Nobody is talking about the real impact of inflation

[Marcus Auerbach]

Predictions for inflation have been around for years, now it's here and it will be for a while. It's in the news every day. CPI (consumer Price Index) came out a few days ago with 7.0%  for 2021 and when I look at the producer price index at 9.7% - biggest gain on record - it seems like there will be more to come. And this is global: Germany 5.3%, India 7.6%, Mexico 7.3%, Brazil 10%, Russia 8.4% (and then the catastrophic inflation in Turkey 36% and Argentina 51%)!

The current situation of 30y fixed rates being less than half of what inflation is seems absurd! Rates should be higher than inflation! This is upside down, how can lenders sustain this?

On top of that RE keeps appreciation - and from what it looks like - it will have to continue down this path. Many of us wish we could go back to 2009-2012 as the opportunity of a lifetime and buy more then - we might be looking back at 2022 the same way.

The general public's view on inflation is that it means price increases; gas, steaks, houses. Those are all short term inconviniences. Nobody is talking about that fact that their 401k just lost 7% and will probably continue to do so potentially year over year compounding down.

It also means that real estate got 7% cheaper, which offsets about a thrid of the national appreciation gain last year (about 20%). What puzzels me is that inflation with it's massive impact on REI is not a big topic here on BP.

I am on here every morning and there are still so many posts about when is the housing market going to crash and barely anything about inflation. This is a literal game changer. What type of rent growth will we see over the next five years. Try running numbers with 5% p.a. Inflation could be the best thing that happenes to anyone with a sizeable portfolio, it could also get really ugly if it starts to run away. 

Where will interest rates be in 5 years? Could we see double digits again? The current consesus is that we will see mortageg rates at 3.7% by the end of the year and I don't believe it. I am surprised there is no fear mongering about the crash of the USD. How wide can the wealth devide grow, before the tension gets too high? What gives? Where are all my fellow YouTubers - seems like the next big clickbait! Or will that still come?

Anyway, just some thoughts along my cup of coffee - time to get to work! 

[Marcus Auerbach]

Originally posted by @Karl B.:

Ken McElroy and Robert Kiyosaki talks about inflation all the time, including the wealth gap and what socialism/communism would do to landlords/the wealthy and so I get my fill of it listening to them and their guests. 

You're right - people don't talk much about inflation on here excluding the 'things cost more' statements I typically see.

I recently bought some value-add properties that are under market. Rents are going up and if any tenants want to leave I'm cool with that as I will be able to get market rent. 

Undermarket rents+ inflation = wowza

Yes - I think about the things you're talking about. Mainly the wealth divide and the threat of rent freezes and other governmental controls that could be even worse than rent freezing. Society won't be talking about how the Federal Reserve debased our currency due to the fact our clown government can't ever balance a budget... they'll instead target "greedy landlords" and will impact us in a negative way, no doubt. 

The government creates all the problems and then they pass the blame onto someone else.

Robert Kyosaki, I hate to say it, is a one hit wonder. He wrote a great book a long time ago and has spent the last 20 years shamelessly milking young investors through Rich Dad Education. He is one of the most consistent fear mongerers out there - predicting a crash as long as I have been in RE - and really just selling his stuff. New book, BTW.

Ken McElroy, where to start? Same, basically. Just watch his YouTube videos from 2020 and 2021. I am surprised he did not delete them, or did he?  Same concept, monetizing fear. Both have an anti-goverment redderic that is just not useful or constructive; basically unchanged since the 90s, no matter who was president. Also, socialism and communism are radically different concepts and I know in the US we use them interchangably.

But my post was not about politics (we have issues, and so does the rest of the world currently, no matter of capitalist, socialist or communist country - all have the same problems at the moment, interesting to note). 

It's not only landlords who have created massive wealth last year - every homeowner did. 50k to 100k in most states on average. Tax free BTW. That is half a life worth of savings for many workers who rent. And I can't see that go well for long... But it also poses great opportunity for those who know how to seize it. it's just a really big topic and it will define us for the next decade!