Inflation is becoming a MASSIVE issue, and it seems like nobody wants to do anything about it. What does the future of the US economy look like? And how can YOU get ahead in 2022? Join Ken McElroy and Danille in a discussion about the real inflation numbers and things you can do to hedge this insane inflationary period.
Danille:
Welcome to the Ken McElroy show. I’m your host, Danille, here with Ken.
Ken McElroy:
Welcome guys. Welcome. Hope you guys had a good weekend.
Danille:
Yes, and Ken has a hard-out today at 11:50.
Ken McElroy:
I have a closing noon, the deal with attorney calling in. So, so, um, sorry guys. I gotta jump off about 10 till.
Danille:
Yep. 10:50, but we had a fun weekend.
Ken McElroy:
Yes, it was. Gosh, we had four parties on… Friday?
Danille:
Saturday. Four parties on Saturday, make ’em all birthday party wedding party, UFC party and a holiday party. Yeah, that’s right. But it was fun. You had a good time. Jess still can’t believe that you beat her to the shot competition.
Ken McElroy:
Listen, you guys are wimps. shots are easy.
Danille:
Ken coming in with the…
Ken McElroy:
Well, so it was a, the birthday girl wanted to do a shot. I said fine. As long as we everybody’s watching and we do, and we see who wins.
Danille:
So can we talk about your ladder experience this weekend?
Ken McElroy:
No.
Danille:
Well we’re going to so Ken decides… Ken’s a former gymnast, so he was a gymnast back in college. So he, um, and wrestler and a wrestler and a wrestler, but he is very, um, cat, like reflexes is what he likes to say. So he decided it would be a good idea while we were getting Christmas decorations down to get a ladder and reach above his head and try to pull the decorations down. But then he wasn’t quite under the ladder. So he also thought it’d be a good idea to take his other foot and step on a box. So he has one foot on a box, one foot on the ladder. He’s in socks, not even shoes. And he is pull this box down. So he pulls the box down when he pulls it down, it hits the ladder flies out from underneath of him. He falls onto the garage floor on top of the ladder and somehow was not injured so I guess the point of the story is to say that Ken will be listening to me cuz about five minutes prior to that, I told him he should put on a pair of shoes and practice ladder safety.
Ken McElroy:
Let’s talk real estate. let’s get into that. that all happened. All true.
Danille:
All right. So let’s jump into it. So we are dealing with the inflation nightmare. Yeah. So
Ken McElroy:
We really need to talk about this. I know there’s a lot on this guys. Um, you know, and, and I think if you go back and you look at just go back and look at when, when, when we started putting the money into the economy and the stimulus packages and the PPP and all the things that we’ve done, and I’m not saying we didn’t need it, I’m not, but everyone at that time in 2020 is saying we’re gonna have really high inflation and, and some people listen, some people didn’t. So what we’re starting to see now is obviously the results of that. And, and so I think, you know, it’s interesting in preparation for today, I went back, I was having kind of fun because there’s all these people that did all these predictions back in 2020. I think I even did one and, and wrote papers and all this stuff about how, you know, injecting all this money into the is going to create inflation. And here we are. Yep.
Danille:
Here we are. And we have 6.8% inflation. And that’s just what they’re saying. The inflation number is, and that’s the highest we’ve had in 40 years.
Ken McElroy:
Yeah. Yeah. So I, I, we wanted to talk a little bit about it because there are, there are some serious concerns and some things that you can definitely only do to make sure that you’re on the other side of this, and that’s kind of the whole point. And obviously we’re gonna try to focus in as much as we can around real estate, but I think it’s all interconnected, especially if your residents are suffering, maybe they’re on fixed incomes or maybe you have a lot of, uh, cash. Cuz I think one things that happens when prices are going up, the human behavior is save more. That’s what it is. And, and, and so if you take a look at the numbers, you know, when you guys, most, a lot of you haven’t experienced inflation, like, like I did when I was a kid in the eighties, I remember when we had double digit and inflation.
Ken McElroy:
I remember when interest rates were 15, 18% Google. It, all you have to do is look at this and that that’s part of, you know, obviously I wasn’t a business owner then, but, but I do remember the long lines for gas and all the things because people were trying to get gas before it went up. So there’s all this stuff that goes on and we’re starting to see the beginnings of this. We had some, you know, now we’re starting to see some, um, massive lag and wages. We’ve talked about all this and, and, and so, well,
Danille:
If you’re not getting a 6.8% raise, you’re actually making less money, um, this coming year than you were last year, basically.
