014: How You Win During Inflation
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Do you know who hates losing? Us. and when we see headlines about things that sound scary and incite that hard-working people are going to lose out on money, that doesn’t sit right with us. 😖😖 We have all seen those scary headlines pop up on our phones and in the news day and night about inflation and the consumer price index.
So, we decided to do something about it and turn that negative into a positive by talking about the benefits that can actually come with inflation when it comes to investments, especially in the apartment investing sector. Yep, you heard that right. Inflation doesn’t put us in a corner. ✨
Okay, nod your head for every scary news headline you’ve heard in the past year.
“Inflation is looking less temporary than originally advertised.”
“Is Stagnation a Serious Market Risk?”
“Inflation Rose at Fastest Rate Since 1990.”
“Twitter CEO Jack Dorsey dire warning hyperinflation will hit the US ‘soon’”
Does your head hurt from bobbing up and down? News like this has a tendency to scare everyone into feeling like the US economy is doomed and there’s no way out. But we don’t subscribe to that narrative.
There are so many things that are unknown in the world of investment, money, and the global economy as a whole. If you have ever thought that inflation erodes the purchasing power of your income and wealth. Or, you have some sort of a plan, but even the idea of investing scares the living daylights out of you, that’s totally fine too. You could also be here overwhelmed thinking there are over a million different ways to combat this, and you have no idea what steps to take next.
Well, we felt the exact same way. Just a few years ago, we launched our apartment investing journey as a way not only to hedge inflation but to beat inflation. 👊
Yes, we are that competitive, even against the real estate market. 😉😉
Today, apartment investing is the #️⃣ 1️⃣ strategy we utilize to build our long-term wealth. And it is safe to say that it has transformed our lives. And, frankly, we just want the same thing for you!! This episode is a deep dive into making inflation work for you, and how to not lose money in the princess.
Because of all the fear-mongering happening in the news lately relating to inflation, many of our apartment operator friends and new investors bring their questions to us. From curiosities, challenges, and concerns every single one of them wonders if inflation will eat away at their wealth, including our savvy investor friends who have been in this way longer than us! We all tell them the same thing we’re about to share with you today.
Here are the 5 exact ways to use inflation to generate profit.
Infla-What?
The basic definition of inflation is the declining purchasing power of the dollar. So the government for many, many years, and especially in the recent decade, has been printing astronomical amounts of money.
So, yes, technically to those asking ‘why can’t the government just print more Bejamin’s?’ The answer is, they have been. 🥺🥺
As we saw during the COVID pandemic those printed dollars took form in the stimulus checks and the unemployment perks and all the other relief programs the government was providing.
This is just creating money out of thin air pumping it into a system and it’s as simple as supply and demand. So we have much more supply now of dollars in the system. So it takes more dollars to purchase the same items that we used to be able to buy with fewer dollars.
This trend isn’t new.
We’ve seen the continued decline of the US dollar since the early days of the 20th century. And if you go way back in your memory, you might remember this topic covered in your Economy 101 class.
Let’s take the classic example of the price of gasoline. Depending on where you live, this can be a huge upset. Here’s looking at you, California. According to the Los Angeles Almanac, in 2000 one gallon of gasoline was $1.32 and today it’s roughly $4.57 in Los Angeles. No wonder electric cars are on the rise over there.
Another example is the median home price. For some of you, purchasing a home is nothing but a pipe dream, but not after we’re done with you. In the year 2000, the average cost of a home in Los Angeles was $240K and today the median home price has risen to $795K to buy the same house.
The house has done nothing but age and get older and dilapidated. But yet the price has gone up dramatically. And if you know anything about LA, getting older is not something to be rewarded for out there
For more examples of this, follow the link here…
The Downside
We all know the basics of how inflation can ruin economies and make people feel miserable about their investments and assets. Inflation erodes the purchasing power of the property, raises the cost of borrowing aka loan and as a result, you get an in real life TLC nightmare, hoarding.
Hoarding is an increase in demand. In the short run with a fixed supply, the price of the hoarded good increases. Think 〰️ everyone wants Harry Styles tickets 🎟️ at the same time butttt he’s playing the smallest venue in town. So, the venue is obviously going to jack up the prices to astronomical amounts, with every thirsty teen (aka increase in demand) for the hoarded good (to see Harry Styles in those iconic bell-bottoms serenading you).
The Upside
We 🧡 love to get inspired by a good quote. So here are some inspiring ones to think about when it comes to inflation and then we’ll dive into the 5 ways inflation generates profit.
“Inflation makes the wealthiest people richer and the masses poorer,” James Cook
“Invest in inflation. It’s the only thing going up,” Will Rogers
“We are in a debt-based economy. We need to continue borrowing in order to spur growth,” Ray Dalio
Notice, all of these quotes are from men. We’re out here trying to change the game for you and the future of women taking control and being financially literate on all things passive income-related.
