Jason Hartman starts by talking about the insurance industry and The Algorithm Echo Chamber. Then, he interviews Andrew Freitas about his investing journey. He shares how Covid-19 has impacted his workplace, how to deal with property managers, and why he has slowly gravitated toward more expensive properties.
Announcer 0:02
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 1661. How are you beautiful people doing today? I hope you’re well, because I got some bad news for you. Our installed President, Mr. Biden planning the biggest tax increase in three decades. Yes, Bloomberg reports that tax rates might rise to pay for the next White House initiative. Well, surprise, surprise, surprise, oh, sleepy Joe, come on. We knew you were going to do this, we knew this was coming. And you are going to want to make sure you only make $399,999 a year because if you go to $400,000, they’re going to hit you really hard. They’re going to increase the corporate tax rate, they’re going to increase. And that means, you know, those big giant corporations, they probably won’t be very affected. And if they are, all they’ll do is raise their prices. Hashtag inflation coming through your way because corporations are a pass through entity. But the small businesses that compete in a more difficult, more competitive environment, they will find it hard to pass those tax hikes through to the consumer. And the big companies. You know, they do the double Irish twist. It is St. Patty’s Day After all, by the way, don’t be spreading the Blarney today. Happy St. Patty’s Day tall. Hope you’re wearing your green. I must admit I am not wearing green today. Because the one green shirt that I own. I couldn’t find. Not that I looked very hard. But I’m just saying I couldn’t find it.
So here in the office today with all of these people, no one pinched me for not wearing green. So I’ve made it so far. We’ll see how it goes. All right. And I’m sure you’re, I’m sure very few of you are in a big office with a whole bunch of people. Because nowadays, we work remotely, which has created big new real estate opportunities for all of us investors, hasn’t it. And back to Biden and his tax increase, make more than a million bucks, you’re gonna pay a higher capital gains tax, and the estate tax is going to be expanded if he gets his way. So a lot of tax hikes coming your way, folks, what is the most tax favored asset class in America, income property, income property, so we can help you with that. But yours truly, I did. Another thing that I’ve been researching, toying with thinking about for about 10 years, never pulled the trigger. Until last year, I spent a lot of time researching this at the end of the year, and a lot of time dealing with it in January, frankly. But I set up my own insurance company. Now, I’m thinking of doing one of our monthly empowered investor calls on this topic. Or maybe we’ll do a public web class on it, I’m not sure. But it is pretty interesting. You do have to have your own business and your own business needs to be you know, doing a bit of revenue to sort of make it work and make the extra costs work. But I must tell you, as I have said before, insurance is a interesting, interesting business. Why? As I have been saying for the last decade, I have mentioned this even though this is not an insurance show. I have mentioned to you the idea of that is quite fascinating that the insurance business is possibly I think it is the only but I say possibly because whenever I’m Talking to a large group of people such as yourself, someone always fact checks me, and they call me out. And they, they write me an email and they say, Jason, you are wrong Wang Wang about this.
So I have come to self censor a bit, be more careful, which is not all bad. I will be the first to admit, but the insurance business is the only business in the world with a negative cost of capital, I want you to really let that one sit in for a moment. And negative cost of capital. Think about it. If you’re an insurance company, what do you do? You receive money before you spend money. I mean, on actual cost of goods, right, like a normal business, you make your widgets, you spend the money, maybe you’re making maple syrup, maybe you’re making shoes, I don’t know, whatever you’re making, right in your business, you’re spending money to make that. And then you sell it in the marketplace. And you get money back. And hopefully, you earn a nice profit by creating a win win transaction, where the consumers want your stuff. And you have enough pricing power to where you can charge good price to make you a reasonable profit. For your efforts. You have a positive cost of capital, because you had to spend the money before you could bring the money and before you can bring the revenue in, but insurance, you receive the money as a shared risk premium before you pay out the claims. So it is an interesting industry. And it’s got interesting tax structures. And I think if you tell me if you go to Jason hartman.com slash ask Jason hartman.com slash ask. And you say, Jason, told me more about how I could be in the insurance, business and shelter more money than I’m just sheltering on my income properties alone and escape the wrath of Joe Biden and communist Harris. I mean, Kamala Harris, communist heroes, which one is okay, communist, let’s call her communist.
Okay. So, if you’re interested, let us know, tell your investment counselor, I’ll do a class on this because I spent about a decade researching this thinking about it. You know, me, I’m not quick with all my decisions. I am a Libra after all, as great of a sign as Libra is, and let me tell you, Libras are really good sign. They have one flaw. They’re a bit indecisive. I mean, I used to be indecisive. And now I’m just not sure. Okay, enough of that. So maybe we’ll do a class on that, at least for the empowered investor network. We’ll do that. And by the way, empowered investor members, we put a new vintage recording we have we had our archaeologist team. Yes, we have a team of archaeologists over here, and they dug up 238 I kid you not. We don’t really have archaeologists. But we did dig up 238 vintage recordings from 10 plus years ago. And we are now putting those vintage recordings in to the empowered investor network. So as part of your membership, as a surprise bonus, we put one in there yesterday, that is on due diligence, good subject, good subject due diligence. So check that out empowered investors, if you’re not a member, well reach out to us. And we’ll let you know how you can become one. Alright, our guest today is one of our wonderful clients and also in the hero league as a medical professional. Our guest today will be talking about his client case study. So we always appreciate when you clients come on the show. If you’re out there listening and you’re thinking, hey, I want to come on the show. Just reach out to us, we’ll be glad to have you on because we always love hearing client case studies, the good, the bad and the ugly. We want to help our other clients learn from your successes, your challenges, and everything in between. So we will have that in a few minutes. But first I do want to talk to you for a moment about debt to GDP ratio because I have noticed something I have noticed that and maybe I’m just more sensitive to it. Maybe I’m trapped in algorithm echo chamber. We all have to be careful with that today because the powers that be are listening to us of course the Mike on your cell phone that’s always on the Hot mic on your computer, your TV, your al e xa. devices, if you have them. They’re listening to you. They’re reading your mind.
They’re looking where you click on your mouse and looking at what you surf on the internet. And they’re doing all this stuff, right? So you might be trapped in an algorithm echo chamber. Maybe I just coined that phrase. And I just coined that phrase, I might have, anyway, algorithm echo chamber with a little tm after it for trademark. So I might be caught in that, but I have noticed that there is a lot, a lot, lot, lot, lot lot more talk about inflation expectations now than even a month or two months ago, from not just the people that are usually saying that, no, not just Peter Schiff, the sky is falling, it’s the end of the world. You’ve been saying that for decades, but a lot more mainstream, this inflation expectation really seems to be headed to the forefront. And it’s definitely related to the debt to GDP ratio of a country. So the gross domestic product, the economy’s value in any given year, right, versus the debt that country has. Well, we all know Japan is the worst, it has the highest debt to GDP ratio. And that is about 230%. Next in line Greece third about 200%. Greece is an epic disaster, Japan is sort of a disaster in a different way because of its demography and various other things. But at least in Japan, you have hard working really smart people in Greece, you got people that like to be a lot more leisurely, okay, so it’s a very different environment than Japan. Next in line, you still got some leisurely people, and I’ve got quite a bit of this blood in my genetic background, and that’s elite.
Okay. You can say a lot of things about yours truly. But you definitely can’t say I’m lazy. No one’s ever gonna be able to say that. But Italy, they like leisure over there. Let dolcevita you know, the life of indolence and self indulgence, le dolcevita. About 150% debt to GDP ratio, Italy is in big trouble. Amazingly, Singapore, now Singapore, that is a country of winners. Okay. And Singapore got ahead so much and rose up so much over several decades because of its very libertarian policies. It really, really zoomed ahead because of that. And it’s it’s really a marvelous, incredible country. Portugal, another sort of leisurely country debt to GDP ratio, about 130. And guess who is next in line? Guess who’s next in line? That good old US of A with about 120% debt to GDP ratio. I’m pretty sure that’s the highest it’s ever been ever even post World War Two. fact check me I could be wrong about that one because I’m, I’m not looking at anything that would tell me that now. After the US we’ve got France, Spain, Belgium, canadia, aka Canada, Argentina. Argentina has so many other problems besides their debt to GDP ratio. We’ve got the UK, Brazil, India, South Africa, Hong Kong, even though it’s not a country, Germany, Ireland, China, Poland, Netherlands, Australia, New Zealand, Turkey, Mexico, Denmark, Norway, Sweden, Indonesia, Switzerland, Russia, Russia has pretty low debt to GDP ratio. So that indicates that is an inflationary indicator. There are others, but that is definitely one of them. And all of these countries are running up the debt. And the USA has extraordinarily high debt. Remember, just in the last year, about a third of all the dollars ever printed? Ever. Right? You got that as ever, like in the country’s history, what 240 years ish, give or take printed last year in one year. So folks, there are many more indicators out there, showing that there is definitely inflationary pressure in the system. And we like that as real estate investors as income property investors. We’re fine with that. Because we will be enriched through inflation, while others will be hurt by inflation. So that is part of my inflation induced that destruction strategy. If you want to learn more about that go to Jason hartman.com type in inflation induced debt destruction. I know, it’s a long phrase, but it works. And check out some of the prior episodes on that, and some of the blog posts and articles on that. Okay. Without further ado, let’s get to our guest. And let’s hear his client case study.
Hey, we always get great feedback from you whenever we do client case studies. And so we really appreciate volunteers like our guest today, Andrew fritas, who’s with us. He’s got seven properties. He lives in Vancouver, Washington, and has been working with one of our investment counselors, and really just a pleasure to have him on the show. Andrew, welcome. How are you?
Andrew Freitas 15:55
I’m quite well, thank you so much for having me, Jason.
Jason Hartman 15:57
Good, it’s good to have you. So you know, maybe we’ll start at the beginning. First off, what attracted you to real estate investing,
Andrew Freitas 16:04
I’ve always kind of known that real estate would be something that I would want to some vehicle to pursue, you know, for income. My parents told me they even own a business when I was growing up a little coffee shop. And they told me that even with that for 15 years or so the only money they ever made was actually owning their own houses and having an appreciation, and then selling them and moving somewhere else. And they were very lucky in their life have some good appreciating market. So they happen to be moving into at the time, then they had a rental property for a while they were the old style of letting the property pay itself off, you know, and just have it be free and clear. And it worked well for them. Fine. And again, that’s the money in their life that they’ve made, even though they’ve worked really hard and been diligent workers they have their actual income or wealth has been because of real estate. And so I was never really afraid of real estate as a thing. My brother also has in this area remodeled houses, he’s bought his own places and remodeled and flipped them and done the work himself and also done some buy and hold stuff. So I knew real estate, I was never afraid of real estate as a thing. You know, it was never like, it didn’t feel like a risk to me as a concept as a vehicle for wealth. So yeah, that’s kind of how I as a child, or as a kid even was not afraid of it.
Jason Hartman 17:10
Good stuff. You know, just to mention something on that. You talked about your parents in the business they owned and you know how really the money they made was on real estate. And you made me think of something a friend of mine, who was I had I had a very wealthy parents, he said to me something interesting. And you know, I’m not really a fan of commercial real estate, mostly, I think housing is really the key, you know, single family homes being my favorite apartments being my second favorite mobile home parks also good. But housing, right? Not office space, or retail so much. You can make money in anything. But I just think the housing assets the best, I said to met, you know, how your dad gets so successful, you know, what’s his secret sauce in business? And he said, you know, interestingly, he didn’t really make his money from the businesses. He just made his money from all the real estate, the business is occupied. I thought that was interesting, you know, the business kind of just becomes the tenant. Right? And it pays the mortgage, but it’s really the properties that made the money. And then, you know, they purchased a whole bunch of houses and did stuff outside the businesses directly to so I thought that was sort of an interesting aside.
Andrew Freitas 18:23
Yeah. And my parents never owned the commercial properties that the their coffee shops were in, you know, it was never probably even in their thoughts at the time. Right, you know, but they certainly lived in. It was nice, you know, and again, that’s as you talked about this kind of the icing on the cake. And for them it just happened that they just luck of the draw year after year, they kept getting in the right markets looking to say,
Jason Hartman 18:42
yeah, and you and you live near the place where they pretty much invented coffee in America.
Andrew Freitas 18:47
Yeah, by quite a lot of here. Yeah, for sure. Yeah.
