Stay on track with inflation!

Based on the traditional definition, the United States is still not in a recession…. but it sure does feel like it!  Regardless if you believe we are or we are not, we still have to continuously prepare for future financial challenges and current inflation, whether that be through establishing a more robust emergency fund or hedging against inflation by buying property. I mean, theoretically speaking, real estate should offer protection against inflation. For starters, let me explain what inflation is.. “It is the rising in prices, and the reduction in purchasing power”. Simply put $10 in 2024 gets you less than it did in 2014. Personally, I know that for one dollar in 1990, I could eat for the day like I was a 5-year-old neighborhood prince! Nowadays, if you give a 5-year-old one dollar today, they can barely get a can of pop from the store.

How does that relate to real estate?

Inflation kills savings! So instead of placing money in a savings account, your best option is to invest to combat the effects of an inflationary period. This is a two-fold situation… the word inflation, usually comes with a negative connotation.  But if you have “good debt”, inflation can work in your favor and be a positive. Say you owe $100,000 on a home loan; as time goes on the actual dollar amount of $100,000 of debt, will remain and appear to be the same right? But as the economy becomes inflated, you will pay that 100K off with those devalued dollars, while simultaneously benefitting from capital appreciation on the home. US inflation on average is at about 3.5% per year. (Meaning that in 2023 if you have $100 bill in your wallet, in 12 months that same $100 note can buy you $96.50 worth of the same goods.) Or bringing that full circle, if you took out a loan for $100k in 2023, that loan is essentially worth $96,500 in 2024; its easier to pay back year after year is my point. More and more dollars will be floating around the economy as time goes on, but your fixed rate debt stays the same. SAVING money versus BORROWING against a fixed rate debt, will enable you to hedge against inflation with real estate.

I’m not a financial advisor by any means, I’m just a dude fed up with paying $20 for a 8 piece wing; do what you want with this information.