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If you’re not in real estate get in if you’re in real estate stay in it because real estate can act as a hedge against inflation. We are seeing it in real time. We are watching it with our own eyes, we are seeing the report stating that inflation continues to increase, we can navigate it and real estate gives us the ability to navigate it maybe more successfully than many other things.

What would your life look like if you could replace all of your working income with simple and conservative investments that could do it for you? Over the last 13 years, we’ve helped 1000s of clients transact over half a billion dollars in simple and conservative real estate transactions, allowing them to begin replacing their working income with real estate investment income.

Each week, we’ll be pulling back the curtain on the ins and outs of real time retirement based real estate transactions that will transform your financial future. Even if you have no real estate experience. This is replace your income with me, Kevin claesson and Steve Earle. Alright, everybody, welcome to replace your income with Kevin and Steve. Hey, Kev, how you doing this morning?

Good man. How are you? I’m doing well. Well, okay, so here’s the deal. I’m doing good cuz I you know, I generally am a positive person. But let me tell you what didn’t feel so positive last night, because this is actually what we’re going to talk about today. And so guys, thank you for joining us, we love you, thank you for hopping on.

And for always rating and reviewing and following the podcast. You’re amazing. We hope that the episodes lately have been awesome, and you’ve enjoyed them. But now back to the lecture at hand here, Steve last night. I’m leaving the office. And I go, Oh, look at that my gas lights on, right. So I need to get gas. And so we Our office is located very close to a supermarket, where there happens to be a little gas station.

So I pull up and I look at the price of gas and I go Whoa, well, that’s gone up. And it I filled up half my tank for 40 bucks. Right? So in other words, if I wanted to fill up, I don’t I live like two miles from the office. So unless I’m driving far, I rarely like fill up my tank all the way, right? It’s just got to know why. But if I wanted to fill up my tank, it would have been like 90 bucks like 80 $90 because gas is nearing once again. $4 a gallon.

And the reason we wanted to talk about that is Steve, inflation. There’s also a recent report that came out that said inflation grew in the month of June, more than at any other time since 2008. We saw inflation increased to 5.4%. In the month of June inflation is here and it is real.

It is Kevin it Israel. And I did the same thing recently filled up my truck and I was a little bit astounded at you know what the cost of it was, but I do have to ask you a quick question. It’s like sure. I get nervous when my tank goes below half. Yeah, full. And so I’m constantly filling from half to like, full full. So So what’s the deal with like, yeah, going it from, from, from no full to half.

Dude, I don’t know, man. You know what’s funny, when I was in high school, I had a little Mustang and not high school. I didn’t technically get my license till after high school because I couldn’t afford it before that. But while I was in college, I had to commute to college. Because my first year I went to Cal State what’s now Cal State East Bay used to be Cal State Hayward.

And I never let my tank drop below like a half or a quarter for sure. But because of traffic and you never knew how bad but I live two miles from the office. I feel like I become so lazy because if I run out of gas, then my butt’s gonna walk home, I’m gonna be just fine, right? I just give me a hard time I thought maybe you, you know you’re afraid of your driving skills. Or you might hit a fence post or something and you don’t want to explode too badly.

You want to know what it really is. It’s that okay? When gas was when energy was less expensive when we had and look, we’re not going to talk politics. But for a time in this country. Recently, we have good energy policy.

A lot of that energy policy has gone out the window we had achieved energy independence. I’m sorry if I’m rubbing some people the wrong way. But it is what it is. You could look at the price of the pump. And now gas is it bugs me dude, like it chaps my hide, to have to pay what we have to pay for gas.

So it’s almost like a matter of principle, right? I’m like, I don’t want to fill up my tank. I know I’m gonna need the gas. But like, I don’t want to, you know, and where I live so close to the office. I’m like, I’m not like it’s more of a form of rebel rebellion.

What it is, yeah, it’s me sticking it to the man. I’m not going to fill up my tank. I’m only going half full.

So can you tell me so let’s talk a little bit about like, why do we have such inflation and like, how does real estate help us with this whole mess?

