Right now we’re going to talk about inflation as your friend.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Let’s talk about shifting markets. There is concern there’s a recession coming. There’s a concern there’s going to be an inflationary influence in the marketplace shortly. Is that mean we should shut down and we should just hunker down?
Bob Nelson: I don’t know. If you follow the herd, unless you’re in the head of the herd, you get to walk in the buffalo poop at the end of the herd.
Marcia Edwards: Well, wait a minute. Where are we, Bob? I don’t want to be in a herd of buffalo.
Bob Nelson: No. Restated, form a plan, execute the plan, but that will take into account, certainly, the power of money. Those with money get to vote. Those without money don’t get to vote.
Marcia Edwards: Well Bob, let’s talk about that inflationary influence. You had a really great description prior to the microphones being turned on here, and that was about how you can make inflation your friend. How you can actually, with the right asset, you’ve got an opportunity there.
Bob Nelson: Well, unfortunately for people who are retired and they’re on a fixed retirement income, inflation is not their friend. You get the same amount of income and unfortunately it doesn’t buy the same amount of groceries next year as it did this year, and inflation is not your friend. If you invest in an asset that, in fact, will rise in value in accordance with inflation, then inflation can, in fact, be your friend, or at least it neutralizes the adverse impact of inflation. Inflation, of course, being the reduced purchasing power of the dollar.
Marcia Edwards: That’s right, and again, we’ve talked about cyclical markets. You’re betting on the fact that it is a cyclical market in that process too.
Bob Nelson: Absolutely. Well, first of all, no matter what you do, invest with a reserve, a cushion, if you will, so that you can sustain any effective loss that occurs as a cycle starts to decline. If you put yourself in a position where if a one tenant were to vacate the property you go broke, that was not wise. That was simply gambling.
Marcia Edwards: A little too close to the edge there.
Bob Nelson: Yeah, way too close to the edge.
Marcia Edwards: So if the lender says 25% equity position is safe, is that a number you’d use?
Bob Nelson: Yes. A 25% equity position is deemed, by the lenders, to be safe. But again, take a look at it. Can you sustain several months of mortgage payment without any form of income? If so, you’ve got a great hedge.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.