wages or have been in real terms for a long time.
Cash-flowing real estate beats historical wage increases and inflation and gives us the means to give ourselves a raise.
INFLATION INCREASINGAS MEASURED BYCPI According to the U.S. Bureau of Labor Statistics, the inflation rate historically, as measured by the Consumer Price Index (CPI), has been 3.24 percent on average. How- ever, the CPI reached 6.2 percent in October of 2021, which was a 31-year high. I know they are blaming supply chains and pent-up demand, but they are also saying inflation will be high - er than its historical average longer than we may like. It’s time to think about giving ourselves a raise. ANNUALWAGE INCREASES VS. INFLATION If we look at the real nominal wage increases for at the past 10 years, most yearly wage increases rose closer to two percent on average than the 3.5 percent goal for healthy wage increases. If we look at the historical average for inflation at 3.24 percent, we can see, on aver- age, workers have been losing 1.24 percent each year of purchasing power as inflation increases faster than wage growth. Over 10 years, the average worker has lost not 1.24 percent of purchasing power but 12.4 percent a year compounded. Are most workers going to see a 12 percent pay increase this year to make up for the lost buying power over the last 10 years? Not likely. Are wages going to go up anoth- er 5-6 percent next year to keep up with the projected inflation rate? Not likely. As we can see, the gap between real nominal wages and inflation is likely to grow larger than the 1.24
percent average which means work- ers are likely to see their purchas- ing power for their family continue to decline. It doesn’t have to be this way. We can use cash-flowing real estate to give ourselves a raise. AVERAGE RENT INCREASES According to millionaires.com, the average rent increase is 3.5-3.8 percent a year historically in the U.S. However, in 2021, since January, rent increases have averaged 17.8 percent nationally with some markets higher or lower according to the Apartment List National Rent Report. We can see that average rent increases are equal or greater than both the annual target for healthy wage increases and inflation. So, as inflation accelerates so do rent increases. What’s nice about using income property to give yourself a raise is you don’t need anyone’s permission to get the raise and you can increase your raise as you acquire more rent- al property and as the tenants pay down the debt on the property. In addition to annual rent increas- es, you have property appreciation with debt pay down increasing your wealth and providing the ability to refinance, tax-free, to cover addition - al unexpected expenses or planned expenses like college tuition or pur- chasing another income property.
AVERAGEANNUAL SINGLE FAMILYREAL ESTATE APPRECIATION According to sfgate.com, aver- age home appreciation is 3.5-3.8 percent annually also matching the stated goal for healthy wage increas- es and inflation historically. In fact, the Freddie Mac Home Price Index reported that home prices grew 11.3 percent in 2020 on average. Further, the Case-Shiller US National Home Price Index just reported apprecia- tion in 2021 averaged 18.6 percent with some places doing even better. So, like average rent increases, appreciation is increasing faster than average wage growth and infla - tion. Just one more reason to own cash-flowing real estate. CONCLUSION We all need to be thinking about how best to provide for ourselves and our families. Cash-flowing real estate beats historical wage increases and inflation and gives us the means to give ourselves a raise. It’s an important asset to own in this economy and gives you control over your financial future. •
Jeff Roth has been a licensed realtor in Michigan for the past 15 years. Jeff specializes in investment property in southeast Michigan. You can learn more
about Jeff’s practice at www.moregroupmi.com/staff/ jeffroth and connect with him at jeffrothsells@gmail.com.
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