In economic prognostication circles there’s a perpetual debate about whether inflation is going to be a permanent fixture of the economy or if deflation could actually be around the corner.
Some of these discussions get more nuanced with several experts talking about potential scenarios of disinflation and even hyperinflation potentially entering the picture in 2022.
It’s anyone’s guess what will happen. But one thing is certain, complaining and moaning about how everything is going to hell is unacceptable.
Yes, things look hairy at the moment. But in this space, we’re empowered investors. That means we use the power of income property to build solid cash flows all in an effort to maximize our return of life.
You see, the home is the center of the universe. Regardless of the economic or political situation in a given jurisdiction, there is a foundational need for housing.
In addition, income properties are multi-dimensional asset classes. Houses are composed of highly demanded commodities such as concrete, lumber, copper wire, etc. that give them plenty of value. By investing in an income property, you effectively become a packaged commodities investor.
In effect, you’re buying two components: the land and the structure sitting on the land. The structure is made up of the previously mentioned commodities, which are not indexed to a particular currency. They are main ingredients to the house.
We get to finance these commodities for three decades with artificially cheap, fixed-rate debt that is tax deductible….
Which leads to the next point: Income properties are the most tax-favored asset class in America.
Income properties allow investors to receive tax breaks for depreciation, while any funds an investor allocates towards maintaining or improving an investment property can be tax deductible. Similarly, travel connected to managing the property is tax-deductible, in addition to the costs of doing business such as running a home office or fees connected to hiring consultants, managers, or specialists.
Now when it comes to the benefits of income properties in times of inflation, there’s one concept to take note of: Double Inflation Arbitrage.
It works like this: You go to a bank and offer to put down 20% of the purchase price of a house. From there, the bank will loan you the rest.
If your credit record is sharp, there’s a strong possibility that the bank will agree with your offer and extend you a loan.
Once the agreement is made, you’re left with the loan debt that still has to be repaid.
To repay the debt, you then rent your property out to a tenant who effectively assumes the carrying costs of the mortgage.
Throughout this process, the mortgage debt you hold loses real value from inflation.
That’s just the first benefit of inflation.
When we look at history, income properties appreciate faster than the inflation rate.
Those are the benefits of holding an income property, which you can exploit no matter the political circumstances.
Always remember, people will need housing. You can exploit that necessity as an empowered investor.
This is just one of several topics that our very own Jason Hartman touches on in his elite panel discussion with Ken McElroy and George Gammon.
Don’t miss this discussion by clicking the link here.
P.S. Want to make 2023 the year you sign your Declaration of Financial Independence?
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