Should I wait for Inflation to end before purchasing properties?

[Cheza M.]

Hey BP Community,

I'm a new investor and currently have one property out of state that I bought last year. I was thinking of buying 1-2 more properties this year, but because of inflation the interest rates and cost of rehab supplies are currently so high. So I was wondering if I should just wait until inflation ends and just save up my money until then? Is inflation bad for real estate investors who plan to acquire more properties?

I wonder what are the other investors doing right now during inflation?

[Sasha Fukuda]

The question is odd. I'd say that real estate investors are some of the only people for whom inflation is actually a positive thing. Lets say i buy a $200k house and put down $50k as a down payment. Inflation is high and everything costs 10% more a year later. So, now the house is worth $220k, which is 10% more than the sale price, but i've actually gained a 40% return in equity on my downpayment ($20k is a 40% return on $50k). In addition, if everything goes up by 10%, then i'll be able to raise rent by 10%, and all my expenses will rise by 10% except my fixed rate 30 year mortgage which will remain the same. So, in practical terms, my mortgage just became cheaper. 

Of course in real life, things aren't this simple and straightforward. For the sake of simplicity, i've left out things like closing costs, money you have to spend right away on fixing up the place, etc. Also, not everything goes up by the same price, and for me raising rents isn't purely a business decision. Tenants can't always afford to keep pace with rapid inflation. And of course, there are some negative effects like the government raising interest rates to try to tame inflation. That doesn't effect the houses i already own, but it effects buying future houses. 

But there's also the question of, if you don't buy houses, what are you going to do with your money. Inflation's eating it if you don't do anything, bonds still don't pay much, and the stock market might be in a period where it doesn't go anywhere.