In looking at the current state of the economy, I don’t really see any way around a high inflation in the coming years. In fact, it could even be “hyperinflation” with the way we are spending right now. My question is do you guys think RE is a good hedge against this? My thought is YES! If you can get a properties at fixed interest rates you should not only see increasing rents but also increasing values. Now I’m not one to get in on the game of speculation, so I would say DO NOT buy anything that doesn’t cash flow TODAY. But, if you buy right and cash flow today, you should be sitting in a very nice position in 10 years. Do you guys agree?
It all depends on where you are. There is a structural problem in some parts of America. For example in California, the price of houses is too high. As the economy recovers the value of these houses will fall to a “normal” level. So inflation will have to overcome that price to value disconnect. In the real world (what Rush Limbaugh calls flyover country) there will be value caused by inflation. In hyperinflation times things with real value act as a hedge. Most people buy gold or something like that. But real estate is such a wonderful investment because it is a commodity, but unlike gold it makes you money 5 way. First you have equity capture. When you buy you buy at a discount to value so that you capture that equity, second id equity build up. As the tenant pays you the rent and you pay the mortgage the equity builds up, the third is cash flow. Once the cash flow equals your expenses you are officially rich. The fourth way is appreciation. That depends on your time horizon. But real estate will always go up eventually. The fifth is that no matter what changes are made in Washington real estate investors will always have a favorable tax treatment.
I buy real estate because it is the only investment that is robust enough to always land on its feet. As long as you buy at a STEEP discount.