The best way I know to protect myself against inflation is to 10X — to EXPAND in real estate while others contract.
And I know this might sound hard to believe, but inflation IS a real estate opportunity that many people overlook.
So if you want to know how to potentially grow your wealth WITH inflation, today’s deep dive is for you.
I’m going to share with you:
- What inflation REALLY is and why you NEED to pay attention to it now more than ever
- The TRUTH about real estate and inflation: is it really an inflation hedge like everyone says it is? What about stocks, bonds, gold, and crypto? What happens to real estate during inflation?
- What could be the best PROTECTION against inflation above all else
What Happens to Money When You Stop Paying Attention?
I want you to picture this:
You go to a nice restaurant with your spouse.
You decide to order a steak for $50.
Your meals arrive, and you tuck in.
Halfway through a bite, a waiter climbs onto a table near you and announces huge price changes to the menu.
He does this every 30 minutes.
By the end of your meal, your steak costs $200, and you can’t pay the bill.
Sounds crazy, doesn’t it?
But that’s what reportedly happened in the summer of 1923…
When hyperinflation ACTUALLY ran wild in the Weimar Republic, also known as modern-day Germany, due to the government’s bad decisions and the fallout from World War I.
In early 1922, one U.S. dollar was the equivalent of 200 German Marks.
But by November 1923, one U.S. dollar was the equivalent of 4,200,000,000,000 Marks!
Hyperinflation was happening so rapidly that prices could double in the time it took you to drink a cup of coffee.
There was so much worthless cash that you had children playing with stacks of cash like toy bricks.
Hyperinflation in Germany in 1923, Author Unknown. Source: Wikimedia Commons, CC-PD
Look, I’m not saying this is going to happen to America, but what you SHOULD take away from this story is:
→ You NEED to pay attention to your money and what the government is doing to it.
→ Other factors beyond YOUR control — like government spending, the Ukraine crisis, and supply chain issues — can EASILY eat away at the value of your cash when you’re not looking.**
What Exactly Is Inflation?
So what is inflation?
In short, it’s when your money can’t buy as much as it used to.
For example, back in 1913, you could buy THIRTY Hershey’s chocolate bars for a dollar.
But, in 2020, you could only buy ONE Hershey’s chocolate bar with the same dollar.
And everyone’s feeling the pinch today.
U.S. consumer inflation reached a record high of 9.1% in June 2022 – the highest it’s been in 40 years… since 1982.
And the prices of all our necessities have skyrocketed over the years.
Rising gas, food, and consumer prices in general are taking a massive toll on everyone’s wallets…
Especially since wages are stagnating and growing slower than the rate of inflation.
How did things get so out of control?
Yes, we can blame all kinds of international crises for this dramatic spike in inflation.
But if you look closely at that steep increase in U.S. money supply in the chart below…
The amount of cash circulating in our system has jumped from $15 trillion in October 2019 to $21 trillion as of September 2022!
In other words, it has grown by 42% over the past 3 years… partially due to the government printing more money for stimulus handouts during the pandemic.
“But Grant, doesn’t that mean there’s more cash to go around for all of us?”
Well, no… because if consumer goods are more expensive and your wages aren’t keeping up…
What the Fed has done is basically dilute the value of each dollar bill in your wallet.
So What Happens to Real Estate During Inflation?
To combat inflation, the Fed has aggressively raised interest rates at a much faster pace than any other time in history. Just look at how steep the yellow line in the chart is below.
Source: Visual Capitalist
And with rising interest rates come… rising mortgage rates.
According to analysts at John Burns Real Estate Consulting on LinkedIn…
Due to the increase in mortgage interest rates, an entry-level buyer can only afford a $274K home as of October 2022.
The same buyer could have bought a $400k home when interest rates were lower in January 2022!
In short, homebuyers have lost 32% of their purchasing power within 9 months.
This is one of the reasons why I believe in renting where I live, and owning what I rent to others.
Although I did recently buy a home, I made sure to pay for it in cash.
Because I don’t want to get stuck playing the home mortgage game…
And if I do need to take out a loan for a piece of property, it has to be a loan that other people (like my tenants) pay for.
So Which Assets Help to Protect YOU from Inflation?
The only way I know how to beat inflation is to have a source of constant cash flow that outpaces the rate of inflation.
