What if there was an investment where you had control and benefited from inflation and low interest rates?

2020 has been wild year.  Economically we've seen historically high government spending, stock market runs, unemployment, and historically low interest rates.  All of which carry a general uncertainty of the economic future. In times of uncertainty, stability and protection of capital is important. Real estate offers a few unique advantages.

Now i'm not touting real estate is the holy grail investment that will produce life-changing returns. What it provides is the ability to sleep at night and upside potential.

Unique Advantages

Control - as an investor you choose your operator who best aligns with your investment goals. Resulting in an understanding of associated risks and the personality behind decisions. Whereas, in public markets you have 0 control over management, decisions, price, etc.

Long term appreciation & inflation – the upside potential. If inflation grows as expected this a great opportunity to seize profits. I know the FED says otherwise, but I don't see a world of steady purchasing power with trillions in stimulation money.

Low interest rates – downside protection. Take advantage and lock in low rates now. The spread between cap (return) and interest rates provides cash flow. Cash flow means money in your pocket and protects your investment in tough times.

Here's how: you purchase a property for $1M with a 6% cap, 3% debt, and 20% down payment. After 10 years, you sell the property at a 20% discount. Sounds like a loss. But it's not. Because of the 10 year principle pay down your initial equity has only been devalued a total of $10K, but you still have received $300K in cash flow over the hold period. All in you put in $200K and received $490K, a 15% IRR

On the other hand, if you bought the same asset at 6% debt, and sold at a 20% discount. Your $200K would be devalued to $190K, but you didn't receive any cash flow.

Tax shield – as a depreciating asset you have the ability to write off a portion of your income for tax purposes. In a worst-case scenario. If the property is operating at a loss you can deduct up to $25,000 of rental loss against your income. Further protecting your downside.

Reduced competition – many people are waiting on the sidelines right now. Take this opportunity to find and negotiate a good deal. This could provide a similar discount that you would see in a distressed environment.

In summary, low interest rates will provide cash flow and downside protection. Seize profits as inflation does it's thing. Enjoy the protections of real assets in the meantime.

What about cash?
It seems like every new-ish successful real estate investor started in 2010-2011. I can't blame anyone for holding on to cash and waiting for deeper discounts. Depending on your situation this makes sense. But the problem with hoarding cash is timing. Searching for the bottom is a losing game. Real estate reacts slowly. By the time the markets bottom and you take action, you’re already one-step behind. Maybe the market takes years to bottom. Now what? You’re holding cash in an inflationary environment, losing money. You could have been locking in deals. Gaining experience and preparing yourself for the real bottom.