In this episode, Jason Hartman shares what’s happening with the home builder stocks. He explains why the rising rates are not as impactful as a lot of people think. Afterward, Jason plays a recording of Adam providing a portfolio review. These are actual profit and loss numbers that are from properties bought through the network.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11, states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:52
Welcome to Episode 1663 1663. And one other way to judge the housing market? Well, there are many ways, but one way is to look at home builder stocks and interest rates, of course, because these are very sensitive, just as the housing market is to interest rates in general. But you have heard my enormously gutsy and neat I say brilliant prediction about what will happen with interest rates? No, it’s not the same bad prediction I made on interest rates 1617 years ago, no, this is a different kind of interest rate prediction, my bad prediction years ago, which I freely admit, I was wrong. Wrong. Wrong. Wrong. Jason, you were wrong. Yep, bad, bad work. That prediction was that interest rates would be higher. And yet, they have only gone lower. But we did have to severe economic crises in there to push those interest rates down. You never know it’s so hard to tell. Interest rates are a tough thing to predict. But But this prediction, as you will recall, is simply this interest rates will go up, because now there’s almost nowhere else for them to go. Right. That’s the first prediction. And it will cause people with these incredible mortgages, the 10s of millions of people that have either refinance, or purchase, it will cause them to hodl like the Bitcoin people that don’t sell right, that that funny word that they made up, it will cause them to hold on to those properties. Not because they love the property so much, but because they love the mortgage so much. That mortgage asset will be duplicatable. It will be impossible to replicate, like the Mona Lisa, which is overrated. Until I watched a video over the weekend and I gained a new appreciation for the Mona Lisa. Do you know Leonardo da Vinci studied the facial structure of the human body. He went and looked at cadavers and studied them to see how the bones and the muscles around the smile work? Yes. That is why there is such controversy over the Mona Lisa smile. I never knew I went to the loop several times, I saw the Mona Lisa. And I thought, What’s the big deal? What’s so great about this, there actually is a lot of great stuff about it. I did not appreciate until over the weekend, when I watched a lesson learn more about it. You appreciate things more when you know more about them a lot of times, and that is the same truth that applies to the housing market, and the economy and the marketplace. You appreciate it so much more when you have a deeper understanding. And so that’s what we hope to share with you here on the show.
So from investopedia got their little newsletter and it says here, home builder stocks, underrated by interest rates, investors bought up shares of state street’s home builder index ETF x h B is the symbol today sending it to new highs. Meanwhile, interest rates climbed to yet a another high today as well. Now that you know compared to what is always the right question, because that high is still very low in the overall scheme of things. And remember, people are going to hole these super cheap mortgages they’re not going to sell their properties. That’s my prediction. This is going to further constrain inventory. See most people are thinking of this wrongly, wrongly. if they’re thinking of it wrongly they’re not going to win big lee that’s how trump would say it and scott adams the dilbert creator wrote a book called winning bigley which was all about trump another story there we won’t go down that rabbit hole but anyway it’s kind of funny when bigley they will hold these properties and they will further constrain housing supply versus everybody out there saying oh when interest rates go up the markets going to crash i know we’ve heard it all over and over again and they’re not completely wrong but they have to understand there is nuance to this they think that when rates go up well the market’s going to crash because people will be priced out housing affordability will decline that’s all true they’re right about that but they’re only looking at the demand side of the equation not the supply side and i say and i’m gonna be right about this if i’m wrong just come back and throw a pie in my face now just so you know i actually prefer pumpkin pie because of pumpkin pie a slice of pumpkin pie in the fall with a scoop of vanilla ice cream hmm that’s good stuff and i don’t even love ice cream that much but you know with the pumpkin pie it’s great maybe warm the pumpkin pie up a little bit after you take it out of the refrigerator and have a little scoop of vanilla ice cream oh that is so good so when you throw the pie in my face make it a pumpkin pie because that’s my favorite other than that um chocolate all day long but that would mostly be in the form of something else not a pie anyway so interest rates up right and what this article is saying the 10 year treasury right that’s the bellwether rate right the 10 year treasury has been climbing strongly since the start of the year creating a steeper you know what i’m gonna say yield curve we’ve talked all about the yield curve and what it means and when it becomes inverted what that means right you know we talked about that is that like is there a recession coming it’s been a good indicator and you’d have the dice that went up to because there is a recession in some parts of the economy certainly not in the housing market definitely on my forehead there’s a recession yeah i noticed that my forehead keeps getting a little bigger and the hair keeps retreating and right there’s a recession i’m telling you it’s a recession all right that is a steeper yield curve in the markets have seen in many years all right now what does that all mean well the article goes on to say as i’m just skipping down here it will be interesting to see if this dynamic continues even if mortgage rates which are typically tied to the tenure note the 10 year treasury the bellwether rate continue to rise this would spell a bullish move in that sector however it would be extremely unusual and the article says the bottom line as interest rates rise right along with homebuilding stock prices investors are signaling that they expect demand to continue even if the cost of borrowing increases it would seem to be a bullish indication for the market in general but some companies might find it challenging to manage the balance between supply and demand let me just interpret that for you here’s what so many people miss they don’t get it they don’t get it they’re not too smart when they miss this here’s what it is they assume that there is a certain kind of a parity between a particular house and a particular buyer of that house but that is just wrong wrong wrong why is that wrong the article says they think they’ll see demand continue even if the cost of borrowing increases well yes it will be demand but not from the same person or the same family buying the house you know you commonly get this question with this sort of very shallow thinking that look our brain takes a lot of energy and i get it thinking is hard work you know i think it’s been said that of your whole body right all the stuff that your body uses energy for that instrument, the most incredible instrument in the universe, between your ears consumes about 20% of all of the energy in your body, you wouldn’t think that thinking would be such hard work, such energy consuming work, but it is, it is really, really hard work to think. So, we will typically ration our energy. And we won’t push ourselves to think think think it’s the most productive work, it’s the most rewarding work. But it also really does consume a lot of energy. So people have shallow thinking a lot of times they don’t think about this stuff. And in this example, what they’re not thinking about the thing that is the the unseen, right, the unseen thing that they’re not thinking about is there’s not a parity with one house one buyer. So for example, today, you’ve got someone out there looking at a $200,000 house, maybe they’re a couple, and they got two kids, right, you know, the typical nuclear family. And so they’re looking at this $200,000 house, but then interest rates tick up 1%, making that $200,000 house, basically 10% more expensive.
Okay, so what do they do? Are they still a buyer for that house, maybe they can no longer qualify for it. So they still have to look for a another house, but they will no longer be able to afford the same house with the extra bells and whistles that the old one they could have afforded had because interest rates went up and affordability declined. That’s the thing that few people really pay attention to. They somehow assume there’s this parity, if you look at the socio economic ladder, and you’ve got, say two ladders side by side, when I do live conferences, for those of you who’ve seen me speaking live, you may have seen me draw this on the whiteboard. You know, there’s these two ladders side by side. Well, people move up and down the socio economic ladder, and houses move up and down the other ladder in terms of what can be purchased at what price. So the fact is, when rates rise, and if supply, demand is still out of balance, causing prices to either hold or continue to rise, even in a rising rate environment, which certainly has happened many times throughout history. If that happens, it simply means something has to give what has to give for the homebuyer, well, standard of living, the standard of living has to decline, they’re just not going to get as much as they were going to get in the past. And that’s the way it works. So there’s no parity between the same consistent homebuyer, in the same consistent home. Those things are both dynamic. They’re both moving targets, and they change all the time. But if you want more money, and you want access to more money, here’s what you need to do. And we just did a survey on this. Last year, just about a year ago, this time, we offered a live webinar. And we’re doing it again, because we got some very nice comments on our survey. We had a whole bunch of clients sign up for this program. We did a survey and ask them what they thought about it. There are more results probably trickled in since I looked last time, because we just sent it out last week, but the comments were really positive. And so we thought we should do this, again, we’re doing another live webinar showing you tomorrow, how you can obtain up to 50 to even up to $250,000 in extra funding. Now, what could that buy you? Well, that could be a few more down payments on a few more properties. And it can be arranged as business credit. So it doesn’t even show up on your credit report. A whole bunch of our clients signed up for this. And now that we have the survey results back, a whole bunch of our clients loved it. So we’re gonna do a live webinar tomorrow. And then we’re going to do it again one more time this week. You just go to Jason hartman.com slash fund. This is brand new, it’s a live webinar, the founder of the company will be there to answer questions live. I did say that enough, right? That it’s live. Okay, you got that. And we got a couple different times for you. So just go to Jason hartman.com slash fund Join us for that webinar, you will really like it. And you’ll like how you can very easily obtain some extra funding for whatever you want. But hey, I would say you might want to buy a couple extra properties with that funding. But if not, you can buy something else. You can buy whatever you want. There’s no requirement on how you spend that extra funding. And if you learn how to work it, and work that system that they’re going to teach you on the webinar, you can make that interest free funding. It’s pretty darn cool. PB see pretty darn cool. PDC Yep. So join us Jason hartman.com slash fund.
Now, today, this is not your usual client case study. This is Adam, who now is one of our team members. But he was a client at first. And he bought a bunch of properties. And he is going to go over how his return has been produced on his portfolio. And you’re going to hear the good and the bad. And he’s really got specific calculations. So you’re really going to like this, you are really going to like this today. So without further ado, let’s go to Adam. And let’s hear a whole different kind of client case study that is way more specific. And I must tell you also, that since this was recorded this session with Adam, he has purchased a couple of other properties. One of them, he said he reached out to me maybe last week or the week before, and he says, Jason, I think this one deal that I bought through your network could be portfolio changing. It is a portfolio changing deal. It’s so good. So listening, here we go. Remember the webinar, Jason hartman.com slash fund. And here’s Adam.
You ready for the portfolio review?
Jason Hartman 16:59
Yeah, let’s do it. Let’s see what happened to you, Adam.
This is yes, these these are my personal properties, we got all the 2020 numbers, then Now obviously, there could be a repair done, you know, repair could be needed between now and the end of the year. But as of yesterday, or two days ago, when I put this together, these were the actual numbers for 2020 for each of our properties. Okay, so
Jason Hartman 17:22
we’re gonna see, we’re gonna see Adams real portfolio.
Okay, so this is our first one of our properties in Jackson, Mississippi, for the year, so I’ll explain a couple of the numbers. Number one, the cash on cash on the bottom right here that says 77.96. What I started doing in my spreadsheets is I have way too many data figures in my spreadsheets to begin with. But I started thinking, you know, what we look at how our, you know how the money we put into the stock market did in 2020 Why don’t I look at the money that I actually put into my property and 2020 did. So I started putting in all the money for repairs and pi, my total mortgage payment. And I just put my cash flow over it to see what percentage return on the money I actually put into the property got some it was something I did it was curiosity. So this property
Jason Hartman 18:14
Adam, this is this is incredible. So when did you buy this property?
Um, beginning of 2018
Jason Hartman 18:23
maybe Okay, so you’re almost three years old now. Okay. And did you refinance that property yet? No, we haven’t
refinance any of these.
Jason Hartman 18:34
Oh my gosh, it’s gonna get so much better when you refi Do you know your mortgage rate on this?
I’m pulling it up now. We we haven’t had it in the price point and the amount of money we have in it right now. Didn’t make refires the most didn’t make them make sense. At the moment.
Jason Hartman 18:53
Let it make sense now though.
Yeah, so we got so just so people who aren’t watching can see we
Jason Hartman 19:02
have a for the year we had a two watching and see I like that that’s that’s good.
Cash Flow on this property we made $4,853.88. And cash on cash for the year was 77.96%. And the lifetime cash on cash. So this includes closing costs. It includes every dollar we’ve ever put into the property is 24.29% and
Jason Hartman 19:31
24.29%. Overall cash on cash for the last three years. cash on cash return. That means the comparison of how much cash you put in to how much cash you got out. cash on cash return is a very simple metric. And that includes every dollar you’ve got into this in cash on cash return this year. 77.96% Adam even I is quite bullish right now not believe you so you got some you got some splaining to do as ricky ricardo would say i love that we got to get a sound effect of ricky ricardo say luzi you got some splaining to to
look at it this way we had 2% maintenance our mortgage payment is about $450 a month and our management fee is $50 our our interest rate on it is 4.75% and what is your rent our rent is $917 wow we’re looking at you’re getting $400 a month cash flow on average on this property and you’re looking at you know 500 $500 a month between mortgage and maintenance and then or mortgage and management and then 2% of that is is maintenance on this property so that’s how you get your 78% cash on cash for the year
Jason Hartman 20:59
yeah that is amazing and that is amazing
that was a note not all of them are this great the other one in jackson didn’t do so hot this one
Jason Hartman 21:07
here we go now we’re going to even it out and average the portfolio so what went wrong here
yeah so we had a tenant who stopped paying and did a lot of damage to the property and then it became vacant right at the start of COVID okay so it was vacant for three months and not an ideal time to go vacant yeah we
Jason Hartman 21:29
had taken two months in the COVID you would have been okay because the lockdowns would have lifted yeah and he would have had someone moving in there but yeah yeah
so maintenance this year with the rent we collected it was 35% now obviously that’s skewed by the fact that we didn’t have rent for four months but the cash flow we lost $2,516.93 it is it was a negative 31.61% cash on cash but lifetime for this property we’ve still got a 4.67% cash on cash return
Jason Hartman 22:04
okay so you definitely outperformed the best cd you could get at the bank by 500% or more but let me ask you a question is that crazy high maintenance number of 35% ouch okay let’s we need a sound effect for that bomb ouch that hurt but with that art is that maintenance or some of that capital improvements i would argue that i’m gonna guess you’re gonna say that some of that is capital improvement cap x that is going to last for many years to come that’s not maintenance only
okay so it’s it’s it’s every dollar that we spent on the property now it was
Jason Hartman 22:47
you spent it just you know did you put in new flooring new paint when we we had
to put new drywall we had to paint the house because they put holes and stuff
Jason Hartman 22:58
where they punched the holes in the wall like put their fist
there were huge chunks of drywall missing from the walls i don’t know what happened adam did
Jason Hartman 23:07
you file an insurance claim that’s an insurance claim
well it wasn’t enough to file an insurance claim but we did file a that we had a judgment against them and we went after him and we got some money back and we came to a settlement with them
Jason Hartman 23:20
Oh wow good and so tell us about that how much was the judgment for and how much did you end up settling for
So the judgment was for about 1500 16 $100
Jason Hartman 23:31
Yeah so they did it before we probably could have gone back to court and gotten a better judgment i think they just did the judgment before the courts closed down honestly and before we knew the total cost of the repairs but we got the judgment there and then all i did was i got the judgment and i googled you know rent collectors or you know collection agents like some agencies in jackson mississippi found one that had decent reviews contacted in their charge was $75 to start it and then 25% of collected money so i thought you know if i get 100 bucks out of it then i break even they went after him and i believe we settled for about half it was like seven or $800 they offered to pay and it wasn’t worth you know continuing the fight to risk not getting that money they said we can pay it today so i said take it okay good good okay so this maintenance also covers the new lease up fee every dollar we put into it
Jason Hartman 24:37
Yeah okay so you’ve still made money on the property but for this year you got some tax write offs there and i’m saying that in a sort of snarky way you don’t want to ever get that type of tax write off but let’s go on to the next property because we’re already almost at an hour here so
little rock this property we had to do some fixes to it to make it to qualify for section eight there are just a couple things that cost a little bit to get that up and ready to go so it’s still positive cash flowed $898.95 we made 11.65% on the cash we put in the property and then the lifetime cash on cash is at 3.15%
Jason Hartman 25:17
okay awesome congratulations so there you’re getting almost 12% annualized cash on cash and remember cash on cash doesn’t include inflation and do step destruction it doesn’t include tax benefits it doesn’t include appreciation okay so his return is considerably higher than that even on the bad property that had problems so you know he’s just doing straight cash on cash you know that’s a one dimensional return rather than the multi dimensional okay go ahead sorry the
first property we ever purchased through the network okay it is in memphis we had a 4.45% maintenance on the property we had a $3,728.36 cent profit for the year a 70.46% cash on cash return for the year one time cash on cash is 34.67%
Jason Hartman 26:16
awesome that is phenomenal
yeah this this property has been a cash cow for us
Jason Hartman 26:22
and how long ago did you buy that one
four years ago
Jason Hartman 26:26
okay so four years yeah so just so you know adam why don’t you tell them your story how you came to know us and you know came to start investing with us and then you came to work for us you know you’re i mean you’re you’re helping clients you’re part of the team
yes so we were introduced by narration which a lot of people probably know is another one of the investment counselors i started editing the podcasts and i’ve learned about real estate some over the years i used to work at a financial radio station and so we had real estate shows there and i was curious about it and but once i started editing all your podcasts and hearing all your interviews i thought well you know this this could make sense you know i i needed to learn more about it so i started learning more and more about it and then one day aaron and i were my wife we were discussing how we were actually going to make retirement work and you know stock market who knows you know and so we thought you know maybe we’ll we’ll buy a property and so i boxed you late at night one night and you responded and told me you know what you’re invested in the stock market when’s the last time you went and you know checked out their books and visited their their site yeah so then we decided to buy this property said you know what’s the worst the worst case scenario this was a cheap property this property was $53,000 when we
Jason Hartman 27:45
wow $53,000 now if anybody lives in california or new york or you know south florida and they’re looking at the year just incredible yeah
so so we decided you know worst case scenario it burns down to the ground we still haven’t lost a ton of money on it right that obviously would hurt it’s not the worst case
Jason Hartman 28:08
people when they have a disaster like that they make money on their insurance claim so you know it’s it can go down though
yeah we started buying and loved it and started getting good returns and eventually jason and i talked and i thought you know what i want to help other people build their portfolios because i’m really i mean look at these numbers i’m clearly enjoying the returns that we’re getting on the on the money we put in so far so that’s kind of my short and sweet story so our other our second memphis house this one had another vacancy we had to do some some repairs to it i was not this some of this was also like we had replaced a refrigerator on it we had to do some make ready way to do some yard work on it and we then i like i mentioned before we also have our rent our lease up fee included in the maintenance just because that’s i should just put expenses instead of maintenance but so we had an 18.27% expense on the property it’s still cashflow $813.84 we still made 22.76% on the cash we put in in 2020 and lifetime for the property we’re at 8.79% cash on cash
Jason Hartman 29:22
wow you know i mean if you just i even folks let’s not even get greedy here well let’s get greedy we might as well but if you can make 810 12% a year for several years you’re killing it i mean you killing it you don’t have to make 34% like one of adam’s other properties or 76% like the other one you know just eight to 12% you’re gonna do great i mean now that depends on the inflation rate over that time period as well but it’s pretty good yeah congratulations wow do things to adams numbers are great and put a thank you in the comments and any questions for adam sharing this personal stuff so thank you adam
yes our final memphis property this one did pretty well it had a maintenance of point five 9% literally all we paid for was the walkthrough inspection on this property this year cash flow of $3,614.92 a 39.68% cash on cash for the year and a 22.15% lifetime cash on cash but this property since we’ve purchased it has appreciated approximately 40% so it’s been it was in a nice area and it’s appreciated great so all in all for 2020 these six properties got us $11,393.02 and cash flow we made 34.88% on the money we put in and 2020 and we get to depreciate $17,160 on our taxes wow so we lost five and a half $1,000 according to the irs
Jason Hartman 31:07
Okay adam first touching and then and then that is awesome congratulations and thank you so much for sharing that that’s that’s really it’s just great to see and by the way folks i didn’t know what adam was gonna go through when we started this today you know i just sort of leave it to him and you know he that’s the first time i’ve heard him talk about this so that. That is awesome i love it i love it or we’re spontaneous here and and robert says thank you adam so so that’s great and we’re getting some other good comments anything else you wanted to go over adam before we wrap it up do you have any more in your deck there
Nope, that’s it. The next slide is just the thank you.
Jason Hartman 31:58
All right. Well thank you to everybody. We really appreciate you joining us.