Ken McElroy:
Yeah. And, and, and I, I, for some of these, for some of you, this might be rather obvious. And so, um,
Danille:
Well, I, I thought it was interesting, you know, uh, I was kind of looking into what’s going around the world, cuz inflation is not just happening in the us, it’s happening worldwide. And uh, Japan is giving a tax break to companies that are raising wages. Yeah. so they’re basically like, we’ll give you a tax break if you raise wages because we know that our citizens need to make more money.
Ken McElroy:
Yeah. And I, I, I think there’s a couple things that, that we all have to wrap our head around. You know, one is the Biden came out this weekend. I think it was this weekend. Or maybe it was last week. I, I watched it basically saying that inflation, you know, the build back better stuff was going to, was gonna help inflation, help lower inflation. Oh yeah, I know. Right. If we print more money, it’s gonna help. I’m not trying to take a shot of Biden, but what I’m saying. Yeah. But that’s just not, he did say that period. What he said was things like healthcare and child, uh, services and, um, uh, daycare and all that stuff is gonna be less with the bill. Okay. And that might be true, but they’re also, somebody’s paying for all this stuff. This money is being injected into the economy.
Ken McElroy:
And, and so the, the, the government stimulus it’s, it’s affecting the way people can live. And, and the first thing I thought of, um, all of you guys know, so my mom broke her hip during COVID was horrible during this pandemic. And so, um, obviously we have all the health she’s around she’s vaccinated and all that. But regardless, you know, you still are kind of navigating the, you, you know, all my friends that are doctors say that you, you don’t wanna be in a hospital so, so we were, we were just trying to help her, uh, get better at her home with, with the nurses and all that kind of stuff. And so what it did is it, it forced us to really dig into her finances because I don’t know about you guys, but not a lot of parents are, you know, open book about, you know, the kind of money they make.
Ken McElroy:
And so, so anyway, what, what I found is that my mom has a, a $1,450 fix social security check. That’s what she gets each and every month. Now, the good news is that her home was paid off years ago. The home I grew up in, she still has that home. And so the point is that 1450, it’s gonna be the same number in five years. Well, they raised debt, they just raised social security, right? Yeah. I know. I know. But th this, these fixed income retirees are in big trouble. If you’re on a fixed income and you have a, you know, a fixed number coming in, this is gonna be a real issue. Whether it’s you, whether it’s your friends, whether it’s your parents, um, your parents, but I would even challenge you on that. Because just because people aren’t on a fixed income does not mean they’re giving seven and 10% raises every year with their companies.
Ken McElroy:
Yeah, no, no, no. I’m not talking about salary. I’m talking about my mom’s not working. No, I know. I know she gets a, she gets a check in the mail from social security. I know, or a pension or whatever it is that, that, you know, is a fixed income number. That’s, you know, though, if you take a look, you know, 20 bucks, 10 years ago could buy a lot more than it does today. Period. And, and so, you know, my mom’s fixed social security check I’m sure. 10 years ago it was $1,450. That’s my point. Okay. So today it’s $1,450, so things are going up. And so, you know, obviously I’m gonna take care of my mom and that’s part of the reason we’re digging in right now. I’m, I’m, I’m gonna, um, put a bunch of money in her bank account, so she doesn’t have to worry, but we had to move her and, uh, into a, um, a place that could take care of her.
Ken McElroy:
And, uh, the, um, her, you know, her rent, uh, with food and all that. I know that’s gonna have to go up over time too, because their costs are going up. Their food costs are going up. Their labor costs are going up, all the things, electrics going up, all of that stuff, just like it’s happening in my business as well. I’m sure their property taxes are gonna go up. So, so the, the person who owns the facility, where she is, is gonna be looking at all these increases, and this is all boils down to, uh, I know it’s just my mom, but the point is, is her rent is gonna go up. And that’s one of the things I tell my sister or my brother. I said, you know, it is what it is now, but it’s gonna go up because the costs, all these costs are trickling down. Whether it’s you individually at, uh, getting food at, uh, at the store or whether it’s insurance or whether it’s property taxes or whether it’s utilities or whether it’s food or whether it’s labor, or it doesn’t really matter. It just all works its way up.
Danille:
Well, that’s, you know, something interesting, you mentioned with the rent. So when I was digging into the inflation numbers and some of you may know this, I think most of you probably don’t, but 24% of the CPI, the customer price index is, uh, measured by owner equivalent rate, which measures how much money a property owner would have to pay in rent to be equivalent to their cost of ownership. So that’s 24% of the CPI. So get this, how they figure this out is they survey a selected group of people. So that’s what they now, now, back in the day, that’s kind of how they had to do it because there was no internet. There was no data. There was none of that, but now they still survey a group of people. So when they surveyed these people, which is how they got to the 6.8% inflation rate, they’re saying their increase is 3.5%. But if you look at the actual data of the largest homeowners nationwide, they’re showing a 17% year over year increase, which is more what we’ve been seeing down with the rents and everything else. So if you did that and you use actual data, it would take the CPI from 6.8% to 10.1%.
