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SUMMARY:

A lot is being said for buying real estate in this economy. Should you buy real estate during a recession? 

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Buying an Airbnb during a recession is a big topic. Buying any real estate now is a big topic.

Let’s not freak out. Yet.

In today’s video I outline the way to think about investing right now.

I share the mistake most investors make when considering investing during this economic downturn. 

First, we talk about inflation. What is inflation? How does inflation affect real estate investors?

We discuss the value of assets and why real estate specifically works for this job. This is important to know versus holding onto cash during a recession instead.

Then, we discuss lending rates.

For investors, this is gigantic. Everyone is going on about the 6 and 7% interest rates. Can you buy real estate with high interest rates? 

You absolutely can.

Watch the video to see me break down, with real numbers, why the interest doesn’t matter as much as people think it does.

In fact, I prove in the video that there is real estate I would HAPPILY buy with an interest rate of 40%!

I share what you need to focus on when investing right now. Spoilers: it’s not just one thing, like rates.

If you want that kind of confidence when buying an Airbnb during this recession, watch today’s
video.

PS – Subscribe now! Two new videos every week!
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VIDEO TRANSCRIPT:

What's up guys, it's James here. And in today's video, we're gonna be talking about whether or not right now is the right time to buy an airb&b or short term rental property. So at the time of this recording, we're just entering into a recession. And I know that a lot of people are seeing interest rates going up inflation being high, seeing a lot of the writing on the wall and wondering, you know, is now actually the right time to buy an air b&b. And so I'm constantly getting people asking me, you know, should I wait for interest rates to cool down? Should I actually bind right now? Should I maybe just wait? And so I want to answer that question in this video once and for all. Now, before we do, I just want to remind you guys that there is a free training linked in the description down below, that's going to walk you through exactly step by step how to invest successfully in short term rentals. So if you are interested, and want a more in depth kind of overview how to invest successfully into short term rental properties, actually, by Airbnb, ease and short term rentals that you can own that you can rent out, get a great return on, then definitely check out the link in the description down below to access that free training. Having said let's go ahead and jump right into it, and talk about a few different factors. So first off, let's talk about inflation. because inflation is one of those things that people are seeing is really scary, and that they're wondering about, you know, is it actually a good time to buy a property right now? Well, the thing to remember is that when inflation is high, what it means is that your money doesn't have as much purchasing power over time, right, the purchasing power of each dollar goes down over time. But that doesn't actually impact the value of of strong assets that hold their value. So for example, if you look at the value of $1, relative to a loaf of bread, the value of the dollar is going down. But the loaf of bread is maintaining its same value, which is why you see that loaf of bread become more expensive when we see heavy inflation. Now similarly, with gold, you see the price of gold rising, because the money that is being used to purchase it doesn't have as much power to purchase. So you can buy less gold for every dollar. So to buy the same amount of gold, you just need more dollars. Now the same is true for property, real estate is holding its value, well, it tends to hold its value well, in times of inflation. And so what happens is that $500,000 property, it actually takes more dollars, once the value of each dollar is lower, it takes more dollars to buy that same property, so the value goes up. But really, the value of the property isn't actually increasing, it just takes more dollars to purchase that property. So it basically is, it's more accurate to say that the value of that property holds the rubber you hold its value, the value of the property may actually also increase as the property just naturally appreciates in value. But as it relates to inflation, the property is more so just holding its value, which means that it takes more of those dollars to buy that property in the future. So if you're looking at holding your money on the sidelines, and a lot of people are wondering, should I just wait and hold on to my money and invest it later? Versus Buying? Now the answer is a resounding no. Because that money that you just hold in cash or cash equivalent is not going to actually hold its value, it's going to lose value to basically be eaten away to inflation over the next couple of years here go a month, couple of years, it's happening right now. Whereas if you use that money to buy a property, the property would actually hold its value a lot more than your cash position a lot more effectively than your cash position would. So from an inflationary standpoint, yeah, it definitely makes sense to put that money into real estate as opposed to holding on to it. Now, that