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What Is A Balance Point?

For contrarian investors, commercial property has two inherent advantages that most conventional investments lack.  First, whether it is apartments, offices, shopping centers or a duplex – commercial property is a tangible asset, something real and in limited supply.   As a tangible asset, commercial properties have a long history of surviving market crashes that wipe out investors in paper wealth.  Second, with some financing structures, commercial property does something quite rare:  it thrives with inflation.  That is, your yields can rise faster than the rate of inflation, so that the higher the inflation rate rises, and the faster the dollar plunges – the wealthier you can become in real terms, even after adjusting for inflation.

Unfortunately, there is a complication, which forms the core of this special report, and is the reason for the existence of a Balance Point.  For the reasons we will review in detail in the pages ahead, the two inherent contrarian advantages work in opposite directions.  To maximize your protection from economic turmoil, you must minimize your ability to profit from inflation.  This trade-off works the other direction as well, for to maximize your ability to profit from inflation, you must compromise your ability to survive economic turmoil.

The good news is that because both contrarian advantages are exponential functions, the trade-offs between them are not constant, but quite variable.   (My apologies for the previous sentence, and using basic examples to simply, step-by step explain what this sentence means will be the subject of much of this report).  Indeed, there is place in the middle where you can maximize the combination of your contrarian benefits of protection from economic turmoil AND your ability to thrive with inflation.  That place is your personal commercial property Balance Point as represented by the graph below.

Your Balance Point is:

A place where you can survive the effects of powerful economic turmoil that could depress the economy, destroying stock market wealth along with many commercial property owners. 

A place where you can withstand a devastating plunge in the value of the dollar that would decimate bonds and other dollar based assets – and turn that plunge into substantially increased wealth in real terms. 

A place where you can reverse the inflation tax, so that instead of paying real taxes on illusory gains, you are paying illusory taxes on real gains.

A place where you can go into a painfullong-term recession that is accompanied by a bout of hyperinflation that makes the dollar worth pennies – and emerge on the other side not only having survived but possibly wealthier in real terms than you were when you started.

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Current version:  cpbp092907e  (This replaces and significantly improves upon the prior versions).

This website contains the ideas and opinions of the author.  It is a conceptual exploration of mortgage finance and general economic principles.  As with any financial discussion of the future, there cannot be any absolute certainty.  What this website does not contain is specific investment, legal, tax or any other form of professional advice.  If specific advice is needed, it should be sought from an appropriate professional.  Any liability, responsibility or warranty for the results of the application of principles contained in the website, sample chapter and book, either directly or indirectly, are expressly disclaimed by the author.

Copyright 2007 by Daniel R. Amerman.