And this is what we wanted to talk about because we have always said for years we’ve said that real estate is a natural hedge against inflation. Real estate is one of the greatest hedges against inflation. You know, some of the other hedges against inflation are things like precious metals, right not not buying you know, paper gold but buying like actual physical gold silver, there is some value there right? It’s not as volatile as Bitcoin or cryptocurrency and We know that there’s real tangible value.

We don’t do I don’t personally do a lot in precious metals. But but it’s the same idea right, that there is a limited supply, and that it is tangible. And because of that, it has this natural hedge against inflation. Well, we’ve talked about that with real estate for a lot of years that real estate can hedge inflation. And what’s cool and what I mean, it’s cool that it’s proven itself out right now. And we’ll talk about how it’s proven itself out. What’s not cool is that we have to prove it out right now that inflation is crazy. And part of the reason why inflation and here and look, if you’ve heard about inflation for years, and you’re like, I mean, I kind of get it, but what is inflation? Really, here’s the most simple definition that I know of inflation, it’s too many dollars chasing too few goods, right? That’s awesome.

So it’s when there’s more dollars in the economy, then there are services and goods to take up those dollars. And so what happens is there’s a natural increase and rise in prices. Now you add that to the fact that things just so things cost more, right, I used to have this slide that I would have in my presentation when I would talk about inflation.

And my mom used to have these, I should see if I could look it up while you’re talking in a minute here. But my mum used to have these magnets on her fridge, I don’t think she does anymore. And it was like a list of things and what they cost. When my dad was born in Dad, I think you were born. What was it in 18 133. I think my dad was born in 1833. My dad was born in 1938. And it was like a list of things, what they cost in 1938.

And then a list of things in the year when I was born, which was 1979. And then the price difference. And then I would go and look up what the prices of those same things were today. And that is inflation in real time. And in real life. A couple of the things that you always see have an impact, right? Home prices, were the largest percentage increase over that timeframe.

You also see the price of cars go up the price of milk, the price of stamps, all of that stuff increases over time, but real estate especially, it was like, I mean, and I’ve talked about it when my parents bought their home, and 60 whatever it was, like, you know, 40 ish grand or something like that. And then they sold it, you know, for hundreds and hundreds of 1000s of dollars like crazy amount compared to what they bought it for.

And I even look at what what I would what I paid for my first property, right, which was like 15 years ago, and then what real estate’s going for today. And I mean, it’s unbelievable. So inflation happens over time, it is inevitable that generally speaking inflation, I think average is what around like three and a half percent or three three, yeah, yeah. And and inflation is important in our economy, like it’s, it’s an important part of, of growth, and of our economy overall.

But when it grows too quickly, it becomes unhealthy. And it kind of tweaks things messes things up in a very big way. And it ultimately can hurt a lot of people. And what’s interesting is for years, Kevin, we’ve talked about this concept of a real estate is a perfect hedge against inflation. That was the theory, right? Based on lots of really, you know, good data, information, precedents, and so on. Now that we’re in a state of, I don’t think we’re not in a state of hyper inflation yet, when a state won’t be, but we’re definitely in a state of aggressive inflation. And this theory of real estate is a hedge against inflation is proving itself out in many, many ways.

So I just looked this up as you were talking, so Business Insider had something that they published in 2014. And it happens to be the price of some things in 1938. And the first thing they mentioned is Harvard tuition. Guess what Harvard tuition was? Because for those of you who don’t know, Steve son went to Harvard Law School. Guess what Harvard tuition was in? 1938?

I’ve no idea let’s say $1,000 $420 a year. gallon of gas was 10 cents for a gallon of gas. A movie ticket was 25 cents. I wonder how much movie popcorn was though cuz I swear you pay as much for movie it was still $5 probably a postage stamp was three cents.

Guess what the average income was in 1938 What do you think? $5,000 $1,731 a year guess how much a home costs in 1938 $10,000 3900 bucks 3900 bucks. And so you look at that guys we know right? Like what I mean? Steve you know what Harvard tuition is now I don’t know what it is. But the last episode we talked about, you know the the probably hundreds of 1000s of dollars that dallin is gonna owe as a result of his Harvard tuition which he’ll be able to pay back and as real estate to pay it off. Now if you wanted.

