My personal inflation rate just edged higher… again.
Yesterday, I discovered that my neighborhood drive-thru car wash increased their price from $16 to $18. (And the car dryer still doesn’t last long enough.)
Inflation, debt, and taxes are three wealth thieves.
Rich people never let these thieves ransack their financial house.
Inflation, debt, and taxes are thieves that pillage most people, making their lives small.
Understanding inflation, debt, and taxes makes a real estate investor like you wealthier.
Inflation is the most insidious of them all. For most, it makes a dollar’s value recede like an Alaskan glacier. Instead, real estate investors let inflation debase their good debt.
Debt has never been more advantageous for those that leverage historically low mortgage interest rates.
Tax breaks are almost incomprehensibly generous (though some are being threatened).
When you borrow a dollar for an interest rate that’s lower than the rate of inflation, you’ve created arbitrage.
Arbitrage essentially means you’ve borrowed at a lower rate and invested at a higher rate.
You’ve “short sold”, or some simply say “shorted” the dollar. To “short” something means you are betting that something is going to go down.
With the dollar losing over 96% of its purchasing power since 1913, it’s pretty safe bet that dollars will further erode in value.
At the end of each month, the dollar that you pay back the bank with gets debased faster than interest charges can accrue on you.
Now that’s a profitable transaction, even if you have to pay your own debt.
But you don’t.
Almost incredibly, in a cash-flowing rental, even your successful short sale transaction is 100% financed by your tenant.
All your debt is outsourced.
The tenant pays your: mortgage principal, mortgage interest (the short sale), property insurance, property tax, maintenance, repairs, and property management expense.
In a single-family rental property, they typically pay all of the utilities too.
That’s not all.
You’re paid something on top of all this – that crucial cash flow.
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