Inflation is a four-letter word for most people. In fact, it’s become such a drain on the economy that the Federal Reserve has been raising interest rates all year to stop it.
Regardless of the economy, or outside pressures, a good investor is always on the lookout for opportunities and, believe it or not, inflation is good news for investors in these sectors.
Single-Family Home Rentals
The average purchase price of a single-family home in America was nearly $400,000 earlier this year. If you’re in one of America’s more popular cities like New York or Los Angeles, you’ll be looking at an average price of over $1 million. That’s part of the story, but the kick-on effect of those high prices in LA and NYC is that residents are leaving those cities and moving to the Sunbelt, which is now driving prices up there.
Even markets like Dallas and Houston, which used to be seen as affordable have average home prices in the $400,000 range. Add that to high interest rates, and you have a recipe for a dramatic slowdown in home sales, which is beginning to happen. However, all that does is drive renters into single-family homes while they wait out the market.
Single-family home rentals are booming, in both major metropolitan areas on the coasts and in the Sunbelt. In fact, single-family home rentals are so strong that there are now institutional investors and funds that exist to buy and rent them for the income. Many of these funds used to focus on apartments, but the single-family home rental market is so strong they can’t ignore it.
Inflation can manifest itself in a number of ways. At the back end of the COVID crisis, the global supply crunch hit a lot of industries, including wine. Supply chain problems in the glass industry and a lower-than-expected supply of wine grapes globally are just a few of the factors putting upward pressure on wine prices.
Some of the world’s most famous wine regions, including Bordeaux, Napa Valley, Tuscany and Rioja (Spain), are all fighting for the same limited number of bottles and shipping routes. By some estimates, they will all have to increase prices by 20% to 25% this year. Other popular wines such as Champagne and Cava will also be getting more expensive.
The high prices are being seen across the spectrum, with even domestic bottles in the United States expected to be more expensive because of higher transportation costs. But the upside to those higher prices is higher profits for wine makers (and investors) on the bottles that do get sold.
Inflation also drives up the value of rare or vintage wine bottles from good years. Any wine connoisseur who bought highly sought after bottles years ago, (or today) will see the value of those bottles increase during inflationary periods.
Wine is kind of like oil, where the price hike from supply crunches or inflation is passed on to the consumer and the product sells no matter what. The global wine demand is so high that almost every drop that gets bottled will be purchased, much like almost every drop of oil that gets barrelled will be bought. If you’ve got money invested in wine, high prices are higher profits on the product you do sell.
Works Of Art
For many centuries, wealthy people have collected art as much for its beauty as its long-term investment value. The thing that makes original works of art unique in relation to other consumer products is that artworks are, by definition, one-offs. A great artist can do many works in their lifetime, but no two of them will be exactly the same. This creates a built-in market for original artwork that never goes away.
In fact, the value of original works of art by sought after artists only appreciates over time. Artists go through different phases, or work with different mediums for most of their lives. Each one of those phases and/or mediums is a new opportunity for art enthusiasts to add to their collections. When the artist dies, the value of their art skyrockets because there won’t be any more. That makes all their existing works almost priceless.
Inflation makes everything more expensive, but the wealthy have long used art purchases as a hedge against it. They buy art in today’s dollars, allow it to appreciate and then sell it at a profit to another collector at some point down the road. Because it’s art, and original works are so rare, they have a guaranteed customer base (like-minded art collectors) who will literally line up and bid for in-demand art.
How Can You Profit From This
If you’re reading this piece and thinking, “Great, renting single-family homes, wine and art are making money ... so how do I get some,” you’re in luck. There happens to be a variety of online investing platforms you can access to invest in your choice of these three alternative assets. Better still, a lot of these platforms are open to nonaccredited investors.
To learn more, check out: How to Profit From Rising Inflation With Alternative Investments
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