Since 1995, the United States has seen a 65% increase in the cumulative rate of inflation; something you could buy back then for $1,000 would today cost about $1,675. 

 

On a larger scope, let’s say a property that was for sale in 1995 had a listing price of $250,000. Today, that listing price would be at least $420,000. 

 

This doesn’t take into consideration any appreciation the property has acquired — only the value of the dollar that has been changed due to inflation.

 

How can investors shield themselves (and even profit from) this inflation?

Using Inflation to Your Advantage with Turnkey Properties

Owning turnkey rental properties in Kansas City can provide a hedge against inflation, regardless of what happens to the value of the dollar in the future. For the most part, this is due to two main factors: rental income and fixed-rate mortgages. 

 

Most of the time, when people purchase passive income real estate, they use money that belongs to other people through financing. 

 

Most mortgage loans carry a term of 30 years. When possible, the investor should opt for a fixed-rate mortgage, not an adjustable one. This ensures that the payment will not change for the next 30 years – even as inflation increases.

 

A turnkey rental also makes a solid hedge against inflation because the owner can increase the rent through the years to keep up with inflation.

 

For example, an investor can charge $980 per month for rent (because other similar properties in the neighborhood have rent at about the same level), even though he or she only has a monthly mortgage payment of $720 per month. 

 

The investor banks a nice little profit each month, and through the years, as inflation increases, that $980 per month can increase because “inflation requires it.”

Losing to Inflation with Traditional Investments

When traditional investments like savings accounts and IRAs are the sole source of retirement income for the future, account holders lose out. A person with an annual salary of $100,000 today would be saving for retirement according to what they deem is comfortable now.

 

However, thanks to the rate of inflation, that person would actually need more than double that salary to save enough for retirement and maintain that level of comfort. This wouldn’t be so much of a challenge if the purchasing power of the U.S. dollar would rise along with the inflation rate, but that’s not how it happens. 

 

By the same token, a savings account with $50,000 in it today would, in 30 years, only really be worth about $25,000. Again, this is all because of the risk of inflation.

Real Estate as Inflation Hedge Investments

The key is to focus on inflation hedge investments, which typically include any assets whose value are expected to to increase. 

 

Three factors make Missouri real estate an excellent means of battling the woes of inflation for property owners:

 

  • Increasing income
  • Depreciating debt
  • Appreciating value

 

Real estate, and especially turnkey properties, can be thought of as a tool to fight inflation, as they are able to produce cash flow now and into retirement.

Increasing Income

Increasing income (rental payments you receive from tenants) is one of the best defenses against rising inflation. Effective planning, purchasing, and management of turnkey properties will enable rent payments to cover more than your monthly expenses. 

 

They should also cover your mortgage loan balance, taxes and insurance, and interest. In addition, these payments should also generate at least a few hundred dollars a month in cash flow. As previously stated, property owners should also increase rent as costs rise to account for inflation.

Depreciating Debt

As a turnkey investor, the debt owed on your purchased Jackson County real estate will depreciate in value as the rate of inflation increases. Assuming you have an amortized loan, your payments will stay the same, but the value of the payment will decrease with time.

Appreciating Value

On average, property values increase between 3% to 5% each year. A property that is purchased for $100,000 would be worth $148,000 ten years later, assuming an annual appreciation of 4%. 

With inflation rates at about 19% over 10 years, that $100,000 property would cost you $119,000 to purchase it again in a decade.

Turnkey Beats Inflation

As you can see, you can not only keep up with inflation with passive income rental properties in Kansas City, but you can also add value and gain appreciation this way. 

 

Even during times when there has been a down economy — like the time between 2009 and 2012 — inflation was still at an average rate of about 2%. Inflation is inevitable; one of the best ways to protect yourself from it is through turnkey rental ownership.

 

For information on how a Kansas City turnkey rental company can help you reap lasting benefits with passive income real estate, contact Real Deal Properties.