Today in the news: USA over 5% inflation! The great spectre of inflation is back. Inflation means “devaluation of money.” What, my money is worth less? A shock to everyone, but not to everyone. Home buyers with loans rejoice over inflation! Money is worth less = goods cost more money to make up for the devaluation. So 1) you get more rent, for the same loan amount and 2) while money devalues, your property remains worth the same. You can learn what that means here!
What is inflation?
Inflation and real estate financing in combination are an extremely interesting and important topic for money investors!
What is inflation?
Explained very simply: in 30 years, the money may only be worth half as much.
For 10,000 euros you get 10 tons of wood today, for example. In 30 years you will only get 5 tons of wood for 10,000. Because your money is only worth half as much.
Conventional investment: savings book
If you have invested 10,000 euros, then in 30 years you will “still” have about 10,000 + X (interest / price increases). The basis is and has always been your invested money.
- Today: 10.000 Euro
- In 30 years (example): 10,000 euros + X (interest / price increases)
These include savings books, endowment insurance, Riester savings & Co.
Real estate as an investment: comparison
New starting situation, same development, in 30 years the money is only worth half as much. This time, however, you have invested in a property. While the “saver” has his 10,000 euros + X, you have invested in a property. On the one hand, you have benefited from the return (rent) for 30 years and now you can sell your property for 20,000 euros + X (appreciation).
- Today: 10.000 Euro
- In 30 years (example): 20,000 euros + X (increase in value)
Inflation, your best friend as an owner with loans
The property is now “worth twice as much money” (i.e. 20,000), but you are still paying off your original sum (i.e. 10,000 euros).
Another advantage for capital investors, also the amount of money of the rent payment increases. If your tenant pays 300 euros a month now, it will be 600 euros a month later.
Why inflation (as a borrower) is your best friend?
Your loan is going down due to inflation!
Survey: The safest form of investment in the face of inflation?
When it comes to inflation protection, real estate is at the forefront, as seen here. Whether for personal use or as an investment.
- 75% – Owner-occupied property
- 62% – Investment property
- 32% – endowment insurance
More about buying real estate: Wealth Building
Minimize the risk of inflation with house and apartments or “ignore” it altogether plus accumulate wealth? With the classic savings book, you lose value in real terms, in the long term. Real estate protects against inflation. Read more on the subject here, on my new site for buyers, Immobilien-Erfahrung.de:
- Real Estate & Inflation (external)
News. US inflation above 5.3% again for a long time
US inflation has been rising above 5.3% for a long time, Germany is at 3.8% inflation as of today.
Update on #Inflation USA: You have to go to the second decimal place to see our assessment confirmed that the peak is behind us. Headline rate remains at 5.3%, at least core inflation rose less than expected in Bloomberg survey pic.twitter.com/RA8t6bHgGG
– Marc Brütsch (@MarcBruetsch) August 11, 2021
Inflation in Germany: Statistics
Here you can see the inflation rate in Germany from July 2020 to July 2021 (increase in the consumer price index compared to the same month of the previous year).
You can find more statistics at Statista
Inflation in Europe: Statistics
Here you can see the Eurozone, or inflation rates in the member states in June 2021 (compared to the same month last year).
Inflation in the world: Statistics
Here you can see the inflation rate worldwide from 1980 to 2020 and forecasts until 2026 (compared to the previous year).
What became more expensive? Ranking
This tweet shows which goods were the main drivers of inflation.
– Johannes Zenner (@JoZenner) August 12, 2021
What does inflation mean for pensions?
In this, another article retirement planning, we calculate the pension together. However, taking into account the regular 2% inflation and all deductions that you also pay as a pensioner.
How much pension do inflation and deductions wipe out?
See here, how you after 35 years of work as a good earner ( > 60,000 gross / year) of 2,393.30 euros gross pension, after inflation (2%) and deductions (tax, health and long-term care insurance), still 739.91 euros left.
Here alone is the inflation in 35 years:
Year Purchasing power Inflation 2021 2393,30 2% 2022 2345,43 2% 2023 2298,53 2% 2024 2252,55 2% 2025 2207,50 2% 2026 2163,35 2% 2027 2120,09 2% 2028 2077,68 2% 2029 2036,13 2% 2030 1995,41 2% 2031 1955,50 2% … … … 2045 1473,75 2% 2046 1444,27 2% 2047 1415,39 2% 2048 1387,08 2% 2049 1359,34 2% 2050 1332,15 2% 2051 1305,51 2% 2052 1279,40 2% 2053 1253,81 2% 2054 1228,73 2% 2055 1204,16 2% 2056 1180,08 2%
Doing what? Part of the solution: Investment real estate.
In the following we explain the effect of inflation and taxes on your later pension and ask the question whether a property is not the more attractive investment compared to private pension provision through financial products (such as Riester pension & Co).