When we are talking about inflation, most investors might think it is a cause for concern. However, they mostly should worry about the effect of inflation in their portfolio and not the effect inflation is leaving on the overall market.
Generally speaking, inflation impacts the cost of a basket of goods as a whole. We believe that most investors do not care about the entire basket when it comes to the effects of inflation.
They are more concerned about the changes in relative prices and values for the items where they have invested their money. That is why they always look for investment options that can outperform inflation in order to preserve their purchasing power.
That is why, when it comes to inflation, most investors love to go with real estate. However, before investing, it is important to get detailed information about the investment option. To know more, you can visit https://www.teifkerealestate.com/.
The Present Outlook On Inflation
There is particular speculation in the market, whether the present inflation is here to stay for longer, or it is just a temporary one. A number of investors are really worried about the rising levels of inflation, which is coming out of the depressed market in the year 2020.
Recently the Federal Reserve has predicted that this present period of inflammation is transitory and is not here to stay at all. This particular transitory inflation is more to be a result of increased demand and supply change issues.
It is not at all like to be a long-term one. We are becoming more sure about it, as at present we have a number of tools and control over this inflation.
Affect On Your Portfolio
There are a lot of investors who are curious about how inflation can affect their investment returns. Here, we like to inform you that here, the decreasing interest rates lead to rising value through higher equity multiples, especially for stocks.
It means lower yield or higher validation for fixed income, along with lower capital rates for investment real estate. Plus, when it comes to managing risks, investors mostly have historically relied on a relatively low correlation between bonds and stocks for managing the overall risk in a particular portfolio.
Now the question is, when inflation will take place, will this historic relationship be true in an environment? We truly believe it will. However, it has already been 40 years since we have been in the same environment.
Considerations For Right Now
Those investors who really want to put effort into something that will protect their investment from inflation think of the core real estate. It is indeed brilliant to consider during the tough inflation time.
By saying core real estate, we tried to put your focus on real estate, infrastructure along transportation. They are actually good considerations. As per the experts, core implies those assets, which are essentially completely valued and also high-quality operating assets.
These types of assets have the potential to offer more steady returns and also improve the total returns, particularly from current income. At the same time, these assets also have a really low correlation to equities. This assists a lot in managing the overall portfolio risk.
Just like any other core assets, real assets are also resilient to inflation from the very beginning. Specifically, real estate is capable of offering returns from two components they are;
- Income,
- And appreciation from the asset.
Even the earned returns from real estate can be much higher than the usual equities market. At the same time, with real estate, you can get the ability to lock in long-term. The fixed financing also provides a boost to appreciation upon the exit of the particular investment.
Direct Real Estate
We believe investing in direct real estate is about trapping a lot of wealth in legacy property. It has the potential of providing additional income streams, along with building wealth across generations.
However, with these types of investments, considerations are present as well. When you are getting direct property ownership, you might get the burden of 3Ts of property ownership. These 3Ts are;
- Tenants,
- Toilets,
- Trash.
When the tenants move out, and the property stays vacant, there is a high chance for lost revenues. Things become more hectic if there are some maintenance issues. In addition to that, a huge tax bill might come at the sale of direct property.
That is why the investor must think of a proper exit strategy to mitigate the tax bill and other costs. Thus, it is best to stick to some specific principles for investing in rescuing a part of these issues.
When you are selling a property, thinking of a 1031 exchange is indeed a great option. Also, when you are investing any proceeds, particularly into a portfolio of diversified commercial real estate properties.
Fractional Investments
For average investors, all those investments might be an appealing avenue, but the scale and size of some investments might create a barrier from accessing core assets. In this case, a single investor might not be able to directly acquire, for example, a public REIT.
In this case, a fractional investment is an option that is capable of offering you several investment opportunities in real estate. At the same time, you become 1031 exchange eligible.
This specifically assists the investors in managing inflation along with a tax-deferred investment strategy.
We recommend you have a look at fractional investments in commercial real estate properties. You need to do this through something like an unincorporated business trust. It will offer you core real estate investment options, which are specifically designed to offer tax benefits.
Final Talks
You will be able to take care of the inflation with real estate when you are taking each step with proper planning. This way, you will not only be able to mitigate the effects of inflation but also can earn decent returns on investments.
If you have further queries or doubts, feel free to reach us. We are here to solve your issues and always try to come up with a solution as soon as possible. Till then, all the best!