their expenses increase and as the market allows. Unlike certain real estate asset classes, leases may be 5, 10, 15 years, or longer.
o 3. Leverage Advantages: Real estate investing often uses leverage, such as mortgage loans. In an inflationary scenario, the property’s value may increase, and the investor can repay the mortgage with less valuable currency, effectively reducing the real cost of borrowing. When you have fixed debt, inflation erodes the value of that debt. It is a very powerful tool; however, leverage can also be dangerous if not used wisely.
o 4. Tangible Asset: During inflationary periods, investors flock to real estate. Real estate is a tangible asset whose intrinsic value is often less susceptible to inflation than financial assets. Tangible assets like real estate can provide security during economic uncertainty or inflation.
• However, it’s important to note that while real estate can be a hedge against inflation, it also comes with risks and challenges. Economic conditions, local market dynamics, and other factors can influence the performance of real estate investments. Additionally, real estate is not a liquid asset, and selling properties may take time.
• Not every piece of real estate will increase in value alongside inflation. Some examples of properties that will most likely not hold their value with inflation would be
o Properties in dying or stagnant markets
o Certain asset classes with ever-increasing vacancies (for example, in 2000, U.S. office vacancies were 8%; that number has grown by about 1/2% each year since. That is not a good trend for investors.
o Old, outdated, and low-quality properties
o Properties in less-than-ideal areas – in other words, buy good properties in good areas and neighborhoods in growing markets
• Including real estate in an investment portfolio can contribute to diversification. Diversified portfolios are generally better positioned to withstand the impact of inflation on specific asset classes….(read more)

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In times of inflation, investors are always looking for ways to hedge their portfolio against rising prices. One often overlooked option is real estate investing. Real estate has long been considered a solid investment, and in times of inflation, it can be even more advantageous.

One strategy that investors can employ to hedge against inflation is by investing in real estate through a Real Estate Investment Trust (REIT) such as SS171. REITs are companies that own, operate, or finance income-producing real estate across a range of property sectors such as commercial, residential, retail, or industrial. By investing in a REIT like SS171, investors can gain exposure to the real estate market without having to own physical properties themselves.

Real estate is known for being a tangible asset, meaning that it has intrinsic value that is not easily eroded by inflation. Unlike other assets such as stocks or bonds, real estate tends to increase in value over time, making it a reliable hedge against inflation.

Inflation can also benefit real estate investors in terms of rental income. As prices rise, so do rental rates, leading to increased cash flow for landlords. This can provide a steady income stream that is not only resilient to inflation but can potentially outpace it.

Additionally, real estate is a versatile asset class that can provide a variety of opportunities for investors to diversify their portfolio. Whether it’s buying residential properties, commercial spaces, or investing in REITs like SS171, real estate offers a range of options for investors to capitalize on market trends and economic conditions.

In conclusion, real estate investing, particularly through options like SS171, can be a valuable hedge against inflation for investors looking to protect their portfolio and potentially grow their wealth. With its intrinsic value, income-generating potential, and diversification benefits, real estate offers a solid alternative in times of rising prices. As inflation continues to be a concern for investors, exploring real estate as part of a well-rounded investment strategy may prove to be a wise decision in preserving and growing wealth over time.