being said, the other benefit of that is you're probably going to be buying the property not outright in cash, but you're going to be buying it using lending. And that kind of leads as well to the interest rates, which I'm going to talk about in a moment here. But the really nice thing is that if you think about it, if you buy a property for $500,000. And let's say that you put 20% down on that property, that means you owe $400,000 on that property. Well, like we just talked about $400,000 Today is not the same as $400,000 Over the next 2030 years of your mortgage. And so what's really true is that you don't actually owe $400,000 Yes, technically you owe $400,000, but it's not the same $400,000 as it will be in 10 or 20 years from now, what's actually going to be more the case is that you're going to be paying off that mortgage payment, that's going to be much, much lower in a relative sense. So think about it this way. If your mortgage payment, let's just say for easy math, that one loaf of bread right now is worth $100 And your mortgage payment is $1,000. That means that it now takes right now it's $100 for a loaf of bread and $1,000 your mortgage payment takes 10 loaves of bread to pay off your mortgage, right? Those are the same thing. And so in the future, what's going to happen is you're going to have that same $1,000 mortgage payment but that act that loaf of bread is actually worth $15 Because like we just talked about inflation, right the value have the actual dollar is going down. So it takes more dollars to buy the loaf of bread. So similarly, now it's not actually going to take 10 loaves of bread to pay your mortgage payment, it's going to take less, right. And so in the same way, it's basically just going to, it's all that to say that it's going to take less dollars, really to pay your mortgage payment, it's gonna take the same number of them, but the value of them is actually going to be less. So I know, I know, I'm not an economist, this isn't merely my strong suit, explain these things. But if you want to think about, you can really research this and dig into it online a lot better than I can probably explain in this video. But the best thing to realise is that right now you're buying debt that you're going to pay down in the future, and your dollars in the future are going to be worth less. So if your employer is matching your if your, if your salary goes up just with inflation, just to keep up with inflation, then even though you're making $100,000, right now, you're gonna making let's say 120, or $130,000 in the future, and you're already paying down that same exact mortgage payment every single month, even though your salary is going to be going up, the cost of everything else is going to be going up, that debt is going to stay constant. And so it's going to become financially just easier to pay off that mortgage because of inflation. So hopefully that makes sense. Again, I don't think I did a tremendously great job of explaining that if you want to learn more about this, you can Google it. And there's certainly people out there that can explain this whole concept in way more effective terms more easy to understand terms than I can. Now the other element here is going to be your interest rates. So a lot of people are wondering, you know, should actually buy when debt is so expensive, right now, it's costing me six and a half percent 7%, whatever it might be, to get my mortgage should actually buy. And a lot of people think that's crazy, because they look at it as being this really high interest rate. And the thing to remember is that everything is all related. So when interest rates were really low, money was really cheap to get. So a lot of people had money. And so demand went up for these properties, and therefore the prices increased for properties. When debt becomes more expensive, it's harder for people to get that money. And so in order to buy properties, they obviously need money from those mortgages, harder for people to get them because the money is more expensive. And so the demand for those properties goes down. And like we're seeing now in a lot of markets, the demand is cooling off, and the price of property is starting to come down. So it's all relative, yeah, sure, you could have gotten a property last year for $600,000, and paid, you know, 2%, or 4%, or whatever it is on your mortgage payment. But now you're getting that same property, and you're paying 6% 7%, but you might be able to get it for $550,000, that same exact property. So if you can buy the same property for less money and just pay higher interest than really you're gonna wash out around the same. So that's one element. Now I know that's not true in every single market, because in some markets, interest rates are still high. And we're also seeing that the prices are holding firm, or they're still increasing, they're still appreciating. So you ultimately, what you really need to do, the way you really want to look at this is that there's no good or bad interest rate to buy a property yet, because you can buy a bad property the wrong property at a fantastic interest rate. And it doesn't mean it's going to be a good investment. Just because you pay a low interest rate does not mean that investment is going to be a sound one. Similarly, you can buy a phenomenal property that has all the makings of a great property and buy it for too high of an interest rate financing at too high of an interest rate too high of a price. And