The funny thing about getting rich in America the past few decades is so many people didn’t even realize exactly why it was happening. On the surface, it’s pretty easy to understand why income property investing works so well. You take out a loan, buy a rental house, and let the tenants pay off the mortgage as the years go passing by. The principle goes down and you’re not doing anything more strenuous than cashing checks.
As nice as this is, if you look a little deeper into this scenario, you’ll begin to understand why real estate is really making you rich. It wasn’t so much that the investment property appreciated, which it probably did, but that, at the same time, the debt was declining in value thanks to our good friend inflation.
That’s right. Friend. When you’re financing your property investments with long-term, fixed-rate loans, you don’t mind inflation at all. It quietly works away in the background at reducing the value of the dollar, which has the effect of reducing the value of your debt. The longer you can take to pay it off, the better. It’s a straightforward concept, though we’re not used to thinking this way. Would a one hundred dollar bill today buy as much as it did in 1950? No. Less. Much less. It’s lost value.
Same with your mortgage debt. If you took out a property loan in 1950 and just paid it off today, you got a heck of a deal. In terms of purchasing power, you paid it off for pennies on the dollar. If you, like us, think inflation is going to continue to be the dominant cycle in our economy, get busy buying real estate as soon as you can.
stock.xchng / nikhilstar