Jason Hartman 18:50
Good stuff. When did you discover the creating wealth podcast.
Andrew Freitas 18:54
I lived over in Sweden for about seven years. My life is from Sweden and 2009 I was painting my roof there metal roofs over there. You got to sometimes you got to paint them and I was a do it yourselfer kind of a guy. So I was up on my roof, scraping off paint and paint I had downloaded or had ripped some some CDs that I had had of real estate investing prior to this onto an mp3 player. And it was 2009. And my friend had just gotten the first iPhone in the States. And he sent me his iPod Touch. So I like had this new cool device that I don’t even know was available in my town in Sweden, you know, up in the north of Sweden. And so like kind of gotten podcasts, you know, iTunes and all that kind of stuff. And so I was looking for something else to listen to, you know, real estate. I was listening to real estate thing. And I was like, Huh, so I discovered you through a searching on the whatever it is iTunes Store, whatever it is now, you know, the podcast and just yeah, I had heard a couple different ones. And you were talking about just resonated with me. And so that was great. Yeah, I don’t even know what number of episodes you were back in 2009. But I think it was probably still in the double digits. Maybe in the low one hundreds by then.
Jason Hartman 19:55
Yeah, in 2009. I don’t know either offhand, but but we You have a lot more episodes now. So you discovered us about 12 years ago, then how long did you listen to the podcast before? You know reaching out and becoming a client?
Andrew Freitas 20:09
Yeah, so I kind of did often on you know, kind of had some periods of time where I just wasn’t listening anything I was doing, you know, hunker down knows that the grind doing my own stuff. And I think 2013 was when I attended meet the masters and it was an Irvine. And you know, if I’m just being transparent, I thought it was a cool event, but I don’t know maybe I just wasn’t ready for it. You know, I kind of knew that was still a vehicle you’re the concept you were talking about so certainly resonated with me I thought, platinum properties Jason arm, I thought that was the way to go. But I was like, I just, I’m not quite ready yet. You know, maybe that was just a risk thing. I was nervous about jumping in the pool. Who knows? But 2013 was my first like, event with you. And I enjoyed it. You know, it’s nice getting out of the limit Pacific Northwest and in January as well, and get
Jason Hartman 20:47
down and coming down to Southern California. Yeah,
Andrew Freitas 20:49
for sure. That wasn’t a bad thing. But then in 2000, I think 2016 Yeah, December of 16, is when I bought my first property threw you off. And that was my first investment property. And then like about one in 17, then one in 18. And I had cashed out of retirement plans, I was working for the local county here. And I had some sort of vested retirement plan kind of thing. And I was like, This is ridiculous. They decided to like protect people and start choosing what investments you could and couldn’t do, and taking a portion of your investments and making it less risky. And I’m like, I just want to go all in, you know, I’m not, I’m not a conservative investor in that way. You know, it’s gonna be something that I don’t have control over or something I can’t touch or whatever, I want to just, you know, go full bore and as much as possible. And so I was kind of disappointed with that. So I decided to cash it out and take the hit on the taxes and hit on the on the withdrawal penalty. So
Jason Hartman 21:39
that was a retirement plan now, you know, taking on the withdrawal penalty, paying the tax. In hindsight, was that a good decision?
Andrew Freitas 21:46
Oh, she’s Yes. Okay. Yeah, of course. Yeah.
Jason Hartman 21:50
So you made more on the income properties through our network, then you lost on paying that tax and penalty?
Andrew Freitas 21:57
Yeah. And that’s because of the stuff that you talked about a lot. You know, yes, there was cash on cash. That was great, you know, but there was also depreciation, you know, writing stuff off your taxes. So I mean, the overall return on investment has been phenomenal. It’s I, I probably should have done it earlier. But it was what it was. Yeah. So I bought, like I said, about one in 16, one in 17. And then because I cashed it out, I bought about one in 18. And I cashed out the very beginning of 19. And I, yes, with 19, and about three properties in 2019. And then last year, I didn’t buy any properties, and then I just closed on my seventh one in January, just this January.
Jason Hartman 22:29
Fantastic. And you were kind enough to do a surprise testimonial video for us, we sent out a link where people could give us a review. What I loved about yours is you were standing in, I guess, like office room in your home. And you’ve had all of our property tracker performers on your wall behind you of your properties. I just I just love that.
Andrew Freitas 22:51
And I think it’s it’s good to have, for me anyway, to have visual reminders and things like that, you know, it’s really important to say, you know, this, yes, this is, you know, a goal of mine, I need to like, present this in front of me. And yeah, it’s been kind of fun, you know, to have this reminder. And, and, you know, even though I’m not, I wouldn’t say super far along in my real estate journey by any means. It’s fun to kind of see that well slowly grow. Yeah,
Jason Hartman 23:11
that’s great. Yeah, more more posters on the wall mean more income for you? Right? Yeah.
Andrew Freitas 23:16
It’s close to the goal. Yeah,
Jason Hartman 23:18
good stuff. Good stuff. Andrew, tell us a little bit about what you do for a living if you care to share it. We talked OFF AIR about it. And I thought it was fascinating.
Andrew Freitas 23:27
Yeah, so I’m a nurse, I actually got my nursing license over in Sweden initially, even though I’m from the Pacific Northwest here. And now I work in a psychiatric hospital, here in the Greater Portland metropolitan area. And yeah, I really love it. You know, it’s fun to work with people and to help people and, you know, sometimes it’s exhausting mental work, you know, working with people always is, but it’s a it’s really rewarding. And I think the team that I work with, certainly makes it so much better. You know, it’s it would really make or break, you know, the work that you do. Sure, sure
Jason Hartman 23:54
they do. What I didn’t know, which you mentioned is is your facility as an emergency psychiatric facility? Yeah, I sort of never even considered there was such a thing. But given going on in the world the past year, maybe Can you share some things with our listeners? Of course, not confidential things, but just in general, what’s happening to people out there?
Andrew Freitas 24:16
Yeah, as you know, I mean, it’s been a very, very rough year for most people in the United States, and many people around the world of course, too. And folks who would normally be able to check in with their therapist, or psychiatrist or whatever it would be along the way, have been bumped into the zoom world. And that’s very hard sometimes to not have that human contact and very hard to not, it’s just a different relation, you know, a relationship is very different over the web than it is in person. And I think a lot of people kind of fell off, you know, a path where they were already on that was kind of a supportive structure for them and got into the zoom world and it just, it’s the game is falling apart for them. And when that, you know, mental health starts falling apart for them to the rest of their worlds starts falling apart. And so I think a lot of we’ve seen a lot of that, I think over the last year Folks who otherwise would never probably needed a psychiatric emergency department seek help and service because they’re in crisis,
Jason Hartman 25:07
I hope out like, I mean, you deal with, sadly, you know, suicide attempts and things like that. Have you seen maybe just anecdotally, because I know, empirically, there has been an increase given what’s going on. But anecdotally, like, what have you seen? What can you tell us?
Andrew Freitas 25:24
It’s a good question. I don’t know that I have, honestly, you know, I mean, again, we’ve been a psychiatric hospital there. I’ve been working there almost three years. And so that’s always been a daily part of the work, you know, so I haven’t really noticed there being like, somebody, I don’t deal with somebody who suicide on Sundays, I do. You know, every single day, there’s somebody I’m working with who is struggling with thoughts of suicide, and that’s just, I’m glad the hospitals there for them, you know?
Jason Hartman 25:44
Sure, sure. Here’s kind of as a superstitious aside, and I don’t know if you have anything to say about this, but you just made me think of it. For years, I’ve heard about these possible wives tales about the moon cycle, right. And I’m just curious, do people talk about that in your profession? You know, lots of like, lunar issues and
Andrew Freitas 26:05
the classic like, you know, the, the moon’s out this lunatic, right, that, that, you know, that’s
Jason Hartman 26:10
where the word comes from? I never.
Andrew Freitas 26:12
Yeah, totally. I don’t know. I mean, it’s funny, when when there is an odd day, people say, Oh, it’s a full moon, you know, so that there’s, I don’t know if it’s superstitious, but there’s, it’s ironic, and it’s funny, and sometimes it does seem to line up with that. But you know, again, we we have days that are less crisis than other days, it feels like, and they’re not always lining up at the lunar cycle that we’ve all heard those things that, you know, emergency rooms fill up on full moon nights, and DUIs increase and all this kind of stuff. So I just was kind of wondering, I
Jason Hartman 26:41
thought I just ask that as an aside,
Andrew Freitas 26:43
I haven’t noticed that Jason Yeah. But it’s entirely possible. Yeah. Yeah.
Jason Hartman 26:47
In terms of real estate bit, where are your properties?
Andrew Freitas 26:50
So the first one I bought was in Montgomery, Alabama, and that was going back in 16. I think you guys were in that market really briefly. And then it just didn’t quite work out. The relationship with the provider over there was kind of fell. Yeah,
Jason Hartman 27:00
we didn’t like that provider too much. But you know, we had some bumps in the road. I hope you weren’t one of them. So you know, some have worked out fine.
Andrew Freitas 27:08
as Sarah said, I got in, I got a good one. So that was great. So I my first one there, and then you all were no longer in that market or recommending that market just because the you know, whatever the relationship, the inventory, whatever wasn’t there. And so I moved on to Jackson, Mississippi for the next five properties, yeah, down there. And those are primarily in Jackson. And one of them’s in Clinton, which is just a suburb of Jackson. And that’s, that’s probably been my best. My best property has been that Clinton, Mississippi property, it’s been really good. And then the last one I bought here in January, I was back in Montgomery, I figured I’d start trying to maximize my relationship with the management company there. And so yeah, I want to get a few more at least in Montgomery before I moved to a third market. Right.
Jason Hartman 27:47
Great. So you’re in two markets now then. Right? Yeah. Good, good stuff. And so your first one was five years ago, now you’re up to seven properties, share some of the experiences or you know, lessons learned good things, bad things, whatever you want to share in it. And also, I was want to ask, are there any tools you’re using? You know, whether it be software or ideas or contractors? Or just, you know, anything like that? Without giving out necessarily?
Andrew Freitas 28:15
Yeah, totally understood? Yeah, you know, I, I’ve tried to let the professionals that I’m recommended by or to to be the professional. So I, you know, I work a lot, I work a lot of hours, I put a lot of overtime. So my ability to really engage in the day to day kind of stuff has really been limited. And I don’t have a desire to do that yet, either. You know, I have a desire to really let the management companies kind of run those pieces and just monitor the management companies, you know, and if things don’t look right on the page, and ask a lot of questions, you know, so for me, I don’t want to be more engaged right now in day to day stuff at the properties someday I will. But at this point, I’m working a lot right now. And the work that I’m doing, and my focus is on the work that I’m doing, and I’ll let my business be the business, but let the professionals, the professionals and do that part for me. And it’s been an okay, I think, you know, it’s not been perfect, like anything like you always say to it’s not a perfect thing, but it’s certainly better than anything else. Or some of this stuff, you know, in that first Montgomery house that I bought back in 16, that one had two kind of bad tenants in a row. That’s always tough. You know, thankfully, like I’ve mentioned kind of before, I’ve always been just convinced that real estate was the vehicle anyway, so it didn’t like the real me at all I didn’t get I mean, I get discouraged. I mean, who wants to pay out money rather than receive money, but it didn’t derail my plans at all. And I knew that I knew that was a part of the business at times too. And unfortunately, hit that kind of in the first year, a couple, couple of rough tenants who just and they didn’t destroy the place, they left it very dirty and filled with junk. And, you know, there’s costs involved in that turn, you know, and that wasn’t very fun because the profits were shot for the year, but still, it’s been a good ride so far. One of the things that I didn’t you mentioned this to being able to, you know, pay attention to the management companies. That was one of the things that in that particular property that I’m mentioning there, went over to a national company for management after the particular company that I originally bought it from and had managing it transferred all of their properties over This national company as well, I just went along with for the ride on that one. And that was done. That was That shouldn’t have happened for me because they didn’t actually even have an office in Montgomery. And so how can you pay attention to a property or that if you’re not even, like, geographically located there? So that was, that was a little rough. And I think I got a little burned on that one, but learned a lesson, you know, and then got a local company there. That’s been been great. So far, I’ve been joined. Yeah, they’ve been they’ve been really on top of it.
