ANY time my weekly expenses increase markedly while I'm not changing my spending habits I take notice.

We're more careful with electricity use, and the produce from our gaHden has defrayed the cost of produce on our grocery bill. We're more careful about using "leftovers" instead of recycling them through the resisident canid. But we're not really feelin' it just yet. When the first killin' frost zaps the gaHden we'll feel it.

The $320+ oil bill was a shocker, but the last fill was back in very early April, so I can't get too flipped out. The price has gone up .11, since then.

Illinois had a long rate freeze on electric power that ran out this year. Our electric rates went up 20% and some people downstate saw much greater increases. Our natural gas bill has also gone up about 10% this year; we'll feel that come winter!

I started a thread either here or on "Money Saving Tips" a while ago relating to which ordinary citizen gains from inflation, and who loses.

I wonder whether some of you noticed it?

It might make interesting reading.

ole joyful

Anyone know the way the common man can BENEFIT from inflation? ;~)

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

No but I would like to know.

Are there ways to cook the numbers on inflation? Has inflation gone up? Didn't it go way way up 20 or 30 years ago? Any similarities between then and now?
I guess I need an inflation primer.

I've been saving this story for my annual review. It's from August this year.

http://timesunion.com/ASPStories/storyPrint.asp?StoryID=614195

"The Bureau of Labor Statistics said in its June inflation report that egg prices are 19.5 percent higher than they were in June 2006. Over the
same period, according to the departmentÂs consumer price index, whole milk was up 13.3 percent; fresh chicken 10 percent; navel oranges 19.8
percent; apples 11.7 percent. Dried beans were up 11.5 percent, and white bread just missed double-digit growth, rising by 9.6 percent.
These numbers get lost in the broader inflation rate for all goods and services, which measured 2.7 for the same 12-month period. Across the
economy, rising food prices were offset by falling prices for things bought at the mall: computers, cameras, clothing and shoes."

Here is a link that might be useful: Story

'Core inflation' has little bearing on the real inflation felt by Seniors. Most aren't AT the mall often, but all have to eat and pay fuel costs. To set the Soc. Sec. benefits accoring to 'core inflation' is ridiculous.

I believe some health care costs have retreated, but are still very high. Only thing higher may be inflation in the cost of higher education! (Tell me again why everybody must have a college diploma, even if it's from Podunk U.)

Here's a link to my thread on this subject over on "Money Saving Tips".

It was on about pg. 11 on Fri., Oct. 26.

Good wishes for a great weekend.

ole joyful

Here is a link that might be useful: Which Investor Gets Hurt by Inflation? Who Gains?

Dave, I think I got one way-

I will be buying out my auto lease at the end of the term. That price is very attractive now - especially with the dollar dropping...

Hello again, everyone,

I am embarrassed, for I sent you by a link above to a thread that I wrote on "Money Saving Tips" ... but it was only a short explanation and led to a thread that I'd written here, which has been deeply buried at about P. 18.

But I've revived it, to partially cover my red face, I hope - and it's now just above this on P. 1.

I wrote another thread here, as well, last year, how to borrow to invest at almost no net cost.

It's at about P. 12, I think.

And I've had poor luck at searching for various topics, here.

Good wishes for increasingly skillful management of both your income and your assets.

ole joyful

I rhetorically asked;
Anyone know the way the common man can BENEFIT from inflation? ;~)

And Mary bit;
No but I would like to know.

Answer below... but first let me address the other questions;

Are there ways to cook the numbers on inflation?

Almost unlimited ways... all lying in the hands of whoever is doing the number crunching and reporting. You know Disraeli's comments about "lies and statistics" right?

Has inflation gone up?

SIgnificantly, and is continuing to swell.

Didn't it go way way up 20 or 30 years ago?

Inflation cycles up & down along with the degree of respect (or lack thereof) that the world governments treat their currencies, and how they borrow against them.

OK... time to answer: "How to benefit from inflation"
A) Understand that "inflation" is actually the devaluation of your cash... a dollar that might buy 6 apples pre-inflation, might only buy 3 apples after inflation. It is the money itself that is becoming less valuable, not the apples becoming more valuable,

B) Protect the value of your cash by "hiding it" in stable-demand hard assets... these are assets that do not depreciate or decay over time. Precious metals are one example... but real estate is the best example.

