Inflation, which is defined as the economic de-valuation of your money, can sound like something most Los Angeles Real Estate Investors don’t want to hear. While its consequences are simple enough — a rise in the cost of goods and services— it’s also comprised of many less obvious negative aspects as well.
For example, the direct effect that it has on the housing market (which includes impacting the many financial aspects involved in buying an investment home). Below, we describe these consequences in thorough detail and offer a solution which will allow Los Angeles Real Estate Investors an opportunity to avoid the consequences of an inevitable rise in the inflation rate.
Consequences of Inflation
Increase in Cost of Home Construction
Remembering that inflation refers to a rising cost in the price of everyday goods, our Los Angeles Real Estate Investors want you to think of all the materials it takes to usually construct a new home: from concrete and bricks, to drywall and stucco, Inflation means that all of these required materials just became more expensive for home builders.
Rising Home Prices
Our Los Angeles Real Estate Investors now want you to consider the consequence of higher homebuilding costs once more: as these put a BIGGER financial burden on homebuilders, they have a small amount of recourse but to then make up for it with higher listing prices for just-built properties.
Unfortunately, this is not the only reason inflation causes home prices to go up. When the Central Bank increases the amount of money in circulation, house prices automatically increase as well.
Decline In Financed Home Purchases
In addition, another effect inflation has on the housing market involves borrowed money. When inflation rises, causing money to become more expensive to borrow, people do not want to borrow as much of it; or may not even borrow any at all. This results in a chain-reaction of far less fewer financed home purchases, which may flatten economic growth.
Why You Need a Hedge Against Inflation
With inflation steadily growing, now is an ideal time to invest in an asset class that can provide a hedge against it. By doing so, you are protecting your portfolio with a smart and strategic investment expected to maintain or increase its value over a specified period of time. In fact, residential rental homes even tend to increase in value during times of on-going inflation.
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