This is not a boring question as we all want to believe. I’m not a catastrophist, but authoritarian regimes have become bolder over the past few years. Just look at Russia’s invasion of Ukraine or China’s growing threat of “unification” with Taiwan.
i recently read The fourth turning point comes Written by historian Neil Howe and found his arguments convincing. In one sentence: Human culture repeats the cycle for four generations, eventually leading to a major crisis, an existential threat. This crisis usually takes the form of an all-out war.
The last generational crisis began with the Great Depression and peaked with World War II. Howe believes that with the Great Recession, we entered an era of generational crisis, Witness its evolution with the rise of populism and political polarization,as well as The decades-long deterioration of our institutions has left many of them nearly dysfunctional. In a timeline of these cycles, Howe proposes that we are just a few years away from the climax of this crisis phase: most likely a large-scale war.
Every month, our SparkRental Passive Real Estate Investing Club get together to discuss this Risks of Different Real Estate Investments. we never discussed Risk of war, but if war were coming, we would certainly do it.
Reasonable people may disagree about the likelihood of a large-scale war because exist A nation that mobilizes America over the next decade. But the risk is not zero. It exists as a risk factor, no matter how small or great. As a real estate investor, what do you expect from a massive war?
History will repeat itself sooner or later. Here’s what we can learn from it and eight factors we need to consider.
1. Higher tax rates, fewer tax breaks
The price of war is high–not just in human lives, but in cold hard cash. It costs a lot of money to pay troops, small arms, tanks, jets, bombers, drones, artillery, ships, submarines, aircraft carriers, missiles and all other war equipment.
Someone has to pay for all this. That person is you, as a middle-income or high-income taxpayer.
Earners in the highest tax bracket during world war ii Paid a dizzying 94% income tax. And the band thresholds move downward, so more taxpayers fall into higher income tax bands.
We can expect the same to happen with funding for war. We can foresee tax loopholes and common Tax breaks and deductions will disappear.
For example, Mortgage Interest Deduction and Chapter 1031 Exchange Can Both Evaporate overnight. Estate tax and lifetime gift tax exemptions will almost certain down to a fraction of current levels.
Uncle Sam might even start imposing new taxes on Americans, such as an annual wealth tax. The progressive wing of the Democratic Party has been clamoring for this for years, and a cash-strapped administration will do whatever it takes to find the money.
2. High inflation
The federal government is spending (and possibly printing) huge amounts of money that will have a predictable impact The dollar depreciated.
High inflation also helps governments reduce real The value of its existing debt. That’s great for Uncle Sam, but not very good For Americans who don’t want their savings to be wiped out by inflation.
During World War I, the cost of some materials tripled or quadrupled on price. Take the price of steel as an example, Soared 334.6%. Inflation also soared during the early years of World War II (10.3% at the end of 1941 and early 1942), then the federal Implement manual controls to contain it. For example, they limit wage increases to no more than 15% per year.
This worked for a while. but immediately them Remove these controls and inflation soars once In 1946 it again reached a terrible 28%.
That’s the problem with government economic interventions: they can’t artificially curb markets for long periods of time.
3. Low interest rates
The combination of high inflation and low interest rates may sound counterintuitive today, but governments simply When it tried to finance the war, it was unable to pay the high interest on its debt. Its priority shifted from managing inflation to managing the cost of debt.
it took place in world war 1it happens in World War II, that’s what will happen the next time America goes into total war.
4. Declining demand for housing
what happens exist Economic difficulties? To save money, friends and family moved in together. it is This phenomenon, known as family bundling, was evident during recessions and wartime hardships.
Now imagine huge A certain percentage of men (and some women) between the ages of 18 and 45 suddenly exit the housing market and find themselves in trouble. They’re not renting studios or one-bedroom apartments anymore, that’s for sure. The romantic partners they leave behind may move out of houses and apartments that suddenly become too big and share them with friends or family.
All of this puts downward pressure on real estate. This is why the United States Housing prices plummeted during World War II.