Ken McElroy:
Yeah. And they can’t do that. And the other thing is the CPI. If I remember right, it, it actually has like a thousand things in, in, in the mix. So it’s just not a few things. It’s a lot of things, the basket of goods in order to figure out the CPI or the consumer price index. Um, but over time, if you take a look, there are a lot of things that are not in there. Oh, for
Danille:
Sure. But I just thought with the 23% in there fudging those numbers, that’s gonna really affect the inflation rate. Plus if you think of it this way is maybe part of the reason that they don’t wanna raise rates is that’s going to increase the monthly mortgage and then to the rent ratio and it would increase the CPI.
Ken McElroy:
Well. So, so that’s actually the real issue here. So it, you know, why was growing up? The, the, uh, the interest rate was a tool to be able to, um, fuel the economy or contract the economy. That was what it historically been used for. If you go back and look, now, it’s not always perfect, but if you go take a look at the graph, uh, you know, the way things are move, moving prices and all the things you can correlate it with some, some reductions in the interest rate. So reductions reductions in the interest rate, fuel consumer spending period, that it enables you to buy more TVs. It enables you to buy cars. It enable, you know, more people buy houses when the rates are low rate rates are historically low prices right now, and inflation is on the rise. So the fed is in a bit of a pickle because typically what they would do in the past is that they would rise.
Ken McElroy:
They would increase those in interest rates to be able to hedge inflation. In other words, they’re gonna gonna try to slow down consumer spending, but if they do that, then the economy starts to slow down too, which is also not good. So it’s an interesting, um, it’s an interesting thing that they’re in the, you know, if you wanna really dig in more, I think if, hopefully you guys all know that the fed has been buying bonds for like 120 million a month, or billions are 120 billion a month. Um, and so they’ve been stimulating the economy during this whole time. If you haven’t been paying attention to that, you should. And what they publicly said, all you gotta do is Google. This is that they’re going to start weaning off of this. They’re gonna stop doing this. So this is all happening at the same time. And, and so, um, they’re saying, uh, originally it was June. I believe they were gonna stop, but I read something over the weekend that said they were gonna try to do it by March. So if that happens, um, you know, we could really start to see some pretty high inflation. Yeah,
Danille:
Definitely. And just to interrupt really quick, I wanna let you guys know, uh, on this Thursday at five o’clock Arizona time, we’re hosting a webinar, uh, with a 27 year old kid that owns three rental properties. And he’s gonna show you how he house hacked his way into having three rentals. Great. Um, it’s gonna be a great webinar for those of you looking to get started. Those of you that maybe have one property and looking to expand to two or three properties, it’s gonna be Ken, cory.com/webinar. It is free and I highly recommend you check it out. If you are unavailable at that time on Thursday, we will be emailing you a copy of the webinar. It’s just good to tune in live. So you can ask questions, but either way go to Ken mac.com/webinar to get signed up.
Ken McElroy:
So, so the other, the other, I think that you guys should go take a look at the various websites that are out there that measure inflation differently than the government. There’s a lot of ’em yeah. Shadow stats is, well, yeah, that’s one, you know, just go take a look at other opinions. Other views you don’t have to take ’em literally, well, Mr.
Danille:
Rate on YouTube, very interestingly said it’s 15% inflation. If it was calculated, like they did in 1980. There
Ken McElroy:
You go. So, so yeah, so what they did was they, I must have my ad kicked in. They, they, I, what they did is they changed the basket of goods. Now, I’m not saying that they shouldn’t because, uh, you know, what people are consuming and doing today are very different than 1980. But the point is is that they, they have changed the basket of goods that the CPI is. There’s another index that doesn’t get a lot of attention and that’s called the PPI and that’s the producer’s price index. So you could also take a look at that. And I think, you know, the, the, it’s not, you can’t just blame the fed on the money printing in my opinion. So there’s a lot of people that just hang their hat on that. And they say, this is the reason there are a number of other things.
Ken McElroy:
And one of ’em of course, are, are the supply chain issues now be as a result of the pandemic. So as countries close and as the viruses pop up and people do what they do to, to try to, uh, mitigate all of that, there are disruptions all over the play, whether it’s in China, whether it’s in the UK, whether it’s in Canada, whether it’s in Mexico, it doesn’t matter. The point is, there are all kinds of things going on in these other countries. We rely on those countries as the world’s biggest consumer, we are, by the way, the world’s biggest consumer of goods. We rely on those countries for low priced goods. And as those kinds of disruptions happen, then the shelves get, uh, more vacant and there’s more people chasing those things. And so the prices are going up. So again, the government’s saying it’s going to be temporary, but I don’t know. I mean, I don’t know how they can even make that prediction unless it’s manufactured in the us. Mm-hmm then I, I’m not sure how they can really make that, uh, distinction.