Jason Hartman 30:24
So are you, you know, really looking at your property management statements every month? And it sounds like you’re holding the managers to account if something doesn’t look right. If you know, you’re concerned that you’re paying for stuff you don’t need to pay for, or, you know, costs are too high. Right?
Andrew Freitas 30:40
Yeah, I mean, I don’t know about costs are too high, because I I don’t know enough yet in those markets, what things you know, cost, you know, like, for doing stuff on my own home here in Washington, you know, I do a lot of my own construction work, I do a lot of my own repairs and those kind of things. So for me, things are, you know, the cost of materials and a little bit of my time. So I don’t really know what the market costs are for a lot of things, just to be honest with you. But it’s interesting, you know, with real estate, you don’t have a lot of times know, if something’s happening until after it happens. And you get the statement at the end of the month. And you’re like, Oh, you know, I’m having a conversation after the fact, which isn’t always the best time to have a conversation. But you don’t always know about the information or the situation. In the moment that it’s happening. There’s been a couple times where like, a larger expenses coming up and you know, on, you know, right away, you know, the management company, lets you know, right away, hey, there’s something that’s going on here that we need to have sussed out and see what the repairs are going to be. But for the most part, it’s been, yeah, it hasn’t been too bad. Sometimes I’ll see like, oh, somebody didn’t pay, and I will call the management company, like what’s going on? You know, tell me about this, you know, whatever your action steps been, since, you know, this has been going on for a month, you know, rather than like, what are we going to do now? Because their job is said no, in a moment than to be responding to things in the moment.
Jason Hartman 31:46
Yeah, you know, the thing I always have noticed, and I say is that, you know, even when you have a, an expense, that’s a surprise, or, you know, a manager who’s a little too liberal on the spending money, right? You know, it’s still better than those Wall Street investments where you just don’t know what’s going on. I mean, here, you notice it, but they’re, you know, you just get your return at the end of the deal, or along the way, right, and you look at your stock portfolio, and you have no control over what they’re spending, you have no control over whether, like Intel, for example, just got nailed with, I think a $2.1 billion patent infringement lawsuit or something like that. I just read about that. And, you know, that affects all the shareholders. You know, if you own stock in Wells Fargo, and they got like a scandal every week, they’re you know, and they’re getting fined by the government, they’re paying these giant fines to the SEC, you know, it doesn’t really affect, at least not very much the executives, it affects the shareholders, they go for that stuff.
Andrew Freitas 32:52
Right, the regular the regular person on the street. so unfair. Yeah. You know, one of the other things too, is, aside from being just, you know, a frivolous expense that nothing’s done on, if there’s an expense, you’re still improving your property. So the money is still going back into the investment, which, even though it doesn’t feel good, like I said earlier, to pay money, it’s much better to receive money than it is to pay it, but it’s still there’s some, you know, some some comfort in knowing that the money is going into your investment, rather than just loss, you know, which it is in the wall street side.
Jason Hartman 33:22
That’s a good point, you know, few people think of it that way. So when you get an expense, at least you’re not paying for the executives and their private jets, and you’re not paying for corruption, necessarily. Sometimes you might, but you got to watch that, obviously. But the ability for a property manager to be corrupt is dramatically lower than it is for a CEO or a fund manager to be corrupt. Right?
Andrew Freitas 33:48
I would expect so I mean, again, the degrees of separation are much farther with the Wall Street’s you know, scenario, right? Where I’m a phone call away from my management person.
Jason Hartman 33:55
Yeah, absolutely. Interesting, interesting. Any other experiences or tools, you want to share any anything people can learn from any? You know,
Andrew Freitas 34:03
I’ve just noticed, like, my first house that I bought in Montgomery, Alabama, was, it was probably a C class property, right? You know, I know, you’ve talked about, you know, try to stay away from the C class properties and get into the B, Class D class properties just a lot less work a lot less trouble, you know, better tenants, all that kind of stuff. And, and it’s true, you know, I can’t say it’s not true. I probably was a little excited back in 2016, about the pro forma and the, you know, the starry eyed gains of cash on cash, you know, so every one of my properties, interestingly enough, every one of my properties has been increasingly more and more expensive as I’ve gone along. So the first property of button
Jason Hartman 34:34
in other words, you’re buying more expensive properties, correct? Correct. Yeah, yeah. Now is that is that due to the appreciation that’s been happening? Are you buying Are you up leveling the quality of your properties?
Andrew Freitas 34:45
I think it’s just been up leveling the quality honestly. Yeah. You know, there’s been definitely the last year particularly it’s been an incredible amount of appreciation, but I’ve only bought one property, you know, but again, the first one I bought was like 68,500, right and rents are at 25, which is phenomenal. rate. And when they’re paying, it’s great, right? that’s a that’s a phenomenal cash flow. But again, that level of tenant can be one who, you know, leaves without paying and causes a more expensive term, shall we say? The last property I just bought was like 131. Nine. So I’m still relatively inexpensive property. Yeah,
Jason Hartman 35:17
that’s, that’s really inexpensive.
Andrew Freitas 35:20
And that’s, again, that’s in Montgomery as well in Montgomery, as the cash flow is going to be on that one, probably really close to $200, maybe just a hair over $200 with all the, you know, incidental, and But still, that’s I mean, I can’t get that on Wall Street consistently, year after year after year, there’s no way you know, there’s no way maybe in it, maybe in a boom year, right. That’s the way I can do it otherwise, and
Jason Hartman 35:40
that boom, can retrace and go backwards very quickly on Wall Street,
Andrew Freitas 35:45
they can sneak real quick.
Jason Hartman 35:46
Yeah, with the real estate, it it just not that volatile. You know, so
Andrew Freitas 35:50
yeah, so so it’s been good. You know, I think I remember, one of your guys who lives in Augustine, who’s kind of a provider of newer construction out there I can name is the surfer guy. He talked a lot about that, too, when at the meet the Masters, I think in 2018, or 2017, I went to both of those as well. And he was talking, he was one of the speakers. And he was talking about how he went from a lot of properties that many of them were lower quality, lower price to consolidating to fewer properties that were much more valuable properties. Still cash flowing, still still a great investment. But I remember him talking about that transition that really resonated with me, just with my brief experience in the in the C class property, kind of getting that Yeah, well, getting up to the B class makes a lot of sense. So yeah. B class properties.
Jason Hartman 36:35
I agree. And, you know, I think the thing I want to just say about that again, so everybody knows is look, you can make money in anything. Okay, you can make money and F class properties, or a class properties, right. But we find that for the tolerance of most of our clientele, is that they like the better properties, they just have better experiences with them on the whole, there are certainly those out there who are kind of the bargain hunters that want those el cheapo properties, they’ve got great numbers on paper. And if they pay more attention to them, they can work, they can do great with them. But by and large, the A and B class properties tend to work out better for at least for our people, we find
Andrew Freitas 37:18
Yeah, I’ve done a little bit of remember all of it right now. But But I think they’re pretty close to each other pretty active B class properties and the C class properties right now. But again, you know, I think I went into real estate investing already knowing that it was the vehicle I wanted to do. So the difficulties that a C, Class B present is not something that I was like, afraid of, you know, it wasn’t like I wasn’t worried about the tenant who’s going to trash my property, I just, I was never afraid of that. I don’t mean that in a bad way. Just I was always exposed to real estate, you know, from from a younger age, too. So there was no hindrance or barrier for me to get into real estate and to be worried about those properties. And I’ll be honest, I talk with a lot of folks too at work, you know, a lot of nurses who are in the place where they could probably they have some expendable cash, they can probably get into real estate investing too, if they want to. And I certainly promote this style of investing, I enjoy it, you know, and it makes a lot of sense to me. And it’s been well for me, I always tell them to you know that, yeah, there’s risk. But the people that work with the people on your team that I’ve worked with, you know, you Sarah, the folks that I’ve connected with, at the the meetings that you have the events that you have, you know, conferences, and all the management companies and that to you know, everybody is a professional, sometimes the management companies don’t do a good enough job and you decide if you want to stick with them and you know, hopefully get better or you or change that, but, but it’s not like I’m working with a bunch of people that don’t know what they’re doing. Right. It’s so comforting, you know what I mean? It’s like going in with novices, you’re like, uh, you know, we’re going with somebody who’s been doing it for a long time and understands the questions to ask, it just takes so much for me the risk also away, you know, just dealing people who this is what they do all day long. You know, the mortgage people that the buyer’s broker in the market, you know, all of those things. They’re just, they’re just all professionals. They know what they’re doing.
Jason Hartman 38:57
Yeah, thank you for that, by the way. that’s a that’s a compliment to us, obviously. And you know, I’ll tell you, Andrew, that’s the reason I got into this business back in 2003 2004. It’s because I tried to do this myself. And it was so difficult. I mean, you know, I had been in traditional real estate all my life up until that point. And then I tried to become a nationwide investor. I couldn’t get return phone calls. I was flying around the country, I was meeting with people who didn’t know anything about investing. A lot of them were just a bunch of slocks frankly, you know, or worse, they could be just really sleazy and unethical too. I thought we have the greatest investment of all and yet there is no easy system to take advantage of it for people I thought there’s got to be a business here. I basically became my own first customer and created the business out of that so it was out of necessity You know, that’s, that’s kind of what what entrepreneurs do you know, they they notice a need and a hole in the market. Place and then they feel like, you know, so Yeah,
Andrew Freitas 40:02
I know. for it, yeah, their vision for it and they and they make it happen. So that’s great. Yeah,
Jason Hartman 40:06
totally understand what you’re saying there because
Andrew Freitas 40:09
I’ve always been kind of a nuts and bolts kind of a guy. So like, you know, you have people who envision this Oh, there’s a problem I see this, this I envision a solution for this problem. You know, I’ve always been the one who said, Okay, tell me what your solution is. Let me make it happen. You know, I’ve always been kind of like that guy. I’m just not a visionary thinker. And that’s it is what it is. But definitely a rubber meets the road. how’s that gonna get done? That’s pretty much what I’ve done. And so again, having your system already in place was perfect for me. You know, I don’t need to envision a new pathways. I say, Oh, that makes great. That’s that’s a great path. Let’s let’s just make that happen.
Jason Hartman 40:37
Yeah, Fantastic. Fantastic. Hey, I’m curious. Where in, in Sweden did you live?
Andrew Freitas 40:42
So I was two years down in Stockholm when my wife and I, we lived down there for two years. And then, when we were going to have our son, we moved up to the north of Sweden, Pete to Sweden, which is pretty far north overall, not quite as far north as where you were in the Icehotel which I visited before. Yeah.
Jason Hartman 40:56
That was such a neat trip.
Andrew Freitas 40:58
Yeah, it’s pretty, pretty amazing up there, honestly. Yeah. It’s a five hour drive south of that, which is still very hard for us, you know, probably about an hour and a half drive south of the Arctic Circle, roughly. What I was there for about five years.
Jason Hartman 41:09
Yeah, that’s amazing. Yeah, I
Andrew Freitas 41:10
have a lot of snow in my life. Yeah,
Jason Hartman 41:13
I couldn’t do that. But, but for some it works. Good stuff. Well, anything else you want to say to wrap it up? Do you have any questions about any of the, you know, the techniques that we teach or any anything that you like, that you want to talk through real quick?
Andrew Freitas 41:26
Yeah, I didn’t, I hadn’t really thought about the questions side of things, to be honest with you. Um, yeah, I don’t think I have a whole lot of questions right. Now. I again, you know, when I have questions, I just reach out to Sarah or, or somebody that the team and usually they know exactly what I’m talking about? And can answer really quickly. So good stuff. Yeah, one of the things I did mention that I think that would be that was kind of cool was that the whole business that you have, there’s a referral business, it’s a business that, you know, connects, you know, buyers and sellers and, and that, and I just remember one time, Sarah, that my investment counselor told me not to invest in a particular property that that was very interesting to me. And she’s like, yeah, just matching you up with that particular seller wouldn’t be a good idea. They don’t match your style. And I was I was interesting, and I was glad that she gave me that feedback. And she was right, you know, but you know, as an investor, you don’t, you don’t have a relationship with the seller, you know, ahead of time, which is what you guys also do, too. So that was just kind of an interesting aside to all of this to you know, steer you in the right direction, but also steering you away from the wrong direction, which was very helpful.
