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?”
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.
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?
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.