THE BIG PICTURE
INFLATION & REAL ESTATE
the precious-metals markets are acting: • The wealthiest investors are buying real estate the same way they have historically purchased gold and other precious metals, to create a hedge against inflation. • The precious-metals brokers are advertising aggressively, both to purchase those precious metals and to sell them. Think how many times you may have heard this advertising: “Buy gold and protect your assets.” These days, real estate is in the same category. •
REAL ESTATEHAS ALWAYS BEENA HEDGEAGAINST INFLATION BECAUSE FIXED INTERESTRATES, BYDEFINITION, DONOTRISE.
Samuel K. Freshman is the founder & CEO of Standard Management Company and the author of Principles of Real Estate Syndication, the industry "bible" on the topic. He may be reached at sfreshman@standardmanagement.com or learnmore at standardmanagement.com.
Real Estate, Precious Metals & The TruthAbout Inflation WHY MORE INVESTORS ARE BUYING REAL ESTATE THAN EVER BEFORE.
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by Samuel K. Freshman
eople do not talk about the topic of inflation very often, but it’s not because they’re not thinking about it. In fact, in my experience, there is a great fear of inflation in the U.S. population. A lot of people do not even fully under- stand why they are afraid of it, but the underlying fear has a very simple source: Our government is overspending. We will never be able to pay off our national debt without inflating the currency dramatically, which will steal value from our currency. It is the same thing that happened to Italy and France after World War II. Now, you may be asking yourself, “What does this have to do with real estate?” After all, real estate has always been a hedge against inflation because fixed interest rates, by defini- tion, do not rise. In today’s economic environment, people’s view of real estate is shifting as they become more concerned about inflation. People who previously might not have spent a lot of time investing in real estate are buying property and the population of real estate investors is growing while the sector
becomes more competitive. Why the growing interest in real estate? Real estate represents not just cash flow, but also retention of value. In other words, an acre of real estate that could be sold to buy a certain number of loaves of bread, for example, today, is perceived as likely to be worth roughly the same number of loaves of bread 20 years from now, regardless of what the cash value might be. Whereas, if you have capital in cash or stocks, the same dollars today might only buy half as many loaves (or fewer!) in 20 years. I think of this issue as the elephant in the room when it comes to real estate discussion. No one wants to talk about it because addressing the problem will require dramatic, painful changes. However, even if we’re not talking, real estate investors and
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