Is Real Estate The Best Way To Protect Yourself From Inflation?

Most of us know that our governments have been borrowing unprecedented amounts of money... Think about the world famous debt clocks and how much each person owes...

Now in the last few years they've gone even further and are now just regularly printing money themselves. Simply put, governments are now just creating new dollars (record level) and drastically increasing the money supply. With more and more dollars chasing the same amount of goods and services - prices are increasing everywhere. Everything from food, energy to real estate.

So how can you protect yourself from inflation? Stocking up on essential supplies is a good start but hardly a practical long term solution. How much milk, cheese or other perishables could you possibly store before they go bad? How much meat can you freeze?

Historically when people questioned the value of the money in circulation they would exchange the money for hard assets such as precious metals, commodities and real estate.

Hard assets have proven to be a stable "store of value" throughout history. As governments mess around with what "money" is, how much of "it" is in existence and how it is denominated, real assets largely retain their intrinsic value and reflect the "price" relative to the market they exist in.

My favorite hard asset is real estate. Specifically cash flow producing real estate.

Here are my top 3 reasons why I think cash flow producing real estate is the best way to protect yourself from inflation:

1. You keep 100% of the income and profit of a property that you only need to come up with a fraction of the purchase price. Few businesses exist where someone (a bank/lender) will give you nearly all of the money you need to do business AND let you keep all the upside - it's unheard of. Inflation will continue to push property prices (and rents) higher throughout the country. This will only help those who own hard assets.
2. It'll never be cheaper to build that (house, apartment building, building etc) than it is today. Here's an extreme example - look around your city/town at the heritage buildings or monuments. There is no way you could rebuild them today at even a fraction of the cost. As replacement costs increase so will the cost of living. The only people who will benefit will be those who own hard assets.
3. The tax benefits (even with all the potential changes) favor real estate. As inflation makes everything more expensive and the cost of doing business increases - so will your ability to claim tax benefits on your real estate.

Inflation is a reality and if recent history has taught us anything it's that inflation is here to stay. There's a lot that could be said about how the governments are managing "our finances" but at the end of the day this is our collective reality. What do you think? Is real estate the best way to protect yourself from inflation?

Marcin Drozdz

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