Inflation erodes the value of money resulting in decreased purchasing power where the same amount of money can acquire fewer goods and services. This detrimental impact on investment is especially true for assets with fixed returns such as savings and retirement accounts. Tangible assets like gold and real estate are recognized as effective safeguards against inflation.
Poor government administrative decisions have led to a surge in inflation, nearly reaching double digits, evident in the escalating costs of essential items such as gas and groceries. Regrettably, this inflationary trend also negatively impacts your retirement accounts, necessitating the need to find a hedge against thise diminishing purchasing power.
Real estate has consistently proven to be a formidable investment, outperforming all other assets during periods of inflation. What does this mean? Investing in residential rental real estate offers three key benefits: cash flow, equity appreciation, and overall property value appreciation.
Consider, for instance, the acquisition of a $150,000 3/2 rental home last year, with a tenant secured shortly thereafter paying around $1300 in rent (deemed conservative). If purchased outright, you enjoy a monthly cash flow of approximately $1000. Annually, expenses like repairs, management fees, property taxes, and insurance serve as tax write-offs, reducing your taxable income. If financed with a mortgage, interest deductions apply, and your tenant essentially covers your monthly mortgage payment while you retain ownership until a future sale. A decade later, regardless of inflation's impact, the property value has appreciated.
Reflect on the common lament, "I wish I had bought that house when I had the chance!" If judiciously navigating the housing crash from 2009 to 2011 without overextending, those with rental properties witnessed significant spikes in real estate valuations over the subsequent years. Since 2022, rents have surged while your mortgage payments remained relatively steady. Despite a potential temporary decline in rents amid the current high inflation, the overall trajectory of your real estate investment remains upward. Given real estate's historical resilience to inflation, it stands out as the premier hedge against inflation, making it an ideal component for your retirement and investment portfolio.
