05 Dec The Best Hedge Against Inflation
Thanksgiving is a time for family, gratitude, and reflection.
To start with, I feel incredibly grateful to have just returned from a week at the Equity Estates residence in Hilton Head Island. It was amazing to have my 79-year-old mother join my wife and children for this trip. She heavily influenced my love for the beach. Boogie boards and picnic baskets were daily summer activities growing up near the south shore of Long Island. Just hearing the ocean brings back great feelings for me.
Additionally, I feel also grateful for the many successes our business has experienced over the past 18 months, including:
- Fund IV selling out in record time
- Fund V launching and breaking escrow in record time
- Higher than expected results for Fund I’s initial liquidations (38% higher so far)
For better or worse, the global pandemic has put an economic and lifestyle spotlight on what we’ve been doing at Equity Estates for fifteen years. It’s both humbling and rewarding to see this type of investment resonating with so many people.
Recently, we’ve been asked questions about inflation. It’s a topic dominating conversation pretty much everywhere. Industry experts can’t seem to stop talking about it. Prospective investors want to understand the impact of inflation on our business model. In what ways does it influence our residence acquisition strategy? Do we foresee it affecting potential future returns?
Real Estate is a Good Hedge Against Inflation
The bottom line is that inflation is surprisingly good news for Equity Estates investors.
Let’s start with the reality of inflation. It’s here and it seems to be growing. Federal Reserve Chairman Jerome Powell acknowledged a few weeks ago that inflation pressures “are likely to last longer than previously expected,” noting that they could run “well into next year.”
See below for a few articles that I found in a quick search:
- Fortune – U.S. inflation is one of the highest in the world
- Reuters – As U.S. inflation hits 31-year high, banks assess risks and opportunities
- CNBC – Twitter and Square CEO Jack Dorsey says “hyperinflation” will happen soon
- Washington Post – How inflation may disrupt your next vacation
People are continuing to look for ways to diversify their holdings to ride out a possible downturn in the financial markets. Real estate has always been viewed as a good hedge against inflation. Luxury real estate, however, is proving to be a particularly attractive vehicle for those who can afford it. According to the Institute for Luxury Home Marketing, the median list price for a single-family luxury home was $1,812,500 in October 2021 – a 7.5% increase over the same time last year. Compare that figure to the 6.2% increase in U.S. consumer prices over the past year as recently reported by the U.S. Labor Department. This would suggest that luxury real estate appreciation is outpacing consumer price inflation.
We honestly believe both are being under reported based on anecdotal observations.
What will happen to Fund V? Well, we won’t know for sure for another 10+ years. It is very exciting, however, to see the impact inflation is having on appreciation – it is pushing double digits in desirable luxury markets. We believe this will continue for a while thanks to both continued inflation and sustained, high demand.
Even so, I sometimes scratch my head at the astronomical prices we see for some luxury residences. Our buying strategy has had to morph to meet the new market dynamics — we know how to win competitive bids for the right homes. By the way, if you are interested in learning about our three keys to successful acquisitions in any macroeconomic climate, including this one, feel free to read my blog from March 2021 on Finding Good Buys in a Seller’s Market.
Market timing is extremely difficult when it comes to real estate. We will never be able to predict exactly what may happen. Which is precisely why our private offering’s strategy is a long-term hold of carefully selected assets. Collective asset ownership (which is what our Luxury Residence Fund model is essentially) offers diversification, a hedge against inflation, and an outstanding way to enjoy a large and expanding portfolio of $2 to $5 million homes for a fraction of buying just one of them.
Fund V is the Best Selfish Hedge Against Inflation
Hopefully, you agree with my statements that (1) inflation is here, and (2) real estate is a good hedge against it. Now let’s go one step further. I’d argue that Equity Estates Fund V is the best “selfish” hedge against inflation. Selfish in that you’ll get a ton of personal enjoyment out of this investment. Fund V investors will experience 10+ years of amazing vacations. I’m proud to be an investor in multiple funds, including Fund V. It’s been the best investment of my life thanks to the dozens and dozens of memories I’ve created with my family and friends.
For me, Thanksgiving and the holidays are a time for family, gratitude, and reflection. Join us at Equity Estates, and we’ll promise you extra helpings of memories. Then, when you reflect on your decision to become an investor, you’ll be grateful for making a deservedly selfish choice, too.
When was the last time one of your financial investments planned a luxury vacation for you?
Until next time, safe travels!
CEO, Equity Estates