As I am writing this short article, inflation is currently at 8.5% which is the highest it’s been in nearly 4 decades.
In this article, we will be discussing how investors can navigate inflation, and insulate themselves, especially in uncertain times.
We will be covering 3 main topics:
- What inflation means and how it affects the world
- How to hedge against inflation with commercial real estate
- The path ahead
What inflation means and how it affects the world:
Inflation refers to the increase in price of goods and services. It is generally measured by the CPI (Consumer Price Index) which analyzes the increase in prices in various subjects like ‘Food’, and ‘Energy’.
Inflation is caused by several factors like; 1) an increase in the circulation of money 2) an increase in cost of production (materials and labor), and many other factors like an increase in demand.
An increase in inflation, ultimately means a loss of buying power.
How to hedge against inflation with commercial real estate:
The only answer to hedge against inflation is yield. Commercial Real Estate is proven to be one of the greatest hedges against inflation as it holds intrinsic value and provides dividends from rental income. Since inflation pushes prices up, asset prices tend to follow, and so do rents.
The path ahead
With rising inflation and compressed cap rates, it is important to look for yield but also not fall into the trap of over paying for an asset. We are seeing this happen now, and it is not going to end well for those who do.
We continue to follow the fundamentals and seek growth opportunities, all while controlling the risk.
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