Inflation creates price increases for products and services.
As prices rise, purchasing power decreases which results in cut backs on money expenditures for goods and services. Inflation devalues the money supply. Your money does not go as far as before inflation.
Let’s define clearly what the definition of inflation means so that we all have a better understanding of the terminology.
The definition of inflation is:
The prices of goods and services are increasing. Currency is devalued, so need more money to make the same purchases.” Not a good situation to be in.
Inflation is the driving factor for interest rates to rise
In inflationary times people who own their own homes or have a mortgage on their property, as well as rental properties that are financed with a fixed rate and term mortgage fare well. Inflation is a driving force of price increases on everything across the board. Real estate during inflation will increase in value. Understandably and unfortunately mortgage lending rates will rise as well which leads to higher mortgage payments to buy a rental or purchase a home.
Marry the house. Not the rate.
If you are in a stable financial position to purchase a house for a rental or your home to live in during inflation, do so. Marry the house and not the interest rates. If you have a strict budget for a payment range, just buy less house. At least you have a rental asset that produces income or you get your own home to build equity in.
Interest rates will decrease at some point in time in the future. When the mortgage rates drop, refinance your property to take advantage of the lower interest rates. Regardless, the rent will continue to increase for renters. Which side of the fence do you want to be on?
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Let’s talk. Reach out to us and let’s see how we can tailor a solution to fit your needs.