News News | 2d ago
Sabrina Belleci
Special to the Tribune
With the Federal Reserve printing money at an alarming rate and prices of many commodities rising, inflationary concerns are on the horizon and the US dollar is volitive.
There has been a continual drop in the value of the dollar during the past 10 months. So, the purchasing power of cash is already suffering on a local and an international basis and domestic inflation will only make things worse.
Sabrina Belleci
Interest rates are extraordinarily low and will likely remain there for some time as the Fed tries to push the economy forward. But during times of inflation interest rates historically have not remained low for any length of time so this creates a paradox.
Another factor that figures into this complex equation is the vast amount of cash being held by baby boomers and retirees.
Most of these people are in no position to go back into the workplace and earn more money.
Traditionally they could put their cash into fixed income investments that provided a reasonable rate of return and would sustain a modest standard of living.
But that has become extremely difficult as yields for virtually all types of fixed income instruments have tumbled to very low levels.
Asking retirees to take on stock market risk or investing in Crypto when the Fed is printing money and creating an asset bubble in equities is simply not practical.
When inflation rears its ugly head, real estate affords many positive attributes for homeowners and investors.
As a homeowner with a mortgage, inflation helps you pay back the loan with cheaper dollars. Also, real estate tends to appreciate at or above the rate of inflation. While there are no guarantees, it is generally preferable to hold real estate rather than cash during inflationary times.
Owners of single-family residential properties and small to medium-size multi-unit buildings generally tend to perform fairly well during periods of inflation. The one big potentially negative factor affecting this arena is the lingering affects of the pandemic how it will impact residential evictions and vacancy rates.
If vacancy rates rise significantly as remote workers head back to the city, then it will be especially tough for landlords in the Tahoe Basin to increase rents enough to keep up with inflation.
Previously, we talked about the undulations of local commercial real estate with people moving into our community and starting businesses just to close their doors to the COVID-19 and Delta Variant regulations.
If commercial vacancies jump again and the labor market is undergoing a seismic shift, rents will not be able to keep pace with inflation. In that case, the value of commercial real estate would suffer, and it would not be considered a good hedge.
For investors, inflation can have positive benefits if you are able to raise rents faster than your expenses increase.
Rising rents plus inflation also mean rising property values in relative terms. But, not all property values increase equally during inflationary times.
Higher quality properties in desirable locations tend to do better than less desirable ones.
Editors Comments:
Inflation is a double-edged sword:
As I've said for the last 50 years of my seminars inflation is a double's edge sword he can make you or break you.
As any wise investor knows inflation can hurt be your friend or your enemy. I just depends where you invest your money.
If you have your money in a bank account at 2% when inflation is 5 to 10% you have to be a rocket scientist to figure out you're in a loose route attempts 3 to 7% buying power of your money .
Same goes for bonds in the stock market doesn't like inflation either sooner or later the central banks around the world will beforced to raise interest rates to slow down inflation.
Inflation fighting assets are hard assets otherwise known as tangible assets.
A tangible asset asset is anything you can touch and feel as opposed to a piece of paper.
I feel quite confident in saying that you could purchase anything that's a hard asset right now and it will go up in value the next year or two dramatically. That includes refrigerators cars etc. etc. etc.It has been a long time since we had inflationary fears in the market.
AWn example of inflation influence investments was when I was in the precious metals business in 1978.
During the Arab oil embargo the price of oil jumped from five dollars barrel to $50 a barrel. Gold went from $200 an ounce to $1000 an ounce.
Silver jumped from five dollars to $50 an ounce.
Real estate throughout the world rose dramatically.
Although it does not appear we are going to have on a oil crices it does appear that the pandemic has caused severe shortages and problems with supply lies that will create dramatic inflation in the coming months and perhaps even years.
Remember the simplest definition of inflation is more money chasing up the same amount of goods.
During last two years of pandemic manufactures have been hesitant to manufacture goods such as refrigerators cars etc. and especially homes.
In the meantime and miners have been hesitant to produce minerals leading to huge surges in copper iron etc..
Timber companies have been reluctant to manufacture and distribute timber therefore a shortage of timber which has led to a huge increase in timber a main component of any home.
There's no question in my mind that homes that are built now will see a huge inflationary rise the next 12 to 24 months.
Double whammy high inflation and Covid - 19 prices.
In Bali we have an opportunity of not only benefiting from inflation but also from heavy discounted homes and land which won't last long at 20% to 50% off their previous highs.
Check out our distress properties at this site.
I'm pretty sure you can make dramatic profits the next couple months although nothing is guaranteed.
For the past 10 consecutive years, they were awarded the Certificate of Excellence and the Hall of Fame Award from the Worlds Largest Travel Site, Tripadvisor. This places them among the top 2 % of hotels and villas listed by Tripadvisor worldwide.
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