Dec
10
Inflation and Real Estate: The Relationship
Posted by Scott Nicholson under For Buyers, For Sellers, For Realty Professionals, General Information, Bailout, Fave Neighborhood, Inflation, Market, Ask a REALTOR, Hill Country, Productivity
Inflation
We all hear the word but do we all know what “inflation” means? When most people think of inflation they think “higher prices”. Well, that is true…but sorta backwards… Prices are higher during times of inflation but let’s talk about what is really happening.Prices are higher during times of inflation not because “things” are worth more…it’s because dollars are worth less! It takes more dollars to buy “things” because each dollar is worth less…! So, if a shirt costs $10.00 today and we go through an inflationary cycle and the Dollar loses 10% of it’s value that same shirt effectively costs $11.00. The “cost” of the shirt goes up 10% because the purchasing power of every Dollar in your wallet (or bank account, or 401K, or SEP, or Money Market, etc, etc) drops by 10%! Prices are forced to rise because it takes more Dollars to purchase goods during inflation.Inflation sucks! It sucks because while we sleep/eat/live our money & savings lose value….and we are virtually powerless to stop it. When money is produced at a more rapid pace than a given economy grows the value of that money (currency) drops. Our national economy is slowing lately and there has been a tremendous amount of currency thrown onto the market lately.
Inflation, while not currently imminent is certainly forecast……ouch! The best way to hedge yourself against the loss of value in your savings brought on by inflation is to buy real estate or other “hard” commodities. Some people buy gold or silver…but I propose that you’re better off buying real estate.
Consider….
- Real Estate is “real”…ie, it doesn’t ever completely lose it’s value.
- Real Estate usually experiences appreciation over time. I’m not talking about artificially high appreciation rates like those we’ve seen over the past 5-10 years…I’m talking a reasonable appreciation rate of 5%-10% annually.
- Real Estate ownership has some very advantageous tax implications….depreciation, expense deductions, etc…
- Real Estate can create income in addition to the tax benefits & appreciation.
- Real Estate provides pride of ownership. Sure you can own stocks or bonds but you can actually drive by and see your real estate investment!
- Real Estate purchases can be leveraged. Buyers with clean credit and sufficient income can leverage their cash wiith a mortgage loan to purchase & own real estate.
All the experts are warning that we’re in for a bout of inflation…nobody knows when or for how long….this recent Worldwide Financial Shakeup has everyone sorta bamboozled! When inflation strikes the best strategy is to invest in Real Estate!!! The real estate you buy with Today’s Dollar will automatically be worth more “dollars” during an inflationary cycle….because each inflation-striken dollar is worth less!!BUY REAL ESTATE NOW!!!!
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