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Inflation is a topic that seems to be at the top of everyone’s mind today. In a recent poll conducted by the Pew Research Center, seven out of 10 Americans named inflation as our country’s top problem.[1] It may be easy to see why so many people feel this way. In May, the annual inflation rate exceeded many expectations and rose to 9.1%, the highest annual increase in more than 40 years.[2]

This is well above the Federal Reserve’s target rate of 2%, and the inflation that was once called “transitory” by the Fed now seems that it may continue through the rest of the year. So, what exactly has contributed to these historic inflation levels?

WHAT IS INFLATION?

Inflation is defined as the continued increase in the price of goods and services and is, at its core, an issue of supply and demand. There are several sources which have affected current supply and demand levels, including:

  • A shortage of workers across industries – Lack of employees and a strong demand for labor has led to increased wages and higher labor costs.
  • Increased post-pandemic demand for goods – With government support and amassed savings, consumers are spending more.
  • Lack of goods – Reduced production and shipping backlogs related to the pandemic have caused a decrease in goods available.
  • Fiscal and monetary policy – Interest rates were left at near zero percent for two years before the recent rate hike.
  • War in Ukraine – The war has led to a shortened crop season in Ukraine, and many countries have become less willing to purchase Russian oil, causing higher commodity prices.

Inflation has impacted nearly every industry, causing prices to rise across the board. Food prices have increased 10.1% (the first double digit increase since March 1981), airline fares have gone up 37.8% and energy prices have risen 34.6%. In June, the highest national average gas price in history was recorded at $5.016 per gallon.[3]

Inflation tends, however, to affect different asset classes in different ways. For example, inflation generally has a negative effect on assets with fixed, long-term cash flows, such as bonds or CDs, but real assets, such as real estate, historically have performed well during inflationary times.[4] For some investors, investing in real estate may seem out of reach, but one possible area to look to during volatile times is secured notes. However, secured notes do not protect against losses or guarantee returns.

WHAT IS A SECURED NOTE?

A secured note is a type of loan backed by the assets attached to it as collateral. Due to the collateralization, it is often considered less risky for investors, but there is always a certain level of risk with every investment.

Secured notes backed by a pledge of real estate promote offer many potential benefits for investors, especially during the current market conditions, including:

  • Potential for higher returns than many other investments with a shorter time commitment. For example, the Integris Secured Credit Fund offers a 10%[5] annual fixed interest rate over a 24-month term.[6]
  • A passive way to hedge against inflation. An investor in secured notes essentially acts as “the bank” and receives payments as the borrower pays off the loan.
  • An opportunity to diversify with limited exposure to stock market uncertainty.
  • The ability to invest in real estate without dealing with renters. With notes, an investor owns the loan, not the property. In this case, an investor does not have to deal with maintenance or other tenant issues and generally works with someone who has an equity stake in the property. This helps to avoid the “month-to-month” mentality of renters.

Depending on your goals, investing in real-estate-backed secured notes may be an attractive opportunity in today’s market. Please email us at info@integrisinv.com or call at 84-INTEGRIS to learn more about our Integris Secured Credit Fund now.

 

This article is for informational purposes only. The effectiveness of any of the strategies described will depend on your individual situation and on a number of other factors. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor.
For accredited investors only. This information is neither an offer to sell nor a solicitation of an offer to buy any security by any person in any jurisdiction. Offers and sales shall be made only to persons who qualify as accredited investors under applicable U.S. federal law and only pursuant to a confidential offering memorandum (the “Memorandum”) and subscription documents setting forth definitive terms of each investment opportunity. An investment in a limited partnership involves a high degree of risk and is speculative as described in detail the Memorandum for each investment opportunity, including the possible loss of your investment, and is illiquid with an uncertain liquidity date. Past performance is not indicative of future results. Securities offered through Shopoff Securities, Inc., member FINRA / SIPC.
[1] Doherty, Carroll and Gomez, Vianney. “By a Wide Margin, Americans View Inflation as the Top Problem Facing the Country Today.” Pew Research Center. May 12, 2022. https://www.pewresearch.org/fact-tank/2022/05/12/by-a-wide-margin-americans-view-inflation-as-the-top-problem-facing-the-country-today/ 
[2] “United States Inflation Rate.” https://tradingeconomics.com/united-states/inflation-cpi
[3] “National Average Gas Prices.” AAA. 7/4/22. https://gasprices.aaa.com/
[4] “Effects of Inflation on Investments.” U.S. Bank. August 6, 2021. https://www.usbank.com/financialiq/invest-your-money/investment-strategies/effects-of-inflation-on-investments.html
[5] 10% per annum, non-compounded, payable no less frequently than quarterly. First payments commencing with the period ending on September 30, 2022.

[6] 24-Months or less term. May be prepaid at the Manager’s discretion. (If prepayment occurs within 9 months of the Offering Termination date, Investors are entitled to payment as if the note was repaid 9 months after the Offering Termination date.)

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