Is Real Estate a Good Investment during Inflation?

Table of Contents

Key Takeaways:

  • Inflation is making life more expensive
  • Investing your money could help you avoid long-term detrimental effects
  • You’ll want to select your investments carefully
  • Real estate remains a solid investment

Inflation is causing financial panic all over the world, and you might be wondering if real estate is a good investment in 2022. It’s wise to hedge against inflation by investing your money because it protects you against the drop in the currency’s value.

Developing a diverse portfolio to guard your assets against the decreasing value of the currency is one way to offset your decreasing purchasing power. This guide will explain why real estate remains a solid investment despite inflation making properties more expensive.

What Is Inflation?

Inflation is a rise in the price of goods and services available to consumers. The result is a decrease in purchasing power for individuals. This occurrence devalues the currency because one unit of money affords fewer consumer goods, so you’ll spend more to maintain your current lifestyle.

The inflation rate was 8.52% at the end of July 2022, meaning the Consumer Index Price for All Urban Consumers increased by that amount over the previous 12-month period. Inflation makes life more expensive for the average person, creating a challenging environment for protecting your assets’ values.

Causes of Inflation

Inflation in 2022 has numerous underlying causes, many of which trace back to the COVID-19 pandemic. It’s worth noting that the current bout of inflation is unique because of its sharp ascension associated with lifting restrictions in many Western countries. Some specific causes include the following:

Energy Prices

People stayed home early in the pandemic, and oil prices dropped considerably in response. Early 2021 saw energy prices return to pre-pandemic levels, but demand recovered more rapidly than supply, creating a shortage. Russia’s invasion of Ukraine has put further strain on global fossil fuel supplies, furthering the energy shortage and driving prices upward.

Low Interest Rates

The US Federal Reserve lowered interest rates early in the pandemic, with the federal fund rate ranging from 0 percent to 0.25 percent. These lower rates made it easier for households and businesses to borrow from banks but also flooded the market with cash when the supply for many goods was low. Having this extra money available reduced the value of the dollar, partially driving inflation over the last year.

Supply Chain Issues

It’s more challenging than ever to find certain goods because of supply chain issues. The lack of warehouse space and delivery drivers is creating bottlenecks, too, all of which drive inflation. Groceries are also more expensive because of the supply chain problems, particularly in wheat and corn, which typically come from Ukraine.

Worker Shortage

Fewer employees are available, and the staff sticking around at jobs are demanding higher wages. The result is businesses struggling to keep up with demand and charging higher prices to compensate.

It’s impossible to pinpoint a single cause of inflation because the economy experienced so many ups and downs during the pandemic and the Russia-Ukraine war that followed. Developing a plan for protecting your assets against the unforeseen is recommended moving forward.

5 Reasons Real Estate Is a Good Investment during Inflation

Real estate investment remains a solid bet during inflation for various reasons. Home prices are higher, but you’re still likely to see a positive return on your purchase over its duration. Benefits of real estate investment in 2022 include the following:

1. Home Prices Outpace Inflation

There could be situations where inflation outpaces your home’s value over the short term, but this usually doesn’t last. Home prices typically keep up with inflation over long periods, protecting your investment. Colin Lizieri, an economist and professor of real estate finance at the University of Cambridge, reports that real estate often outpaces inflation by 2–3 percent in the long run.

2. Limited Supply Increases Values

There’s a shortage of available homes in the United States, with one estimate suggesting the country needs to build at least three million additional houses to meet current demand. This demand is driving increased valuations and higher occupancy rates.

3. Rent Prices Are Up

The 8.52% inflation rate seems high, but rental prices are up 10-14% over 2021. The limited supply of homes makes it hard for renters to find places to live, driving up revenue for landlords. This trend makes buying a rental property a solid plan because the demand should be present for a while.

4. Dynamic Cash Flows

Real estate is different from other investments because your cash flows are dynamic. Bonds allow you to generate fixed cash flows, but your real estate income stream will likely increase over time as rents increase. You’ll eventually pay your mortgage off, as well, creating significant monthly income.

5. Increasing Prices Build More Equity

Your increasing home price helps you build more equity. You can then take a low-interest loan against the property if you need it while retaining ownership of your rental property. Your renters are putting money into the home while it builds equity, so your investment is minimal after the initial purchase.

The only downside of real estate investment during inflation is the increased cost, but you’re still very likely to earn a significant return. Buying sooner rather than later allows you to begin banking equity and improves your cash flows over time.

Buying Property in the D.C. Area

Buying a rental property can create extra work in your life because you’ll have to maintain the place, collect rent, and negotiate lease agreements. You could also find yourself dealing with problem tenants from time to time. Hiring a property manager to assist with your investment is one way around these issues, as it puts your rental on autopilot while it builds value.

Nomadic Real Estate offers property management services in the Metro D.C. area. Our team will maintain relationships with your tenants, screen applicants, handle maintenance requests, and ensure you comply with local laws. Contact Nomadic Real Estate for more information about your Greater D.C. property management needs.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

You'll also find a month-over-month operating statement:

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Responses will show up in the conversation ticket:

  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Each conversation will be logged in its entirety:

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

View a snapshot of income and expenses on your dashboard:

See every transaction in real-time on your ledger:

Statements and forms will be posted to your documents library:

View a suite of real-time financial reports:

See a running list of all bills, and drill down for more detail:

Under Bill Details, you'll find dates/descriptions/amounts and more:

You can also communicate with your Account Manager through the portal:

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.