Would appreciate your confirmation of the following: As inflation increases, leveraged real estate values decline, however, cash flows from rental properties increase as inflation increases. What is the net impact then on real estate returns due to increased in inflation. Is it higher real estate return? Hence real estate is a good hedge against inflation? Thx
As inflation increases, because there is more money in the market the prices of real estate increases. Also if this is leveraged with a fixed rate - it’s beneficial to the borrower because now the real value of the money he has to repay is less. Also I think there is a direct relationship between rental income and inflation So overall real estate is a good inflation hedge I don’t understand why would leveraged real estate values decline.
The value would decline if you’re looking at it from the lender’s perspective as you have stated.
Thank you, both answers clarify my question. I also looked at the CFAI Volume 3 pg. 63, there is a very good table on impact of inflation on Cash, Bonds, Equities and Real Estate.
Nib I don’t understand your statement. value of what would decline for a lender?