Okay okay, so we’ve talked about the extremes so far in this episode, the major upside, and the major downside. But there is actually a middle ground, for all you peacemakers out there.
Moderate inflation has been a tool by the Federal Reserve to stimulate growth. By lowering interest rates, it encourages borrowing by businesses and individuals which spurs growth in the economy. So yes, inflation can be used for good.
“With great power, comes great responsibility” 〰️ Uncle Ben from Spider-Man
Leverage Debt
If you have been here long enough, then you know already we have a whole episode that goes deeper into the topic of leveraging debt to your advantage.
Trust us, back when we were first starting out, we didn’t know how to leverage debt to our advantage, we were trying to combat inflation by doing everything else, mostly by securing very low-interest rate debt.
Don’t be like us, and learn from our mistakes. Leverage is simply small input and massive output. Think, the literal definition of more bang for your buck.
Archimedes said, ‘If you give me a lever and a place to stand, I can move the world.” 🌎
Any time we can borrow money at an interest rate below inflation, that’s considered free money. 🤓🤓 People love to joke about it, but debt is essentially free money. And you know who else knows this? Bezos, Kylie, and Zuckerbeg. Billionaires who know how to use a lever and a place to stand.
We love borrowing money for free and buying a cash-flowing asset that covers the debt payment, using less of our own money increases our return on investment. ✅
We also love income-producing debt. It allows for us to grow exponentially with a relatively small input of 20-30% of the purchase price, but gain ownership of the entire apartment complex.
Invest in Cashflow, not Cash
Now number two is crucial, and that’s to say goodbye to cash and invest in cash-flowing assets. 🙌
Yes, there is an absolute difference!
And no you don’t have to have millions of dollars to do this. It takes way less money than you think. Keeping cash is usually the number one thing holding people back from generating money using inflation. Think about it, your money is doing nothing for you stashed under a pillow or in a box somewhere. That money is not growing or doing anything other than collecting dust.
Cash Flow, not Cash, is 👑 King. Keeping money under your mattress or in the bank is dangerous and only benefits the financial institutions. Cashflow assets like apartment investment and other modes of passive income will move with time and keep more money in your pocket.
But not like, literally your pocket because it won’t do anything there. Okay, you get it!
You Just Want to be Appreciated
Do you know what’s appreciated over time? Fine wine. Classical art. And now, your investment assets.
How? In real estate, there is something called an inflation hedge and that means, much like hedges when not trimmed, it grows. In this case, the cost grows. Materials, labor, and of course, real estate. Most affected real estate is, you guessed it, apartment complexes. Both new and pre-existing.
So if you’re looking to invest in an apartment syndication today at $30M, the hope is that you will gain at least from inflation alone $34.5M in a 2-3 years time frame. See, inflation doesn’t have to be a cuss word like the news outlets want you to believe.
Of course, we’re not even going into the other ways you can earn more such as rent growth increases, other incomes, reducing expenses, compressing cap rate, and all the massive tax benefits. We’re just talking about inflation here!
Tax-Vantage
The fourth “how to use inflation to gain profit” is through the tax advantages. Imagine a world where ➡️ taxes and advantages are in the same sentence. For you and your financially free self, there is such a place!
The truth is, the real value of tax decreases with rising price levels.
This one might be a twist if you haven’t thought about it yet. Let’s say you earned $100,000 income in 2021, does the IRS tax your income in 2021? No, they tax you in 2022 right? Therefore, whatever you make in the year previously you will be taxed on the year after, so you can account for losses before it’s too late.
Time After Time
And finally, reason number five is, let inflation buy back your most valuable resource: TIME. ⏰
We say it often, time is our currency. We realized a couple of years ago how very FLEETING and special time is. It’s the only non-renewable resource that we have and it passes by day by day, marching faster than we’d probably care to realize.
We can’t get our time back, right⁉️ Because there are so many things we would all go back and change. Starting with early 2000’s fashion choices.
So what does time have to do with inflation? We’ve spent a large portion of this episode so far talking about using inflation to generate more profit; however, let’s take a step back and look at the bigger picture.
Inflation is real, and it’s here to stay. You can either let it rob you of your wealth or you can be proactive and make it work for you! You do not have to be a victim in this situation.
There are not a lot of asset classes that profit from inflation like apartment investing. We’re buying real estate in today’s dollars, locking in low-interest rates while having inflation pay off the debt with cheaper dollars. 😗😗
The best bet is investing through apartment investing instead of saving dollars and investing in stocks, bonds, and/or mutual funds. We’re working with the market, not against it, and in the grand scheme of things, this is the best way to take a risk without too much fear of failure.
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