C) Try to find hard (non-decaying) assets that simultaneously have a demand for useage during your ownership. Having gold in a safe doesn't demand useage, and nobody will pay you for the useage. Having real estate available for use can provide rental revenues.

ALL of the above *ONLY* protects your real net worth from the effects of inflation... but I promised to show how the common man can BENEFIT from inflation... and here is how;

D) Acquire income-earning hard-assets by using borrowed money ("other people's money") because while the asset itself will protect YOU from the decaying effects of inflation... but the CASH-VALUE OF THE LOAN will actually be getting REDUCED by the effects of inflation.

In other words... if you originally borrowed the equivalent of a TWO dump-trucks worth of apples to buy real estate... and never paid principal, just interest, so the loan amount stayed the same... then years later the property would have a face value of twice as much... but your loan would only be worth ONE dump-truck of apples.

Get it?

I own many rental properties, and am meeting to offer to buy another this afternoon. I intend to buy as many as I can, assuming the right numbers & terms. Inflation is working very dramatically in my favor.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

Oh DD, I agree with you but I'm betting others won't.
Makes for better negotiating when you find the good ones. Do you always do multi unit or SFR sometimes?

Hi cmarlin,

Actually, currently ALL my properties are single units... but I am definitely on the hunt for 2-8 plexes!

Cheers,
Dave

PS. my offer today was turned down... if anyone was interested. The sellers (and the listing agent, actually) were actually QUITE interested in the way I structured my terms... VERY beneficial win for the retired senior sellers... alas, they were already too leveraged, and can't sell without more cash-on-close than I was willing to peel off.

They will definitely NOT get a higher face price offer than I made, however... so they may "discover" some of their own liquidity and come back to me yet... we shall see...

Dave,
I agree on the real estate investments and have been in them for 40 years. However rentals are more than an investment. When you buy a rental you are starting a business and are subject to all the pitfalls that a business can have. That being said, I agree that a good route to being financially "set" is to get into rentals. I recently sold a building that I had owned for 28 years. The following is a summary of the property:
Bought for $125,000, 2 mortgages, no downpayment. Over 28 yrs. paid off both mortgages and sold property for $950,000. Over the 28 years put $650,000 of profits into my pocket. Now try to make that kind of money with a CD. Oh, and also am doing a 1031 exchange with the proceeds of the sale so am paying zero in capital gains tax. "Ain't this a great country?"

coolvt, GOOD FOR YOU!!
Enjoy your "free" money.

coolvt -- So $125K turned into $401K (inflation adjusted). How much interest, maintenance, taxes did you pay?

Trying to compare to other investments I find the following, but the numbers are not inflation adjusted. (Need help with that.)

On the website measuringworth.com I calculate that in the same time frame you would have had:
$1.195 off a long-term asset
$1.738 off a DowJones portfolio

Additionally, you would have paid income taxes on those, but no maintenance or RE taxes.

Can someone make more complete comparisons here?

I wrote a thread a while ago with the claim that one can borrow to invest - I refuse to borrow for purposes of consumption: that just cuts next year's paycheques - at almost no net cost.

Fully secured loan, interet rate about 6.25% (a month or so ago).

If 20% income tax rate, being deductible, effective interest rate reduced to about 5%.

Invest in solid stock, paying 3%, and that income was tax-advantaged in Canada until 2005, much more so now, after-tax residue about 2.5%, which reduces cost of money to about 2.5%, and they say that is about the rate of inflation ... but many of us have found that there's been a much higher increase in cost of much of the stuff that we buy.

Brings us down to about zero cost, no?

And there's that huge U.S. debt, not only of Gov'ts., but of indviduals as well. Plus the major deficits that they're running, means that the u.S. Dollar is at risk.

It used to be that much U.S. debt was owed internally, but no longer - and if fewer foreigners are willing to accept U.S. debt at current rates of return ... they'll have to bid up the interest rates that they offer.

Which will cause higher inflation.

And, after while, the principal that Dave owes will only buy one dump truck load of apples - while he got two for the original loan amount.

