How Real Estate Investing Protects Against Inflation

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Inflation concerns are mounting from the nearly $20 trillion in monetary and fiscal stimulus released across the world just in 2020 alone.

This is changing the rules of investing – and most folks with traditional portfolios are going be caught completely unaware by this, warns real estate expert, Victor Menasce.

Which is why now is an extremely good time to consider adding or increasing income-producing real estate to your portfolio, Menasce advises -- because inflation works to the real estate equity holder's advantage.

How?

Good properties generate rents that will adjust higher as inflation rises, while the mortgage rate securing the property won’t. This dynamic simultaneously preserves the purchasing power of your property’s income stream while diminishing the true cost of paying off its underlying debt.

On top of that, good properties will also return attractive equity gains while yielding tax breaks unavailable to most other asset classes.

And for those interested in becoming a real estate investor but uninterested in becoming a landlord, Menasce explains the process of syndication, which allows individuals to passively invest in much larger, higher quality properties run by a seasoned real estate expert.

This is why now is the time to talk with a real estate-friendly financial advisor (not many are!) who understands the nature of the risks and opportunities in play, can craft an appropriate portfolio strategy for you given your needs, and apply sound risk management protection where appropriate.

Anyone interested in scheduling a free consultation and portfolio review with Mike Preston and John Llodra and their team at New Harbor Financial can do so by contacting them.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.

This is a companion discussion topic for the original entry at https://peakprosperity.com/how-real-estate-investing-protects-against-inflation/

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I know you guys are trying to remain politically neutral, but, when you have an ideology whose entire premise is centered around opposition to the very concept of private property ownership…how does that play out in your estimation of the viability of owning rental property?
The left has taken control of the entire government [whether legitimately or not ] they have control. We have already seen how states and locales immediately called for a moratorium on rents during the covid crisis. So, in effect, as the landlord you are still responsible for your mortgage, property taxes, maintenance, and etc… But your tenants were told by the state that they didnt have to pay you.
Moreover, the eviction courts were suspended in many places. I can easily see how the left can shut down a landlord’s revenue stream.
Is this really a viable strategy considering the radical changes that have just taken place in our country? Seems almost like investing in a gun dealership.

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I guess no one knows the future… If it was me thinking about getting in the game I’d want a discount on the property reflecting the go-forward risks related to govt-backed-non-payment-of-rent.
In a zero percent interest environment nothing ever seems to be discounted to account for risk though. Its all priced for perfection all the time.

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Sorry I didn’t watch the vid but I have to say in the past you wouldn’t want to set up a rental that was very rural. You wanted a busy town or city with strong economy, industry, anchor corporate HQ, a University maybe.
While that might still be true to a certain degree it might just be that rural properties will rent out very successfully. I believe that the liquidity of rural property will almost always be much better too especially if it has a bit of fertile land, some infrastructure like barn and fence, etc.
Right now the #1 hot ticket on Air B&B is farm stay. Just saying.
Cheers!
jef

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I make my living in commercial real estate in Seattle, so I kind of know of which I speak here. You must, must, must have enough income, as a landlord, to go at least six months without any rent at all.
If you can’t do that, you shouldn’t be involved with this kind of income generation. Kicking great tenants to the curb because they are experiencing a temporary contraction in their incomes, is cruel. It also ends up being counter productive.
It is doubly cruel to expect a government not to intervene and cut tenants slack, by legislation, during a pandemic. That goes for commercial and particularly for residential.
Fortunately, we had no vacancies and were able to expand this year.
Brushhog, you have what is commonly referred to as a slumlord mentality. Don’t mean to be insulting as you obviously have no experience in this arena, so just sayin’

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Why do you feel the need to slander him? His questions and concerns are legitimate.

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If you are addressing me, I don’t see slander, Susan 7 as I qualified my comment to reflect that I understood his comments come mainly from ignorance. I read comments all the time from landlords who don’t maintain their buildings – and tenants who won’t complain because they don’t want to be kicked out. Lots of complaints from the same landlords about ‘leftists’ as problematic. Invariably, it turns out the landlord is a slumlord who is unprepared for hard times.
In other words, he doesn’t have a viable business. The poster has no experience in this area so doesn’t know what he is talking about. And that’s fair.

