Big changes are happening at a national and local level, which means opportunities for investors. But to make the most of rising US inflation, you want expert advice and inside information. That's why we're bringing the ultimate insider, JWB's president, and the ultimate northeast Florida real estate insider, Alex Sifakis.
Alex shared his perspective on the following topics:
- Why he thinks the Fed changed their tune about quantitative easing after they told him they weren't worried about inflation
- The new interest of high-profile national developers in the Jacksonville urban core
- How Jacksonville is on track to have the densest urban core in Florida and what it means to the economy
Federal Reserve Act Of 1913: A Brief History
Before we dive into what Alex Sifakis shares in this episode of the JWB Not Your Average Investor Show, let's look at the history of how we got to where we are in the 2021 United States economy.
When President Woodrow Wilson was in office, the economy had several significant fluctuations. It became apparent that the United States would become more stabilized with a central banking system. With the help of legislators like Carter Glass, they established The Federal Reserve Act on December 23, 1913, which the Board of Governors led.
This movement established a financial system to monitor supply chains if prices increased for food and energy, the consumer price index (CPI), inflation rates, and consumer spending on goods and services. The Governors of the Federal Reserve banking system would implement rules and methods designed to help the United States economy remain stable and prosperous.
What Is The Current Status Of US Inflation?
United States inflation rose to 6.8% in 2021, which is the highest since 1982. The global economy also sees inflation, so the US is not alone in feeling the pinch of rising costs. However, today's inflation rates are still low compared to the highest-ever US inflation rate of 19.66% in 1917.
What Is Quantitative Easing, And Why Does The Fed Use It?
Under Quantitative Easing, Central Banks create non-circulating “reserves” that they use to buy bonds that the banks own. This extra demand boosts bond prices relative to what they would be otherwise. Prices and yields move inversely, so long-term interest rates fall.
It's part of their open market policy where The Fed acts as an investor to assist the economy's growth. Among those investments are bonds, mortgages, and securities. That is why interest rates have been low because they've ramped up quantitative easing. The numbers are changing, and The Fed has done everything possible to prop up the economy. They want to ease off on that so they can mitigate risks.
The Fed pulling out as a buyer on mortgage-backed securities will affect the economy long-term. As a result, the interest rates will increase. That could cause rates to rise even more as an indirect effect on 30-year mortgage rates because there is a decrease in demand.
To get all the details of what Alex Sifakis shared, be sure to listen to this episode of the Not Your Average Investor Show. He goes deep into the complexities of the Federal Reserve, what they are buying, how it affects the economy, US inflation, and what that means for mortgage-backed securities.
To get a higher interest rate for investors — like the retirement funds for teachers, firefighters, and other state employees — the borrowers need to be charged higher interest rates. It's a way to fill the hole in the market.
What Happens When Interest Rates Rise?
The deal is in the debt, so it is best to buy rental properties when interest rates are low. As interest rates rise, that will provide lower returns on the money you invest. The good news is that the US inflation rates we are seeing are short-term. We should see interest rates go up after Quantitative Easing eases up.
There is a short-term scenario of US inflation that is relatively certain within 3-6 months. This means we expect to see rising interest rates over 2022 – 2023. If you are concerned about increasing interest rates, you should purchase real estate within six months.
The window to buy rental properties is shrinking. If The Fed pulls back like they said they would, the interest rates will rise. More good news is that Jacksonville's real estate market is still affordable, and you will see good returns over a full market cycle.
Is Quantitative Easing Inflation Rocket Fuel?
While QE is essential for economic growth, The Fed is pulling back because they feel they have been overdoing it a bit by propping up the economy too much. But QE has contributed to low-interest rates. Those who have access to cheap debt will benefit, and those who invest in real estate will benefit from owning properties over the long term.
What Will Happen To Rents And Home Prices When Interest Rates Go Up?