Your discussion is welcomed. Have I ever claimed that I have all of the answers? Not by a jugful!

ole joyful

chisue, remember coolvt had tenants paying those expenses, and usually with depreciation, no or very little income tax is due during the ownership. I pay no or very little income tax annually because of depreciation. Of course I will need to recapture that depreciation in the future.
That is what I don't like about equities, paying taxes and no hedge against inflation. Also here in Ca, property taxes are fixed at time of purchase (almost) they increase very little as the market value increases greatly.
Inflation is the enemy in retirement, not taxes.

cmarlin20 -- Yes, the tennant helps carry the investment, but RE taxes can be stiff! The RE taxes on our vacation rental condo on Maui have quadrupled in six years. The value has nearly tripled -- nice 'on paper'; best if if you're selling. Association fees are up there, too. We have 86% occupancy, but rates can only go up a tad to remain competitive. I understand about the depreciation thing, and know we can do another 1031 eventually.

It looks a bit like a wash between RE and the website's 'asset' investment. Oh, well, probably best to have a Chinese Menu strategy: something from each column.LOL

Wow, taxes quadrupling in six years! Why?
I get you somewhat on the value on paper, sometimes you look great on paper! Only wish it was real everyday life.

Maui RE taxes went up along with The Bubble that boosted prices to nearly $1000 per square foot on our condo. The prices have backed down about 5% but when did you ever see taxes go DOWN? (Didn't the US just repeal a tax put in place to finance the Spanish American War?)

The tax rate there is stiff for vacation rental properties -- more than twice what homeowners pay, but less than they gouge time-shares. It seems overkill, especially as we collect and pay 11.42% taxes on each booking. The Hawaii Dept. of Tourism keeps complaining about the lack of lodgings...go figure.

chisue, how do vacation owners pay a different tax rate? I have friends over there telling me about the hot market, how has it faired in this downturn?
Seems to be attractive for many boomers with much cash looking for a second home. You say prices are down about 5%, but are things selling?
Do I remember correctly that your purchase is a vacation home for you, and you rent it out for income, getting appreciation , also.
My point, it is not a true investment. but a mix of both work and fun!

There are different tax rates for homeowners, vacation rental properties and timeshares. (Probably more traditional commercial properties, too.)

We own in Kihei, Maui. Sales there are down 11%; prices are down 2%. That's from the Maui Realtors webpage and includes all SFH, not just condos or vacation rentals. I'd say the price drop is more like 5% at our particular complex, Maui Kamaole. Sales are slowly eating away at a glut of listings there. I think 8% of the place was on the market recently.

The appreciation has been very good and will resume going up after this adjustment, I think. There's only so much 'island' available. As you mention, I'm counting on people still wanting some of it by the time we're ready to sell. Hawaii as a whole tends to lag the west coast by a year.

The condo is mainly an investment, but we do save $5000 per year we'd pay to rent an unknown every February. We have the tax write-off for travel and the depreciation. I'd like to boost occupancy, at 86% for 2007, but don't want to beat the place to death. Can't raise rates beyond the competition.

Wanna come out and look around? LOL Where do your friends own?

Here's another way to hedge against inflation: buy foreign currency.

There are exchange-traded funds in several major currencie (Euro, Pound, Canadian, etc). Also, Everbank offers CDs--regular, old, FDIC-insured CDs--in foreign currencies. Their minimum is $10k. I sure wish i had that much cash sitting around. But I'm pretty fully invested and not looking to rebalance right now.

As for 'core' inflation, it's a big fat lie. The excuse is that food and energy prices are too 'volatile' to keep track of. Phooey. How many times do you need to buy a fridge or laptop vs. heating oil or pork chops? I call it 'fake inflation' (core) and 'real inflation' (food/energy).

Here is a link that might be useful: currency etfs

I found these numbers this morning:
Core inflation up 2.3% for the last 12 mos
Energy prices up 12.3% (vs 2.9% for 2006)
Food prices up 5.5% (vs 2.1% for 2006)
Health care costs up 4.8% over the last 12 mos

Food, energy and health care are probably the largest expenses for retirees.

zone-8grandma -- Absolutely! So why are Social Security benefits figured on the 'core' basis? Silly Seniors, are we too dumb to complain or vote?

Well, I know we aren't too dumb to vote - perhaps we need to complain?

Personally I feel too fortunate to complain - I'm grateful for a small "raise", since my pension has no cost of living adjustment.

But we do need to be aware of the real inflation and not be lulled by the "core inflation" numbers....