Your money’s value is decreasing. With inflation rising 7% over the last year, the most severe rise since 1982, you might be thinking … “is my money safe in the bank?”. Experts agree… the answer is: NO. The truth of the matter is that if you’re not getting at least an 8% return on your money, you’re losing buying power. It’s a scary idea that prompts crafty investors to take steps to protect their assets in order to weather the storm. But where can they put their money and have a return, when inflation is at a 40-year high? It becomes a question of which assets are stable and reliable. There are certainly several investment options available. There’s commodities, stocks, IPOs, and other favorites among traditional investors. Cryptocurrencies like Bitcoin are the trendy new kid on the block. But these are all highly volatile investments.
Volatility refers to having periods of unpredictable, sharp price movements. Proponents of cryptocurrencies and volatile assets will point to recent dramatic stock price increases as a sign of the investment’s power, but often ignore the dip that preceded it, or after. What’s more, volatile assets are inherently more risky thanks to shifting attitudes and market prices. They are not a stable investment when it comes to consistent returns, which isn’t optimal during a time of inflation. Consistency and predictability are very important when building an insulated portfolio against inflationary periods.
So now, we have to ask, what is a stable asset class that is predictable and able to grow over time, despite inflation levels?
Commercial real estate is more stable than cryptocurrency, gold, and stock and more advantageous in the long haul. And, historically, commercial real estate has been the leading hedge against inflation.
Here’s why. Because alternatives like gold or cryptocurrency don’t generate ANY cash flow for you.
But what’s even more important to understand is CRE’s potential for long-term value creation.
You see, with commercial real estate, you not only have an investment that keeps up with inflation, but through value-add initiatives, you can actually dramatically increase the equity in a property. Here is an example of how this works: Property A currently has 100 units that rent for $1,100 each. All operating costs aside, this property is generating $110,000 a month from rents collected.
Now we will add value to the property by adding new flooring and appliances to those units, as well as a new tennis court for the community to enjoy.
When reassessed, the market value of those units rises to approximately $1,300 each. The property is now generating $130,000 per month from rents collected. That is an additional $20,000 per month or $240,000 over the course of a year. This was also completely passive, investors didn’t need to facilitate or pay-out-of pocket for any of the value-add efforts. And of course, this was all during an inflationary period. From day one, there was steady cash flow.
An asset's market value is driven by its risk/return profile. Accordingly, value-add investors attempt to achieve capital value appreciation through income maximization or risk reduction.
Let’s back-track though. What about the stability factor for commercial real estate specifically?
Well, we can’t really predict what will occur with cryptocurrency in the coming years. However, daily-use, necessity-based commercial real estate is a totally different matter. These are far more predictable given core factors like population, location, and the simple fact that people need to live whether there’s inflation or not.
I’m sure you can picture a community-centric multi-family apartment complex. You might have one in your own community, where major grocery stores, shared with restaurants, clothing stores, and other daily-use tenants. If you think about it… these are the hearts of the community.
So what if you could own that multi-family complex? Is that not an asset that will continue to be valuable and impact the area far into the future?
But here’s the best part: you don’t have to go it alone. You don’t need to hunt for deals yourself and then take on the role of building manager to ensure your investment is managed well.
Ready to combat inflation? At Wealthley Investment Group we are highly experienced real estate investors that can educate you on the entire process and make sure you are acquiring high quality assets with all of the due diligence done for you. Our goals are to make real estate investing easy for the average investor through our various investment programs that can be tailored to your needs. We realize the world of real estate can be complex and intimidating. Our proven processes and systems take away those barriers, so our investors become successful real estate investors.
We do extensive research to find the best emerging market in specific states, build a team of professional brokers and lenders, and then find value-add properties. Our expertise is exclusively focused on investing in cash flowing properties nationwide. The properties are projected to generate both income and equity growth, ultimately experiencing significant capital gain when sold.