In an article on the front page of the Wall Street Journal on Saturday, August 11th, titled “Stronger Inflation Eats Into Paychecks”, by Josh Mitchell he discusses how rising inflation creates more expenses across the board, lowering the actual standard of living for most people. This is always true. Even in years when inflation is “lower” than it is right now. Inflation constantly erodes the buying power of the dollar and weakens people’s ability to live to a certain standard they may be accustomed to. Inflation is likely to also exist in the United States for the foreseeable future, due in part to the large budget deficit, and is unlikely to abate. In fact, as the article mentions, it is now accelerating.
As I wrote about in my books, mentioned in my upcoming public television special “Remote Control Retirement Riches With Adiel Gorel”, and specifically in my booklet (which is part of the package for pledgers who help support public television stations) called “How to Harness Inflation As Your Ally”, the very act of buying a solid, affordable single-family home in the right market (please refer to the same source materials, including the booklet “Where to Invest?”), and financing them with the incomprehensible 30-year fixed rate loan, which NEVER keeps up with inflation, actually REVERSES the effect inflation has on you.
Instead of eroding your income and buying power, when you have a 30-year fixed rate loan on a single-family home (technically these loans are possible to obtain on 1-4 residential units), inflation keep eroding BOTH your fixed monthly payment, AND the loan balance (which goes down gradually with the 30-year amortization principal payments as well).
When inflation constantly erodes your DEBT, obviously you owe less in terms of real dollars. This is an integral part of why rental single-family homes in the United States (to the best of my knowledge the only country where such loans exist), can improve your financial future, enable you to have a potentially far more powerful retirement, send your kids and grand-kids to college (as many have done using this investment style under our guidance), and actually have a constantly rising average net worth (long term, since local fluctuations both up & down in prices can vary that temporarily). In addition, you are building up to the future when either the loan balance looks so small it can just be paid off (usually well before 30 years are up), or the loan is paid off and now there is one more free and clear home providing income for the rest of your life.
I recently came back from speaking and meeting with investors in a foreign country. They are simply SHOCKED at the fact that United States investors can get the 30-year-loan (which is why I called it “incomprehensible”. Foreigners can’t understand why U.S. investors don’t get and many of these “gifts” as they possibly can. The foreign investor usually cannot get these “miracle loans.” Ironically foreigners can appreciate what these loans really mean and how they turn inflation into your ally, instead of your foe, more clearly than most Americans.
Starting this weekend, on August 18th my Public Television special “Remote Control Retirement Riches With Adiel Gorel” will start airing on various Public Television stations across the U.S. In the San Francisco Bay Area the special will air on KQED. A partial list of the air times in various markets (the list gets updated all the time) is here. For additional air times for KQED click here.
In a blog on RentCafe, by Nadia Balint, from April 2018, this is some of the information shared:
“The U.S. housing market has gone through nothing short of a transformation in the last decade. The number of people renting their abode has increased significantly, in some cities surpassing the number of homeowners. The housing market quickly responded to this shift by adding millions of rental units in just a few years, with many U.S. cities witnessing a frenzy of apartment construction.
The most interesting part of this transformation, however, was the fact that the rental market expanded even faster horizontally than it did vertically. For the better part of the decade ending in 2016, single-family homes for rent were the fastest growing type of rental in the U.S., outpacing the formidable apartment boom seen throughout the country.
According to U.S. Census estimates, the number of single-family rentals (SFR) in the U.S. grew by 31% in the ten year period immediately following the housing crisis (2007 to 2016), while multifamily rentals (MFR) grew by 14%. In net numbers, single-family rentals in the U.S. increased by 3.6 million units in ten years, more than rental apartments, which increased by 3.2 million units. As of 2016, the U.S. Census counted a total of over 15 million single-family homes for rent in the United States and a total of over 26 million apartments for rent.”
