Inflation only seems to be warming up this year. Expect it to be the main factor driving all trends in the real estate space throughout 2024.

Real Inflation Could Be About To Soar

In contrast to official numbers in the headlines, real inflation is what consumers experience on a daily basis.

This inflation certainly doesn’t appear to have reversed course yet. In fact, the last couple of years may have just been setting the launchpad for what’s to come this year.

There are many things that have happened and are influx, which could be used as reasons to raise consumer prices this year. Everything from new regulations and taxes, to foreign wars, and supply chain issues.

Grocery and household goods prices are still extremely high compared to a couple of years ago. Consider the controversial new $18 Big Mac meal deal at McDonalds. With some of their meals now over $21. That’s for ‘cheap’ unhealthy fast food. That’s almost $100 to feed a family of four, just one meal a day.

Other basic living costs are going up too. Especially for property owners. Several Florida insurance companies just applied to be able to raise their rates by 50% this year. That’s going to make the last few years of 30% inflation look cheap.

It’s so bad, one major new story in the New York Post focused on how you can recycle and use your own poop to heat your home, cook, and grow your own food.

Distressed Real Estate Deals

Inflation is to the point where many households are now having to stop paying their bills in order to feed their families.

Food insecurity is at new highs. Just as are defaults on car loans and credit card bills. These nonperforming debt sectors have ballooned over the past couple of years. Hitting new records in 2023, even before those end of year holiday shopping bills showed up in inboxes.

We’ve even begun to see major home builders sell off entire projects to cash out, and mitigate the risk of a changing new home sales market.

Billions more in mortgage debt became delinquent in the final quarter of 2023. Meaning more motivated sellers who need to sell their homes and go rent before they have to go through foreclosure.

 

This is a great time to pick up discounted real estate deals, and flip them to landlords who are going to see a big rise in the demand for rentals, and the wealthy that have enjoyed windfall profits from AI investments. Just as the crypto crowd did before them.

 

We could be in for far higher interest rates than most are expecting. Just how high might they go? What will it mean for real estate investors?

High Rates For Solving Inflation

It is being posed that we need extreme interest rate hikes to take the bite out of inflation.

To really make a dent, or halt inflation, financial experts and experienced CEOs say that interest rates need to be raised to at least the same rate as inflation.

This would make it more expensive to borrow for most things, and may cool consumer spending. Of course, it can have the opposite of the desired effect too. Simply making things more expensive and driving up inflation to breaking point.

Some may argue that the current hyperinflation economy has been purposely created and manipulated. It may not be based on real fundamentals. Either way, the Fed seems to be planning for rate hikes.

To match current inflation, rates would have to go up to at least the official rate of inflation which is approaching 9%.

If you look at your own expenses, you also know that you are actually paying 30-100% more for many things.

Are Rates That High Really Possible?

Many investors and homeowners have never seen rates that high. They probably think it is crazy talk.

However, looking at the facts, we see that it has happened before. The Fed has jacked up their rates to over 22% in the past. Average mortgage interest rates have been over 16%. That’s a whole world of difference from the 2% rates some saw advertised last year.

What Big Rate Hikes Mean For Real Estate Investors

One of the first things to watch out for is obviously any floating and adjustable rate debt you may be holding. Otherwise the payments on that debt could theoretically soar by 8-10x what they are now.

This will also clearly throw millions into bankruptcy. Or at least mean they can no longer afford their bills and housing.

This will bring many opportunities to help owners get out of debt, and to buy their properties from them. Start marketing to them based on leading indicators of potential distress. Like large amounts of revolving debt, ARM mortgages, and missed payments.

Using low rate transactional funding investors can take advantage of these opportunities at scale, do some good, and grow their own finances.

 

How can real estate investors use inflation to their advantage?

We all know that inflation has been breaking records. Yet, according to Treasury Secretary Janet Yellen, it could get far more extreme this year. She warns of “enormous” economic impacts from current crises.

This means that we could easily see the most furious rate of inflation in US history by the end of 2022. That is scary for a lot of people. For a lot of people who are not prepared and positioned for it, it should be.

Yet, it is also presenting equally unprecedented opportunities for real estate investors. Both to help others, and scale their own ventures.

Start By Preparing Yourself

Begin by insulating and positioning yourself for what’s coming.

Be sure you have revisited your budgets at home and in your business to account for inflation in your own costs.

Prepare your systems for scale now. Don’t get caught in the weeds, and sabotage this opportunity by being unorganized.

Free up more cash. Use transactional funding to do more wholesale real estate deals. This way you can maximize the number of deals you can do, while staying flush.

Determine who it is that you can help in terms of buyers and sellers this year.

Finding The Motivated Sellers

Property owners are being hit hard with inflation from every angle. Absolutely every expense is going up.

