If you pay for it in dollars, there’s a good chance you’re buying into an asset destined to dwindle away in value. Why? Because the value of the dollar is in continual decline, courtesy of the Federal Reserve’s gonzo currency printing policy, and President Nixon’s decision to take our economy off the gold standard back in the early 1970’s. Well, if you don’t pay for it in dollars, what are you supposed to use? Horse feathers? Mule teeth? No, silly, it’s even better than that. You should pay for your property investments with debt. Or financing, if you prefer to refer to it in those terms.
Where investors often go wrong is in thinking it’s a good thing to put more of their own cash into the deal. Wrong! The more personal cash used to buy an investment property, the more you stand to lose in portfolio value. The reason hinges solely on the factors we mentioned in the first paragraph: Nixon’s banishment of the gold standard, and the Fed’s currency printing program. Both these actions lead to the steady sort of inflation, interspersed with bursts of scary high inflation, that has plagued America for four decades.
There’s only one way to combat the spectre of a dollar in a state of continually declining value, and that’s to finance your commercial investments with a long-term, fixed-rate mortgage tied to the property. And make sure you get the lowest down payment possible. Here’s what you should focus on. As time unfolds, the value of your dollars will drop. Today’s dollar is worth more than the dollar at the end of the year, which, in turn, will be worth more than a dollar five years from now. Not a good thing if your sum total of wealth is kept in a checking or savings account, but what if you have taken out a mortgage on a piece of rental property? Here’s a nifty economic fact – the principal owed on the mortgage will decline in real value, due to inflation, as time goes on. You’ll owe less at the end of the mortgage, in real terms of what you can buy with a dollar, than what you started with, even if you never pay a cent on it other than interest.
The Commercial Investing Center Team
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