How can you make inflation work for you?

So, let’s first get past the denial. I am still hearing people tell me there won’t be inflation when we have just printed 2 trillion in cash to distribute and by the end of this, it will most likely be closer to 5 trillion. The amount of money in our current money supply was 2.5 trillion. If we double or even quadruple our money supply, there will be inflation. Since we are doing that,
there is going to be inflation. Now, I don’t think our government will allow hyperinflation, so it will be gradual, but very real.

First, let me explain what inflation is. The definition of inflation is a general increase in prices and fall in the purchasing power of money. Remember your grandfather telling you how bread used to cost a nickel and it is now $2. That’s inflation. Now as inflation goes up, so do wages. You no longer will have a $10 minimum wage. Maybe it’ll be $20. Your salary will most likely go up as well.

Here is the problem with inflation. For one, goods will be more expensive from overseas because the dollar is worthless. A perfect relevant example is Mexico. When vacationing in Mexico food and purchases are inexpensive because one US dollar is worth almost 25 Pesos, well that is because the US dollar is strong compared to the Peso. So, getting goods in other countries with a stronger currency could be very expensive if our currency is worthless.

The second issue with inflation is your savings will change to the new dollar amount. So the 100k sitting in your bank account won’t have the same buying power as it did at the beginning of 2020. In fact, it may be worth half.

So let’s start with, ”Savers are losers.” Robert Kiyosaki always says that and he is right. I know that stirs emotions in some of you who have a large savings account but please look past that emotion and look at the facts. We are more than doubling our money supply. That is the fact.

Yet, you shouldn’t freak out about inflation because like anything if you understand the rules of the game you can still win.

If money is losing its value then the debt is losing its value as well. Really wrap your head around that one. You know houses that were bought 60 years ago for 40k and now selling for 800k, that was inflation. So, if you have good debt that is at a FIXED RATE then inflation is good for you. Using the same principles we did before it makes your 500k loan 250k to pay off.

So to recap, if you are a saver you need to bring on debt. Refinancing your house so you have cash for when the market corrects would be a great first step. Don’t worry about the 3% interest rate you are paying. The additional debt inflation will be much more than that.

I really want to help you guys navigate through the next 12-24 months. This could be the opportunity you have been waiting to either get started in real estate or to blow up your portfolio. I can’t privately coach, as I get requests for that everyday but for $19.99 a month you have access to my private Facebook forum where I personally answer your questions and do a live every Monday specifically addressed to what the members want to know. If interested please click here.

Talk to you tomorrow,
Ken

3 Ways to Get Started in Real Estate and 1 Way I Would Never Recommend!

Invest In A Bigger Real Estate Deal with a group of people or a company

The first is what I do with my investors at MC Companies. Which is joining with others to invest in a bigger deal. This can be either commercial or residential.

There are two great things about investing in a larger real estate deal.

  1.  Low minimums – Sometimes you can invest as little as $500 and be an owner in a property. (but always remember you will have little to no say in how the property is managed)
  2. You don’t have to be an accredited investor – in the past, to participate in these types of investments, you had to be an accredited investor, but that rule has gone away for certain investment types. At MC Companies you do have to be accredited.

Buy A Rental Property

Purchasing homes and renting them out is a great way to produce extra monthly cash flow.

To do this, you have to purchase a house that has a combined monthly mortgage payment, home insurance payment, and property tax payment lower than the rent the property commands. There are several ways to do this – from buying in an area with high rents to putting a lot of money down so that your mortgage payment is low. If you buy correctly, rental properties can be very lucrative. And, if you do the upfront work of finding those hidden gems, you can let a property management service do the rest and rental properties can be a form of semi-passive income.

Rent A Portion Of Your Existing Home

If you aren’t don’t have the cash to buy a rental property, you could first test the waters by renting a portion of your house. You have a couple of options to do this. First, you could rent a spare room in your home or you could rent the basement. If you’re yet to purchase your first home and like this idea, you could even buy a duplex and live in one apartment and rent the next.

The advantages of renting a portion of your house are that you get to watch your tenant closely. It’s less likely that a tenant will try to stiff you for the rent payment when you’re in the same household. Renting a portion of your house also gives you the ability to get a feel for what it’s like to be a landlord without making such a huge monetary investment.

What I would never recommend…

House Flipping:

I feel like house flipping is similar to gambling. You may win once or twice, but it’s never a long term success strategy. Below is why….

How Do You Make Money Flipping?

As a flipper, it’s simple Math. Add up how much you paid for the property, plus all the expenses to rehab it (it will always be more than you think), monthly cost to hold it, and any other expenses. Then you subtract that (likely very large) number from the income you get from selling the home, and that is your profit or loss.

It’s not like you see on TV. At all. As with most reality shows, they make it seem so easy: buy a home, work with your contractor, fix a few things up and boom you just made 100k. It’s not like that at all…..below is the reality of house flipping.

It’s Risky

Most flippers usually use leverage to purchase the property, and usually those are hard money loans to secure the property and pay for construction. They then try to fix it up quickly to maximize profits. Unfortunately, with each passing day/week/month, holding costs continue to add up. Some holding cost examples are maintenance, insurance, and interest. Delays will
kill your profit and delays are inevitable when dealing with contractors and the unknowns of reconstructing a house.

Taxes

The main reason I hate house flipping is the tax. The rate at which your profits are taxed can depend on how long you’ve held on to the property. If the property is held for a less than a year, then the profits are taxed at ordinary income tax rates, which can be 30-40% (it can be more if you’re in a higher tax bracket) Real estate is a very tax efficient vehicle, but flipping most definitely isn’t. If you hold onto the property for more than a year, you’ll be taxed at the long-term capital gains rate that typically ranges from 15-20%.

Conclusion

You may get Lucky once or twice flipping a home (or you may lose your ass) but at the end of the day there is no long term tax strategy and you will pay high taxes.It isn’t a strategy I recommend because I like long term cash flowing deals.