By a EARL YANCEY

By a EARL YANCEY

Rappahannock New* Contributing Writer

Leverage is an ideal inflation hedge. The concept of leverage is simple, and the computations to determine its benefits are easily understood.

Leverage is paying for property over a period of years. The smaller your down-payment, the greater your leverage. If you pay the full purchase price in cash, you have no leverage. The property will appreciate by a certain amount whether or not it is mortgaged. This total appreciation is measured against your invested dollars to determine your rate of return. The smaller your cash investment, the greater your percentage of return.

Money invested in an interestbearing account might pay you eight percent. If inflation is six percent, it appears as though your investment funds have a two percent overall gains. If the interest is taxable and you are in the 50 percent bracket, you will actually have lost two percent of the purchasing power of your investment funds.

Leverage, on the other hand, could work as follows: You pay 20 (Percent down to purchase a piece of rental property. The after-tax net cash flow after considering rents, expenses, and payment on the property, combined with appreciation on the rental units of six percent, could potentially give you a 30 percent increase inyour investment funds.

Remember that you only paid 20 percent down on the property but you’re enjoying the appreciation on the entire value. In this example, inflation would have to exceed 30 percent a year before you would suffer a loss in the purchasing power of your investment funds.

Everyone purchasing a home is benefiting from leverage even if he or she hadn’t set out to do so. Why not put this same concept to work intentionally by investing in other real estate? Unless you are well acquainted with load real estate, you may be wise to seek some profes