Because I know from experience that there’s no amount of extra hours I can work… to keep up with inflation over the years.
So where can you find assets which can potentially protect or even GROW your net worth faster than the rate of inflation?
But is it true?
Let’s look at these investment vehicles one by one.
Now, you should know I don’t trust Wall Street.
I don’t believe in exchanging my hard-earned cash for pieces of paper that don’t pay me back with monthly cash flow.
That said, how did the stock market respond in a year of record-breaking inflation rates, war, recession, and supply chain problems?
As you can see in this CNBC article below, it wiped out $9 trillion of Americans’ wealth.
It’s not the only time this has happened.
In fact, during the Great Inflation of 1972-1982, the stock market crashed by more than 50% when inflation rates hit 10%.
So not only do stocks seem to be a poor hedge against high inflation, they react to almost EVERY other crisis happening in the world today.
Why would I let factors beyond my control influence my wealth so easily?
Yes, I know the general consensus is to buy and hold through the crashes…
But history shows it can take up to 15 YEARS for a stock portfolio to recover its value.
And I don’t want to wait years when I know how to get cash flow every month.**
Bitcoin has crashed 70% since its peak in November 2021, taking down ethereum and other top cryptos as well.
This has wiped out around $2 trillion in value – just from the top cryptos alone.
What about all the other issues that come with digital assets…
Like the $1 billion of missing client funds after crypto firm FTX went under?
Or the crypto hackers who have stolen $3 billion in 2022 so far… and $718 million in the month of October alone?
Crypto is volatile enough in a “good year” – and with the current backdrop of international conflicts and crises…
I don’t want to know how much more drama it’s going to create.
Look, I cannot tolerate ANY drama around my money.
It’s just not worth all the effort and time that I put into MAKING that money.
Also, hackers can steal your crypto, but they can’t steal an apartment building or the value that’s sitting in it.
People often see bonds as a stable investment that helps to reduce risk in a traditional 60/40 stocks and bonds portfolio.
But that’s only in a best-case scenario, assuming low rates of inflation.
Inflation could actually be your WORST enemy when it comes to bonds.
Spikes in inflation could actually REDUCE your bond returns when adjusted for inflation.
So if your bond pays you 4%, and inflation is 3%, your REAL rate of return is only… 1%.
What about Treasury Inflation-Protected Securities (TIPS)?
The U.S. government created these bonds so investors can maintain their investment’s real value in spite of inflation – unlike typical bonds.
They’re popular inflation hedges that pay you interest every 6 months…
BUT these payment amounts STILL vary based on inflation rates.
What I mean is, you’ll receive higher payment amounts in periods of inflation, but when deflation occurs?
Your payment amount decreases.
Why would I wait every 6 months for a check that’s not even guaranteed?
There’s lots of debate about whether inflation actually increases the value of gold over the long term.
In fact, in a year like 2022 when inflation rates have almost surged to 10%…
Gold prices (in U.S. dollars) have PLUMMETED by over 10%!
This is due to factors such as higher interest rates and a strong U.S. dollar in 2022.
According to Kevin Lum, a CFP and founder of Foundry Financial, “Gold seems to protect purchasing power over a long period — say, 100-plus years — but provides very little protection against inflation in the short term.”
To me, this is a no-brainer.
Given a choice between investing in a necessity that people will always need to live and sleep in…
And a mineral that people don’t immediately need for survival…
I will always pick the former!**
Other Commodities & Natural Resources
These include assets such as oil, natural gas, silver, wheat, and corn, which investors often use to protect their wealth against inflation.
According to Fidelity’s commodities update in October 2022, “many commodity prices — including oil and gold — are down dramatically since spring and summer highs”…
And “rate hikes, recession risks, and currency movements may add more uncertainty to commodities.”
That doesn’t sound like a hedge against inflation to me.
In fact, that sounds like more drama… and more factors beyond my control where my money is concerned.
The TRUTH About Inflation and Real Estate
Now, let’s get one thing straight.
When I talk about using real estate as an inflation hedge…
I’m referring to rental properties that create monthly cash flow…
Not the equity that’s sitting in a home you own.
Remember how I said I don’t like drama around my money?
