If you weren’t a price-checker before, you might be now. In the past year, we have all become keenly aware of the rising prices all around us. Prices at the pump and the grocery store can be frustrating to say the least. With no end to inflation in sight, you may be growing concerned about your diminishing buying power.

As inflation rises, it’s wise to reevaluate our portfolios and plans to determine whether they properly account for rising prices. With the consumer price index up 8.3% (April 2021-April 2022), it is more important than ever to make sure inflation doesn’t delay or derail retirement. It’s not enough to just save or invest; you need to put your money into assets that keep up with rising costs and grow to help take care of you and your loved ones in the future.

Holding real estate provides the opportunity for increased buying power even when prices are rising. Let’s look more closely at how owning investment properties can take some of the bite out of inflation.

Increased Rents = Increased Income

As interest rates rise in response to the Fed’s efforts to control inflation, some buyers will be priced out of the market or will choose to hold off on buying as they wait for rates to stabilize or drop. That puts upward pressure on the rental market, which can drive up rents. Likewise, because wages typically increase in times of inflation, prospective tenants can afford higher rents.

Thus, real estate investors can expect to see increased rental income that can offset or even outpace the rising prices of consumer goods. If your bills are going up, it is a great time to see your income increase as well.

If your investment accounts are up 6%, that’s not a bad year. But, if inflation is up 8% or more, you’ve actually lost buying power even if your balance has grown. Having a property with increasing rent can help make up the difference.

An Appreciation for Appreciation

Housing prices also tend to rise with inflation, meaning owners see a higher rate of appreciation resulting in increased equity. For those making real estate purchases, inflation is a negative, as it will cost them more to enter the market. But if you own property already, it can be a fantastic thing as your real estate can increase drastically in value.

Fixed-Rate Borrowing

When inflation hits, prices rise at grocery stores, gas stations, restaurants, hardware stores, and just about everywhere else you spend money. Meanwhile, your payment on a fixed-rate loan stays the same. Your house may be worth tens of thousands more than you paid for it, but the amount you send to the bank stays the same. And you are making those payments with money that is effectively worth less in terms of buying power, thanks to inflation.

That forlorn expression on Alexander Hamilton’s face when you look at a ten dollar bill? That’s because he knows he’s losing value.

In 2002, the average price for a gallon of gas was $1.36. In Spring of 2022, many people paid more than five dollars per gallon, meaning the same ten dollar bill bought 3.6 times more gas two decades ago. If you had stored that ten dollars in your wallet or a savings account earning meager interest, you’d have actually lost buying power because you can buy less gas or groceries with it now than you could 20 years ago.

But, that ten dollars buys the same amount of a fixed-rate mortgage payment. To look at it another way, you paid the equivalent of 7.35 gallons of gas for that portion of a mortgage payment in 2002, and only two gallons of gas in 2022. Or perhaps you’d have needed to work 15 minutes to net that ten dollars in 2002, and now it only costs you five minutes of your time. In that sense, your mortgage costs you less over time.

Buying real estate with fixed-rate loans allows you to lock in today’s prices for tomorrow’s payments, making it one of the best inflation-hedging investments available.

What All This Means for Your Retirement Planning

Inflation tends to cause real estate values and rents to increase in proportion to – or sometimes even more than – overall prices. While inflation can ravage savings accounts and some other investments, it boosts the real estate market.

Inflation makes owning and renting out single-family homes an essential part of any savvy investor’s portfolio. With properties chosen thoughtfully and with long-term prospects in mind, single-family residences held as investments can protect a retirement plan against the depredations of inflation. In an inflationary environment, you will certainly appreciate what real estate appreciation can do for your bottom line.

It can be scary when the products and services you rely on cost more. Investing in and holding on to real estate can make that inflation work for you, increasing your income and net worth even as you spend more on dish soap and upgrading your television.