What Rising Inflation Means For Real Estate Investors // With massive stimulus packages over the last year resulting in over 4 trillion dollars being pumped into the US money supply over the last 12 months, the concern over inflation, and the debate over WHEN that inflation will come, has become one of the most heavily debated topics in all of finance since March of 2020.
And while inflation directly affects the cost of goods and services, inflation also has a direct impact on real estate investors in all property types, affecting the cost to build new properties, the cost to own and operate real estate, and the cost to finance real estate deals, as well.
So in this video, with so much talk around inflation coming on the horizon, what we’ll do is break down what this might mean for real estate investors, specifically, and some things that real estate investors can do right now to benefit from a hyperinflationary period in the future.
Enroll in the free Break Into CRE Real Estate Financial Modeling Crash Course here:
Check out all Break Into CRE courses here:
Want instant access to all Break Into CRE courses, models, and additional one-on-one support? Check out Break Into CRE Academy here:
Research and articles referenced in this video:
…(read more)
LEARN ABOUT: Investing During Inflation
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
Do you think we'll see inflation spike this year?
Summary:
1) Leases could be an inflation hedge by: a) Short-term leases like multifamily (12-18mo) b) Long-term leases with annual base rent adjustments tied to the Consumer Price Index. 3) Fixed increases with FMV rent adjustments (Predetermined dates or at renewal).
2) Expense Reimbursements = Inflation hedge. Tenants reimburse expenses to the landlord.
3) Inflation creates Supply/demand imbalances by increasing replacement costs, so a) New constructions slows or stops, competition out, increasing rents for existing properties. b) Builders go ahead and price top-of-the-market rates to justify construction.
4) Inflation reduces the value of your debt payments; increases cash flow with rent increases.
Just excellent. Absolutely excellent stuff here. Thanks.
a small inflation with economic growth good for real estate…rest of inflationary cases…disaster for real estate…not true ..with high inflation landlords wont be able to increase rentals so much..tenanats won't cope..this time is too high…especially after a pandemic..the cost of living will be too high
this guy has more eyelashes than a cow
Ppp
got a qn on the part where you said, investors can benefit from weakening USD if they are on fixed rate loans as their CF increases. Aren't there provisions in such loan contracts where the banks are allowed to adjust for inflation thereby increasing interest payments as well?
Just like how you mentioned as a investor you can have annual based-rents which tie directly to CPI. I think banks might have such protection clauses?
Justin, this is an extraordinary video. Thank you! -Jordi (L.A., CA)
Justin, this video is terrific. Thank you so much. Question: with interest rates going up and less funded players competing for the available homes, that should lower prices, right? However, with inflation going up, will that make the prices of ‘existing homes’ (not new construction) continue to go up despite the fewer buyers out there? Thanks!
Hi Justin, thanks for the videos btw.A quick comment on this one: An expected inflation sentiment should stimulate appetite for leveraged and unleveraged real estate acquisition at the investor and personal level. It should also increase cap rate requirements unless the market dictates the breach from u.s. bonds and cap rates to decrease, which is not unusual. Currently it sits between 400-500 bps, but there has been many times that it's been lower. Inflationary pressures historically doesn't indicate there is a direct correlation to changes in the gap neither it shows a direct causality. But, as inflationary pressures continue to be diluted into mainstream economy and start showing in the Fed's books, we will have to wait and see what FOMC policy will be applied. We could speculate for rate increases. Now, the question becomes how much a 27% increase on m2 will have on inflation, rates, cap rate requirements and real estate supply and demand?
Is the retail lease you were referring to a 3N ?
Another excellent video again! Thanks Justin for the great content!
But investors should consider a hyperinflationary scenario as well–especially for new purchases, which are long-term decisions. If the owner of a multifamily dwelling is too well-covered, then the injustice in the hyperinflationary environment will be too good for him, and then there will be political ramifications. How a prudent investor/owner handles this conflict between the short and long term is an important concern. I suppose every investor will just cover themselves as best they can, but I am sure the socialists will be driving to use hyperinflation to justify the imposition of tyranny and confiscate property rights as a tactic for general state enslavement–they did in Venezuela.
Inflation has been very low for a decade so we kinda need higher than usual inflation.
It’s already here. CPI may not show it but asset inflation has been here for months.
Great stuff, man! With M2 increasing to 25%, does this number set a new hurdle rate that funds need to focus on hitting for their investors?
Great Content! to be a Real estate Expert you have to be Economist of Choice. Learning it here
Good information here. Thanks for sharing! Keep your content coming! I’m following!