- Inflation is a challenging issue for individuals, families, and businesses.
- Investing in real estate is a wise option to protect against inflation.
- Real estate appreciates over time and provides rental income.
- Valuations of real estate outperform stocks when hedging against inflation.
- A second property can form part of a diversified investment strategy for increased profits.
Inflation is a term that we have been hearing often recently. It refers to the increase in prices of goods and services over time. Inflation can be a significant financial challenge for individuals, families, and businesses. The value of currencies can decrease, making it harder for people to afford things they need as prices increase. However, investing in real estate can be a smart way to secure your financial future and help you withstand inflation. Here’s what you need to know about real estate, why having a second property is a great hedge against inflation, and how to use your second property as an investment option.
Inflation in The U.S.
The current inflation rate is estimated to have reached 4% this year. This inflation results from rising commodity prices, including food and energy. The Federal Reserve has responded to this inflation by gradually increasing interest rates—this can make it more expensive for people to borrow money.
Real Estate as an Investment Option
Real estate is one of the most reliable long-term investments that can protect against inflation. Here’s why having a second property is a great option against inflation.
Appreciates Over Time
Real estate properties gain value over time, even as inflation increases. This also applies to second properties you can rent or resell at a higher price. The increase in demand for properties due to rising populations, can further contribute to appreciation in value. So, investing in real estate is an excellent way to hedge against inflation if you want a long-term investment strategy.
Rental Income
Another benefit of owning a second property is the rental income. You can rent out the additional property to tenants, giving you an additional stream of income every month. This passive income can help you mitigate the effects of inflation by allowing you to earn additional money. Even when inflation raises the cost of goods and services, rental fees increase simultaneously.
Performs Better Than Stocks
Property values perform better than stocks when guarding your investments against inflation. Unlike stocks, real estate is a tangible asset you can see and touch. Even when inflation increases, landlords or property owners can still enjoy the physical value of their property and rental income, as previously mentioned. When you invest in real estate, you not only put your money into something tangible, but you get to enjoy the property in the short term while realizing gains in the long term.
Diversified Investment Strategy
A final benefit of investing in a second property is that it can be part of a diversified investment strategy. Such a strategy involves putting your money into different investments, including stocks, bonds, and real estate, to reduce overall risk while producing long-term returns. A property investment strategy can also be tax beneficial as it provides opportunities for tax deductions such as associated expenses like property taxes, insurance premiums, and property-related maintenance.
How to Make Your Second Property Profitable?
Once you’ve invested, you can make your second property profitable in various ways. Here are four ways to do that:
Rental
One of the best ways to make money with a second property is through rental income. You can rent the property to tenants and charge them a monthly rent. To ensure you get quality tenants, take necessary precautions, such as doing background checks and getting references. Additionally, it’s good to have someone to watch your property when you’re not around. Hiring a local property management service can make a difference in your rental operations. They can also help you in collecting rental fees and managing the property.
Rental Property Administration
Property administration includes bookkeeping, tax filing, insurance coverage, and other paperwork for owning a second property. To maximize your profits, you must handle all these tasks properly. By doing this yourself or hiring someone to do it for you, you can ensure that everything is handled correctly and efficiently to maximize your profits.
Reselling
Another way to make money from your second property is by reselling it at a higher price than what you paid for it initially. You can use strategies such as staged marketing campaigns or renovations to attract potential buyers quickly and increase the sale value.
Flipping
Flipping is a great way to make money from your second property but it requires careful planning and research. Before you start flipping properties, make sure that you understand the local real estate market well and know how much similar properties are selling for in the area. Having enough capital to cover any renovations or repairs needed before selling is also important. Once you’ve found a suitable property and made the necessary upgrades, you can list it on the market with an attractive price tag.
Real estate investing can be a smart way to hedge against inflation by providing tangible assets and value appreciation over time. By owning a second property, like a rental unit or vacation home, you can create a steady income and appreciate the value of your investment in the long run. Using the abovementioned strategies, you can maximize your second property and secure your financial future.
