Why Real Estate Investors Need to Pay Attention to Inflation, the Economy, and Yield Curves

About a year ago, I wrote a blog post titled “The Inflation-Deflation Debate and What It Means for Real Estate Investors.”  One of the questions I raised at that time was whether or not consumer price inflation would rise and force the Federal Reserve’s hand in raising interest rates and tightening liquidity.  More importantly, if this happened, what could be the potential consequences?  We now appear to be at that point so I thought it would be worth revisiting.

No one can argue that we are not currently experiencing significant inflation.  Whether it be energy, food, shelter, or services, we are all paying significantly more for things than in the past.  The debate, however, remains as to whether these price increases will be relatively transitory, or more permanently imbedded in our future cost structure.  The camp arguing that inflation is transitory continues to shrink with each additional CPI release, which happened to come in at 7.5% last week.  More and more, it appears the Fed may be behind the curve in containing inflation. 

Pressure to take action continues to increase as other central banks around the globe have begun rate-raising cycles.  Not too long ago the consensus was for three, or maybe four, rate increases in 2022-2023.  Now some are predicting seven increases during 2022, and even the possibility of a 0.50% raise at the March meeting.  Public pressure is mounting, and the fact that this is a mid-term election year further complicates the decision-making process.  Political polls show inflation as the electorates’ number one concern at the moment and projections do not look favorable for the current majority party.  You can expect continued pressure from President Biden and other Democratic leaders on Federal Reserve Chair Jerome Powell to “do something” about inflation.  The question in the back of everyone’s mind is: what are the consequences?


The Importance of Yield Curves

As I touched on last year, because of the fragility of the financial system, the Fed may be in a very difficult position if it is required to fight inflation.  I won’t rehash all the reasons for that here, but we are starting to see more indications of this risk materializing.  One indication is in what is commonly called the yield curve.  Simply put, the yield curve measures the difference in yields of treasuries of different maturities.  In a normal environment, short-term debt will yield less than longer term debt, and the yield curve will slope gently up and to the right.  However, when a yield curve flattens, and even inverts, it is often cited as an indication that something is wrong in the economy.  It is frequently noted as a sign of a looming recession.  Recent market activity is showing the yield curve flattening significantly and the spreads between short- and long-term treasuries narrowing.  Below is a graph of these spreads for two- and ten-year maturities over the last five years.



How the yield curve reacts over the next few months could be very telling.  We have seen pretty significant change early this year as the pressure to raise rates to fight inflation has increased.  Short-term rates are up considerably.  But what is the long end of the curve trying to tell us?  If there is this much pressure building on the short end of the curve where the Fed’s typical actions have more control, the long end might be saying the economy can’t handle it and that the risk of prolonged higher interest rates isn’t going to materialize.  Because of the over-indebtedness of the system and its reliance on cheap credit, many think that any significant rise in rates and/or draining of liquidity will force the economy into recession. 


Another Dilemma for the Fed

This is the predicament the Fed has created with its prescriptions following the last crisis.  It has created a financial structure so dependent on cheap credit and excess liquidity that it cannot fight inflation without destroying the economy.  Instead of the financial markets reacting to the economy and its prospects, the financial markets appear to have become the economy.  An attempt to drain liquidity from the markets would force the economy into recession.  The decreasing spreads back in the 2018-2019 period when the Fed last attempted to “normalize” can be seen in the chart above.  Significant cracks resulted in the credit markets as the high-yield markets all but dried up and the repo markets went haywire.  It quickly had to reverse course as the economy was showing signs of rolling over and many think the pandemic provided it cover to abandon its change in policy.

Politically, it may be a choice between the number of people affected by inflation (the whole country) or those who own financial assets (a much smaller subset).  The discussion between President Biden and Fed Chair Powell regarding the choice between killing inflation or the markets and economy will be an interesting one.  Let’s hope that’s not the case and the Fed can find an effective way to navigate a narrowing path between the two.  We can hope as supply chains free up and some normalcy is restored to the economy that inflation finds a moderate and tolerable level so that economic growth can continue.

Invest with caution

As real estate investors, we need to be mindful of the potential consequences.  Whether it be from killing inflation or the economy, we should expect the outsized rent increases that we have seen in recent years to abate.  Over the last year, many national numbers peg percentage rental increases into the high-teens.  Remember, going forward, many of these increases are baked into the income numbers presented to purchasers.  Will there be a reversion back to a lower level, a plateau with minimal future increases, or continued significant rental inflation?  Or have rents reached their upper limit because of a lack of tenants’ disposable income while other operating costs continue to soar?  Will the capital improvements budget in the value-add business model be sufficient when lumber and other construction inputs are three or four times higher than they were a couple years ago?  What if those value-add rent increases are unattainable because we are already at the upper limit of the rental market range?  What would that look like in the proforma?

As passive investors, we need to consider these factors as we vet future deals.  Paying attention to sensitivity analyses and break-even occupancies to assess worst-case scenarios will be of utmost importance.  Investing with experienced operators who have successfully weathered downturns in the real estate cycle should also be strongly considered. 


Tom Borger is a real estate investor and developer in Northern Indiana.

Nothing on this website should be considered financial advice. Investing involves risks which you assume. It is your duty to do your own due diligence. Read all documents and agreements before signing or investing in anything. It is your duty to consult with your own legal, financial and tax advisors regarding any investment.

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

Contact Us

Stay Connected!

Sign up to be notified of our latest articles and meeting announcements.

Stay Connected!

Sign up to be notified of our latest articles and meeting announcements.