How to Invest in Real Estate During Mega Inflation
It’s hardly a secret that inflation is wreaking havoc on consumers all over the country. The cost of everything from gas to groceries to utilities is higher than its been in years, and Americans on a budget are feeling increasingly squeezed by the day.
But it’s not just consumer goods that are costing more. The real estate market has also fallen victim to inflation.
Since late 2020, home prices have been soaring, due largely to a big imbalance between the supply of available homes and buyer demand. What’s interesting is that record-low mortgage rates were the catalyst for an uptick in buyer demand from mid-2020 through the start of 2022. But since January, mortgage rates have been rising sharply, and at this point, it’s become relatively unaffordable to borrow.
But buyers don’t seem to be backing away in spite of higher mortgage rates. And since housing inventory is still very low, home prices are likely to remain elevated for quite some time.
That could be a problem if you’re someone who was hoping to start investing in real estate this year. But actually, you’re not out of luck. That’s because there are options you can look at outside the housing market.
A more affordable way to get into real estate
Some people invest in real estate by purchasing homes and flipping them or renting them out, either on a long-term or short-term basis. But there’s another option you can look at in the context of real estate investing: buying REITs.
REITs, or real estate investment trusts, are companies that make money by owning and operating different types of properties. While some REITs trade privately, many are public, so you can buy them, sell them, and track their share prices the same way you can keep tabs on any given stock.
The upside of owning REITs is that you won’t get stuck paying the same premium you would if you were to go out and buy a home in today’s market. In fact, due to general stock market turbulence, a number of REIT shares are down right now, so you may have an opportunity to score some bargains.
Furthermore, REITs offer investors two chances to make money. First, the value of your REIT shares could grow over time — though it’s best to plan to hold on to your shares for a decade or longer to really benefit from that growth.
Secondly, REITs are required to pay 90% of their income to shareholders as dividends. As such, you may find that if you buy REITs, they pay higher dividends than most of the stocks you own (though that’s not always the case).
In today’s economy, consumers may have no choice but to overpay for essentials like food and gas. But that doesn’t mean you have to overspend on real estate. If you load up on REITs instead of physical properties, you can build yourself a nice portfolio without having to bemoan the fact that you’re clearly paying a premium for an investment.