“Inflation is coming! Inflation is coming!”
Come on, friends and readers. Inflation is not coming.
Inflation is here.
Inflation has risen over the past few months, and some say it’s just the beginning. The Washington Post also reported.
Some of us remember inflation in the 1970s and early 80s. We remember grandparents for a certain income whose pension check – enough to hold a two-month mortgage before – for just two weeks. It was very difficult. And scary. Those of us who remember the gas lines and trauma of those days, inflation is always bad.
Ronald Reagan thought so too. “Inflation is as violent as a snatcher, as terrible as an armed robber and as deadly as a hitman,” he said.
So, inflation will always be bad, right?
For the ignorant.
But that’s not you. Wait.
The great economist John Maynard Keynes said some bad things about inflation: “Through an ongoing process of inflation, the government can seize a significant portion of the wealth of its citizens, secretly and indefinitely. No. The process leads to the destruction of all the hidden power of economic law and it does so in a way that none of the millions is able to diagnose.
Inflation is declining. Your dollar is depreciating. And perhaps the government is not as simple as calculating its CPI (Consumer Price Index).
Oh, and have you noticed that they’ve printed about 30% or more of all the cash they’ve produced since the Covid-1 hit?
See M1 Money Supply.
Let’s deal. I don’t like the news.
More about inflation from BiggerPockets
Good news for real estate investors
You cannot change this situation. You can hate it. You may be angry with it. You can curse the darkness until the cows come home, but it’s best to light a candle.
As a budding or mature real estate professional (I know you’re at BP), you can align yourself with the two most powerful human forces on the planet to ensure the prosperity of whatever happens to you. Good times or bad times. What are those two forces?
Government and Central Bank.
How do we do that?
Well, the US government has a huge fixed debt with a very low interest rate. They need a way out. By devaluing a currency, they increase the value of everything that is measured by that currency.
Without harming anyone, you and I can be united with this powerful force by doing something similar. Although interest rates are still low (which may not last long), we get fixed, low interest rate debt on assets that will increase significantly when measured by a declining dollar.
It’s not rocket science. But following this strategy could pay more than NASA’s engineering gig. (This is the common thing that often makes the most money.)
Debt at a fixed rate during inflation
Governments and central banks are often run by incredibly greedy individuals who line up in their own pockets to harm the poor. Without harming the poor or anyone else, we can wisely combine ourselves with these two powerful forces by using fixed rate debt for investment to appreciate hard assets. And in the process we can become incredibly rich.
The biggest cost to a property owner is often their mortgage. As a result, many investors feel that their best bet is to buy with cash or pay off their mortgage early. But it also limits investors’ ability to buy with cash.
Property owners can lock in their maximum cost using fixed rate debt, especially in low interest rate environments. As inflation rises, so do rents. And revenue increases at the same time. Other costs increase, but profits expand as revenue increases in contrast to a certain mortgage cost.
And profit expansion leads to higher asset values, which could create opportunities for equity tax exemption along the way, which could lead to payments on more assets. Even if your assets seem to increase only nominally (less than a dollar in name only), raising your equity allows you to increase your holdings and thus increase your nominal and actual cash flow.
This is a beautiful thing.
And you don’t need an advanced degree to stop it. You don’t need millions of dollars. And you don’t have to quit your day job.
As a landlord, you can raise rent in line with inflation. Your banker can’t. The wide gap reflects your growing profits. And as I said, raising equity for other projects makes your assets composite. Check out this brief analysis by Dave Meyer of BiggerPockets.
Get ready for market change
Change your investment strategies – not just to survive the recession, but to prosper! Go ahead with any recession and don’t be intimidated by the market change again with it Recession-proof real estate investing.
Inflation wins and loses
The same Washington Post story discusses winners and losers during inflation:
The winners: “The main winner of inflation is anyone who holds debt because it is cheap to repay. Those who own land and their homes also don’t care because their costs don’t usually increase that much. Finally, the government doesn’t care about some inflation because it makes debt look cheap.
Defeated: “Traders working on fixed contracts also suffer huge losses because they cannot pay high prices to their customers. Many small businesses are concerned that it is difficult for them to adjust prices, for example. Retired and large savings people also suffer because inflation is their money The price goes down. They can’t buy that much. “
If your goal is to stay in the good graces of Dave Ramsey, please ignore this article. It will only annoy him and he can make friends with you.
But if your goal is to make a fortune using real estate safely with low interest, fixed rate debt, then that opportunity may be in front of you.
“Inflation is here! Inflation is here!”