Danille:
Definitely. And you know, it’s funny that you said that because, uh, I was looking at Turkey’s currency too, and they’re having a 30% decrease in their currency. So, but the problem with them is see, in the United States, we tell people now’s a good time to take on fixed rate debt because our currency’s inflating in Turkey, a lot of their loans are in American dollars. Yes. So for them, they actually have to make 30% more money now in order to pay the loan back. So we’re at such an advantage, but to your point there, president or whoever runs their country was saying that they now, they are trying to encourage people to buy within Turkey. This is my
Ken McElroy:
Point. And that’s why, and we’re doing the same thing here. And the reason is because obviously, uh, we are a, um, a global economy. If you guys don’t get that, I, I mean, a lot of you have never even been out of the us, but the, the fact is here in Arizona, we have its, I think it’s called NAFTA, which is the north free trade agreement, uh, between Mexico, Canada and, and, um, and, and, and, uh, and, and the us, well, we have a lot of trade between Mexico because we’re on the border. Um, right now that happens to be people which is, uh, you know, a whole nother hot political potato. But the, the point is, is that there’s a lot of calm me between the countries. And, and, um, and so as, uh, we were out in LA this, this year, in the summer, and there was hundreds of these big cargo ships, just sitting off the shore of long beach and, and off of LA, we could see ’em from our window.
Ken McElroy:
Mm-hmm mm-hmm . Yep. And, and, and, and, and in to that, we have, um, a trucker shortage now. Um, you know, we, we probably, I listen, I, I, I, I think that the, the, the vaccines and the vaccine mandates are two different issues. We’ve had vaccines forever. I have no problem with vaccines, but the mandates that’s, what’s disrupting that’s, what’s gonna disrupt the labor market even more next year, the mandates themselves, basically. And so what’s happening. I was listening this morning, just, um, there’s a, um, uh, in, in, in Arizona, and this is happening everywhere. It’s with, with truckers, it’s happening with police force all over. People are leaving because of these mandates. And so it’s creating, uh, in particular on the shipping and the transportation and the public transportation, all those kinds of things. There’s a bunch of people that just don’t want to have to take the vaccine, uh, from a mandate standpoint, they, they want it to be their own choice.
Danille:
So Matt had said, if inflation’s 6%, do we need to get a 6% interest rate when lending our money to even
Ken McElroy:
Break even? So that’s a really good question. Yeah. So one of the issues, if you guys take a look, the creditors are actually the ones at risk. If you think about it, they’re the ones. So it’s a heck of a good question, because on the other side of that, if your guys are doing, this is why we’re doing fixed rate debt, right? We’re doing fixed rate debt. So essentially I’m locking in at two and a half, 2.7, five, three, fixed. I know that’s gonna be my loan amount and my payment amount is gonna be the same, no matter what happens. And this is the point. So what you want is you want inflation to be your friend in, for real estate. That house is going up in cost, but your debt doesn’t have to, if you fix your debt and fix your price of the payment, then that’ll stay.
Ken McElroy:
What it is. Rents will go up. The price of the house will go up and you’ll get equity. You’ll get real equity growth by, by letting inflation be what it’s going to be. And that is kind of the point. And, um, you know, I don’t wanna get political on, on the, on the mandates, but they’re going to disrupt the labor markets and they’re going to disrupt things. And so what we’re heading into next is we’re heading into wage growth. We’re heading disruption, just for distribution. All of that stuff is in the process of happening now, M
Danille:
And M said, the asset is no longer the house.
Ken McElroy:
It’s the mortgage. Ah, good one guys. I like that. Yeah. So I, it’s interesting this weekend, I did a little thing for, um, um, you know, for Kiosaki. He asked me to come speak and I, cash is a liability and debt is now the asset. It used to be the other way around when I was a kid, it was the other cash was an asset. And, and on the balance sheet, technically, it’s true. If, if you really take a look at it, it sits there as an asset. And, um, but now it’s the opposite, because if you’re, if you, if you give money to, let’s say a sitting in a bank, like my mom, $1,450 a month, that’s what she gets, period. That’s what she’s gonna have in two years, or three years, she’s gonna have 14 and $50 and things are gonna go up and she’s slowly going to it. It’s slowly going, uh, be able to buy less. And if you have money in a bank, same thing. If you have money in savings and people are hunkering down and I don’t blame them. Yeah. I don’t blame ’em. I mean, you know, things are going up, things are costing more and, and people, people are resilient. They’re gonna figure it out. Yeah. But you do
Danille:
Need to have, I mean, some, you know, reserves or whatever, but what we’re saying is you don’t want to be sitting on a massive savings account right now.
