I was completing my first year as an Enrolled Agent in 2019.
The topic of several of my posts and blogs back then had a lot to do with my hopefulness for a prosperous new decade.
I was even in love with an idea I had (and I’m sure I’m not alone in this), that 2020, the upcoming year at the time, is a homophone for the medical definition of clear vision.
We were drawing nearer to the end of a strange and polarizing chapter in the political landscape of our country in the opinion of many, and the economy was looking pretty damn good.
Then, the pandemic occurred.
And in a series of moves that surprised even me, the government on both sides of the divide decided that throwing trillions of free dollars at the American public was the best thing they could do at that time.
What happens when you pump a bunch of excess cash into the economy? I had a funny feeling at the time, and I was unfortunately all too right about this.
Big-time inflation will occur.
No use listening to the entertainment media blaming “one side or the other,” because both sides got a shot at dealing with this.
Billions of dollars fraudulently applied for and approved during the Paycheck Protection madness, and most of that was awarded as tax-free debt forgiveness.
Plus the three-part stimulus. And the increased child tax credit, and advance child tax credit payments.Yippee! Yeehaw! Free money, everybody!
And when the inevitable inflation set in, everyone found themselves looking about, like hungover party guests awakening stuporous and disoriented in the morning.
If I have an opinion, it would be simply that there should have been a few more strings on the fountains of cash, but beyond that what’s done is done.
Does that sound crass and simplistic? Let me come clean about something here.
My wife and I found ourselves suddenly in a position of positive net income.
People found our firm in their time of need because we have always operated virtually, and we had already begun gently but firmly discouraging in-person commerce years before it became scary to do so without a mask.
We didn’t need the stimulus, in other words. But we got it, all the same, because of a very loose standard of $150,000 or less in adjusted gross income on our previous tax return.
So, we did what any responsible self-employed taxpayer does with a windfall: we turned around and gave it back over time in estimated tax payments.
I’m just trying to make a point here. There was way too much money, for way too many people, and that led me to draw two suppositions:
- The people that really needed it the most probably didn’t get all the help they needed, and,
- There had to be an inevitable day of reckoning to balance the scales of all that free cash pumped into the system.
The Inevitable Inflation
So here we are, hats in hand, looking at the present and the future of investment viability.
The Fed, meaning of course the Federal Reserve Board, has the power to make us all cry and dance around like Chicken Little every time they meet to discuss the state of the economy.
Raising the prime interest rate is a hedge against inflation, they say.
People think a little harder about borrowing, it cools their lust for rampant addictive consumerism, demand goes down, and prices go down with them.
That’s the idea, anyway.
The Fed announces a meeting, the market watchers all cringe in fear and loathing, and the hopeful gains my 401K have made for 3 straight days go whoops!
Like the way your stomach feels on the biggest roller coaster in the park.
That’s what we’ve been dealing with, it seems like, so I thought I’d get into this a little further.
I’m in the business of ensuring real estate and property investors get the biggest bang for their business, and pay as little tax as possible.
The volatility of the rates is not my friend right now.
Back to Earth
I’m going to share what I think is going to be good news for the near-term future.
It is my opinion, and please keep in mind that I am not an equities broker, nor an expert on the bond markets.
What I am is an expert in individual and small business taxation, and a fairly decent practitioner of the fine art of “Googling.”
Here goes…
In 2022 there were some dramatic rate increases requested and approved by the Fed, including one for 75 basis points (which is the same as 0.75%) all at once.
Scary times. However…
This year the Fed met in February, and again in March, and their lust for correction has cooled somewhat.
Most of the nation’s reserve banks have approved just two increases, the most recent becoming applicable last month, and in both cases the increases were a more conservative 25 basis points.
This makes the rate, which they refer to as the primary lending rate, 5% for most people in most areas of the country as of this writing.
To be clear, the primary lending rate is a benchmark, and a whole lot of people pay more because of credit rating considerations, bank adjustments, etc.
Plus, the dreaded loan-level price adjustments that became more commonplace since the sunset of the ninja loan era in the late ought’s decade, post-2008 recession.
Now here’s a thing that can have some surprising benefits for Joe Taxpayer.
The Silicon Valley woes of the past few months actually have a silver lining, in that they are cooling the Fed’s enthusiasm for rate increases.
I consider this hopeful news.
I believe the property investor environment is not the vast post-apocalyptic wasteland many would have us believe.
There are still fortunes to be made.
Those that have built their fortunes already have reason to feel bullish about the remainder of 2023, in this man’s personal opinion.
With business financial planning and analysis, and proactive tax planning these fortunes will grow even stronger and with more confidence.
How much would it be worth to you, the savvy property investor, to know you’re saving five-figures every year in taxes, plus have the confidence in knowing exactly where your business is at any point?
Especially if the combination of tax savings and superior metrics, and the time freedom of not having to navigate the financial waters on your own creates positive return on your investment?
I think the future of investment is not an oxymoron.
Real estate investing is nowhere near dead.
Soon!