Don't let inflation put your real estate investments in jeopardy—take time to evaluate every potential purchase and have a plan in place. In today’s episode, Jeremy Roll recently discussed the sobering reality of inflation potentially decreasing the NOI of investment properties, even if you buy it for a good multiple. Be aware of this 'compounded effect' and make sure to take preventative measures to minimize your risk. Protect yourself and your hard-earned money now! Tune in to the full podcast episode now!
Quantitative Tightening vs. Quantitative Easing
Quantitative tightening is the opposite of quantitative easing. When the Federal Reserve (Fed) buys assets, it's injecting liquidity into the markets and keeping money circulating, thereby allowing for more lending. The Fed started buying mortgage-backed securities in 2008 and has also been buying treasuries. When the Fed buys these assets, it artificially boosts demand and reduces yield, but when it starts selling, supply increases and yields must increase to attract new buyers.
This can have an impact on interest rates, even when the Fed funds rate is not being changed significantly. This week, for example, the Fed raised its rate but the 10-year treasury went down due to expectations of future activity by the Fed. In other words, market participants are forward thinking - they are anticipating future events in order to protect themselves from any losses expected from further quantitative tightening.
Compounding Effects of the Recession
As an aspiring limited partner investor, you should be aware that the economy has been buoyed by stimulus money for some time and it won't last forever. As this safety net is removed, individuals and companies will start to feel the effects in 3-6 months. With inflation on the rise, property values could take a significant hit. Rents may remain flat or even negative while expenses continue to go up, resulting in lower NOI at the end of the year than at the beginning. It's important to understand these dynamics when making investments as they can have a major impact on your returns.
Investment Strategies to Employ in Uncertain Times
Jeremy has two current investment strategies they are considering: unique opportunities with a cushion in the asset price and those investments that can do well during a recession for example is a tax-abated multifamily asset and also investing in ATMs, which are computers with a seven year useful life and a low depreciation rate. The user's third bucket of hard money lending was no longer valid due to the increase in interest rates and the risk of decreasing asset prices.
Who is Jeremy Roll?
Jeremy Roll is the President of Roll Investment Group, a company that seeks passive and managed alternative investment opportunities in Real Estate and Businesses ranging from $500k to $25M. He started investing in real estate and businesses in 2002, and left the corporate world in 2007 to become a full-time passive cash flow investor. He now manages a group of over 1,000 investors in the US and Canada who seek passive/managed cash flowing investments. In addition to his role at Roll Investment Group, Jeremy is also a co-founder of FIBI (Forum for Investors & Business Owners). He has made 2 investments so far and gives seminars on the importance of cash flow investing.
If you'd like to say hello, you can find Jake at @JJakeWiley on Instagram and Twitter, and on LinkedIn.
You will hear quite a bit of real estate terminology in every episode. We've aggregated the most common questions for you in the link below!