THE TRUE DEFENCE AGAINST INFLATION
This is a very unique time for commercial real estate investors.
inflation is soaring, gas and food prices are on the rise and the value of a dollar is steadily declining. How can you protect your wealth in this volatile reality?
Rising inflation is affecting the value of US dollars.
So as a commercial real estate investor, you have 2 choices:
1. You can jump into this great commercial real estate market
2. You can stay on the other side and remain poor(passing on opportunities repeatedly).
So if you are sitting on cash, if you have lotta money in savings or you have a lot of stocks sitting around and doing nothing, then let me share this with you. over the last 12 months, GAS prices have gone up 42%. Car rental prices have gone up 43%. When we say gas prices have gone up it does not mean that gas is getting better. It literally means that your cash is just getting worse.
So what is the tried and true defence against inflation?
It's COMMERCIAL REAL ESTATE.
3 reasons why Commercial Real Estate is a GREAT defence:
Reason #1: Demand for apartments will increase. Because costs go higher when there is rising inflation. When construction costs go higher, they build less. When they build less the supply remains the same but demand continues to increase. Guess what happens the demand for apartments become greater.
Reason #2: Interest rates. During an inflationary period, interest rates tend to creep up a little higher. When interest rates go higher, borrowers are either going to have to buy smaller homes or not get an approval of the home that they saw. So when they are not buying a home what are they doing? They are renting.
The demand for apartments is going to increase and that will lead to an increase in rents and therefore the property value goes up. (When you increase the rents, you increase the NOI-you forced the appreciation on the property) So property values go up.
Reason #3: Recurring Income Engine: Recurring income (cash flow)will outpace inflation.
So when demand for commercial real estate will increase, rents are going to go up and you will end up with recurring cash flowing engine that outpaces inflation. So that is your defence.
3 Key offensive plays to do now:
1. Acquire commercial real estate that has to do with housing. Eg: Apartment buildings, mobile home parks, Storage
2. Lock in long term loans with low-interest rates: Because interest rates are going to increase during inflation as they always do.
So how would you like to have a cash-flowing asset that’s increasing in demand where the rents are going up but your mortgage/debt stays constant.. That's a beautiful thing.
3. Don't watch the news. Because what you feed your mind determines your appetite. The news won't help you achieve your financial freedom. The fear that is outside right now is that the housing market is going to crash, the real estate market is going to crash. It may or may not, doesn't matter. Whatever happens, we are going to make adjustments.
For example, let's say the housing market does crash. what happens- people will stop buying homes, they go rent apartments.. you will be fine. So don't watch the news. in fact, this point is the most important thing.
You need to have the right mindset to be successful in commercial real estate investing and focus on the right things.
Again the tried and true defence against inflation is commercial real estate.
It is mainly buying cash flowing, in-demand commercial real estate assets like apartments, mobile home parks and stores and lock-in those long term low-interest rates and zone our everything else. Zone out all the negativity. Become the CEO of your life... Take care of your business.
I hope you enjoyed reading this blog post.