We know a gallon of gas yesterday. I paid 371 I paid 371 for a gallon of gas here in Utah yesterday. It was 10 cents in 1938 movie ticket my wife Tonight, we’re cheapskates. And so we, we go to the water gardens movie theater where it’s cheaper cuz snacks are cheaper. And we always have to get popcorn. But otherwise you’re paying like I’ve been to California. And you’ll pay 12 or 13, or maybe even $15 for a movie ticket, right? Which is crazy a postage stamp? I don’t know, I don’t send stuff in the mail. But I don’t know what it is today. It’s probably like, I know what’s come up quite a bit. I could probably Google it. average income.

I don’t know what average incomes nationwide are. They’re probably between, I don’t know, I would imagine 40 and $50,000, or something like that. And we know the average house price, right? You’re over 300,000, probably across the board in most markets. And it was 30 $900. So here’s the point of all of this real estate, can hedge inflation. And real estate, we always talk about real estate goes up over time. Well, here’s a perfect example.

Now, there’s been a lot of stuff that’s happened since 1938. Steve, right, like a lot of things. But at the end of the day, through all the ups and the downs, and whatever stuff was happening, economic policy, you know, presidential politics, which party was in power, who had congress who had the Senate, who doesn’t matter which supreme court justices had been appointed, and we’re, we’re, you know, making decisions from the bench didn’t matter what the economy sectors were, you know, there wasn’t an Amazon or Facebook, obviously, it doesn’t matter, all of that stuff doesn’t matter.

What matters is that real estate in less than 100 years, has gone from 3900 for a house, to well over 300,000 in most markets, right, but not the markets we help our clients invest in. But generally speaking, I think your national average, I’d have to look it up. But I think the national average purchase price on a home is probably somewhere in the neighborhood of 300 grand. And so what we know is that real estate hedges inflation. Now let’s talk about why real estate hedges inflation, because if it’s too many dollars chasing too few goods, that has an impact on things like lumber, and like steel, and like things that that are needed to build properties and needed to build commercial buildings, there’s too few goods and too many dollars.

And so when you go to Home Depot, now you’re going to pay more for a two by four, you’re going to pay more for a bag of concrete, because inflation is having an impact. There’s too many dollars out there. And there’s too few resources.

And so a natural supply and demand curve will come into effect. And prices will rise based on the demand and the supply and the amount of dollars out there to be able to purchase the supply that’s available. So there’s the why now let’s talk about how real estate is a hedge against inflation. And it’s pretty simple. But sometimes I think people you know, maybe don’t totally get it completely. When we say that phrase, it’s a hedge against inflation. How does that work? So it’s a hedge against inflation. from this standpoint, when you purchase real estate, typically, you’re getting a mortgage, that is a fixed 30 year mortgage.

So let’s say your payment is $750 a month, well, typically doing real estate airway, you’re probably going to get you know 1100 12 $100 a month in rent on that $750 payment or more 1314, actually, probably closer to 1415 $100 per month. And so you’ve got this, this margin between what your payment is, and how much rent you’re collecting. So you’ve got this fixed, let’s call it $750 month mortgage payment.

But rent is let’s call it right at 15 $100. And over time, so if inflation is going on, rent is going to increase more quickly, it’s going to you know, move in tandem. And so your rent is going to continue to go up. And so your the dollars that you receive, which if you’re going to spend those dollars are chasing goods, right that you’re going to pay for and spend money on like repairs and like components to the house and so on, your rent is going up and so and it’s going to go up at the rate of inflation, whatever inflation happens to be in that moment in time.

And we’ve literally seen that over the last year where rents have jumped up typically, we account for them on our pro forma at about 3% annually. And depending on the market between three and 4%, but typically about 3%. Well, they’ve gone up in many cases in double digits this last year.

And on top of that, if you go to the website, deified x realestate.com, and you click on see the properties, we’ve got some statistics in there that are from some data sources. And I could tell you, if I wanted to look it up, what the projected rent increases are both the projected price and rent increases across all of our markets.

