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How to Fight Inflation With Your Investments

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Have you considered what inflation will do to your retirement income? I just wrote a post a few days ago (What Will Inflation Do to Your Retirement Income?) that shows how much money you’ll need in the future in order to enjoy the lifestyle that you live right now. If you’re in your 20s and you currently enjoy your $50,000/yr lifestyle, guess how much money you’ll need 40 years from now in order to enjoy it in the same way? After factoring in inflation, you’re going to need $188,987 per year in order to maintain that same lifestyle! The question you’re probably asking is, “What Can I Do to Fight Inflation?”

Losing Investments

Let’s start with the investments that will NOT help you in the war against inflation.

  • Savings Account – These hardly ever yield more than 1% these days. If you’re making 1% on your money, and inflation is rising by an average of 3.4%, you’re definitely losing.
  • Certificate of Deposit – These are slightly better than savings accounts in terms of yield, but they will still only earn you about 2% currently. It’s not going to earn you enough to keep up with inflation, so don’t waste you’re time.

Real Estate

There are a few ways to win in the battle against inflation, but today, I’d like to focus solely on real estate. Some of you may already be groaning because this is an investment idea from your grandfather’s grandfather! It’s an idea that’s older than the hills…. I know. But, there’s a reason it’s been around for so long; it’s a good one.

Now, I’m not talking about buying a house and living in it. I’m talking about rental property (cue further groaning….). Yes, I know. There are plenty of horror stories about bad tenants and ugly evictions, but there are great stories about wealth and prosperity as well! If you do your homework and learn from those that have already walked the path of real estate investing, you’ll have a great chance at winning in this game.

The Reasons I Am Pro Real Estate

  • Real Estate is at its all-time low and is beginning to rise in value again
  • Properties often grow in value at (or above) the rate of inflation (a hedge if you will)
  • The rental will yield between 7-10% profit (conservatively) from your investments via the  monthly payments from the renters

Doesn’t it just flat out make sense? Not only is your investment keeping up with inflation, but it’s also making you about 10% in earnings every year! In order for your 401(k) to keep up, it would have to average 14% growth every single year! I don’t care who your advisor is, that just flat out doesn’t happen.

My Plans in Real Estate

I don’t know about you, but I am quite conservative with my investments, and I do not like to borrow money. My wife and I have a plan for our future, and part of this plan involves real estate.

We are currently looking to purchase our first house. Rather than go out and find the sweetest house in the neighborhood, we’re going to find a fixer-upper and make it beautiful again. After the fix-up, the house will be worth much more than we owe, we’ll pay off the mortgage fast (3-4 years), and then use it as our first rental. We’ll repeat this plan a few times (it gets easier and easier as the rental income continues to come in), and soon, we’ll have a real estate empire that’s constantly fighting inflation! 🙂

Do you currently own a rental? Or, do you think you’ll rent out property in the future? What do you think of this idea?

Investing Money Retirement

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

26 Comments

  1. Real estate has been a good inflation hedge in the past and I think it will be again in the future.

    Since we already own a home and don’t want to move (to follow your plan), one of my main concerns with rental residential real estate is making sure that we have enough to cover the ongoing expenses if the place isn’t rented for some reason – utilities, insurance, taxes, repair and maintenance, advertising/marketing and etc.

    Also, if you are married, you need to make sure both partners are buying in to the commitment that rental property takes!

    • You do have some real concerns! If you own a house other than your own, you should definitely make sure that you can afford to pay the mortgage each month if there are no renters.

      Great point about couples needing to be 100% committed to the investment. It can be a lot of work and definitely takes a lot of money. If one of the individuals does not want to invest in real estate, it’s probably best to stay away.

  2. Congrats on your upcoming home purchase Derek! I agree with you about using real estate to hedge against inflation. Why not take advantage of an inflating asset!! BUT, it’s not for everyone, and really takes some wisdom in looking for a good deal.

    I don’t own currently, but I can see us having a rental or two in the future.

    • Of course real estate isn’t for everyone, but I still think it’s a great hedge and great passive income!

  3. I like your inflation strategy – I’ve been curious about real estate as well, and am similarly debt-averse. It will be interested watching you build an empire, as Im sure I could learn something.