Note that this doesn’t just apply to homeowners, but also commercial property owners and businesses. Many of which have additionally been hit by lockdowns, riots and looting, and disruptions to their business models.

A big part of finding the motivated sellers now, is understanding where they are feeling the inflation pain the most, and how it will show up.

Alternative Leads

Instead of competing for leads based on the same data, consider alternative leads. Instead of REOs and foreclosures, how about leads on people trying to sell their vehicles because they cannot afford them anymore?

What about leads on those with large amounts of revolving debt sensitive to interest rate increases? Or those defaulting on business loans?

Targeting People To Market To

If you are mailing, using social media marketing, content marketing, or outdoor advertising and PPC, who will you target?

It could be owners of properties in HOAs who are raising their dues. Cities with even fiercer rates of inflation in living costs. Groups of the population hit especially hard by taxes. Or those heavily reliant on gas vehicles for work and everyday.

Motivated Buyers

Of course, to complete the cycle and turn deals into dollars you have to sell them too.

This could be targeting retail buyers moving to cheaper areas. Especially those cashing out lots of equity. As well as those now interested in using their equity windfalls to invest in real estate.

 

Foreclosures are rising. Is it enough to shift the market, or just fuel real estate wholesalers with more deals to do?

According to ATTOM Data foreclosure filings leapt almost 30% between January and February this year. With a year over year increase of almost 130%.

That sounds like a lot, but it still only means around 26,000 new foreclosure filings for the month. That is sadly many individuals and families that could be losing their homes. Though it certainly isn’t enough to satisfy current demand.

There may be far more foreclosures in the works when you add filings and defaults from each month. Though most are being snapped up as pre-foreclosures before they become REO, due to the high amounts of equity in the market. Of course, banks may also see taking back properties as being attractive and profitable.

More Foreclosures Are Coming

One reason for such a large percentage spike in foreclosure activity is that the legal process is just recovering from moratoriums and shut downs.

With around just 1 out of every 2,500 housing units receiving a foreclosure notice in Jacksonville and Orlando, FL in February, the market seems much healthier than in 2008. When it wasn’t uncommon to see the foreclosure rate 5-6 times as high.

However, there are a variety of factors which could produce even more foreclosures, and motivated seller deals in the near future.

Opendoor has estimated it is holding $6B in unsold properties. That follows Zillow’s failure, with around 7,000 properties to unload. That could be added to with the failure of other big iBuyers like Offerpad.

Then there is inflation, which is cramping consumer finances. Even aside from groceries and gas, there are large hikes happening in taxes and insurance. Many will see jumps in property tax bills. Some condo and townhome owners are seeing their HOA dues jump by 300% to 400%.

Seeing The Opportunities

With such great end demand for real estate, investors will find any more distressed and motivated seller inventory very attractive. With the potential for better value deals, and more volume.

This doesn’t just have to be residential either. Some of the biggest wholesale deals we’ve seen recently are office buildings. Retail and mixed use could be areas to explore as well.

 

Inflation in 2022 is expected to accelerate far faster than we’ve seen in decades. Even beating out the hyperinflation of 2021.

As a real estate investor you should be prepared to survive it, and understand how to leverage it to your benefit, instead of becoming a victim of it.

Transwarp Inflation

We are running out of terms to describe just how fast inflation is accelerating in the US. Some have started dubbing the pace we’ll see in 2022 as ‘transwarp’ inflation. Transwarp is about 8x the speed of light. It is a whole new dimension and laws of physics.

It is quite likely we will see mind blowing inflation over the next year. Price increases many didn’t think possible.

Consider that the Dollar General has been bringing in a new brand, called Popshelf, which targets prices around $5, instead of $1. Major food suppliers like Heinz are also increasing prices on some groceries by 20% in the first three months of the year. The actual retail price tag that consumers have to pay could go much higher.

In some places rental rates have gone up over 70%. Insurance rates have already gone up by 30% on many customers.

As a real estate investor or business owner you must anticipate these changes, and budget for them. Otherwise you could soon be in the red. Price in inflation on everything, including labor, software, marketing, title, taxes, interest rates, and utilities.

Property Prices

House prices have been growing even faster than inflation in some areas already. Property prices could go up much further in 2022. At least in some areas. Especially with ongoing migration and new covid variants. Use it to your benefit in flipping houses. Price it into your offers.

Distressed Inventory

Extreme inflation means many will no longer be able to keep up financially. At least unless they are also benefiting from COVID and the shifting economy. Such as  startup entrepreneurs, CEOs of big business, and real estate investors. That means the potential for millions more falling late on housing payments. This could provide much craved inventory for real estate wholesalers, flippers and landlords.

With the right marketing, connections and pitch, you can help out these property owners, help them exit to somewhere they can afford, and be well paid in the process.