Jason Hartman 42:17
Yeah, that’s great to hear. And, and, you know, I, I certainly take a long term view of business, and I hope all of our team members always do, we really don’t hire sales people. You know, we hire counselors, who really take a long term view and want to make sure clients have good experiences. They hopefully are always doing the right thing for them. And, you know, we just did a survey, and I can’t wait to read all we do an annual survey. And I can’t wait to read all the results. I skimmed over some of them yesterday, and, and they all looked pretty good. So I built mine out. Okay, good. Well, I look forward to seeing yours too. Yeah, good stuff. Well, Andrew, thank you so much for sharing your story with us on behalf of all the listeners, because everybody really appreciates these client case studies. And we appreciate your business and just want to wish you a very happy investing journey. And again, thanks for coming on the show and sharing your experiences.
Andrew Freitas 43:12
Yeah, thanks. I hope in some small way This encourages other other folks who haven’t gone this route to to jump in because it’s it’s been great.
Jason Hartman 43:18
Thank you. Well, thanks again.
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In this Flashback Friday episode, Jason Hartman answers a listener’s question about sole proprietorship and if an LLC can be a self-management company. Afterward, he interviews Harry Dent about the inevitable Chinese market crash, debt detox, and high-end real estate. The two also talk about deflation and the mortgage rate in the next 3 to 4 years.
Announcer 0:00
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.
Announcer 0:14
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:25
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 1:16
Welcome to the creating wealth show. This is episode number 545. This is your host, Jason. And thank you so much for joining me today. Today, our guest will be Harry dent. Yes, Harry dent is back on the show for I think the fourth time, he has given us some great insights. As you know, I love to try and keep things simple and be guided when it comes to the economy and my investments by big principles. And one of them that makes me really like Harry dents work that I discovered back in the mid 90s, actually, is the concept of economic demography. You know, there’s an old saying that demographics is destiny. And well, Harry dent has been, you know, right and wrong about predictions over the years, sometimes spectacularly. He’s out with some pretty heavy duty new ones that you’re gonna hear. I mean, gosh, if some of these things come true, I don’t know what’s going to happen. But we shall see. So he’s going to talk about that with us in a few moments. Just a couple of things.
Before that, first of all, a quick listener question. This one comes from our listener, Daniel. And he says, Hey, Jason, I recently flipped a house and want to use the profits to acquire a rental property and start building my portfolio. So of course, he’s doing the right thing, he did a flip for some quick cash, then he wants to turn that into a long term portfolio. So congratulations, that’s a good way to view real estate as a vehicle. You know, flipping is like a business, right? You got to pay a lot of attention to it, it’s a lot of work, it’s hard to find deals, selling them this complicated, you know, there’s just a lot of attention, a lot of moving parts, right. And what you want to do is take and turn that into your long term portfolio, and your buy and hold portfolio. So that’s a good thing. He says, I want to self manage this property. But new do not want to do it under my own name. I’d like to create a sole proprietorship to operate as the management company, but the business would not own the property, I would still personally own it. I would like to get your thoughts on this, or if you have any experiences with yourself, or someone else relating to this. Thanks. And I love the show, Daniel. So Daniel, good question. First of all, you must know that I am not an attorney. So I cannot really give legal advice, I can only talk from my own experience, and the learnings that I get out there in the marketplace from our clients, which is really one of the best places to learn. And, of course, from our boots on the ground, people in all of our affiliates in our rather large network, you know, the first thing to know is that a sole proprietorship will not offer you any asset protection. And that’s something you must know. So please, although I don’t think you are from the tone of your email, expecting to offer asset protection, but don’t because it is not an entity, it’s just a name. It’s it’s really kind of nothing, okay, and if you don’t want your tenants to know that you own the house, you know, you can call it Hartman management await, you probably wouldn’t want to do Hartman management, but you can call it ABC management, or Daniel Hall, not Daniel management because that would be your name. And so that can give a little bit of, you know, kind of a difference in the way they relate to your management company and so forth. But it would be better to set up an entity, maybe an LLC, and make that the management company, if you want to do this self management thing, especially in a big way.
Again, we’ve talked a lot about different assets. Protection strategies. We recently had an attorney on the show talking about this. And there are tax implications too. So nothing is super simple. I have never done this myself, I have always when I’ve self managed, the people know who I am, and they know my name. And when I have managers, they don’t know who I am. And they don’t know my name, and they don’t deal with me directly. And, you know, I really, I don’t find tenants to be much of a problem at all. They send me the rent, I talk with them, they’re usually quite nice. They’re usually quite helpful. I’m here at a conference in La Jolla, California, where I now live. And we were on the property tour, of course, got back on Sunday, and Fernando, who’s one of our big clients, and now an investment counselor with a company, Fernando and I are starting a sort of self management software company that we’re working on to help people self manage their properties. And, you know, he’s been staying with me at my place for the last couple of days as we attend this mastermind meeting that we’re in and by the way, the value of masterminding this as a tangent alert is really big folks. So if you have not yet joined the venture Alliance mastermind, you need to get into that we’re gonna do some awesome, awesome stuff together. So keep that in mind. It’s gonna be well worth your money, maybe three times over.
Okay. But anyway, what was I saying? Again? Yes, Fernando was just telling me yesterday morning, a story about one of his tenants and one of his self managed properties that was just taken care of business for him, you know, calling, apparently in this property, I think it was a Texas property, if I’m not mistaken. The air conditioning was blowing warm air, you know, needed a recharge of Freon. And the tenant sends them a nice email says, Hi, Fernando, you know, it’s blowing warm air. Do you want me to call in an air conditioning company, maybe get a couple of quotes and get the best price and you know, coordinated? Or do you want to do this? Well, the tenant actually becomes your property manager in some ways. I mean, they’re there. Most people are really good people. It’s just not as big of a problem, as you hear, right? You know, after doing this for over two decades, I just don’t see all of these tenant problems that people talk about. Certainly there are deadbeats, I know that I don’t see all these slip and fall lawsuits that the lawyers love to talk about, you know, of course, you should have good insurance, maybe you should set up some asset protection entities. But again, I don’t know if you need to have another name. I mean, sometimes I think if you deal with a tenant directly person to person, and they know you, I think a lot of times, they feel the pressure of that social relationship. And I think that they will treat you better than they might treat some, you know, company with a name that’s kind of amorphous. That’s not a human being. I don’t know, do what do what you wish, but do definitely know that that sole proprietorship will not offer any asset protection. And by our emails, I know you already know that. But I thought it was a good question for the show. So wanted to share it with the listeners. So venture Alliance mastermind group, I tell you, I am in four mastermind groups.
Now, one of them here, this is our second day of our conference here in La Jolla. And wow, this is my second meeting in this group, I’m paying 25,000 bucks a year to be a member, which, you know, if you asked me five years ago, what I ever thought I’d be spending $100,000 a year on joining all these, you know, different four groups that I’m in, I would have thought you were crazy, like you need your head examined. But in an exponential world, in the exponential world in which we live. Knowledge is obviously power. You’ve heard that before. But connections have so much power. I mean, it is just amazing. The learning curve, the things you can do with a group of people that you hang out with, that you share meals with, you have drinks with that you attend conferences with, you know, when you both heard the same thing all day, well, not both, but all of you heard the same thing all day. And then you kind of debrief on it at the evening over a meal. It is it is just incredibly powerful. And, and you know, you go into deals together your joint venture things together. And that’s what the venture Alliance is all about. You know, I haven’t talked much about it lately on the show because we just didn’t really have anything much to say. But we do have our next event coming up. Our very first members, Neil and Elizabeth gave us some great suggestions that we’re looking at for doing something in the Pacific Northwest. And one of the San Juan Islands off of Seattle, which will be beautiful that time of year. And by the way, we’re looking at the end of September, early October, probably for this. But we’re also considering Lake Tahoe. And you know, maybe something back east, like a fall foliage tour type of event, you know, maybe in the Berkshire’s, maybe, I don’t know, somewhere in the northeast, back there is the leaves turn. And it’s just spectacular and beautiful. But most important, is not just the fact that it’s a vacation, you know that you get a vacation element to the venture Alliance. But also that we get to spend time together, we get to brainstorm deals together, and then actually do deals together. So a lot of good stuff coming up there, check it out.
Again, this pricing is not going to be so low forever. And I know you’re probably as I say this, don’t think it’s low at $10,000 a year, but compared to other groups out there that is really, really inexpensive. So you may be hearing the bell ringing back there. And I’ve got to get back to my mastermind conference here. But anyway, let’s get to Harry dent, and hear what he talks about. You know, one more note on that. The thing he talks about is largely deflation, when he talks about what’s going to happen to the Dow what’s going to happen to the gold price. And there’s an interesting article I just saw yesterday about moon exploration and maybe colonization of the moon. Certainly, there’s a lot of industrial implications to this to the moon. And with that, this article was talking about how the cost of colonizing the moon could actually be reduced by 1/10. Or by 90%, I guess I should say, by 90%. There are certainly some cases for some deflation, in terms of looking at technology and the amazing things that it offers. But all that’s going to do is give us a better life, and more resources and just do tremendous things for the human race. So it’s just an amazing time to be alive. All things considered. Real Estate Investing income property investing, works best in the inflationary environment, it’s a homerun if you structure it correctly for that. But in the stagnation environment and the deflation environment, it works pretty well to probably better than anything else. Not quite the home run, but certainly better than anything else that I can see out there. With that, let’s talk to Harry Dent.
Hey, it’s my pleasure to welcome Harry dent back to the show. You’ve certainly heard his name. He’s a very prolific author. I started following his work back in the mid 90s. And you know, he’s been right on with a lot of great predictions, you know, missed a few, of course, but he’s been on with a lot of them. And it’s great to have him back. It looks like Harry dent is on a roll again with the predictions too. So it’s good to have him Harry, welcome. How are you?
Harry Dent 13:09
Oh, nice to be back. Jason.
Jason Hartman 13:10
It’s good to have you in Where are you located today?
Harry Dent 13:13
Tampa, Florida.
Jason Hartman 13:14
No income tax state good place to be?
Harry Dent 13:16
Exactly. That’s why I’m here.
Jason Hartman 13:18
You Tony Robbins. Rush Limbaugh a whole bunch of others. Yeah.
Harry Dent 13:22
Yeah. And I was in California before this. And Tony moved because they raised it, I think the 14% and made it retroactive a year. So he said, you know, are still a visa, baby. Yeah.
Jason Hartman 13:33
Well, he was right about that. So that makes a lot of sense. socialism doesn’t work. And we all know that by now. And when we look around the world you look at Greece is is on the verge of epic disaster. Again, Spain is a mass Portugal, I you know, when will people get the message? Harry, this doesn’t work, you can have something for nothing.
Harry Dent 13:53
I know that there’s something for nothing, though, sells. I mean, that’s what marketers do. I hate to say it, but I mean something for nothing. People want life to be easy. They want it to be, you know, no stress, no problem, no pain. And that’s not the way life is and people who who do something to make a difference in the world and who are successful, do go through pain. And that’s how they get gain. And you know, the markets are like this. No, we won’t. We won’t let the markets go down. We’ll just print money, we’ll just fill up every hole with with free money. I mean, how stupid is that? And yet, I go on these financial shows and have to argue this as if it’s as it shouldn’t be obvious.
Jason Hartman 14:34
This is this should be you know, basic economics supply and demand, you know, you increase the supply of money, you’re going to have problems. But really, if we look at that, and I want to make sure we talk about China because the president of your company, Rodney just released an interesting piece about China but why don’t we have some significant inflation with all this money creation?
Harry Dent 14:55
Well, it’s because we had a You know, one of the greatest debt bubbles in history, in fact, the greatest. And what happens once we get too much in debt, we’re no longer expanding the money supply and that debt starts to D leverage. Now, it’s deleveraging very slowly because the government is stimulating the economy. But what they’re doing is basically, Jason, they’re fighting deflation with inflation, every major debt bubble in history, and I like them in the roaring 20s. And then the 1870s railroad bubble before that, and then canal bubble before that, in the 1830s. They’re always followed by deleveraging of debt, financial bubbles bursting, and then money disappears, money is created by the banking system too fast. And then when it de leverages wealth, I mean, stock market goes down 89% in 1932, my wealth disappeared and didn’t come back bank loans, we wrote off about half the private bank debt and mortgages and stuff in the early 30s. So that is money created, like magic by the banking system and then disappears, now you see it. Now you don’t and and we had debt grow at 2.7 times the rate of GDP growth from 1983 to 2008. For the entire boom, any economist that does not see that as a problem shouldn’t be an economist.
