Welcome to The Gold Collar Investor podcast with your host Pancham Gupta. This podcast is dedicated to helping the high-paid professionals to break out of the Wall Street investments and create multiple income streams. Here’s your host, Pancham Gupta.

Hi there, I’m Robert Helms host of The Real Estate Guys radio program and if you want to have better results in your life you gotta put better ideas in your mind. You’re in the right place. You’re at The Gold Collar Investor podcast.

Pancham Gupta: Welcome to another episode of The Gold Collar Investor Podcast. It’s a bright sunny day here today in New York. It’s Wednesday and this is your host, Pancham. Really appreciate you for tuning in today. So, we have another edition of Ask Pancham episode for you. It’s been a while since I’ve done an ask bunch of episodes. So, I thought it’s, it’s about time to record one because there is a lot of talk about inflation these days following the recently signed relief bill that totaled about $1.9 trillion. The US has unleashed fiscal stimulus spending of $5.2 trillion since the Coronavirus crisis began and which is about 25% of the US GDP in 2020. That’s an astounding number. So today, what we are going to discuss is how buying real estate with a fixed rate mortgage is like shorting the dollar. It is one of those things that once you get your head around it, you just get it, and we’ll never forget it. So, you know the risk of inflation is real. And if you’re in that camp, this particular strategy could be for you. Nevertheless, it’s always good to know what that really means. So, what does inflation mean? Let’s discuss that first. And then we’ll discuss few things before we actually get to answer this real question. So, what inflation really means is that all the goods like food, oil, cooking gas, etc, will become more expensive than measured in US dollars, which in other words means that the value of dollar is going down. There is a great book on the topic of inflation by the author Irwin Schiff. The name of the book is The Kingdom of Moltz, M.O.L.T.Z.  And this book explains inflation with a story that even a 10 years old, can understand what inflation means. This book is out of print now. And you know, but I did a whole show with my son who was nine at the time to discuss the book.  He read the book first and then we actually had a discussion on the book, I actually go through the book, it’s a very short comic story, book style. So, I would highly recommend listening to that show. If you want to learn about inflation, you can go to the show number 50 by going to thegoldcollarinvestor.com/show50 to listen to the show. Now going back to the topic of inflation.  Assuming that you are in the camp that inflation risk is real, meaning that in the next 1,2,3,4,5 years, you’re going to see high inflation in the market. What can you do today to hedge that risk? As we discussed, inflation means the value of dollar is going down. Now what you do if you are in the camp, that something is going to go down, you want to sell it right? But how do you profit from it in liquid markets, you know, when you trading stocks, for instance, right? You actually short the stock bear in if you think the value of a stock is going to do go down. Now what does a shorting the stock mean? It means that you actually sell a stock by borrowing it from the broker, assuming you don’t own it. And if the value of the stock goes down, you buy the stock at a lower price when it has already gone down and return it to the broker, and you keep the difference and make the profit that whatever the spread is. So that’s a way of profiting from a depreciating asset. In this case, the stock that you think was going to go down, you actually borrowed that depreciating asset and you sold it, and then you actually bought it later at a cheaper price, and then kept the difference. That’s what you do when you think the asset is going to depreciate. Now, you know that US dollar is an asset which is called cash. How do you short the US dollars? The best way I know personally, to short the US dollar is buying leveraged real estate. When I first , got my head around this concept I was really I was like really? How can you do that? So yes It’s true by buying leveraged real estate with fixed rate debt that is locked in for a very long time, like 30 years, you are really shorting the dollar. Let me explain how. You know the time value of money is the concept that we need to discuss first. The time value of money means your dollar today is worth more than your dollar tomorrow. This is a result of inflation; inflation increases prices over time and decreases each dollar spending power. As each dollar spending power is reduced, it will take more dollars to purchase the same thing. Have you ever heard your parents or grandparents remind you that Coke used to be 10 cents when they were in college? Or whatever that number was, right? So now how do you short the dollar by getting a long term fixed mortgage? financing a property by getting a mortgage allows you to short the US dollar.  When a person borrows and trades a depreciating asset in this case, the US dollar in the form of a mortgage right for an appreciating asset, real estate, they are actually locking in a financing payment today, which will be same for the duration of the loan, right. So, if the loan is 30 years, the payment is going to be locked in for 30 years. If it is 15 years, the payment is going to be locked in for 15 years, and so on and so forth. So, the same $2,000 mortgage payment, for example, an investor makes on the month one is the same that they would make month number 360 which is the end of 30 year fixed mortgage home loan that you get. So, what is the difference, really, the difference is that $2,000 payment today is worth way more and has a lot more buying power than the same $2,000 payment in 10, 20, 30 years. Think about the rents over 30 year timeline, they typically go up, right? Or the value of the asset, they go up right? But what about the actual payment that you’re paying the bank is staying the same, right? So, you know, knowing that like you’re basically paying off your mortgage with the cheaper dollars in 10, 20,30 years, you’re actually shorting the dollar like you borrowed a depreciating asset at a fixed cost. And the asset keeps on depreciating, but your amount of payment is the same. So, knowing that if you could go back 20 years, would you buy as much real estate as you could? Of course, yes, right.  So, the longer the amortization period of the length of the loan, the better it is.  When we lock in this fixed rate, the other guy that is the bank is stuck with it for the term, but you don’t really feel bad for them, because they know this, they are in it for the interest payments that you’re making. And for them that loan, which is a liability to you on your balance sheet for them, it’s an asset. So now imagine, you buy a cash flowing real estate, which with this 30 year fixed mortgage, where you are now making payments, using the rent, which is going up in the next 30 years, 20 years, 10 years, and your payment remains the same Yes, your other things will go up property taxes, utilities, and all that. But imagine the power of this right, like you have shorted a depreciating asset, which you know that for sure that it is depreciating. And now you take the fixed payment that you are paying to pay off that debt, and someone else is making that payment for you. And whatever that number is the spread between those two, you get to keep and spend however way you like, right. In 30 years’, time, you have built up equity in the property and you didn’t even pay for it. It’s very simple. Sounds very simple. But it’s there is a lot more that goes into this, of course. So, what I want to read now is an excerpt from what Warren Buffet had to say about shorting the dollar in his interview with CNBC in 2011 or 12, when the housing market was down, I’m going to read this excerpt and then in the show notes, I’m going to put a link to the video, the actual interview, which actually shows this particular clip. So, here’s what he said. If I had a way of buying a couple thousand single family homes, I would load up on them and take out mortgages at a very low rates. It’s a way in effect to short the dollar because you can take a 30 year mortgage and if it turns out your interest rate is too high next week, you refinance at a lower rate. And if it turns out it’s too low, the other guy, that is the bank, is stuck with it for 30 years. It’s a leveraged way of owning a very cheap asset now, and it’s about as attractive an incentive you can make. So that’s what he said about shorting the dollar and back in 2012, when real estate was very cheap, that he’s talking about that time. So, hope this is clear how buying real estate helps you short a depreciating asset, which is cash US dollar. And if you have any questions, you can email me at p@thegoldcollar investor.com. That’s p@thegoldcollarinvestor.com. Hope that was clear. Thank you for listening. Really appreciate you. Talk to you next week.

Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollar investor.com and follow us on Facebook@thegoldcollarinvestor. The information on this podcast are opinions as always, please consult your own financial team before investing.