Only 30% of US adults believe it is a worthwhile venture to purchase a home, the lowest since Gallup's annual Economy and Personal Finance poll began in 1978. While it might not be an ideal time, a home is still one of the most secure investments – especially during times of high inflation.
The Importance of Real Estate During Housing Inflation
Inflation is higher now than in the last 40 years, and experts suspect a recession is looming. And despite almost 70% of people predicting that average local housing prices will continue to increase, real estate remains the highest-rated long-term investment among Americans.
Real estate is one of the best investments someone can make because a home purchase locks in one’s monthly housing payments, protecting them from drastic increases – renters, however, don’t have that same protection.
Rents continue to spike at a double-digit pace, making these monthly payments much less of a secure investment than buying a home. Even with inflation, housing costs and shortages, many first-time homebuyers are keen to lock in sustainable monthly housing payments as a shield against inflation.
Additional Real Estate Homebuyer Benefits
A house is a valuable asset and will serve as a long-term investment. Not only does it gain value over time (even during inflation), but it also protects homeowners from increases in housing costs.
As prices rise because of inflation, so does the value of real estate. Moreover, as the value of a home goes up, equity and net worth also increase. And because there will always be a demand – no matter how small – for homes, real estate will continue to be a reliable protection against inflation.
Beyond establishing roots and providing a stable environment to raise a family, homes also come with various tax advantages, from mortgage interest deductions to capital gains. Likewise, owning real estate allows one to build credit, as monthly payments can boost credit scores and develop a good credit history.
What is a 1031 Exchange?
Although real estate is one of the best investments people can make, the current housing climate is not ideal. However, for those who do have property, one strategy people should consider leveraging is a 1031 exchange. This tool is a real estate purchase sanctioned under Section 1031 of the US Internal Revenue Code, allowing investors to swap an investment property for another.
Typically, a real estate transaction could require an investor to pay 40% of taxable gain. But, with a 1031 exchange, investors can upgrade properties or exchange one for a like-kind while deferring capital gains tax. Similarly, a 1031 exchange is a great way for investors to diversify their holdings and expand their portfolios.
Those looking to utilize a 1031 exchange must remember that these aren’t free, despite deferring taxes. There are closing costs and other fees involved, including time constraints, as the proceeds from the sale need to remain in escrow by a third party until the new property gets purchased.
Don’t Let Market Conditions Overwhelm You, Speak with an Expert
Amid the uncertainty of soaring inflation, it’s important to have secure investments. Connect with NMC Realty today if you are considering buying a new home, selling your current one or utilizing a 1031 exchange.