Over the last few years, I have been aiming for an ROI of 10% from the rental properties I have purchased. In case you’re not sure, ROI is return on investment.

Is this ROI of 10% high enough? Up until recently, I would have said yes. And then I would have compared it to the interest earned in a high st. bank to back-up my thinking. This was me not really taking inflation into account.

This is me sort of understanding inflation but not really. The penny is finally starting to drop, and I am becoming more aware of the carnage inflation can cause. And this is without even thinking of what hyperinflation can do to a country’s economy. Have a little look into Argentina and hyperinflation – frightening! 

Disclaimer: this is not advice. This is information only.

What is inflation?

In very simple terms, this is the weakening of the pound (GBP) or whatever currency it is you use. If you have £100 in the bank and earn 1% interest in a high st bank, it is worth considering what the inflation rate is. If, for example the inflation rate is 2%, you are losing 1% in value year on year.

Inflation is when your wages stay the same, but the price of bread and other goods goes up. You get less for your money during periods of high inflation. I’ve even noticed it when I’m getting my morning Americano. A few weeks ago, I was paying £3, then it was £3.05 and now it is £3.10. It sounds nothing but it’s very important (IMO) to understand inflation when we are looking at our personal finances.

2% is an inflation rate I have heard over the last few months. And now I am looking into it a little bit more, I’m starting to think that inflation is much higher. Imagine it was at 10% as I am writing this week’s blog. That would mean my ROI property target wouldn’t be very good at all.

DUFFMONEY’s hedge against inflation

First of all, I am learning more about it so that I fully understand it. Financial literacy is massively important and is one of the keys to getting some early FI (Financial Independence). If we get to a point where we understand inflation, we have a fighting chance of doing something about it.

Over the last few months, my chimp brain (amygdala) has been on fire– basically the emotional part of my brain. This is because our extension went over budget for various reasons. Like the cost of materials going up weekly for example. This has led to me and Mrs Duffy looking at our budget. This and the fact that we are both aware that the cost of everything is creeping up.

One of the ways we are reducing our budget is by reducing our shopping bill. Hard to do but possible. I’m not saying we have to go on a beans on toast only diet. But we can reduce the bill by changing the way we do the weekly shop. Like going to ALDI instead of TESCO and changing what we eat.

If I have to eat fish fingers instead of Salmon, then so be it. I’m a council estate kid who was brought up on freezer food and have no issue with making a few changes to what we eat. I’ve got friends and colleagues who would laugh at this approach and call me a few different variations of a tight bar steward. But I don’t care as I am getting more of an understanding of the effects of inflation.

Another way of hedging against inflation, is that I am looking at that ROI figure and will be trying to increase it with whatever I invest in. This will be when I manage to buy my next property for example.

In my opinion, crypto assets are an excellent hedge against inflation also. I have started to stake a crypto asset and am getting approx. 70% APR and am getting around $600 per month from a $9k investment. If you are into crypto assets, look at staking.

Remember, this is not financial advice. It is information only.

A property ROI example

Although my target has been a 10% ROI on property investments. I have managed to get some good deals over the last few years. Like rental no. 5 for example. See below for the figures:

  • Rental No. 5 on the market for £100k
  • Purchase price £80k (75% LTV therefore £20k deposit)
  • Renovation costs £1.5k
  • Total investment £24.5k (£20k deposit, £1.5k renovation plus approx. £3k legal fees)
  • Profit pa £3.72k (£550 rent – (£170 Mortgage + £20 Insurance + £50 maintenance) = £310 pcm profit … £310 x 12 = £3.6k pa)
  • ROI = 3.72k / 24.5k = 15.2%

This shows a decent ROI of 15.2% from my 5th rental property. This is still ok with a high inflation of 10% as I’m still making 5.2% ROI after factoring in inflation. But this figure isn’t the best when you factor the work that goes into buying a property and then doing a refurb as I did with this particular property.

And what if inflation rose to 15% or even 20%. These are dramatic figures, but anything is possible with these crazy times we live in. This week’s blog is to mainly scare you with hyperinflation and to give you some info on what inflation can do to your investments. In my opinion, it’s not background noise and needs to be fully understood.

What to do

Look into inflation and what it means to your personal finances and investing. I don’t just want to scare you and get you to a point where your chimp brain is on fire. It’s an important topic and with understanding, will help to give you more clarity as you make important decisions with your hard-earned money.

Have a look around and see how much everything is going up. And get creative so that you can combat the effects of inflation.

You might not fancy crypto or even property, but you can still look at your personal finances.

If you are into investing and you are into working towards early FI, see below:

  • 1st look at mindset and your relationship with money – an awesome podcast I’ve been listening to recently is Always Free by Jason Graystone – start from episode 1 – he gets his point across really well in terms of wealth building and the importance of mindset and how you feel about money
  • Then look at your goals and do some financial planning – there are loads of books and other resources on setting goals – I started writing goals a few years ago after watching Tony Robbins videos on YouTube
  • Next is financial literacy – like understanding inflation for example – an excellent book that covers this topic is How to own the world by Andrew Craig
  • With the previous steps in-place, you can learn to spend less than you earn and invest the difference. And you can invest with skill. For all of these steps, you can find out how I have done it in my 1st book…. And for more info on my book… see duffmoneyltd.co.uk

If you have got some value from this weeks blog, please let me know in the comments. Understanding money is a big deal and as I learn more and more about it, the intention is to pass that info on via duffmoney.

If you want to get into crypto you can buy at an exchange like coinbase – free crypto … if you join via this link you get £7.45 free in crypto and so will I … then you get to do the same so everyone you introduce to coinbase you get free crypto they get free crypto – a win win!!

Book of the week: FI Money: Learn the hard way, teach the easy way. You might think this is an ego thing and be a bit irritated by my little funnels towards my 1st book. But it really isn’t. This is a book that shows you how not to do personal finance and investing. It also demonstrates how you can turn things around with a change in mindset. I class myself as the expert on how not to invest. I also class myself as an experienced investor with 19 years of experience. Get yourself a copy at Amazon or send me a message in the comments and find out how to get a free copy.

For a hard copy visit the excellent Imagined Things Bookshop: Imagined Things

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