Ken McElroy:
Well, no, if you, I do think you need some reserves, right? I mean, you went through this, you were, you were afraid of inflation last year. Yep. And so you bought another, uh, rental. Yeah. You, you were sitting on a lot of cash. You have cash too much. Yeah. You had cash in reserve, but you put some to work. You understood it a year ago. And here we are talking about it. Yeah. How long have you had that place? A year? Uh, one year. Yeah. So one year ago we were having this conversation and we say, listen, there’s, you know, there’s gonna be disruption from the stimulus money, from the supply chain issues and all of those kinds of things. And what we’re gonna see is we’re gonna see prices go up. We’re gonna see rent go up. Cuz what happens is guys, we have a, we have a rental shortage period. We have a housing shortage period. We do. It’s math. It’s factual. There’s nothing that you guys can argue about. That would be accurate because all you have to do is take a look that we have more people wanting, how houses more people wanting rentals than we have houses or rentals. Yep. Period. That’s driving things up. And so we have, we have rent growth projected anywhere in Phoenix. It was 11% in, in, uh, Houston, which where I bought it was also 11%. There was an article that came out to day. Well, and that’s
Danille:
Average 11% rent. That’s average guys. Cause I know Scottsdale’s been like almost 20%.
Ken McElroy:
This is not good for renters. Yeah. I’m telling you guys like I’m a landlord, but this is not good for renters. It’s not good. If a, if a thousand dollars rent goes to 1100, it just isn’t good. Yeah. It’s, you know, there’s supposed to be gradual increases over time and that’s what stability means. So the problem is it’s so expensive. I, I was looking at a deal last week, a new construction deal we had to pass. We had to pass because construction costs were so high. Right. We were gonna buy, we would’ve normally bought this land and built this property, but now the costs to build it are so darn high. It doesn’t make financial sense. And so now, now, now this is N not necessarily a government issue. This is a supply chain issue. Construction costs are higher. Labor costs are higher. Now there are things we can point to policy issues, of course, but it’s not you, it’s not all wrapped up into one big thing.
Danille:
Now, Mr. Wright wanted to know, when do you think we will see consumable mortgages again? And I think we should start cuz I don’t even know what an consumable mortgage is.
Ken McElroy:
It’s a really good question. So, um, on the commercial side we actually have ’em so we have, uh, and so here’s what an suitable Mor suitable mortgage is. It basically means that let’s say you get a mortgage at 3% and you own someplace. That means I come in and I wanna buy your house or, or your rental or whatever it is. I can assume your mortgage. I can step into the terms of your mortgage. That’s what a suitable means. So if you think about it, um, the reason they haven’t been big is because interest rates have gone down. So let’s say, I let’s say you own something five years ago, your rate was probably four and a half, 5%. Five years ago. Yep. Okay. So today you’re three, three and a quarter, let’s say so you’re not, I’m not gonna assume that right. Because you know, your mortgage was significantly higher five years ago, so I’m not gonna step into the shoes. It really works well for, uh, when rates are going up, when rates are going up.
Danille:
So we might see that next year. Then if rates start
Ken McElroy:
To go up, yes, it’s a really, really insightful question guys. Make sure I’m gonna dig into that one a little bit more after, after this, uh, live, that might
Danille:
Be a good strategy for people. I didn’t even know.
Ken McElroy:
That was a thing they’re yeah. They’re they’re out there. Uh they’re they’re they’re really, really good. The other thing is, if you can do owner care, I’m fixed, do that, do anything. It doesn’t really matter. You don’t have to buy from a bank. Do anything, make any kind of a deal with anybody that, that will give you a fixed rate? That’s
Danille:
All that matters. And Brent had asked this on YouTube, how long fixed, permanently fixed for the life of the loan. So 30 years, Like 30 years, 40 years, whatever they, you,
Ken McElroy:
Yeah, go as long, as long as they’ll allow
Danille:
It. 30 is ideal. You know, if you can only do 15, but um, 30 is the best.
