The Inflation Hedge
of Rental Property

The test of time has shown us just how effective the inflation hedge of rental property, and real estate in general, has been. In fact, protection against inflation is one of the main benefits that you'll receive by investing in rental property. In simple terms, a properly managed rental property will provide "protection against the future" for you.

Lets take a look at inflation and get an idea of its effects. The results are quite surprising.

Inflation and its Harmful Effects

Inflation has been around ever since money has been in existence. It represents the decreased purchasing power that our money provides over time. This results simply from the rising prices of goods that we purchase. Sometimes it creeps up on us so slowly that we don't even notice, but other times it literally occurs overnight, and often sharply. For the consumer, it’s the single biggest threat to their financial well being and if not combated, will consume purchasing power like the monster that ate Manhattan.

To get an idea of inflation's harmful effects, check the chart below. Its data is taken from the January 2007 AARP bulletin and highlights prices over a 50-year time span.

Lets consider another useful example (or perspective) of inflation. If a $50 dollar bill were tucked under a mattress in 1957, it would be worth only $6.58 today after adjusting for the affects of inflation. This represents a loss of almost 87% of its purchasing power! Banking with Mattress Savings and Loan is certainly a bad idea indeed.

That same $50 dollar bill, if placed in a regular savings account in 1957, would be worth roughly $284 today, or about $37.50 after adjusting for inflation. In this case, the $50 bill lost about 25% of its actual purchasing power by sitting in a savings account over the 50-year period. That's still a poor performance, but clearly not as bad as the mattress case. To keep pace with inflation, the $50 bill in 1957 would have to grow to roughly $380 in today's dollars.

So, the bottom line is that in order to preserve and grow your wealth, investments that can keep pace with inflation over time are needed, and rental property is certainly one of them. Without the protective inflation hedge of rental property, father time and inflation will certainly ruin your future financial well being.

For more in-depth information about the inflation hedge of rental property, please visit The Landlord's Library book collection. It's the ultimate, one-stop source for practical, in-depth information on the entire subject of residential landlording.

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