I have been reading a lot about 2011 being the year we see rising inflation. While on one hand rising inflation is a sign that the economy is starting to recover, on the other hand who can afford higher prices when we have all seen our incomes and assets decline in value over the last 4 years.
One of the best ways to combat inflation is to create fixed expenses where possible.
Generally most peopleâ€™s largest expense is their housing, so if you turn that into a fixed expense, then you are protected from your largest expense going up with inflation.
While I donâ€™t know much about commodities and precious metals, I do know about real estate, so here are my top 3 action items to help protect you against rising inflation.
Â· If you are a renter, your housing expense is a variable cost and will generally increase every year - the increase is more when inflation is higher. As soon as you can, buy a home and get a 30 year fixed mortgage. This will turn your housing expense into a fixed cost. As an example if you are paying $1,500 in rent today, you will pay double that amount in 10-15 years, depending on the rate of inflation over that time. Remember when one bedroom apartments were renting for $550.00 in LA?
Â· If you have a Home Equity line or First Mortgage that has a variable interest rate, then look into refinancing into a fixed rate loan. I know interest rates are real low right now and you are enjoying low payments on your equity lines, but once they start to go up, you will not be able to refinance at a low rate. It is wiser to pay a little more now, vs. a lot more laterâ€¦
Â· If you have money to invest, invest in income producing real estate. Look at purchasing a single family or multi family home. With todayâ€™s depressed prices and interest rates where they are, you can invest with a small positive cash flow on your money â€“ I say small, but it will be more than what you get when you put your money in the bank. However, the real return on investment comes in the future. You will have 3 sources of return:
oÂ Â Â Equity that is built as you make your monthly mortgage payments
oÂ Â Â Equity Built when home prices go up as a result of inflation
oÂ Â Â Increased monthly cash flow when rents go up as a result of inflation
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Please contact me if you need help buying, selling or refinancing. I am here to help you navigate your Real Estate transaction with the least amount of stress and best possible outcome.
Home Sales Pro