Most would agree that no real financial education exists in our school systems. It is never too late, and most certainly never too early, to learn about financial principles. Certain economic principles like — never get into debt — are often not questioned. In this article, I will share how inflation can make a loan into an asset instead of a liability.  

Is inflation coming?  

I’d say it’s already here. I’d argue that we are near the brink of a massive spike. Think this can’t happen? I’d urge you to look at real estate from the mid-1970s as compared to the early 1980s when prices almost tripled.  

The fact is that 30% of all currency in the world today has been created over the past year.

Please read that statement again.

Money never rests. 

Money is always working for someone. It’s working for you by earning around an abysmal 1% in a savings account, or it’s working for a bank by making money from loaning those same savings plus some (but we can talk about fractional reserve lending another day).

Most of us know that when you take a loan from a bank, it is considered a liability for the borrower but an asset for the bank. The question is, can this liability act as an asset?

With inflation, the answer is YES!!!

Say you purchase a home for $1,000,000, have a 30-year fixed mortgage for $800,000, and pay $4,000 monthly for the $800,000 mortgage.  

If your 30-year fixed interest rate is at 3.75% and inflation clips along at a rate of 5-10%, you are benefitting anywhere between 1.25% to 6.25% per year on the $800,000 borrowed. 

From liability to asset

In essence, by letting inflation erode the debt, you have turned the fixed loan from a liability into an asset.

A different way to look at the same question is to ask how many hours might you have to work to generate that fixed amount of $4,000 per month today vs. 10 or 20 years from now?  

Our mission here at BlackTree Investment Group is to help passive real estate investors become financially free by providing high-quality alternative investments in the form of real estate syndications which offer our investors a hedge against inflation. 

Are real estate syndications for you? Feel free to schedule some time for us to chat.