Making cash investments is one approach to building your investment portfolio during times of rising inflation. Given that mortgage interest rates are currently absurdly high, averaging approximately 6%, investing in cash alleviates this burden as you build your portfolio in the present UK economy. Cash investing during inflation makes your money work for you as the value of your property rises.
In nominal terms, cash investments frequently keep up with inflation while short-term interest rates are rising. You may choose to keep the money in your bank account and watch as your purchasing power diminishes, or you could invest in a completed buy-to-let property with a mortgage, albeit both options will result in lower-than-anticipated profits. The best option would be to put the money in a high-yielding asset that will boost your portfolio and rental revenue.
Explore our high-yielding cash investment option
Strategy two - Off-Plan Investments
Off-plan properties are a great way to invest during high inflation periods. You can make your money work smarter for you and not be restricted by rising interest rates.
Investors purchase an off-plan property during the construction part of the building process. It’s usually purchased at a discounted price to the actual value of the completed state. By investing in an appreciating asset, your money will grow whilst interest rates decline - this is done through off-plan investing during high inflation periods.
Why purchase off-plan?
A key incentive for investing off-plan during high inflation is the potential for attaining capital growth as the property grows in value over the build period. During that period of construction, the value of the investment, particularly in sought-after and up-and-coming areas, can grow substantially, this can mean exceptional growth before the property even completes.
With this in mind, some investors choose to immediately put their property up for sale to make a profit. Click here to find out where the new thriving regeneration zones are in the UK.
While this short-term strategy is ideal for investors looking to see returns quickly, investors will see much more capital appreciation by tenanting the property over a long-time period. Investors will benefit from the regular rental income in addition to increased value, by specifically choosing the right investment strategies during high inflation periods.
Should you purchase off-plan?
Whilst the buy-to-let sector works to navigate its way around the latest interest changes and rising inflation, a growing number of landlords who want to continue to invest are recognising the opportunity to be had by switching to off-plan property. Investing in a completed buy-to-let with interest rates of around 6%, means that your rental income will barely cover costs which could result in little to no profit.
Strategy three - Staycation Investments
The third strategy is investing in staycation properties, this combines strategies one and two. Investing in staycation properties during high inflation coincides with the rising cost of living and plays into the rising demand.
In line with the times of COVID, frequent holidaymakers are forecast to shift to staycations rather than holidays overseas as a result of rising inflation and cost of living affecting budgets. As a result, staycation rentals are expected to be in high demand throughout 2023. Owning a short-term rental property now would be the best opportunity to take advantage of the increasing demand and higher rental revenue.
A survey carried out by Go Outdoors noted 48% of British respondents said they will be more likely to travel domestically than internationally in 2023, with 56% of them citing "reduced budget due to the cost of living problem." Additionally, due to the conflict in Ukraine, supply chains for jet fuel are now being affected, which raises demand and prices for travelling abroad. Since fewer Britons will now have the means to travel abroad, this will ultimately result in a rise in demand for short-term UK rentals for years to come.
For more information on investing in staycation properties, click here to download our free guide. The guide is a 10-minute read that could help you capitalise further on your investment decisions in 2023.
Is it risky to invest during periods of high inflation?
Although some novice investors may question if it ‘is risky to invest during a recession or high inflation period' but many will appreciate the stability the housing market has maintained through previous hardships, prior recessions, Brexit & Covid. Despite the recent economic downturn, the housing sector has performed well, and property values in the UK have increased rapidly due to the demand for property that far outweighs supply.
The UK's current housing shortage is dramatically driving demand in several areas, including Manchester, Birmingham, Liverpool, and London. This presents a fantastic opportunity for investors in the buy-to-let market. Even during times of high inflation, when households have less disposable cash, housing remains a necessity. Housing demand is not likely to decrease in the next 10 years - this was accelerated by the Covid-19 lockdown.
Every investment has some risk, and the level of that risk varies depending on the desired returns for the investor. Some investors may believe that excessive inflation adds risk when in reality, property is one of the best investments for investors to put their money into, particularly during an economic downturn. Long-term investing is about riding the wave of economic changes and ultimately coming out better off, even though parting with your money during challenging times can feel difficult- Long-term investments yield long-term results.
So, should you invest during high inflation periods? This response relies on your investment objectives; if you want to achieve long-term success, economic shifts shouldn't stop you from investing; instead, just modify your strategies to overcome the challenges. By choosing strategy one, two or three, you can combat the rising interest rates and inflation and make your money work smarter for you!
If you would like to discuss these strategies in more detail, please get in touch with one of our investment consultants who would be happy to have a no-obligation, informal chat that could help you make wise investment decisions in 2023.
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