It’s easy to find an opinion on anything and everything these days. While hearing out the opposing views on the real estate market can be a great way to make informed decisions on investments, the truth is that some of these opinions could use some scrutiny.
As such, it’s important to provide some clarity and additional insight regarding some commonly held real estate market beliefs—especially as they pertain to inflation. There are plenty of myths surrounding how inflation will affect real estate, and if you aren’t careful about what inflation-related real estate opinions you buy into, the wrong opinions could drive how you choose to invest.
That said, these are complicated topics with myriad factors at play. It’s tough to predict what exactly will happen as inflation impacts real estate, but what we can do is start with what we know to be correct and then add in sound logic. By doing this, we may be able to draw conclusions that are different from what you’ve been hearing about this subject matter. Let’s start by breaking down two common inflation-related myths.
Myth #1: Inflation is good for real estate investments.
One common belief is that inflation is good for real estate investments, but at best we can call this one a half-truth. There are some circumstances in which high, sustained inflation over many years can be great for real estate owners. That said, this is largely predicated on your debt structure.
If you’ve got a long-term, fixed-rate loan, like the loans that can be obtained through Fannie Mae on 1-4 family properties, or 30–40 year term HUD debt, you can absolutely crush it during periods of high inflation. That’s because your payment stays fixed for the loan term, which means that your payments aren’t being directly impacted by inflation.
In turn, rents and expenses go up, but your payment stays fixed, so a larger portion of the cash flow goes into your pocket. The money you do pay back to the bank, on the other…