And look frankly, it’s outpacing Well, we don’t know what inflation is going to do. But it’s more than what inflation has been right. And so by the way, I just looked this up the average sales price of a new home in 2020 was $389,000 in the US, and in 2021 it reached $408,000. Wow. In that crazy? Yep, it is. So there’s kind of two factors the price of a home is going up and so the value of your property is going up which is pretty incredible.

There is aggressive or hyperinflation because you’ve got an asset that’s growing at, you know, 5678 910, in some cases, even higher than that annually, and then your rents are going up as well. So your ability to continue to buy a loaf of bread, even though the loaf of bread and price is going up and up and up, your the rent that you’re collecting is, is keeping pace with that.

And that’s the beauty of it is your equity, your worth, the value of the home is going up, and the revenue being kicked off by that property is also going up. And so it stays in check, it stays in alignment with inflation.

And that’s the beauty of this concept, as you called that’s an explanation of how real estate is the perfect hedge against inflation because it keeps pace well. And that’s why we use 30 year fixed mortgages, right? I know you alluded to this, but think about this, right? If I lock in my interest on a real, it’s real estate, okay, it is tangible, it is real. I was thinking sometimes I get people that will ask me the question like, what’s the worst case scenario, and I go, okay, you want to know the worst case scenario, the worst case scenario is you have to tear your home apart board by board and brick by brick and you burn the firewood in order to cook the deer meat that you caught in the forest.

Really, the worst case scenario is you at least have land that you can plant corn on, right? It’s real estate. It’s not just this idea of what dollars represent. This is a real tangible, touchable, sometimes I say linkable asset, I don’t know who wants to lick their wallpaper. But you can, okay, it’s a real thing. Now, if everybody is making a little bit more money wage wise, and if the cost to buy real estate is going up, that means that the cost to build real estate is going up because the cost of both labor and materials increases while you’re locking in your interest at a very low interest rate, right, you’re locking in your the interest you own in a property at a low interest rate, your interest is fixed.

But now as things continue to grow and increase with the economy, your rents increase, your appreciation happens like Steve was talking about, and sort of you’ve locked in your interest at one rate. But while the economy goes up, the home goes up, the rents go up homes cost more to build and buy labor costs more, your interest stays secure, but the other things rise. And now all of a sudden, that’s how you’ve hedged inflation, because you’ve owned a real tangible, real asset that is naturally good.

Listen, think of how many things are connected to housing. When we see inflation take place, right? We talked about labor, we talked about materials, we talked about housing, all of these things are tied to house, it’s not just one economic indicator, right? It’s not just one stock or mutual fund or something like that. That’s reacting to news that happened over the weekend, right? Because we could see market fluctuations happen in an instant, we could see cryptocurrency fluctuate in an instant, and it reacts daily to things that happen.

Real Estate does not react daily, real estate reacts over a long period of time. And so over a period of time as incomes increase as rents increase, as prices increase, as the government throws more and more and more money at social programs and programs and, and prints money at an unbelievable amount or quantitative easing, they use that and they just increase the amount of money that they they put into the economy or that the overnight lending rate from bank to bank goes down to virtually zero. And as more and more people get credit card. Steve, sometimes people don’t think about this, do you realize if you are spending money on a credit card money that you don’t currently possess, you are contributing to inflation.

Think about this, that money doesn’t exist in the economy, you go get a credit card for I don’t know, 10 grand, and you don’t have 10 grand in your account at home, and now you go buy $10,000 worth of goods will not only you’re gonna have to pay that 10 grand back, you’re gonna pay it plus interest. Plus, you’ve contributed to buying those goods that were already produced in the market. And those were $10,000 that got magic into existence.

So we’ve got that happening. To a large extent, we’ve got the government that’s printing money at an unbelievable pace, everything is costing more and at the end of the day, that real estate, anchored to a piece of land that is reacting to everything that’s happening around it, but reacting slowly and over time that you have an interest locked in on at a fixed rate that is going to impact over time, your economic ability to keep up with and maybe even outpace inflation, because real estate is one of the few things that will allow you to do that. And it is profound and incredible.

