Part 4

Hedge Against Inflation

Nixon took us off the gold standard in 1971, now we rely on currency to place value on our money. If a currency is printed, inflation will exist. If you have your currency sitting in a bank account with no or very low-interest returns, you’re actually losing value on your currency. The current inflation rate is 1.9%, so if you aren’t making at least that, your currency is losing value.

Real estate is a great hedge against inflation because if you invest that currency in real estate, your currency holds a new value, and that value is real estate, which appreciates through market appreciation and forced economic appreciation. You will invest in today’s dollar but see gains in the value of the dollar in the future’s dollar.

Invest in a Physical Asset

Real estate is a physical asset that won’t just disappear. When you buy real estate, you are buying land, a building, and the business operation of renting units.

You can’t do much with the land, but the building and business operation provide opportunities for multiple improvements and exit strategies. You can tear it down and build new, you can improve the existing building, you can change the use of the building, you can improve the operations of the business by increasing rents or reducing expenses, you could subdivide it, condo it out, and the list goes on and on.

When you have a physical asset that you can change, you open yourself up to more opportunities for a successful exit.

Economies of Scale

When you participate in a large commercial purchase, you get to benefit from economies of scale. As the size of the building increases, the price per unit decreases. It’s cheaper by the dozen, times ten or twenty or thirty. You also get to benefit from the cost per unit because services get cheaper at scale. It’s like hiring a single house cleaner to clean your house versus a cleaner at a hotel–I bet the hotel is paying the cleaner much less than you are paying your cleaner.

Purchases in bulk allow cheaper cost per unit, think Costco vs. a grocery store. Services are cheaper because the business has an employee making vs. hiring contractors who are paid by the job. You get more for your money, that is what this means.

Grow Your Portfolio Faster

Syndicated deals allow individuals to invest in something that they may not have been able to purchase on their own. You can invest in more advanced deals because you have a team doing all of the work that requires professional experience. Tap into their expertise, their network, and their time and benefit from something it would take years to learn and gain experience in yourself.

Investing passively in syndication is a great first step to being on the General Partnership side of a deal if you choose to go that route down the road.