Thank you so much for listening please be sure to subscribe so that you don’t miss any episodes be sure to check out the show’s specific website and our general website hartman mediacom for appropriate disclaimers and terms of service remember that guest opinions are their own and if you require specific legal or tax advice or advice and any other specialized area please consult an appropriate professional and we also very much appreciate you reviewing the show please go to itunes or stitcher radio or whatever platform you’re using and write a review for the show we would very much appreciate that and be sure to make it official and subscribe so you do not miss any episodes we look forward to seeing you on the next episode
In this episode, Jason Hartman describes the sad state of retirement savings in the USA and explains that retirement saving recommendations overlook inflation’s impact. The second part of the show is a client case study with Curt Moe. He shares why he started looking into real estate, explains the importance of overcoming limiting beliefs, and expresses how cash flow has helped him in his life.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:52
Welcome to Episode 1673 1673. Thank you for joining me today. So the nagging question is how much have you put away for retirement? Actually, given our brilliant listeners, I bet this is not a big worry for you. But if we have massive inflation, which finally, as Jason Hartman has been saying, for quite a while, it seems like the popular consensus is that that is coming our way. Now, I guess last year, was the straw that broke the proverbial camel’s back, right? When you print 20 to 35% of all dollars ever created? Ever. In one year, people are starting to believe there might be a problem. Hashtag hungry, hashtag why Mar Germany, hashtag Zimbabwe? Hashtag Argentina hashtag Venezuela? Why do you put hashtags in front of them? I don’t know. It’s just kind of cute. Go on Twitter and search those hashtags. You’ll see it. But the question is, that’s a moving target. Now, the numbers I am about to share with you, ladies and gentlemen, do not mean cash. Well, I don’t think they mean cash. The sources I’m getting them from, don’t say, but I just think they mean available wealth that is convertible to cash in a reasonable amount of time. So I would include equity in real estate. But remember that equity is a moving measuring stick to because it becomes debased by inflation. And, of course, it becomes potentially at risk with market cycles. And that’s why you will engage in the Hartman, equity stripping refi till you die strategy. Because we have talked about that for so many years now. And you’re doing it, you’re doing it, you’re taking advantage of it. Okay. So let’s look at some numbers. So I found a chart from one of these financial planning outfits. And it talked about, you know, the amount of money people should save based on their age, and they’re doing it as a multiplier of income.
Now, the methodology, you know, I don’t know how they arrived at this, but I would assume this is somewhat, and I think it’s a reasonable assumption, that it’s somewhat industry standard, if you will. So by age 31, time, your income by age 43 times your income 55 times your income 67 times your income 79 times your income. So you see that this is not any kind of a one for one ratio here, right, but by at 11 times your income, and based on the typical income of they’re saying about, you know, household median incomes about 61,000. So, if you’re 30, you got 60. Well, 62,000 in the bank, hopefully, or saved in one way or another, your 40 180 886,000 if you’re 50 310,000, if you’re 60 $434,000 if you’re 70 $557,000 if you’re at $681,000. But I don’t believe this really counts for the ravages of inflation, which is on our doorstep, I would say on the doorstep, waiting outside waiting to come in. And Rob our house, our house of wealth will be robbed by the burglar casing the joint. That’s that’s inflation right So, what is the actuality? Right? what is reality? That’s the recommendation. Okay. But what’s the reality? Here’s where we need to get really, really concerned. Why do we need to be concerned? Well, number one, if you’re like me, you don’t want to live in a banana republic. No, that’s not the store, which by the way, I highly recommend I do shop there myself, check out the Lux touch t shirts. They’re the best. And they’re not expensive either. So I recommend, boy, how much did Banana Republic just make off that free advertising I just gave them. You know, I hope they send me a gift card, because I’ve earned. Okay, anyway. So by age 40, to 49, right in that 10 year span. So this could be essentially an almost 50 year old 41% of those people have less than $50,000.
Now, some have more, but I’m going to go with the downside. The banana republic, by the way, is obviously a country where you have a small number of people who are very rich, and the masses who are very poor, and there’s no middle class, that’s a banana republic, the US, as I’ve been saying, for 20 years is quickly becoming a banana republic. And California specifically, is really becoming a banana republic much more quickly than many other states. But I like a big middle class, I don’t like a banana republic, look, even if I’m rich, I don’t want to live in a banana republic, because it’s not pleasant. I want my fellow citizens to be doing well and enjoying a nice lifestyle. And, you know, having that big stability of a big middle class, that’s a much better world to live in. I mean, the old saying, right, even if you win the rat race, you’re still a rat. Well, particularly true in banana republic countries. Now that, you know, that old saying really refers to people who are still on the treadmill and haven’t created wealth through investments following our plan. These are people that are on the treadmill, and they earn money, and then they spend it all and they buy expensive toys, and those are depreciating assets and luck. You can buy those depreciating assets if you want, but only after you have other assets that will pay for them for you. Right? That’s the thing. Don’t become debt laden with the appearances of wealth without having the real wealth to back it up. That’s the key. Okay, so 41% of the country from age 40 to 49 years old, has less than $50,000. Okay, ages 50 to 59 37% of the country has less than $50,000. Now compare that to the recommendation. So the 40 year old should have $186,000, the 50 year old should have 310,041%. You know, granted, I’m looking at two different charts.
So they, uh, you’re either way, irrelevant, right? But 41% has less than 50 grand. And then when you go to the next decade, if you’re 60, you should have $434,000. Well, guess what? 37% have less than 50,016% in that same cohort has only 50 to $99,000. Okay, let’s go to the 60 year old 69, cohort 28% less than $50,000. Wow, that’s really, really sad. And so let’s look at the 70 number. Nine times income. $557,000 is the recommendation. And 28% have less than 50,000. Now remember that less than number could mean they have $1,000. It just has less than 50,000. It doesn’t say how much less? Right? That’s the lowest segment in this chart I’m looking at. So folks, things are dire. For many, many people. The best way to help the poor is don’t be one of them. And you know that sounds like a sarcastic callous thing to say but it’s actually quite true. Because these people, the vast majority of people will be putting a huge burden on the system. And some just won’t get aid because our government is obviously broke or Government is printing fake paper in mass 20 to 35% of all dollars ever created created in the last year. Remember, the two primary value drivers for anything according to yours truly scarcity and utility, scarcity and utility, if something is not scarce, it becomes less valuable. And the more abundant It is, in many cases, especially with money, or currency, the proper word is currency, not money, the less utility it has, because fewer people think it’s valuable if there’s so much of it. Right. And I’m not saying so much of it in a good way, I’m saying in a debased way, meaning the governments and the central banks have debased it by creating such an abundance of it.
This is not abundance in a good way, this is abundance in a inflationary way. So there you go, something to think about, okay, we’ve got a nother client case study today. And that is our note, here’s the important thing about this one, this is a good case study. Here’s why I particularly like the client case study you’re about to hear. I like it. Because he’s not doing it in some big way. He’s not saying hey, I want to I want to go get rich and make, you know, $10 million. He’s just doing it at us in a very sort of basic, incremental way, you know, listened to the podcast for nine years, bought his first property. And then a couple years later, bought another property. And now is buying another one. I think he’s closed on that one now. So I think three properties in right, not a big deal. This is not a pie in the sky story. This is a very, very realistic story. But you see how after a job layoff that could happen to any of us? Well, wouldn’t happen to me. I mean, sort of could slowly right. I remember I was with my girlfriend at the time, Lynn and her father, Jerry, she was saying something like I was talking about how bad the real estate market was. It was really tough cycle. And I was in traditional real estate way back in the day. You know, her father, very wealthy guy had a big company. She said, Well, you know, we were talking about all the job layoffs, right? And she said, Well, Jason, you can’t get laid off. And her father says, Well, he gets laid off one at a time. You know, he was right. Meaning that there’s just not that many real estate transactions going on. So you’re basically getting laid off one at a time, or you take a listing on a house and it doesn’t sell. And it’s on the market for a year, which I experienced a few times, property just won’t sell, the seller won’t get realistic about the price. And the buyers just that they vote, they say that we’re not paying, sorry.
So that’s how you get laid off. And if you’re self employed, you do get laid off. Anybody can get laid off, right? Everybody has a boss, remember that? So when you have that, and you just have to one or two properties that provides a security blanket for you doesn’t have to be a big thing. Doesn’t have to be a big giant portfolio doesn’t have to be a dozen, two dozen, three dozen houses, right. I mean, some of our clients have been on the show, you know, they got dozens and dozens of properties, right? You’ve heard those case studies. The thing I like about this one is this is just a super duper realistic, anybody could do it case study. So it’s Curtis, Mo. And here he is. It’s my pleasure to welcome Kurt Mo. today. He is a client and this is a client case study and his is special in a lot of ways. I think you’ll like it. Kurt, welcome. How you doing?
Curt Moe 14:01
I’m doing great. Thanks for having me, Jason. Yeah, happy to talk about real estate and whatever else. It’s good to have you on. And
Jason Hartman 14:07
you know, we talk a lot. We’re messaging back and forth frequently. I guess. You know, I first came to know you about three, maybe four years ago, I think I remember when you messaged me. And you said something that was really cool. Do you remember what you said when you introduced yourself?
Curt Moe 14:25
I don’t I
Jason Hartman 14:27
remind you remind you that you said hey, Jason, my name is Kurt Mo. I’ve been listening to your podcast for nine years. And I finally bought a property. And I’ve been working with Sarah and that’s what you said.
Curt Moe 14:42
Jason Hartman 14:44
Yeah, that was awesome. I remember it and it just makes me think, you know, some people, you know, they hear the podcast, they find us on YouTube, whatever. And they jump right in and do stuff in some you know, they got to warm up to it for a while. So tell us about your story and where you first started. listening to this show, I think it was when you were serving in Iraq. And by the way, thank you for your service. Tell us about that.
Curt Moe 15:06
Yeah. So I, you know, I went to Iraq and Oh, 607. And yeah, had a lot of downtime. And that was also like, you have time to kind of think about what what I want to do next with my life. And I had been working in coffee shops for like seven years. And during that time, I was like, I’m done with this. But I didn’t know what I wanted to do. And I just started going through the whole Kiyosaki library. And I think I read at his at that time, all of the rich dad books, and then started, you know, podcasts were brand new thing, and I stumbled upon yours. And after reading his books, and listen to your podcasts, and some others, I knew, like, hey, I want to get into real estate. But at that time, and when I came back, I had quite a bit of consumer debt and some student loan debt, and some core beliefs that I had to address also. So you know, that was, Oh, 607. And then, you know, I sent you that first message in like, 2017, when I bought the first house in Memphis, that was really just, you know, in that 10 year period, it’s, it’s, it’s a struggle, a mental struggle of wanting to invest in real estate so badly, but having to address that debt first. And I didn’t pay off the whole debt before I got the house. But I got it down to a point where my monthly payments were enough that I could save more, where everything didn’t have to go to the debt payment,
Jason Hartman 16:18
which debt Are you referring to?
Curt Moe 16:21
I had credit card debt, I had some student loans and stuff.
Jason Hartman 16:24
So tell us about those core beliefs that you had to change and why that was impactful?
Curt Moe 16:29
Sure, sure. I had a pretty rough, young childhood, and just a lot of ingrained stuff in there that maybe I wasn’t deserving of wealth, or I wasn’t deserving of, you know, a quality life. And that’s something I’m very open with it about people these days. But it’s something that you know, you’re saving, and you’re saving, and you want to you have this goal you want to get in real estate, but you’re always coming up against these beliefs that in your core says you can’t do this or you aren’t, you know, worthy enough to do this. So that’s, you know, that’s just another piece of the pie that I had to get through. And just like a lot of people say, once you get that first property, it’s like, Okay, I’m ready to do 10 more.
Jason Hartman 17:07
Yeah, yeah. Well, that that’s great. And then, you know, just fast forward a little bit. So well, first of all, maybe we’ll talk about these beliefs a little bit. But I want I want to make sure, Kurt, that you talk about that other message, you left me that I will never forget, where you were changing jobs and relocating, and how, you know, just having two properties, no big deal, not a giant portfolio, not 50 properties, how it really, really, I guess we’re going into it now. But we’ll get back.
Curt Moe 17:38
to backup Just a minute, I got the first house in Memphis. And then shortly after I moved down to Tennessee, and you know, I just said, Why don’t I move to where, you know, it’s a great market. And I’ll really start to learn things and and understand Memphis. But one thing that really opened my eyes, there was, I got a different job in Memphis, but I ironically got hired at the exact same rate I was making in Minneapolis, high tax Minnesota, went down to Memphis, no state income tax, and just from that move, again, making the same amount in my salary, I was still able to net around $500 a month, just from the no state income tax. And that really opened my eyes to what the lower taxes can do. And now, interestingly, you’re living in Puerto Rico that has the best tax deal on planet Earth. Yeah,
Jason Hartman 18:28
we’re an American citizen. If you’re not American, you can do all kinds of stuff. But Americans are kind of trapped, because the IRS taxes you worldwide, except Puerto Rico, they give you a big exemption. So congratulations on that. But just to also explain you’re an IT professional, right. So you enter information technology, you know, saving six grand a year on taxes was significant, because in a couple years, you can add another property your portfolio, right?
Curt Moe 18:56
Absolutely, absolutely. It was it was incredible, especially it really, the numbers really helped. I mean, I would have preferred more money when I moved to Memphis, but just that the fact that I was getting the same amount and pay, but my my checks were like, or at least every month was like 400 extra dollars or 500.
Jason Hartman 19:11
Your cost of
Curt Moe 19:12
living wasn’t right that to that to that too, but to the message that when when all this pandemic started, I was actually in the middle of switching jobs, and was kind of nervous about things. But I remember the message and I said, maybe not a confidence, but I did have a fear and anxiety. And I just said just from having these two houses, you know, plus the income and savings that I have, you know, I know I’m feeling a lot better and a lot less anxious, and I don’t have to worry about as much as I would need to if I didn’t have this passive income coming in. Even if it got to the point where I didn’t it was a really weird transition because my new job really delayed on bringing me on board where I was taking just a week off between jobs, and it ended up being five weeks because they didn’t know what to do. As coding was starting,
Jason Hartman 20:01
so you know, switching you were switching as the COVID thing was becoming a big deal. Yeah. And so they delayed your hiring. Yeah, that’s when having the two rental properties made you feel more secure because he had the income from them, right?
Curt Moe 20:14
Yep. Because I thought at any day, companies were starting to downsize already. This was March, April. And I thought any day, they’re just gonna say, Hey, we need to downsize also, and we’re not bringing on new people, or we’re going to a hiring freeze, I was convinced that was going to happen until that laptop arrived in the mail for me to start working for him.
Jason Hartman 20:32
And now you’ve got a third property underway. Right?
Curt Moe 20:34
closing Thursday. Yeah. Okay, I’m gonna fly back to Charlotte, because unfortunately, the government doesn’t let you wire money electronically, with some banks. So I gotta, I gotta fly to Charlotte close, and then I’ll fly back.
Jason Hartman 20:46
Cool. So basically, you’ve you’ve done a property per year, right?
Curt Moe 20:50
Just about I mean, it’s been, I’ve really had to bootstrap, you know, all my savings, and you know, cash flow, it’s all going into to the next down payment. But I think I’m at a point now with this third one, especially where I can really accelerate it. And yeah, and that’s just the power of compounding, you know, adding one property and then the next and as long as you you know, you don’t have to live like a popper. But as long as you keep rolling your profits into the next down payment, you know, you can really accelerate it. And of course, like I said, after the first property you want 10 immediately, but, you know, part of the learning process is, you know, the patience, you have to exercise, you know, to get to the next one in the next year.
Jason Hartman 21:27
This is definitely an addictive hobby being a real estate.
Curt Moe 21:31
Yeah, yeah, definitely. Yeah. Good, good
Jason Hartman 21:33
stuff. You talked about those limiting beliefs. Do you want to circle back to that at all? Because I think that’s really important for a lot of people. And it’s amazing, you know, it’s this difference between context and content, right? For example, you know, fish, they live in water? Do they notice the water? Well, we don’t know, because we can’t read their minds, right, but probably not. You know, we live in air, do we notice the air? We don’t really think about it too much, unless really bad, right? But everything in our lives is generated out of this belief system we have. And that’s why it’s so incredibly important to manage one’s belief system, isn’t it?
Curt Moe 22:15
Absolutely, absolutely. And they really, you know, you can have unlimited beliefs, and you can have limiting beliefs. And I definitely had limiting beliefs. And I, you know, it came to a point where, you know, I just accepted my past and really dove into those. And it’s, it’s the thing where I’ve read and read the prosperity books, and the wealth books, and the finance books and the Tony Robbins, but until you really, you know, look at yourself, and confront those beliefs. And, you know, I recommend if they’re bad enough, see a therapist, I’ve done that. And I still do that. And it’s extremely helpful for me.
Jason Hartman 22:49
But most therapists, though, aren’t going to be prosperity conscious, though, are they?
Curt Moe 22:54
No, no. But if you can address like beliefs of like, shame, and guilt that you may carry from your childhood, where that was the repeated message that he received? I mean, absolutely. It’s going to carry over into other things a life, you change it in one area, and then then it’s your diet and your health and your exercise. That’s, you know, it’s lifted also.
Jason Hartman 23:15
Right, right. Well, you’re definitely a health conscious guy, I’m sure. I mean, I met you when you came out to our meet the Masters in 2019. Right. Ron Paul, you’re Newport Beach, California. And the funniest thing. You sent me a message right before the event we haven’t met yet. But it was a another, you send some funny messages I love and this message was funny. He said, Hey, Jason, let me know if you need any help with the event. You know, I’d be happy to work security. Thank God, if I need security, I’m in trouble. But if you’re not watching this on video, Kurt is a big buff dude. So he could handle security for sure.
Curt Moe 23:59
I wasn’t always I wasn’t always Yes, I was upwards of 250.
Jason Hartman 24:04
But But you know, what applies with health and weight? And with prosperity and with all these things, doesn’t it? You know, we
Curt Moe 24:11
just relationships? Absolutely.
Jason Hartman 24:13
Yeah, absolutely. Yeah. You know, they say the most important conversation any of us will ever have is the conversation we have with ourselves. And we’re just talking to ourselves all the time all day long. Are we Yeah, yeah. So share with how the changing these belief systems just anymore on that, you know, did you change the conversation with yourself? What was the only one what’s the new one?
Curt Moe 24:37
Oh, definitely. Definitely. I mean, the old one, you know, one of the messages I got growing up was you know, everything I touch breaks that was a troublemaker you know, I got into trouble all the time. And a lot of things broke, you know, when I
Jason Hartman 24:50
so it wasn’t it wasn’t unproven.
Curt Moe 24:52
No, it wasn’t untrue. But then when you hear that repeatedly, it gets ingrained in you and I told told my sister The other day I said you I carried a lot of pain for a long time. And I think, you know, a lot of people who knew me knew, but I’m just I’m just very open to sharing these things now, especially during these COVID times, because I think a lot of people are hurting and they need, they need that stigma removed of, you know, things like depression and things like mental health that we’re human, we go through this stuff. Yeah, you know, if you know that someone else has gone through that, and you’re going through it and trying to hide it or or just keep it in or you’re, you’re scared to even admit that you have it here in one person say that that’s what changed my life A long time ago.
Jason Hartman 25:33
It’s interesting that you say that, because I read a post on social media this morning. That circles right back to what you’re saying. It said something to the effect that suicide is not a selfish act like some people have said that it is right. But it’s the final symptom of a disease known as depression. It’s so sad when that kind of thing happens, right? But it’s true. Everybody goes through these difficult times these rough patches in their lives. You know, it’s just helpful to know that it’s normal. And people go through it. Right.
Curt Moe 26:09
It is and you know, social media does no favor when you have curated, you know, someone takes 100 photos and posts the one that just looks awesome, right? And we’re constantly seeing that, and then you’ll mentally or consciously or unconsciously comparing ourselves to that, you know, I’m a big, big recommender of, you know, getting off Facebook, which I’ve done recently. And you know, anything else that you overall it’s like, when you look at social media is the tangent. It’s look at it as the overall and for me, it was a net negative. over the whole time and years that I used it, it was a net negative, you know, I got I got less out of it than I gained.
