Ajay Ahuja Blog Post on Inflation and Fatter Margins

I have some really good news for you:

Things are getting more expensive.

Now you may be wondering why I am saying it is good news that things get more expensive.  It all has to do with debt levels and rental price growth.

The main reason why property is so attractive is the cashflows are inflation proof.  That means the rent rises with inflation.

There will be marginal volatility of a rental price due to changing desireability but this is fractional.  So fractional it is not worth even talking about.  If you  buy run of the mill houses and flats in rows and blocks then the effect is even less.

So when there is an existence of inflation you get:

  1. wage growth, which leads to
  2. rental price growth which leads to
  3. FATTER margins

Your debt also depreciates so the debt becomes more and more manageable.  How nice is that.

So with inflation tipped to be 5% check this for a statistic:

5% increase in rents over 4 years equals an increase in rent of 21.6%.  So if things carry on the way they do you can expect your PROFITS to rise by 21.6% of your rent roll.

So if you collect £10k in rent expect your profits to be £2,160 higher every month in 4 years simply because you are in the right business.  Nice eh?

And expect your debt to be 78.4% of the value of what it is today in real terms.  Even better eh?

So when you go and fill up your car at £2.00 a litre you know times are good!

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