The Time Tested Hedge against Inflation

The Time Tested Hedge against Inflation

I am sure everyone is aware in the current times that inflation is rising at alarming rates and seeing the price of commodity costs go up is unnerving. Many Canadians are looking for a haven to protect themselves against losing their purchasing power and looking into assets like cryptocurrency or precious metals. In this article, I would advocate that real property is a much better option to keep up with the growing concern of inflationary pressures. Real estate is time-tested and proven to hedge against an overactive economy because of three significant factors.

It is a “Real” Asset

When you think about the words REAL and ESTATE, you can see that they describe the safety of the investment vehicle. Unlike many investment vehicles such as stocks, bonds and the new cryptocurrencies, real estate is something tangible you can touch; it can’t be deleted or lost. Real Estate is a solid, physical investment. Since feudal times landlords have expanded their wealth and financial status by accumulating this asset class. It has also existed long before most other asset classes, and I would bet it will outlast them as well. People will always need a place to live.

Multiple ways to increase in value

Real estate has three ways to generate income for your portfolio, which reduces the risk of holding this investment for the long term.

Cash flow from Rental Income: If you purchase a property with the correct ratio of expenses vs rental income, you will be privy to a cash flow surplus from your rental property.

Appreciation over time: Real Estate increases consistently over time. While some may argue that real estate has dips and valleys, it has stood the test of time to be a very profitable asset in the long term.

Mortgage paydown from Rental Income: Tenants will shoulder the paydown of your mortgage provided you have sufficient screening procedures and allocate funds in case of vacancy.

Banks will lend you money to buy Real Estate.

One of the main pillars in Maslow’s Hierarchy of needs is shelter. The shelter is one of the most basic and most potent arguments for owning real estate vs other investments. Banks and financial institutions recognize the value of a real property and will lend you money to buy this asset class. The fact that it can be collateral in a loan proves its worth in the financial system. Conversely, try asking a lending institution for a 500k loan to purchase stocks and see what they say.

I have tried many types of investments, including stocks, mortgage lending and other ventures, and none of these even compare to the security and returns of real estate. As long as you are patient and find a property with the correct ratio of price vs rental income and decent appreciation potential, there is no better place to put your hard-earned capital.

Hope this information serves you well,

Will Wong

Broker at Infinity 8 Realty Inc.

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