Some individuals are not concerned about inflation because they’re not too worried about the higher prices they’re seeing at the grocery store or their local gas stations. However, if you dive deeper into the effects of inflation, you’ll find that it touches much more than just surface prices.
Continued high inflation can lead to a recession, cause economic turmoil, and impact Wall Street in a way that drives increased volatility. These three negative consequences of inflationary times can most certainly put your wealth at risk, and this is something to be concerned about.
With that in mind, let’s discuss inflation in general and how investing in multiple rental properties can create an essential hedge against inflation that protects your wealth and places you ahead of the game.
What is Inflation and Why it Puts Your Wealth at Risk
Inflation is an economic concept where prices of goods and services are increasing, while at the same time, the value of the dollar is worth less and, therefore, reduces your purchasing power. This results in requiring more money to purchase the same goods and services that you previously purchased at a lower price.
Additionally, because inflation causes prices to rise within many sectors – transportation, healthcare, labor, utilities, rent, food, fuel, and others; the economy as a whole can be greatly impacted in a negative way.
With that said, consider the fact that according to the Bureau of Labor Statistics, the “all items” index (the consumer price index which measures the rate of inflation) has increased by 9.1% over the 12 months ending in June 2022, which is the largest 12-month increase since November 1981. This isn’t a good sign, and it’s even more of a reason to look for ways to safeguard your wealth for the days to come that may include higher inflation, as well as a recession.
Why Your Wealth is Vulnerable During Inflationary Times
As mentioned, your hard-earned money is at risk when exposed or vulnerable in any way to the effects of inflation, economic downturns, or recessionary times – but how exactly is this the case? To answer this question, I’ll discuss the two most common savings vehicles and how they put your wealth at risk when inflation is running its course.
1. Traditional Retirement Accounts Are Risky
Although some people might not think twice about inflation, there are many individuals who do, and can become concerned when they hear constant talk of inflation and economic turmoil. This may prompt them to come up with ways to create more cash flow, which is actually a good idea.
However, what these individuals may not be taking into account is just how much at risk their current funds are when connected to the economy through a retirement account. The money pot they have been building up for years is basically a sitting duck, defenseless, and just waiting to be attacked by the effects of inflation and other economic factors.
These traditional IRA or 401(k) account holders may not think much about their accounts during these hard times, and it may not be something they plan on changing because they were taught from a young age that a 401(k) is what they’re supposed to invest in, and may think, “This is just the way it is; we place money in our retirement accounts, ride the waves, and hope for the best”.
I know from my years of experience that just blindly riding the waves with your traditional retirement account isn’t a wise strategy when so much is at stake. Why? Because the money that sits within your retirement account is dependent upon how Wall Street is doing, and inflation can cause much volatility within the stock market.
Inflation, the economy, and the stock market are all tied together, and when your wealth is intertwined with them, and the economy takes a turn for the worst, your nest egg will come crashing down along with it. What if you had plans to retire the same year that you lost hundreds of thousands of dollars due to a stock market crash?
While we’re on the topic, take a look at this video that touches on 401(k)s, SDIRAs, and rental real estate:
2. You Can Lose Money with Interest-Bearing Savings Accounts
Your wealth is also at great risk when tucked away within a traditional interest-bearing savings account during times of high inflation. You see, when the rate of inflation is higher than the interest you’re earning, then you’re not growing your funds anymore; you’re actually losing money. Also, during times of inflation, there is a decline in the value of fiat currencies, which makes your bundle of savings worth less than it used to be.
The problem began when the government started printing excessive amounts of money during the pandemic, which devalued the dollar. Add the current inflation into the mix, along with other factors, and the end result is that your money is not working for you within your savings account; it’s actually causing your net worth to reduce.
Now that you have a general idea of why you need to grab hold of the reigns to protect your wealth, let’s dive into some information about investing in an asset that’s much more stable and profitable when inflation hits the nation.
Reasons Why Having Multiple Investment Properties is the Best Hedge Against Inflation
Owning one rental property during times of economic hardship can help you stay ahead of the game, and your property will stand strong while other investment types falter. However, if you invest in multiple pieces of real estate, your wealth and net worth will quickly accelerate. In addition to this, if the properties are within a retirement account, it will fast-track your savings and ensure you have a substantial amount of money to retire on.
The bottom line is that owning several investment properties is a really smart strategy to implement during these uncertain economic times, for many reasons, and I will discuss a few of the most notable reasons below:
1. Real Estate Historically Outperforms the Stock Market During Times of Inflation
As I discussed, retirement accounts are heavily based in stocks and go with the flow of the economy, which can mean big trouble and high risks in times of inflation. In contrast, real estate does not follow this pattern. In fact, this sector has been known to excel in troubled economic times such as these.
Consider the millions of people who lost a good portion of their wealth when the stock market tanked at the height of the pandemic. Investors who were loaded up on company stocks that were directly impacted by the effects of the pandemic were hit pretty hard.
For instance, those who were invested in Carnaval Cruise Line (CCL) were feeling pretty good with a high pre-pandemic price of $51.90 per stock in Jan. of 2020. But then, just three months later, in April of 2020, that same stock took a dive to $8.49, and is sitting at $9.06 as of today – that’s a considerable loss. Also, individuals who were flying high with United Airlines stock went from $89.70 to a low of $19.92, and today, this stock is selling for $36.75, so it never fully recovered.