5. Risks of tightened housing supervision
In SparkRental’s Co-Investment Club, we Do take Local Landlord and Tenant Law Consider as a risk factor when we discuss Potential Transactions. Anti-landlord supervision increases investment risks.
The federal government has set a precedent by imposing a moratorium on evictions during the pandemic. Some state and local governments extend federal moratorium it’s over. Now that it has become the playbook for all levels of government, I no doubt That Eviction moratorium will rear its ugly head again sooner or later.
This is just one striking example of potential regulatory risks. Last time the federal government froze all new housing builds develop. exist 1942, Order L-41 issued by the War Production Board halted all private residential construction.
Remember how governments artificially controlled inflation during World War II? One way they do this is by limiting rent increases. Exceed 80% of rental properties Suddenly rent controlled.
These are just the tip of the iceberg of regulatory changes that have come before. Who knows what new regulations will emerge in the next crisis?
6. Tighter lending and credit
I asked my friend Kerry Sherin have She considers the risks to real estate if a major war breaks out. She immediately focused on the tightening of credit markets,explain: “Typically, banks and financial institutions tighten lending standards, making it more difficult for investors to obtain funding for property development or acquisitions. Borrowing costs could increase if central bank raises interest rates working hard Fight inflation. These issues may limit investor activities and have negative impact real estate market.
7. Reduced demand for retail and office space
Nearly half (45%) Young man serving in the army in World War II. Exceed One-third (35%) of older men born in 1900-1910 also served.
Those people no longer go to work. They no longer go to restaurants, cafes or bars. They no longer buy clothes, furniture or watches.
Of course, their wives and girlfriends stayed. Some people work in manufacturing and office jobs. But many people have less to spend than they actually spend previousy—pRivaters in the army earn Much less than bankers and manager and Marketers and writers.
How do you think this will impact office real estate? What about retail stores and restaurants?
8. Strong demand for industrial real estate
During World War II, the military-industrial complex went into high gear – emphasizing “industry.”
One month after Pearl Harbor, President Roosevelt founded war production board. Its main purpose is to transform civilian manufacturing into of production War supplies.
Industrial demand and production surged. That doesn’t mean it’s all rainbows and butterflies for industrial real estate owners – in many casesindustrial Businesses no longer have control over their own destiny. But the properties themselves have a lot of demand and use.
Where to invest money in major wars
if do you know someone main war is comingwhat will you do with your money??
The most obvious answer is to move money away from investments that are vulnerable to inflation and into precious metals like gold and silver. Precious metals have been used many times as a hedge against risk Both Inflation and geopolitical uncertainty.
possible cryptocurrency meeting It would be much better if by then they were more useful as real money and less useful as speculative investments.
In SparkRental’s joint investment club, we have been cautiously optimistic about industrial real estate in the current market. If you can stomach the risk that your property could be exploited by Uncle Sam, this also seems like a safe bet in a war situation.
I would also like mobile home Parks as the ultimate affordable housing. In war, owners can potentially Protect yourself from the worst of Leasing the land instead of park-owned housing poses regulatory risks.
Campsites and low-cost vacation rentals stand good performance. people Might earn less, but They still need to escape town regularly.
What about stocks? It turns out main War doesn’t disrupt the stock market as much as you might think. Of course, the stock market crashed on the eve of the war, but Then They bounce back surprisingly fast. it appears The initial fear at the beginning of the war was a good It’s time to buy the dip.
at last, There’s no harm in having it A second passport or at least a second residency. My wife and I lived overseas for nine years Now, we Have long-term residency in Brazil until 2029.
final thoughts
In a major war, the most worrisome risk is not that your portfolio declines by 30%. You are drafted into the army and then die or lose your home, family or life in an attack. only Put it all into perspective.
In some cases, there will also be a strong social expectation that you support the war effort in meaningful, practical ways. A bit Sacrifice yourself. rugged individualism no celebration In wartime – quite the opposite. As a real estate investor, you need a good explanation of how you support the war effort.
Few people alive today have experienced total war. When it inevitably arrives, whether five years from now or fifty years from now, it will turn our society upside down again. The rules of the game can change in an instant, and anyone who still plays by the old rules will quickly lose their fortune.
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