Do you know what inflation is or why you should care? Say you hold up a bottle of water. It is the last bottle of water on the planet. Everyone wants that bottle of water. It costs one dollar. You’re holding it up and you’re taking bids on it. Everyone in the room each has one dollar. They cannot pool their money, they cannot share their money. So how much will that bottle of water go for tops? ONE dollar!Thank you for reading this post, don't forget to subscribe!
Now say the bottle of water has a price tag of $10. Everyone in the room each has a crisp ten-dollar bill. They cannot share or pool their money to purchase that bottle of water. How much will that bottle of water cost? TEN dollars! The bottle of water didn’t change. Only the price for the bottle of water changed. You made no progress. That was the most you could get for the bottle of water.
To earn income on that bottle of water or anything else, you need to have more dollars chasing whatever you have to sell. If you are buying and selling real estate, this makes a lot of sense. You have to learn how to use inflation to your advantage. It starts by understanding a few key facts.
The average American spends about 27% of their income on housing. Looking back from our position today, it might seem like that 27% could have purchased more back in the 1970s, but that’s not true. Due to inflation, it’s pretty much the same or even worse. Your 27% actually brings you about the same thing. Prices have just gone up… they have inflated.
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Video Transcript
Hi, Jay Massey here, with the CashFlowDiary.com.
Do know what inflation is?
Would you like to? Didn’t even care what is inflation and why does it matter?
Let’s go find out.
This is, would be a bottle of water for the sake of this argument let's pretend that this bottle of water is the last bottle water available on the planet and everybody watching this is the only bottled water that you can bid on right now. And in fact I'm going to get you one dollar you can't pull your money you can't borrow the money, there is no credit all you have is one dollar.
If this in the last bottle water and we hold an auction and I'm willing to sell it.
What is the absolute most that it ever is going to go for?
That's right, a dollar.
That's not that hard of a question right. However now let's suppose I give you nine more dollars. If I give you nine more dollars right now, each of you, nine more dollars, but you still can't borrow, you still can't share and pull. No credit.
We hold the same option for the same bottle of water. How much is this bottle of water goes for?
Now goes for ten dollars cuz that the most you got. It can never go for more than ten dollars but here's the question: did the price the water go up? Maybe…
But did you buy more water? No, you got the same amount?
Same 20 ounces of water you got the same utility value. So this process an inflation is more process of a devaluation and most importantly the fact that the dollar buys less.
It’s another way of saying purchasing power. You have lost purchasing power. So, if stock prices fall something as measured in the dollar it takes less dollars to buy the exact same thing that's probably a good thing.
If as real estate prices increases yeah if you're the buyer you're probably like that's unfortunate because it takes more dollars to buy the same thing; and as the seller you may not like it either because yet you may have bought a house for a 150 gram but now 250 gram but now that 150 grant only buys the exact same house. It doesn't actually goal any further. You’ve made no inroads, no progress you didn't want to get ahead. Same thing with a mutual fund or anything measured by that same US dollar. You got to understand now.
The interest rate that’s something that gets interesting to talk about. That's the price that's how much it costs you to actually use someone else's money. But another way of saying it is that that's the price for impatience is interest. So you got to think about what you're doing at the in the day when it all comes full-circle. It’s not as simple as real estate prices increase and that's great.
Well, it's great if you're the buyer maybe you still may not want to sell because you know that from the moment you sell you start, you stop participating any sort of beneficial interest that is happening as cortical inflation or more money hits the marketplace.
That’s what a lot of views we're seeing in your marketplaces right now. Especially on the east coast in some places is you've just got more money that’s been printed that chasing this same bottle of water. That's it. And you guys are just seeing that in going…
Oh my god real estate is doing good. Well not really.
It’s just that it more dollars are chasing the same number of assets eventually that stuff makes it all the way through the system, and then now we have twelve dollar bottles of water, and it's all relative. You know from a percentage of income basis.
So just think about it this way. The average American spends approximately 27 percent on housing. Now 27 percent of housing, let’s say a few years ago may have only been two thousand dollars a month. Right?
But now today 27 percent on housing could be as much as four thousand dollars. But they're still living in the same house. So you can say oh my god, housing got so much more expensive but it's still the same 27 percent. The real question is: is it wages income, that does your wages and income. Do you have a way to offset that?
And most people don't.
Do you have a way to offset? do you have anything that can fight against it? that fight against the fact that the printing press moves faster the new how much help as most of us know how to create value?
That's the key.
If you fail to learn how to own and control the means of production increase value, you're going to lose this game. That's why the cash flow diary is. That's why I'm I get excited by even here in a little bit, little bit extra passions able because that's what I want people to be equipped for, is to fight.
Right now, your fight means, you think you're fighting which used only falling.
You get knocked down and beat up from steamrolled out by not buying a property, by not figure out how to write an offer; by not knowing how to raise capital; by not going after the bigger deals and you guys know who you are should be doing those things right now.
That’s what needs to happen. By not providing that value in the marketplace the only thing you've got is your labor and your labor keeps being valued at less and less cuz it doesn't provide enough value in the wages did not keep up with inflation. and that's the real problem.
Thanks for watching.
To begin to protect yourself against the evils of inflation and to get started in real estate investing today here's what I want you to do. Click the link right here. It's going to take you to a page where I'm going to teach you the most 10 basic words that you can use right now to begin to build your businesses by finding all of the buyers, sellers, as well as investors you need in your marketplace.
If you're on a mobile device go ahead and click the first link in the description below, and it’s going to take to the very same page. And also remember, hit “subscribe”. If you like the information that you just received in this video, give us thumbs up, go ahead and click like.
If you’ we got some additional questions – I would love to answer them – go ahead and comment below.
I look forward to talking to you soon.
Until next time.