Oklahoma City leads the 10 Top Metros with the largest share of Single Family Home Rentals:
This is very likely helped by the tendency of many Millennials to rent instead of buy. Millennials have not been valuing home ownership as much as previous generations. Many of them value flexibility and the ability to move. Nevertheless, many Millennials are getting into the family-formation phase of their lives, and thus prefer single-family homes with a yard for the kids, dog etc.
All this dovetails perfectly into our investment philosophy: buy single-family homes in good areas in good large metropolitan areas, finance them with 30-year fixed rate loans (which never keep up with inflation) whenever possible, and hold. That will vastly change and improve your financial future.
We will discuss this and a lot more at our ICG Quarterly 1-Day Expo on Saturday 5/19/2018 near the San Francisco Airport. I will be teaching and holding extensive Q & A sessions. We will have expert speakers on Asset Protection, 1031 Exchanges, and Financial Planning overall. There will be lenders present, 5-star networking, and presentations from market teams from the most relevant markets in the U.S. You can attend free, with a guest by emailing us at firstname.lastname@example.org, and mentioning this blog. Looking forward to seeing you!
#real estate, #real estate investing, #interest rates, #single-family homes, #rentals, #retirement, #college costs, #wealth
Interest rates are rising. In the past year mortgage rates went up by over 0.5%. Homeowner mortgage rates are now about 4.4%; investor rates are always higher, and are currently at about 5.25%. Historically, these are still very low rates. Even in the past 20 years, which saw some of the lowest interest rates in nearly a century, the average rate is about 6%; based on the past 7% and even 7.5% are considered low.
In the 1980’s there were periods where interest rates were over 14%. For many years, rates were in the “double digits.” There was a lot of joy when rates finally got down to a “single digit.” I recall everyone running to refinance to get the amazing new rate of 9.95%!
The single-family home investor
For the single-family home investor, given their ability to get a 30-year fixed rate loan, which miraculously never keeps up with inflation, these recent changes in interest rates should mean very little. I have seen thousands of people’s lives change dramatically over the years buying good solid single- family home rentals. The trick is to hold them for a long time (leaving it be–no refinancing for debt consolidation) and let inflation erode the fixed loan to the point of ridiculousness, while natural average price appreciation happens steadily (that includes booms and busts – on average single-family home prices have appreciated at least 1.5 times the rate of inflation historically).
So why do I talk about interest rate rises potentially ruining your future?
That has to do with human behavior. I have seen many cases recently, of investors who understood the powerful future benefit of buying single-family rentals, and as it happens, were looking during the period when rates were super low (investor rates were 4.7%). A few months later, when investor rates are now 5.3%, I have been hearing investors saying “Well, I don’t want to invest anymore, since rates went up from 4.7% to 5.3%”.
THIS is how you can ruin your financial future. Over the years, I have seen it time and time again – investors not taking action, not cementing their future by actually investing in a single-family home rental. Rather, they would find a reason not to do it – “interest rates are too high now”, “I read the economy will tank”, “it’s too late”, “I am too old” etc.
Using a minute change in interest rates as an excuse not to move forward, especially at a time when rates, even for investors, are supremely low – like today, is simply not going to let the powerful effect of rental homes change your future for the better.
Take action now to change your financial future
I have seen many such cases in the past, for example: two friends were considering investing in houses, one thought “the interest rates were too high” and didn’t do anything. The other went ahead and invested. Once he saw it was easy and profitable, he invested again, and again. Today, the financial difference between the two friends is staggering. The one who owns the rental homes, bought over 15 years ago, is retired with great ease, has sent his kids to great colleges, and is wealthy. His friend – not so much. It’s almost heartbreaking.
Don’t let these minor perturbations in interest rates ruin YOUR financial future.
We will discuss this and a lot more at our ICG Quarterly 1-Day Expo on Saturday 5/19/2018 near the San Francisco Airport. I will be teaching and holding extensive Q & A sessions. We will have expert speakers on Asset Protection, 1031 Exchanges, Financial Planning overall, as well as lenders, 5-star networking, and market teams from the most relevant markets in the U.S. You can attend free (or with a guest), by emailing us at email@example.com, and mentioning this blog. Be sure to give us your name and the name of your guest. Looking forward to seeing you.
