You might be wondering if the author of this post has lost her mind. Before you decide, hear me out. In this post, I’m talking about one way inflation may help consumers and therefore you, the small real estate investor.
There’s a lot of talk about inflation right now. We’ve talked at length about inflation and its relation to the economy on this blog, but have you ever seriously considered that higher inflation could create an opportunity for you?
There are always opportunities for real estate investors, regardless of the market conditions.
In this particular economic climate, there are some silver linings for consumers and smaller investors, especially small to medium sized real estate investors to get into the market.
How? Well, since the Fed has raised interest rates, this means that borrowing costs are higher. If you’ve been paying attention to the huge real estate investment companies, you know they have taken losses. They have been buying up homes and holding them, presumably because they can’t sell them at the prices they want to sell them.
Real estate as an investment is not without risk, and anyone who lived through the Great Recession knew that the home price increases during the pandemic were just not sustainable. Still, investors get addicted to cheap borrowing and get lulled into believing that they will forever have access to money to borrow and that the real estate market will just continue to go up.
The Fed has kept interests rates very low after the Great Recession, around ten years. That’s not forever, but it is a long time in terms of investment and it’s no wonder that investors thought the party would never end.
However, the Fed’s decision to raise interest rates means that it costs more to borrow money, which puts over-leveraged investors into a bad position.
So what happens next? The big investors and hedge funds will sell at a loss and move their money into Treasury bonds.
Treasury bonds are probably looking really good right now, because they offer a stable rate of return, there’s no need to bother with property management, no need to make repairs or spend on all the other ancillary costs that come with investing into real estate.
All of these cheaper houses will be available and most importantly, affordable for many people who have been priced out of the market. This will also make it easier for smaller investors to buy properties for investment as well.