Battle of the Inflation VS Return Math

[Kim Hopkins]

I recently listened to a podcast interview with a very accomplished and intelligent syndicator. He said that the annual return you anticipate for your investors needs to be at least equal to the rate of inflation in order to match/beat inflation.

For example, if inflation were 10% per year and his return structure had only a preferred return with no split, his argument would be that the pref needs to be at least 10% in order to match or beat inflation.

I question if this is a true statement.

Example: If inflation for example is 10% per year, and I have $1M in the bank, that money has buying power of $900k at the end of the year after being inflated away. 

Instead, if I invest the $1M in a real estate investment, I assume that the value of the property increases roughly with the rate of inflation. 

So for example, if I sold the property after one year, my $1M should have appreciated to $1.1M from inflation, so I'm receiving back $1.1M at least which now has buying power of $1M after inflation. 

I've preserved my capital by simply investing in real estate. I don't need any return to protect my capital from inflation. 

And for that matter, any return above 0% would mean I'm "beating inflation". 

Even moreso (thanks Hunter for this point), if I use leverage and say only put $300k down for this million dollar purchase, I've made $100k on my $300k which 3x beats inflation.

Even if the appreciation rate of the property doesn't trend perfectly with inflation, it still should be close and the point remains the same. 

Thoughts? 

[Bruce Woodruff]

Quote from @Kim Hopkins:

Example: If inflation for example is 10% per year, and I have $1M in the bank, that money has buying power of $900k at the end of the year after being inflated away. 

Instead, if I invest the $1M in a real estate investment, I assume that the value of the property increases roughly with the rate of inflation. 

First, none of these guys has a clue what they're talking about...always remember that.

Second, the bolded above is where you are making a big mistake. We are in a high inflation period right now and home prices are dropping pretty much everwhere.

I'm not saying I disagree with your premise that this guy is not exactly right in his assertion, but he does have a point....