Unlocking Hidden Goldmines: Why Now Is the Perfect Time to Dive Headfirst Into Multifamily Investments (We’ve Already Started)
Dave:
That’s right. I think that hard assets are the only real solution here. And especially with fixed rate debt or own for cash. If you can own it for cash, that’s great, but if you have fixed rate debt actually leveraged when there is inflation actually can be good for you
In an inflationary environment. And so I think to me, that’s why the stuff that we’re talking about buying makes a lot of sense. I do want to just explain to people though how this mechanically works. I know this is nerdy, but I just want to explain that inflation, everyone hates inflation. It’s not great, but bond investors really hate inflation. And that’s why I think the risk is there is because if you’re buying a bond, you’re lending money to the US government for a fixed amount of time for a fixed interest rates. So right now you can lend the US government money for 10 years at a four and a half percent interest rate roughly. Right? That’s cool. They’re going to pay you back that interest over time. But if they start printing money, the value of every dollar that they are paying you back in the future is actually worth less.
They are devaluing the dollar. And so that means you’re basically locked into this contract with the US government where they get to pay you less and less every year. And that is the opposite of why you buy a bond. You buy a bond as a store of wealth. That’s the whole idea of it, is that you can maintain or modestly grow your money above the pace of inflation. And so if bond investors start fearing inflation, they’re not going to lend money to the US government at 4.5%. They might lend it at five point a half or six point a half or seven point half percent. We’ve seen this in the past. This is not fantasy. This has happened in many countries and in this country. And so if you look at that, there is more risk now I think than in previous years that bond yields on 10 years could go to six. They could go to seven. That might mean we have eight and a half mortgage rates. That could be 9% mortgage rates. I don’t know. And again, I’m not trying to fear monger, but I am saying, and it sounds like Kathy agrees that at least you have to acknowledge that risk is there. Whether it happens or not. The risk that that could happen is very much real. And for me, I want to hedge against that risk.
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