This is what inflation has looked like over the years:
Source: World Bank
Unpredictable and beyond my control – that’s a lot of drama.
Now, let’s take a look at the Freddie Mac Multifamily Apartment Investment Market Index (AIMI®).
This helps me see how the relative value of investing in multifamily commercial real estate has changed over a longer period of time.
Source: Freddie Mac
Remember, the NOI (Net Operating Income) tells us how much positive cash flow we can make from a property.
And as you can see from the orange line, the NOI index has been steadily increasing every year, except for the year of the 2008 housing crash.
(And I escaped that crisis because I was CAREFUL to avoid over-leveraging my properties.)**
The blue line also tells me that the multifamily properties that I own now… are likely to skyrocket in price in the future.
That means when I exit those deals and sell those properties, I’m likely to make a huge profit.
So why does multifamily behave this way?
According to multinational investment firm BlackRock, real estate such as rental properties have historically performed well during previous inflationary periods.
“This is because leases and revenue streams are linked to inflation, and at the same time there is often some form of expense pass through,” the report says.
This means when I invest in rental properties, I can update my tenants’ annual leases to reflect inflation and increased expenses…
In other words, it’s possible to CONTROL my investments’ value in response to an inflationary environment…
Instead of letting world events and inflation control me.**
So since my net worth is largely invested in rental properties, it is likely that it will continue to grow.
At best, it will outpace inflation rates.
At worst, it’ll still be growing more than if it were sitting in a bank or in other assets.**
Here are more reasons why I believe multifamily is such a great inflation hedge:**
- There will always be a demand in the multifamily housing market, regardless of economic conditions. People will always need a place to sleep.
- I can enjoy stable cash flow over the long term… by buying the right deal, calculating my NOI and DSCR (Debt Service Coverage Ratio) right, and planning for the worst-case scenarios.
- My cash flow will likely increase over time due to rents increasing. Whether or not inflation is taking place, tenants know that rents tend to increase when lease agreements end.
- My cash flow will also increase provided I take out a fixed-rate loan. So when rents increase, inflation decreases the value of my debt. The result? More revenue!
- My multifamily properties appreciate with inflation, unlike single-family homes. Single-family home values depend on the real estate market value, which I can’t control. But when I own multifamily properties, their values grow with rent increases.
- I can force appreciation. What I mean is I can increase my cash flow and my multifamily property’s value. I do this by updating the units or finding opportunities to provide services or amenities that are currently missing on my property. This in turn allows me to raise rents and increase the value of my property.
- Due to inflation and rising interest rates, many Americans cannot afford higher mortgage rates needed to buy single-family homes. As I’ve said many times in the past, America is becoming a renters’ nation, and more people are choosing to rent than buy.
THIS is a real estate opportunity you simply cannot miss.
The Best Protection Against Inflation Is…
To invest in yourself and your personal development.
- Bring more value to your workplace by taking on bigger projects or improving your skills. Find ways to negotiate higher pay.
- Aim to make as much passive income as your earned income (from your job). Always be looking for deals and new opportunities for passive income. My book, “How to Create Wealth Investing in Real Estate,” will show you how.
- Your network is your net worth. Every new person you meet presents new opportunities for collaboration, access to new resources, and access to THEIR networks.
- Never stop investing in yourself. Invest time, energy, and money in coaches, courses, events, and conferences that will better who you are as a person.
- Keep studying the real estate game. Keep walking deals and sharpening your analysis of financial statements, especially when it comes to planning for worst-case scenarios.
- Understand how to underwrite for inflation, how to manage cash flow during inflation, and where are the best places to invest in during inflationary periods.
**Disclaimer: This content is intended to be used for educational and informational purposes only. Before investing, you should always do your own analysis based on your own financial and personal circumstances before making any investment. Grant Cardone is an industry expert who has been investing for over 30 years and his opinion is based solely on his own personal experience and circumstances. Individual results may vary. You should perform your own due diligence and seek the advice from a professional to verify any information on our website or materials that you are relying upon if you choose to make an investment. Investment involves great risk and there is no guarantee of performance or results.
We are not attorneys, investment advisers, accountants, tax professionals or financial advisers and any of the content presented should not be taken as professional advice. We recommend seeking the advice of a financial professional before you invest, and we accept no liability whatsoever for any loss or damage you may incur.