therefore it's going to be really terrible investment. So you can really go either way. And so really what you want to focus on is your return, you want to make sure that you're buying property, specifically looking at what the return on investment is going to be for those properties. So you really want to look at number one, what is your cash on cash return? That means that after you pay your cost of carrying so your mortgage, your taxes, your insurance, and your operating expenses, like cleaning, your internet, your utilities, all that sort of stuff? What is the actual net cash flow that the property produces? Well, if that number is substantial, and your cash on cash return is 15% 20% 30% or higher, then you're in a solid spot. For me personally, I don't care if I'm paying 20% interest on a property, if as long as I'm still making a really solid cash on cash return. And it's stable enough that I know that's going to be true in the future. I'll give you an example. If I would if I could sell you a property right now that last year was appraised at $500,000. And it produced incredible returns, let's say a cap it net gross, let's just say for easy numbers at gross $150,000. Right? And let's say at that property after all of its operating expenses, it was going to net before your carrying cost was going to net you $130,000 You have to take your carrying costs out of that. So you got $130,000 to work with the property was valued last year at $500,000. And I'm going to sell it to you but the caveat is that it's at a 40% interest rate. Would you buy that property? Well, any of you guys no matter what you think you are either gonna be right or wrong based on what I say next. Right? So if I say I'm going to sell that property to you at $500,000 of the purchase price, then anyone who thought, Well, no, there's no way I would buy that property, you'd be absolutely right. Because financing that property, the cash on cash return would be absolutely abysmal. But if I told you, I'm going to sell it to you for $10,000, then you would absolutely want to buy that property, it would be a total no brainer. It's a cash bruising machine, it's bringing in $130,000. If you put 20% down, that'd be $2,000 in cash outlay, and you'd finance the remaining 80% at 40%. Interest, who cares, it's still bring in $130,000, a year before your your carrying costs. So you know, even if you're paying, you're paying massive carrying costs, like a 40% interest rate, it's still going to be absolutely incredible as an investment, your cash on cash return is going to be absolutely through the roof, it's going to be hundreds of percent, right. And so really, this is a obviously very drastic example. But this is the way you have to look at it. It's all these different factors playing it together, it's a combination of your purchase price, your financing, as well as the income potential for the property. All these things play a role in determining whether a property is a good buy or not. Now and the mistake I see people making all the times that they think that a property is not what really decides it's either they often invest in the right market, or they have to invest at the right time in order to get a really good return. And what's really true is you have to invest in the right property, in order to get a really great return. It's all the different factors that can bind. If you're investing in the right property, you can buy it now you can buy it 10 years from now you can buy it 10 years ago, you could buy it in 2008 when everything was plummeting. And you could still get a really, really, really great return if you held on to that property and had it producing cash flow. So it ultimately just comes more down to this specific property than it being a good or bad time right now. So Is now the right time to invest in short term rental. Absolutely. Because it's always better to invest your money and have your money working for you then have your money just being eaten away to inflation is now a better or worse time than any other time. No, it just depends on the deal that you're looking at specifically. So my recommendation is get in the game, my biggest regret probably is that I just took too long to actually have my money working for me. I focus so much on active income, which I also recommend people do. But you also want to focus on the more passive income, the wealth creation and have that working for you as well because you can get so much more accomplished when you have your money working for you as well as your brain power, your intellect everything else working for you than if you're just focusing on the active side alone. So I hope this was helpful. I hope this video was valuable to you. If you have any thoughts, questions, comments, anything at all, leave in the comment section down below. If you did like this video, please give it a thumbs up. Also hit that subscribe button to stay up to date. We post two new videos every single week on this channel to help you learn more about how to invest successfully in short term rental properties. And last but not least, make sure you check out the links in description down below for our free trainings on how to invest successfully in short term rental properties so that you too can be successful and find the right property no matter the timing to invest successfully in short term rentals. All that said, I hope you enjoyed the video and I'll see you in the next one.

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