Real Estate as a Hedge Against Inflation

February 23rd, 2021

Over the course of the past year and a half, the U.S. government has disbursed trillions of dollars of free money to individuals. The money is intended to help struggling families that are impacted by the business restrictions that have been placed on society due to COVID. Two rounds of this “stimulus” money have gone out thus far; a third round is currently pending final approval. But many are concerned about the future consequences of injecting so much cash into the economy. As needed as these payouts may be, are we setting ourselves up for an even worse economic scenario?


Will Stimulus Money Lead to Inflation?


Financial experts are divided on whether or not the stimulus money payouts will lead to inflation. On the one side, the very definition of inflation is a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services, along with rising prices. Stimulus money certainly meets the criteria of “an increase in the volume of money.” There are many financial pundits warning of coming inflation; particularly if the third round of stimulus payouts goes ahead.


On the other hand, those on the opposite side of the coin claim that stimulus money is unlikely to cause inflation. There’s an argument that the link between printing more money and consumer prices has become weaker in recent years. And, there is some evidence showing that while the dollar’s value might be falling, prices aren’t rising (which is the other half of the criteria to merit inflation). 


So which side are you to believe? The side that warns against stimulus money and says we’re all headed toward inflation, or the side that says the old indexing metrics don’t apply anymore? The truth is, no one knows. People might say they do. They might say that they correctly predicted previous economic collapses (and maybe they did). But no one has a crystal ball. In the end, the economy is a complex mechanism made of so many moving parts that it’s impossible for anyone to foretell for certain what will come. All you can do is hedge your bets. And real estate is a great hedge against inflation.


Real Estate as a Hedge Against Inflation


Real estate as an investment class is categorized as a hard asset. Hard assets such as real estate, commodities, natural resources and precious metals have inherent power to hedge against inflation. Real estate has an advantage over other hard assets because it can also bring in income as well as hedge inflation.


There are two basic kinds of real estate; real estate that appreciates, and real estate that cash flows. Most properties do one or the other very well, but the two are not mutually exclusive, either. You can have a property that appreciates and cash flows. Or you can also have a property that only appreciates, or a property that only cash flows. All real estate property hedges against inflation because all real estate either cash flows, appreciates or does both. 


Appreciating value of real estate hedges against inflation because, as comparable land and property prices increase, so does the value of the land and property of your real estate asset. This companion rise in value preserves your investment in a property that appreciates. 


Cash flowing real estate hedges against inflation as a consistent source of set income. If scarcity becomes a factor during times of inflation, that rental income can even go higher because rents can go higher.


Turnkey Rentals Can Offer Appreciation and Cash Flow


Just like other kinds of real estate, turnkey rentals are a hedge against inflation. The primary reason to invest in turnkey rentals is for cash flow. But many turnkey rentals also offer some appreciation in addition to cash flow, which is the best of both worlds. Turnkey rentals may not appreciate as quickly as some other property types; but if you value diversity in your investment strategy, wouldn’t you rather have both appreciation and cash flow instead of just one or the other?


We all need to be financially prepared, whether inflation worsens from stimulus money or not. You can batten down the hatches by investing in hard assets like turnkey rentals. MartelTurnkey offers turnkey rentals in landlord-friendly cities like Memphis and Cleveland. Let us help you shore up your finances against the possibility of inflation. Contact us today to learn more.

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