To understand the financial benefits of real estate ownership it is necessary is to understand inflation. Please log on to the Federal Reserve Bank of Minneapolis and test their inflation calculator.

THE EFFECT OF INFLATION AND TAXES ON YOUR SAVINGS

Your Savings                       $100,000
Rate of Return                       x    6%
Earnings                                  6,000

Multiply your earnings by your tax rate to determine tax owed:

Earnings                              $  6,000
Tax Rate                                  28%
Taxes Owed                            1,680   

INFLATION- determine your loss in purchasing power by multiplying Savings by the assumed inflation rate:

Your Savings                       $100,000
Inflation Rate                            x 4%
Loss in Purchasing Power         $4,000

Determine your actual rate of return by subtracting the taxes owed and loss in purchasing power from your earnings:

Earnings                                 $6,000
Less Taxes                              $1,680
Less loss in purchasing power   $4,000
Actual Return on Savings            $320

Determine the percentage of return on your savings account by dividing the actual return by your savings:

$320.00 / $100,000 = .03%

Contrast this with the benefits of owning apartment rental units in which can you raise rents 4% annually giving you a leveraged return on equity of 16%.

Warren Buffett Quote: “ Our outlook for inflation is always the same. We feel there’s a big bias toward inflation-both in the U.S. and around the world…It’s a world where prices are going up and up. It’s just a question of how much. You could definitely have some explosive inflation at some point. Printing money is just too easy. I’d do it myself if I could get away with it.” Annual meeting in 1988.