There has been a lot of news about the financial and real estate markets lately, and I’m writing to you today to boil it down to two key points: (1) inflation poses a dramatic threat, just over the horizon from where we are today, and (2) if you can, you should buy long-term real estate rental properties to protect yourself.
A little background: Last month, the Federal Reserve dropped its key interest rates by half a percentage point – the first drop since November of 2002. The stock and bond markets seem to be temporarily calmed as a result, although some analysts are pointing out that this action poses a moral hazard to our society: By protecting investors from the negative consequences of their bad decisions, we encourage more risky behavior from them in the future.
Back to inflation: Our government has a significant vested interest in having us believe that inflation is under control, and leaves out the key energy and housing components from the “Core CPI” (the core index of consumer prices, which they use as their main benchmark of inflation.) That’s a bit disingenuous, if you ask me: Who lives in a part of America where housing and gas costs aren’t a factor in the cost of living?
Our global economy is screaming along right now. Here are a couple of tidbits to show you what inflation our world is experiencing:
- In China, food costs are up 18.2% from a year ago, led by meat and poultry (49%) eggs (23.4%) and vegetables (22.5%).
- Illinois corn and soybeans are up 40% and 75%, respectively, from a year ago. Kansas wheat is up 70% or more.
- Crude oil is trading over $80 a barrel.
- “The day Bernanke cut rates, the price of [gold, a traditional inflation hedge investment] soared to heights not seen since 1980, when inflation ran at nearly 12 percent!” – Daniel Gross, in Newsweek’s Oct 8th issue
The most important thing that you can do to protect yourself against inflation is to lock into a fixed-rate mortgag. Beyond that, to further protect your family’s economy against inflation (now, while it’s still over the horizon), consider buying rental properties. Did you know. . .
- A rental property that just breaks even on monthly cash flow can produce double-digit returns on investment?
- Vacancy rates in Denver are at only 6.2% -- the lowest in six years
- The foreclosure boom is nowhere near finished; many more families will turn to renting
- Denver house rental rates are up from 2006
With a rental property, you can buy at prices lowered by the foreclosure crisis, lock most of your costs in at today’s low interest rates and let your rental income rise over time along with inflation – further protecting your family’s economy against rising inflation.
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