JWB will be creative in figuring out how to provide our investors with positive cash flow. But there are five profit centers, and even if you get lower to zero cash flow, you will still come out ahead when investing in turnkey rental properties in Jacksonville.
Cash flow is not a “right”, per se, but it is something investors have grown to expect. When JWB started, Alex and Gregg read The Weekend Millionaire, which explained how to make money even when there is no positive cash flow. This book, along with Robert Kiyosaki's Rich Dad, Poor Dad, helped these two founders of JWB figure out how to make big profits by investing in Jacksonville real estate.
For the past ten years, interest rates have been so low that we've grown accustomed to always having positive cash flow. But when you look at all profit centers beyond cash flow, the returns on real estate are still ahead of stocks.
Will Appreciation Keep Rising With Interest Rates?
The short answer is yes. To add, if interest rates rise and the initial cash flow is not there, you can still figure on rent adjustment at year one and year two to bring your investment back to the positive cash flow side.
Another thing to keep in mind is supply and demand in Jacksonville. We still have a strong need for a short supply of rental properties, so the market looks great. Miami is the #1 fastest growing national market, and Jacksonville is right behind it at #2.
How Has The Jacksonville Real Estate Market Gone Up In The Past Year?
When Alex attends real estate conferences, there are a lot of high-profile national developers who express interest in Jacksonville. People paid more attention to Miami for many years, and now Jacksonville has been named #2 behind Austin, TX as a “Supernova City.”
We see a very bright future for the Jacksonville Real Estate Market. There is an area in Downtown JAX that JWB is rebuilding that should be denser than in Downtown Miami. We are approaching the cluster-style development where more people will live, play, dine, and work in the downtown area.
Jacksonville is rediscovering the value of its older urban core. JWB has invested a lot of time and money into new construction and restoring historical buildings in the area. Smaller-scale, incremental development helps create a culture of reuse.
Overall, the Jacksonville real estate market has gone up and will continue to grow in the coming years.
How Does Alex Measure Progress When Revitalizing Downtown JAX?
For downtown to be successful, it has to be affordable. When you have people who can afford to live there, the restaurants, sporting events, schools, and retail shops thrive. As more people move it, rents will rise, and the city will become more and more vibrant.
Jacksonville has national attention now. People used not to know where JAX was on the map because Miami has always been THE significant metro area within the state. But now, Jacksonville is very well positioned to grow exponentially and become more expensive all around. This is why we encourage investors within our NYAI community to invest now.
Shad Khan, the owner of the Jacksonville Jaguars, has invested his money into the city as well, and he's doing it because it will benefit the Jacksonville community. Because of his efforts, that is why a Four Seasons Hotel is coming into Downtown JAX. Per Alex, Shad Khan is not profiting off of the hotel building, but this investment in Jacksonville will benefit the entire community over the long haul.
What Else Does Alex Sifakis Have To Say About US Inflation and The Federal Reserve Bank?
Alex shared a lot of facts and figures about the current news around interest rates and The Fed. We encourage you to listen to the entire show to hear all the rapid-fire facts Alex answered during our Community Q&A.
How Do I Find Out More About Investing In Turnkey Rentals With JWB?
If you want to invest in Jacksonville real estate, you are in the right place. Go to www.ChatWithJWB.com and find out how we can help you reach your financial goals through turnkey single-family rental homes. Contact the JWB team to begin the discussion.
If you want to become part of the JWB online community, join us in the JWB Facebook Group at https://www.facebook.com/CashFlowProperties.
You can also go to www.JWBInventory.com to see what properties are currently available. We encourage you to contact the JWB team for a consultation to determine how our turnkey rental properties can deliver positive passive cash flow.
For anyone interested in the single-family rental property asset class, the Jacksonville real estate market continues to be an excellent return for real estate investors. Join us every Tuesday for our Not Your Average Investor Show and our Property Of The Week Show every Thursday. When you join our community and learn from these weekly shows, you will see why the Jacksonville real estate market continues to attract investors seeking financial freedom.
To Your Success,