Inflation and Appreciation
Cash is considered by many to be the safest asset because there is no way for you to lose your investment if that cash is in the safety deposit box down at your local bank or stuffed under your 10-year old mattress. However, your cash actually loses money each year if you don’t spend it. It’s the result of this nagging issue called inflation. The average inflation over the last 10 years (from 2002-2011) is 2.54%. In 2011, it was 3.16%. And that doesn't even account for all the pent up inflation yet to be unleashed. The Fed has doubled the money supply by printing over $1 trillion dollars in new greenbacks since 2007. If you are sitting in cash, you are simply throwing that money away. This is one reason why people invest in the first place – rather than working for your money, you want to make your money work for you.
Real estate is a special asset class that can help make your money work for you in regards to inflation. While many people dislike inflation because it makes things like the price of gas go up, and causes us to spend more money on things like food, rent and entertainment, real estate investors LOVE inflation. Not only does inflation tend to cause property values to increase, but investors can also charge more rent for the buildings they own – making inflation the double whammy for real estate investors!
Most individuals allocate their funds across a number of different asset classes like cash, money market accounts, stocks, bonds or even startup investments. Some of those monies could be very liquid, like cash and stocks, while other monies are less liquid, invested in CDs, 401ks, and Roth or Traditional IRA accounts.
Adding real estate to any portfolio further diversifies what you are investing in. The benefit of diversification is that if one asset class is not performing well, you don’t have all your eggs in one basket.
Our motto for our investors at Realty Mogul is “no trash, no toilets, no tenants”, meaning that you as an investor will not have to deal with any of the hassles of property ownership while still collecting your pro rata share of the net income each month. By investing in real estate, you can literally make money while you sleep. This approach to income is much different than “active” income, such as showing up for work each day, where your time and income are linked.