Ken McElroy:
Yeah, obviously. Well, it’s usually 30 year amortization, which means that you take a hundred, let’s say a hundred thousand divided by 30 years and that’s amortized over 30 years. Uh, there are some, uh, products out there, some loan products that are 40 mm-hmm , they’re new, I’ve done some of them, uh, one there’s, one through HUD, uh, housing of urban development. That’s a 40 year product that, uh, you know, and all that does is spread your payment over 40 years. So it lowers your payment, increases your cash flow. So I would expect that you’re gonna start to see more of those longer term kinds of loans.
Danille:
Yep. But, well, they make things more affordable for people too when they’re stretched out that long. But guys
Ken McElroy:
Like, I, I, I can’t emphasize enough if, if you have anything that’s variable, get out of it. Yeah. Be careful like, like seriously pay it off. Yeah. You know, if you, if you have things that are floating up, uh, you’re losing, trust me, just, just do the math when you gotta
Danille:
Be careful too, you know what your banker tells you? Cuz I used to work at a bank way back in the day. And I think I told you the story where we would do those adjustable rate loans. And then I think the rates at the time were like three and a quarter or something like that. Well, my, our manager told us, well, they can’t go up past nine and a half percent. So every time we would sell the loan, we’d say, well, I can’t go up past nine and a half percent, but that was nowhere in the 30 pages of you have to sign. But we didn’t know we were lying. Cuz our manager told us that. And her manager probably told her that, well there’s no cap on ’em. And so I remember one time I had this couple that sat down for like three hours and read through every page and they’re like, we don’t see where there’s any kind of cap and that’s the thing there wasn’t but nobody ever reads anything. Great question.
Ken McElroy:
Right. So this is the issue guys like think about it. If you’re a lender, what, what would you be concerned about right now? You guys are mostly, you are borrowers. Some of you might be lenders, but what are you worried about? Mostly getting your money back. And um, if, if, if, if you can let it out at higher rates that you’re going to, if you, you know, if, if it can adjust with the market, then you’re going to, because the money that you land today is gonna be priced. It’s going to be a paid back with cheaper dollars later, based on where we’re heading with inflation. That’s all it means. Cuz once you fix that number, it’s fixed the, the, the principle fixed and the payment is fixed. Everything else is gonna be rising. And this is the entire point of the yes. Of the, the live today.
Ken McElroy:
Yes is. And this is why I wanted to talk about inflation. Rents are going up guys, labors, going up components to build something are going up. Food’s going up. Gas is going up. Okay. Now on the other side of it, things are deflationary. So I was talking to George Gaon. He said at any given time, Kenny, you’re going to have inflation and deflation at all times. So think of a TV after you buy it, think of a cell phone after you buy it deflationary. Right? Think of a new car after you buy it. Maybe not now though right now. Cause we have car prices going crazy, but you get the point. So at all times you have these kind of inflationary pressures and inflationary things going on. And the question is which one is stronger at the moment. And right now by a long shot, inflation is stronger at the moment.
Ken McElroy:
And I, I would encourage you guys to go back and look at Jerome Powell’s statements. Just go look, first. They started off with, there will be no inflation. Then it moved to an inflation’s going to be transitory. Then it moved to, well, maybe it is gonna be a more long, little long term. Just go look. It’s all on the internet. So it’s, you know, it’s kind of like the, uh, you know, Fauci said, oh, you just need one shot and now you need two. Now you need three. Now you need four, same kind of stuff. So you know, I’m not. And by the way, it’s hard to predict this stuff, but you guys need to just do your own homework and, and make your own best judgment here because you can’t put that much money into an economy and you at shut down the world without massive disruption. And what we’re seeing are the results of that right now.
Danille:
Yeah. And just so you guys know too, um, we are having a webinar on Thursday. It’s gonna be free. It’s gonna be house hacking. I’m having our guest Zach on he’s 27 he’s house hack three properties by 27. So if you’re getting started, I think you could learn a ton from him, even if you only have one or two rentals and you’re trying to get more, it’s Ken macor.com/webinar, and you will get it emailed to you if you can’t attend and it’s free and also make sure you hit the like button. If you’re watching, it really helps us. It helps us put together this content for you. And it also lets us know that you like this kind of content.
Ken McElroy:
Yeah. And as always, thank you guys for listening. my little rant today.
Danille:
You’re fired up today
Ken McElroy:
A little bit. Well, I just, you know, it upsets me that people work their butts off and they get a fixed income and they retire and now they’re gonna be struggling. Yeah. It, it just, it just me off. Yep.
Danille:
Yep. Now, um, everyone keeps mentioning, you know, how Robert Kiosaki, uh, thinks there’s going to be a housing crash coming up. And I know that we had talked about a housing crash when the pandemic first started, before we realized the government was gonna print stimulus and get involved and put a freeze on mortgages. Do you still a couple questions on this? Do you still see a housing crash coming? And if you do, why are you also telling people to buy right now? Yeah.