In an article published in the San Francisco Chronicle from February 7th by Christopher Rugaber (AP Economics Writer), called “Why Investors’ Fear of High Inflation is Probably Overblown,” Mr. Rugaber explains inflation by going into the pros and cons of higher and lower inflation. He provides an overall concise glimpse of the situation as it is currently. The Fed’s dilemma with increasing taxes in the face of strong employment and rising wages is certain to bring inflation to the economy. However, he also discusses how inflation assists borrowers.
ICG educates investors
Of course, at ICG, we constantly talk about how inflation erodes the 30-year fixed rate loan. This, in turn, becomes the borrower’s ally in reducing the real buying power of the loans fixed dollar amount. We will talk about this and many other important topics during our ICG Quarterly 1-Day Expo near SFO on Saturday 3/3/2018.
Topics to be covered
Our expert speakers will cover topics including the new tax law and how it pertains to real estate investors, how to buy rental homes out of a self-directed IRA, and how to use insurance as the first line of defense of protecting your assets. There will also be lenders available to discuss what they have available and what you can expect over the next several months. Property management, legal expertise, and one-on-one’s can be found as well. And as always, we offer a lot of question and answer time. Market teams from the most relevant metro areas in the US will be present. Everyone mentioning this blog will receive free entry. Please email us that you read this at firstname.lastname@example.org.
reaction is to have money sit as cash (with close to zero yield). However when people are scared of stock markets, real estate and (especially) single family homes usually become more interesting as a safe hard asset which produces income, which we tell our clients at ICG as well.
In a Wall Street Journal article (front-page) by Laura Kusisto, May 12, 2015 titled “Home Prices Start to Heat Up” we learn that home prices rose year-over-year in 148 out of 174 metro areas in the United States, as measured in the first quarter of 2015. Fifty-one of these metro areas increased by double digits.
There is no doubt that most U.S. markets, including essentially all the markets real estate investors are investing in, are on an upwards trajectory. (If you are not a real estate investor… you may want to take advantage of as many opportunities as you can to learn about this market and determine what might work for you as an investment in your future.) The reasons are many, including low interest rates and loans becoming even easier to obtain over the past year (and this trend continues). Buyers (no doubt) know that the low rates will not be there forever, and feel compelled to jump in. And they are doing just that. A better employment picture also helps.
Needless to say, the phenomenon of price appreciation by itself can create upwards price pressure, as buyers prefer jumping in sooner rather than later, to get a better price. As I have always discussed and predicted, retiring baby boomers are starting to be a major force in some of the sunbelt states as they seek homes for retirement in warmer climates and friendly tax situations.
For the investor, new and seasoned, what is happening now is not strong enough not to invest. Learning how to take advantage of all of this is optimal at this time. It is a reminder that buying with a fixed-rate 30-year loan that never changes with inflation – and I cannot emphasize that enough – is one of the best financial moves one can make for their financial future! The tenant and inflation will bring the loan balance down as the years go by. Home prices AND rent are NOT fixed, only the mortgage payments are (the loan balance is also fixed and in fact is paid a bit off each month, even nominally due to the amortization).
I will discuss this in greater detail as well as many other factors critical to our real estate investing strategies, during our ICG quarterly 1-Day Expo near SFO airport on Saturday May 30, 2015. We will have market teams from the best markets in the U.S. at the Expo with vendors present for one-on-one discussions. Lenders will tell us about the new loans we can get, including new loans for foreign investors and U.S. investors with over 10 homes. We will also have experts on insurance, credit optimization and repair, and overall financial planning. For more detail on these experts, visit us at ICG Real Estate Investments and click on the button about our upcoming event. To register you may email us at email@example.com, and mention where you saw this blog, to attend for free with two guests. If you would rather register through Eventbrite, feel free (although ticket price applies).
See you soon; I look forward to learning from our experts right along with you.