Inflation - The Invisible Tax

Today more than ever, the economic conversation is focused on none other than - Inflation. And while most people have an idea of what inflation is, unfortunately the majority don't understand how it effects their lives.

Simply speaking when inflation occurs, two things happen. There is an increase in prices, as well as the purchasing power of money decreases. So instead of one dollar being able to purchase one candy bar, now it takes two. In other words, as inflation increases, the value one dollar represents decreases.

As this happens, what you have in the bank decreases in purchasing power, what you make at your job (from a value perspective) decreases, and what it costs to live - rent, food, clothing, transportation, education, healthcare, all increase. In the end, although you didn't receive an actual pay decrease, your purchasing power erodes and thus you literally become poorer.

And this is why, inflation is often called the invisible tax. It's a way the Federal Reserve/US government can take value out of your pocket without you really knowing it.

So why is inflation such a hot topic in today's economy? As the money supply increases, the purchasing power of each dollar already in circulation decreases, and thus inflation begins to wreak havoc on a society. And unfortunately, this is what we are witnessing today. Between stimulus checks, child tax credits, increased unemployment benefits, infrastructure bills, etc, our country is seeing an increase in money supply and therefore an overall decrease in purchasing power.

And while most people celebrate free money from the government, the overall effects of such a strategy are alarming. In an economy where money printing is the name of the game, what really happens is the country begins to split into two economies.

Salary workers and renters and/or people who own very little assets are ultimately hurt the worst. As the purchasing power of money decreases, their salaries become less and less effective. In other words, they literally take a pay cut - as far as value is concerned. On the housing side, because inflation raises prices, their rent will also increase, only adding pain to overall equation. Lastly, as with any inflationary period, the other areas of their life will also become more expensive; food, clothing, etc. The overall effect of inflation on salary workers, who own little or no assets is extremely negative. As the purchasing power of the dollar decreases, these individuals will be pushed out of the middle class and into the lower class.

On the other side of the equation is the less populated path occupied by business owners (those who can control the prices of their goods/services) and/or owners of assets. For these individuals, the effects of inflation are often much less and can sometimes even be beneficial. Money tends to pool like water and therefore when a lot of it is released, it most often pools in assets. For example, take a look at what happened out of the government's Coronavirus response. Following a massive printing of money (first by Trump and now by the Biden administration), asset prices experienced a historic rise in values. And note, this was all while the average worker (the salary worker who owns very little assets) became poorer.

In short, two economies are emerging and whether you like it or not, you'll need to either choose to win or be forced to lose.

Fortunately there is a method for defense! That is; owning real estate assets. As the power of money decreases, rents increase and property values rise. This inflation of asset prices, increases real estate investor's overall net worth.

To add to this, as the power of each dollar decreases, so does the value of the debt you hold on any given property. In other words, as far as value is concerned, as the dollar decreases in value, so does the amount of value you owe! In these ways a decreasing dollar can actually help real estate investors remain economically stable or even grow in wealth.

**It's not just freedom that 100+ units can offer. It's also about protecting your economic well being in turbulent and unpredictable economies. So begin growing your portfolio, in the name of freedom, wealth and asset protection.