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Whoa Brushhog! What a lot of misinformation from the far extremist-right blaming Democratic Party being communists. I haven't notice that the present administration plans to demolish private ownership of anything.

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To propose that a landlord should be able to go 6 months without income, and to suggest that the government should “intervene” to “cut tenants some slack” [ at the landlords expense ] is preposterous. I can just as easily say a tenant should be prepared to pay rent for 6 months without his/her income. Its idiotic. The landlord/tenant relationship is one of equal trade. Rent for use of property. The landlord is not responsible for the tenant’s personal well being, any more than the tenant is responsible for the landlord.
The assumption is that its OK to bankrupt a landlord but evicting a tenant is “cruel”. This, of course, extends form the juvenile idea that all landlords are rich and can afford not to be paid while all tenants are poor. In reality most landlords are middle class, they have taken on alot of debt in their properties, the costs of maintenance, taxes, and mortgage rates are high and they have to be covered every month. The idea that the government has a humanitarian obligation to allow a tenant to not pay his landlord, while still requiring and enforcing the landlords obligation to the bank, the tax collector, and the maintenance of the physical structure of the property just goes to show how for warped this thinking is becoming. Its not “humanitarian” to bankrupt one in order to benefit another. That’s a feature of socialism and, worse, communism. Its wrong, and its doesnt work.
Moreover the question is whether or not real estate rental remains a viable business in consideration of the growing number of people who think like you. The answer, sadly, is probably not.

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Susan, thank you for call him out on that. He slanders because he feels threatened by what I have to say, he has no intelligent response, and he thinks he can shut me up or shout me down with insults. This is a characteristic of a certain type of growing pervasive ideology and mind set that we are seeing everywhere.
It wont work.

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I am have a small but still significant investment in commercial real estate.  We maintain the building and the grounds well, have good relationships with our tenants, and, by and large, have been blessed with good tenants (i.e. someone who takes care of the building like we do and someone who pays their rent on time).  In the not too recent past, however, we have had two different tenants who have failed in their obligation to pay rent.  One absconded with the money his company had given him to pay rent.  The other simply defaulted on his obligation because he thought he could get away with it (and, unfortunately, he did … mostly … and has done the same to others).  Both tenants were perfectly capable of paying but chose not to (which I consider a criminal act, not a necessity imposed by unexpected economic hardship).  Both situations had a considerable impact on our cash flow at a time when cash flow was more critical than it is now (i.e. we were still carrying a mortgage and had recently put considerable money into repairs and upgrades).  It was not enjoyable struggling with those situations.  

One does not become a landlord to become a charitable institution.  One becomes a landlord to make a profit and one has to take a risk to do so and invest time, effort, and capital.  That capital does not just fall into one’s hands.  One usually has to work hard and long and smart to accumulate it.  I know I was always the first one in our building in the morning and the last one to leave at night so I was likely working longer each day than my tenants, to say nothing of the hours that were put in every weekend that they did not. 

There is a legal contract (i.e. a lease) between the landlord and tenant and both have an obligation to fulfill the terms of that contract.  Otherwise, you have an abrogation of the rule of law.  And without rule of law, watch how fast a society comes apart.

If, in hard financial times, a government decides to suspend rent payments AND allow the landlord to suspend their payments as well (such as for property tax, mortgage payments, utility payments, etc.), I would not have as much of a problem with the situation (although this situation is obviously unsustainable in the long term).  But if that government, unilaterally “rewards” the tenant but “punishes” the landlord, where is the fairness and justice in that?

I know a number of other people in my community who are landlords and none of them are slum lords.  Not a single one.  And the vast majority of them are middle class.

I agree with Brushhog about the 6 month rule you postulated.  If a landlord should be able to carry their investment for 6 months without receiving rent, then, to be fair, a commercial tenant should not consider starting a business unless they can cover their rent and other expenses for 6 months.  Fair is fair.  Yet how feasible is that in that real world, especially with residential real estate?  In most instances, not very.

In so far as commercial real estate being a viable and productive investment looking forward, we have our building up for sale, if that is any indication of my feelings on the subject.  As is well known, any kind of real estate is relatively illiquid compared to other asset classes, so it’s not like one can easily sell off the asset, without taking a considerable loss, if one needs to cover one’s financial obligations or simply wishes to exit their position for whatever reason.

