BACKGROUND

Whenever you pick an investment option, you have to consider how inflation impacts the future value of your investment.

The IRS considers 2% of inflation to be standard - meaning every year if your money loses 2% of its buying power, that would be within the range of normality.

This becomes significant especially as many investors look for investments within the 5 - 30 year range. If you have longterm investments, such as a stock portfolio, once you go to take that money out when you retire, you’d realize 2% of lost buying power compounded over the life of your investment.

THE NUMBERS

So, if you have a 30-year portfolio you’re cashing out, you’d have lost a combined 45.45% of buying power over those 30 years. [The formula to calculate this is 1 - (.98^30)]

Inflation is often overlooked, but in multifamily investments, you aren’t just protected against inflation, you outpace it. 

Here’s how…

Just as the IRS accounts for a 2% rate of inflation per year, when we purchase our properties we build in a 2% rental (income) increase per year, as well as a 2% expense increase (something that we’ve seen be steady at 2% per year). 

Now, that doesn’t mean that every year we stay stagnant, and here’s why: 

In this scenario, we have a starting income of $100,000 with starting expenses of $X55,000. A 55% ratio of expenses which is common with multifamily properties of the size we acquire. 

With a 2% increase in income and expenses, this property doesn’t break even every year, but our net income continues to grow. 

This is one of many reasons why multifamily investments are becoming the most desirable investments for people. Here are some more reasons: 

Above Average Returns
Cash on Cash Returns
Tax Advantages