A well-chosen investment in real estate can offer more than just a roof over your head. It can provide stability and some potential returns in an ever-changing economy. And if inflation becomes a pressing concern, investing in a property can provide peace of mind.
While real estate is and will continue to be a solid investment opportunity, it can be a great way to protect your assets in times of economic uncertainty. Because property values increase over time, investing in real estate is one of the best ways to hedge against inflation. But before you start perusing listings, it’s important to understand what factors you should take into account.
What is inflation?
Inflation is an increase in the price of products and services and a fall in money’s purchasing value. When inflation increases, every dollar you own buys a smaller percentage of goods or services. Governments try to keep inflation in check because high inflation can lead to many economic problems, like a recession, for example. But inflation does not have to be detrimental to every industry and can even benefit some sectors of the economy, including real estate.
How inflation impacts real estate
Inflation can be a major concern for anyone trying to protect their assets. When the value of your money decreases over time, it becomes more difficult to purchase needed items. Although Naples real estate is a vibrant market with many investment properties that have the potential for high returns, inflation does make a significant impact.
Interest rates
Photo courtesy of Pexels
High interest rates due to inflation can make real estate a less desirable investment. When interest rates are high, borrowing money to purchase a property becomes more expensive. This can make real estate less attractive to buyers.
Increased prices
High costs of real estate can be a deterrent during the initial purchase because it can be challenging for buyers to secure a loan. Real estate prices fluctuate with rising or falling inflation, which is an obstacle when choosing the right property investments.
Invest to hedge inflation
Investing in Naples real estate may be challenging, with high interest rates and increased property prices, but it is a way to hedge inflation. Despite the initial challenges it may pose in securing a property, it can still be beneficial in the long run.
Value appreciates
When considering whether or not to invest in real estate, it is crucial to understand the factors that can impact its value. Over time, real estate value tends to appreciate, which means that your initial investment will eventually be worth more. Properties that are in high demand and located in desirable areas like Naples appreciate the most. Thus, it’s essential to consider both the financial and locational aspects of your decision. Since real estate values historically increase at a rate that outpaces inflation, investors can still make a profit.
Income increases with inflation
As an investor, you have the ability to increase rental prices to cover the costs of inflation. Your operating expenses may increase, but so does your income to cover those costs. This allows you to maintain your profit margins and weather inflation’s effects. By anticipating and managing inflation, you can make your real estate investments more stable and valuable. As long as the demand for rental properties remains high, you can adjust your prices to ensure you continue making profits.
Fixed rates can mean fewer costs over time
If you purchase an investment property with a fixed-rate mortgage, your mortgage will cost less over time. When you buy a property, the monthly payment is based on the dollar’s current value; as inflation rises, you will pay your mortgage with a cheaper dollar. For example, if your monthly mortgage was $2,500 dollars when you invested in a property over 20 years ago, that amount will seem less of a financial burden because your earnings likely increased.
Benefits of investing in real estate
Photo courtesy of Pexels
Whatever the reason you want to invest in a rental property, it can be an excellent way to hedge against inflation because:
- You are collecting rent every month
- Operational increases are covered with rent increases
- Your property value is increasing
- You are gaining equity
- Seasonal vacation rentals are in high demand in Naples, and you can adjust prices accordingly
- Real estate appreciation surpasses inflation rates
While real estate investments can provide a hedge against inflation, it is essential to make sound choices. By working with an experienced investment planner, you can ensure that your investment is profitable and has the potential to grow over time.
Before making any decisions, discuss your goals and objectives with a qualified real estate agent to understand the investment options and make decisions that will benefit you long term. Naples real estate has many lucrative investment properties with diverse locations and amenities. An experienced real estate agent can help you explore different neighborhoods and discuss the draws for potential renters.
Armand Alikaj is an outstanding Naples real estate agent with experience in luxury communities like Pelican Bay, Pine Ridge, Park Shore, and Port Royal. Armand specializes in luxury real estate and provides clients with exceptional service and guidance. With the finest resources, an extensive network, and excellent marketing skills, he can help you buy or sell your Naples property. Contact Armand and start your search for the perfect investment property today.
*Header photo courtesy of Armand Alikaj
