Does Owning Real Estate Protect You From Inflation?
Ok, this is a big one. You keep saying that real estate is a hedge of protection against inflation but home prices are coming down. How does real estate protect me from inflation if prices come down? I’m glad you asked, I’m going to tell you why.
Real estate on a fixed rate mortgage stays the same month over month. As commodities and the price of living rise your monthly payment stays the same. If you’re paying $1400/mo today that means you’ll be paying $1400/mo in 29 years if you haven’t paid off already. We all know that in 29 years the cost of everything will likely have tripled. Also your home that is worth $200,000 today will possibly be worth $400,000-$500,000 by then.
Imagine walking into retirement with this amount of equity in your portfolio. If you own investment properties even better. The amount you charge for rent rises annually or with inflation but your payment stays the same. This means that if your property cash flows $100 today it might cash flow $200 next year. Imagine in 30 years how much income it will generate. Your tenant pays the mortgage off for you and from then on you collect straight cash. Imagine collecting $2,500 a month from one property. Now imagine you own ten by the the time you retire. That’s $25,000 a month or roughly $300,000 a year from those properties. If inflation occurs than your rent prices go up! now you’re renting those properties for $3,000 a month… and collecting $360,000 annually. Making sense now? It’s a no brainer. Any way you slice it owning real estate is the most sure way to protect your money from inflation.