Posted on Friday, May 18 2012

Property CASH FLOW and INFLATION in the USA

This month we enter our third year of providing CASH FLOW solution for investors utilizing US residential property. I get a constant stream of people wanting to know how to “make a killing” in the US market and if they are kiwis, Aussies or Asians their mindset is all around buying and selling to “make” money.
But this strategy isn’t about trading it is about investing for cash flow. And it is critical to understand that about the US market. Yes there are opportunities to make money, of course there are, however the US market overall is a flat growth market.

You see if you strip out inflation form the US housing market their current prices are at 1986 levels. And 1955 levels. And 1895 levels.
That’s because the natural rate of price appreciation for houses is more or less zero after inflation.
Prices arguably have stopped falling. And like every property cycle they’ll start rising. But over the long term, they’re unlikely to rise faster than inflation.
That’s why smart investors must focus on the “functional” value real estate provides.
You see few things escape the gravitational pull of the inflation rate forever. U.S. housing had spectacular booms and busts in the 1920s and mid-2000s, but smoothing out the swings and adjusting for inflation, prices have gone nowhere for more than a century.

Houses are made out of consumable goods: wood, stone and metal plus labour. There’s no reason to believe they should enjoy a special rate of return distinct from those for, say, apples and shoes.
The good news is that houses—like apples and shoes—have functional value, To come up with a very simplistic formula divide the purchase price by the rental income and you have a “gross yield” or gross return on your money. Subtract all additional real and notional costs and you have a net return on your money or net yield.

In more than half of U.S. housing markets, the NET rent yield is over 10%.

That’s a pretty good deal at a time when 10-year corporate bonds of decent credit quality pay only 3%. And money in the bank is at 4 to 5% with no chance of inflation proofing.
So if you wish to enter the US market remember you are doing it to inflation proof your capital and achieve a net return of 10% plus. That alone should be good enough reason for us all to have at least 3 to 5 homes in the US but if that doesn’t excite you DON’T DO IT!!

IF you’d like more information on this strategy we’d love to send you our info pack and arrange a free consult for you anytime. Just email

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Expert's Bio

Dean Letfus

Dean spends his time between the USA, Fiji and New Zealand helping hedge funds and individual investors buy cash flowing real estate in the Memphis market. He works with top professionals in those cities and is considered better at finding deals than most of the locals. Turnkey has clients in 9 countries and specialises in providing end to end solutions regardless of your budget.

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