Can You Call Real Estate a Good Investment?
Can you call real estate a good investment? Real estate in Cedar Rapids and most of the country, has proven over time to be an excellent inflation hedge. Investopedia says, “An inflation hedge is an investment that is considered to provide protection against the decreased purchasing power of a currency that results from the loss of its value due to rising prices (inflation). It typically involves investing in an asset that is expected to maintain or increase its value over a specified period of time.
One real estate investor said, “Real estate is a bankable asset, so you can always leverage it. It also doesn’t tie up a lot of cash. You can put down as little as 10% and use banks’ money to grow your investment. With such low-interest rates, that’s like free money.
Can You Call Real Estate a Good Investment?
Many believe they need a hedge against inflation. TIAA-CREF points out reasons for these fears: “Rising food and energy prices, coupled with federal debt levels and low-interest rates, have recently fueled new inflationary or bubble concerns. These concerns are understandable given the Federal Reserve’s determination to get inflation to 2% a year. As a result, some investors may be looking for ways to protect their portfolios from the theft from inflation.
Is Real Estate a Hedge Against Inflation?
The Daily Reckoning writes: What makes a good inflation hedge? The answer to this question requires an understanding of the two basic types of assets: real assets and financial assets.
Real assets have intrinsic value. They have a value of their own. People value them for their direct or indirect usefulness. Examples include books, TVs, cars, wheat, gold, real estate, land, etc. It took work to make an asset as opposed to creating money out of thin air.
Financial assets, on the other hand, are a claim on the income or wealth of a firm, family, or the government. Their typical form is a certificate or a receipt. Examples include paper money, stocks, bonds, mortgages and exchange-traded funds. All money market and capital market instruments serve as examples. They can be like a leaf in the ripple of wind.
In general, real assets hedge better than paper assets. By definition, tangible assets have a value of their own. Inflation does not submarine their value. Thus, any real asset can be an inflation hedge. It follows that real estate is also a hedge, but it’s not the best.
Good Hedges Have a Few Key Properties.
- One key property of a hedge is that it holds its value. It should lose little value over time. Cars and eggs lose value over time. Land, silver, and wine do not.
- Another key property is marketability. This means that it is easy to sell. Other people will easily take it for payment. Hence, it is suitable for barter. Chairs and clothes do not sell. Corn and gold do. Real estate can fluctuate from a buyer’s market to a seller’s market.
- A third key property is divisibility. This means that the asset splits into smaller parts without a loss of value. Houses, cars, and cows are not divisible. Rice, wine, gas, and gold are. Land is divisible in most cases.
- The last key property is financing. It is vital. Experts prefer to ignore it entirely. Investors buy assets with either cash or credit. Cash-based hedges are good. Credit-based hedges are bad. History repeatedly shows that assets acquired on credit are prone to speculation and bubbles. The hedge might be already overvalued. In this case, investors should avoid it. Credit clearly drives real estate.
Bottom Line: Is Real Estate a Good Investment?
Real estate can be a great hedge against the thunder of inflation over time. However, in the short-term, real estate is subject to the laws of supply and demand and credit availability.
We will send you FREE information about How to Sell Your Fast.
Harmony Property Solutions, LLC, is here to help homeowners out of any distressed situation. As investors, we are in business to make a modest profit on any deal. However, we can help homeowners out of just about any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. We offer you the simple truth about your home and how we pay cash for houses Cedar Rapids.
Harmony Property Solutions, LLC, is part of a nationwide group of thousands of investors who are helping tens of thousands of homeowners every year. We may not be the “traditional” route, but we CAN help, and we can do it quickly!
Give us a call today at 319-343-6773 to let us know how we can help YOU.