Ken McElroy:
So the reason I’m telling people to buy is because simply to get into debt.
Danille:
Yeah. Good debt.
Ken McElroy:
Good fixed debt. Yep. That’s it guys like? I don’t know. So, so I have a very different mindset when it comes to house prices. Everybody wants to know what I think is it gonna be up next, next year? And the reason they wanna do that is because they look at and see how it pertains to them personally, with on their, with their own personal net worth. Okay. I don’t do that. So when I, when I’m looking at things, I’ve bought properties that have gone down in value before, but I’m a long term holder guy. I’m a cashflow guy. I I’m using debt. So when I believe that debt is an asset right now. And so I’m trying to get into debt. I don’t know. Now obviously it, the, the housing market is not global. It’s not even national. It’s not even statewide. So it’s very, very, very local.
Ken McElroy:
Um, but I will tell you some, some things to watch. And, and so I do believe that you need to get into good debt. That’s covered by a renter. Yes. I do believe that right now, to hedge inflation, we just had an entire chat about that for the last 30 minutes. So now with when Robert, what Robert’s talking about is very different. So he there’s there’s, you know, when everybody talks about M one M two, all that. And I don’t know if you know, but they stopped reporting M two guys like, um, Jeff Snyder and, and George Gaman. They just smile and laugh. They’re like, I don’t think you understand what the year old dollar market is or the shadow, uh, dollar market is. And this is big. This is a big issue. And so this is where Roberts head is. So what this means is as, as, as we, as we buy from China, let’s say they make whatever they make.
Ken McElroy:
We pay them in us dollars. Things are denominated in us dollars. The majority, you just mentioned it about Turkey. The majority of the, the world is, uh, uh, the us dollars as payment for goods and services period. And if you really wanna see something that’ll freak you out last week, there was an article that Russia and India stop taking us dollars as a form of payment, just Google it. So, so other countries are starting to a look at our dollar, our economy, our inflation, and they’re starting to make decisions. And so, um, I think hopefully you guys all saw cuz we did a video on this, about ever grant ever grant defaulted last week. So what does that mean? They’re, they’re, they’re the largest housing provider, um, and um, housing company in China. And I can’t remember off the top of my head, but there it’s a, it’s a part of China’s GDP.
Ken McElroy:
They’re so big. Um, and I think George said it was like 12 or 13% of their GDP. Okay. They defaulted. And so, so Robert’s looking at macro things and he’s starting to take a look at what’s happening with the Euro dollar crisis, what’s happening with the world economies. And then of course these new strains of viruses are coming out and they’re continuing to shut things down. Like we’re supposed to go to Austria for our friend’s wedding and we’re sitting there going, man, you know, they just shut on. Right. And so we, you gotta take a look at ’em and we got caught in another country, um, as a lot of you guys know with COVID and, and so we didn’t want to be sucked up into that hospital system. If we got sick, God forbid got really sick. So people are making decisions on what to do and all it’s doing is it’s hurting economies. And that’s what Robert’s looking at. He’s looking at everything from a macro standpoint, how the money flows in and out of all these different countries and why, and there are lines being drawn. And so when he’s talking about a housing crisis, what he’s talking about is collateral.
Ken McElroy:
It’s hard to find good collateral. And so he’s looking at it from a defaulting of debt standpoint and he’s not looking at it at a micro level. Like, and, but there, you know, if even Zillow, I think, and, and Redfin and realtor realtor tour, I would get people always make jokes, be cuz they call it realtor it’s realtor tour. Um, they all came out with their, their predictions for next year and they said, period, the high, the rising cost of housing from a construction standpoint is gonna make a very small dent. But also, so we’re gonna have a massive increase in listings, all of ’em. So you just gotta kind of follow the math and we’ve talked and talked and talked about this. So, uh, some areas are gonna be better than others. Like I don’t know about you guys, but I’m gonna go out on a limb and say, I think New York, Seattle and Portland are, and San Francisco probably might have a rough year, but you know, cities in Texas and Florida are probably gonna do okay.
Ken McElroy:
That’s because the policies that are going on there, New York still has a rent Mo or a moratorium. They, they extended it. Okay. So if you’re a landlord there or you’re a buyer, are you gonna buy there right now? I’m not. I even getting into the whys. I’m just saying like, are you gonna deploy money there? So, so, you know, those have lags, you know, I talk a lot about procession and Buckminster fuller, you know, where you drop a pebble in the pond and then there’s, there’s corresponding rings. There are rings that happen as a result of decisions. And so as you start to take a look at some of these things going on, I do believe as prices go up, but affordability becomes a problem. And some of these policies roll out with some of these, you know, different, um, municipalities and the governments are doing what, whatever they’re gonna do it, there’s gonna be consequences. And, and, and people are gonna vote with their feet and their money. And, and I believe that the, um, we are going to see some serious reductions in some markets next year on the single family side. But, you know, uh, but again, the it’s gonna be very specific and it’s gonna be driven a lot by policy.
