What Happens to Real Estate During Inflation?
7 minute read
September 27, 2021


How many times have you heard the word “unprecedented” this year?

To be fair, everything COVID-19 has touched has created unprecedented circumstances and the housing market isn’t an exception. 

Real estate inflation has caused housing prices to increase the most that they have since 2008. 

And this is where that popular word comes in — the effects of real estate inflation caused by COVID-19 have been unprecedented, making it hard to predict where the market is going. 

Those who were fortunate enough to still have a job and work remotely are fleeing the cities for more affordable homes in the suburbs, causing rental fees in normally pricey cities to decline as demand decreases. 

But those who lost their jobs and were scrambling to find cheaper housing drove up the demand for rentals in affordable cities, making the rental rates less affordable than they once were. 

With all of these changes in mind and no one being really sure of where the market is going next, you may be wondering if real estate is still a solid investment, even in these periods of inflation. 

We’re going to discuss how inflation affects the real estate market including what inflation is, how it connects to real estate, and if real estate is still a safe bet during inflation. 

What is Inflation?

Let’s start with the basics. 

Inflation is the steady rise in prices for goods and services and the decrease in the value of a currency. When inflation happens, a unit of currency buys less than it did in previous periods. 

Inflation is usually reported in percentages and measures the overall impact of price changes for a diversified set of products and services. The percentage of inflation is meant to be representative of all services and goods over that period of time. 

To illustrate an example, the average price for a cup of coffee in 1990 was 75 cents. Because of inflation, that same cup of coffee is now $1.59 since the purchasing power of our currency gets us less than it did a few decades ago. 

An increase in money supply is typically the cause of inflation. Those stimulus checks certainly did their job in stimulating the economy as demand for housing, labor, and materials have all skyrocketed — and so have their prices. 

Inflation can play out in a few different ways but put simply, more people have more money which makes the value of that currency go down.

Since demand becomes high and more people are stimulating the economy, the prices for goods and services go up — even if supply can’t meet that demand. 

How is Inflation Connected to Real Estate?

Often during inflation, the price of houses goes up. 

Real estate is just as much of a good as anything else. When people have more money, the demand for housing goes up, which allows them to be priced higher. Especially when housing supply is down. 

Other factors, such as interest rates, will add to this inflation-created scenario. When interest rates are low, that also creates a demand for mortgage loans and housing. 

However, since inflation means the devaluation of money, lenders will often raise interest rates as inflation rises, gradually making the cost to borrow much higher than it was before. 

The Cons 

As a real estate investor, you are also trying to obtain property, and an increase in housing prices means potentially less profit to be made from your investment. If rates are high, you might see fewer people getting financing. 

You may not even be able to get financing with as favorable of rates as before. This is why many investors rely on the stability of hard money loans to finance their projects. 

Let’s say you are still able to get a good deal on a bank-owned property. You now have to flip it or even just make some minor renovations to get it ready for sale or rental. 

During inflation, the price of materials and services also increases, which you will feel when you can’t get a contractor out in a timely manner and for the same price as before.

The Pros

Though as a rental property investor during these times, you may be able to make more of your money back once you find a tenant. In the scenario when inflation is causing higher interest rates, the demand for rentals usually increases. 

People won’t want to take on a mortgage they can’t handle and will look for rentals in the meantime. With an increase in demand, you’re able to raise the monthly rent payments and you’ll still probably find someone who will pay it. This gives you the chance to recoup some of the extra costs for maintenance and materials. 

How Real Estate Provides a Good Hedge During Inflation 

As we outlined above, inflation affects the housing market in positive and negative ways. But as an investor, there are still ways that you can profit from the market in an inflation period.

This is the perfect time to have an investment property. As demand for rentals increases, borrowers can charge a higher monthly rate than normal and use the excess to pay off the mortgage on your property. 

With the help of the quick financing that hard money loans offer, borrowers can start on their next project and capitalize even more on the current conditions. And when their projects are profiting, so are the investors.  

The Marquee Funding Group does the profitable deals that banks and credit unions won’t do, so you don’t have to worry when inflation starts to affect other institutions. They also underwrite their loans to limit investor exposure, meaning that you can profit from these projects with limited involvement.  

Why You Should Invest 

Real estate has always been a solid investment plan simply because demand for other goods and services will fluctuate more drastically, but people will always need roofs over their heads. 

While real estate inflation, market shifts, and other unpredictable circumstances (such as global pandemics) can all affect who is profiting in the housing market, the need will remain the same, no matter how different those needs may look. 

And so will the benefits of investing with Marquee Funding Group. These include:

  • Target Return of 8% to 9.5%
  • Preferred Return of 8% annualized rate of return
  • Cash flow
  • Transparency through portfolio reporting tools
  • Tax-advantaged strategies available
  • Alignment between the investor and the fund manager (fund manager does not share profits unless investors receive Preferred Return)
  • The fund may elect REIT status which allows investors to deduct 20% of qualified REIT dividends from their income tax return
  • No hassles of being a landlord 
  • Borrower equity requirements offer protection against market volatility
  • No management responsibility for investors

The bottom line is that while real estate is not impervious to inflation, it can end up being a safe investment for you to weather the storm and come out ahead. 

Investing with Marquee Funding Group

If you’re an accredited investor, working with Marquee Funding Group will give you the edge you need in the private mortgage sector. 

Accredited investors should have the following: 

  • An annual income that’s greater than $200,000 for the past two years or a joint household income of greater than $300,000
  • A net worth greater than $1 million, excluding your primary residence

Marquee simplifies deals that are too unique or complicated for traditional lenders. 

Even when that period of real estate inflation comes around, you can still make your investments with our quick, common-sense deals. For the best chance at making your most exciting real estate deals, contact Marquee Funding Group today to discuss investing, your plan, and your future.

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