Real Estate As a Hedge Against Inflation

President Obama and his economic advisors continue to state the Great Recession is over. It is a thing of the past, the danger has been averted and “Happy Days Are Here Again”. The stock market is soaring and the banks will pay out record bonuses this year. I am just so glad that the oligarchy that now comprise our governing and business elites have determined that all is right with their world.
But I am not of that world. Like millions of other Americans, I don’t feel that the Great Recession is over and done. As a real estate professional, I see business owners and residential tenants struggling to pay their rents. Vacancies are not being leased. And 10% of our work force is unemployed.
I see our Congress and the President locked in an epic struggle about healthcare that will likely produce more of the same. Every other advanced economic nation managed to solve this problem decades ago. The solutions being proposed now will do nothing for the long-term societal and economic reasons that propelled us to tackle the problem. At the same time, the reasons that Wall Street sent us close to the precipice are not being addressed. Congress, the bankers and the bureaucrats are in their own universe which does not include any real change or oversight. If only the window dressing of regulation changes, then what is to prevent the same thing from happening again?
While we beat our collective chests and proclaim that we are Americans, The Chosen Ones, the rest of the world looks at us with disbelief at our parochialism and naivete. The United States spent the better part of the 20th century creating the most dynamic economy in the world. Now we are so blinded by our earlier success that we don’t see what may befall us.
To enrich the few, our government has allowed last year’s deficit to be almost $1,500,000,000,000.00 (a trillion and half dollars). Not even the Chinese can buy all that paper. It is unsustainable. The Fed will print more money and inflation will roar again. What is the average person (often referred to as “hard working Americans” by politicians when it is politically expedient) who is not a member of the oligarchy to do?
I have come to believe that stocks are not a viable investment for the average investor. The deck is stacked against those outside the club of institutional investors. A good hedge against inflation, however, continues to be real estate. But, you must do your homework and not use leverage in a way it was not meant to be used. When buying an income-producing property, make sure that the price paid reflects what the rents are today. In the recent past, too many investors were using unrealistic projections in determining purchase price.
When inflation begins to kick in, it is important that your leases have clauses that protect you (e.g., cost of living). If you have relied on realistic projections when determining your property investment, then you will be able to weather the coming inflation by at least keeping the dollar value constant. With good management and proper leases, you will also see cash on cash return on the investment. Through good and tough times, nothing does better over the long run than a solid real estate investment.

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