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How Real Estate Investors Can Take Advantage of Inflation

In the current economy, it’s possible to get better investment yields from real estate than from some stocks and bonds. But look to the long term to get the most out of your investment.

In the current economy, it’s possible to get better investment yields from real estate than from some stocks and bonds. But look to the long term to get the most out of your investment.

How Inflation Makes Money

There are a few scenarios that lead to profit on real estate deals. The first is when there is an increase in property value. This can happen with inflation, as property values rise with inflation. It can also happen if you buy a property at a low price and renovate it. Adding granite counters, a pool or updated bathroom can add to the value of the investment.

The other way to make money from inflation is in rental income. Just like everything else, rent rates go up with inflation. For a proper investment, the amount you charge for rent should be more than your mortgage payment and fees, leaving you with a profit margin.

Your mortgage is deductible for taxes, as are any expenses you incur as a landlord, so your taxable income goes down, even though you are getting rent as income.

Buy Low

You’ve heard the adage, “Buy low and sell high.” The key to buying low is to pay attention to the real estate market and determine when prices (likely) won’t go any lower. Read articles and websites about the economy and real estate specifically to tap into market trends.

When the inventory of properties is high, it’s usually a good time to invest in real estate. Owners become desperate to sell, and many are willing to negotiate. If you’re willing to deal with the paperwork and amount of time required, foreclosures can be a good way to save money on a home that is already worth more than you pay for it.

Things to keep in mind:

  • Don’t buy a “fixer upper” if you don’t have resources to cheaply update the home
  • Keep in mind your renovation costs, and figure that into the price
  • Real estate is a long-term investment; don’t expect to recoup costs for years.
  • Diversify your portfolio with a variety of properties.

Find properties to buy through a real estate broker, who can help find exactly what you’re looking for, or use online Multiple Listings Services that give information on any properties for sale in your area.

Sell High

If you choose not to go the landlord route, you can opt to sell your property when its value has increased enough to make a sizeable profit. Make sure to do any renovations or updates on the home that would further increase the value. For example, a kitchen remodel can increase the value of a home, so it may be worth the investment to add a remodel before listing the home for sale.

Look at comparably sized homes in the area to get an idea of your property’s value through a Comparative Market Analysis, provided by a real estate agent. Calculate the price per square foot based on what other homes are selling for. If the economy is suffering and there is a large inventory of homes in your area, consider sitting on the property until housing prices rise and demand increases.

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