According to the U.S. Bureau of Labor Statistics, the consumer price index in the United States for all urban consumers (CPI-U) in May 2008 was 4.2% higher than in May 2007 (see article "The index investors need to know "For more information on the CPI). In previous years, the increases were relatively low, 2.8% in 2007 to 3.2% in 2006, 2.8% in 2005, 2, 6% in 2004, 2.3% in 2003, 1 , 6% in 2002 and 2.8% in 2001. The average rise in the first 5 months of 2008 was 4.06%. 4.2% increase in the CPI-U, this meansnow costs 4.2% more to buy the same thing compared to a year ago. Another way to look at this is the same one dollar bill is now worth 4.2% less compared to a year ago. This is expected as rising fuel prices have driven significant increases in the cost of food and other basic goods and services. There is evidence that the inflation is expected to rise in foreseeable future. J.P. Morgan economist Michael Feroli predicts the consumer price index will be up at an annual rate of 5.1% in August 2008, the year the largest increase in any year since 1991.
When you purchase a property on loan finance, inflation is good for you in terms of real estate investments. In the same claim that you borrow from us is in fact a value of 4.2% less than last year due to inflation. When the roof is higher than the rate you get the advantage. Make a profit for the credit loan, you earn even 4.2% "bonus" because the loan to the value of 4.2% in less than a year ago. So goodIdea of maximizing the leverage in the period of high inflation.
If you own commercial real estate, then increased long-term leases with fixed interest rate, as 20-year NNN lease with a 2% increase in annual fees are not in your favor. The 2% increase in the rent is less than the inflation rate, so that the rent is actually worth less next year. Long-term leases with credit tenants such as Walgreen are less efficient than the rent is flat. Then you have a difficult decision whenCorporate guarantee is worth a good tenant when you buy the property. Baux shorter, eg 3 to 5 years will give you the opportunity for higher market rents when tenants change log leases or pursue new growth options. Higher yields, in turn, a positive effect on the value of your property when it is time to sell.
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