On Wednesday I said, “You should borrow as much money as possible to purchase real estate.”
A lot of people didn’t like that idea. They said, “debt is scary” and “you shouldn’t make money from planning to leverage yourself…”
Well the fact is, whether you like it or not, taking on debt is a very strategic way to build wealth.
But, I’m not going to harp on that… instead, I want to explain how inflation will wash away debts that you currently have.
Right now, the US Dollar is extremely strong, in relation to the rest of the world. This might sound like a good thing, and it is if you’re spending US Dollars in foreign countries – everything is on sale.But, think about it from an outsiders perspective… Why would someone who owns a currency, that is not as strong as the dollar, want to spend money on US priced assets? It’s a rip off for them – and that’s what the Fed (and US government) is worried about. It’s also what major US corporations are worried about.
If US products are too expensive, no one will buy them. In order to combat this situation, the US Dollar must be devalued to remain competitive on an international basis. This is achieved by printing money, which causes inflation.
Inflation is bad if you are a saver. (Your savings melt away.)
Inflation is great if you are a borrower. (Your debt melts away.)Further inflation of the US Dollar on a long term basis is nearly certain. There is also a convincing argument for short term inflation, as explained above.
If we can assume that both long term AND short term trends for the US Dollar point towards inflation, then you should be a borrower.
In addition, the cost of borrowing money is cheap right now… so buying US real estate becomes an even bigger opportunity. Especially, because new borrowing incentives require very little down.
AND… the tenants of your rented property will be paying your debt. When it’s time to increase rents, your debt payment will not increase (assuming you have a fixed rate loan). Rent increase is certain as the dollar inflates, which is how your debt melts away.
Finally, we have the Brexit situation, which singularly doesn’t really mean anything for the US. However, the message that has been sent, and the international response to the UK leaving the EU may cause major implications for world markets. For the short term, the US will see an inflow of capital as investors seek safety. This may cause asset prices in the US (real estate) to further appreciate.
The Silicon Valley darling, Tesla, has been making the news the past week. Tesla is trying to acquire it’s cousin Solar City. I won’t deny that Tesla has made some amazing cars with mind blowing technology… but… I would avoid Tesla stock like the plague.
“Bills funding the Veterans Affairs Department have a line that lifts a prohibition on medical marijuana.” These are congress backed bills. That means that Federal authorities are backing legislation to further decriminalize marijuana. Think about that and what the future means for cannabis.