Depending on which economist you read you may be inclined to believe that the US is headed towards an inflationary economy. The theory is that because the Fed and it's counterparts around the world have been printing money to combat the global recession, inflation is a natural consequence. If you buy into this argument, you may want to consider investing in real estate as a hedge against inflation.
With real estate, if you have a low-rate, 30-year, fixed mortgage, your note will become a thing of beauty as prices rise:
- Your property value will rise
- Your rental income will rise
- Your mortgage payment will remain fixed
- You will repay the loan with cheaper dollars
There is plenty of disagreement, of course, among top economists regarding inflation. Some argue that with unemployment figures at a 26 year peak and plenty of idle factory space, rising prices in the near term is not a concern.
Real estate investors need to remember however, that a hedge against inflation is just one of the many benefits of investing in real estate. Frequent readers of this newsletter will note that we often discuss the numerous tax advantages to owning real estate including:
- Ability to depreciate real estate hence reducing (or eliminating) your
reportable taxable income from the property
- Ability to write off expenses
- The mortgage interest deduction
- The ability to sell real estate and either avoid and/or defer the payment
of capital gains taxes
One thing for certain is that plenty of opportunistic investors are finding value in today's real estate market.
Free Pre-Sale Consultation with Attorney/CPA
Adam is a California attorney, CPA, real estate broker and co-founder of Asset Exchange Company. Adam oversees all exchange services for Asset Exchange Company. He has taught accredited 1031 Exchange seminars in five states and has written six published articles on 1031 Exchange. Adam has also taught seven semesters at UC Berkeley Extension, including classes on real estate principles and real estate taxation.