Danille:
Well, like we always say, you guys need to invest for cash. So if you’re trying to time the market and you’re trying to wait until be it crashes, it might not crash for a few years. Like we don’t know. And if you need to invest for cash. So if you can, you know, buy your individual home where you’re saving money on your rent each and every month, or if you’re buying an investment property and your cash flowing a few hundred dollars a month on the investment property, then you should do it. And if the property goes down in price, who can hours, you know, you can’t time it
Ken McElroy:
Perfectly. And that’s part of it. You guys gotta ask yourself why you’re asking that question. Yeah. Because what you’re really saying is I’m afraid I’m gonna buy and it’s gonna go down. Or, um, because you’re, you’re, Vesty for capital gains. So the reason why I don’t care, uh, and obviously I do care that I want the markets to gradually go up over time, but they don’t, there’s nothing I can do about it, but I can make educated decisions and guesses and investment decisions based on what’s happening with people, moving into place, looking at the supply, looking at the rent growth, looking at the house, growth, all those kinds of things. You can make those kinds of decisions, all that information’s out there.
Danille:
Well, and you know, I have a perfect example of myself. You know, last year I was sitting on a bunch of cash and it was last December and I bought a condo and the condo, I bought it for like two, six, I think. And, um, I didn’t know what the marker was gonna do. I thought maybe it’d go up. Maybe it go down. I really didn’t know. But then I was, I was making on it a $600 a month cash. So I went ahead and I bought it. So the condo did go up in value, but you know, what else happened is the rent is now going up $300 on this renewal. Okay. So you, so now I’m gonna be making $900 a month. And if I would’ve been sitting in my cash that I still have, that I wouldn’t have been able to put as much down on that condo. It would’ve been, it would’ve went up in price. So even if that kind of went down in price, I don’t give a crap because I’m now making 300 additional and rent. This is
Ken McElroy:
My point, guys. Like people are measuring their net worth based on their equity. And it’s based on some, you know, like the average of whatever the neighborhood is that Zillow tells you all, what maybe that gives you a temporary comfort feeling. I don’t really know.
Danille:
Well, yeah, you look, you’re like, Ooh, you know, oh my God,
Ken McElroy:
Like I’ve got a hundred grand equity or 200 to 500 or whatever it is. It doesn matter, you know, cuz the markets will go up and they will go down. And the, the bigger issue is what you said. She was sitting on cash. She was afraid it was getting inflated away. She moved it, mirrored it up with debt. Let’s don’t forget. I was it like 75 grand or something? 125 grand, 125. And you bought a $260,000 place. Mm-hmm so she mirrored up with debt.
Danille:
Now here debt that’s at what? 2.7 or 2.6
Ken McElroy:
Fixed. Okay. So now, so now she bought that and what she’s done is she heads the market. She moved her money into a property it’s by renter, the 2.75 is heads by inflation and the price of the home has gone up. It could have gone down, but based on what we’re seeing right now, what will happen is the next time you renew your lease again, it’s gonna be up again. Yeah. And by the way, I think you’re probably being generous because it’s Scottsdale and 300, uh, you know, $300 is low.
Danille:
Yep. Probably am being. But
Ken McElroy:
Regardless of that, so now she’s now she’s almost cashing a thousand dollars a month on $125,000 investment. That’s like a 10% cash on cash return guys, $120,000 at, at 12,000 a year. That’s essentially what, this is very close to being. Okay. Where can you make 10% cash on cash, probably tax deferred, uh, where, you know, and that is the point now mm-hmm if she would’ve kept the money sitting there and all of a sudden we had, you know, September at, uh, 5.4 and October at 6.2 and November at 6.8 inflation. That means that that money’s gonna buy less. And what’s happened is you’ve already seen it in the prices of the rising house. Yep,
Danille:
Definitely. Well, we are going to wrap it up, but make sure you guys check out the webinar camac.com/webinar. Make sure you hit the like button, cuz that really helps us out. And if you wanna take our real estate quiz, Jerry’s gonna post it here. See, uh, how much you actually know about, uh, real estate
Ken McElroy:
Investing. Yeah. Thank you guys. I apologize for having to jump off early. I gotta closing in 10 minutes, uh, that got scheduled this morning. So cheers, we’ll see you soon
Danille:
See you guys next week.