Hey guys, a recent report shows that inflation is rising rapidly. It's the highest it's been in 13 years — up to 5.4% right now. When we look at that number, we should look at it from the perspective of: How does that impact us as REALTORS and our clients?
As REALTORS, the one thing we should be concerned with is if we took $100k and we put it in the bank and waited a year, based on this inflation rate, then at the end of the year, our $100k would only buy $94,400 in goods. So that's not a good thing. We need to make sure that we're investing in assets that are rising faster than inflation.
And we need to encourage our clients to do the same thing.
One of the best hedges against inflation is real estate. Which is good news for us.
We need to be talking about this with all of our clients that real estate is one of the best hedges against an inflationary market.
One of those reasons for that is that we can look at appreciation rates for real estate. When inflation rises, so do home prices — and often at a faster pace. So last year we know home prices went up 23% on average across the country. And we can expect just based on NRS projection for 2021 home prices will end up being up at least 11.5%.
So when we look at that, we can easily beat the 5.4% inflation rate. That means we're still making money if we have our money sitting in a real estate investment.
This is something we should be talking about. We should be really encouraging our investors to be leveraging even more dollars into the market.
And as a secret weapon here, too, which is that word leverage. When we think about what we can get a loan for, what interest rate are we paying on average right now? It's about 3%. So when we can get money at 3% and inflation is rising at 5.4%, we're automatically making at least 2.4% and probably much, much greater.
So those people that have cash and say, "I just want to pay cash for a property." In an inflationary market, does that make sense? No, not really. That means that they are not using the leverage of 3% money out there. Because they can actually make -- and increase -- their rate of returns by using other people's money, which is great.
Now, why is the interest rate at the fed level so low? It's being artificially held down guys. The fed is buying up a lot of bonds, which is causing these interest rates at a national level to be lower than they normally would be.
So this is good news. This is a double good news moment for investors.
You can buy a property that's going to beat the inflation rate and you can borrow money to help you expand those rates of returns.
So if you are somebody that's been out there talking to investors as a regular part of your business, this is something to talk about. If you haven't been talking to investors, this is something to talk about. So I'm giving you some ammunition here. Hopefully you go out and use it.
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