Jason Hartman 26:44
Yeah, I’m starting to think the same way. You know, when I’ve been, I don’t know if you’re, we’re still on Facebook together. But I’ve been posting a lot of things since I got restricted. I got put in Facebook Jail for saying, quote, they just want a fair election. Apparently, that was blasphemy, Kurt. And so I’ve been really outspoken lately, and I was thinking, What if they kicked me off? And I’m thinking it might be a blessing. Because that comparison trap is is bad? Well, you know, is it always bad because sometimes the comparison thing makes us strive for more, right? We
Curt Moe 27:22
need to have our heroes and our idols, but I don’t know how to really break it down into words, but there’s that there’s the heroes and idols. But then there’s the I don’t know what social media does to it, it’s, you know, it’s that YOLO life, it’s the, you know, I was in Guatemala recently, and I saw some folks taking a photo and I was like, and I just kind of jokingly walked by them. And I said, you know, you know, guys, life doesn’t wait for Instagram. And the girl immediately replied that pics or it didn’t happen, you know? Well, it did happen. And when I go on vacation, I take photos of like nature and stuff. But what I don’t take photos of is up in my head. And I don’t worry about not posting an ad or something like that, and getting all those likes. So
Jason Hartman 28:03
I think one one way to think about that is, you know, go ahead and take the photo, if you want to take the photo, right? For those of us old enough to remember there was a time in life when we didn’t take photos all the time, because it costs $1 a photo. And if you adjust that for inflation, you know, that’s probably like five bucks today. Okay? Taking photos was expensive, it was something to be used conservatively. But go ahead and take the photo, and then put your phone down and experience it. Take in the beauty of whatever you’re looking at right
Curt Moe 28:34
now. Life is happening, you know, regardless of what’s going on in someone’s state, or someone’s country locked down in regards of lockdowns and stuff, life is still happening and people are still living it. And it’s out there for for anyone.
Jason Hartman 28:47
Yeah, it certainly is. Okay, so these beliefs, do you feel like you overcame them? Or is it something that you always have to just constantly work on and remind yourself of,
Curt Moe 28:59
you know, with other things I’ve gotten, you know, where you make a little progress, and you’re like, Oh, I got this. And I’ve done that with with core beliefs. And, and I think just the the cautious approach and approach I’m taking it is just to assume that it’s something that I’m going to have to work on, at least for a long time. Maybe not lifelong, but it’s important to me enough, and I’ve gotten so much value and I’m just a completely different person from you know, addressing them and working on them that I get value when I when I do really dive into them and things like yoga and meditation. I mean, anytime I do yoga and meditation to start my morning, the day, at least the first half of the day, whatever happens. I’m still super chill. And and it feels great.
Jason Hartman 29:40
Yeah. And in your line of work. There’s a lot of things that go wrong, right? Yeah, definitely, definitely. Well, what’s your plan for your real estate portfolio?
Curt Moe 29:50
I remember doing the I don’t know if you remember the five year plan. I think it was before the 2018 meet the masters or I forget when we did that, but I had the Ric Flair costume When I did mine, but then I think mine then was a property’s within five years. And that was 2017 or 2018. And I know I can still hit that. So I got till 2022. So once we get this next one, I think I can accelerate and maybe refinance the two that I’ve had. And really just kick that into gear. I’m not a huge, like, definitive gold person, but I just keep progressing, you know, and everything I’ve been doing since 2017, is just funneled into the next property.
Jason Hartman 30:27
That’s awesome. That’s awesome. So before you picked up the books, and started checking out the podcasts and so forth, why real estate why income property? What brought you into that?
Curt Moe 30:39
I really don’t know. I think anyone listening I was thinking about this as we were getting, you know, as the days were approaching for the for this interview, and I was thinking anyone who has gone down a rabbit trail of podcasts, or maybe they found you from George gammon, or someone else, and they found the Jason Hartman podcast, be thankful that the stars aligned to get to hear or maybe they didn’t, but they’re on you know, listening to some other podcast. And I don’t know why I got into real estate, you know, once I started reading, and it made sense, passive income, this looks nice. You see that Roberts cashflow quadrant, okay, I want to be in this quadrant. In real estate seems to do that. It’s just the rabbit trail, I guess. And if you follow it, and you follow the direction it brings you, I think good things will happen. It’s like listening to podcasts and and just being a YouTube junkie for like George’s channel, a real vision and other stuff like that. You know, if you really make that as part of your life, you can’t not be changed somehow, because of it. It’s impossible not to as long as you’re absorbing it, and you’re not just sleeping, sleepwalking, you know, as you’re listening to the podcast. So I mean, it’s not a great answer. But you know, I think life leaves a little breadcrumbs to trails of positivity, as long as you follow on your like, good things are gonna happen as long as you take some action.
Jason Hartman 31:54
Yeah. And, you know, I guess part of that is not specifically about income property or real estate, but it’s just becoming more financially focused. And some people Kurt might view that his work, right. But other people just think it’s interesting. You know, it’s an interesting thing. I mean, to me, it is at least studying investing and economics and stuff like that. I remember years ago, I took a community college night class with my mom, and I was only in high school, at the time, I was a senior in high school. And I took like, our real estate finance class or something, you know, we met some different people. And you know, I remember meeting this one, like, rich guy, and he talked about how he owned all these, I think bicycle stores. And I recognize the brand, because those stores were all over. And, you know, he had all this real estate and stuff. And I asked my mom, I said, Why is someone like that here? You know, why is someone like that working on investing in working at all? And she said, it’s just interesting. What else? Are you gonna do? You know, be interested in something? You do? Yeah,
Curt Moe 33:07
I had a co worker and a good friend, we were chatting earlier. And he knows I’m flying to close out the property on Thursday. But he’s like, you know, what’s your goal, you know, retire early. And I said, Well retire in the sense that if I want to walk away from a nine to five, I can, but I’ll still keep working on something like I enjoy the the fulfillment and the sense of achievement, you know, that you get from, you know, a day’s work or, you know, saving up to get your next property? I think we need that. Yeah, you know, as everyone knows, or I’m sure everyone’s heard something, you know, if people who don’t do anything after they retire at 65, you know, they’re kind of gone with, you know, they’re off this world and a few years, you really need it
Jason Hartman 33:44
to live you do you got to be engaged. That’s the people who live the longest and the healthiest are engaged in stuff. If you like, financial freedom, you might as well be engaged in the area of finance and investing, right? Any lessons you learned along the way, I’m sure there have been some that you can impart or share with people listening, you know, any technology that you’re using any apps, any tools or resources or anything like that to do better at investing?
Curt Moe 34:14
Yeah, well, I mean, real simple, is stay out of debt. And if you’re in debt, address it immediately
Jason Hartman 34:19
except for mortgage debt, right, except for mortgage debt,
Curt Moe 34:23
off that consumer debt and do what you can do the Dave Dave Ramsey method, the snowball method is what I did. There’s a lot of great calculators out there, where you can see visually, I think one of them is like, snowball calculator calm or something along those lines. And you can see visually the breakdown of when you’re going to pay off each if you pay off this much extra per month. And then once you can just start saving for that first property. You know, I waited a long time almost a decade for that first one, but I mean, that first one has changed my life and the path since then, has also as far as tools a tip of the cat to drew Baker dipped my In self management, with the one house hack I did in Memphis, so I, I use tools like, smart move for my background checks. And then I use. What’s the direct deposit? One? I’m trying to remember now.
Jason Hartman 35:12
Curt Moe 35:13
cozy. Yep. I use cozy for direct deposit.
Jason Hartman 35:15
I’m on the show. Yeah, but your use property tracker, right?
Curt Moe 35:18
property tracker? Yep. Product tracker is great, especially when it comes time like right now to get your schedule, even your tests makes it a lot easier. And yeah, I don’t know, there’s so many so many. You know, that’s one of the other, I guess affirmations I’ve been telling myself lately is there’s the world’s full of trustworthy and safe people. Not all of them are trustworthy and safe. But there’s tons of them, and people who want to help. And I think that’s another belief I had to get over is being comfortable asking for help, you know, asking for assistance on things, not just living in my pride that I can figure it out on my own. There’s groups like, like Jason Hartman, other tools that can make it happen. And you know, along to Drew’s line of self management, that’s easier than it’s ever been. Yeah, you can cut out your property manager. If you feel comfortable. I still use management but I, I self manage that one.
Jason Hartman 36:06
So you self manage one of the you have two now and you’ll have three soon you self manage one of the two, right?
Curt Moe 36:13
Yep. And I’m gonna put the next one under. under management also.
Jason Hartman 36:18
Good, good stuff. And I agree with you, you know that there are most people are good people. You know, most tenants are good tenants to the vast majority of them. There are definitely some scammers and shysters out there, we’ve all been burned by them either at one time or another, maybe multiple times. But I came across a good quote. And I have to credit one of my social media friends, again, some good things out of it. And I took a screenshot of this because I liked the quote so much, it said, the rich get richer, because the poor think every opportunity is a scam. And there are certainly a lot of scams out there. But you got to balance that you got to take some risk, and be willing to try things and sometimes not gonna work and you’re gonna get burned. That’s just reality. It’s just odds, right? It is.
Curt Moe 37:09
And it’s like, I don’t know, if it was the previous episode or two episodes ago, where you said, Look, what the Fed is doing, and what central banks doing is absolutely terrible. But what are we as individuals going to do to change it? So we can do what you always say, which is align ourselves with the most powerful forces? That is no demand?
Jason Hartman 37:27
Yeah, right. Right, these these governments and central banks, they’re not ethical, what they’re doing, right, but we aren’t going to change it. So we might as well just align our interests with theirs, we’re not part of it, we’re not doing it. Okay. It’s not like we’re gonna commit the crime with them. But look, they’re going to do certain things, nobody, but nobody’s gonna stop them. Okay. And we might as well just ride on the coattails of what they do. And that mean grit, get those big, long mortgages, and don’t pay them off, don’t pay them down, let those mortgages make you rich. And I want to make sure you distinguish that because you said pay down your debt. And you don’t mean the good debt. Right. Right.
Curt Moe 38:10
low interest debt, that’s, you know, tied up to a house. Absolutely. That’s the good stuff.
Jason Hartman 38:15
That’s the good stuff. Good. Good deal. Tell us about your military service. And again, thank you. I mean, you were, you were in the action
Curt Moe 38:22
tells me I didn’t kind of I never you know, I was logistics, the MLS for any other military guys is 88 November, you know, we were the core transportation hub for everything going on in Iraq, and you know, come in, things would come in through Kuwait before there, it was a wild time, great experience. And for jobs like mine, you don’t, if you don’t need to go off base, you don’t go off base. So I didn’t see any, you know, action, you know, as we, you know, see in the movies and stuff. But one thing that was really nice anytime you do run into a guy who drove truck, you know, trying to dodge IEDs and suffer an infantry guy, you know, you have a talk with them. And you know, our job, we kind of knew our place, but it’s like, you know, I’m just a logistics guy. But everyone in the military knows that nothing happens until something moves, some type of equipment, people or things move. And that’s a fact.
Jason Hartman 39:13
You know, that’s interesting. That’s a good metaphor for life and investing, isn’t it?
Curt Moe 39:17
It is, it is. Yeah,
Jason Hartman 39:18
yeah. So until you take action, and you know, start buying properties, nothing happens, right? You can learn about it, you can think about it. And that’s all great. get educated. But you can’t do it.
Curt Moe 39:32
You got to do it at some point.
Jason Hartman 39:33
Yeah. You know, you
Curt Moe 39:34
don’t have to wait nine years. But if you do, you know, it’s, like I said, I’m still very happy that I’m on that path. So
Jason Hartman 39:41
Kurt, thank you so much for sharing your story. Thank you for your service. And it’s just always great people love when they get to your client case studies from real people like yourself, and I’m just really happy for you. So keep up the good work with your investing and any any final words to wrap it up.
Curt Moe 39:57
I can’t go without tip of the cat to ask. Jackson, who, you know, we were at that the Memphis property tour. I think it was 2017. And, and he told me, he’s like I cashed out my 401k and buy 10 houses and what?
Jason Hartman 40:12
Yeah, and I was on the show talking about that.
Curt Moe 40:14
Yeah, he’s great times. And that kinda is like, okay, I can I have a little bit of my 401k I can do something here. And so he just that little conversation also played a big part in me getting that first house. So yeah, I always appreciate Yeah, that’s awesome. Thanks
Jason Hartman 40:28
so much, Kurt. Really appreciate you being on the show. Thank you very much, and happy investing my friend. Thanks, Jason. Thanks for having me. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out this shows specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
Adam joins Jason Hartman in this episode to answer some listener’s questions. The topics include profiting from inflation, why banks give out loans, the best market to buy income properties, options if you can’t get a fixed-rate mortgage, and a decrease in housing prices.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer, and entrepreneur who’s owned properties in 11, states had hundreds of tenants and been involved in 1000s of real estate transactions, this program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:52
Welcome to Episode 1675 1675. And thank you for joining us. Adam is here with me today. It’s great to have him back. We live stream every two weeks, but he hasn’t been on the podcast in a while. So we thought we would take some of the accumulated questions from the YouTube channel and other sources and get those answered for you, Adam, how’s it going?
It’s going well, and it’s amazing when you blow up on YouTube and you get you know, 30 plus 1000 subscribers that question start rolling in?
Jason Hartman 1:30
Well, it’s not just the number of subscribers, by the way, which we thank all of you for subscribing to the channel. But it’s the amount of time people are spending engaging with the channel. Do you know, last month, people spent over 7 million minutes watching our YouTube videos. And that’s just on one of three YouTube channels we have. So we are really glad you’re enjoying the content folks. One of our videos, by the way, has become very viral. I think it’s close to 500,000 views now just on that video about inflation. So check that out, check all the other stuff out. Let’s tackle some of those questions. Because a lot of them have been accumulated and we need to get to them, right?
Yeah, if you want to, if you want to feel good about your content, just say no. 7 million minutes is 13.3 years spent watching your stuff last month. Jason? Wow.
Jason Hartman 2:24
Oh, my gosh. That is amazing. Wow. 13 years. Okay.
So let’s go to that popular the most popular video How to profit from massive inflation ahead. We have one from Terry clevenger. He’s a little skeptical. He said, I watched the entire video, and only God that you need to go further into debt in order to profit from massive inflation ahead. I have no way to buy income producing property and then have the tenant be unable to make the monthly payment. How do I profit from massive inflation ahead? Basically, I guess you’re closer to the money. Terry, I don’t know about what Jason’s gonna say here. But I would say the concern about the tenant not paying in the current environment has been alleviated somewhat, if you look at what the government is doing, the government has essentially become your partner in a way they’ve never done it before. And said, if your tenant can’t pay, you don’t have to pay either. And that is a game changer. When it comes to owning investment property, you’re really getting a bigger backstop, even more than just incredibly cheap interest rates, you’re now getting incredibly cheap interest rates, and an out that still involves you keeping the property which has never happened before.
Jason Hartman 3:45
Yeah, that’s true. I do want to make the distinction, though, Adam, you’re referring to the mortgage and the forbearance programs. But even without a forbearance program, you know, during the Great Recession, and just all the time, you know, on no matter what the economy is doing, people are always renegotiating with their lenders, doing strategic defaults deciding to stop paying their mortgages, because it’s quite a process for the lender to foreclose. They don’t want to foreclose. You know, they will many, many times work with you. So you know, I call this the nuclear option. You don’t want to do it, but just understand that it is always there. Right? That’s always there. But the broader question, I think, is one of, you know, how do you do this if you can’t buy income property, right. And when you have the income property, understand that it is the most historically proven asset class, it’s the most tax favored asset class in the United States. I just love it. It has enriched my life tremendously. And 10s. If not, while really hundreds of millions, maybe even around the world, billions of people over the years have been very, very much enriched by owning income property. Because of the Inflation induced debt destruction strategy that we teach, you can really turn this income property into an authentic passive asset, right? Where you can offensively play the inflation game and really win with it. If you can’t buy income property, you can do some defensive things. And what those usually entail is buying gold or cryptocurrency, right? Those are the typical strategies or commodities, really, of any sort, are the defensive strategies, right? You know, you could buy silver, you could buy other commodities, you could buy lumber, right? There’s an endless list of commodities. But the point is that in an inflationary environment, understand what’s really happening, most people just think of inflation as well, prices are going up. That’s a symptom of inflation. It’s not technically what inflation is. Inflation is an expansion of the money supply. And remember, as I’ve been teaching for many, many years, there are two value drivers for anything. And the first one is scarcity. And the second one is utility. So the reason currency, and notice I didn’t call it money, I call it currency. The reason currency has value is because of its scarcity. And its utility, right? When they start making so much of it, creating it out of thin air, printing it out of thin air running the printing press, then the value has to decline, because it’s less scarce. Now, it still has utility, but that utility declines with its abundance. Okay, you know, look, diamonds are more valuable than sand. Because sand is more plentiful than diamonds. They both actually have utility, okay, diamonds are used in industry. And they’re certainly used in jewelry, obviously. And sand is used in industry. And actually, there is a shortage of sand compared to the historical thing, because so much concrete is being used around the world to build homes and other structures. But certainly Everyone knows that diamonds are more valuable than sand, because just scarcity alone, right? So just understand that. But the way you want to play this strategy, as outlined in the video is off offensively by owning good quality income properties where you own all those commodities, the lumber, the copper wire, the petroleum products that the concrete, the glass, the steel, and you have the beautiful four letter word. And that four letter word is debt debt, my favorite four letter word, and you can often simply benefit from inflation by using debt. And that’s all explained in the other video in detail. So I won’t go into it here. But that’s a great question. So I’m glad Yes,
yeah. And it’s also important, Terry to remember that when you’re talking about not being able to afford the mortgage payment if your tenants not paying, that’s one of the things we look at when we look at markets, and you need to be sure that if your tenants not paying you are in a market where you can get rid of your tenant, you know, if you’re in a state, that’s not going to let you get rid of your tenant, then you know, it could take six 912 months to get them out of your home. Or you can be in a state where the government works with you. And they’re out in 3060 days, something like that, right. And then you know, you need to make sure you’re going into the right markets. What Adam means there is that we look at and we help investors invest nationwide, and we vet markets, and one of our vetting strategies is we want to look for landlord friendly markets, where the regulatory climate, the judges, just the whole vibe of the place is friendly to our cause as landlords, we don’t want an environment that allows tenants to be deadbeats and leech off of you. Okay, in California, New York, Washington, DC, you know, many of these other left wing places,
Jason Hartman 9:11
you have a very landlord unfriendly market, we want to avoid those areas. Now, there are many other things we look for as well, that’s just one of them. But thanks for bringing that up, Adam.
Yeah, a lot of our places, you know, if they’re five days late on their rent, you can technically file an eviction notice on them. So you know, you can definitely set yourself up for better success doing that.
Jason Hartman 9:32
Absolutely. And, you know, understand that when people don’t obey their contracts, civilization falls apart. So there is nothing wrong with telling people look, they got to live up to their contract, because it’s a daisy chain effect. If they don’t, if the tenant doesn’t pay you, you can’t pay the lender. And if you can’t pay the lender, their bondholders suffer, you know, or those mortgage backed securities of whatever type this stuff matters. I mean, people just have to keep their agreements. That’s the way the world works. You know, you can’t have this domino effect. Okay, next question.
Yeah, we’ve got Kluver Bucy saying, Hi, Jason, great comment about taking mortgage debt and paying back with cheaper dollars. But if it’s such a good deal for you, why would banks give you a mortgage? Don’t they have a lot of smart people working for them? Great question.
Jason Hartman 10:22
So yes, banks, the banksters. They do have a lot of smart people working at banks and on Wall Street, of course. But remember, they are rarely holding these loans in their portfolio. The loans are sold off in the secondary market, to these government sponsored entities like Fannie Mae and Freddie Mac. And basically what this does is in the United States, ever since come, we came out of the Great Depression, back in the, you know, the late 30s, or I guess, the 40s, when Fannie Mae was created, I don’t know the exact year offhand. I, I used to know I just can’t remember, these government sponsored entities are essentially putting you in the position where you’re getting a welfare benefit as a landlord, okay. And the homeowner, homeowners get it too, right. But but small landlords that invest in single family homes get this benefit as well. So your investment is essentially subsidized by the government. So congratulations. You know, finally, Look, you’ve been paying into the system, you’ve been paying taxes all your life, right? And you’re finally getting something back. You know, I like to joke, I’ve, you know, what, actually, I can’t say this anymore. I did take some government money, just last month, it was sort of against my religion the first time around a year ago to take a PPP loan. But I said, you know, I’m getting my money to I’ve paid taxes, I paid millions of dollars in taxes in my life. And I want some money back. So I got $16,000.
Much, someone standing in the corner holding out 16 grand, you’re a fool not to take
Jason Hartman 12:03
it right. You are a fool not to take it. So I did take a PPP loan. I think that’s the first time I really took any government money. Look, folks, I don’t even have a library card anymore. Okay, so I don’t get anything. I just pay. And, you know, I get the services that government offers that everybody uses. But, you know, again, you have the right to it, right? So look, the government wants you to provide rental housing to people take advantage of these, these programs. And to answer your question, though, the banks don’t keep the loan, they sell it off. And then after that loan is sold off on the secondary market, it’s bundled into pools of mortgages and sold office securities. So you know, it just goes down the line, it’s just this big game, the banks essentially make money on the points that they charge and the loan origination fees that they charge, and they make a spread from the rate at which they borrow to the rate at which they lend for a small amount of time. Okay, this is a very murky world, okay? Because they don’t do the same thing with every loan at exactly the same time. Banks have, what’s it look at, I’ve owned a few mortgage businesses in my life. I’m not in that business now. But they have what’s called a warehouse line where they fund the loan, and then they sell the loan off of the line is the way they say that, you know, it’s a whole murky thing. But the banks aren’t really lending you the money for 30 years. in almost any case, it’s extremely rare that that would happen.
