You might have noticed that your cost of living has risen exponentially once the Covid-19 pandemic receded. It’s not in your imagination. A perfect storm has hit the US economy as post-pandemic spending increased when the global supply chain could not keep up with consumer demand. As demand for goods outstrips supply, the cost of goods continues to rise, driving up inflation rates across every commodity and asset class.
What does this have to do with real estate investing, you might ask? The answer is everything.
Listen to this week’s episode of the Forever Cash Podcast to understand how high inflation and interest rates are affecting the housing market and discover the one niche in real estate investing that is immune to these hostile market conditions.
If you want to find out more, you can listen on your favorite podcast platform and discover how to not only survive but thrive in real estate in a high inflation market.
What is the effect of high inflation on the real estate market?
According to the most recent Consumer Price Index Report, prices rose by 8.5% in March 2022 compared to the prior year. This means that while your paycheck may remain the same, your buying power is a lot weaker than it was a year ago.
If you are an active real estate investor in the residential market, the cost of materials and labor needed to refurbish a house you plan to flip will cost 8.5% more than it did a year ago – and continues to rise. Your profit margins will be seriously affected on every house you flip in the months and, potentially, years ahead.
House prices are also being affected by inflation, driving prices up all over the country. However, as people’s cost of living increases, so does their reliance on debt. So, while it may look like a seller’s market right now, buyers are less likely to be approved for mortgages, and more house deals are likely to fall through.
What is the relationship between high inflation and interest rates
When the FED sees that inflation is getting out of control, one of the only strategies they have to control the market is to raise interest rates. This means that the price of debt increases, household budgets are squeezed tighter, and fewer people will are approved for mortgages.
High interest rates always have a direct and adverse effect on residential real estate. As debt gets more expensive and the cost of living increases, more people are at risk of foreclosing on their properties. Unfortunately, fewer people will be able to buy those houses as they struggle to access and fund expensive loans.
If you are a house flipper, you might already be experiencing the pinch of higher costs, lower profit margins, and increased competition. If this is the case, we would love to hear about your experience.
Fortunately, there is a niche asset in real estate that is not affected by rising inflation and interest rates in the same way.
Why land investing is not affected by a high inflation market
Unlike in traditional real estate, land deals are not financed through conventional mortgage loans. As a result, the cost of debt does not have the same effect on land deals as it does on the housing market.
When you use the Land Profit Generator double-close method, you don’t even have to raise capital to close the deal, as you will use the buyer’s money to pay the seller and keep the profit in the middle.
According to Jack Bosch, co-creator of the LPG method, the real estate market crash of 2008 hardly affected the land flipping market, as people continued to buy and sell land using seller finance throughout the market crash and subsequent recession.
If you want to find out how to pivot to the fastest, cheapest, and simplest real estate investing strategy in a high inflation market, join us on May 16 for the Land Profit Masterclass. You will have the opportunity to learn everything you need to build and scale a 6 or 7-figure land investing business independent of fluctuating market conditions.
For more tips and valuable information on land investing, follow Land Profit Generator on our social media channels.