How Inflation Destroys Debt and Can Make You Wealthy
HTML-код
- Опубликовано: 4 окт 2024
- In this video I explore the topic of Inflation-induced debt destruction, which I first learned about from Jason Hartman. It’s a powerful and often hidden wealth creator for real estate investors.
Your old neighbor down the street who has owned her house for 25 years is paying $400/month mortgage for the same house you are paying $4,000/month on on your newly purchased house. That’s the crux of the concept. There I just saved you 7 minutes.
BTW one of the reasons the Govt rate is different is because they’ve changed what basket of grocery could be. Ought with 100 bucks. Years ago you could by a prime rib, potatoes, farm fresh eggs, etc. Today the prime rib has been substituted for a cheaper cut of meat, the eggs aren’t farm fresh, etc. So the price difference is slightly higher (lower inflation) than if they tried to buy the exact same items (real inflation would be seen)
Save yourself 7 minutes folks :p
thanks that's good.. but is it a zero sum game. in other words does $400 stings grandma just as much $4,000 stings the new?
@@mannysingh4715 No. Because grandma wasn't always grandma but the $400 was always the $400.
It doesn't sting grandma because 25 years ago she purchase the home for about $100k. Now her home has appreciated to $1 million. Grandma owns a $1 million home with a $400/month payment that'll probably be finished in 5 years. You own a $1 million home with payments of $4,000/month and about 25 more years before you pay it off. By then, in 2045 or 2050, you will be benefitting as grandma did since you're now older, your home has appreciated to $5 million, meanwhile a young couple move down the street and buys a $5 million home at $50k/month. You see, this concept of benefitting with debt takes 20 to 30 years. It's not instant.
@@JackCasablanca-painter I haven't watched the video yet, and it may give me the answer. However, why would I get in debt like getting a loan from a bank to buy properties that are valued way too high? The monthly payments would be way too high for properties that are not worth that much. People are not selling their houses because the price of buying a new home is too high and certainly are not worth that much. The amount of loan/debt would get me just one property.
Such an important concept which is hardly discussed enough. The best videos often have tiny viewership. Don’t underestimate the power of your message.
Thanks for the reminder Kofi :)
@@BradKaellnerwhat does happen to the wealth of people when there's inflation though?
Does 1 billion more now feels like 500 million or no?
@@jirehla-ab1671 Wealth grows at a higher rate than inflation over the long term because asset prices inflate as well. The 'real' return you realize grows your net worth over time. So, one billion feels more like 2 billion in 15-years in today's dollars. You can buy twice as much.
Very well said, your presentation is absolutely outstanding and easy to comprehend as well. There is a lot going on in the world now which will eventually affect the future either positively or negatively thereby causing on increase or decrease in the financial market and in order not to fall a victim, now is the time to start investing to secure a better future and make the best out of it while it's still worthwhile.
In the mean time, I'm currently building my fiance and increasing my portfolio as I keep track of my progress
@giseleamber6798 Have you considered making a research on what investments are best for you or better still you could look into investing in different commodities like Stocks, Forex, Cryptocurrency, ETF's and many more profitable investment you could think of as they vary. I would advise you to seek an expert's consultation before deciding on what market to venture into having this field of finance to be a more complex one
Yeah, I bought my house during Covid, locked in a 2.875% mortgage, and it's now valued at 50% more than I paid.
Me as well.
Watching this in 2023 is kinda surreal. Ngl 💯
Little did I know 👀
It goes like this.
When you buy a piece of real estate for example a rental property, at year 1 you are collecting rents to pay your mortgage at current rent price.
For the sake of keeping it simple let’s just say your mortgage is $1k a month than you’ll charge your tenant $1k a month..
Now
Let’s just say inflation year over year is 5% technically you’ll be able to charge your tenant on year 2 $1050 while your mortgage stays at the $1k payment.
Year 3 you’ll be charging $1107.75
Year 4 $1168
Year 5 $1232
And remember, your mortgage is still $1k
Basically inflation is costing the tenant more while your mortgage stays at the payment plane you locked in years prior.
The amount you owe in 10 years still exists. Your vacancy risk still exists and fixed costs rise with inflation..... ie, ac units, roofing costs etc, property taxes will rise too. When one buys, the most important thing to consider is does this property cash flow, what's my cap rate, and what is the actual real return. Not the nominal return. Real return factors inflation tax related to cash flow.
But I like the idea of paying 2020 debt with 2030 dollars ;)
Your mortgage payment is only locked in if you have a fixed rate mortgage. Otherwise the interest and monthly payment will vary based on the actual interest rate at the time.
Question. I have over a million dollars in mortgage debt from my real estate portfolio. With current inflation, is it safe to say that $70,000 a year is being destroyed off my loan?
Nah, not even a chance
Consider also that all those years home owner save on rent, what he never pay. Renting make sense only if you go on vacation.
My groceries have gone up a bit more than 1.7 %. They keep changing the way they calculate the inflation rate. Instead of trying to maintain a stable currency they just moving the goal post to make the numbers look less bad. Plus they calculate things like social security increases based on inflation so if it’s only “1.7” they don’t have to increase entitlements as much.
That's exactly right! Don't rely on government numbers, and know that inflation deserves more attention than most people give it.
