The 5 Profit Centers of Real Estate Investing Part 5: Inflation Hedging

TLDR; Real estate investments offer protection from inflation because they hold their value better than other forms of investments over time.

 

What is Inflation Hedging?

You’ve probably heard the word hedging in a variety of ways: when talking about hedge funds, you should hedge your bets and even a garden hedge. So what do these things have in common? They’re all intended to protect your investment.

Hedge fund managers help you offset your investment strategy to protect yourself in the event of a market downturn. 

Hedging your bets protects you from having all of your money stuck in the same wager so if you do lose, you don’t lose it all. 

A garden hedge protects your property from ownership disputes because you clearly delineated what is yours and what is theirs. 

Inflation hedging is the final key to our 5 profit centers at JWB, and its purpose is no different than these other hedges–the aim of inflation hedging is to protect your money from inflation when your cash on hand is devalued.

 

Inflation Hedging: Teach it to me like I’m 5

Let’s think about it this way:

If you have $20 in your kitchen junk drawer, that $20 is still $20, the actual number on the bill never changes. 

But, you used to be able to buy 20 lollipops for that amount of money. Inflation makes it so that your money is still the same monetary amount, but you can buy fewer lollipops with it.

 

How Real Estate Investing protects against Inflation

Putting your money into real estate helps it adjust for inflation at a better, more stable rate. So that same $20 when placed into a rental property could adjust at the same rate of inflation, making it a higher value and an increased dollar amount.

Something you should know: The real estate market changes as a direct product of interest rates that are dictated by the Federal government and those economics play into the inflation rate as well as a slew of other factors. We’re not here to help you understand WHAT inflation is, so much as how to avoid it with your investments.

As an investor, you need to know how to combat inflation, especially in today’s climate. Inflation can erode the value of cash over time, making it important for investors to diversify their portfolios by allocating money toward assets whose value is not tied to the dollar. Real estate is one such asset class; as long as demand remains high and prices continue to rise, investors can protect themselves from inflation while building their wealth.

 

How is Real Estate Better at Inflation Hedging than other asset classes

This happens because your money gets placed into a physical asset, an investment property. The investment property grows at a higher rate (because of its long-term consistency) than other investment strategies such as stocks, bonds, gold, or crypto. 

Let's look at some facts about the current market: Bonds are down 13%, stocks are down 17%, gold is down 15%, and crypto is down 60% (ouch!).

But Real Estate? Real Estate Investing is consistently performing better, year over year.

Home prices are up 15% in the last year and up 51% in the last 3 years. 

Rent prices went up 14% in the last year and 27% in the last 3 years.

In fact, rental properties have outperformed the stock market for the last 20 years. 

So when you’re looking at a 7-9% inflation rate and thinking, what am I going to do? The answer is investing with JWB Real Estate Capital.

 

Why Invest with JWB Real Estate Capital?

Inflation hedging is putting your cash flow into an inflation-beating resource, while your cash on hand is losing value. Not only does investing in real estate help you beat inflation, it simultaneously continues to grow your wealth. 

With inflation hedging through real estate investing, you won’t be left with a stagnant or stalled (or worse devalued) wealth strategy. 

Call us when you’re ready to beat inflation.

We hope this series has been helpful, if you’d like to catch up on all 5 profit centers, you can find them here: cash flow, principal paydown, home price appreciation, tax savings, and inflation hedging.

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