Why Property Is A Good Investment When Inflation Is High | Impression Real Estate
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Why Property Is A Good Investment When Inflation Is High

Posted by Impression on 27, Feb 2022

Annual inflation was at 5.9% in the December quarter, the highest it’s been in over 30 years.

Food prices are rising quickly, fuel is as high as $3+ per litre, the minimum wage is about to rise and some economists are forecasting “a nasty cycle of higher wages and higher costs”.

What can you do when the cost of living is rising so quickly? You can invest in assets that protect your money from inflation; you can try to increase your income; and you can try to cut your costs, says Michael Cave, director of Cave Financial.

Rental property has traditionally been an excellent way to help protect yourself from inflation, for three reasons. The first is that rents increase alongside inflation, so your income from rent keeps up with higher cost of living. The second is that inflation exerts upward pressure on home prices. And the third is that inflation makes debt ‘shrink’ because mortgage payments stay the same while everything else goes up in price and value. (You can read more about this and other ways to invest to insulate for inflation here.)

“Not only does inflation eat away at debt, but you’ve got to ask yourself where you’d put the money from a rental if you sold it,” says Cave. “Put it in the bank? Invest it somewhere else? You need to get a return that beats inflation or you’re going backwards. And that’s not easy to do.

“Of course your property has to fit into your goals, but you’ve got to ask yourself, ‘If I sell this property now, will I kick myself in a few years when the borders are open again?’ Always look at the bigger picture.”

You should also look for ways to increase your income, like asking for a pay rise, and review all your subscriptions and outgoings to help cut costs. Michael has been helping clients cut their living expenses and says it doesn’t need to be painful.

If you’d like some help with your financial situation, remember that all Impression management clients have a complimentary one-hour consultation with Cave Financial every year as part of our value-added management fees. Please get in touch if you’d like to book yours in.

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