Given the uncertain economic environment, characterized by rising living costs, high inflation rates, and political instability expected to persist in 2023, many investors are questioning the opportune moment to invest. To navigate these challenges and still achieve increased earnings, we present three strategies to continue or initiate investments during this period of high inflation.
Strategy One – Opt for Cash Investments to Combat High Inflation
During periods of surging inflation, cash investments serve as a viable strategy for bolstering your investment portfolio. Given the current exorbitantly high mortgage interest rates, averaging around 6% in the UK, cash investments provide respite by circumventing this financial burden. By engaging in cash investing amidst inflation, your money can actively generate returns as the value of your property appreciates.
In practical terms, cash investments often keep pace with inflation when short-term interest rates are on the rise. While you could choose to let your money languish in a bank account, steadily eroding your purchasing power, an alternative is to invest in a completed buy-to-let property using a mortgage. However, it is important to note that both options may yield lower-than-expected profits. Therefore, the optimal choice would be to allocate the funds towards a high-yielding asset that can enhance your portfolio and rental income.
Strategy Two – Off-Plan Investments: A Savvy Move During High Inflation
Off-plan properties offer a smart investment option during periods of heightened inflation, allowing investors to make their money work more intelligently without being constrained by rising interest rates.
Off-plan investments involve purchasing a property during the construction phase at a discounted price compared to its anticipated value upon completion. This strategy allows investors to capitalize on an appreciating asset, enabling their money to grow while interest rates decline, particularly in times of high inflation.
Why opt for off-plan investments?
One compelling reason to choose off-plan investments during high inflation is the potential for capital growth as the property increases in value throughout the construction period. In sought-after and up-and-coming areas, the value of the investment can experience significant growth even before the property is finished.
Some investors take advantage of this by immediately putting the property up for sale, aiming to generate a profit. Alternatively, a more long-term approach involves renting out the property, benefiting from both regular rental income and the potential for increased value. By strategically selecting the right investment strategies during high inflation periods, investors can experience substantial capital appreciation.
Is off-plan purchase suitable?
Amidst changing interest rates and rising inflation, an increasing number of landlords seeking ongoing investment opportunities are recognizing the potential offered by switching to off-plan properties. Investing in completed buy-to-let properties with interest rates of around 6% often leads to rental income barely covering costs, resulting in minimal to no profit. By contrast, off-plan investments provide an alternative avenue for investors to navigate these challenges and unlock greater potential returns.
Strategy Three – Staycation Investments: Capitalizing on Rising Demand
The third strategy involves investing in staycation properties, combining the benefits of strategies one and two. Investing in staycation properties during times of high inflation aligns with the escalating cost of living and taps into the growing demand for domestic getaways.
Amid the ongoing COVID situation, individuals who previously opted for vacations abroad are anticipated to shift towards staycations due to the impact of rising inflation and living expenses on their budgets. Consequently, staycation rentals are expected to experience strong demand throughout 2023. Acquiring a short-term rental property now presents an excellent opportunity to capitalize on the increasing demand and secure higher rental income.
According to a survey conducted by Go Outdoors, 48% of British respondents expressed a greater inclination towards domestic travel rather than international trips in 2023. Among these respondents, 56% cited a “reduced budget due to the cost of living problem” as the driving factor. Moreover, the ongoing conflict in Ukraine has disrupted jet fuel supply chains, leading to increased demand and prices for overseas travel. With fewer Britons able to travel abroad, the demand for short-term rentals within the UK is expected to rise significantly for the foreseeable future.
