New opportunities to invest

You may have heard, but if not, we hate to break it to you – the inflation rate in the United States jumped to 7.9% in February 2022, the highest it has been in 40 years.

Inflation is a naturally occurring event that, when stable and consistent, usually doesn’t cause alarm. However, when we start seeing rates over 4%, consumers begin to panic.

In addition, recent rising prices and government stimulus in response to the pandemic altered our economic environment, and now geopolitical concerns will further impact the cost of living with the onset of war in Ukraine. 

The cost of goods is going up across the board, meaning consumer buying power is dropping quickly if their income isn't keeping pace (employers, we are looking at you, it might be time to step it up). If you're not implementing strategies to hedge against inflation through investment, your money loses value with each passing day. 

While the Federal Reserve’s interest rate hikes are being implemented to dampen inflation rates, we are currently on a train that doesn’t look like it’s slowing down anytime soon. 

This begs the question, how can you protect your hard-earned wealth against inflation? As an investor, you may look at it with fear or as an opportunity.

How does it affect residential property?

Interestingly, inflation can actually be good for some forms of investing. For example, several asset classes, such as real estate and commodities, have historically done well during periods of inflation. 

Let’s take the example of multi-family housing.

Inflation and rising rental rates tend to go hand-in-hand. As rental rates increase, the income associated with any particular multi-family property also tends to go up, which in turn increases the property’s value.

Investors and institutions are keenly aware of how these assets benefit from inflation, making them attractive during times of extreme inflation, therefore driving demand for these asset classes.

High demand and limited supply push cap rates lower, so those looking to divest or refinance their assets further benefit. 

Even if a party is invested in single-family homes, they will still benefit from rising rental rates, even more so if they have short-term leases. Furthermore, single-family homes quickly appreciate during times of inflation.

Commercial property values increase. 

Property values, on the whole, tend to maintain a long-term upwards trajectory, making them an excellent insulation against inflation, and it doesn't stop at housing.

Commercial properties are incredible assets to hedge against inflation, as their lease structures typically have built-in rent increases that help protect property owners and improve yields. 

Notwithstanding office assets, commercial properties were one of the few investment types that were not heavily impacted by the Covid-19 pandemic. In fact, many of these properties saw incredible appreciation, far outpacing the inflation rate. 

In recent years, with changes in consumer behaviour, industrial property has become the strongest performing and most desirable commercial asset class.

Moreover, with the shift toward online shopping and interruptions in world supply chains, industrial properties have been aptly labelled 'pandemic proof' and are producing outstanding returns. 

Inflation is guaranteed to continue, so it's critical to remember that the best-performing asset classes tend to require long-term investment strategies when insulating wealth.

Therefore, selecting the right type of assets is key to protecting wealth, and engaging a professional can ensure that the best investment decisions are made.