Investors love real estate because it acts as a hedge against inflation. This occurs for several reasons:
One, on an historical basis, housing prices rise just as fast or faster than the rate of inflation. Two, although investors can’t always raise rents to account for inflation (due to fixed-rent leases of one year or more), the value of the property itself will increase. Three, when real estate investors have a fixed-rate loan, expenses will stay the same, and they pay back that loan with money that’s worth less than what they borrowed! In effect, it’s a form of debt reduction. It just doesn’t get any better than that!
Inflation should be moderate in order to benefit investors. Hyperinflation or its opposite –deflation – are definitely bad news for everyone.
When hyperinflation occurs, investors find that investment properties cost more money to maintain than the rents they collect from those properties.
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