I’ve been asked whether I take inflation into account when doing my real estate deals. The short answer is YES. As a real estate investor, you will too. It is one of those common-sense things that you have to take into consideration. To compensate for inflation, you have to take on more units of production. That way, your monthly cash flow, and therefore purchasing power, will rise to meet the effects of inflation and the cost of living.
What is a unit of production?
A single-family home is one unit of production. It produces cash flow, but it only produces one amount of rent per month. A multi-family property, say one that has four units, offers four units of production. You get four times the cash flow (rent) than you will with a single home. That means you need to invest in more units of production! And that’s why my team and I invest in apartment buildings. Each apartment building offers multiple units of production. The more units you have as an investor the better. I now control more than 380 units of production. Each unit produces an income in the form of rent. Notice I didn’t say it is MY income? I am not producing the income; it is the tenants who enjoy the quality service that the apartment units provide that produce the income. The more units I can control the better! Do you think I am concerned about inflation? Not really. The rents can rise over time to meet inflation and with more units of production, inflation is not an issue. However, if I were to only have a number of single-family homes, I might be more concerned. That’s why my team and I moved into doing apartment building deals and then commercial properties. I cover topics like this in depth in my upcoming book. I invite you to browse the book page.
I’ll share more with you about this and other topics in real estate investing in upcoming blog posts. If there are topics you’d like me to cover, shoot me an email at [email protected]. I’d love to hear from you!