Passive Investing

WHAT THE INFLATION RATE MEANS

The average inflation rate over the last 10 years was 1.6%. And the Federal Reserve target is a 2% annual inflation rate. It says so on their website! So, what does that mean for you?

It means that the Fed aims to devalue your savings and reduce your purchasing power by 2% every year.

If you invest in the stock market, that means the 7% average annual return you thought you were getting over the last 15 years is really only about 5%. Yikes!

HOW INFLATION HELPS MULTIFAMILY

What does inflation mean for multifamily? Well, for most people, housing is their largest expense. And when inflation rises, the cost of housing goes up too.

This is a very good thing for us as multifamily investors because our revenue stream is increasing. At the same time, our biggest expense—the mortgage payment—is fixed!

The result? Inflation allows us to charge more for rent, while our debt decreases in value.

THE MULTIFAMILY MATH ON INFLATION

As a result, multifamily is a great hedge against inflation. If you do the math, a 2% inflation rate (the Fed target) translates to a 10% return on equity!

​There is no other investment that benefits from inflation like this. While your stock portfolio and your savings are worth less and less every year, multifamily returns continue to grow.

FINAL THOUGHTS

No question, multifamily is a better investment than stocks when it comes to inflation:

• Inflation decreases the value of stock returns

• Multifamily returns grow with the inflation rate