Jason Hartman 16:19
Okay, Harry, I want you to, I want to make sure we just really comprehend what you just said, because I think it was very important. Say that, again, give the years and the amount of debt versus GDP. And you’re only talking about us, I assume, right?
Harry Dent 16:32
Yes, in the US, of course, this happened around the world, but the US from 1983 to 2008, where private debt peaked at 42 trillion, and the government deficit about debt back then was 10 trillion at federal level, what debt had grown for 25 years, 2.7 times faster than GDP. So you know, you can’t have debt, grow that fast and not have a debt bubble not have a debt crisis. And when there’s too much debt in the economy, people speculate more, they buy bigger houses, they can afford cars, all this sort of stuff. And then when the economy goes bad, they’re underwater, and they’re in trouble. And that’s what happened in 2008. And again, the government’s solution is we’ll just pretend like it never happened, and just keep printing money. And I’m like, Hey, if you’re gonna print money, don’t don’t give it to the banks and goldman sachs and all these people send send people a $10,000, check. If you’re going to create something for nothing, at least send it to the people. all it’s doing is going into financial institutions who are borrowing money at zero rates, leveraging up 20 to 30 times and speculating banks don’t lend money anymore. They speculate in the stock markets and commodity markets.
Jason Hartman 17:41
Yeah, well, Glass Steagall, you know? Yeah, it’s something else but but see their argument, the powers that be unfortunately, their argument is that if we give it to the banks, of course, the banks have lobbyists. And there’s all kinds of you know, crony capitalism going on. But if we give it to the banks, their rationale is there’s a multiplier effect.
Harry Dent 18:02
No, it’s not not No, not when you speculate. When you lend it, there’s a multiplier effect. But first of all, we don’t need the banks to lend more money, consumers and businesses borrowed the most in history, private debt is twice as a ratio to GDP, what it was at the top of the 1929 bubble, and we’ve got on top of that, the government debt. And on top of that, we’ve got unfunded liabilities for Social Security and Medicare, Medicaid, that are alone four times our GDP. So we’ve got eight times our GDP. In total debt obligation, we don’t need more debt. What we need to do is d leverage, especially the private debt that got so far to control that $42 trillion, we got to work with what happens in this
Jason Hartman 18:46
trillion with a T that’s a T,
Harry Dent 18:48
yeah, with a T 42 trillion in private, and 18 trillion in government, and $67 trillion in unfunded liabilities for Social Security and Medicare. That’s how in debt we owe, we’ve got like $130 trillion in debt, and all people hear about is the 18 trillion from the government. So we have to do a big, what I call a debt, detox a debt deleveraging. That’s what happened in the 30s was very painful. But know that after that bottom and 32 in the stock market and the bottom in the economy, unemployment, housing, everything else in 33, we turned around and grew like crazy, and didn’t stop until 2008. Pretty much so. So def de leveraging is a good thing. It takes burdens off of business and consumers. But what they’re really doing, Jason is the reason they’re funneling the money to the banks. They don’t want the banks to go under, because that’s what happened in the 30s had a run on the banks, banks failed loans failed. They’re there by giving this free money to banks and financial institutions can speculate and end with a slam dunk. With free money. It’s free long term adjusted for inflation, 10 year treasury bonds, and it’s free short term. It’s zero rates. They basically are getting a free gift. And they’re they’re able to keep alive through speculation. But all that is doing is creating more and bigger bubbles than we had before the stock market is at substantial new highs. Now, real estate in a lot of cities is substantial new highs, that means now we’re gonna have to, you know, D leverage these bubbles again. And and it’s just it’s the sickest thing I’ve ever seen that anybody would tell the public that the way to cure a debt crisis is through more data by creating more money out of thin air banks created most of the debt, not the government. In that boom, I talked about 2.7 times debt growth. But now the government’s creating money, you know, 4 trillion in the US about 14 trillion around the world, central banks are just creating money throwing it in the economy, and it’s not being Lent, it’s not creating jobs, it is creating speculation, and bubbles.
Jason Hartman 20:53
Okay, so couple comments on that. Number one, I have long said that the prosperity of the United States over the last few decades is an illusion. It’s It’s It’s a game of smoke and mirrors. We’re not really as prosperous as we think we are. From Nixon on closing the gold window, you know, this is just like, we get to we get to sort of bully our way around the world and be irresponsible, because we got the reserve currency. And we got the military to keep it that way. You know, I mean, this, this is not a sustainable thing. I mean, do we are we in a legitimate recovery?
Harry Dent 21:35
No, no, no, this is what we would have had a depression, we were going into a depression, which is just a big debt deleveraging and financial bubble deleveraging. We were this was exactly like the early 30s. Except this time, the government’s bailed out, everybody but Lehman Brothers, and the government’s pump money. I mean, in in the early 30s, they took interest rates down to near zero short term, but they didn’t do this QE thing, they didn’t just create money and throw it in the economy. So they’ve had to, just to keep GDP growing at 2%. On average, since that crisis, they’ve had to pump $4 trillion, you know, you know, almost, you know, 20 25% of GDP, that’s the only reason we’re growing, we would have been in a depression. Without that, actually, we would have been over it by now largely, and then we would have been in better shape. And now we’re still gonna have to now we’re gonna have to D leverage an even bigger bubble. More and more debts been added around the world. $57 trillion, globally, has been added to the debt pile since the crisis in 2008. And the majority that’s coming emerging countries, and they’re suffering from falling commodity prices, which is something we predicted very strongly. In my last book, the demographic cliff, we said, Hey, the only the countries that have the good demographics, the emerging ones are going to get hit by plummeting commodity prices. And that’s exactly what happens. And now they’ve got more debt than ever. So it’s a global debt bubble.
Jason Hartman 23:01
I totally enjoyed the demographic cliff. By the way, I thought that was an excellent book. I mean, I’ve read so many of your books over the years. How many books do you have, by the way, I’m
Harry Dent 23:10
curious, not I’ll probably seven or something. But then the important one, were the great, boom, ahead, the great boom ahead in late 92, that was prophetic. And then the roaring 2000s was a book I sold most of in early 1998. And then the Great Depression ahead, and now the demographic cliff, those are the four books, I would tell people to go back and look at.
Jason Hartman 23:30
Okay, so I gotta ask you this, and I want you to answer this. Honestly, please don’t feel like, you know, you’re playing to the host here, not as if you would, but I just want to make that disclaimer. So in the Great Depression ahead, or the demographic cliff, I mean, in the demographic Cliff book, you talked about real estate, and of course, you know, I’m in real estate in the investment side. And I agree with you on the mcmansions. And the high end real estate that, you know, I mean, you you predicted that many years ago, I want to say a good 1518 years ago, you predicted around 2012, the mcmansions would start to soften I if I’m getting that right, I think I am and you’re predicting that still that that’s that’s not a good place to put your money. My mom owns a big 9600 square foot McMansion herself I’ve been trying to convince her to sell. You’re not bullish on real estate, but you don’t make the distinction as I would on you know, low end real estate sort of necessity housing versus high end real estate or, you know, different localities like, you know, high end markets. I mean, I don’t like any market with high land value. So I throw out California, the Northeast South Florida, you know, we only like these sort of cheap middle markets like, you know, Memphis, Dallas, Houston, you know, Indianapolis, boring places you never hear about, you know, that nobody, you know, they’re just like really milk, milk toast kind of investments, you know, $100,000 properties. What do you think?
Harry Dent 24:54
Well, yeah, actually, yeah, there’s a huge difference for a couple reasons, the fluent the top 10 to 20% And really the top point, one 1% even more so have done incredibly well in bubble land, and especially since 2008. Everybody else has seen their wages go down their buying power, all this sort of stuff student
Jason Hartman 25:12
loan debt, don’t forget that.
Harry Dent 25:14
Yeah, they’re they’re the ones making this mansion bubble and high end bubble, you know houses selling for 100 million 100 50 million on 1000 square foot condo in New York sold for 135 million. I mean, this is absolute insanity. And I The thing that I get that the rich people are the dumbest. They don’t think their real estate can go down because they think they’re always going to be rich and rich people like them will always want to buy this, it is the high end real estate that bubbles the most and goes down the most and is baby boomers are done buying housing. And what they’re going to do is trade down into smaller places, while the millennials come with much fear and difficult to get credit. And they want small places. So that everyday house is the best place to be in the very, very worst are these super expensive, I live in an expensive neighborhood and people don’t think this is going to go down. This is going to go down Palm Beach is going to get plastered Manhattan, San Francisco, Vancouver on and on and on. The are the number one rule is bubbles always burst. And the bigger the bubble, the bigger the burst. So it is the high end that it has got the most risk. And by far, the thing
Jason Hartman 26:21
that makes me want to say that maybe that’s not true is because the rich do get richer. And when you have economic policies like we’ve had, you know, the wealthy benefit from inflation. I mean, it’s just amazing to me, you have all say it, idiot, Bernie Sanders yesterday, commenting, or maybe the day before commenting on Greece and how, you know, they, they shouldn’t be willing to have austerity is if you know, like, what is he a child? I mean, do you think someone else just gonna bail you out all the time, and you can be irresponsible. And
Harry Dent 26:55
the flipside is word banks and governments made loans to those people that they couldn’t afford to pay, they made bad loans. And when you make bad loans in the free market capitalist system, you’re supposed to lose money. So people on a write off these loans, and Greece should default. But if Greece defaults, they’re going to lose their ability to borrow money, and they’re going to be forced to live within their means for the first time in decades. That’s the only way what happened if they’re forced Greeks would never choose austerity, they’re gonna get it. They’re gonna get it big time. Right, right.
Jason Hartman 27:29
But but so so these kinds of policies that we have really pretty much around the world, they always benefit the wealthy class, or do
Harry Dent 27:37
you know, Jason, that this is not true? This is true at times when you have a bubble boom. And when you have high credit creation, yes, the wealthy get wealthy faster. And that’s been happening for the last couple decades. But what people don’t understand and when these bubbles burst, guess who owns most of the bubble financial assets, guess who owns these 100 million dollar dumb ass condos in New York, and in San Francisco and Shanghai and stop it is the Uber rich, they get slaughtered. The rich went from 20% of the income in 1929. The top 1% went from 20% share of the total income which is huge, down to 8%. In the early 70s. They they did not get rich, faster. After that they got the everyday person advanced, we had the first middle class society to merge and all a history from the Great Depression and after World War Two. So I’m telling people, it’s the rich that are going to get smacked the hardest. It’s not going to be easy on Homer Simpson,
Jason Hartman 28:37
I bet people will be happy to hear that because the Uber rich I think are just ridiculous. They’re the crony capitalists, and they
Harry Dent 28:44
think they’re invulnerable. Every person I know, that has owned something, you know, super expensive real estate in Martha’s Vineyard or London, or New York or San Francisco or Sydney, Australia, Vancouver, I can’t talk one of these people out of it. They think these places will never go down and people like them will never stop buying and they are going to be so wrong. It’s going to be unbeliev
Jason Hartman 29:07
that that whole market in you know, Uber rich real estate market. It operates on one principle, the greater fool theory, no matter how much I paid, some greater fool will come along and pay more. There’s no sense to it. There’s no cash flow metric. There’s nothing logical about it.
Harry Dent 29:24
Oh, well guess who the greater fools are today, Jason, the wealthy Chinese, just like the Japanese were in the late 80s. Japanese had a big bubble while nobody else did in the world. And it made them a lot wealthier. And they go around start buying real estate in London, New York Pebble Beach and stuff. That’s what the Chinese are doing today. I’ll tell you why. They don’t care about the price, Jason, because they’re laundering money. They’re getting money out of their country. And this is the only legal way they can do it. They pretend like they’re moving temporarily to California to get their kids in a good college. And they buys expensive real estate as they can because they’re trying to get their money out at Dinah before the bubble close they’re not idiots
Jason Hartman 30:02
they’re looking for the Brinks truck. Okay. And America has always been the Brinks truck not I’m not sure if that will continue but you know, it’s it’s a it’s a game of relativity, right? It’s just all we have to be a slightly better than everybody else right as a place to put your money. And that’s what the South Americans are doing in Miami and South Florida. That’s what the Chinese are doing everywhere in the US and Canada.