You also have to look at their whole business model is based on giving out loans, and what you’re looking for in return isn’t necessarily what they’re looking for in return isn’t necessarily what their clients are looking for in return. I mean, if you’re looking at it that way, why would anybody ever buy a treasury? Why would you agree to that? It’s just some people’s portfolio and some people’s investment strategy. Leads it to where you know, getting a three 4% return is absolutely fine for them. Yeah, so everybody has different strategies. It’s there, enjoy it.
Jason Hartman 14:08
Take advantage. One more thing, and this is a little bit down the rabbit hole. Okay, so we’re not going to have time to go into this. This is a subject that it took me years to grasp, endless, endless amount of studying on this topic. It’s so esoteric and so hard to truly understand what’s happening here. But I’m just going to save the phrase, and you can listen to my creating wealth podcast, my YouTube channel for more on this because there’s a lot more to it if you want to go down the rabbit hole, but here it is, you’re ready. Here it is. Money is lent into existence. That’s how money or really currency is created in the kind of system we have and some of you heard We say that that money is lent into existence and you’re thinking, Oh, yeah, I get it fractional reserve banking, fractional reserve lending. You know, I challenge you, as I’ve been studying this for a couple of decades now. I don’t even really totally get it. This is so esoteric when you go down the rabbit hole, there is so much to it. A good start is to listen to the episodes I’ve done with maybe G. Edward Griffin. He’s been on many times, he wrote a famous book called The creature from Jekyll Island, I took my mastermind group to Jekyll Island, Georgia, we had our event in what’s called the Federal Reserve room. And that’s where the people met and created the Federal Reserve. There’s just a lot to that topic. It’s quite fascinating. But there’s a huge incentive for banks to lend money because the system doesn’t work unless they lend the money into existence. So they have big incentives to do that, in many ways. Alright, let’s go on. Alright, so
we have another one from Rick darsky. He says, Hello, Jason. Excellent video, it will make my fave five list one question. Well,
Jason Hartman 16:09
Rick, Rick, it’s not your number 111 video. So I’m in the top five. Okay, I’ll take it. But I want to at least be in the top three, Rick.
So when is the best time to buy rental properties, low rates with the high purchase price or higher rates with a lower purchase price? Or just jump in when you have enough for downpayment and closing costs? Thanks for helping out the common man.
Jason Hartman 16:34
Yeah, that’s an interesting question in here’s the thing about it. The great thing about income property is that when you buy it, that deal is endlessly re negotiable. Here’s what I mean by that. You buy it today, there’s a snapshot in time, and you paid a certain price. And if you paid cash, then you just pay the price. If you use financing, which hopefully you did, then you got a certain price and certain terms, right. But as things change over time, you can renegotiate that deal. One way you can do it is by simply refinancing the property. But there are many other ways you can do it, you can improve the property and rent it for more money, you can 1031 exchange the property and get a different property without paying taxes, you know, you’re deferring the taxes, you could lease option the property and get a higher rent that way, there are just all kinds of things you can do to renegotiate the deal endlessly into the future. You know, some people are adding what’s called ad use to their property’s accessory dwelling units, where they put a mother in law’s unit or a casita in the backyard, and then they increase the income with that, there’s just an endless amount of things you can do, right? So the deal you agree to today is not necessarily the deal you’re going to have forever. In fact, it almost never is. One of the other absolutely beautiful things I love about income property, the most historically proven asset class in the entire world, is that you can buy the property. So you put 20% down on it. And then you can wait till the property appreciates a bit or add value yourself and force the appreciation. And then you can refinance the property, get all of your money back, and maybe even more than all your money back. And then still on the asset. I mean, where else can you do this, ladies and gentlemen, where you you get all your money back out, and you still have the asset? Right? It’s just a phenomenal asset class. So to answer your question, I hate to sound like the typical guru that says, oh, there’s never been a better time to buy. Well, that’s complete BS. Of course, there’s better time to buy, you could have purchased property in 1970. And that would have been better than today, although interest rates back then were much higher than they are today. Right? Here’s the reality of this. I’ve got a video that I’m about to produce. So look for this. It’s coming, folks.
Okay, because I’ve done a couple presentations on this. I always want to test this by speaking at a conference or two. And I have done that, and sort of refine the idea before you see it on the YouTube channel. Okay, or hear it on the podcast. But I did a couple of presentations on this. What is your measuring stick? Okay, to determine the value of anything, we’ve got to ask what my listeners call the Jason Hartman question. And that question is compared to what, right? Most people when they’re trying to understand the value of real estate or anything else for that matter. They compare it only to one thing, dollars. Well, dollars are not the only thing To compare it to because the dollar is a fluctuating measuring stick, its value constantly changes. Let me give you just one of many examples. I’ll give you a little sneak peek into this video. Okay, you know, if you followed my work for any length of time, I’m not a gold bug, okay, but gold has been a measuring stick for 5000 years. So it’s worth it to compare housing prices to gold. So let me give you an example. In the year 2000, if you wanted to buy the median price home, you would need 610 ounces of gold to buy that house, because the median price was about 168. Gold was $274. So you’d need 610 ounces to buy a house in 2010. It got a little cheaper, a lot cheaper. Actually, in 2010, the median price house was 223. And I’m rounding here, by the way, but gold was 13 $174. Okay, so you would only need 162 ounces to buy the house then in 2010. What about today, in 2021, you only need 208 ounces of gold to buy that house. So compared to 610 ounces, 21 years ago, the house is about 66% cheaper today. Okay? I mean, you know, roughly Okay, it’s about two thirds cheaper now. So always ask yourself this, when you’re looking at an asset and you’re thinking of buying it, ask yourself this question, is it cheap? Or is it expensive? And then ask yourself that question in many different assets in many different comparisons, not just dollars, because you will be totally misled. If you are only comparing the price to dollars, that is not the way to compare it, you got to compare it to many things.
Now in this upcoming video, I compare it to orange juice, rice, gold, Bitcoin, I mean, just everything. And then you’ve got to go another step, and not just look at the price of the house, but the payment on the house and adjust that for inflation. And I’m telling you folks, real estate in most markets is still pretty cheap, when you compare it to all these things. So look for that video in that podcast coming up. It’ll be on the YouTube channel and the creating wealth show. And by the way, our stuff is on other channels as well. Because, you know, censorship, okay. You can always find my stuff on bit shoot and rumble and all those other platforms as well.
Yeah, I’ll also say, you know, you talk about whether, you know, high price, low interest rate, low price, high interest rate, you know, obviously, you would prefer starting with the low price, high interest rate, because then you can get the interest rate down. But realistically, the way you need to look at it is the right time to buy it is when it makes sense, you know, when the property is going to, you know, make sense from day one, follow the commandments. If your property is making sense from day one, you are putting yourself in a fantastic position moving forward.
Jason Hartman 23:15
Good point. No, that’s absolutely true. I mean, look, the best market to buy in is to buy with cash, when things are super cheap, and then have the interest rates go way down and refinance them and pull all your cash out.
refi in 2020, right.
Jason Hartman 23:34
That’s the strategy we were recommending. And many of our clients did it and they made a fortune. I mean, Adam, you know, I really wonder if like, any other Real Estate Group, or Guru has made more people rich than we have, you know, I mean, we’ve made a lot of people very rich. And if you don’t believe us, just go listen to the creating wealth podcast and listen to all those client case studies. We have them all the time. And you can hear it right from the clients. You don’t don’t have to rely on us, we go in depth, you know, 2030 minute interviews, where you’ll hear all about the clients and what they’ve done. And so we’ve got another question from Peter wood delco.
He said, what about when you don’t have a fixed rate mortgage? So I’m guessing that means he can only get an adjustable rate mortgage. And with those, I mean, you’ve still got a certain amount of time they’re fixed. And you can always in that certain amount of time, you know, try to get yourself a fixed rate mortgage out of it. So you know, it’s if you can’t get a fixed rate mortgage, for some reason, it doesn’t mean you can’t get into the real estate.
Jason Hartman 24:40
Yeah, yeah, of course, right now, we highly recommend you get a fixed rate mortgage for three decades. I mean, it’s just a phenomenal opportunity, right? Because the debt is so cheap, but overall, if for some reason you want to take an adjustable rate mortgage for a short period of time, you know, then refinance. Before rates go up, you know, you’ll get a lower rate initially, but you got to be careful because the likelihood is, and this is never for sure. And I’ve been lousy at predicting interest rates. By the way, I just got to point that out. That’s my one area where I’ve not been good. The likelihood is rates will be higher in the future. I mean, they are artificially low, no one can deny that.
Alright, so we have a question from julu. Who said, thanks for the video, will the housing price go down ever, back to pre COVID price? Thanks. Now, this is something that I covered in the recent live stream when Jason couldn’t make it. And the housing prices will go down at some point. Unfortunately, I’m concerned about when that Sunday will happen at this point, because as I mentioned, on the live stream, so many fundamentals are against a decrease in housing prices. So many commodity prices are high supplies are plummeting, you know, you do have the potential forbearance run out
Jason Hartman 26:00
and for collection, moratoriums ending, no problem.
And so I mean, that could bring a little bit of supply onto the market. But at this point in time with the number of forbearances, they are, it’s way lower than people were saying it could have been at the beginning. So the supply isn’t going to gush onto the market. And even if it does, right now, I saw a graphic from realtor.com that was sent to me yesterday, housing supply across the country is down 40%, year over year. So even if we get, you know, a 20% increase, we’re still 20% down. And so all of the factors are lining up, and eventually, you know, the regulatory environment will lead to builders building more, I assume, at some point, you know, eventually commodity prices will flatten or maybe even drop a little bit, you know, eventually something will happen in our society that will cause a crash, or a drop in some way back to pre COVID prices. You know, it’s gonna be tough. It’s gonna be tough.
Jason Hartman 27:02
Yeah, you know, you’ve got to ask yourself, folks, what will cause prices to go down? The inventory is so scarce, and the construction materials have run up so high in price that even with a dump of inventory, and I’ve looked at a lot of analysis on this, I’ve looked at, you know, that analysis with Ken McElroy, who’s more bearish than I am, I’m quite bullish for a while, I think things are going to be pretty amazing. For a while the market can absorb a lot more inventory, even if there is a sudden increase in supply, with foreclosure moratoriums, which probably won’t be acute, they would probably be staggered or staged out, you know, if there’s a lot of foreclosures in the pipeline, the market can just gobble that inventory up with no problem. I mean, probably about a week. I mean, yeah, it’s it’s like, there’s just no shortage of demand at all. I was on television recently. And they were interviewing me about the administration and what they’re doing and, and you know, this idiotic idea that Biden has that he wants to give first time buyers a $15,000, housing credit, tax credit for housing, that is the stupidest idea in the universe, what that will do is it will instantly cause prices to go up by $15,000, maybe more, because it will just create more demand, what they ought to be doing is figuring out how to create more supply, what we need is supply. So how about this Biden? How about if you put pressure on municipalities to ease building restrictions? Okay, how about if you give developers some tax credits, so they’re incentivized to build more, or, you know, just do something that eases the supply chain? How about if you cut, you know, very burdensome environmental regulations that aren’t allowing, you know, the lumber producers to produce enough wood or the steel producers to produce enough steel? You know, that’s what you need to do is create more supply. I mean, you know, in the politically correct sphere, People Keep Talking about systemic racism. Well, you know, what we have, we have a systemic housing shortage, okay, fix the supply problem. The demand is there. You don’t need to give people a tax credit to buy a house, they all want to buy a house, okay? There’s no you don’t need to incentivize that. That’s idiotic. You need to incentivize supply, work on the supply chain, and make it easier to build. That’s what you need to do. Okay, so
that’s the thing you got to do. And especially, you know, you look at the first time homebuyers, they really need to be incentivizing the building of homes under $300,000. Absolutely. Right now, if you’re a builder, building it, I mean, I’m, I’m genuinely impressed we can source inventory under new inventory under 300,000. Because the profits on Those are so so much smaller than if you build a 567 $100,000 house or more. Yeah, that builders, they look at under 300,000. And they just ask themselves, why bother? Yeah, you know. And so if you really want to help the first time homebuyers, you’ve got to almost flood the market with homes under 300 250,000. So that they can be purchased. We have years before that happens. Oh, it’s it’s never
Jason Hartman 30:25
the shortage is so severe. The other thing I want to say about this is just remember that the other thing that would cause prices to soften is higher interest rates, right. So higher interest rates mean, affordability declines. And so prices tend to soften true, right? supply demand, right? Just simple economics. But understand that 1% in interest rate is equal to about 10% in price. Okay? So if rates go up by 2%, the price of the house has to come down by 20%. that’s unlikely folks, that will take a long time to work its way through the system. So all of these folks sitting on the sidelines missing the market, they’re angry, I get it, you know, they’re jealous they right hit and run comments on YouTube. Oh, you’re stupid. You know, you don’t know the markets about to crash. Good luck, folks. Because you know, you’ve missed the market. And because all these same people were saying this 10 years ago, and they were saying it eight years ago, and they were saying it five years ago and they were saying it definitely last year. Okay with with the COVID lockdowns, okay. And they’re still upset that they have missed every opportunity, folks, you can rationalize your way out of any decision in life you ever want to. But the fact is, if you look at I’m old enough to know now, I’ve watched it play out in the course of many people’s lives, people who do things who make decisions, there’s just this propensity toward action that always gets rewarded in life. So don’t be that person who doesn’t take action, that the world belongs to those who make decisions and take action. Okay, that’s just the way it is, you know, there’s an old Zen saying I like very much to know, and not to do is to not yet know. So there’s all these know it alls out there. Right? They know everything. They’re right, they can win every argument, right? But to know when not to do is to not yet know. Okay? The people who do things are the people who really know things. And life always seems to reward them, disproportionately. So anyway, I know we got to wrap it up, Adam, folks, I hope this is helpful to you. And Adam, thanks for being here. Any thoughts you want to share? As we wrap it up,
I would just say, you know, I was talking with another investment counselor, Sarah, yesterday about kind of what people are looking at number wise. And I mentioned that on live streams before really, when you’re looking at your returns these days, you know, you’re going to see a much, much, much lower return than you would if you were looking at it one to two years ago, the returns have just been compressed because of the run up in price. So now, you really have to look at your property today at purchase time, and your property in two to three years, purchase wise and look at how your return will be over that span. And not just what are the first 12 months going to give me because the first 12 months at this point with the rise in prices. And with the rents slowly catching up. The first year is not going to look fantastic, you know, pretty much anywhere you look no matter what market you’re in. But the second year, you need to look and see what’s the rent, then like what’s the rent increase been like? What is it likely to be? And then what are my returns going to be after that? And when you look at it that way, you’ll become much happier investor. When you see Oh, my goodness, you know, this home I bought a year ago is running for $75 a year more now, or a month now that make my returns fantastic. So when your rent renewal comes around, guess what? You know, even if you just raise it by 50 or $60, not 75 you’re in a good place.
Jason Hartman 34:11
Yeah. And if you’re not understanding why $75 is so significant, because I can just hear people who are doing well making good money if their business or career thinking this is stupid, like you’re talking about 75 bucks, that’s like nothing, right? That’s not true. Okay? You got to understand how to do the math, okay. And I would highly recommend that you watch I got a free video for everybody. It’s, it’s about well, we’ve changed a little bit. It’s about 3030 ish minutes now. And it’s on the front page at Jason hartman.com. It’s totally free, no strings attached. If there is one video, you must see it is this one which is how to analyze Real estate deal, it goes through every number on the Performa. And this will make you a much much better investor. So please go to Jason Hartman calm, do yourself a favor. It’s the speed class in real estate investing it really is. And just watch this one video, take 30 minutes. And that will make you a fantastic real estate investor. Just that one video alone will really really help you. So check that out. It’s again, right at Jason hartman.com on the front page. Adam, good comments. Good questions. Thanks for the questions, everybody. We’ll get to more of them next time. And thank you all for joining us and we just want to wish you happy investing.
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out this shows specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
This Flash Back Friday was published in November 2018. Jason Hartman begins the show by discussing Mortgage FAQs. They also talk about how technology is changing our buying habits. Later, he welcomes Drew Baker and asks him about a mistake that made him realize it’s important not to deviate from the contract. Jason and Drew also tackle dividend stocks and Argentina’s economic disaster.
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.
He 1012 is when we did our first purchase. I think 2011 is when we started. You know, attending meetings, probably 2010 is when I started listening to podcasts. My husband was a little ahead of me. So he’s probably, you know, late 2009, early 2010. And you know, we’ve just obsessively listened to you. I think you’re on episode 300. At that time, though.
Welcome to the creating wealth show with Jason Hartman, you’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:28
Welcome to Episode 1083 1083. This is your host, Jason Hartman, coming to you from San Diego, California. And I happen to be with Carmen San Diego. Yes, Carmen San Diego here. And Carmen San Diego’s parents are in the back. I heard a fascinating story from them today. But they do not want to talk on the podcast about Venezuela and just just totally fascinating history. That was amazing. But on a very serious note and a grim note, our hearts go out to these victims of these California wildfires. Boy, as we were coming back from Hawaii, I started really noticing all of the news, it’s kind of odd in being in Hawaii, I guess we were either so busy doing the venture Alliance event and the profits and paradise event. Or I don’t know, it’s sort of even though it’s part of the United States, it felt very separate, felt like it was coming back into the country from from out of the country, you know, and to Hawaii many times, of course, I’ve been all around the world many times. But it just sort of felt like I was out of out of the news cycle. These wildfires are terrible at the time of this recording, 25 fatalities and over 110 people missing. So it is very sad. 1000s of structures have been burned to the ground, the entire city of Paradise, California, or town is gone. It’s just really shocking and tragic, really a tragic thing. on the business side of that, of course, we have to think of the insurance claims and the massive burden on the insurance industry, and also commodities prices to supply the rebuilding efforts. Whenever these tragedies strike, we see the market react, and it reacts in price changes. And those price changes through the wonderful capitalist system, deliver commodities, and help people rebuild and help people put their lives back together. But it is just awful. And of course, we will all continue to follow it if you’ve not been paying much attention to the California wildfires. These are the worst wildfires in California history. Let’s just hope that there’s some relief very soon for that. And other notes.
Our guest today will be a returning guest to the podcast. And that is Drew Baker as we talk about a whole bunch of things, not the least of which is blockchain cryptocurrency, what it means for the future self management, real estate investing all of the above. It’s just sort of a very eclectic discussion. Whenever we get our clients drew on the show, we’re going to cover some good stuff. But before we do that, today, I want to talk about some financing. Some FAQs, frequently asked questions when it comes to financing. Before we even get to that part, I want to share a couple of factoids that I thought were just kind of interesting. These are from the leftist rag USA Today. Yes, I always have to throw in something a little commentary about the media. Do you know that the average job tenure in America Guess how long it is? Guess how long the average person stays on their job in the United States nowadays? As of 2016, that number was unchanged. The average person stays on the job. Yes, not one year, not 10 years. 4.2 years, 4.2 years. That’s the average tenure on the job and it makes me pretty happy. My people stick around a long time. I’ve got people For me, they’ve been with me, I don’t know, 16 years now, still several 1011 years. So a lot of time, you know, but you know, you can almost compare that to my prior discussions on vacancy rates. When we look at vacancy rates on real estate, you know that job tenure has something to do with that. And if you don’t know what I say about that, go to Jason hartman.com, and search vacancy rates, and you’ll find out more. I think that has a lot to do with job tenure in sort of an odd way. But you know, how I always make odd leaps and statistics that hopefully you find interesting. Here’s another factoid that I thought was interesting. cameras, right camera as well. You may not know that the creator of the digital camera, the first digital camera was none other than a company that has gone from the American landscape. Today, the worldwide landscape, a company that really did change the world. And that company is Kodak. Yes. Kodak not only became the global leader in the film world, but also they invented the first digital camera. I think it weighed about 10 pounds. And it wasn’t very good. But they just thought it would really never take off. They thought that technology wasn’t ready. And of course, they were very wrong about that. That was a pretty terrible decision on their part. They dabbled in the digital camera industry. You may remember that years ago. But this was an amazing stat.
