Are you prepared for inflation?
Although, the inflation tidal wave is coming, we have information you'll want to pay attention to in this post. How real is it? Is it transitory? Is it permanent? How is it going to affect apartment buildings?
Nighthawk President Drew Kniffin says, we know inflation is real and if you don't move against inflation, it's going to move against you. That's the reality. Inflation is just the price at which money is effectively being stolen from your pocket. It's the same thing as someone just taking your money from you. And you know, for instance, 5% inflation means $100,000 that you have today is only $77,000 in five years, so it's a reduction in your money.
Right now, we're seeing the Federal Reserve, which basically controls our money, target 2% inflation. They used to say that 2% inflation was their max. Now they say they want an average of 2% inflation, which is code for we're going to be more flexible. In April, inflation went to 4.2%, and then in May, it went to 5%. Economist Jared Dylan expects 10% inflation in a year's time.
I think we're seeing inflation all over the place and in various different ways. And in real ways. Everybody's talking about the price of lumber, right? If you're building anything – a tree house, a deck. – you know, lumber is crazy. Therefore, the cost of construction has been going up as well.
And we're not just seeing price increases in wood. We're seeing it in wage inflation. We're seeing it at our apartment buildings. We're seeing it in the cost of food. We're seeing it in the cost of fuel across the board.
So why is this inflation thing happening? What's new?
Well, there are two things that are always in motion – the amount of dollars are out there and the amount of goods and services that dollars are buying. If more dollars get printed, but there's the same amount of goods and services, then the more dollars chasing the same goods and services means the prices go up. It's that simple.
So here's an easy fact, 30% of all dollars printed in the history of the United States have been printed or created by the Federal Reserve in the last 10 months. That's amazing. Inflation is always going to happen when too many dollars are chasing too few goods and services.
We have a huge influx of dollars coming in. Did you catch Peter Schiff on a podcast? He talked about how there's a consumer spending index, which is outrageously high and it's all consumer spending. It's not from productivity, and we actually lost a boatload of jobs.
It's not because we're more productive, it's because people have more money in their hands, and they're spending it. Coupled with the fact that there's a supply problem caused by COVID, people weren't able to work, couldn't show up for work…everything is being held up. There's a huge demand. Now with all this free money, people want to buy stuff, but there's no supply. So there's this giant gap. This is why we see prices being driven up.
The big question is, is it going to be temporary or permanent?
Most officials are saying it's going to be temporary, but when we print $4.8 trillion in three different bipartisan stimulus bills in the last year and then another trillion dollars just announced a few days ago for infrastructure, that's not an insignificant amount of money, and that's not just going to go away in a short term.
So I do think we're going to have a significant season of inflation.
This sounds like bad news – your hard earned savings in the bank are being eaten away by this inflation. So how does this affect real estate or apartment building investors specifically?
Well, there are some industries that do well in an inflationary environment and surprise, surprise, we are one of them. People think of commodities, core services, and real estate as the things that are great inflation hedges. That's one of the reasons that we love our business, because we think you can do well in a recessionary environment, we think you can do well in a normal environment, we think you can do well in an inflationary environment. It spans all those different areas. So I like being in real estate in an inflationary time.
We see rent increases every year, across time. Even during COVID, we saw a lot of rent increases. But some are due to just value creation, some are due to just making the product better, and some could be due to inflation. So it's really hard to dissect , but I think that we are seeing a pricing tailwind, that's assisted by all of the money that our tenants are getting in rent assistance firms.
So, what do you need to know right now? Should you run for the hills?
Inflation is good for real estate.
We see that when inflation goes up, so does the value of your rents, so does the value of your building, but most importantly, your biggest expense, your debt service, is fixed. You benefit from that. It's one of the reasons real estate is a big winner in an inflationary environment. That's the lesson.
So if you want to start taking action and learn a little bit more about what it's like to invest in multifamily syndications, what are your options?
It's simple. Join us at Nighthawk Equity/Join. Grab a phone call with our team and make sure that you're a good fit for our organization. If so, we'd love to have you join us on one of our inflation resistant assets that we're buying all the time.
Are you prepared for the inflation tidal wave?
It's not time to run for the hills. It's all about raising your level of awareness so you can not only survive, but thrive in this environment.