I believe that now is the opportunity of a life time for buying real estate for three reasons:

  1. Most folks are very pessimistic about real estate right now and therefore it is a strong Buyers Market without a lot of competition.  Therefore properties can be purchased for significantly less than replacement cost!
  2. Interest rates are still near their lowest level in the last 50 years!  Ofteninterest_rates a small change in interest rates can increase the cost of ownership much more than a change in price.  For more on this see Price/Interest Dilemma.
  3. In spite of the attempt of the government to downplay the facts—we are beginning to experience significant inflation and real estate has traditionally been a great hedge against inflation. And if the U.S. Dollar loses its status as the world reserve currency, inflation will be extreme! Rather than attempt to explain the impact of reserve currency in my own words, I have received permission from my friend, David Campbell of Hassle Free Cash Flow Investing, to quote from his recent blog on this topic.  David’s clear explanation follows:

In the spirit of no investor left behind, let’s establish what a world reserve currency is. A world reserve currency allows international bankers and governments to invoice trade and denominate foreign debt securities in a common currency. The reason most business people in the world speak at least some English is because English and American dollars are the common language of world commerce. In simple terms, when Iran sells oil to Egypt, Egypt buys its oil using US Dollars. Even though the official currency of Egypt is the Egyptian pound and the official currency of Iran is the rial, the two countries conduct business in US dollars because they trust the value of the US dollar more than they trust the value of the other’s native currency. Both countries must have a stockpile of US dollars sitting around so they can send them back and forth to conduct trade with each other.

Money%20stacksA world reserve currency is selected by the banking community for the strength and stability of the economy in which the currency is used. Prior to WWI, the British pound sterling, the French franc and the German mark were used interchangeably in the world’s reserve currency market. A currency becomes less stable when the economy of the country issuing the currency becomes less dominant and bankers begin to abandon it for a currency issued by a more stable economy. After WWI, the German economy was weak and the American economy was strong so the German mark was replaced by the US dollar. After WWII, the British and French economies were weak and therefore the pound and franc were abandoned in favor of the US dollar. The victors of WWII formally discouraged the world from using the currency of Germany and Japan in international trade as an additional means of suppressing their formal rivals. After two consecutive world wars had ravaged the economies of Europe and Asia the United States dollar was in the right place at the right time to be adopted as the world’s reserve currency. Fortunately for America, it has been used as the primary unit of currency in international trade ever since. Having the ability to print the world’s currency is one of the major reasons why the United States enjoyed such unbridled prosperity since WWII.

On August 15, 1971, the United States unilaterally terminated the convertibility of the US dollar to gold when its president, Richard Nixon, gave an executive order without the approval of Congress or the American people. This August will celebrate the fortieth anniversary of the most elaborate Ponzi scheme ever perpetuated. This means for the last forty years, America has been printing “counterfeit money” because our money is not backed by anything. Foreign countries have been sending things of tangible value such as food, energy, and labor to America where they receive a limitless supply of a counterfeit currency that is manufactured with the click of a mouse. America imports consumer goods and exports dollars and the world is tired of this unfair imbalance.

If the world stopped accepting the US dollar as the world reserve currency, the Ponzi scheme would come to screeching halt and the last forty years of American prosperity would be exposed for what it is: worldwide theft. The Ponzi scheme has lasted this long because the whole world is in on the game. If you are a very large, old world nation, you are encouraged to print your own worthless currency and trade it for our worthless currency. If you are a small nation, America will send you a river of American dollars to buy your loyalty. If your country is neither big nor small and you are an emerging market with natural resources America wants, America will flex the muscle of its military to convince you to keep your mouth shut.

Brazil, Russia, India, and China (called BRIC) is the largest entity on the global stage. They are tired of the United States stealing from them by trading with a counterfeit currency and they have formed an economic coalition to find a solution. China is America’s largest lender and trading partner and they are worried America is about to default on its bar tab. China manufactures all of the iPads in the world and then trades them for counterfeit American dollars. If you were China, wouldn’t you be worried?

reserve currency BRIC versus USD.jpg

BRIC is leading a charge to abandon the US dollar as the world’s reserve currency. What does that mean for you? If BRIC chooses a reserve currency other than the US dollar, the rest of the world will probably follow. If the US dollar is not used as a medium of trade between other countries, those dollars will have no value to those countries and the dollars will be sent back to the US economy to buy anything they can. Imagine if the whole world suddenly decides to exchange their dollars for food, energy, labor, and real estate. When the whole world clamors to turn in their US dollars for something of tangible value, a massive influx of worthless dollars will flood the US economy causing tsunami like inflation. America is too deeply in debt to return to a sound money policy where dollars are backed by gold or anything else of intrinsic value. It is only a matter of time before the world abandons the US dollar as a reserve currency (probably replacing the US dollar with a new currency backed by BRIC). In the big scheme of world history, the US dollar has been the world’s dominant reserve currency for a very short time. It would be foolish and arrogant to think the US dollar would have world dominance forever.

I’ve been preaching about the inflation tsunami for the past two years and it is now upon us. The window of opportunity to prepare is about to run out.

If you are looking to protect and enhance your quality of life, you need to understand and accept inflation as a fact of life and make financial decisions accordingly.”

I totally agree with David’s analysis, and believe that the best way to protect you and your family’s financial future is to buy as much real estate as you can afford!  That’s what I am doing!