Inflation is the rate of the monetary supply expansion that’s where he got the 5% from
Inflation helps those whose incomes increase at at least the same rate as the inflation, at the expense of those whose incomes are stagnant. Employees see this first hand, yet most are blind to its origin, the private western central banking system.
I bet this video has gotten more popular in the recent months
You need to look more into the CPI, the basket of goods, and how it has changed over time. The way that they have measured inflation has changed over the last 50 years.
Inflation is just a number it always going up adaptability and adjust on it ... Don't put a reason to worry about... Mindset..
To me I see the government inflation rate for the year as an average over 12 months but in reality inflation compounds monthly so it appears to be 5% higher. Getting rich with inflation or canceling debt with inflation is completely wrong in my mind and here is why. You can’t print your way out of debt and The cost of the house didn’t go up the value of the dollar went down so it gives a person a since of making money because the house might have cost 100k when you bought it and might sell for 200k but what has happen is your dollar lost 50%. Every generation is working much harder for longer for a reason and that is because our money is worth less every year and it’s just a matter of time before the dollar looses the reserve currency statues. We are all screwed if that happens.
I understand everything you just said... But..... I love me some corrections on the marketplace
Likewise my guy 🤙
Great job!
Thanks for the inspiration!
Great content! Please make more! Also, the glare makes it annoyingly hard to see the board.
I have since fixed that issue ;)
Hello thanks for the video. It is very interesting please keep us posted when you know more.
What else do you want to know Rita?
Only helps if you can make 6.5% more each year to keep up, if you can't, it's a losing game
Inflation is at 6.5%?
But in theroy, everything else inflated as well, so your cost of living multiplied as well.
Confusing. You say a 425,263 payment?
Don't you mean total mortgage not monthly payment? You should of watched this and made corrections before posting.
This was very early in my RUclips career... I have made vast strides since ;)
Pull the shade on the window or change angle of whiteboard because the light is washing out your figures. Ok, now I'll continue watching.
You have a knack for unsolicited advice my friend
Im not sure at current situation where to hide from asset destruction. what your advice? and great lecture... qeustion from korea
Good info but can't see what's on the board
This explanation is very US specific , as your interest rates of borrowing is extremely low.
Not in many fast growing Asian countries
Borrowing cost is approximately 11-12%
Inflation is 7-8 %
I doubt if this work when borrowing rates are high
Great Video, the theory is Present Value = Future Value ( 1+r ) n well done, kind regards.
If we have a 2.75% mortgage interstate rate, and inflation is 3%, what does that mean for my mortgage immerse rate? Would it be negative 0.25%? If so, how does that work?
Thanks!
I'm not familiar with mortgage immerse rate, but it's great news for you!
I mean just do the average. Like if your mortgage inflation is however more than your payment then you are paying a compound version of the lower. Like this...
3,5/5 you save 1,5 every dollar.
Next year if it's at 3,5/6 you've save 2,5 etc.
Keep working that. It's compound interest in the reverse. If you can pay the debt, you can make money on the loan as they will too. Th
It happens only at the end of the year?
I have heard the government’s can restructure your debt on mortgages and adjust it with inflation
Happens in India, not sure about other countries.
So, I'm on a fixed rate. I should be good, unless they change my interest rate. I pray our interest rate stays the same.
Are they allowed to change your rate? Perhaps if you miss a payment?
Stunning. Great Job pal!
Karan Vito thank you!
Thanks so much Karan!
Did you ever get around building a model? I would love to see an Excel calculator for this concept. Powerful stuff, thanks for sharing Brad. Hoping to hear back.
I did not, and the main reason is that I don't know how to accurately estimate rate of inflation. I don't trust the government numbers ever since being introduced to ShadowStats.
@@BradKaellner Michael Saylor says that you should see inflation as a local thing specific to you and your surroundings. So I guess having a linear regression model with coefficients specific to your expenses and lifestyle would be a starting point? If it is not linear, you could fit other models. What do you think?
is there any DATAROMA for canada, india and south korea?
Great question! I'm not aware of such sites, but there should be!
Interesting! Cheers!
The challenging aspect these days is buying at a decent price!
You only benefit if you borrow the money before inflation hits.
Not much of a public speaker for a guy try to provide information. That example is not building wealth. It affects the holders of the long-term note. Not the mortgagee. Mortgagee does benefit for it by having a better loan rate than the home next door that may sell at a higher rate. If he's LUCKY That home value is down lowering tax value. But no real feel of gain.
But who says your income in dollar amount goes up overtime? 30k debt is still 30k debt in 10 years even tho the “real value” has gone down due to inflation.
If your income stays the same then your purchase power goes down due to inflation but either way the 30k debt is still 30k debt?
Pls help hahahahah
7.5% reported inflation now. So is it 12.5% now is a great time to remake this video
Hello, wake up to the post QE error of high interest rates. When your interest rates out pace, the rate of inflation, then this formula simply will not work. The days of near zero interest rates are over. They will be printing money again, which will ensure these rates remain high.
Great video
6 years later. Everyone believes this.
You should avoid trying to say "ok" so often. It detracts from your core message.
Whoa
LOL
Invaluable information for our current dilemma.
You look like Benedict Cumberbatch in this video
I’ll explain this video in 2 seconds-- WERE F**ked!
You made no sense and I think you might have even confused yourself
Speak faster and Get to the Point!!!
It happens only at the end of the year?
It happens only at the end of the year?