How To Short The Dollar Using Real Estate

I recently came across a saying that you’re likely familiar with: “A dollar today is worth MORE than a dollar tomorrow.“

This reminded me of one of my grandmother’s sayings, “Son, I remember when a gallon of milk cost a dime.”

Thinking about the time value of money made me curious as to what $10 would be worth the year I was born (1974).

An inflation calculator informed me that $10 in 1974 is equivalent in purchasing power to about $53.73 today. 

The US dollar had an average inflation rate of 3.64% a year between 1974 and today thus producing a cumulative price increase of 437%.

The highest year of inflation was 1980 (13.50%). How’d you like to try a house then?

To put all of this in perspective, this means that today’s prices are 5.3x higher than average prices since I entered this world in 1974.

The bottom line is that using a dollar today would ONLY buy 18.61% of what it could buy back then due to the higher price inflation causes. 

Reading this probably makes you want to move your cash sitting in a savings account into something a little different, right?

Hopefully you realize that the time value of money means money is worth more NOW than it will be in the future. 

Money you have today has a higher purchasing power.

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Betting Against The U.S. Dollar

I get that it seems unpatriotic to bet against anything to do with the United States of America, especially the dollar.

But due to the growing discrepancies between the middle and upper class, it seems most Americans today simply have no choice.

Enter something called quantitative easing.

Quantitative Easing (QE)

According to The Balance, quantitative easing (QE) is a nontraditional technique used by the Federal Reserve to stimulate the economy in times of crisis. It increases the money supply and lowers long-term interest rates, making it easier for banks to lend.

This in turn spurs economic growth.

As a result of this influx of money, interest rates decline making it easier for people to borrow.

The bottom line is that these lower rates are an incentive for people to borrow and spend, which stimulates the economy.

The Federal Reserve used quantitative easing during the 2008 financial crisis and more recently in 2020 due to the COVID-19 pandemic crisis thus causing its balance sheet to reach $7 trillion and growing.

This QE is the U.S. Treasury’s answer to runaway inflation but it’s also created confidence propped up on paper lacking any substantive support.

Investment vehicles that previously had decent returns (savings accounts, CDs, etc.) now are a loser’s game. The increased circulation of de-valued cash printed to once save us is now simply a liability of dilution that, once in circulation, cannot be taken back.

Remember Einstein once stated that, “In the midst of every crisis, lies great opportunity.”  

You can sit on the sidelines like many waiting for things to “get back to normal” or take advantage of the opportunity that these exceedingly low interest rates offer.

“Be fearful when others are greedy, and be greedy only when others are fearful.” – Warren Buffett

The savvy investor will utilize this lucrative loophole while available to borrow at these low interest rates and invest in assets that provide a HIGHER return than borrowed against.

Basically what they’re doing is simply capitalizing on “how to short the dollar” for significant profit.

What Does It Mean To Short Something?

Shorting something reminds me of the “Don’t Pass” bet when playing craps.

Typically players who use this bet are normally known as “wrong” players as what they do looks like betting against the shooter, who is considered a “right” player.

The Don’t Pass bet is the opposite one of the Pass bet, which basically means that the player loses if the numbers 7 or 11 come out after the dice is rolled

When using this bet, you’re hoping the dice will land on one of the “craps numbers”  (2, 3 or 12) after being rolled by the shooter.

The bottom line is that your betting “against the norm.”

This is similar to using the investment strategy “shorting” to profit typically in the stock market. In essence you’re betting than an asset class (stock, bond, etc.  metals, currency) will go down in value.

Remember that inflation causes cash to go down in value over time. This devaluation of the dollar index is slow but consistent. 

Occasionally investment advice that’s opposite of how most invest is to short the U.S. dollar index and trade it against other currencies or short stock indices.

If the asset decreases in value, the trader wins.

Commercial Real Estate Strategy

A friend of mine purchased a second home in Park City about a year and a half ago. His family loved spending time out West which completely through me off when just last week he informed me that he had decided to sell it. 

After I learned the profit he’d made I quickly understood why. Unless you’ve been hiding under a rock lately, you’re probably aware that across the U.S., major bidding wars quickly start as soon as a house hits the market.

And the winner is who has the most cash and can close first. Amazing. 

it appears that America’s housing market is over-heating as many regions are reporting record low inventory and days on market are now measure in hours.

