Inflation
Calculating rental cash-flows
Inflation increases rents.
BUT inflation also increases the costs to provide a rental home.
Inflation increases property values
BUT inflation also increases the cost of items to be purchased from the proceeds of the property sale.
After 10 years of inflation at 7.2%pa:-
● Wages double
● Rents double
● Property operating costs double
● Property values double
● Items purchased from the property sale proceeds double
● IE the purchasing power of each dollar halves
50 years ago:-
● $4 hot pies were 10 cents (7.7%)*
● $450k houses were $12k (6.2%)*
● $1,000pw wages were $28pw (7.5%)*
● $470pw rents were $16pw (7.0%)*
● $2.95 petrol litres were 40c (4.1%)*
● $110 ski passes were $6 (6.0%)*
● $300 TVs were $2000 (-3.7%)*
* Average yearly inflation rate over the 50 years.
If rents and capital growth cannot pay compounding interest on owners'
capital (after all other costs are met) rental properties are sold and
renters lose homes.
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