Furthermore, landlords are humans too.  Besides investments of sweat, blood, time, effort, and capital, they have their own expenses as well.  They pay for food, utilities, loans, mortgages, insurance, child care, college educations, medical expenses, and funeral expenses like everyone else.  What happens when, because they are deprived of rental income, they can’t meet THEIR personal financial obligations?  Plus, please show me historical examples of how this type of unilateral reward/punishment scenario worked out well for the involved society or nation.  I can think of none. 

I hope I don’t wind up like the man who fell out of a 20 story building window and, as he was passing the 10th floor on the way down, was asked by someone looking out a 10th floor window, “How are you doing?” replied “So far so good!”  While we have weathered all the storms so far, of all my various investments, this building remains my biggest concern and I am eager to get out from under it as soon as we find a viable buyer.  One recent promising deal has fallen through already.  

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There is of course another side to the rental debate. The vast majority of the population can not afford to buy a house and this reality is only getting worse. 10s of millions are being foreclosed on and or evicted which makes it even harder to buy. Banks are seriously tightening lending standards as they understand all of this. This all seriously favors those who can afford real estate as more properties become available at fire sale prices. I think I read that Sean Hannity or the other guy bought several thousand houses after Katrina for pennies on thee dollar and now rents them out.
The net effect of this is to widen the inequality gap at an exponential rate.
I know what those of you who have “investments” will say because I have heard it over and over, “well why don’t they all just get a job, work hard, save money until they can buy a house or 3?”. This kind of thinking is beyond ignorant and truly illustrates the degree that that individual has not been paying attention to what is happening.
The argument for landlord vs tenant is directly proportional to real estate ownership.
Everyone deserves to have a home to live in. I don’t have all the answers but some do. What is clear is that what is happening now will not stand.

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  • I could not agree more.
A successful society has 2 parts, safety nets when they are truly needed, balanced by a work ethic and personal responsibility. Indeed, there are no successful historical examples I can think of without both ... My lineage is working class, my grandfather was the 1st to go to college on the GI bill, became a teacher, followed by his son/my dad who used his GI bill to get a Masters in criminal justice, and I who used her GI bill to obtain a Masters in Nursing. I have worked since I was 16. But I am sympathetic to the fact that times were easier then, both in finding employment and saving money. It is much harder to do both the last decade. I did not save as much as I should of in my 20’s and 30’s, was living the Southern CA lifestyle instead and being risk averse did not buy real estate there when I should have. I am now living rent free with my parents in OR, working a full time RN job and saving money/diversifying. I consider myself blessed although most of my co workers and friends think me insane for staying with my parents so long. My great grandfather who immigrated from Montreal, who owned a small gas ⛽️ station convenience store during the Great Depression and lost it due to all the IOU’s he extended, that were never repaid, instilled in us “Always Live Below Your Means and Save”. I wish I had listened sooner, but I guess better late than never. Wishing you a quick sale of your property.
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Actually there are very few homeowners being foreclosed right now due to the government’s moratorium. The same applies to tenants being evicted. For now. We don’t really know what the government will do next to try to ‘remedy’ this situation. Banks have tightened lending standards at the direction of the government.
An interesting explanation of what’s happening is available in this podcast/youtube video from Ken McElroy (MC Companies, owns many apartments) and guest George Gammon (great videos explaining current economic policy). It’s short and easy to understand: How Inflation Can Fool Most Investors
https://youtu.be/3zz0O4aSp4o
One key quote from George Gammon about WHY the inequality and unrest is happening (paraphrased): “Volatility (in stock market, real estate market, etc.) never disappears, it simply moves somewhere else.” The volatility that should be happening in the markets has ‘moved’ reducing the standard of living for many people.
Also, I have never heard any investor say “why don’t they all just get a job” when speaking about the economic and civil suffering being experienced today. When it’s your business to invest, you care about what, whom, how, and why you invest where you do. You must to be successful. I have heard non-investors say that though.

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Anyone have any info on buying farmland with syndication?
Anyone interested in being part of a Farmland syndication group?