Rental market

This situation is also affecting the rental markets. Demand for affordable housing is increasing and yet supply can’t keep up. This in turn causes rents to increase but this crisis also presents us with an opportunity.

Banks are continuing to offer ultra-low interest rates in light of these conditions. Now that you’re aware of what’s happening, does it continue to make sense leaving cash locked up in a stagnant savings account or invest in assets that are financed with these low-interest loans? 

Don’t forget about travel 

We went on our annual Easter beach trip to the Florida panhandle area and were taken aback by the increased numbers of visitors.

Beaches and restaurants were overflowing with tourists and when I asked the condo manager about it, she stated, “People have been cooped up for a year. Now that they have a pocket full of stimulus money, they’re starting to release their pent-up frustrations.“

The 2020 pandemic has had a negative financial impact causing many hotel owners to sell at huge losses. Again, this crisis presents a time-sensitive opportunity as the number of distressed hotels hitting the financial markets are on the rise.

Savvy investors will continue to be on the lookout and quickly pick up these deals as they’re well poised for strong returns as more Americans are traveling due to building confidence via the Covid-19 vaccinations. 

3 Top Real Estate Advantages

Regardless of the current economic cycle, real estate will always remain a constant asset.  Advantages of real estate investing include:

#1 Cash flow

As a doctor that used to rely on ONE income stream, it makes sense to invest in assets that provide cashflow.

I first learned about the power that additional streams of income can provide from the book Rich Dad Poor Dad.

Cashflow is the return on capital that you’ve invested into a property left over after paying the expenses.

In our passive investments, the cashflow comes in the form of monthly distributions (checks) whether I treat patients or not.

#2 Tax benefits

Usually the main reason millionaires invest in real estate is due to depreciation. This is one of the most powerful wealth building tools from an unlikely source – the IRS. 

As most tangible items lose value over time (i.e. computer), the IRS allows us to take a tax deduction for that declining value (depreciation).

Even though real estate typically appreciates over time, the IRS still allows taxpayers to claim this deduction which will REDUCE your tax burden.

#3 Mortgage paydown

Syndicators typically fund investments via capital from limited partners and debt.

The debt obtained is similar to a mortgage on a personal residence except in a syndication, tenants help to pay off the mortgage.

These loans also are non-recourse. No personal assets can be taken but rather only the financed property in the event of foreclosure. 

You Must Spend To Win

If you’ve been eyeing a particular pair of shoes, do you run out and buy when the price goes up? Of course not.

We’ll gladly spend money once they go on sale because we know we’re getting a bargain.

The same thing happens in the market when U.S. stocks start to decline. We win buying low.

Here’s the big opportunity that most Americans aren’t aware of – money being loaned for commercial real estate is a huge bargain. 

Instead of saving your hard earned money in a savings account with a paltry interest rate, consider investing in an asset that outplaces inflation.

Assessing the cost of borrowing in light of the market direction of currencies is an example of how to short the dollar.

The trillions of dollars being “given out” by our government will eventually cause a rise in interest rates making it prohibitive to borrowing money.

Will Real Estate De-value?

You maybe asking yourself, “With the current economic climate, will the declining dollar cause real estate to de-value?”

Maybe so. But you must realize that in any economy, your tenants still need a place to live and have to continue to pay rent.

When you take advantage of shorting the dollar before it crashes, you’re in a stronger position against tenants whose monthly expenses increase/remain the same as their income’s buying power  withers.

The Sky is Falling!

I can assure you that the media will try to enlist fear in light of the coming devaluation of the dollar.

Instead of getting nervous, why not learn to profit no matter what the market conditions even when the dollar begins to devalue.

When investors begin selling at a loss, learn to borrow against their fear and profit during a recession.

Smart money always adapts and you must as well to ensure a positive financial future.

Bottom Line

As stated earlier, an uncommon method to short the U.S. dollar is strategically using debt to finance real estate via a mortgage. Using leverage to invest in real estate is one of the keys to building wealth quickly.

When someone takes out a mortgage for an appreciating asset, they’re essentially “locking in” their payment which will stay the same during the course of the loan.

Regarding the time value of money, the mortgage payment, which is worth MORE today, has more buying power than 10 years later. Usually rents go up over time yet the mortgage payment stays the same.

Remember, the longer the length of loan the better. 

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