Harry Dent 30:23
Brazilians have been Yeah, that’s right. You go to Miami. It’s Brazilian right bags of cash from illegal activities, buying condos. They don’t haggle either. But but it’s more than anybody. Now the Chinese are the last fool standing because the Russians got do this. They got killed by the ruble being smacked the Brazilian economy is doing really horrible. So it’s really now made the Chinese are the last fools and I tell you, when when their real estate and stock market implodes. And this is beginning already and we’ve been forecasting this for years that China was going to be the biggest bubble burst, China was going to take down the world more than any single country. When that real estate bubble implodes, these wealthy people are not going to have the money to buy these 15 million 20 million 100 million dollar condos and houses. Okay, so
Jason Hartman 31:06
tell us more about China. Like I mean, you’ve spoken about the Chinese demographic problem with a one child policy. And, you know, you wait, what, I don’t know how far you push that out. But I want to say it’s like 15 years from now, China has a big lopsided demographic where you got too many older people, not enough younger people. I’m not sure that the number of years but you’re the expert. Tell us more about China. It’s interesting.
Harry Dent 31:32
Yeah, they’re the only emerging country that doesn’t have favorable demographic trends. their workforce has already peaked in 2012. It slows and it kind of kind of flattens out over the next decade. And then about 10 years from now. They start aging as fast as Japan did in the 1990s and stuff. So China doesn’t have the demographics, they’ve overbuilt their infrastructures, their industry, their housing, their offices by I’d say basically 12 to 15 years out. So they’ve been building stuff for nobody 27% of condos and in Chinese cities are empty, you got whole cities, like Ordos built for a million people, nobody there, got empty malls and stuff. So they’ve been building stuff just to drive the economy and keep people employed. And what happens to these, right now there’s 240, illegal rural migrants in Chinese cities that have no access to health care, welfare, education, anything, they’re only legal back in their rural areas, which are now paved over and they can’t go back. They’re trapped in these cities with low skills. They’re an underclass. And when this machine a building stuff for nobody stops, they’re going to be dead, they’re just going to be trapped in these cities. And the only positive thing is there’s going to be a bunch of empty condos for them to, to squat in. But But these China is the last place I’d want to be in the world right now, because they’re gonna have unbelievable urban unrest when this happens.
Jason Hartman 33:06
Well, that’s that’s a big deal. When you look at economy as large as China and a population as large as China. I mean, will the Communist Party survive that? I wonder?
Harry Dent 33:14
I don’t think so don’t The only thing they got going for him is older people don’t rebel and revolt like younger people do. And like you said, they have an aging problem, which is unique in the emerging world, because of their one child policy all the way back to the 70s is when that started. So that’s, that’s hitting them now. And like I said, it’s going to hit them much bigger 10 years from now, by time they get to that real point of demographic weakness. They’re going to have gone through a 10 year digestion of all this overcapacity of everything. So I, you know, I, when we do finally have this crash, and this reckoning, I’d invest like crazy in a place like India and many other emerging countries, but I still wouldn’t I still wouldn’t be bullish on China. Even after they have a major crash,
Jason Hartman 33:58
what was the what’s gonna cause their crash like specifically?
Harry Dent 34:01
Well, you see, the stock market started going down crazy, because there’s too much speculation and went up 160%. And one year, while the economy decline, because the app book because people in China saw that real estate, the greatest bubble in history finally started going down. So you couldn’t make money there. So they stopped all of a sudden and became stock flippers. So people just buying stocks, and they said two thirds of the people who open new accounts there which were meteoric and the rates of opening new cash, two thirds of them didn’t even have a high school degree. So this is the dumb money pilot in the markets. And now what’s it doing? It’s just falling apart. The government had to step in and get brokerage firms to pony up $20 billion to buy stocks to bully the markets. They told all their pension plans. And in the country, you can only buy stocks we will not it’s against the law to sell stocks. Do you understand how desperate This is? So this bubble, this bubble is going down just like 1929 did, and the US government at first did the same thing. They had broken firms step in, and purposely buy stocks. And it only worked for a couple weeks. And next thing, you know, the market was down, you know, 89% couple couple years later. So this is not going to work. It may may work a bit temporarily. But when a government has to step in and tell people, it’s illegal to sell stocks, and you have to pump up prop up the markets artificially. It’s just in I’ve never seen anything this insane. And the one thing I’ve done more than anybody is study history. And this is central bankers gone mad.
Jason Hartman 35:33
It really is a really, as well, speaking of central bankers, any thoughts on Janet Yellen, you know, bring us back to the US and, and just, you know, any of your predictions, you you predicted some amazing declines for gold. You know, I’m sure you view the stock market as being in a ginormous bubble right now. But, you know, tell us, what do you think is going on here?
Harry Dent 35:55
Well, again, you know, they’ve re inflated the bubble. They’ve done it now, for six years, things are starting to crack Greece, the neck, the you know, the next problem is going to be is not just Puerto Rico, and Illinois and Chicago, the United States, the frakkers. That’s a trillion dollar industry, with 600 billion of highly leveraged debt that is going to default and make Greece look like nothing. That’s just one sector and it’s going to start killing the junk bond market. And then of course, Portugal, Spain, as you said earlier, I mean, we’ve just got a whole string of debt defaults coming around the world you can only keep a bubble going for so long and and whoever is sitting in the chair IE Janet Yellen, ie the next president, whoever it is, when this bubble burst is going to take the blame for it, even though they didn’t create it. But Janet Yellen has followed Bernanke he Bernanke he didn’t create this bubble either. You had to blame it on more on Alan Greenspan. And and George, don’t be a boy, I
Jason Hartman 36:50
think Greenspan was the bubble Maestro, you know,
Harry Dent 36:52
but they get blamed and nobody wants a bubble to burst on their watch. That’s why the central bankers just keep printing money, they really don’t have any other option. As soon as they if they would have stopped printing money, this bubble would burst so fast. It’d be unbelievable. And we’d be in a depression, you know, within six months.
Jason Hartman 37:11
Okay, so a couple just rapid fire thing. So what’s the future hold inflation, deflation,
Harry Dent 37:17
deflation. Long term, we’ll go back to an inflationary economy at mile levels. But But deflation always follows in deflation is a sign that a bubble is bursting a credit bubble, debt is being written off and financial bubbles are coming down to earth. And it destroys we have I estimate, and this is a big figure, Jason 100 out of $225 trillion in financial assets, including loans and mortgages around the world. 100 trillion of that could disappear in the next several years, $100 trillion disappears, that’s less money chasing the same goods. That is deflation. I’ve had this debate with the gold bugs over and over and over again. And I keep winning the bets I keep saying gold is an inflation hedge and a really good one did wonderful in the 70s when inflation was a trend. But what the gold market realized in 2013 that’s why it dropped so strongly that the Japan just tripled their QE, us just committed to QE three forever, and inflation kept going down. So the markets finally got that we’re not going to get inflation in a deflationary world. And the only reason we have mild inflation is because all the money that’s printed so far, so gold is gonna go down. We’re gonna see deflation. Dow I think the next stop is below 6000. And that’s not the final stop. I think the Shanghai is going to go from 5200 down to 1000. At least Wow.
Jason Hartman 38:47
I mean, listeners, do you? Do you hear what he’s saying? So the Dow is going to go below 6000. You were talking about the Chinese stock market?
Harry Dent 38:54
Where’s that going? 1000 from 50 to 100. And, you know, over 80%.
Jason Hartman 38:58
So that’s, that’s going down by 80%. Wow,
Harry Dent 39:01
that’s the US market sp 70%. Now, I’ll tell you the neat pattern. And I don’t understand people in soap denial on Wall Street. This is a simplest pattern. It was the same thing that happened in the late 60s, early 70s. When the last generation p you get you get the market keeps going to new highs and then crashing to new lows. It’s called a megaphone pattern. So we’re right back at that, you know, we’re in the third bubble. We’re right at the kind of the resistance line around 18,000 on the Dow, and the next new low in that pattern wouldn’t be projected to be just below 6000. So I have a specific reason for having that target. That may not be exactly what happens but that is what you should expect. When when a debt bubble burst when when a financial bubble burst. Every burst is going to take the market to lower lows because we’ve pumped up the economy even more and got more out of balance. The economy knows how to balance itself. I tell people it’s like hey, you eat some bad sushi. Your body knows what to do flush it out as As soon as possible, it’s poisonous. The body’s good at this. That’s what the economy wants to do. And central banks won’t let the economy do it.
Jason Hartman 40:07
They keep interfering. Yeah, yeah, you know, what does a good metaphor for? That’s a great metaphor, you just made it. So I’ll just add to that a little bit. It’s like, you know, you go to the doctor, the traditional Western medicine type doctor, and you say, Well, you know, my back hurts, they give you a painkiller to cover it up, that you don’t fix the problem. If you go to a more holistic thing, they actually look at the problem. Whereas what we do in the, you know, Keynesian economies, we just cover things up, we cover up symptoms that are too painful, you know, we don’t want to experience Yeah,
Harry Dent 40:38
you know, and Keynes, I mean, brilliant guy in some ways, and people abused what he said. But basically, he was the original pusher. He invented financial drugs and and it got acceptable in economics starting in the early 70s. Like you say, with Nixon, everybody else, we’re all Keynesians now. We’ve been printing money, borrowing money, running deficits, running trade deficits, creating debt Ever since then, because you’re supposed to borrow more and run deficits in bad times to offset the private economy, but you’re supposed to run surpluses, we haven’t run a surplus, and hardly anything since the early 70s. So we’ve gotten addicted to financial drugs, and we can’t kick the habit. And boy, when you go down, when we finally come down, I don’t see how it couldn’t be worse than the Great Depression. And that’s the worst downturn we had in history. And by the way, what preceded the Great Depression, the creation of the central bank, the Federal Reserve, they prevented the economy from rebalancing. So we got a bigger and bigger bubble. And so when it first it was horrific, and that’s what we’re gonna get, again,
Jason Hartman 41:40
it’s hard to argue with that. It certainly does. Okay, what about interest rates? Where are they going?
Harry Dent 41:43
I think, well, junk bonds are going to get crucified. So you’re gonna see a huge spike in that, like we’ve already seen in Greece, in some of the Southern European countries, fracking bonds are going to totally default. What’s going to happen is, interest rates are all going up. Now, despite quantitative easing around the world, that’s a sign that the central banks are finally losing control of zero, long term rates. At some point, the safest the highest quality government and corporate bonds, like a Coca Cola bond or a 10 year Treasury, their rates are gonna go down for them when the deflation sets in, but they’re gonna keep spiking up for junk bonds and riskier bonds, because there’s going to be growing default risk, the more governments and the more companies default, the more the bond market worries about it, the more it raises rates, the more credit costs the more default so it’s so it’s a vicious spiral so so interest rates are going up for most bonds, which is going to kill the bond market. But ultimately, after maybe six or eight months, and this happened in the Great Depression, there was an initial spike in all rates, including government bonds, but after that, the government and the triple A corporates did well their rates came down their bonds appreciated and and the risky bonds just rates kept going up. So this is something that if you look at it past debt crisis is what you’d expect. Okay, but what about what about mortgage rates, though? mortgage rates will tend to come down because they they play off of the 10 year Treasury and 30 year Treasury
Jason Hartman 43:13
Right. Yeah, the bellwether?
Harry Dent 43:14
Yeah, I tell people, you know, you might want to get an arm right now. But but maybe three or four years now you’re probably going to get the lowest cost mortgage of your life.
Jason Hartman 43:23
Very interesting. Good stuff, Harry, give out your website.
Harry Dent 43:26
Okay, it’s Harry dent.com we’ve got a free newsletter economy and markets, I’ve also got no other products and things you can look at. I’ve also got an unpublished chapter on China you can download it Harry dent calm so so that’s the best place to go daily newsletter for free. And if you if you you know, if you like us, after a while, you can subscribe to our, our big boy newsletter. And, and I would get that chapter on China, the book was just too big the demographic Cliff to put that in there. So I let people download it for free on our website,
Jason Hartman 43:59
Good stuff, Harry Dent. It’s always such a pleasure to have you on the show. And it’s so interesting to talk to you and look at these patterns. And so much of this stuff is based off of demographics and, and when that interplays with the economics and the fiscal and the monetary policy, it just gets really fascinating. So it’s great to have you back and look forward to having you on the show again. Thanks for joining us today.
Harry Dent 44:19
Okay, thank you, Jason.