You know, we’ve all got cameras in our smartphones nowadays, because it is an amazing time to be alive. But guess what, as the we’ve seen the rise of the smartphone, the camera sales have declined dramatically. You know, I used to carry a digital camera around with me, and a phone and then a smartphone, and then you kind of didn’t need a camera anymore. You’ve just had your phone and in the incredible camera built in? Well, worldwide camera shipments totaled 25 million cameras in 2017. But the question is what as I always say, compared to what compared to what? Well, compared to 2010. That is down 80%. That’s an 80% decline in digital cameras shipments down 80%. in just eight short years, as we’ve seen, the processing ability of cameras built into our phones improved dramatically. I want to talk to you about millennials and renting versus buying. But you know what, as usual, I am running out of time. So let me get on to a couple of these financing, frequently asked questions, because you know, we’ve got to get to the movies here. Can you tell we’re in the car? Yes, we’re going to the movies. Alright, so a couple things that I thought would just be interesting at our profits and paradise event in Waikiki Beach. Last weekend, one of our lenders that was there spoke about financing. And we did some panel discussions and had a really interesting time. But they talked about financing. And they came up with a really good little pamphlet. And as I was reading through their pamphlet, I thought there were some good FAQs that I would address on the show, because of course, people tell me I have a gift for explaining things. And we’ve had many lenders on the shows, of course, we have our monthly mortgage update. I just wanted to tackle a couple of these here, time permitting. Before we get to our guest today. One question we commonly hear is can you finance more than 10 investment properties? Well, the answer is yes. But that’s each person. So a married couple can finance up to 20 with agency loans, Fannie Mae, Freddie Mac, these are the really desirable loans, but you can go beyond that with portfolio loan products. And those are not as desirable but they’re still pretty good. Because when you ask yourself compared to what the financing above 10 properties per person, or per spouse, still pretty darn good, pretty good. But you might ask about your credit score. Now, as I’ve talked to you about before, there are many FIFO scoring models, and FIFO.
The Fair Isaac scoring system that’s been around with us for years that is probably going by the wayside as credit scoring becomes a lot more big data oriented and has a lot more cool features, as I’ve talked to you about each consumer really has about 1000 data points, this credit scoring, this traditional FICO scoring stuff is really not as good as it could be. But we’re still on the FIFO system. And the FIFO system that mortgage lenders use requires a credit score of 620 Yes, only 620 only 620. For your first let me see your first six properties, your first six financed properties, only 620. That’s not very difficult folks, as you know, for properties seven through 10, a minimum credit score of 720 as well. required. Now, if you use any of those credit reporting services like Credit Karma, or any of the many others out there, I remember I sat next to the founder of Credit Karma on a plane ride from San Francisco to Las Vegas about a year and a half ago. And it was interesting talking to him. But remember, you might just be looking at one of your FICO scores, and you don’t know which FICO scoring model you’re looking at. Is it 504? Is it FICO eight? Which model? Is it? That’s the first question. But wait, there’s more. It’s complicated, like my favorite Facebook relationship status. It’s complicated. So also remember, you have three credit bureaus, right. And so they do what’s called a try merge score. They don’t just take one of those, right, because they vary dramatically, you know, some are tougher than others, in terms of the way they score you. So it’s the FICO scoring model. And it’s all three bureaus. I believe most mortgage lenders take the mid score, I don’t believe they average them. But frankly, I can’t remember. So ask one of our lenders, and they will help you with that. So I just wanted to talk about a couple of those things. We are already 11 minutes in, I am going to announce the contest winners on the next episode. So we will do that on Wednesday. Last chance to enter our contest for the ring doorbell or the Amazon Echo. At Jason hartman.com slash contest. Just talk to any of our investment counselors or lenders who can help you with financing details. I’m going to tackle a few more of these FAQs in the next episode as well, time permitting. But for now, let’s get to our guests because hey, this is a fairly long interview. And we’re going to cut it into two segments. We’ll play part two of it on the next episode, as we announce the contest winners and get to a few more of these FAQs. So here we go. Until next episode, happy investing. But here is our guest.
Hey, I wanted to welcome a returning guest back to the show. And that is one of our clients drew Baker. Today we want to examine some economic issues and talk about the possibility of a market crash. Well, when I say market crash, maybe stock market real estate market economy in general, we’ll talk about that and some other things as they relate to the strength of the dollar. I want to make sure we touch on Argentina and Turkey because while big currency devaluations, they’re pretty scary What’s going on? We’ll just kind of dive into some of that. And of course, you know, Drew is a client of ours. He’s talked a lot on the show previously, about self management has really shared some of his experience there and I think enriched our audience a lot. So Drew, welcome back.
Drew Baker 12:55
Hey, thanks for having me, Jason.
Jason Hartman 12:56
Good to have you on. And thanks again for sharing your self management experiences, how you converted from having property managers to self managing about half of your portfolio, you’re having a really good experience with that. So you know, let us know how it Yeah, unfolds over the months to come.
Drew Baker 13:13
He had it’s funny, I could share a story with you about something that I made a mistake if you want to hear a mistake story about myself management. So in a previous podcast, we talked about how I became friends with my tenants, quote, unquote, you know, a friendly, I suppose. Yeah. And I think that the issue with that is that I, when I was having the tenants occupy the properties, one wanted to break the lease, and just as a very Matter of fact, way, they said, Hey, don’t worry, we’re going to have somebody else fill in our spot, we’ll help you find somebody. And I said, Well, you
Jason Hartman 13:47
got to qualify them. Yes.
Drew Baker 13:49
Yes. I said, Well, if you find a qualified tenant, whatever deduction and sees that I’m charged by my new agent, I’ll just take off of your breaking of the leaf. Okay, well, it turns out that they needed their handheld the entire time, you know, did you show the property? Did you do this? Did you do that? Now I didn’t I just have someone that’s interested. Well, if you put a lawn sign out and you have a phone number, it doesn’t help me to like have to qualify the tenants or have my agent do that. So it’s basically creating more work than if I did it myself. I mean, this is like, basically the property management game where you have someone in between you and the tenant, or you have someone in between you and the applicant, right? This person who’s the tenant doesn’t know how to find a qualified tenant, ridiculous course. So I was a bit naive thinking like, Hey, I’ll deviate from the contract help these people out. And instead, it just created more work than if I had done it myself. So I think that the lesson that I learned is that the contract is what it is. And if a tenant decides to make a life decision, like buy a house or something, once they’ve decided that they’ve decided it In light of the contract, it’s not like they can come back to you and go, Hey, I made this life decision. Make me a deal.
Jason Hartman 15:06
Yeah, right, right now they have to, they have to uphold their bargain, and you need to hold them to their bargain, you know, they have a right to try and mitigate their losses. And they can cooperate with you in showing the house, they can help you find a tenant. But of course, you, as the owner get to make the decision who you want to lease the property to. And you need to make sure that new tenant is fully qualified, and that they’re going to take good care of your place. So
Drew Baker 15:32
yeah, goes without saying and no good. There was a, there was a silver lining in this, because they had told me that they were considering leaving in the middle of the month. And since I’m not prorating, you know, middle of the month type thing, what I said to them was, hey, if I get a tenant on the first of the next month, and I can use the time that you leave to get the place rent ready, I’ll apply that time to your discount on the breaking of the lease. So they ended up having an incentive to leave a little early. And they got a little bit of a discount. And I got the place rented with very little vacancy on the first. So there was no real downside. And I was fighting the weather changing, you know, because this is in a four seasons part of the US. So I had an incentive, and the tenant had an incentive and our incentives were aligned. To say, yes, yes,
Jason Hartman 16:23
you must have aligned incentives and lights, try everywhere as much as possible to align incentives when incentives aren’t aligned, problems always seem to occur. And and that’s really the basis of commandment number three, thou shalt maintain control, and why you should be a direct investor. And, and like I’ve said, Every time I violate my own commandment number three, and some of the times I you know, I do it, I walk into it fully knowing it usually turns out bad, but some things I do to be a laboratory for our clients and listeners so they can hear about my bad experiences that might turn into litigation and, and cause trolls and hate. By the way, I’m wondering, you know, maybe you got an email from my troll on the last time you were on the podcast, but if you didn’t, you might get one. So we’ll see. Yeah, it’s coming. It’s coming. Make sure you tell them I want to troll. Yeah, yeah. Then you know, you’ve reached the big time when you’ve got hater Yeah, okay.
Drew Baker 17:23
Although I’ve made it when I have a troll. That’s exactly true.
Jason Hartman 17:27
But hey, so let’s talk a little bit about the economy. You know, there are so you know, right now, it seems to be that everybody’s trying to predict something, you know, we’ve got this real estate market and this stock market that have been on a tear for years now, really, now, both of them have come off very low bottoms from the Great Recession, but they’re still booming. You know, now we’re, we’re almost two years into the Trump presidency. And unemployment is super low unemployment, when you segment it into women, African Americans, different minority groups, it’s really low. So you know, anybody’s entitled to hate Trump as much as they want. But like I said, he’s going to be good for the economy. And I think that’s gonna continue, you know, because we actually have, I mean, listen, I don’t like the guy. I think he’s a jerk, okay, but he’s a business person. He understands the way business works, you know, and that’s a lot different than having a politician or a community organizer. You know, there are people that have different talents, some understand business, and some just don’t. Okay, so I just do you know, that the trade war, I mean, you can criticize that all you want, but it’s making American wages go up. And things are doing pretty well. I don’t know. Do you agree with me? And Jason,
Drew Baker 18:53
I want to tell a funny story. If I went to one of your events, it was probably Oh, gosh, I don’t know, getting close to 10 years ago, I think it was in 2009 or 2010. I can’t remember. I went to one of your events. And just I was talking to some people in an audience and talking about the stock market has taken just such a huge nosedive. And I remember you crowing that you had called what you thought the bottom might be and you were right, and someone in the audience, I remember talking to them, and they said, when I was a little kid, I used to mow lawns, and I saved all my money up and I bought Bank of America stock he said today, today Bank of America stock is less than what it was when I was mowing lawns. One guy had you know silver hair, he had clearly seen a lot. That’s pretty
Jason Hartman 19:39
amazing and tragic in the same time. See with income property, because it’s a multi dimensional asset class. You can earn your return from lots of ways. Now I don’t know if Bank of America pays dividends or not. But if it does, it’s a two dimensional asset class you get appreciation or sadly depreciation and you got to Adjust that for inflation always. And then you get maybe you get dividends. I don’t know if it pays dividends or not, you know, I don’t really follow the stock market very closely. But with income property, you make money. You make money, six different ways. Okay? I mean, six, most people say five. And you know, they use that acronym ideal, right? Most say five, but they don’t include the Jason Hartman way, which is inflation induced debt destruction. And for our regular listeners, I won’t bother boring you with the repeat if you’re new, go to Jason hartman.com. And type those words in here all about it. Okay, so what do you think is going on with the economy? I mean, Drew, we talk about this a lot, you and I, we trade messages back and forth constantly. I think you talk to me more than you talk to your wife. Okay. I’m thinking that might be true. Is that true? Is
Drew Baker 20:50
she complaining about? Well, she wants to she wants to thank you very much. So for her constantly hearing me tell her self management stories. I think we’ll call it even. Okay. All right, there we go, there we go about what you were talking about. With dividends, I mean, the thing about dividends is if the company doesn’t do well, they will either take away or dramatically cut the dividend down to almost nothing. So it’s not like this dividend is some stable horse, if the company becomes unstable, that’s the thing is the situation that your tenant might be in. And the situation you might be in are probably a lot different than what your acquisition price is, doesn’t have any effect on the tenant. So the finances of you and your tenant are in different worlds. Whereas when you are owning a stock, you’re very much tied to how the how the company’s doing, because that’s reflected in your return. Yeah, absolutely.
Jason Hartman 21:47
And the thing is, the dividend can be much less stable than the rent. I mean, certainly, you could argue that, well, if times get really bad, the rent could decline. And that is true, you know, or the tenant won’t pay at all, because they will be in trouble. So that can definitely happen. There’s no question about that. But the amount of it that can happen, the significance of it is well, at least I say, and I’m not coming from some scientific study on dividends here. Okay. Because I don’t have the stock market knowledge, but it’s less volatile than the dividend equation.
Drew Baker 22:22
Well, the thing too, I mean, by the way, dividends are a joke today. I mean, they’re so low that you know, I mean, this is this goes back to the whole wealth gap thing that you mentioned the past. I mean, if you look at the greatest generation, our grandparents, they had one parent at home, and one income, and kind of everything was calibrated family wise to that one income. And then when the baby boomers came around, and you had the 70s, and women coming into the workforce, now you had double incomes. So the prices dramatically gapped up, because now each family had more income, and you have more dollars chasing fewer goods, and the prices go up from then. And then you look at 30 years of declining interest rates today, you have free money, double incomes, and just things are nutty. So it’s like you have this slow erosion at being able to get in, as far as what you’re talking about with the wealth gap, that the bar is so much higher, you have to have every cylinder going in order for you to basically be in the middle class almost feels like right.
Jason Hartman 23:34
Yeah, no, there’s no question about it. I mean, it is a myth. In some ways. I mean, see, this is these equations and discussions are complex, because you can’t say it’s one way or the other. But you can definitely say that look, Americans, if they’re a couple, mostly both of them are working, okay. And it takes two incomes nowadays to support a house, and everybody is a heck of a lot busier and a lot more productive. Okay, then they ever have been in history. I mean, just like I always say, you must watch old TV shows, and old movies. I mean, you just must do that everybody needs to be a student of history. There’s an old saying, you know, those who don’t learn from history are doomed to repeat it. And you got to watch old stuff. So you’ll know how it was, you know, go on YouTube, or Nick at night or something. And watch, Leave it to Beaver in the Brady Bunch, and just see how life was? Yes, it’s the movies. I know. It’s Hollywood. But it’s a much better depiction than the one you have a memory of, okay, or maybe you weren’t even alive then. And you just got to see how life used to be. It used to be much more relaxed than it is today. Much less intense than it is today. What people were more like people back then now they’re like distracted by a billion things. And hey, that’s one of the human connection is has been just decimated in our culture. And it’s not just that way in the US, it’s around the world. But the US is one of the worst places in that respect. If you’re single, and you know, marriage has become extremely unpopular, if you’re single, and you’re trying to meet somebody, it is really tough. With people being so distracted, everybody’s looking at their phone, they’ve got earbuds in their ears, they don’t go out because everything comes to them. They’re doing what the futurist faith popcorn back in the 90s talked about, she talked about nesting, and how back then the example was, well, everybody has a big screen TV now a home theater in their home, they don’t need to go to the movies. Well, now. You don’t need to go out at all.
Drew Baker 25:43
And so it’s just a different world. It really is. The whole world has changed so much. I was watching Joan Rivers interview, my wife was like, why are you watching Joan right now?
Jason Hartman 25:53
I never knew you were a fan.
Drew Baker 25:55
Well, you know, I was a fan of the tonight show. And I remember it being on when I was a kid. And I know that Joan Rivers sort of filled in for Johnny here and there. And she spoke about Johnny having a dark side. And she had done this for a while after she had called Johnny and said she was going to leave the show. And he hung up and never spoke to her again. And basically how Johnny, the way he was on television was different than how he was in his personal life and how someone today like Johnny Carson couldn’t exist, because of how private he was sort of how he and avoid a ladder in his life, sort of had no one surrounding him. Whereas today, you have the Papa Razzi, and you have all this technology. And you know, he’s out in Malibu just putzing around and just left alone. And today, he would just be harangue. So you’re in such a well, we should. We should we should we should make the note that Johnny Carson has passed away many years ago. But yes, go ahead. I know you. Yeah, I mean, well, the observation i thought was interesting was that someone like Johnny Carson with all that fame, you know, Johnny could make you or break you, he could make you famous for life just by anointing you. And basically today how there’s so much technology, that things today, the currency is getting in front of people is getting people’s attention. I had a friend who’s a stock analyst, and he said, I was joking that a lot of these companies now are just basically giving away free things and operating at cost or loss, just to get attention. And he said, Oh, well, of course, all they want to do is sell their stock, they don’t care about the company. So the primary mode is getting attention to get a higher valuation in the market.
Jason Hartman 27:36
Okay, so let’s talk about that for a minute. That’s interesting, because a long time ago, I remember talking about this on the show, and I’m glad you brought this up. Okay, so about 70% of the s&p 500 index is composed of consumer spending. Right. And I know you know this already, the question would be in it’s kind of an interesting thought experiment. Is it more important for companies to sell their widgets, their products and services? Or is it more important for them to sell their stock? And this makes the public stock market creates a misalignment of interests? Because you’re right, these flashy CEOs? I mean, Ilan musk certainly comes to mind even you know, he maybe he’ll go to jail. I don’t know. Ilan Musk, I love I’ve talked about a much and I know you’re a huge fan boy Drew. And well, no,
Drew Baker 28:31
I think that that can be a whole nother podcast.
Jason Hartman 28:34
I have a lot to say about that. We could we could we could do a musk cast. Listen, I like I was a big fan. When I got my first Tesla. It was good. But when I got my second test lie became a non fan. To say that I love his vision and stuff. But you know, he’s a crony capitalist. I mean, many people just say he’s a crook. Okay. He’s, it’s kind of like the same thing in government, right? Bernie Sanders and the late Ted Kennedy. I mean, all they do is they take other people’s money and redistribute it and they’re viewed as heroes. I don’t know. I mean, look, you know, raising money is a legitimate thing. But it becomes real cronyism, certainly, in the case of Elan Musk, but I don’t know if that’s, we’ll get into a huge tangent if we go down this path, but thoughts.
Drew Baker 29:23
What’s funny cuz CNBC did a whole thing on how all these original Model S owners, the people that bought the first Tesla cars are now having trouble with service and because they’re no longer you know, under warranty, and it was talking about the exorbitant cost to repair just silly things like the door handles are over $1,000 each for hair.
Jason Hartman 29:45
Yeah, yeah, no. lifeless, you know, it’s just crazy. My Okay, so check this out. I have not had a traffic ticket in probably 20 years. Okay. I’m a you know, pretty conservative driver. Okay. And my insurance My Tesla Model S the first test I had was maybe 20 $800 a month. I thought that was outrageous. Okay, I thought that was really high. But wait, there’s more a year. You mean a year that month? No, sorry. Yeah. A year. Did I say month? Sorry, okay. 20 $800 per year when I thought that was outrageous. I thought that was really high. Okay. But I got the Model X in the insurance was like 50 $200 a year, I thought, Oh, my God, Tesla did not disclose this to me. I went online and started reading about it. I thought I have never had such Carnage, just insanity, that my car insurance would be that much. I mean, you could buy a whole cheap car for that, you know? And it’s because and then I read it, I think it was Consumer Reports had an article about it. And they said, these new cars with all the safety features are really cool in a way, but just the mirror on one of these cars, if the mirror has a camera in it, you know, the mirror alone, if you break the mirror off, it’s 13 $100. You know, these high tech cars are pretty darn expensive to insure in some, in a lot of ways. They’re safer, because they have lane departure warning system and, you know, maybe autopilot like the Tesla had. But we’ve seen that that doesn’t work very well. Yeah, it’s just interesting. I mean, it is, but hey, let’s get back to the investing stuff. Because I know there’s some stuff you wanted to talk about dollar devaluation, well, not dollar devaluation, but currency devaluation. And let’s talk about the crypto stuff. And Argentina is now having every 10 years like clockwork Argentina has an economic disaster. And they’re having one now. I mean, just I think it was just today, their currency devalued by like, I don’t know, several percentage points in a day in a day. It’s tragic Turkey. Tragic. Now, is this stuff going to be contagious? I think the real estate market is going to hold up pretty well in the low end. But in the high end, it is softening quickly. I just did a radio interview about that yesterday on a phoenix station. What do you think is going on out there?
