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How to Stop the Government from Stealing Your Money

On Thursday the Fed (Federal Reserve) announced QE3.

What is QE3? It stands for Quantitative Easing (3) is the the Third time.

OK now what does that mean? Wikipedia does a good job explaining it.  In simple terms the Federal Reserve printing money (inflation). They like to use bigger words makes it sound more intelligent. Other they saying ‘we are inflating the money supply.”

Let me point of one thing first there is NOTHING Federal about the Federal Reserve. It is owned my the Banks and operated with some Governmental oversight.

OK so what is in QE3? The Fed (Federal Reserve) with be buying mortgage backed securities to the tune of about $40 Billion a month. With no end date they will keep inflating till the this the economy will get better.

If you would like to read on my take and how this effects the ecnomy you can read another post on my other site at MyLibertarianPOV.com. Up to this paragraph its the same from the next one on I will attempt you show how you can hedge inflation.

According to bls.gov and lets just use the CPI (Consumer Price Index) 1.7 not including food 2.0 and Energy -.6. I know it does not make sense how is energy -.6. Its a 12 month average and all energy. Electrical and Energy service is all down over the past 12 month. The most is piped gas down -11.2.  Here is a though it just on what a gallon of gas cost and what a pound of Natural gas cost? I guess I will be contacting bls.gov and asking for a definition.

Just for this post I will use 1.7+2.0-.6=3.1, I don’t thing 3.1 is no where near the right/true amount. Meaning its not the inflation you pay on all things (medical, housing, transportation or apparel).

3.1 is what we need to get just to brake even every year and not loss principle. According to bankrate.com highest % paid for accounts is1.05%. 5 year CD 1.75%, 5 year treasuries .64% 10 year treasuries 1.64%. Still not to the 3.1% needed to keep up with inflation, so every month you are losing money to the government, in a hidden tax.

S&P for the last 5 year up 1.27% over 5 year. Last 10 years up 16.85 over 10 years that 1.69% per year. I am not going to go into stock picking that is all different over the last few years.

I do get it, it is a sample looking into the past what you will get in the future is ???

Where can you find a return better then 3.1%? The best way I know how is though real estate. Now I know what you are going to say “David real estate is down and has been for 5 year.” I know still the best place to get returns.

Let say you buy a house for a rental say it cost $100,000. So you buy it all cash no mortgage just the expenses in the house which usally are about 45% and say your getting $1200 in rent that is $540 per month in expenses ie property taxes, insurance and bills that you don’t pass to the tenant. You can also hire a property manager to manage the tenant for you. So you have $14,400 in income and $6,480 in expenses. That lease you $7,920 in positive cash flow. There can be other expenses to many factors that can adjust that number.

But wait there is more when you go do you taxes at the end of your the IRS lets you deprecate your income property over 27.5 year. That mean you get to defect another $3,636.36 from you taxes not including any other expense you have related to that property.

If you Just add those last two numbers up that what an 11.5% return. I am no CPA but that sound great.

Let you ask you a question? Do you expect housing to cost more or less in 10 years? I think more, right now you can get a rental house at a discount and fix it up and rent it out.

That is one 3 ways you make money in cash flow, depreciation and appreciation. What can make the return go higher is using leverage meaning taking on loans and the property and buying more units.

Now the Key to this is management if you can manage tenant find someone who does in not you tenant will take your returns away from you.

If you invested in CD’s or the S&P to add to your lack or return you still have to pay tax on it right now of 15% if you have held it for over a year and it appreciate. Next year it is scheduled to do to 20%. But when you sell your property you can defer the tax with a 1031 exchange.

Let your tenant pay down your debt, have the government subsidize you taxes (see your CPA) and have inflation eat away you mortgage.

 

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