“Inflation is coming”, and “You’re going to see prices increase to pay for all this government spending” are frequent news topics as I write this article in Q2 2021.
It is not coming.
It is here, and it has been here.
This dog has been barking for some time as those who have paid attention will attest.
Building materials remain at historically high prices; lumber remains in excess of $1 per board foot. Many other construction supplies are expensive, scarce, or both. Last fall, I purchased all the “parts” for a septic system that I wasn’t able to have installed at the time; the excavator says I would have paid thousands more in 2021 had I waited to purchase.
Home prices are higher than at any time in recent memory. We are paying more to fuel our vehicles. If you haven’t noticed price increases at the grocery store, you’re being fooled by smaller package sizes.
Inflation (we wrote about it here and here) is the silent tax.
Inflation is the headwind and primary thief of any attempt to amass and accumulate wealth.
But if you do a deeper dive like we advocate, you’ll realize that inflation is actually a real estate investor’s best friend. Those who purchase real assets with good debt and fixed interest rates will see the value of their debt erode over time. The caveat is that the preceding statement is contingent on concomitant increases in the wage index, so you and I can afford to pay more at the pump and at the grocery store.
And then have a couple dollars remaining with which to purchase real assets.
Those who purchase fake assets (or as Robert Kiyosaki says, “doo-dads”) with bad debt (fixed interest rate or not) will lose their footing and get sucked further downward in the ‘time value of money” vortex.
There is an interesting thing about inflation, debt, and real estate ownership…while some view debt as a means by which to purchase real estate, others view real estate as a mechanism to acquire more inflation-busting debt.
As for me – how do I approach this concept?
Remember, I give ideas, not advice – but I’ll take the old-fashioned, time-honored, and simple approach…the approach that favors the tangibility of income-producing real property yet recognizes that debt is a conduit and tool by which to harness the power of inflation and acquire more income-producing real property.
As you think about that, don’t sit around and wait for inflation. It has been here and it is already working against you if you haven’t teamed up with it.
Until next time,
Dr. Lee Newton
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What real estate investing, development, or building science questions do you have? I’ll answer them here – send an email to Lee@CEassets.com