Drew Baker 32:06
I mean, this is the classic government running the economy. I mean, when you have central banks and the government, you know, talk about misaligning the interest between the people and the government. I mean, the thing that’s so funny about this is if the government creating the money, you have the government collecting the money through taxes, and getting to use the money first as its devaluing. And that basically leaves the general public to operate within that kangaroo court. And if you don’t follow those rules, they’re gonna put you in a cage. Right? And who gets held who’s accountable? When the experiment goes awry, and fraud occurs? And you know, the biggest fraud of all, no one gets held accountable on the government’s and but maybe if there’s a revolution, people might hold them accountable, they might have to stake
Jason Hartman 32:55
you know what I’ve been, I got another half to watch still, but I’m watching this. It’s amazing that a movie could actually be funny. It’s sort of like a comedy about Joseph Stalin, the biggest killer of all time, probably, you know, when he was running Russia, and it’s like the spoof on on Stalin ism. And it’s sort of interesting, but you see how bad it is when their central planning of any sort, and government control and overreaching government and and what you said about the central banking cartel that a lot of people just don’t understand is Look, they get to, like you said, the government and the central bank, the unholy alliance between the two, they get to use the money first. And by the time it trickles down, it’s devalued by inflation. And they want to see it devalued, because it’s a great business plan for governments, because the government gets to pay its debt back in depreciated, cheaper dollars. That is an awesome deal. They are following the Jason Hartman model of real estate investing, inflation induced debt destruction, inflation induced debt destruction, where you borrow for the long term at very low rates, and you pay that debt back and ever cheaper dollars. It’s a great deal. And if you know, look at the people running the governments and central banks are much smarter than any of us they have way more information than we do. And that’s their business plan. So just Tony Robbins says success leaves clues. Okay, let’s emulate that. Let’s use them as our mentors. Because they they know what they’re doing.
Drew Baker 34:33
Yeah. Well, it is funny when you think about the whole economy and the money supply. And all these people talking about, you know, private assets, such as in Bitcoin, you know, type thing and everyone flooding out of the dollar. And I think when you look at the Fed decreasing liquidity and slightly bumping up interest rates while everyone is still doing quantitative easing in other parts of the world, you know, immediately the US starts to look like the prettiest of the three ugly sisters. And you have to find out Well, where’s all the money going to flow to? And since we are kind of, you know, when things go awry, you know, if we get catch a cough, everyone else, you know, kiss on life support, and we’re starting to improve our economy and everyone’s lagging behind us. You think about all that money that’s going to start to flood into the US, it makes you wonder if asset prices are going to go higher, because why would you put your money in the Japanese economy where they’re buying, you know, 97% of their own bonds, and some of these other economies where they’re just printing their money, like it’s going out of style. And you look at the US dollar starting to look pretty good. And so when you talk about like Bitcoin and some of these competing currencies, I think they sound great on paper, but you have this the system is so entrenched in the dollar, whether it’s paying your tax bill, or this, the political aspects of it, you know, and the social aspects of you revolving your life around the dollar, and just all these implications, and I think you talked about the military aspects, you know, they are the ones with the guns. I just don’t see the infrastructure that could adopt having a cryptocurrency be a viable thing. And I know we’ve talked about this in private message, but I just don’t see the architecture there.
Jason Hartman 36:23
I don’t see the system isn’t there, the infrastructure is not there. This will be continued on the next episode. Thank you for listening and happy investing.
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In this solo episode, Jason Hartman explains the Stock Market Bubble by performing a walk-thru of the Wilshire 5,000 Index. He also shares self-management tips from clients, the Refi-Til-Ya-Die option, and using Thumbtack.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11, states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:53
Welcome to Episode 1655. It’s Wednesday, March 3, and a question we are constantly being asked. Not we meaning us necessarily, but in general, we are all thinking about this. everybody’s asking maybe themselves this question. And what is that question? The question is, are we in a stock market bubble? Are we in a stock market bubble? It’s a good question. Well, looking at a chart here of the Wilshire 5000 index. Now, that’s the big broad based index, it takes market caps, it weights them. And these are, you know, actively traded stocks in the US, right. But here’s the interesting thing, the quarterly averages in the past, not today, used to match the quarterly intervals of the GDP statistics, the gross domestic products, not products, singular product, the GDP, the gross domestic product, right. And so now, a fair question to ask is, how does this look today? Yeah, there are many metrics. There are many ways you can compare things, of course, and we’ve obviously talked about that ad nauseum on the show. But here is another when we look at not inflation, necessarily, although this, this sort of has an indicators, at least for asset inflation, most certainly, right? But when we look at comparing the Wilshire 5000, to nominal GDP ratios, okay, in the past, it was pretty much in sync, but it got out of whack a few times. And let’s compare the past to the out of whack periods, to today. And I think this is very enlightening. And then we’re gonna get to some listener questions. And I’ve got a couple more things I want to talk to you about the the S h fa, not the FHA, this is the Federal Housing Finance Agency, and talk to you about what they’re doing with forbearance. So let’s get to that in a moment. But first, let’s talk about these these stocks. Okay. So looking at this chart, going back to 1975, it looks pretty, you know, even keel and then we see a big increase at about 1995. Not not really then but it’s it starts its climb up to the big bubble about five years later. And of course, you know, what that big about bubble is? It is the.com bubble, the the tech bubble, the first tech bubble, okay, now at this point in in the first quarter of 2000. So this is 21 years ago, the ratio of the Wilshire 5000 index, compared to what compared to nominal GDP was 1.37. And that is far out of sync compared to the norm. If you looked over the past the past 25 years before that, you see it at like point four, up to point six, then you have that climb at 1995, which I which I described where it gets out of sync and it peaks at 1.37. Right? And then obviously, there was a crash, and at the lowest point of the crash at the trough of that crash, that hit in about and you remember it folks, I mean, you know, this was about 2003 ish, give or take the ratio went down to a about a point seven.
Okay, out of point seven there and then we Saw a bit of a climb, but the climb wasn’t too outrageous. It wasn’t too radical until until we got to the next bubble. Now, they’re calling this the housing bubble, because that’s how it started. But it was really, as I’ve explained many times, it was really the Wall Street bubble, because it wasn’t really housing directly that caused that. Yes, of course, the mortgage underwriting standards back then, or stupid, silly to liberal, and they had too many adjustable rate mortgages that one underwritten properly, etc, etc. And, you know, nothing new there. We’ve talked about that many, many times. But, you know, for, for whatever it’s worth, it caused a housing crash, right. But really what happened was the second part of that, that really caused the Great Recession, the global financial crisis, the GFC, was the fact that wall street was doing their little shenanigans, and Wall Street was selling the same mortgage note in, in these pools over and over again, there was toxic debt, we all, you know, became familiar with a whole bunch of new acronyms. And, and we all we all remember it, right. But they’re the ratio only got up to 1.05, as opposed to the prior peak, about seven years early of 1.37. So let’s keep going. Mm hmm. Get ready for this one, get ready for this one, the ratio goes down. Great Recession, stock market crash goes down to about point six. All right, then it starts its climb. And there are some jagad you know, peaks and valleys in this climb. But overall, it’s it’s an upward trend. And we get to the fourth quarter of last year. Okay, q4 2020. What is the Wilshire 5000 index to nominal GDP gross domestic product. In other words, the output of the country now, before I give you the answer, there’s one more thing that you really need to consider. And that is the ironic situation, the irony of a massive decline in GDP that we suffered last year, obviously. And then you really see how this index is out of sync, and how and why people have really been talking about two completely separate economies. Because that’s what we’ve had two completely separate economies, where we have the Wall Street economy, and then we have the main street economy. We have two different things. Okay. But the number today is 1.72 Yikes, yikes, yikes, yikes, it is way out of sync way out of sync 1.72 is the number q4 of last year. So we can see here that that shows us that we we may have a problem. You know, here’s when we have a problem.
Okay, there you go. So for whatever it’s worth, consider that. All right, the FHFA has extended the forbearance period, to 18 months. In other words, you don’t have to make your mortgage payment for a year and a half. Congratulations. Now, this doesn’t apply. Remember, do not do this, or at least proceed with caution, and get some advice from competent professionals. And we can refer you to those competent professionals. You’re certainly not listening to one of them now. There you go. Little self effacing humor, Jason, okay. Get some advice from competent mortgage people. And remember something when we refer you through our network to mortgage professionals know that they specialize in the investment property side of the business, there really is a difference between that mortgage person that you, you know, got your home loan through if you own a home, or maybe you refinance your home, and someone who really specializes in helping investors build portfolios. That is a different type of mortgage Rep. So reach out to us Jason hartman.com. Have your investment counselor help you if you don’t have an investment counselor. Just fill out any form on our website. And they will contact you, or call us at one 800 Hartman in the USA one 800 Hartman, and you can get some assistance, get referrals. One of the big parts of being successful as a real estate investor is having a team. And guess what, we can provide that team for you through our network. Instantly? Well, almost instantly, maybe it’s not quite a microwave oven. But it’s pretty fast, we can get you connected with all kinds of resources, all kinds of referrals, people, software, etc, etc. So don’t hesitate to reach out, even if you’re not ready. You know, we’re always here to help you, we take a very long term view of our, our business and our relationships with customers. So there you have it, folks. 18 months of forbearance option now, not sure if I mentioned this a moment ago, but why wouldn’t you want to take advantage of the forbearance opportunity? Because it is an opportunity? Why wouldn’t you want to do that if you are looking to buy properties soon, because some lenders are saying that you cannot be in forbearance, and get any new loans. Okay, so just take that for what it’s worth, and get connected with right professionals that can help you with that.
Okay, now, let’s go to a couple of comments, listener questions, things like that. The first one comes from our client, Drew Baker, who’s been on the show many times, he also really helps our empowered investor, inner circle group. If you want to know more about that, we announced a kind of a webinar and intro on that. And I’ll see if I can get that link for you in the show, we’ll certainly post it below in the show notes, if I don’t grab it for you, while I’m speaking here. Today, he really adds a lot of value to that group, and we appreciate it. And he has an interesting comment here that I’ll start with. And here it is, of course, focus being self management, and being an empowered investor. And I gotta tell you, I love self management. But it’s a choice, you know, you may or may not want to do it. But here’s what he says about hiring contractors in the handy platforms that are available to all of us.
Drew Baker 12:18
Hey, Jason, you know, I’ve thought about, possibly, if you want to do another podcast one these days, I have a couple of interesting things we can talk about, you know, one of which is that, you know, a lot of these crowdsourcing sites that have reviews for, you know, contractors like, thumbtack, and you know, TaskRabbit, but I think that’s a little bit smaller. But you know, these people that are on thumbtack, they like really strive to have good reviews. And I think, I think my issue with a lot of contractors is kind of the 8020 rule applies to them, or like 80% of their business comes from 20% of the clients. So kind of the people at the periphery, don’t really get any attention, because they’re kind of seen as almost a burden to the, to the contractors. And people will get flighty and, you know, there’s unreliable wares, I think these people on like, a site like thumbtack, the ones that get good reviews, they’re 80% is thumbtack. So you’re kind of under the umbrella of them being accountable to you. And so, you know, not giving some crazy quote, not lying to you. And so I used a contractor today that did some AC repair work for me. And the guy sent me a photo of the gauges sent me a very reasonable estimate by email, I paid him right there over the phone, and gave me his thoughts about replacing the system eventually. And I just thought, Boy, this person just has it together, they have a system, small business guy, you know, talking to the owner, texting with him, you know, just kind of that small business competent person here if you want to find, and I thought, Boy, this is so rare. So it’s nice though, that, you know, these people sort of are held to account so they’re not just these flakes. Because I had some of these, I had this guy that was like a flipper in Memphis. I don’t know, he like gave me kind of some of the contacts that he uses when he needs help for doing some repair work. And I called them these people. And I mean, it’s like, some of them don’t speak English. A lot of them, like don’t get back to you. One of them went out and looked at it and like wanted to charge me like $12,000 to do stuff that really didn’t need to be done. It just seems like so disconnected from someone you’re like, you I’ve never done work with you before. You’re telling me that I need to spend $12,000 on fixing everything is kind of just random. So so what I was gonna say is I’m gonna go through a little bit of an experiment here, but I’m going to sort of try to build my vendor list and by using the some tax sites and see how that goes, and I’m doing it in two different markets. So I’m doing it in Memphis, and I’m doing it in Indy, and so
Jason Hartman 14:49
and what he means to say is, you know, he refers to as thumbtack sites. thumbtack is one site, you know, TaskRabbit is another there are there are several of them out They’re okay for all sorts of trades. But I’ve used them both. And I like them very much, I had very good experiences, and really think they’re a great resource.
Drew Baker 15:09
I’m contracted with someone to do a rent ready in July. So we’ll see how that goes. And I’m the guy who was probably gonna do the AC unit next month. And then in Indianapolis, I’m going to do some drywall ceiling repair work. And then if that goes, Well, I’ll use the same guy to do a bunch of interior maintenance on one of the properties that had been neglected forever. I’ll let you know, if you want to do kind of a before kind of podcast on what I’m what I’m thinking about that could help your audience, I’d be happy to do that. And then we could do a follow up after interview if you might go, here’s all the things I learned. What I’ll do different next time.
Jason Hartman 15:46
And the next message is from one of our investment counselors, Evan, you’ve heard him on the show before. And he is speaking internally to our team. Just talking to our other investment counselor, another one of them, Sarah, about how he refinanced his four Plex. And I’m sure most of you have taken my refi to die advice. But if you haven’t yet, it’s obviously a phenomenal opportunity. Right now, your rich uncle, Jerome Powell, has given you a big gift of these insanely low negative interest rates, they’re basically negative interest rates in real terms.
My four Plex in Little Rock, going from four and a half percent to three and a half percent gonna save me 300 bucks a month. Awesome. refi. It works. Yeah, it works. And it doesn’t even take that long. That’s the beautiful thing. I mean, you can wait seven years or 12 years, you know, when that didn’t end the video that you outlined. But you could also do it much quicker. Hey, Jason, I listened to your podcast the other day with the Marxist professor. The only question I had to him was if this is a much better model than he was claiming it to be. Why would it not win out and competitive marketplace?
Jason Hartman 16:54
That’s a good question. So you might remember the episode I did a while back with the the guest calls himself the Marxist Professor believer in Marxism. I’m not a believer, but I thought he was a very interesting guy. So I had him on the show. I like to get some opposing viewpoints of course, as you well know. And so one of our listeners asked a good question here.
Isn’t that the foundation of capitalism itself? If you have a better, more efficient system and idea?
Jason Hartman 17:20
Yes, it is.
I’m listening to an interview that gunlock did for Yahoo.
Jason Hartman 17:25
And this is George gammon speaking, you’ve heard him on the show, many times
George Gammon 17:29
looks like July 1. So if you go to Yahoo, finance their YouTube channel, and pull up the interview, basically, he states exactly what you’ve been saying for, like two months now that everyone’s moving to the suburbs. And his firm did extensive research on this and showed that the offers in the suburbs have gone through the roof while in the cities, they’ve just plummeted. And I think I don’t know what you’re doing for marketing material right now. But to have gunlock backup exactly what you’re saying that might be a cool clip, that you can download and turn into some, like a testimonial, almost backing up what you’ve been saying for like, two or three months.
Jason Hartman 18:12
So with that, you realize how it has been a while since I’ve gotten through some of these messages. So that’s why we need to get through some of the listener comments more often some of our internal team discussions that we share with you and so forth.
I hope you’re doing well. Just wanted to let you know, today’s a celebratory day for me, I’m finally no longer a California property owner sold our primary residence last week, after only six months of ownership, and just sold the Oakland, four Plex and super thankful to have gotten out before things get worse, and totally reinvesting in all the areas we recommend and want to thank you for your guidance. I’m also connected with Bob, who I thought was gonna be the masters and setting up a whole new asset protection strategies that was total repositioning. And I’m super excited to be on the other side of it. And I just want to say thanks.
Jason Hartman 19:06
So that’s our client, Adrian, and I’m sure he’s listening now. Hi, Adrian, how are you? And he’s been doing some great stuff with his portfolio really repositioning getting into the right cash flow markets, and getting his asset protection strategy set up. You know, he did that with our attorney that we recommend there. And you can listen to that free web class at Jason hartman.com slash protect. So thanks for that message, Adrian. And let’s go to the next one.
Well, Jason, I do think about you every day. In the mornings when I hear your podcast, you have become like a drug for me that I need every morning and recording the day. I can tell you that it was too bad. I wasn’t able to hear the whole thing because that weekend I had my grandchildren here is three of them, which is a few things I heard I lost very much. And I learned a lot. So thank you for those events. And hopefully, I would love to see one in person. Okay.
Jason Hartman 20:14
So that’s one of our listeners who joined for just a brief time one of our online zoom events. Just a little, little reaction there. Let’s go to the next one.
Hey, Jason is clay, just giving you just reaching out to thinking about you, when I was listening to George Gavin’s most recent podcasts with Jason Garrett, where they were talking extensively about them backplate tax in life. Anyways, I thought it was
Jason Hartman 20:38
stag fleet tax and lie. That’s what the government’s doing to us.
Important to hark back to a couple of the things that you do with real estate portfolios as a means of defense against what what the government’s going to be doing. What they were talking about is they think that one of the most likely ways that the government’s gonna try to come after people is through higher property taxes. And that had me thinking, Oh, man, it’s not good for, it’s not good for our bus that own portfolios of rental properties. But then they talked about the way they think that’s going to happen is they think that, instead of just simply increasing the percentage tax, they think what they’re going to do is re re estimate or take the current nominal value, and increase taxes based on kind of the new or higher or current value, as opposed to whatever previous value people were probably paying taxes on. And what that brought me to thinking is about how you’ve advocated so strongly for the refund till you die. And I think that’s incredibly prudent to think about. Now we need to, we need to have that as the probably a central pillar of our current investing mindset. Because what we can do to protect ourselves, if property taxes start going up, is there still 1% of rental value properties out there, and even those properties that are in our portfolio, essentially what they’re going to be trying to do, they’re going to try to tell each of us that, hey, your houses has changed in value, we’re going to touch base on that, well, if that’s how that’s gonna work out, what we need to do is we need to, we need to refinance the house, we need to strip the equity that they say is there, that way we continue to renew or reset the property and the leverage on that absorbs in order to to reach those gains. And essentially, we need to protect ourselves. Obviously, with the rent coming in, that’ll that’ll continue to get, you know, to probably keep going up. But if we keep stripping equity, and then using that equity for good things that will keep us current and allow us to continue to recognize the value of our houses as a phenomenally appreciate. But it’ll also keep us with a hedge with our leverage against the devaluation of the dollar, which is a part of that same theory. So anyways, the old mentality is going ahead and paying all your properties off cash and keeping a low, you know, property tax and kind of writing things out, I think that mentality is going to be chipped away at even more going forward. And so that you in the back of my mind, as I was thinking about that, this is gonna get crazy, and we need to protect ourselves. Anyways, hope you’re doing well. And I’ll catch up with you again soon.
Jason Hartman 23:14
Okay, so that was a really good point that he brought up. And one of the things that he didn’t say, but I was thinking, is that and this is a really neat opportunity for us as investors, because that is a loop, right? If the assessor says your property is worth more, and if municipalities are doing that, to try and gain more property tax revenue, then you can go to the lender on your refi to your di plan, and use that comparison that the assessor has made to get a better appraisal. And you can also do that in reverse. You can fight an increased tax assessment with an appraisal that you’re refinancing on. And that is a very, very powerful tool to do that. As you know, and we’ve done many shows on this over the years, you can appeal any property tax assessments, when markets are going up, as they have been for quite a while now. Some of these municipalities are seeing that and, you know, they’re they’re trying to reassess properties and raise taxes, right, or raise property taxes, but that’s an excellent way you know, use those and play them off of each other as a way to get better appraisals and get more cash out on your cash out refinance, following my refi till you die plan, and then also use it in reverse in whatever way it works best for you to get a lower tax assessment. Okay, so let’s see if we can do one more message here. And then we’ll call it a day for these and I really am glad we had a chance to catch up on some of these. We’re still not quite up, we have many, many more listener comments, and internal team comments and so forth. But let’s see if we can do one more today before we wrap it up. So this is our client Drew Baker talking again,
Drew Baker 25:12
someone that would default to that controls the narrative, they’re never going to be wrong. And I think that’s the problem is they control the narrative, and they control the flow of information. So it’s filtered through their lens, anytime bad news comes up, they can just deflect it elsewhere. And so, you know, I mean, I had a tenant that moved out recently, and, you know, they were kind of rough on the property, but they were good tenants, they paid on time. And, you know, there was one little hole in the wall, a door.
