Inflation’s the word that sends folks running for cover—or into gold, crypto, or maybe the nearest Costco to stock up on paper towels. But what about real estate? When prices rise, interest rates climb, and cash loses buying power, what actually happens to your rental properties or multifamily investments?
Let’s peel back the curtain.
Spoiler alert: real estate doesn’t just survive inflation—it often thrives in it. If you’re playing the game right, inflation can actually work in your favor.
First Off—What’s Inflation Really Doing?
Inflation isn’t just some abstract economic buzzword. It’s when the purchasing power of your dollar drops over time. That $5 cup of coffee today? Next year it might be $5.50, and your paycheck won’t always grow at the same pace.
Now stretch that concept across housing, utilities, labor, materials—you get the idea.
Here’s where it gets interesting: while your dollar shrinks, hard assets like real estate tend to go up in value. Why? Because they’re tied to tangible, essential needs—like having a roof over your head.
How Inflation Impacts Real Estate Values
When inflation ticks upward, real estate prices usually follow. Not overnight. Not in a perfect straight line. But historically, inflation pushes property values up.
Why?
- Construction materials cost more
- Labor becomes more expensive
- Replacement cost of a property rises
- Demand for tangible assets increases
In other words, if it costs more to build it, the value of existing buildings naturally rises. If you’re already holding the asset, that’s good news.
Rental Income vs. Inflation: Who Wins?
Inflation doesn’t just affect property values—it also hits rent prices. And here’s the kicker: rents tend to rise with inflation, too. As living costs increase, so do monthly lease agreements.
This is where real estate really flexes.
Multifamily properties, in particular, benefit because:
- Leases reset every 12 months (or even sooner in hot markets)
- Owners can adjust rents to match rising expenses
- Demand for rentals often increases when homeownership becomes less affordable
So while inflation eats away at cash in a savings account, it actually helps push rents higher—padding your passive income in the process.
Visual: Rent Growth vs. Inflation Rate
| Year | Inflation Rate | Rent Growth |
|---|---|---|
| 2018 | 2.4% | 3.6% |
| 2019 | 1.8% | 3.2% |
| 2020 | 1.2% | 2.8% |
| 2021 | 5.4% | 6.7% |
| 2022 | 8.0% | 9.1% |
As you can see, rents don’t just keep up—they often outpace inflation.
Real Estate as an Inflation Hedge
Here’s where the real magic happens. Real estate isn’t just a passive income tool—it’s one of the best inflation hedges out there.
A few reasons why:
- Rents are adjustable – Unlike bonds or fixed-income investments, real estate cash flow grows over time.
- Debt gets cheaper – If you locked in a fixed-rate mortgage years ago, inflation actually erodes the real value of that debt.
- Values rise – The appreciation of real assets during inflation builds equity faster.
Think about this: you borrow $1 million at 3% interest. Ten years later, the property’s worth $1.5 million, and that $1 million loan? It feels a whole lot smaller in today’s dollars. That’s inflation working in your favor.
Fixed-Rate Debt Becomes Your Best Friend
If inflation picks up, and you’re sitting on a 30-year mortgage with a low, fixed interest rate? You’re in a great spot.
Here’s why:
- Your monthly payment stays flat
- The dollars you use to repay the loan lose value over time
- Meanwhile, the income from the property climbs
In essence, you’re paying back a fixed loan with inflated dollars. It’s like getting a discount every year you hold the debt.
This is why real estate investors don’t just tolerate inflation—they sometimes root for it.
Risks to Watch When Inflation Rises
It’s not all sunshine and cap rate compression, though. Inflation can bring a few bumps along the way.
Watch out for:
- Higher interest rates – The Fed often raises rates to fight inflation, which can increase borrowing costs.
- Operational costs – Property taxes, insurance, and maintenance may all rise.
- Cap rate shifts – If borrowing becomes more expensive, property prices may adjust.
The key here? Smart asset management. Keep your expenses tight, refinance when it makes sense, and stay ahead of market trends.
What Should Real Estate Investors Do During Inflation?
So what’s the play?
If inflation’s creeping up—or roaring like it has in recent years—here’s how you stay ahead:
- Lock in long-term, fixed-rate debt
- Invest in rental properties with lease flexibility
- Focus on growing markets with strong job and population growth
- Keep cash reserves healthy in case of sudden operating cost increases
- Consider value-add deals that let you force appreciation and raise rents
At Follow The Deal, this is exactly how we approach inflation—by leaning into income-producing multifamily properties with built-in buffers and upside potential.
We invest where rents are rising, demand is strong, and smart use of leverage gives our investors an edge—even when inflation’s running hot.
Why Real Estate Wins the Inflation Game
At the end of the day, real estate doesn’t just survive inflation—it often beats it.
Between rising rents, fixed debt, and increasing property values, it’s one of the few investment vehicles that can protect your purchasing power and grow your net worth at the same time.
And when the dollar doesn’t stretch quite like it used to? Owning real assets with real income becomes even more valuable.