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In this Flashback Friday episode, Jason Hartman answers mortgage FAQs from a Profits in Paradise event. He also tackles financing a primary residence, cash-out refinance, and Refi-Til-Ya-Die method. Then, he continues his interview with Drew Baker. They discuss cryptocurrency, the college tuition bubble, and the appreciation vs. cash flow dilemma.
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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.
Investor 0:13
Trying to sell a house in 2010. And I just got a little frustrated with the potential buyers I was meeting and so I decided just to turn it into a rental. I currently own five properties the one that I did originally live in I own three unwritten Little Rock as well as one in Mississippi. I am in those markets because I was super impressed with the turnkey operators that I met and super impressed with the renovations that they did the proper the management that they had. And basically it was one stop shopping and everything was in place when I basically I showed up with my money. I kept on investing in real estate because I realized it was just an awesome way to build my wealth. Not a lot of effort on my part. Basically, once again, show up with the money and see my money make money for me. I found Jason through my friend Elizabeth and been super impressed love his passion, love his enthusiasm, and not to mention seems extremely knowledgeable.
Announcer 1:05
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 1:55
Welcome listeners from around the world. This is your host Jason Hartman with Episode 1084. Today we have some winners. Well, you’re all winners because you’re listening to the show. No, but we have some actual contest winners today. Well, and I say winners, did you notice that was plural? Yes, that was plural. very intentionally, because we only promised that one person would win. But I thought, Hey, you know what, why not pick a couple of winners, we can have more than one. We’re generous. Christmas is coming up. So there you go. Okay, so we will announce those here very shortly. And you have the choice of the Amazon Echo, or the ring doorbell. Let us know which one you want when we announce the winners. And we will get those out to you. post-haste post-haste right away. You know, I just want to remind you, of the thing I talked about somewhat frequently, you know, my four major mentors in life, Jim Rohn, Earl Nightingale, Denis waitley, and Zig Ziglar, those guys changed my life, right? They changed my life at age at the tender age of 17 years old. And as I was once again at yet another venture Alliance event in Hawaii in beautiful Hawaii and on the island of Hawaii, just last week, and we wrap that up and got back here. I’m back in San Diego now. It’s so nice to visit California, when you don’t have to pay taxes here. Yes, that is an awesome deal. You know, if you move out of California, you can still visit without paying 13.3% income tax, just pay the feds and they’re happy live in a no income tax state. My recommendation, you must get on that train and get that plan going for yourself might take you years, but get it going. Anyway, that’s not the point of my tangent here. And I was reminded again of that Jim Rohn quote, that I say all the time, you know, your income will be the average of the five people you spend most of your time with. And that’s why it is so vitally, vitally important to really strategically choose your friends and associates. And that’s why a mastermind group is so valuable. It’s one of the things I personally love, even though.
Hey, it’s my group, right about the venture Alliance mastermind. But regardless of that, you know, I was in many other mastermind groups, long before I started the venture Alliance. I liked them so much. I thought I got to start my own group. This is awesome. And you know, you just, you’re uplevel your associates. Now, maybe not. Maybe you are in the situation where you don’t need to uplevel your associates because you’ve already developed your own in essence mastermind group by very strategically picking and choosing who you spend your time with, but for the vast match have us in life that happens by accident and circumstance. And you know just where you happen to find yourself and where you happen to find your friends. I really want to encourage you to do that strategically. Okay, the tragic tragic fires in California here. Wow, the death toll has has risen and risen, and the number of structures that have burnt up in Northern California and paradise. Over 7000. Over 7000 structures have burned. Last I checked. Sadly, the death toll was I believe, 43 people people trying to escape in their cars. Can you imagine that? I mean, it’s just tragic. Unbelievable. So hopefully, we will find as a society an answer to some of these fire problems. And you know, don’t accuse me of being a Trump fan here when I say this, okay. But I think Trump has a point when he called out the National Forest Service. I remember years ago, I was in Lake Arrowhead. And I was with my girlfriend Monique at the time many years ago. And we were up there. And they had just it was the year after they had those huge fires in the arrowhead area. They said that one of the reasons these fires were so bad is that the environmentalist wouldn’t let them remove all of the brush on the ground around the trees because it would disturb, you know, a bug or something, right. And, of course, we need to be conscious about the environment and the ecosystem. That goes without saying, but some of these things are just, you know, they’re just dumb. And these problems get worse and worse. And they’re compounded by some of these crazy agendas out there. So that’s that. But you know, many years ago, in maybe 1994, I remember I had just purchased a new home in Turtle Rock in the Turtle Rock area of Irvine, California, which is earliest was I should say, at the time, maybe still is the most exclusive prestigious area in Irvine, and Turtle Rock, just a gorgeous area. And I remember when they had those big fires in Laguna Beach, I had to evacuate.
Now, it was a very eerie sight. I evacuated, the fires were getting closer, and they said people need to leave. Some of my friends just showed up with their cars and minivans without me even calling them and it was very heartwarming that they did that they just came over to my house and said, you know, here, can I help you? Do you know, is there anything you want to take? And of course, what did I take right? photos, because back then they want all digitized 1994 I took photos that was you know, one of the things I took my computer photos and you know a few other things. I loaded this stuff into friends cars and and then loaded my own car and went and stayed at my mom’s house that night. But I remember when I came back in the morning, the house was still there. It did not burn the fire did not make it into Turtle Rock. As you probably remember, it burnt a lot of Laguna Canyon, it was really a tragic fire. Not as bad as this one, though, are these really not this one. But these these several fires that are raging in California. It was such an eerie sight. The next morning, when I came back, there was ash all over the ground, the streets were just ash everywhere, just all over the place in the sky. It felt like I was on Mars. I mean, the sky was just so weird. It was like this pink sky. But it was in the morning, you know, you see that at sunset, but you don’t see it in the morning. You know, late morning like at 10am. It’s just really terrible. These these fires are something else. So we will hope for the best there. And I want to wish all of our veterans a happy Veterans Day. Thank you for your service. Of course, we acknowledge that yesterday. And having just come back from Hawaii. I remember I was in Hawaii in Pearl Harbor for Veterans Day several years ago. Got to see the you know, the memorial there and the USS air I guess it’s the USS Arizona, I believe is the name of the ship, right? That is underwater, and so many people died underwater there in the Arizona. So that was something to see. And I’ll never forget that and seeing it on Veterans Day was was really quite something. So thank you for your service. Definitely we appreciate that. And hopefully we will find a time when we can take the profit out of war and make war unprofitable for central banks. So we can avoid it completely. Fifth, the world can do that. That would be very nice. But like I say, as long as war is profitable, there will never be peace. So that is the world we live in. financing. We talked about financing some FA Q’s. Let me grab a couple of these before We get to part two of our guests from Monday’s episode, we continue talking about self management, the booming economy, a little bit on cryptocurrencies and some other things. We will get to that here in just a moment. But contest winners and a couple more financing things. So let’s talk about financing for a moment.
Okay. Another question. These questions came up at our profits in paradise event in Hawaii on Waikiki Beach over the weekend, while the weekend before last, can I do a cash out refinance? of my properties of my investment properties? Remember, investment, property financing? and personal residence or owner occupied financing? are two different animals? Not completely different? But they’re a little different? For sure. And yes, you can. That’s the good news. So many of you listening I know, I know, who are you are, are bold and daring clients who purchased many properties from us back in 2009 2010 2011 2012 2013 2014, even 2015, or 16, and you’ve made some money, some of you made a lot of money, congratulations touching, you’ve got a bunch of equity sitting in these properties. You can refinance them, of course, you can pull cash out, and you can buy more properties. Because that’s the thing to do with your cash, right, definitely, definitely the thing to do. Fannie Mae will allow you a cash out refinance on the first 10, properties finance. And you can always take cash out of your primary residence, regardless of how many properties you have finance. So that’s great news. Don’t allow equity to become lazy. Use your equity. And I want to also remind you of that idea that I have been talking about for many, many years, probably 15 or 16 years. Now, it’s the concept of a balance sheet, a balance sheet, we’ve all seen a balance sheet, right? On one side of the balance sheet. on that one column, you have your assets. On the next column, you have your liabilities. And the way you know your net worth, of course, is to add up all your assets, and subtract all your liabilities, and whatever that number is, that is your net worth. But a lot of you are forgetting about a major asset you have. And if this asset has a really high number on it, you’re actually hurting yourself. You have an unused asset that you should be using more. What is that asset? It’s what we talked about on Monday, and what we’re talking about a little bit today, two credit score, your credit score, you know, I love now this is counterintuitive. Okay. So a lot of my stuff is counterintuitive, you know that if you’ve been listening for the last 14 years, you know that a lot of my stuff is not what the typical guy in the street thinks, right? He doesn’t get it, he doesn’t get it. So I try to bring you a more counterintuitive different perspective on a lot of things. And this is one of them. If you have an 850 credit score, or an 800 credit score, or any credit score above, what’s the magic number, your FICO score 720. If it’s above 720, you need to borrow more money. But you need to borrow money for investment grade things with investment grade debt, not consumer debt, borrow more money, use your asset, use your credit score, it’s just like this unused equity sitting in your properties.
There is no such thing as return on equity. You’ve heard that metric return on equity. It doesn’t exist. It’s a myth. Woof. It’s false. It’s Bs, return on equity does not exist. Okay. Yes, I know there is a metric and you can do the math for it, I get it. I know I get how they do it. But here’s what I mean by it, I mean, something a little different. Okay. And what I mean is this luck, the property will go up in value or down in value, regardless of how much equity you have, it will get a certain amount of rent, regardless of how much equity you have. So the best thing to do is to have your properties properly leveraged to treat leverage with respect and to have good solid fixed rate financing on your properties. Now, with a little caveat to that. Sometimes, a little Adjustable Rate loan isn’t totally a bad idea. And we’re going to explore this more as we see rates going up. And we see a little bit more of an interest in the adjustable rate market for so long rates have been so massively artificially low. Did you know it wasn’t even worth talking about an adjustable rate mortgage, but I will teach you again, as I have in the past how to evaluate an adjustable rate mortgage using the five major criteria that goes into an adjustable rate mortgage. Okay, we’ll do that in a future episode. We don’t have time for it today. But that is coming up. And I think you will really benefit from it. Because occasionally, occasionally, it’s not my first choice, usually. But depending on the rates at any given time, an adjustable rate mortgage makes sense to consider it. Okay, it does. But the point of this question is, do your cash out, revise as long as you can get good financing on them? The mortgage is a part of the asset of the property. Most people think it’s a liability, but it can really, really be an asset. Okay, can I finance a primary residence, you know, your own home? Regardless of how many properties I own? Yes, you can. So you have a whole bunch of financed income properties, rental properties, finance, you can still finance your own property, so don’t worry about that. It’s not a problem to do it. Okay. Can I use projected rental income on the property that I’m buying and financing to offset the projected mortgage payment? Yes, yes, you can. Good news there, right. The rental income is something the lender will consider to help you qualify. So a lot of people think you need really, really high income to buy income properties, and you don’t because guess what? They produce income. Isn’t that nice? You can use that. And you can use 75% of it. So what the lender basically says when you’re financing is they assume that you will only receive 75% of the income for qualifying purposes. And they will count that into your debt to income ratio. So that’s really good news. Very good news for you, that the property can help you buy the property. It’s kind of like in the old days, you know, especially in the 80s.
Remember, that was the era of the corporate raiders and Ivan Boesky and T. Boone Pickens, and Carl Icahn, you remember all those names, right. And what those guys would do is what’s called an L b, oh, lb o standing for leveraged buyout, leveraged buyout. And basically what that means is you use the company, you’re requiring you use the income of the company to pay for your purchases, the company is in this beautiful with income properties, we get the benefit of what’s called self liquidating debt, and that self liquidating debt can help us buy the property. In other words, we use 75% of the income of the property to buy the property. How cool is that? Can’t do that with stocks? Can’t do it with precious metals. Can’t do it with cryptocurrencies. But you can do it with the most historically proven asset class in human history, income property. So that’s that, okay, contest winners, we got to get to our guests per two today. So first contest winner is Tate launchbury. Tate, you won, congratulations. And you can choose between the ring doorbell, or the Amazon Echo, whichever one you want, tait said and I got it. We had a couple questions here that we asked you when you entered? What is your monthly cash flow goal from income properties in five years? And 10 years from now? And how do you plan to achieve this goal? Okay, so you said five years, 16 $100.10 years 20 $600. Now, I gotta say something. That may not sound like a lot, but I have a feeling that Tate gets it and wants to keep those properties fully leveraged. And that’s why you don’t want that cash flow to be too high. Remember, you get taxed on that cash flow. You want to properly leverage your properties because my refi till you die plan shows that there’s no tax on borrowed money, and you want to use the refi till you die plan. Tate has purchased three properties in the past one and a half years and intends to buy one property each year going forward. You know what, Tate, I have a feeling in a way, you’re not going to achieve your goal, because your cash flow is going to be a lot higher than that. So congratulations. That’s one time you actually don’t want to achieve your goal. You’re going to pass your goal.