Jason Hartman 25:39
And so what he’s referring to is the property manager. Remember, Drew and I are both big fans of self management. And having more control, being an empowered investor, I would not recommend that if you’re brand new, to investing, of course. And I would definitely recommend that if you are going to self manage, you become a member of our empowered investor inner circle, which has, it’s not just about self management, but that’s definitely one of the focuses. And, you know, we provide a bunch of resources to help you self managing and becoming a more empowered investor
Drew Baker 26:16
kind of busted up that may have been from previously. So I didn’t hold them account to that. But you know, a couple little things that I went through about five things, half the things they reasonably explained. And I said, Okay, no problem, I’ll cover those. And then, you know, having the house professionally cleaned and 16, a hole in the wall, and getting the house deodorized basically was like $500, which is really what it’s gonna end up costing me to deal with those things. And so I held that money back from the security deposit. Now, I can tell you, there is no way that any property management company would give them any charge on their security deposit refund, this way, based on their condition of the property, even though it was in rough shape, they would have given them a full refund. And what’s nice is I control I mean, this may not be for everybody. So I fully understand this. But like, I’m working on template for my lease agreements, and every lease, I tend to get better, I tend to add more things, remove things, sharpen up details.
Jason Hartman 27:10
In other words, the lease agreement itself, he’s got a better clause, he’s had experience, he makes the lease agreement better every time. And he uses hellosign, to do the signing. And it’s free, you know, for a small volume. Of course, if you have a big volume, you’ve got to, you’ve got to pay for the upgraded hellosign package, which is still incredibly cheap.
Drew Baker 27:35
I’m working on a lease agreement right now for this other property. And I had two things in here that I thought were like really important to outline in the lease agreement. And basically the premises I realized that like, maybe 50% of my service calls are because you know, there’s a bad light bulb, you know, they need to reset the breaker or, you know, reset the GSI switch, or the H back service comes out, it’s because they didn’t, the failure to replace the furnace filter, stuff like that. Like, it’s kind of like, okay, I’ll just let it go and pay for it. Well, I’m not doing that anymore. If you put in your your hairdryer, and it pumps the breaker, and you want somebody to come out for $100 and flip a switch, then you’re gonna have to pay for that the house protected itself by turning, you know, not not allowing the thieves to break blow the circuit. So, you know, if your light bulbs bad, and it’s within reach, and you know, you want to have your your furnace service, and you didn’t do the proper service. And it’s not working because you didn’t do your part. Like, I don’t think it’s unreasonable that those things be covered by you. And,
Jason Hartman 28:34
and when he says you, he’s referring to the tenant, and he’s absolutely right. Some of these property managers just give people’s money away. It’s absolutely ridiculous. Now, on balance, I just want to say this again, okay. nothing terribly earth shattering here. But remember, one of the most, I guess, coveted commandments of my 10 commandments of successful investing is commandment number three, thou shalt maintain control. The reason you want to maintain control and be a direct investor is so you don’t leave yourself susceptible to the three major problems. When you relinquish control to somebody else, mostly referring to you’re investing in a fund, you’re investing in a wall street related asset, a bunch of executives control everything, investment bankers, Wall Street brokers, you know, Goldman Sachs, aka Goldman Sachs. And, and they’re in control, right? The CEOs are in control. The Board of Directors is in control. The other executives are in control. They’re paying themselves huge bonuses, and their investors are getting lousy returns. You don’t want to relinquish control, because you’ll lose your money. Or if you don’t lose money, you’ll get a meager return compared to being a direct investor, when you would get a much much better return. So that’s That’s the scoop. And here, when you’re self managing, you have much greater control. And you can make sure that your tenant understands that they’re not living in a hotel room. There, this is not a full service hotel at the Ritz Carlton, right, they need to act a little bit more like a homeowner. And if the GFCI breaker blows, because you know, your blow dryer blew it, you got to flip the switch, right? It’s not hard, it does not require an electrician. This is a self service thing. You don’t change people’s lightbulbs, okay, things like this, right? This is this is obvious stuff that the tenant has to do.
Drew Baker 30:41
It’s not my responsibility to send the the tenant furnace filters, but I find buying a 12 pack for 50 bucks.
Jason Hartman 30:48
It’s also not your responsibility to pay for crazy Pest Control expenses, right? You know, if there’s some ants in the house, your tenant needs to buy some ant traps at the grocery store and place them around the house to to, you know, to keep the ants out. I mean, this is property managers, I’ve seen them pay for this stuff. If they try to charge you for this stuff, just tell them no, you’re not paying for it. But a better alternative maybe to just self manage
Drew Baker 31:19
on and shipping it to their house makes me look like the good guy, they will, they will presumably do it. And if they don’t, they’re going to be charged for the service call to replace it themselves. And they’ll learn quickly, that that didn’t work out well for them. And you know, they can’t say, oh, why should enough pay for the service, while you’re like, Hey, you didn’t replace the filter, I paid for the filters, when technically, that’s your responsibility. So this is something that you did, you have to do maintain, you have to do routine maintenance, to keep the house in good shape, and keep these things working on your end. Otherwise, they’re going to break down and you’re going to be responsible. So it’s about setting the expectation, and stuff like that I’m getting better at and I’m building that into sort of my expectations. So, you know, in the past, I just want all this stuff go, you know, and, and now I’m kind of defining what I think is fair, and outlining for the tenant, which is what I think is fair, you know, I had an elderly lady who like had a curling iron, and you know, the guy had to go over there and just hit a button, and then charge me $95. And I’m like, it’s ridiculous. I’m not doing this again. Like, that’s not happening.
Jason Hartman 32:23
So folks, that is why we do this show. So instead of learning on your own dime, you can learn from us. And that was great. So I’m really glad glad that drew shared that. And I couldn’t agree more. Do not let property managers overcharge you for all this stuff. Teach your tenants how to be good tenants teach them what is what what they can expect, and what you expect in return. Okay, so we will be back with another episode on Friday. And then next week we’ve we are packed with information, we’re going to talk about the states that don’t tax retirement distributions. And even if you don’t want to move to one of them, you’ll want to hear about this, because it has a lot to do with what is happening with the economy’s in various locations. And with real estate in those locations to anyway, reach out if you need us, Jason hartman.com. Or in the US, you can actually pick up the good old phone and call us at one 800 Hartman, have an investment counselor on our team, we have several who can help you build a portfolio they can consult with you. Even if you’re not Ready, get set up for a great next year. If you’re not going to make this happen this year, get set up for next year. And by the way, you might have to get set up for next year. Anyway. Why do I say that? Because inventory being very scarce. We have clients who are buying properties today, that won’t even be completed until next year in some cases. So the sooner the better. engage with us, the sooner the better. Even if you’re not quite ready to do anything right now. You definitely want to be engaging with our team members. And hey, it’s free. All right. We will talk to you on Friday. And of course, the YouTube channel is always available to you. And until next time, happy investing.
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Jason Hartman starts the show by talking about Texas’ issue with snow and power; and what ‘the tolerant’ has said about Rush Limbaugh’s passing. Then, Jason interviews Dan Amerman about his book, The Homeowner Wealth Formula. They discuss home price indices, inflation, and wealth transfer from boomers to up-and-coming generations.
One way of looking at a mortgage is that it is a short against the dollar. It’s as a liability. It’s short against the dollar. And it needs to be refreshed periodically, right? Otherwise it uses up its power.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:05
Welcome to Episode 1649 1649, we’ve got Dan Ammerman back on the show today. As you know, he’s been on many, many times and always has some interesting new and innovative ways to look at things. And I think you’ll enjoy this interview, we did about 41 minutes with Dan this time around, really enjoyable, he’s got a new book out on how people create wealth with their home. The only thing I want to say about that before we dive in, is remember, we did not go into the whole concept of rent to value ratios, RV ratios, and how that impacts whether or not it makes sense to consider your home as an investment. There is more to it than we discuss here. But I didn’t want to divert the conversation too much from his points. Just note that you know, we didn’t do like the comparison of having a high end rental versus low end properties that you rent to other people and meaning the high end rental you rent for yourself and so forth. So much going on in the world. Before we get to the interview. All of you know about the craziness with Texas and I feel really bad our heart goes out to the people in Texas, Texas is very special because it has its own power grid, you may have heard of that. I remember reading that many, many years ago, a lot of it relies on clean in quotes, or green in quotes, energy, and that has failed these windmills, these wind turbines just will not work in cold weather. And there wasn’t much of a good contingency plan for them.
So we have our own people in Texas affected by this. Of course, many of our investors have tenants there. Our Podcast Producer is there. One of our investment counselor team members is there. And it’s absolutely crazy. So I saw an interesting meme. Actually, Ashley shared this with me. And it is a picture of one of those giant when windmills, wind turbines. And you know if we’ve all seen these things from a distance, but have you ever been next to one they are, they’re ginormous, these things are huge, huge, that the scale and size of them cannot be appreciated until you get up close to one because they are very, very large. Anyway, she shared with me this theme of a it’s a picture of a helicopter flying over one of the blades of the wind turbines. And it’s a it’s a tweet. And it says a helicopter running on fossil fuel is spraying a chemical made from fossil fuels onto a wind turbine made with fossil fuels during an ice storm. Awesome. And, and that’s just so ironic, isn’t it? It’s just total irony. Because when the environmental movement looks at the entire picture of the green energy, the Clean Energy movement, they sell them calculate all of the things into it, the entire ecosystem, the entire equation. And the deal is just not as good as it seems. I still believe and I remember reading a book on this many many years ago. I can’t even remember the name of it. About a the author a woman who set out to write a book on how nuclear power was dangerous. It was bad. We shouldn’t you It very anti nuke. And she ended up writing after researching it, she ended up writing a book about the complete opposite how it was the safest, cleanest, most sustainable form of energy production. So again, as I’ve said many times before, over the years, that is one of the few things that France is doing right? Most of that country runs on nuclear power. And it is that’s been a very good move.
And, and we should learn from that. It’s absolutely crazy how things just just don’t work out properly. In the US because of the media and PR and these crazy ideas that we get into our heads at a sort of a cultural level like this Zeit Geist, about how nuclear power is bad, and we’ll take it from good old Jane Fonda’s movie the China syndrome back in what the 70s. And, you know, it’s just, it’s these new reactors are so much safer, so much cleaner, so much more modern. And all of these terrible predictions just never happened with nuclear power. The worst, of course, was in Ukraine. That was Chernobyl. Hopefully you all saw the series on Netflix, it was great. By the way, I think it was on Netflix, but whatever. Anyway, enough of that. So heart goes out to the people in in Texas, and hopefully, they’ll get their power and water and everything back working again. But this also shows us that an individual level, we need to be prepared. And of course, I have another show on that the holistic survival show, protecting the people, places and profits you care about in uncertain times. So check that out the holistic survival show for more on that. Sadly, you probably heard the news. Love them or hate them. Okay. Sadly, conservative talk show host rush limbaugh passed away. And the left is out with their evil, intolerant awful, just as some of the stuff that you read online. I can’t even share it with you on the show. It’s so bad. But here’s a couple of examples. Mike Drucker tweeted, it’s easy to make fun of rush limbaugh right now. But it’s important to remember that he also brought a lot of he brought a lot of people a lot of joy. by dying. Yep, that’s what we get with the tolerant people. Yes, they’re so accepting and tolerant. And then here’s another one. Billy Moe says, I don’t want to say anything bad about Russia since he’s gone. Only good. Russia’s dead. Good. Unbelievable. That’s just pathetic. And here’s another one called with a handle. Of course, they use fake pictures. They don’t have real names. This one is called this girl. And she says, hell just got a lot fuller. That’s the tolerant accepting people on the left, folks right there. And, of course, Trump’s impeachment defense attorney, you know, how his home was vandalized. And in his driveway, they spray painted the word traitor. just unbelievable. This is this is the accepting, tolerant left. And if any of you are to the left side of the political aisle listening, which I’m sure you are many people are I have some left left wing views myself. So you know, but is that the group you want to be associated with? Yeah, just really consider that. That’s, it’s just awful. It’s really awful.
So anyway, let’s get into the show. We’ve got a good show from Dan Ammerman. And we’ve got a couple of exciting things coming up. We will announce for you next week. We’ll just keep that all for next week. And oh, one thing though, I do have to mention on Friday, you know, we do flashback Fridays. Well, this Friday is a 10th episode show. So it’s going to be kind of a double hitter, if you will. It’ll be a 10th episode, plus a flashback, all in one. That’s a very rare occurrence. So be sure to join us for that one. A very rare occurrence. All right. Without further ado, let’s get to Dan Ammerman.
It is my pleasure to welcome Dan Ammerman back to the show. You’ve heard him on many times. You know, I have been a fan of his for many, many years. And he’s out with a new book, the home owner wealth formula. subtitle the best investment most people will make is their home. Learn the historical formula that has created wealth for millions. Dan, welcome back. Thank you, Jason.
Dan Amerman 10:04
It’s good to be here.
Jason Hartman 10:05
So this is a common discussion, right? Is your home in investment? Or is it an expense? And I have many of my own opinions about this. And I think it depends on the price of the home. But of course, with the mortgage being a big part of the asset, maybe we should ask the question, is the mortgage, a good investment? Or a good asset? Or is it as it’s traditionally thought of? Is it a liability?
Dan Amerman 10:38
It is a liability that can be arbitrage. But you’re, you’re getting ahead to book number three in the series?
Jason Hartman 10:46
Well, you know, me, Dan, I’ve been Yes, I
Dan Amerman 10:48
know, I know, you just jump right ahead, you understand what’s going on there. But I am really excited about this book, even though it appears to address some things that you and I have been talking about for many years, it’s really very different to, after working with this, for all these years, what I did was I took about a year and I intensively researched, what’s actually happened with single family home prices in the US ever since 1975, which is when we start to get good data in terms of what they call pairs methodology, which is the same home so you’re tracking price changes for the same home instead of different regions, or how sizes or different things like that
Jason Hartman 11:34
he did the NBN. One, you know, that’s an important point, the arrays, and I’m about to do a video on the different indices. And you know, there this is really something that people do not realize is that the when you look at one index versus another, they’re really telling you different things. And so you’re talking about tracking the same exact home, like 123 Elm Street did this. And you know, four or five, six main street did that, right? Is that what you’re saying?
Dan Amerman 12:10
Exactly. And the another big difference between the indexes that you hear about is it depends on what part of the country they are covering the basis of what I used, was the Freddie Mac house price index for all 50 states.
Jason Hartman 12:28
And is that is that your favorite?
Dan Amerman 12:30
Yes, it is. Because it covers all 50 states, the media and Wall Street and so forth, will more typically focus on the Case Shiller re 20. metropolitan area. And I think that’s a huge mistake. I’ve
Jason Hartman 12:44
debunked that index many times. Because Yeah, you know, us we like we like to look at the markets in three ways. Linear markets, cyclical markets and hybrid markets, and the Case Shiller 20. Only, well, not only, but 75% of that index, is cyclical markets, you know, these are the high flying sort of trophy metros, they get all the attention, but they’re really not most of the real estate in the country.
Dan Amerman 13:11
Absolutely. And where things get really interesting. I mean, this wasn’t the track has tended to go down. But there’s some fascinating stuff here is that as you know, the metro areas, you’re calling them cyclical, have exaggerated price cycles, right? Compared to the national average. So mathematically, what that means is that when you go to everything that’s not the 20 Metro, they’re opposite enough, where when we look at a national average, we’re looking at the average of those two, but really, they’re much further away than that.
Jason Hartman 13:42
Yeah, right. Right. I
Dan Amerman 13:44
know. So when you when you put those together, you get a very different price difference, you get a different volatility, in terms of how the prices have changed nationally. And mind. Research is based on looking at all 50 states with pairs methodology. So it’s the same house and looking at it for the period from 1975 to 2019. Okay, good. What
Jason Hartman 14:09
does it tell us?
Dan Amerman 14:11
Amazing things, just amazing. What I did was I took those years, and I looked for every possible one year combination, three year combination, five year combination, 10 year, so I looked at say 1986 to 1987. And I looked at 2012 to 2017 or 1999 to 2009. I looked at every single one of those in terms of national average home price changes in terms of inflation, in terms of what mortgage rates were in each of the starting years, and what amortization would have occurred over that period and so forth. And I could be wrong here. But to the best of my knowledge, I’ve just done the most exhaustive study that anyone’s done. It changes in home equity during that entire period. And the results have been just amazing. And of course, this applies for homeowners. But this also applies equally to investors in single family homes. And I would argue that it actually applies more so to investors because investors have the benefit of not paying their own mortgage debt. Right, exactly. And that’s a huge benefit. And of course, they have the benefit as well, that they have an appreciating property. And they have an amortizing mortgage where the mortgage is being amortized for them from the template, tenant, round to payments, good stuff.
Jason Hartman 15:39
Okay, well, let’s get in the mode here and talk about what it tells us. What did you find in this exhaustive research?
Dan Amerman 15:46
Well, first, the results are amazingly positive. And I also confirmed that using an entirely different source, which is the kind of the definitive source of information when it comes to consumer finances, which is the Federal Reserve’s once every three years survey of consumer finances. And what they found was just amazing. If you look at it in practice, about half of the net worth of the average homeowner is in their home equity. Mm hmm. And the amount of Home Equity they have is almost twice what is in the average retirement account.
Jason Hartman 16:22
If you’re looking at median values, so that’s really their savings. It’s not their their qualified plan. It’s not their retirement account. Exactly.
Dan Amerman 16:30
Exactly. In it, you know, you talk to some financial planners who will have the greatest respect for and home equity is kind of a problem for them. Yeah, they
Jason Hartman 16:37
dismiss it. I don’t have the greatest respect for
Dan Amerman 16:42
the, the issue is that from a financial planning perspective, homeowners have way too much money in home equity. Well, they should, they should have that money out of home equity, and they’re saying it should be in stocks and bonds and so forth. But the problem is, that’s not really intentional, when it comes to Home Equity, is just home ownership, whether it’s a rental property, your own home, has been such a lucrative investment that it puts so much money in there that the rest of the portfolio can keep up with. Yeah, right. Right. Right. And so this is where we get into kind of a funny thing, because, you know, I would say that it’s great that they’re building equity, and that you know, they’re getting a, that means they’re getting a good return on their, their property. But leaving the equity in there and letting it fall asleep, and be debt equity is a bad idea.
Jason Hartman 17:34
So that’s where I’ll kind of agree with the financial planners, and I think you, you know, about my refi till you die plan. I just like to make sure people are making that equity work for them rather than sitting in there. But I don’t know your we have our little slight differences. We mostly agree on this stuff. But I don’t know. Yeah, no, no,
Dan Amerman 17:55
no, no, I totally track the mathematics. And that’s part of what I’ve been doing there. What you really have in one way of looking at a mortgage is that it is a short against the dollar. Okay, it’s a liability. It’s short against the dollar. And it needs to be refreshed periodically, right? Otherwise, it uses up its power, the power in the first 10 years. So yeah, there’s a strong case to be made, all else being equal, that if you’re looking at this, and you can do so as an investment in particular, but also with home ownership, that you want to refresh that every now and then because then you get the maximum power back to play the liability arbitrage.
Jason Hartman 18:35
I agree. Good,
Dan Amerman 18:36
is how that works. But the other thing I found out, this is true national averages. If you look at three year home ownership periods, all the way from 1975 to 1978, up to 2016 to 2019. There’s actually 42 individual homeownership periods in there. And you average those together, the national average is to almost double home equity in three years if you bought it with an 80%. LTV mortgage. So that’s amazing. How else do you How else do you have a national average across all those decades of almost doubling your money?
Jason Hartman 19:16
Yeah, everything is amazing. It’s just such an incredible asset class because it’s multi dimensional, it’s tax favored. You know, you’re shorting the dollar, which which, by the way, when you said that, I thought that was a great way to put it. I’ve heard that before us shorting the dollar wise, because and this is another rabbit hole. We don’t have to go down too long. But here’s why I say that. I think it’s wise, it’s obvious that the dollar is being managed very irresponsibly. However, they have been able to defy gravity, much better than one would think if you’re just doing the math. What I mean there is of course, they’re printing, they’re spending, they’re doing QE they’re spending You know, etc, etc. And you’d think there’d be like massive inflation by now. And yes, there is much more significant inflation than is being reported. But it’s not as much as one would think. And I believe that’s just because the US is in a very enviable position and can get away with it. But well, you know, is shorting the dollar wise, what do you think of those questions? Well,
Dan Amerman 20:24
okay, Jason, you just raised a whole series of issues that we could be talking about for the next six to eight hours, pretty easily. You’re not necessarily really with, there’s two different ways of looking at this, one of them is that you are looking at the inflation driven destruction of the real value of the mortgage. But the historical look that I’ve taken it, this shows a whole different way of looking at this, that has been far more consistent when it is comes to creating money. And that is, you are really not just going short, the liability but more directly, you’re going long inflation. Mm hmm. And I use some different data in the book as well, going back to 1940. And looking at US Census data and census data, and so forth, that doesn’t have the Paris methodology, but it’s still pretty accurate in broad strokes. And the average, or I should say, the median value, according to the 1940, US Census for a home in the United States was about $2,900. And if you look at every decade, after that, what is happening is on the one hand, yes, you can say all right, the value of each dollar is falling. And that’s a very steady process. But the other way of looking at that, and this is just a key part of chapters two, three and four in the book, because I think this needs to be more widely understood by homeowners and real estate investors, the falling value of the dollar is manifested much more directly by taking ever more dollars to buy everything. And as you know, there’s a pretty good historical tie between single family home prices and inflation. And that was part of what my research established as well is actually overwhelming. If you look over the long term, if you look at all these different periods, overwhelmingly, inflation is far more important for determining home prices than changes in real market value. And in fact, it’s an exponential series in the formulas that go through in the book, The formula for inflation, increasing the number of dollars it takes to buy everything, including the homes is identical to the formula for compound interest. A lot of people don’t realize that.