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Queen bee, homeowners and landlords who miss their payments may not be getting foreclosed on right away, but those payments arent going anywhere. If a renter misses April and May rent, the government says thats OK, the landlord has to suck it up and take the hit. If the landlord misses his April and May mortgage payments, the bank isnt expected to take the loss. You’ll have to make those payments up, probably with interest and penalties.
Now the government, [with all its generosity in waving that landlord’s rent payment ], hasnt yet waved any property tax levies anywhere. So, dont pay your landlord, no problem. Dont pay your property tax, we’ll kick your door in and drag you out of your home. Covid 19 shut downs are no excuse for not paying THEM. Isnt that interesting how their humanitarian generosity stops the moment it actually costs them something?

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AO,
Thanks for your comments! I appreciate them and don’t completely disagree with you at all.
Renters are in a one down position in residential real estate. Generally speaking, they cannot afford to save 6 months rent to get them through the hard times.
If they are exceptional tenants, don’t cause any problems, it is well worth the landlord’s time, effort and money to at least defer payment of rent, if it looks like the situation will improve.
Beyond that, I don’t have the answers. I think that everyone should have a roof over their head. I also agree that landlords should not be in a position to go broke themselves in a situation where rents are not paid and there is no end in sight.
In that case, the landlord’s savings would run out. Each case of non payment of rent has to be viewed through several different lenses.
Currently, in the U.S., at least in the commercial sector, real estate investing, because of the hands on work involved, can be classed as a business, therefore I think that the landlord is eligible for pandemic related loans to keep them going. I imagine it is the same for residential real estate–but not sure. Please correct me if I’m wrong.
I still think the onus should be on the investor, or landlord, to be prepared for vacancies, and other issues that come up with otherwise wonderful tenants to help them recoup from their own misfortune, whenever this is possible.
It can be a difficult row to hoe as the landlord doesn’t want to come across as a complete mark either and shouldn’t have to subsidize a tenant in perpetuity who makes stupid business or life decisions.
Sorry you felt insulted Brushhog. But the ‘left, left, left’ thing becomes grating. Nobody is taking anyone’s private property from them.
Netlej, Thank you for your comments.
If real estate if viewed purely as an investment, there is another saying…“never invest any money you aren’t willing to lose.” In that case, real estate investing should be one of several different income streams and your portfolio is a way of cross subsidizing.
If it is your sole source of income? Be prepared. Live below your means, way below your means, if need be. Have a pile of money in the bank, as soon as you can accomplish that.
 
 

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The landlord -rental business is a big Ponzi scheme, the owners have very little of their own skin in play, if any, it is all debt. I don’t feel sorry for their plight. And by the way I am not a Bernie bro, you missed, hah ! Your comments represents typical right-wing talk, anybody having a differing opinion is a socialist, communist, Bernie bro…, sure " I don’t want to be political…".

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You say that “Everyone deserves to have a home to live in”.

Does that mean you are in favor of public housing projects where our tax dollars are used to house those who are not capable of providing their own housing?

Or do you instead think landlords should let people live in their privately owned buildings free of charge or should grant concessions in rent such that the landlords are not making any profit but rent their properties as an altruistic gesture or possibly even at a loss because they may (or may not) possess more than their tenants?

Furthermore, I am interested in what else you think “everyone deserves to have …”.  I am interested in things beyond food (which is partially available via public assistance programs and charity giveaways), income (which is coming in the form of UBI and is available, at least partially, now for many in the form of public assistance, social security, etc.), health care (which is available to the poor but often not available at a reasonable cost to the working and middle classes), education (which is available to all at below the level of higher education and now becoming available at the higher education level as well), and housing (which is often but not always available in the form of public assistance to lower income individuals or in the form of public housing). 

Are those enough or do you think people deserve other things as well?  Clothing?  Communication devices?  Cable connection?  Insurances such as property, life, disability, etc?  Vehicular transportation?  Retirement plans?  Burial costs?  Or …?

Do you think equality of opportunity is sufficient or do you favor equity of opportunity?

I’d be interested in hearing your thoughts on these things.

I don’t have all the answers either but, unlike you, I’m not aware of anyone else who does either.  Would you be willing to share the identity of those who you think do?

 

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You’re doing the best thing living with your parents and saving right now. And thanks for highlighting just how difficult it is for people younger than yourself (and wayyyy younger than me!) in the last decade. Sometimes I wonder if people are so atomized in their own echo chamber worlds that they don’t even know any millenials, let alone appreciate what they are up against.