“We’re seeing enough inflation,” Warren Buffett announced at his company’s recent annual shareholders ’meeting. “We are raising prices. People are raising the price to us, and it is being accepted. ”
Buffett didn’t seem too concerned because his companies could put higher prices on consumers. The stock market also takes news with grains of salt.
Inflation – or Fear of Inflation – Why Doesn’t It Have a Natural Impact on the Market? Typically, news of inflation frightens the market, stopping sales as investors anticipate a business downturn, ultimately relying on the bottom line of their portfolio companies and the stock prices associated with them.
However, this has not happened so far. Why? Due to the stimulus.
Stimulus-fuel demand is strengthening both the economy and the stock market at the moment, but many economists do not expect it to last. Many do not expect another stimulus check, and all the new money that was introduced into the economy last year will eventually emerge in the form of inflation, which will reduce consumer demand and correct the stock market.
In any other year or period, the Fed will usually take action and raise interest rates to cool the economy and escape high prices. However, with the announcement of its new face-to-face policy last year to keep interest rates low এমনকি even in the face of inflation-it is too early to know whether the Fed will do anything about rising inflation in the current environment. The concern is that if and when the Fed decides to bring down inflation, it will be too late.
Inflation or not, sophisticated investors never wait for shoes to fall off. They are ready for inflation in 2021 because they are always ready for inflation.
More about inflation from BiggerPockets
Invest for demand
Some products and services are demand-stable (meaning price increases will not affect demand) because they are essential. People will always need shelter, food, transportation, fuel, medical services, etc. Rising prices will not reduce the demand for these products and services.
Warren Buffett is not worried about inflation right now because consumer demand is skyrocketing. Yet, when the stimulus runs out of money and reality hits, consumers will reduce the cost of unnecessary products.
The Great Recession and the Covid-1 downturn of 2020 have proven that specific segments, such as affordable multifamilies and mobile home parks (MHPs), are real estate recession-resistant. In the already short supply, demand for multifamilies and MHPs will only increase in an inflationary environment where consumers look to decline.
Investing in property with a step-by-step increase in inflation without reducing demand is the ideal counter to a price increase.
Long-term income on short-term rehabilitation
Investing for long-term income rather than thinking short-term with a fix-and-flip will ensure consistent, reliable income from the underlying value of the property. Although the housing market is currently facing unprecedented demand, it could be cold as well as inflation – with a slowing economy and the stock market.
Since single-family housing is the real estate sector that is most closely related to the larger market, wise investors tend to turn to less-related commercial features such as multifamily, MHP or senior housing to offset a potential recession.
Existing resources on new construction
Investing in existing assets now will protect you from rising prices that will affect new construction. Faced with already rising wood and material costs, new construction will only become more expensive with accelerated inflation. So why not lock the price with existing assets now instead of rolling the dice to raise prices with new builds?
The main submarket above the top MSA
As the Great Recession and the Covid-1 pandemic epidemic have appeared, not all markets are equally affected by the recession. Primary gateway markets typically bear the brunt of the economic downturn as residents flee the expensive, high-tax urban metropolitan statistics area (MSA) for secondary and tertiary MSAs, including lower taxes and living costs.
See the departure of workers from California and New York last year for proof. Follow the migration, and you can’t go wrong.
Inflation is already here. While the rest of the investors are shrugging the shoulders of the public, wise investors should not wait to evaluate and rearrange their portfolios to plan for inflation in 2021 and beyond.