As a growing number of Americans are affected by rapidly increasing inflation rates, many are looking for ways to safeguard themselves against it. Did you know that investing in real estate acts a hedge of protection against inflation? Keep reading to learn how.
Owning a Home means Inflation works in your Favor
When you own a home, inflation begins to work in your favor. Of course, you are still at the mercy of rising prices in retail markets, utilities, and other necessities, but as those prices rise the value of your home will also be increasing.
This means your home equity, the difference between your home's value and the amount you owe on it, will increase without you investing any additional money into it. As this happens, your net worth increases.
What you do with this increasing home equity is up to you. There are many ways to leverage home equity, including:
- Cash-out refinance to fund home improvements or additional investments
- HEL
- HELOC
- Making part of the home into an income-producing guest house or rental property
Rent is Subject to Change, while your Mortgage is Stable
Buying your first home can be a daunting process. Deciding to make the biggest purchase of your life so far may be overwhelming, but investing in a home comes with a long list of benefits that will counteract the effects of inflation.
As inflation increases, rent prices are expected to rise along with it. When you own a home that you have purchased with a fixed-rate mortgage, your housing cost will remain the same. Even if you are not saving any money with your mortgage compared to your current rent at first, you can almost guarantee that the cost of rent will quickly outpace your stable, predictable monthly mortgage payment.
Additionally, as rent rises and inflation continues to affect the housing market, renters are at the mercy of their landlords and may find themselves needing to move when they would otherwise prefer to stay. To avoid the stress and financial burden of moving multiple times, consider how buying a home can stabilize your housing situation and give you more control over your life.
Your House is a Tangible Asset
When you purchase a home, you now own a tangible asset. Cash itself decreases in value with inflation, but when you exchange that cash for a home you now have something that increases in value. In recent years, we have seen a housing market that intensely favors sellers. Even as that market begins to balance out, the demand for housing continues to outpace the supply of housing. This means homeowners are in a strong position financially, securing an asset with real value.
Related: 10 Biggest Home-Buying Misconceptions
The bottom line is, if you can afford to buy a home, now is a great time to do it. Homeownership provides a low-risk, practical protection against inflation. Now may be the perfect time to buy your first home!
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