Inflation can be our friend.

You can probably tell by the title that I didn't have any action with the rental property today since I'm going to talk about inflation. If the loaf of bread you bought last year for $1.00 now costs $1.10 then you just lived through an inflationary year. Sounds bad doesn't it. The same thing happens with real property during inflationary times. A house that costs $80,000 and brings in $800.00 a month in rent may cost nearly $88,000 and bring in rents of $880.00 after 10% inflation. Assume someone bought it at $80,000 with a 10% down payment of $8,000 and borrowed $72,000.
After 10% inflation, the property will be worth $88,000 and they can raise the rents to $880.00. The cool part is that the loan amount and payments didn't inflate. The loan amount went down because part of the payments reduces principal. The payments may have gone up slightly because of an increase in property taxes and insurance. The bulk of the payment is interest and remained the same if the person was smart and got a 30 year fixed rate loan. The $8,000 down payment bought a building that is already worth $8,000 more and bringing an additional $80.00 a month in rents. If the person left the $8,000 in the bank and didn't buy the property, they would still have the $8,000 plus some interest, but they couldn't buy as many loaves of bread as they could before and they couldn't buy the property anymore assuming it had a 10% down payment requirement. There are some downsides. Remember that the insurance companies, government and all vendors will have their hand in your pocket taking their piece for higher hazard insurance, increased property taxes and higher cost of everything you buy or everyone you pay for a service. That comes out of the increased in monthly rents. Also remember, that some day the property will be paid off.

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