The Number One Asset You Want to Hold During Inflationary Periods

Multi-family real estate investments are the best form of protection against inflation. Here’s why.

Historically, multi-family real estate has been a resilient asset class during inflationary periods. Despite low job growth and high unemployment during the highest inflationary period in recent American post-war history (1973 – 1983), apartment rents kept pace with inflation. Looking at data from the Bureau of Labor Statistics, FRED, and the American Housing Survey, while inflation averaged at 7.6%, rents increased at a robust 7.4% during the same period.

In today’s economy, inflation warnings are everywhere: increases in the money supply on the back of COVID-19 stimulus money printing, spikes in treasury yields, financial assets and consumer goods trading at record prices, and a budget deficit forecasted to reach its highest level since 1945. Traditional advice often recommends buying gold or other precious metals to hedge against inflation. While these assets may appreciate during periods of high inflation, they are also extremely volatile. Furthermore, these investments offer no yield and have limited tax advantages.

In contrast, multifamily real estate keeps pace with inflation during the highest inflationary periods, while producing stable income and tax benefits. Apartments are particularly resistant to inflationary headwinds and can thrive during inflationary periods for a number of reasons:

  1. Shelter is a basic necessity and consumers will look to cut other expenses before finding an apartment with lower rent.

  2. Short-term leases offer apartment owners more flexibility to raise rents along with the market. This is an advantage that other commercial real estate classes don’t have; their lease durations are typically longer, and rent escalators may be fixed at low rates.

  3. It is difficult to rapidly construct more apartment buildings. Many in-demand locations also have limited available land for construction

At Cross Mountain Capital, we are positioned to protect and grow the wealth of our investors during inflationary periods. We focus on markets that are experiencing strong population growth and high cash flow relative to invested capital.