Have you heard of Hotdogs or Legs? It’s an Instragram hashtag to see if you can tell if a photo is of legs or actually two hotdogs!
I’m in Mexico chilling on a beach, so you are going to have to go without a new article this week.
If you miss me, grab a margarita and try my ‘mexico we go’ Spotify playlist.
Let me also point you toward a couple things you can learn while I’m away killing brain cells with too much mezcal.
Understanding Money
I don’t have an econ background, nor do I think anyone really understands it. I mean no matter how much macroeconomics you know, it isn’t going to make you a great predictor of what is to come.
Yet you don’t have to understand it to benefit. Inflation is what a leveraged rental property investor wants AND it is what the US government wants.
Check out my article digging into the numbers Inflation: The Great Mortgage Destroyer.
Understand how it is measured, so you can decide if the published numbers match your reality:
Understand why governments create inflation:
How will unfunded entitlements be paid? With a dollar that isn’t worth a dollar anymore. With inaccurate CPI adjustments. Who benefits the most? Leveraged rental property investors!
Check out more videos about Inflation and Quantity Theory of Money.
Around the Web
Coach Carson is a real estate pro and great writer. I love his graphics that break down complex numbers into something you can easily visualize.
He wrote a series of articles about different ways you can succeed with rental properties. It isn’t one size fits all. The one that is closest to what I recommend?
The Trade-Up Plan – How to Retire in 8 Years Using Tax-Free Exchanges
Eric Bowlin is another full time investor I met last year at Fincon. I fully expect him in 10 years to be a big baller. He is going places and sharing his knowledge.
The most common excuse of not getting into real estate is no money. Check out How to Raise Cash Like a Champ For Your Real Estate Deal.
Sam at Financial Samurai is already financially set. He wrote an article Focus On Trends: Why I’m Investing In The Heartland Of America. Check it out, it is a great read.
I agree with the premise to invest in heartland real estate, but recommend you go about it a different way. For most people being a direct owner is way better than crowdsourcing like RealtyShares. You want to be financially stable in what you are planning on investing in, especially if you are intending on passing this on to future generations, so you’ll need something like a Trust and Estate Attorney to keep everything in line and legally above board, so be aware and remember to take precautions where needed.
Michael at Financially Alert is one of my best internet friends. Yes, that’s a thing. He has a couple of rental properties that are doing very well. I cannot possibly tell what strategies he uses or how he keeps the property maintained to always make them look lucrative to potential clients. Of course, he must be ensuring the houses are painted, locks changed (he may have to find a local locksmith, for that matter) and pests removes (if any!) in between the moving out and moving in of the two sets of tenants, but to give you a correct estimate, I would have to consult him.
You can check out how he rebounded from a poor start in My First Rental Property was a FAT Failure.
Up Next
I’m going to be sharing the actual numbers of my cash out refinance.
If you haven’t read it yet, start with my article Let’s Double Down! Cash Out Refinance on a Rental Property. This will make sure we all start on the same page for “why” before we get into “how”.
I want to hear your thoughts, just don’t expect a reply until I’m back in San Francisco:
- Do you think there will be much inflation over the next 30 years? Is it under-reported by the government by even 1% a year?
- Do you have any real estate websites you follow that I should check out?
- Is there anything you are specifically interested in learning about my cash out refinance?
Photo: justsayu
I went to look at the playlist, but it seems that you have to have a Spotify account. I just wanted to make sure that James Taylor’s Mexico is on there. If it were me, I might have a playlist of that one song and just put it on repeat.
I didn’t dig into the CPI videos because it wasn’t a convenient time and I think I have a good idea behind it. I view it a little bit like how the average MLB hitter might hit .260. However, your personal inflation could be very different. You could be Tony Gwynn or Mendoza on the other end. Everyone’s spending is different and people reading personal finance sites are probably more likely to adjust spending to limit inflation. For example, if the price of beef goes up and chicken goes down (as seems to be the case), mindful folks might eat more chicken. The CPI may go up in that case, but my personal inflation level was, well, deflationary. I feel like I can counterbalance inflation to a larger degree than the average citizen.
It was on there! One of the best!
That’s good to hear you can adjust. Some of the things that people have a hard time adjusting to are medical and housing (renting). But for well off people, we aren’t as sensitive to changes in those as it is a smaller percentage of expenses (plus you probably own your home, locking in the expense).
Since you said you probably wouldn’t reply until you are back in SF, I suggest you take a penalty drink. (Water counts if you have had enough Mezcal already.)
Medical expenses are terrible nowadays. It’s almost impossible for people to adjust to the system that is designed to make a profit wherever possible. I feel like it’s a lot like the CDOs of the subprime crisis. Hard to escape that, but I hope my military wife’s insurance will cover us fairly well. I am a very lucky man.
I love how rental income is insulated from inflation. I’m projecting that our properties will make us around 30K a year when they are paid off. That’s not a 30K that has the buying power of 10K in 2040. It is a 30K that has the buying power of 75K (or whatever the inflation is) then. If I can lower my own inflation expenses and still capitalize on my investments’… it feels like a tremendous win.
Thanks for the mention, Internet BFF… hahah.
It’s an interesting question about inflation. At one point in my life, I was terrified of it and was convinced our dollar would go into hyper-inflation and be worthless. Today, I’m not so sure anymore. And even if it does, you simply don’t want to be the last guy standing in the game of musical chairs.
Ya that hyperinflation belief is pretty common! I don’t think they are smart as they think they are at controlling inflation, but don’t expect that scenario.
The conspiracy I’m more interested in is under-reporting inflation. Once you understand the power of compounding, promising a pension in 30 years that depends upon reported inflation…
Underreporting inflation represents a significant risk to rental investors because the bottom half (roughly) of your tenant pool will continue to be mercilessly squeezed by it, increasingly impairing their ability to pay your inflation-rising rents.
A substantial proportion of your lower-income tenants are living on those aforementioned underfunded entitlement programs – my roommates have included a number of recipients.
The Social Security cost-of-living increase for 2017 is 0.3 percent, and zero for the previous two years. That’s $3 per month this year for a recipient receiving $1000 per month. Where I live, average rents increased 15 percent from August 2014 to August 2015, according to a tracking firm called Axiometrics.
How are your elderly and disabled tenants going to keep up with that? What’s going to happen to homelessness, overcrowding, and your cap rate?
Great point! Unfortunately a lot of the squeeze will be felt at the lower end of the housing market. The people most vulnerable. I am targeting properties more in the B to A- range, or roughly 40-50% percentile for housing price in the city. I hope this helps to avoid some of these future issues.
As a borderline poor renter (105% of federal poverty guidelines) spending 50% of my income to rent a room in an overcrowded zoo (3BR small house with 11 occupants) I gotta ask:
When the underfunded entitlements are scaled back – when real CUTS take place, what are rental investors going to do? In the county in which I live, an estimated 12,000 people are couch surfing or living in overcrowded or substandard (not up to code) housing. When real cuts take place, will homelessness, overcrowding and couch surfing become the norm for the bottom half of the rent serf population?
I don’t know, but I do know the US government can kick the can down the road for a long long time…
I definitely think we’ll see some inflation over the next 30 years. I think with the cheap monetary policies over the couple of years that it’s just a matter of time before inflation picks up. How much I have no idea but I think we should get more than we have now.
Leveraged real estate is definitely the place to invest when there is inflation!