Is Real Estate a Good Investment? Real estate has proven over time to be a great 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.
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 fears. These concerns are understandable given the Federal Reserve’s determination to string interest rate hikes to higher and higher levels. As a result, some investors may be looking for ways to protect their portfolios from the hurricane of 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 value of their own. People value them for their direct or indirect usefulness. Examples include books, TVs, cars, wheat, gold, real estate, land, etc.
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, real 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.
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 buy and sell properties throughout the greater Kansas City area. We specialize in buying distressed homes, then renovating and reselling them to home buyers and landlords. Terra Firma Property Solutions: excited to be part of the economic rejuvenation of Kansas City and its surrounding areas.
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