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Is real estate a good hedge against inflation?

With inflation at the highest it’s been in a long time, anyone paying attention to recent headlines is probably worried about the future of their investments – and rightfully so. The inflation rate in Canada recently jumped to 4.7 per cent, the highest in over eighteen years.

For many types of investment assets, inflation increases long-term costs and erodes purchasing power, reducing the rate of return that an investor can reasonably expect to see. Especially in a COVID-19 world, the future is uncertain, and inflation is a looming factor that could make anyone feel helpless about their finances.

Take a deep breath: there are steps anyone can take to protect against inflation, and it’s not complicated. A properly diversified investment portfolio includes hedges to protect against market swings caused by rapid inflation. Residential real estate, which demonstrably appreciates faster than inflation, provides the perfect fit.

Why real estate is the solution

What is it that sets real estate apart as such an effective hedge against a high inflation rate? There are a lot of reasons for why real estate is so uniquely shielded against inflation, but these are some of the main factors:  

  • Investment real estate generates passive income, earned by collecting rent from tenants. That rental revenue generally rises alongside inflation.
  • Rental units are always in demand, and tenant turnover provides frequent opportunities to either renew or begin tenant leases at the increased market-adjusted rates, which can increase rental income even further.
  • That increased rental income then increases the property value of the building itself during times of rising inflation, 

With these benefits in mind, real estate provides an excellent asset for savvy investors even during times of inflation.

Consider the details

Yes, it’s undeniable that real estate helps shield against inflation, and it’s never a bad thing to own property. That said, it would be an oversimplification to assume full immunity against inflation by simply owning a home or property without considering the finer details. As with anything, it all depends on the context. Effective returns depend on investing strategically in the right kind of real estate.

Take for example a small property which has only one or two units, cannot be improved or renovated, and is located in a remote location without nearby amenities. A property such as this offers little return on value, may require significant upkeep and maintenance, and especially if managed poorly, could quickly become a liability instead of an asset.

A more targeted and thoughtful approach to property investment seeks to deliver robust, consistent returns, whether in periods of inflation, market growth, or market upset. There are many varied strategic and financial considerations to consider when seeking the right kinds of properties with the most potential for value appreciation.

For this reason, to obtain a stake in high-value real estate that truly protects against inflation over time, it’s ideal to invest in a private equity real estate, which combines a range of carefully considered investment properties into united, curated funds.

Equiton offers the right opportunities 

Real Estate Investment funds are an excellent way of both hedging against inflation and benefitting from all the long-term benefits of owning real estate. With Equiton’s value-based approach, we build up the value by improving, redeveloping, and exploring opportunities for growth in every investment opportunity we take.

Equiton acquisitions are analyzed and chosen very closely in order to minimize any downside risk and maximize return generation.

To learn more about Equiton or to become an investor yourself, connect with us or reach out through email at inquiries@equiton.com.