April 13, 2021
Inflation. What is inflation? Since this isn't really a give and take conversation, I will have to guess on the answers. And, I am guessing my guesses are right on. So, what is inflation you say? You say it is rising prices. How do I know you said that? Because that is what everyone says. What if I told you that your definition of inflation is wrong? Before we dive into my definition, which you will agree with when I am done explaining, let's see what the dictionary says:
Economics. A persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency.
Ok. The dictionary, or www.dictionary.com as it were, got it partially correct. They touched on it briefly and incompletely at the end of the explanation.
Let's look at something else, if rising prices is "inflation", then what is "appreciation"? Oh, appreciation is rising prices? But, isn't that inflation? It is? Then what is it? Is it mindset? Say, if something goes up that we do not like that it goes up, we call it "inflation". Whereas if something goes up that we do like that it goes up, we call it "appreciation". Yeah? So, if the price of the house we want to buy goes up we blame inflation. And, if the price of the house we want to sell goes up we call it appreciation. I see. Well, you are wrong and I will tell you why. Buckle your seatbelt and strap on your helmet because I am going to take you on an adventure!
Time for Bruce's definition of inflation:
Brucenomics. Increased money supply.
Isn't that simple? That's it. An increased money supply is inflation. And rising prices? That is the result of inflation. Let's look at Econ 101. If there is an oversupply of something, what happens to it? For example, if there is a huge supply of widgets and a limited supply of dollars, what happens to the price of widgets? Well, the price drops due to supply and demand. Whereas, if there is a shortage of widgets and an oversupply of money, then what happens to the price of the widgets? The price goes up. Well, folks, we have had an oversupply of money printed. Our widgets are going up. We are not happy. The White House is blaming Russia invading Ukraine for rising prices. That is just silly. We have been printing money and dumping it into the economy for 40 years at an ever increasing rate. And, the more dumped in, the higher prices become. And, those on fixed incomes are hit the hardest. That is a topic for another blog at another time.
What is appreciation? Appreciation is the increase in value of something. Here, let's quote what it says at dictionary.com:
An increase or rise in the value of property, goods, etc.
It's vitally important to realize that there is a difference between the rise in the price of and the rise in the value of something. Know what's crazy? We can have a rise in the price of a good or service which is 100% inflation driven. AND, if we were to sell the good or service at a higher price than we purchased it then we would have a taxable event. Wait...wut? We can get taxed on inflation? Yep! Sorry to be the bearer of bad news.
So, how do I define appreciation?
Brucenomics. Increased value minus inflation.
Here at Bakerson we cannot do anything about inflation. We can, however, influence the value of a property.
This brings us to Thunder Mountain. We are definitely increasing the value of the property. And, our increase of value is much greater than our out-of-control inflation. Besides, I believe we will be able to capitalize on both the appreciation AND the inflation. Too bad they are both subject to tax at some point. Yeah.
Thunder Mountain Apartments. What's new? Well, we have many of the units getting painted and they look fantastic! I could go into detail explaining all about it. But, isn't a picture a better description? Here:
This is how it looks as you walk in. I know, I know. It's not done yet in this picture so don't be critical. It does, however, give it life!
And the first coat looks amazing. Won't be long and 2/3rds of the units will be painted. The guys are doing a great job and it's fulfilling the vision I had for this property. Gives me the warm and fuzzy feeling!
Things are blending in and going to look so much nicer. Then we will be ready for flooring.
NEWS ALERT! I received word there are a handful of units which have new flooring. The bad news? I do not have any pictures. The good news? I will have plenty of pictures for my next blog entry.
We received word there was a roof leak. As you may recall from an earlier blog (you've read them, right?), the roof is made of concrete. The concrete, however, is not compromised. Rather, there are spots where it's leaking in such as seams. The integrity of the roof is still top notch. Being on top of the building ..
Here is the area which is giving us difficulty.
Nate & Ben took it upon themselves to fix it while they were going there for their periodic visit. Instead of getting a roofer, why not do it while we are checking out the progress? Besides, Nate has been a roofer in a past career some years ago. So, he has a good idea on how to keep the water out. And, it appears Ben even got his hands into the task. I was going to say "It appears Ben even got his hands dirty." However, he is only wearing one glove. So, it would technically be "hand", wouldn't it? I wonder why he only has one glove? Maybe he and Nate are "sharing". How nice.
And, with that the leak is fixed. Bring on the rain!
As we head into economic changes in the wind, you will have a new understanding of inflation and appreciation. Increased Money Supply vs Increased Value (minus inflation). Remember to follow the money. Always follow the money. The money tells a story.
And that is our project from my corner of the globe ~Bruce
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