This post is part of a series:
Part I Part II Part III Part IV Part V Part VI Part VII Part VIII Part IX
When we left off yesterday, we had determined that we could use debt to acquire new assets in a tax-advantaged way.
And if those assets are rental real estate, they will produce monthly cash flow to pay off our debt. Plus, the real estate will provide even greater tax benefits for us.
This is why “getting into debt” is actually a solution… presuming the debt is used to buy assets that throw off cash flow.
Today we have to talk about the final nuance. Using debt to acquire cash flowing assets is just half the story.
Debt also puts the power of inflation to work for us, rather than against us. Never before in modern history has this been so important.
The term “inflation” is thrown around quite a bit today.
If you ask somebody what it means, they will probably tell you rising prices. But if you ask them what causes inflation, can they give you a meaningful answer? I’m not so sure.
I am sympathetic to the definition put forth by the Austrian School of Economics. Inflation is the expansion of the money supply. It is the act of creating new money and injecting it into the economy.
If we speak from a dollar-centric point of view, inflation occurs when the Federal Reserve (the Fed) and the U.S. Treasury pump new dollars into the system.
These dollars have to go somewhere. And wherever they go, we are likely to see rising prices follow. It’s just supply and demand economics.
From this perspective, rising prices are the result of inflation. They are not inflation itself.
What’s really happening here is that the dollar is losing its purchasing power. This happens constantly.
In fact, the U.S. dollar has lost over 87% of its purchasing power just since 1970. That’s not my guess. That’s based on the Fed’s own data.
This means that, generally speaking, thirteen cents in 1970 could buy what one dollar buys today. This is why nominal costs for nearly everything have gone up so much over time.
Now, the financial media tries to mask this by comparing the dollar to other national currencies. If the dollar suddenly can buy more Euros or Yen, the media will go around talking about how strong the dollar is.
But that’s only the case if we are in the market for Euros or Yen. It’s a whole different story if we’re looking for groceries or a new car.
What the media is really doing here is comparing how fast each currency is falling in relation to the other. They are basically timing the race to the bottom… which isn’t helpful to any of us.
Here’s the point…
As the dollar’s purchasing power falls, the real value of all debt denominated in dollars also falls.
In other words, our debt burden shrinks over time. That’s simply because we can pay the debt back with devalued dollars. Dollars that can buy less than they used to.
And this is why locking in fixed mortgage payments on rental real estate is so powerful.
When we take out a 30-year fixed mortgage, the principal and interest payment never changes.
Yet, our monthly rent is likely to rise over time. Rents have consistently risen with inflation over the last forty years.
Of course, there’s no guarantee that will continue. But if it does, it makes our mortgage even easier to pay over time.
And then there’s the “income snowball” effect.
We have our active income, and then we add more and more income with each new rental property we acquire. This creates a “snowball” effect where our income grows larger and larger… especially if inflation drives rents higher.
Yet our mortgage payments stay the same. And inflation eats away at our debt burden over the years.
It’s an incredibly powerful dynamic.
That said, there are quite a few moving pieces at work here. And to manage everything correctly, we need to have a system in place.
That’s what our new membership is all about. It’s called The Phoenician League.
Our new program provides training on every aspect of managing a rental real estate portfolio. It walks you through everything from ‘A’ to ‘Z’.
The training covers everything from establishing investment criteria and analyzing properties to setting up an LLC structure, financing options, and proper bookkeeping. We even provide members with a bookkeeping template that they can download and begin using immediately.
The training program also takes a deep dive into the tax strategies that go hand-in-hand with rental real estate. And it goes over tried-and-true asset protection techniques as well. They become increasingly more important as our portfolio grows.
In short, our program provides all the knowledge and information members need to build a portfolio that generates $10,000 a month or more in extra income.
And it doesn’t stop there.
The Phoenician League will also help members get plugged in to existing real estate networks. These are networks that already have established infrastructure in top-tier U.S. markets.
These networks provide us with deal flow. They bring us new construction and recently renovated properties that each generate anywhere from $300 to $900 in cash flow every month.
What’s more, these networks connect us with lenders, master insurance policies, and property managers. These are the professionals who help us make everything happen.
With these connections, managing a rental portfolio is as simple as sending a few emails from time to time.
And finally, The Phoenician League will provide members with personal introductions to CPA’s, asset protection attorneys, and LLC specialists. These are professionals who specialize in working with real estate investors.
For more information on our program, including how to become a Founding Member, please see our video workshop right here: https://phoenicianleague.com/workshop
But please don’t delay. Our Founding Member offer closes at midnight on Saturday.
And thanks very much for sticking with me on our debt & taxes series this week. Tomorrow we are going to talk about the vision.
That starts with asking some fundamental questions: What’s the point? Why bother with any of this?
We’ll pick it up there tomorrow.
-Joe Withrow