10/07/2026
Investor Newsletter - October 2026
This month I want to cover two things that rarely show up on a statement but shape long-term wealth: inflation and taxes. I also want to explain why I invest the way I do.
Inflation has been higher for longer than most people realize
Inflation began climbing in 2021, peaked in 2022, and cooled in 2023-2025, but "cooled" still meant roughly 3% a year, and it moved higher again earlier this year. Because inflation compounds, consumer prices are up about 28% since the end of 2020. The three cooling years alone added another 9-10% on top of the 2021-2022 spike.
In practical terms, $100,000 in cash from early 2021 now buys about $78,000 worth of goods. The balance didn't change, but its purchasing power did. If inflation simply stays at today's 3.4%, that same money would buy only about $66,000 worth by 2031, meaning roughly a third of the dollar's purchasing power would be gone in ten years. That's an illustration, not a forecast. Cash that earns interest loses less, but after taxes on that interest, many savers are still treading water at best.
How I invest, and why
I'm a buy-and-hold investor, and I invest in real estate for three reasons.
1. Cash flow. Appreciation is a welcome bonus, but I underwrite for cash flow. I look for solid cash-on-cash returns, conservative leverage, and fixed-rate debt. If a deal doesn't work on its income, I pass.
2. Tax benefits. Depreciation is a non-cash expense that can reduce taxable income from a property. This is a central reason I invest, though my tax situation differs from yours (see below).
3. Legacy. Real estate is a hard asset that diversifies a portfolio built on stocks, bonds, and cash, and it can be held and passed to the next generation.
Real estate can also help with inflation. Fixed-rate debt is repaid in cheaper dollars, and rents can adjust over time.
Tax Considerations for Investors in Our Joint Ventures
Taxes, like inflation, affect how much of an investment's return you keep. Here is what investors in our joint ventures can generally expect:
- Taxable Income vs. Cash Distribution: Depreciation may reduce your taxable income. Because depreciation is deducted for tax purposes without a corresponding cash expense, the income reported to you on your Schedule K-1 is often lower than the cash distributions you receive.
- A Timing Advantage: The benefit is primarily one of timing. Tax is generally deferred rather than eliminated, and a portion becomes taxable when the property is sold.
- Passive Loss Limitations: For most individual investors, real estate losses are categorized as passive. These losses can offset other passive income or be carried forward to future tax years, but they typically cannot be applied directly against active W-2 wages or business income.
I have prepared a brief guide, How Taxes Work for Passive Investors, which includes definitions and an illustrative example. Please reply if you would like a copy. Each investor's circumstances differ, and I encourage you to review these matters with your CPA or financial advisor.
The Balance
Real estate has risks: interest rates, rising insurance and property taxes, vacancy, and limited liquidity. I don't see it as a replacement for stocks, bonds, or cash, but as one more option to diversify and to help protect purchasing power over time.
For informational purposes only. Not tax, legal, or investment advice. Past performance does not guarantee future results. Real estate investments involve risk, including loss of principal. Consult your tax and financial advisors.
