By Wayne Hoover
This article on inflation (https://pomp.substack.com/p/inflation-is-killing-the-american) got me thinking about how I manage my cash. In the article he mentions “the best indicator for true inflation” is the Chapwood Index (https://chapwoodindex.com) which gives a better view of inflation based on cities.
I was surprised to see that most major US cities have between 8 and 12% inflation per year! That’s huge! Which then got me thinking about returns in the stock market and the bitcoin market. With inflation so high it only makes sense to make your money work for you as much as possible, otherwise each year you are loosing about 8 to 10%.
I really enjoyed Tynans articles on investing like a billionaire (https://tynan.com/billionaire-part-1, and https://tynan.com/managing-your-money-like-a-billionare-part-2) in which he describes putting his money into mostly safe stocks and bonds, and then taking a margin loan on them (in the 1.5% range) and using that money to put into other high yield safe investments like crypto or real estate in the 8% range netting a ~6.5% return on the borrowed money.
I think this strategy is great, I think of it as a savings account, as you can liquidate the holdings fairly easily and get to your money whenever you like especially with margin, and it keeps you at around what true inflation is.
But this is missing something big, and that is the biggest expense that most people pay for each month, housing.
When you own the house you are living in, depending on where you live, you have a lot of options to make money on your house while you live in it. You can rent out the rooms either long term, or short term. If you have land around your house you can put up an airstream or glamping setup and rent those out short term, all of these things while you are living on your property can pay for your mortgage (or more), especially with mortgage rates so low these days. Of course this does take some initial capital in the form of a downpayment but if you are a first time homebuyer that can be around 3.5% + 3% closing costs.
So lets do an example here, if you pay 3.5% + 3% on a 500k that is a sunk investment of $32.5k house with 4 bed rooms and some room. You figure out that if you rent two of the rooms on airbnb you would cover the cost of your mortgage so you are living for free in a house that hopefully is gaining in appreciation (sure you have to clean the rooms, but you could outsource that), all for an initial cost of $32.5 (which could possibly be realized when you sale the home too, but for now let’s assume it’s gone). Now lets look at renting a 2br house, it might be around 1.5K/month so in about two years living at the house “for free” you can now live for free for as long as you want to keep renting out your space.
I personally love living in community and around others, so this is quite a no brainer for me. The biggest question though, where to do it?