Income and Hyperinflation for Apartment Buildings

Today, everyone is beginning to breathe a collective sigh of relief. Could it be that things are leveling off and there might be light at the end of the tunnel? The question on every amateur economist’s mind has been, “will we continue on a deflationary cycle for the next few years or soon face rampant inflation?” Commodity and property value trends have been indicating continued deflation, but surely the mountains of money our country has pumped into the system will reignite the fires of inflation.

Even the most bearish of financial analysts and pundits have begun to reluctantly acknowledge that the financial markets are showing key indications of a reversal of the primary trend for the better. This doesn’t mean that we are guaranteed everything won’t come tumbling down again, but it does indicate there is less confusion about where we are headed.

Unfortunately, the upturn in the stock market doesn’t mean that your property values are going to instantly rebound. Real Estate is a much less efficient market governed by many factors that are slow to react. The value of your income-producing property is based on four primary factors:

· Cash Flow - What is the income stream produced by the asset?

· Location - How valuable is the underlying land? (This tends to act as a multiplier – either amplifying the value of a property or reducing it when compared to similar properties.)

· Demand - How many investors are looking to buy a property like yours? What is the current cost of borrowing money to complete the transaction?

· Supply - If you want to sell, how many other properties are you competing with?

These four factors interact with each other to determine the price the market will bear for a given asset. In this first installment, I will cover the potential effects of hyperinflation on your property’s Income side of overall Cash Flow.

Part 1: Potential Effects of Inflation on Rental Income