Now, remember, the entire economy was affected, so it wasn’t just travel-related stocks that took a tumble. Almost all sectors were hit hard, and this impacted retirement accounts across the nation.
Rental Real Estate – Consistently Strong, Stable, and Secure
You don’t have live day by day wondering if inflation or the next or even the current pandemic will drain your retirement savings – there are other investment alternatives that are more financially sound.
Most people don’t realize this, but you can actually place rental properties within a retirement account using a self directed IRA, and the rental income builds month after month, year after year – I know from personal experience that this is indeed a smart financial strategy. Take a moment to read over my article that touches on this topic – Can You Use a Self Directed IRA to Purchase Real Estate?
Real estate is a safer asset to invest in to grow your retirement funds. It’s an excellent hedge against inflation compared to stock-based investments due to its ability to rise in value along with inflation instead of decreasing in value at the first sign of economic trouble. Because of this, I have personally invested in multiple rental properties, and so have many of my fellow investors – this brings in consistent multiple streams of income each month, like clockwork.
The income from my rental properties has been steadily pouring into my retirement account, and has been unaffected by all the chaos that the nation has dealt with over the past few years.
I know 100 percent that I will be doing well financially when it comes time to retire. If you can’t say the same, it may be time to evaluate your strategy and move your funds away from the stock market. If this information has gotten your attention, you will want to dive into my other article – Why Rental Real Estate is a Smart Investment Vehicle for Your Retirement Plan.
2. Rental Property Appreciation Keeps You Ahead of the Inflation Game
Real estate appreciation pertains to an increase in the value of property over time, and this is just the natural course of real estate. Here is a perfect example – I have a friend whose parents purchased a property in California in 1969 for $19,000. Today, this same property sells for over two million. As you can imagine, since 1969, there have been many economic downturns in our nation, but this piece of real estate just kept appreciating through it all.
Appreciation makes real estate a solid investment, and the best part is that each time there is a bout of inflation, your properties get a boost in value. This can come about for several reasons, with one being that building costs such as materials and labor go up during inflationary times, which increases overall property values.
So, while people are being hit in a negative way by the high price of inflation in many sectors, property investors are being positively impacted by the price hikes – you can’t say that about many asset types, can you?
Now imagine owning multiple rental properties. The total sum of appreciation would certainly increase your net worth. I hope you are starting to see just how much investing in rental properties can build and preserve your wealth.
3. Rents Increase During Times of Inflation Creating More Cash Flow
Another reason that rental properties are a hedge against inflation is because when inflation hits, rents increase. In fact, in June of 2022, rent prices rose 0.8% during the month, which is the highest monthly increase since 1986. This means that real estate investment holders are now enjoying a boost in rental income which has increased their cash flow as well as their ROI.
In addition to this, during times of inflation, many people shy away from home purchases and lean towards renting. This increases the demand for rentals, which can increase the rent asking price once more. We’re seeing this now with the affordable housing crisis that’s currently going on. There is such a high demand for rentals that builders are having a hard time keeping up with the increased demand for new construction rental properties. I wrote an entire article on this topic, if you’re interested – Rental Real Estate Trends – Increased Demand & New Construction Property Boom.
As you can see, rental properties are a highly profitable asset during inflationary times, and this is why investing in several rental properties just makes sense.
How to Grow Your Portfolio with Multiple Rental Properties
If you’re considering adding several rental properties to your portfolio to guard your wealth against inflation and other economic factors, but you’re not sure where to even begin, our full-service real estate company can make it happen for you.
The team at Morris Invest has helped many individuals protect and grow their portfolios by getting them set up with multiple rental properties in a prosperous location. At this time, we’re building new construction properties in Lubbock, TX. If you’re curious about this area, then you’ll want to read more about it in my latest article – Lubbock Recognized as a Recession-Proof City.
When working with our clients, we actually take care of every step of the process for them, including helping them move over to a self directed IRA where they can hold their properties. We have also created a program specifically for high-net-worth individuals who are interested in bulking up their rental real estate portfolio, which I detail below:
New investors, as well as seasoned professionals, often come to us with the goal of creating large-scale rental real estate portfolios. These are typically investors who have the capacity to invest 300K or more. Over the past few years, we’ve actually had a greater number of these investors contact us due to the fact that they were fed up with the economic issues that have been draining their accounts – they wanted a more secure asset to place their funds into.
To meet this need, we created our Portfolio Program that provides several advantages such as the ability to easily purchase multiple cash flowing properties, having access to pre-approved portfolio lending financing, the benefit of lowering your tax burden significantly with a new construction cost segregation analysis, as well as being provided with ongoing support from a team of professionals. You can read more about our Portfolio Program, as well as all our programs, on our Morris Invest & SDIRA Wealth main page.
Take Control of Your Wealth & Your Future by Making the Right Investment Choices
If after reading through this article, a lightbulb has gone off in your head that you don’t have to fear inflation, that you can embrace it knowing that rental real estate will allow your wealth to flourish during inflationary times, then I applaud you. Why? Because most people don’t know this strategy exists, and they continue with a plan that doesn’t protect them financially during uncertain economic times.
Feel free to schedule a complimentary 30-minute phone call with our team if you would like more details on investing in multiple rental properties, information on our Portfolio Program, or if you just have questions regarding investment properties in general. We would love to help you protect your wealth, grow your retirement funds, and thrive during times of inflation – it’s what we do best.
Before you go, be sure to dive into the following video that discusses building a large portfolio of rental properties:
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