And I’ll tell you what, everybody right now that’s owning real estate. That’s seeing inflation happen. And you mentioned it. I mean, Steve, what are we seeing in real time on the ground right now with homes all the way through? COVID? Right. What are we seeing with the rental market and with the appreciation what’s happening in real-time?

Yeah, prices in real time are going up on a almost a weekly basis. You know, it’s not the the crazy case hyperinflation but but you just mentioned how much properties have gone up in value, you know, the average home in just one year, rents are doing a very similar thing.

You talked worst case scenario a minute ago. Let me talk crazy case scenario, just just for fun. And the reason why I can relate to this is i have i’ve got a friend, he lived in Brazil, about 20 years ago, when they experienced hyperinflation.

And this is like Zimbabwe, they have like a wheelbarrow full of like, million dollar notes pretty much like their their equivalent of $1. Back then, it looked like a loaf of bread today, let’s say that it cost, you know, $1. Tomorrow, it literally cost $50. The day after that it literally was $300. like crazy. Like this was beyond craziness. Like it just was was crazy.

And so when you when you talk real estate and this crazy case scenario of hyper hyperinflation, well, if you’ve if you own a property or two, and you’ve got inflation like that going on, and so your wages are increasing from $100 a day to $1,000 a day to $10,000 a day. $200,000 a day. Well, guess what? Next month, you can pay your house off.

Because guess what out because guess what? You’re live the price of your home didn’t change. Like you bought it, you got a loan on it for $150,000. And when you make $150,000 next month, because you had we had a hyper hyper hyperinflation, I never thought that, you know, you get to pay it off. So those who own you know, multiple properties, all of a sudden you you own this portfolio free and clear. And, and it just gets crazy from there.

Dude, that’s I’ve literally never thought that insane and crazy. Well, and and Steve, one thing I want to touch on before we conclude the episode is like, Guys, we’re talking about inflation. And we’re talking about the fact that it is very real.

And by the way, those numbers I cited that from CNBC from the new york times k, there was an article that came out that said, you know, June Rose 4.5 point 4%, it was what inflate what the inflation rate was, which is the largest since 2008. This is very real. And listen, if you’re listening to this podcast, if you’re considering doing real estate, there’s a chance that the price of the pump going from, you know, what was it a couple months ago, less than two bucks a gallon, right is in the dollar 80 ish?

Yeah, john, yeah, here, I think I paid at one point, I paid $1.30, because I had like a discount or something like that. So and now it’s at 371. As of yesterday, when I filled up my tear when I have filled up my tank, that you’re listening. And Steve made this point before we started to record it that that may or may not have an impact on you.

But let me tell you, there’s a lot of people right now that that has an impact on when the cost of your gas tank doubled, and you need that gas to get to work. And now you’re having to trade off between milk and eggs, or gas in the tank to go earn money to at least be able to pay rent, there is a real impact that inflation has on real americans. And it’s that’s the thing, if I can just like please, there’s there are some unintended consequences to different Decisions, decisions determined destiny, there are consequences to our decisions.

And you know, as as you know, our government makes different decisions with the intention of helping those who need it the most. And I’m going to give our government the benefit of the doubt that they’re that they’re doing this with the true intention of helping those who need it most. Well, the problem with how they’re going about it is that the unintended maybe consequences of this is that it hurts those people the most you and I Kevin, it’s an annoyance when you have to pay extra at the pump.

But like you just mentioned for many Americans who are living at or below the poverty level, or even even slightly above it, like paying an extra 2030 $40 in gas a month, truly is the difference between being able to get milk and eggs for their children or buying gas so they can continue to to try and earn and sending like false minimum wages and different things. And literally sending out trillions of dollars into the economy is actually hurting those individuals who they think needed the most, the most.

Yeah, well, and and you know, just in real time, just to kind of share it with you, too. So I’ve got a couple buddies that do construction, right. They’re general contractors, or they do a lot, right. They do a lot of commercial jobs, they do residential jobs. Everybody had all this money from these stimuluses and, and all of a sudden these guys couldn’t find workers. And they had so they had too many jobs, and not enough resources.

