Investing in Real Estate Protects Your Wealth from inflation!

Inflation is a common economic challenge that affects us all. It is a measure of the rate at which the general level of prices for goods and services is rising and purchasing power is falling. Inflation has a profound impact on our everyday lives, as the cost of living increases, our money loses its value, and it becomes more difficult to maintain our standard of living.

Recently, inflation has reached 9.1%, the highest it has been in 40 years. This rise in inflation is due to a combination of factors, including built-up consumer demands, supply chain constraints, and the government printing money. These factors have created an environment in which prices are rising, and our money is losing value at an unprecedented rate.

The challenges of saving money in a bank account during inflation are significant. With interest rates at a low of 0.01%, as seen in Chase bank, the returns on our savings are pitiful. This means that the money we put in the bank today will not keep pace with the rising cost of living, and its purchasing power will decrease over time. In an inflationary environment, simply saving money in a bank account is not enough to ensure financial security.

Low interest rates have a significant impact on savings. The current interest rate at Chase Bank is 0.01%, which is pitifully low. This means that the returns on our savings are minimal, and our money is not growing at a rate that can keep pace with the rising cost of living. The pitiful interest rate at Chase Bank highlights the challenges of saving money in a bank account during inflation.

With interest rates this low, it is increasingly difficult to protect our hard-earned money from the effects of inflation. The money we save in the bank today will not keep pace with the rising cost of living, and its purchasing power will decrease over time. This presents a significant challenge for those who are trying to build wealth, provide for their families, or plan for their financial future.

In an inflationary environment, it is important to consider alternative options for saving and investing our money. Simply putting our money in a bank account is not enough to ensure financial security, and we must explore other options to protect ourselves from the effects of inflation.

When inflation is on the rise, the money we put in the bank today will not keep pace with the rising cost of living, and its purchasing power will decrease over time. As an example, if you put $100,000 in the bank today and inflation continues at the same rate, in just 2 years, your $100,000 will only have the purchasing power to buy items equivalent to today’s $85,500.

This highlights the dangers of relying solely on savings in a bank account to protect your hard-earned money. In an inflationary environment, simply saving money in a bank account is not enough to ensure financial security, and it is important to explore alternative options for investing and preserving your wealth.

That is why investing in proven cash-flowing assets, such as multifamily apartments, is a wise choice for protecting your hard-earned money from the effects of inflation. By investing in these assets, you can protect your wealth, grow your savings, and secure your financial future.

Investing in proven cash-flowing assets is an excellent way to protect your hard-earned money from the effects of inflation. By investing in these assets, you can grow your savings, generate passive income, and secure your financial future.

Multifamily apartments are one such asset that can offer a safe and stable return on investment. With the right investment strategy, you can leverage the power of real estate to protect your hard-earned money and achieve your financial goals.

In my video, I discuss the benefits of investing in apartments and how this type of investment can help you protect yourself from inflation. By watching this video, you will gain a better understanding of the potential benefits of investing in multifamily apartments and how this type of investment can help you achieve your financial goals. Whether you are a seasoned investor or just starting out, this video is a must-watch for anyone who is serious about protecting their hard-earned money.

BONUS Depreciation, why you should care!

Over the last several weeks, I’ve spent time educating you on the tax benefits of apartment investing. We’ve spent time understanding depreciation, what a cost segregation study is, and how apartment investing gives you more tax benefits than other asset classes.

There is one more term you need to know! BONUS DEPRECIATION.

This is an accelerated form of depreciation that allows for you take advantage of 100% of the depreciation in the first year of ownership. This is a HUGE benefit!

The Tax Cuts and Jobs Act, enacted at the end of 2018, increased first-year bonus depreciation to 100%. It went into effect for any long-term assets placed in service after September 27, 2017.

The 100% bonus depreciation amount remains in effect from September 27, 2017 until January 1, 2023.

After that, first-year bonus depreciation goes down as follows:

80% for property placed in service after December 31, 2022 and before January 1, 2024.
60% for property placed in service after December 31, 2023 and before January 1, 2025.
40% for property placed in service after December 31, 2024 and before January 1, 2026.
20% for property placed in service after December 31, 2025 and before January 1, 2027.

