Inflation: Real Estate or Gold?

[Account Closed]

How would you answer this question?

In 2002, 10% of global GDP was estimated to be held in Central Bank Assets. Today is at least 25%. Increasingly the answer to fiscal problems across the world has been to : PRINT MONEY.

I argued to a friend that with inflation inevitable, I think its prudent to hold hard assets like real estate, commodities etc.

He argues that a inflation fearing investor should hold gold instead of real estate, as real estate in the US is a dollar based asset that will not hold up on the global stage if the dollar is devalued massively.

Thoughts?

[Bryan Hancock]

If there is large inflation you should own fixed-rate DEBT, not real estate or gold. You can get leverage on both asset types and thus they're both fine as long as they are leveraged.

Fixed-rate, 30-year debt is pretty hard to beat and thus I think owning real estate is far superior.

[Rob K.]

I should probably disclose that I am a huge fan of real estate and not a fan of gold.

Real estate can produce income. Gold does not. Real estate prices are low right now and predicted to rise. Gold prices are high and could go either way. Gold needs to be stored somewhere and protected from thieves.

I agree that we are headed for inflation. When we had massive inflation in the 1970's, people who owned real estate got rich.

[J Scott]

Originally posted by Joe A:

Why would you want to own debt locked in for 30 years in rising interest rate environment?

Simple arbitrage. Get debt at today's higher dollar valuation, pay it off using cheaper dollars in the future and your equity is the spread in dollar valuation.

In addition, the underlying assets should be throwing off cash each month, so you have the cashflow as well.

[James Vermillion]

I also like real estate for the reasons Bryan, Rob, and J mentioned. I feel you can gain the same benefits as with gold and have the added benefit of income.

[Account Closed]

Originally posted by Joe A:

Brian- I disagree. Why would you want to own debt locked in for 30 years in rising interest rate environment? (fed will raise rates to combat inflation). You will be locked into a 30yr investment in which you the value of your principal investment will be eroded in the inflationary environment...you want equity upside

Joe A, i think he meant 'owe' debit, not 'own'.

[James Vermillion]

Originally posted by Joe A:

I get why you would want borrow money...not why you would want to OWN debt (lend money)...perhaps it was misinterpretation...

I think Bryan meant borrow, not lend.

[Account Closed]

Personally I prefer real estate because it tends to be more stable. Gold can have much larger price swings and doesn't have the potential of creating a passive income stream.

Real estate values can fluctuate as we all have learned, but I believe if you looked at gold over a significant period of time you would see that it more volatile.

The best reason I like real estate though is the ongoing cash flow that I can enjoy regardless of current appreciation or the lack thereof. Over time real estate can and does appreciate.

It is possible that one might experience a greater ROI from gold, but you also have to consider the risk and volatility. Just my 2 cents for what's worth.

[Kyle J.]

Originally posted by Rob K:

Real estate can produce income. Gold does not.

This is exactly why I like real estate.

I expect my real estate to appreciate in the future, but I don't count on it. It still produces monthly income for me either way.

[Timothy W.]

That leverage that can be a leveraged gain can also be a leveraged loss. With gold you can only lose some of the value of your investment. With real estate, you can lose money you haven't even created for the next 10 years yet. Remember that Casey Serin guy? 5 years of real estate and he ended up 2 mil in the hole. If he had bought 1 dollar of gold and done nothing else, he would have been 2 million and 3 dollars ahead of where he was.

The kind of investor you're describing is an "inflation fearing" investor. Not an asset building, cashflow building or economic freedom seeking investor but an "inflation fearing" investor. If fear is your goal, gold is your game.

[Timothy W.]

Just saw you're in NY, NY. Why don't you buy some of the distressed properties out here on Long Island where folks didn't get flood insurance? There's going to be some serious money made here. All you have to do is retrofit these houses with certain items to make them more hurricane proof like they do in Florida.

[Elliot Mendoza]

While I agree that real estate can earn you and income where as gold or silver can not. You can also lose a lot of money in real estate if you're not careful.

I've done a massive amount of study on gold and silver before I started putting money into it. I started buying them when gold was 900 and silver was 15 dollars an oz. I'm not buying much gold now, in fact I'm getting ready to switch over most of my gold to silver. It is speculation based on historical data and watching the world economy, especially our own. Silver and gold will continue to rise after this recent correction, but silver will beat out gold due to it being way under valued. At least that's my personal opinion. I personally believe that silver will hit the $50 per oz range in '13 or mid '14., while gold will pass the 2k mark, it's just that on a percentile scale, silver wins hands down.

I plan on liquidating my commodities in order to purchase real estate, it's just a matter of education before I decide what venue in RE to approach with an educated mind and an open wallet.

[Anthony Farmer]

Long term fixed rate debt on a cash flow producing property is a great approach. With the current fractional reserve system, inflation has to happen for the system to continue. The Fed has been creating money like crazy but most of it is sitting in banks. When that starts to hit the market, you should see prices on everything really take off. Sitting on a property with fixed rate interest note only gets better in that instance.