And so they had to start charging more so that they could go and do the jobs that were going to pay the most because they had to start telling people No, and they had to start pricing certain people out of jobs, because they can’t say yes to everybody. There’s a labor shortage. There’s a material shortage, and they only have a limited resource of time. And that has an impact too. Now all of a sudden, if they’re doing it, you know that other people handyman in general contractors are doing it too. And all of a sudden, the cost of I don’t know, doing a C tune up, just went up by however much because of the natural consequences of the things that are happening.

So it starts on a micro level and it moves to a macro level, guys, it’s just something you need to be aware of. And at the end of the day, the beauty of it for us is we do real estate, real estate, as evidenced in this podcast. And as we’ve talked about, in real time, what we’ve really seen over the years is a true, actual real hedge against inflation. And so listen, if you’ve got money in real estate, it’s probably a good idea to keep it there.

And if you are still trying to break in Look, there is still awesome opportunities to be able to go and do real estate. And if you are worried, and by the way, one of the other articles we didn’t talk about, but I saw on CNBC is retirees are very worried they spent a lifetime building up a nest egg thinking it was going to be enough. But now everything is costing more. And as a result, that nest egg isn’t going to get as far as they thought it would.

So if you’re in that position to where you’re like, I’ve got this nest egg I’ve been building, but man, I don’t know what’s gonna happen with the stock market. I don’t know what’s gonna happen with the economy. I don’t know if it’s going to be enough of a nest egg. Let’s maybe look at diverting some into real estate, perhaps that’s a way to hedge your bets from that standpoint, as well, with knowing that we’re current retirees that haven’t done that are going I’m not sure if this is going to be enough now.

So in summary, if you’re not in real estate, get in it, if you’re in real estate, stay in it, because real estate can act as a hedge against inflation. We are seeing it in real time. We are watching it with our own eyes, we are seeing the report stating that inflation continues to increase, we can navigate it and real estate gives us the ability to navigate it maybe more successfully than many other things.

Yeah. Well said, I think you’re right, Kevin. And look, we’re both eternal optimists, right. We’re super hopeful that, you know, things can kind of course correct that, you know, the pendulum has swung so far in one direction, Kate will, will begin to swing back a little bit, we’ll as a people will make better choices economically, and, and will be able to get into a little more healthy position in terms of inflation, I truly, truly hope that we never see like anything above the type of inflation that we’re seeing today. Because it just is not healthy. It’s not good for anybody in the economy.

Truly, other than, you know, the few things here and there as a whole, it’s not great. And I’ve got faith that that things will work themselves out. And as they do, and even if they do, the bottom line is real estate is such a great vehicle, whether it’s hyperinflation, whether it’s just normal regular appreciation and inflation.

You know, real estate is such a great tool from so many different angles, that, like you said, Kevin, it has been interesting to see that people kind of coming out of the woodwork contacting is both new and existing and returning clients who just feel like it’s like, gosh, like, I’ve been kind of waiting for the market to kind of like turn or change or slowdown or whatever, and it doesn’t look like it is anytime soon. I don’t think that things are gonna like really slow down anytime soon, just based on supply and demand and some different long term, you know, key indicators that we’re seeing. And so there’s really hasn’t been a better time to jump into the game and become part of our investing community.

Absolutely. Thank you, everybody, for listening. Thank you for tuning in. We hope this was a helpful discussion. And we don’t want to scare you. Like Steve said, this should be a hopeful discussion. Look, interest rates are still really low. There’s still real estate to be able to go and buy and invest in so that you can use your dollars wisely and maybe hedge against some of what’s coming. We feel really confident about the future. We just wanted to talk about what’s really happening and make sure that you’re aware of it too, and maybe help you understand some of the broader impact that it might be having on real estate and on your personal life. But we love you We are thankful for you. thank you as always for listening.

We appreciate you have an awesome week and we’ll talk to you soon. See y’all later. Thanks so much for listening to replace your income with Kevin and Steve. Do you want to connect with us and other income replacement Rangers out to obliterate the status quo and experience real retirement with income replacement through real estate type done for you real estate USA in your Facebook search bar and make sure to like our company’s page.

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