    • We’ll be implementing the strategy soon, and I’ll no doubt be writing about it! So stay tuned! 🙂

  4. Using your first home as a rental in the future is a good idea. I would let the tenant pay for the mortgage though.
    Sometime in the future, I may rent out my current home. I rented out a previous home for 2-3 years before we sold it.

    • I love the idea of using our first home as a rental. I do understand the benefits of having renters pay the mortgage, but I would much rather skip the interest costs and pay for the house outright myself. That way, I’ll be making nearly 100% profit, rather than only 5% or so after the mortgage payment.

      • Wouldn’t we all!

  5. Derek,
    I think your idea is wonderful as it is one that I am currently employing. My wife and I purchased our first house and started renting it when we outgrew it. I then proceeded to purchase 5 more for a total of 6 houses. The plan is to have them roughly break even over the years and when I turn 65 to have them all paid off. Then I collect the rent for income while I wait for the mandatory 401(k) withdrawals. I am hoping to add more but have to get some other debt and college bills for kids taken care of. Feel free to ask any questions you might have. PS–I have never been called at 3 am. My tenants know to take care of something and send me the bill.

    • To own 6 houses must be an awesome feeling! Once they are all paid off and you’re still collecting rent, you’re going to feel like a very rich man. Congrats!

    • Very good plan. Must know how to deal with people as well as crisis in homeownership!

      • Very true Diane. Homeownership can be tough at times, but I believe that it’s well worth the investment.

  6. I’m currently doing exactly what you’re doing — my boyfriend and I own a fixer-upper which we’re also renting to tenants. It’s divided into 3 units, so we can have tenants AND also live there at the same time. The effect is that we get the house for free (the rent covers the mortgage, insurance, water, trash and tax), while the cost of repairs comes from our pocket (which we pay in lieu of paying rent or a mortgage). I’ve written about this extensively on my blog in a variety of posts, if you’d like all the details.

    • Great plan Paula! This must free up a lot of cash each month! Are you saving for another place to rent out soon? Or investing the money into the market?

  7. Wow, that really puts things into perspective. I think a lot of us tend to forget how fast inflation is climbing. I’ve recently considered purchasing a rental space in a prominent college town close by. Although there may be a lot of tenant turnover, there will always be a steady influx of renters. I rented from a woman who did this while I was in school, and she made a killing – even with rising property taxes. Rentals in college towns almost never sit vacant. Thanks for the tips!

    • I actually just saw an interview regarding just that! Renting to college students. This man did incredibly well too. If you have the funds and can afford the mortgage if it’s left vacant, then go for it! You’ll learn a ton and keep up with that pesky inflation!

  8. Real estate is an excellent way to stay ahead of inflation, I totally agree with you Derek. There seems to be so much liquidity being pumped into the global economy by all the reserve banks that there must be a massive tsunami of inflation just down the road. Prepare now, and hang on.

    • Great point Hunter. We all know big inflation is coming again. If it’s possible to hedge yourself with real estate, take a serious look at it. I know we are! 🙂

  9. I think it depends on where you are investing in real estate. For example here in california, it may be a bit risky to buy a house you are not going to live in for 5-6 years because you could lose more if the market were to turn against you vs the savings in rent, taxes, etc. For the long run, i agree it is a good inflation hedge.

    • Good point Travis. In a highly volitile market, investing in real estate may be like investing in penny stocks. Use your better judgement on this one.

  10. Geez, real estate, gotta know your market, I had a friend who bought and rented in an area where there were all homeowners (not many renters) and it was not pretty. The homeowners hated renters moving in and out and gave them so much trouble they finally sold – so check the area! Neighbors can be vicious when they want a move in move out rental out of the neighborhood! Also know that your plan may fall thru for all kinds of reasons, and you will be forever revising it! just sayin….life is life….Oh I had a much different plan when I was your age compared to what my life has turned out! So just know that! Did ya get to a mortgage broker yet to see where you stand in the process?

  11. i bought my first house 2 years ago and was thinking pretty much the same thing. I saw it more as an investment and i was able to get an REO for an extremely cheap price.
    I think real estate is a really good place to park a chunk of money that will (for the most part) go up in value as inflation increases. If you kept that same chunk of money in a savings account, it would decrease in value as inflation increases.

    There are still alot of good buys out there. realtytrac is a good place to look for bank owned properties

    • thanks for the comment Ross! My wife and I are currently putting offers in on a few houses and are ready to fight inflation! 🙂


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