I’m 43 years old. Old enough to remember the pain my parents went through during the latter years of Jimmy Carter and the early years of Ronald Reagan. I remember homes sitting on the market for months/years because no one could afford the interest rates. I remember my local McDonald’s installing menu boards with rolling numbers because my beloved Big Macs (two all beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun) would go up seemingly every week.
I also remember the 80’s when Japan was looked upon with awe. Their economy dominated the world in terms of growth and reach. Followed by a decade of stagflation. (Does that possible scenario sound familiar?)
For the old timers that read BBQ Capital: Kansas City Real Estate Investing I’d like to ask you to comment. (Twenty and thirty-somethings are also encouraged. But it may be time to listen to experience here.) Which scares you more? Inflation or stagflation?
For me, I’d have to say stagflation. With stagflation I’m afraid our tenant pool will be so economically stretched that they won’t be able to keep up with the necessary rent rises. There are at least some benefits to inflation to the real estate investor that can recognize what it going on.
- With inflation you have a steady rise in rents which means when we leave an extended period of this your rent rates will support much higher sales prices than when you went in to inflation.
- Inflation usually brings wage increases that somewhat (I said somewhat) keeps up with the pace of inflation. Anyone remember 10% raises?
- Newer income property owners will have to come to the table with significantly more money down and higher rents. Which makes your rental properties all the more desirable to possible/future renters.
Do you remember Lost In America by Albert Brooks from 1985? We were just breaking out of the 5-6 year economic nightmare and this is simply one of the best movies of it’s time. Anyways, when Brooks realizes what the “inflation train” had done to the price of his property he cashes out and drops out of Corporate America and decides to live life on his terms. Of course, being Albert Brooks you know it ends in a nightmare for him. But I digress, yet again.
I’m not necessarily predicting either stagflation or inflation. But the possibilities are there. The mix is there. Or we could pull out of these doldrums and move forward. I wouldn’t be surprised by any of the three possibilities. As much as Kansas City has been insulated from the property value losses of both coasts we would not be insulated against inflation or stagflation. Nobody will be.