Real Estate Appreciation vs Inflation in Canada
Why invest in Real Estate? Despite the economic ups and downs that we have experienced in recent times with stock markets, secure investments such as in the real estate market continue to offer you the greatest and most consistent opportunities to build wealth and financial security for your future. In the most basic manner the most advantageous benefit of investment in real estate is that by doing so, this provides a hedge against inflation.
Generally speaking inflation is the upward movement in the average level of prices due the simple economics of supply and demand.
Appreciation differs from inflation where appreciation is the growth in value.
There is one link between Inflation and Appreciation which is as follows. As time increases, a dollar today looses purchasing power 4 to 5 years down the road due to inflation. In fact, according to historical inflation data and trends, the average rate of inflation since 1913 has been about 3.5% per year. This means that investments that yield you a 1%-3% return earns you no purchasing power in the future. You are actually losing wealth because inflation is higher than your returns.
On the other hand, real estate has shown to appreciate yielding rates of return that are higher than the rate of inflation. Historical trends show that real estate appreciates at a rate of about 5%-6 % a year, which is 1% to 1.5 % higher than the inflation rate. Investing in real estate actually leads to appreciation and growth of your money. For example, if you put a $40,000 down payment on a $200,000 income property, it goes up 5% in value in one year. You have a gain of $10,000 and a before tax profit of 25% on your initial investment amount of $40,000. You are out beating inflation by making money and increasing your purchasing power.
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The above information is provided as a guideline and is not intended to give a professional legal advice. Please consult a real estate lawyer for their opinion on your particular case
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