Jason Hartman 22:40
Say that again. Let’s make sure we got that.
Dan Amerman 22:44
Okay. The number one historically proven method for creating wealth over the centuries, when they’re not artificially holding down interest rates, what they are right now is compound interest. Right? It’s your money working for you. Yeah, yes, it’s your money working for you as to you working for your money. And what a lot of people don’t realize is that when we change our perspective on inflation, from a decreasing value to the dollar, to an increasing number of dollars, being needed to buy everything, and those two halves of the same thing, the inverses of each other, but they’re representing the same thing. Inflation actually grows with the strength of the compound interest formula. So the compound interest formula says that a 7% interest rate will double your money in 10 years. Well, a 7% inflation rate will double the value of a home in 10 years, right? The math is identical. And inflation just completely overpowers real market value changes over time, which is I realize a lot of real estate investors don’t see the world in those terms. They think they’re trying to make smart investments, and it’s much better. It’s much better to make a smart investment than a dumb investment. But really changes the market value real market value are fairly minor.
Jason Hartman 24:08
Well, that means in so of course, the mortgage being debased by inflation is a wonderful thing, the mortgage, the principal balance and the monthly payment, both being debased by inflation. Wonderful, wonderful. And, you know, real estate doesn’t really go up in price that much over time. You know, it, it’s somewhat close to the CPI, some will say it outperforms the CPI by about 3%. Some will say it’s about even, is that what you’re referring to when you say market value versus inflation? Because, yes, people listening damn might think that, well, isn’t inflation what’s making the price of my real estate go up? Is there a distinction there you want us to make sure we understand.
Dan Amerman 24:55
Yes, there is very much so and it is kind of crucial to understanding I would say almost Everything about where the money is really coming from when it comes to homeownership when it comes to real estate investing is coming for some very different sources than I think most people realize. If we look at all 35 of the 10 year homeownership periods, starting from 1975, to 1985, and ending with 2009 to 2019, the average across all of that is in inflation adjusted terms, for a home to increase in value by 9.9%. call it 10%. Okay, now, if we look at the increase in homeowner equity, with an 80%, LTV mortgage for all 35 of those 10 here combinations, the average increase in equity is 311%. Wow. So if we compare a real increase in market value, which is 10%, to the total increase with the other seven levels of the multiplication of wealth, that’s what I did, I took a look at home ownership. And I literally broke it out into an eight part multiplication formula. Only 3% of the money is coming from the fifth level, the multiplication of wealth, which is real changes in home value. The other 97% is all inflation and the mortgage and various factors within that.
Jason Hartman 26:25
Isn’t that amazing? That’s it’s just it’s such a such an interesting asset class, isn’t it? Okay. Tell us more. And I love that. You said, yeah, we could spend six to eight hours on that. Actually, damn, we could spend six to eight days on it. But
Dan Amerman 26:40
Oh, yes, we totally could. We totally could. And it’s not just as an aside, it’s not actually money printing. That’s why they haven’t seen the inflation yet its reserves based monetary creation. Okay, what’s
Jason Hartman 26:51
the distinction there? We need to know.
Dan Amerman 26:55
I’m Benjamin Bernanke, in 2008, changed the nature of the US dollar, even though most people aren’t, aren’t really aware of this. The Federal Reserve wants you a different way of creating money that was used to fund the rescue in 2008. It was used to fund the QE. Right now it is being used to fund this enormous creation of money, this helicopter money that we have. And it is kind of interesting, if you think about it, this is just a quick aside here. Virtually our entire economy and investment markets this at this point, are based on two radical ideas that Ben Bernanke he was pushing back in the early 2000s. One of them is this idea if we had a future crisis of just using helicopter money, and just showering huge sums of money down on the population to do it. And the way they’re doing that, is I don’t I put out a recent analysis, you may have seen it, Jason, if you look at it, even in inflation adjusted terms, the US national debt went up more in a single year, last year in 2020, than it had in the first 208 years of the nation. That’s that’s not inflation, that’s real dollars. And where are the real dollars coming from? The Federal Reserve isn’t actually printing, they’re doing a very complicated kind of shell game that lets them get access to dollars up to a certain point, a certain number of trillions without triggering inflation.
Jason Hartman 28:26
Is this a when they run through that,
Dan Amerman 28:27
then you’re left with straight up monetary creation? Something like modern monetary theory? And at that point, then yeah, inflation would take off, and that would be tremendous for home investment.
Jason Hartman 28:38
Okay. So with with this method of increase, I mean, I don’t know if my words are right, increasing the money supply, but not creating inflation. Is that a fair statement?
Dan Amerman 28:51
Yes, that’s exactly what Bernanke he came up with
Jason Hartman 28:54
in does that work? Or is it a game of smoke and mirrors? I mean, is it the Shogun guy? Yeah. I mean, game.
Dan Amerman 29:03
Yeah. I mean, I’ve got, I’ve got a, I’ve got a two day workshop on this coming up in May. Okay. But so it takes a good bit to explain it. I think for the average person, although I can do that. I can get them there where they can understand that. Yeah. But
Jason Hartman 29:17
your workshop back in 2007 or eight, I think it was, you probably know, Dan. And it was fantastic. And many of our clients and listeners have have attended your stuff. So kudos to you. We really like your work.
Dan Amerman 29:29
Well, thank you. Thank you
Jason Hartman 29:30
with what you just said with what Bernanke he came up with? Is that something that can continue or does it automatically have like an inherent expiration date on it because it’s a shell game. It’s limited. And
Dan Amerman 29:44
a lot of government programs are actually shell games, the funding for Social Security, for example. And the interesting part about the reserve space, monetary creation that’s creating the money that’s keeping everything going right now is it has a lot in common with the money. Funding for Social Security. It’s a very similar shell game this going on. In that essentially what they’re doing is they are steadily draining the safety and reserves from the US financial system and spending it today to bail out the economy and to keep the markets going, and so forth and so on. But at the very same time, they’re hollowing out the financial reserves of the country and of the banking system.
Jason Hartman 30:27
So Dan, that kind of begs the question. I mean, there’s so many rabbit holes for us to go down. And of course, we’re limited on time. But, you know, there’s this whole thing that the millennials, you know, it’s it’s kind of a viral meme that’s going around, called, hey, Boomer, and the millennials are, of course blaming their Boomer parents for, you know, ruining the world for them. And, you know, I don’t think that’s very fair, because in a lot of ways, the boomers, you know, they have their contribution in Building America. I mean, you know, they, you know, hey, look, Intel, Microsoft. I mean, all of these, all of these big revolutions, you know, we’re Boomer driven. Now granted the greatest generation before them sacrifice, you know, much more than the boomers, the boomers were much more hedonistic, and, you know, they did the drugs in the 60s, and they were the sort of Clinton era people. Fair enough. But Is that a fair meme? To say, hey, Boomer, you know, like, in other words, you look what you left us with.
Dan Amerman 31:27
A Boomer is a an unfortunate generalization of quite like everything. Now, there are younger boomers, there’s middle boomers, there’s older boomers. Yeah. And the role of the younger boomers, such as myself, is to pay taxes for our entire lives helping to support the greatest generation when they retired, and the older boomers and to some extent, the middle boomers. But we’ll probably be the ones who get shafted when it comes to getting our money. Yeah. So you know, it’s kind of an inter Boomer thing, to some extent, where the older boomers are really benefiting from the younger boomers, but the younger boomers aren’t going to get what’s coming to them. Yeah, but it’s not like they’re taking any it’s not like we’re taking anything from the millennials.
Jason Hartman 32:18
Right. And we know for sure, though, that just by virtue of inflation, and you could say that that’s happening because of the irresponsible fiscal and monetary policies of boomers, there’s going to be a wealth transfer to millennials, just inflationary wealth transfer, because, you know, the older people usually have assets and savings, and the younger people usually have debts. So that helps them whether they know it or not, to some extent. So, you know, there’s there’s consolation prize, maybe,
Dan Amerman 32:52
yes, inflation is a traditional way of transferring wealth between generations. And it takes the wealth has been accumulated by one generation and essentially wipes it out while transferring it to the younger generation if you happen to live in a time of high inflation. So yeah, that’s a very distinct possibility, if you look at what’s going on right now, in terms of the monetary games that are being played in these fantastic increases in the national debt, is that unfortunately, by the time all of a sudden done after having paid taxes for their entire working careers, when the time comes to cash in for many younger boomers, they may lose that to inflation, unless they’re prepared for it. Yeah, right. And that’s where things like income, property investment, the homeowner wealth formula, all those can work really well. And that was a key that was a key part of the research I did is just how tremendously effective home ownership is, or owning a rental property with a mortgage. When it comes to not just surviving inflation, but really turning inflation into wealth. There has been just an amazing amount of wealth created over the years. another statistic from the Federal Reserve consumer survey, the Federal Reserve survey of consumer finances, is that if you compare the median net worth, for homeowners to the median net worth for renters, there’s a 40 to one differential.
Jason Hartman 34:20
That’s it. That’s incredible.
Dan Amerman 34:21
$40. And I would argue that is exactly these things that we’re talking about exactly what I’ve determined in the book from my research, the eight levels of the multiplication of wealth, most of which relate to taking advantage of inflation, whether people are doing it intentionally or they’re doing it accidentally. If you understand what you’re doing there and you think and you look at this, okay, the national debt that just went up more in a single year than it had 208 years, this is not going to have a good ending, well, home ownership or buying rental properties if you understand how the underlying math is doing and that’s what my research brought out these eight different levels of knowledge. allocation of wealth is a fantastically good way to come through times like that, with more Real Net Worth than you started with,
Jason Hartman 35:08
you know, what I’ve been talking to people about Lately, I’ve been talking to them about the economist style, Richard can tell you, and then the cantillon effect, which I’m sure you’re probably familiar with, but the thesis is that the people closest to the money get enriched the most. Right. And so, of course, those are all the Wall Street insiders, the folks at Goldman Sachs, and just have to throw that in. intentionally. And, and and, you know, the politicians and that the elites, of course, right. And this this, that, you know, owning income properties, with mortgages with these incredibly cheap mortgages, thanks to our one our call our rich uncle Jerome Powell, okay, is the way to become a millionaire like they are right, because we’re aligning our interests with them. And philosophically, we all probably disagree with what they’re doing. But like the old saying, goes, never bet against the Fed. And so this, this puts us in alignment with, with what they’re doing. And we become enriched by it, as well, right?
Dan Amerman 36:20
Yeah, that’s something I’ve been talking about for many years, and many workshops, many different materials on that is the advantages of, Okay, if you’re facing this terrible, overpowering force, it’s doing all these unfair things in terms of forcing interest rates artificially low, taking huge risks with inflation, all this kind of stuff. You can get mad, you can get upset about it, or else you can say, You know what? I disagree, but I’m going to align myself with them. So as they serve their interests, as much as I may disagree with them, they’re going to serve my interests, too. Mm hmm. And over time, if you look at how things historically work, people have made a lot more money aligning themselves with those forces, then trying to fight against them.
Jason Hartman 37:10
They sure have very good point. Very good point. So then, could we agree that the worse inflation gets, the better it is for people following this plan?
Dan Amerman 37:23
Jason Hartman 37:25
Take that one more step, can we predict that inflation is going to be worse in the future than it has been in the past? Given all the, you know, the spending and the, you know, stimulus, and blah, blah, blah, there’s so much of it. Now, you know,
Dan Amerman 37:44
this is the time when I usually reach for my crystal borrow my crystal ball. But there’s a problem with that. Jason, always find out I don’t have one. Yeah. So we need to be careful about saying that we know certainty. What we do know is that there are enormous financial pressures that are going on right now. We do know in terms of alignment, we have many centuries of information on what happens when governments get heavily indebted. And the way they always choose to get out if they can do so is inflation, because it’s a great business plan for them. That really is its survival, yes, survival, that they can’t afford to really pay the money back. that they’ll never default unless they borrowed in someone else’s money. That’s why Argentina defaults, because they brought in US dollars, right? It was pesos, they’ve never default. They would just create inflation. And that’s the same thing for the US government too, if you want to look at the consistency is amazing. But if you want to look at why the dollar is only worth five cents, compared to where it was when the US went off the gold standard for domestic purposes, 1933. That’s why, as a matter of policy, they create inflation every year. And one of the really interesting parts of what I developed in the book, I believe it’s in chapter five is that I take a look at government interest and creating a 2% annual rate of inflation just as a minimum. And I show that how through home ownership that can be turned into a 10% annual gain with with leverage because that’s the leverage in the mortgage. Right, right. Yeah, this combination 97% of the historical returns from homeownership or owning single family homes over a 10 year period look into all these different tenure combinations. Is the other seven layers the multiplication of wealth that all revolve around inflation in the mortgage in different combinations. They’re off.
Jason Hartman 39:45
Yes, it’s the real changes are only 3% it’s truly amazing. The the problem with all the historical references Dan, are that you know, when we look at hungry Argentina, you know, was it Bob way, well, you know, whatever, right all these examples is that none of those countries had the position the US enjoys the reserve currency, the biggest military in the world, etc, etc. It’s just such a different world nowadays. And, and I say that understanding completely that the famous last words of every investor are This time, it’s different. You know, I just I just wonder if they can just sort of continue to, as I say, defy gravity, and and not let the chickens come home to roost. You know, this is, you know, you, when you look at the Peter shifts out there have been predicting the end of the world for so long, and they’re just never right. At least not yet. You just wonder, you know, I mean, in this world, we have to get other countries to keep buying our debt and financing the whole thing. And, and they’re not going to do that if they believe we’re debasing our currency too much. How does No, no, we don’t,
Dan Amerman 41:03
you’re I’m sorry.
Jason Hartman 41:05
You know, how you think it’s all plays out?
Dan Amerman 41:07
You’re thinking old school there, Jason?
Jason Hartman 41:10
Yeah. Okay. All right. Fair enough.
Dan Amerman 41:11
We don’t we don’t need other countries to buy our debt. Okay. That’s not what’s happening right now. Okay, what do we need that that’s not how the we just funded a four and a half trillion dollar deficit in the calendar year 2020. That was primarily done through monetary creation on the part of the Fed. So that this particular path that we’re going down right now is historically unprecedented? Sure, anything like this? And it’s actually works internally. Now, you are absolutely correct, that there is a scenario that happens.
Jason Hartman 41:50
Because I still think these countries are wondering, look, okay, even if we don’t buy any more debt after today, we’re still holding a bunch of it, you know, to the tune of like a trillion dollars? And is that going to be debased? As they debase the dollar? They’re still worried about that? Right.
Dan Amerman 42:07
Not Not, not to the extent you might think, okay, because of that debasement then could potentially benefit them in terms of the balance of trade, and so forth. But I think the real issue here that we’re looking at is that so much of our standard of living is based upon other nations assigning value to the US dollar as a reserve currency. And if we were to lose that, that would trigger a very high rate of inflation very quickly, because we simply can’t pay for, we don’t make enough to swap for what we take in from other countries. So if you look, you really got multiple different things going on here, we can look at the US being the reserve currency, over a period of decades. And that’s the entire period that I looked at that I had the really good data for 1975 to 2019, the US was the number one nation in the world economically that entire time, they were the superpower for that entire time. But we still had an enormous amount of inflation, creating a great deal of wealth for real estate investors, as well as homeowners. And if we lose that, then probably we’re going to even more inflation, which then creates even more wealth for real estate investors and homeowners, at least in that aspect of their life. Yeah, maybe that aspect? Yeah,
Jason Hartman 43:29
yeah, I mean, their purchasing power declines, but they’ve got the the magic asset that protects them from from that. So as prices go up, it’s like they they look around, and they go, Wow, it’s ridiculous what everything costs, but they, they’re, they’re fine, because they have the wealth effect of of those properties. And those mortgages,
Dan Amerman 43:49
as long as they have that, if they don’t, they just get hurt worse and worse. And that goes back to that. Comparing the median net worth for homeowners and renters from the Federal Reserve survey of the nation’s consumer finances. If inflation goes up, then that differential becomes a lot larger than just 40 to one mm hmm
Jason Hartman 44:10
yeah, it sure does. Well, Dan, what else do you want people to know just anything you want to share about this the book is, is excellent. And this is a series right?
Dan Amerman 44:20
It is it is I’m going to be releasing number two probably within the next month or so. I cover the the most important four levels of multiplication of wealth and book one. Then I have the next four levels swept all eight. So we’re up to all eight by Book Two. And then in Book Three, I take a look at some of the best information of all some of the best ways of building wealth, which is looking not at changes in home equity but looking at monthly cash flows.
Jason Hartman 44:49
Right wrap it up for us for this book or or even the future ones, whatever else you want us to know.
Dan Amerman 44:55
There is literally based on my research a Historically proven methodology for building wealth. That is the American homeownership experience. It’s just amazing. Because what I have been studying is literally generations of people under wildly different circumstances in terms of different parts of the nation, different interest rates, different inflation rates. And there’s just this extraordinary consistency to the amount of wealth that has been created. That is truly life changing. Number one there is, if you know anyone who’s thinking about whether they can afford to buy a home or not, or whether they should make the life changes will be necessary for them to do so. This there is an extraordinary, historically proven formula here where homeowners build a lot more wealth over their lifetimes. And people who aren’t homeowners, it is a natural result of the process. And even after having worked with this for all these years, really putting all this national data together, and seeing where the money comes from. First, there’s more of it. And it’s more consistent that I think most people have any idea. And second, it doesn’t come from the places people think it does. It’s the relationship that multi tiered relationship between inflation and the mortgage that has historically produced the vast majority of this highly reliable over the decades. form of building wealth. Hmm, yeah,
Jason Hartman 46:31
it sure has. And this didn’t really work before 1971 did it, it all that it just all changed. And by the way, we’re on the 50th anniversary year, right? So
Dan Amerman 46:42
it worked. It worked fantastic. Before 1971. It worked unbelievably Well, in the 1940s and 1950s. It worked even better than than it has recently,
Jason Hartman 46:52
really because I you know, when I look at these price charts that go way back, you know, further and they go back into those decades, I don’t see the type of radical price appreciation, which I know is not the point. But it’s it’s you know what’s correlated to inflation, at least,
Dan Amerman 47:10
the key is which years you’re looking at looking at things historically, if you’re looking at long term homeowner prices, then what you’re looking at is the year that the nature of money changed, which was 1933. That was the year FDR in his first three days in office did the bank holiday he did the gold confiscation, he totally changed the nature of the dollar, that set in motion all these decades of inflation, and also the financial repression that was associated with paying for World War Two. So those are some amazing years. Now, if you go back further in time, and you’re looking at, say the 1900s 1910s 1920s, when you had a gold backed currency did not have the reliable inflation. And it became much more of a crapshoot at that time. In terms of whether you’d make money or not by owning a home.
Jason Hartman 47:59
It just seems as though when Nixon you know, put the final nail in the coffin on gold. That’s when it really started to become just frenzied, you know, I mean, that was like the start of it, you know, but you’re saying even even before that back to Roosevelt home, oh, yeah,
Dan Amerman 48:16
I track it. And I have, I’m stuck with the 10 year census numbers at that point. It’s a lot harder to get good information about it. But I do track it over those years. And probably the single best 10 years that we have seen in our lifetimes for investing in homes would have been 1971 to 1981. Just because the degree of inflation during that time, but there were some really good times in the 1940s 1950s, early 1960s.
Jason Hartman 48:46
That worked really well as well. Interesting stuff. Dan Ammerman. Thank you so much for joining us. give out your website.
Dan Amerman 48:53
Daniel ammerman.com. And Ammerman is spelled a m er ma n.
Jason Hartman 49:00
Thanks for joining us, Dan. It’s always great to have you on the show.
Dan Amerman 49:03
Thanks for having me, Jason. It’s always good to talk with you.
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