This year is the last year that you can get 100% bonus depreciation in your first year of ownership.

This doesn’t mean that tax benefits associated with real estate are going away. You will still be able to take depreciation, it just won’t be upfront in that first year of ownership, it will be spread over the next several years.

Many people utilize tax loss harvesting as a strategy to reduce yearly taxes. For those investors that are interested in harvesting your tax losses, you should invest asap!

Cost Segre-WHAT???

Recently, I talked about DEPRECIATION.

Today, I’ll cover why there is more depreciation with apartments than other asset classes, and how we determine the depreciation amount.

Two words: Cost Segregation

A cost segregation study is a detailed study of the cost components of the apartment building that looks at each element of a property, splits them into different categories, and allows you to benefit from an accelerated depreciation timeline for some of those building components.

This type of study is conducted by a specialized firm, usually a team of tax advisors and engineers, working together to decide which components of a building should go into each category, and how much each element costs on its own.

So why do apartments give you more depreciation?

Let’s compare a self-storage building versus an apartment building.

The self-storage building has very basic components, metal frame, roof, and a possible air conditioning unit.

Now let’s think about the apartment complex components. In a 200 unit apartment building, we have 200 bathtubs, 200 plumbing fixtures, 200 kitchen cabinets, 200 carpets/floor, and so on and so forth.

There are a lot more components which essentially equates to more depreciation!!

Ok, we’ve established we need depreciation to take advantage of the tax benefits, AND we get more depreciation with a cost segregation study.

We’ve also discussed why apartment investing translates into more depreciation than other commercial asset classes.

Next time, I’ll cover BONUS DEPRECIATION and why you should care about it!

Wait & See? or take ACTION??

Many people ask me:

Is this the right time to invest in apartments?

Aren’t we in a recession?

Shouldn’t I wait for things to settle down?

It isn’t about whether it is the right time or not…

You should be thinking “is this the right deal or not?”

Recessions aren’t always times of darkness. They can be seen as opportunities!

Many smart business people have thrived in times of recessions. They have found opportunities and capitalized on them. Not surprisingly, a ton of amazing companies were formed during times of recession.

Remember 2008-2010 recession and financial /housing market collapse?

Airbnb, Warby Parker, Venmo, WhatsApp, Uber, Pinterest, Instagram, Slack were all formed during that time. Now they are all billion dollar companies and are thriving!

These founders weren’t sitting around debating if they should wait and see , they thought about it and took action!

Same goes for savvy investors. There’s no shortage of smart investors who found lucrative deals during times of recession. Remember, people’s circumstances change, and economic volatility causes lots of distressed sellers and properties to go on sale.

Just today I was contacted by a broker letting me know that a property he listed 3 months ago has recently reduced its sales price by a few millions! From my perspective, it went on “sale”.

Ben and I are not planning on putting our my pencils down, we’re going to keep looking until we find a deal where the numbers look amazing! Because we’re not sitting on the sidelines, we’re not going to miss out on amazing opportunities.

In closing, this is the best quote to answer if this is the right time…

“The best time to start was YESTERDAY.

The next best time is NOW”

Affordability Gap

Did you know that the average American can’t afford to buy a house?

There is a HUGE affordability gap between renting and owning real estate, and it’s growing every year.

And, not surprisingly, the rising interest rates only made matters worse!

Let’s take a look at this example of a 3 bedroom/2 bath home- 1,585 SF that was sold in 2020 and then sold again in 2022.

Let’s compare the affordability of the same house 2 years apart for 2 different owners.

Not only has the house appreciated in value, making the purchase price more than $100K more, but the interest rates are much higher now, making the monthly payment higher. The new buyer not only has to come up with a more substantial down payment, but the monthly payments are higher due to higher taxes and a higher mortgage interest rate.

This is pushing renters into apartments longer and preventing many people from purchasing their own homes, which in turn drives the demand for apartments.

We all remember from Economics 101 that when there is a high demand of anything and a low supply, this drives prices up. This same principle applies to apartments. There is a huge housing shortage that is predicted to continue for the next decade.

This supply and demand imbalance makes investing in apartments a no brainer. As long as this affordability gap exists, we will always have tenants which de-risks this asset class making apartment investing a safe one!