Okay, the next winner and I hey, I said let’s get one extra winner. Why not? Why not have one more winner than we promised? Tim Davidson. Tim, you won. You said when talking about how you plan to achieve the goal, although the goal itself is blank, you said by the following moves, raise my employment income to contribute saving to $1,000 more per month towards a down payment for rental property extract equity out of my principal residence. Oh, pay doing exactly what we just talked about, and consider moving to a low Cost area, possibly to the States? I don’t know, maybe not live in the US now, maybe, maybe that’s what you meant, and listening to the creating wealth show. So Tim and Tate, hey, two T’s, T and T. One today, let us know, you can just follow up with your investment counselors. I think those are all over in Sarah. In both of those cases, let them know if you would like the ring doorbell or the Amazon Echo. And by the way, folks, we will be announcing now that our Hawaii event is out of the way, we will be announcing in the very near future here, meet the Masters 2019. This will be our 21st anniversary meet the Masters event. And we will be announcing that very soon. The dates are tentatively looking like late February, early March, somewhere in that range location is looking like Southern California. Just look for more to come on that on upcoming episodes. And we will announce that and have ticket sales available for you.
Okay, let’s get to part two of our guest from Monday and dive into that right now. Like I’ve always said, When Bitcoin has a standing army, it will take over the world. But until it does, it will not it may still be a thing. And just to make a distinction. cryptocurrency could certainly and probably will be the future. The only distinction is it’ll be the cryptocurrency sponsored by the governments and the central banks. That’s the distinction. I’m afraid of that but you’re probably right. And it may be a one world cryptocurrency, which is even more scary, because then no one will have any financial privacy. And they can inflate unilaterally and equally around the entire planet, which is really scary. I mean, they could just the powers that be the central banking cartel, the governments of the world could just impoverish everybody. Overnight, right?
Drew Baker 22:04
I mean, think about Bretton Woods, and you think about everybody using the dollar as a reserve currency pegged that gold and then them removing that. And you have to say that, I mean, basically the dollar is the One World currency, everything gets traded through the dollar. I mean, so in some ways, it’s kind of scary that we have that. And the more money the government prints, it seems like the more asset prices go up, but at the same time, you still hear about deflation. So I think we’re in this very strange pickle that no one could have expected. So in some ways, there’s deflation and other ways there’s inflation. So it’s like, how do you fight a Jekyll and Hyde economy? I do not know. Yeah,
Jason Hartman 22:47
I know. It’s a weird thing. It’s a weird time. You wanted to talk about a couple other issues, I think. And just before we wrap it up, I wanted to give you a chance to do that. Was there anything else on your list,
Drew Baker 22:58
I kind of have more of an open ended sort of dialogue I want to have with you about college. I know we talked a lot about, you know, the college bubble.
Jason Hartman 23:07
That’s the college debt bubbles, probably specifically. But yeah, maybe there’s a college bubble in general, but the debt bubble for sure.
Drew Baker 23:13
I was talking to my wife. And I was saying how it felt like our parents version of having a stay at home parent will be our children’s version of going off to college. So it’s like a luxury that is to be obtained, but is not an entitlement. And I’m sorry, if that’s a confusing thing to kind of sort through in your brain. What do you mean, but I’m saying that if you think about you know, today, the idea of having a single parent at home is an expense, it’s a luxury, and it’s a sacrifice, right? It’s something that’s not normal, if you think about our children’s generation in the future, because it’s so impractical to Bill $100,000, for what the internet and technology could do for 1000, that life experience is going to be impossible, or very rare to duplicate if the government gets out of education, but if they did, I think the prices would come down, but I don’t expect they will. So you have to ask yourself, like, is the college bubble ever going to break or burst? Or, you know, what are your thoughts on that whole thing? Do you get what I’m saying? As far as like, I think people are gonna have to reject putting a mortgage on their back for their education in terms of how much it cost, right? It’s like a mortgage size debt. And that’s just going to it’s so sad that you’re preying on kids basically. And so, I don’t know that in the future. I think there’s gonna have to be some Titanic shift, where one of these big tech companies wants to undermine this huge bureaucratic dragon that they could create. Their own standard that is seen as more superior, more refined.
Jason Hartman 25:06
The problem and you know, the missing link, in my opinion, is accreditation. You can get all the education yourself now, you can probably get better education yourself. I mean, look at all these people homeschooling their children, right? You know, that’s a lot of work for parents to do that. But apparently many people think it’s worth it because the public education system is such a disaster and such a brainwashing institution at the same time. And the University System certainly is that the government student loan debt industrial complex, the debt slavery complex, it’s ridiculous. It’s a scam of epic proportions. But the problem is, you can’t tell there’s not a good way to judge, you know, at least if someone goes to college, they get that credential, and it’s accredited. And this accreditation thing is where the lockup is, in my opinion, that’s where the real scam is the Khan Academy online. And by the way, my foundation, the Jason Hartman Foundation, donates to the Khan Academy every year. I love that concept, you know, along with Kiva, and many other things I’m passionate about, but it’s an empowerment. Right. But there’s no accreditation, you can’t, no employer really knows how much that person knows. And let me tell you, college isn’t that credible, either. Because I know a lot of people who are in their 20s. And believe me, I look at their posts on social media and they can’t spell. Their grammar is terrible. It’s scary. You know, and they went to college. They’re college graduates. It’s mind boggling. Really, it is. And you know, colleges is a lot of times just a drinking club. It’s just a party, which is ridiculous.
Drew Baker 26:47
Yeah, I heard you went to college just a few years ago.
Jason Hartman 26:51
Yes, listeners, if you’d like to hear the story you’ve already heard, and we don’t have time to repeat it. But yes, I sort of had my college experience. It was fun. But I’m jealous. Yeah, yeah. No, I mean, it’s just a big marketing scam. The fact that universities are hiring branding consultants and marketing departments is ridiculous. They’ve gotten completely away from the mission. It’s, it’s terrible. So
Drew Baker 27:15
yeah, I just wonder if there’s some big with a name behind it, like, you know, Apple university or something, somebody that big companies where, you know, you think about the technology today without reading your face? They could do it? Yeah. Yeah. Was it reading your face? I mean, you can, you can make sure that the person that’s taking the classes is who they are. And there’s so much technology that can, you know, accredit the person is who they are. And by the way, there could be a real skills test associated with testing this person. Let’s say you want to create a certain job position, and you just go and check mark, which ones you have one, and then you can do a search according to who has passed a particular test. And you could administer a test and see if they’re the right fit. So I just think that you’ve this much money. I wonder if someone’s got to give?
Jason Hartman 28:04
Yeah. It’s, it seems like it does, you know, the either Google Company A few years back said that they’re not going to require college degrees anymore. So they see it, you know, they see it. But again, I think the lockup is in the accreditation scam. And yeah, they’ve got to be able, you know, Apple University, right, if it ever occurs, could become accredited. And when that happens, and they look, you can notarize a document with your iPhone. Okay. Why can’t like you said they can verify that person is actually taking the test or taking the class. The technology can do it. And yes, it has to happen. It needs to be displaced. The college thing has just too much of a stranglehold on on our economy. It’s it’s got to change. So hopefully, we’ll win. We will. Yeah, I
Drew Baker 28:54
mean, when we talk about all this stuff, I think the one distinction is what should happen. And what does happen, rarely a quiet lineup. So it’s always funny how these things kind of manifest themselves in a way that you don’t expect, but may come true, but in a way that you’re like, Well, technically, I guess I’m not right still. Right. Now. Well,
Jason Hartman 29:15
we’ll see. Well, hey, let’s wrap it up with a thought for investors, real estate investors, and what it all means to them. We’ve kind of jumped around a lot on this show today. Where do you think things are going for real estate investors? What should people do? You’ve got your portfolio I know you’re buying more rental properties and looking at more stuff. And obviously, you’re self managing about half of your portfolio. What should investors be looking at
Drew Baker 29:39
now? What I thought was interesting was I sent you that link with Harry dent who’s called every crash that’s never happened.
Jason Hartman 29:47
He’s been right a few times. Yeah.
Drew Baker 29:49
Well, you know, I guess clocks right. Twice a day. Yeah, right. A broken clock. But um, but anyways, he was talking about how you know people today that can’t afford or hire income individuals that live in these bubble cities are buying in the non bubble territory. And it’s funny when I was a kid, if you told someone you were from California, they thought you were from, you know, Hollywood and you’re, you’re friends with, you know,
Jason Hartman 30:19
it was a status symbol. Is it that way anymore?
Drew Baker 30:22
Is that where you’re going? Definitely with? Yes. And you think about it today. And most people, if you tell them from California, they want to like hiss at you and stick their fingers up and across, you know, because they in a lot of that doesn’t seem like a lot of that has to do with the assets in those territories going up because people are fleeing California or buying rental properties, or just capital outflow from California to all these other places. So what Harry was saying was people are taking their assets and investing in these non bubble areas that are not so susceptible to crashes. Right?
Jason Hartman 30:57
The good solid cash flow markets. Yeah,
Drew Baker 31:00
exactly. I mean, that’s the thing is, those are the bread and butter. I mean, that’s what how what turns the world, those areas that you have people that are driving the trucks, maybe not for too long, but you know, working at the airports, doing those type of jobs that make the economy turn, you know, if you can rent to those people, who maybe wouldn’t be able to buy a house themselves, but want to not live in an apartment, you can find that sweet spot of somebody that’s, you know, in that stage of life where you can provide them a home. And I think that’s, I think there’s a lot of value there. Yeah,
Jason Hartman 31:39
I think so too. I think the good conservative, boring linear markets are still the thing, even more. So nowadays, I would argue, because the bubble markets are so over frothy. And so past the point of any fundamental valuation, that makes any sense. Just do the conservative thing, folks, it’s always the safe bet, and don’t pay too terribly much attention to it. Don’t worry about timing the market, the market timers just never seem to succeed. They always have a good pitch, though. It’s always very sexy sounding. But it never seems to really work in real life,
Drew Baker 32:15
does it? One of the things when you had Ron Paul, as one of the guests at your event, you know, I remember him getting interviewed at one time, where he talked about how, hey, the government’s doing this stuff, or Oh, this is happening to a certain asset price. And he said, I don’t care because I think that it’s immoral, or it’s against my philosophy, to accept this as fact. And so I think, to invest like for us to invest in the California market, it just goes against my philosophy, even though I might be able to make more money, or that could have the wind blow in my face at any moment.
Jason Hartman 32:52
Yeah, I don’t think you can say you’re gonna make more money now. But you certainly know, you know, in the rearview mirror, if it were 2008. You could say that, but nobody knew.
Drew Baker 33:02
No, and I yeah. And back then, I mean, I bought pretty close to the bottom, and I bought in a linear market, because I said, I don’t care. I’m doing it for cash flow. And it needs to make sense today. And I’m not going to go against my investment philosophy. Yeah, to go in some of these other markets that are a little more speculative, that have been hit really hard. Yeah. Okay, so I can make more.
Jason Hartman 33:24
Let me talk about that for a minute. So a few years back, I did an analysis. And you know what, I really wish I could figure out what the episode that was on because I did an analysis of San Diego versus one of our linear boring markets. And interestingly, you know, one of our clients who’s probably listening now, Hi, Richard. Hi, Derek. Well, two of our clients, I went and had coffee with them. And then I came back and recorded the podcast after we met for coffee on a Saturday morning in in La Jolla, California. And, you know, I was thinking about what Richard said, and Richard was pretty sure that the market was going to go up a good 15% annually in San Diego. And you know, he, I don’t think he was very off, I think he was close to being accurate. But what’s interesting about that, is I analyzed the monthly cash flow of being, you know, slightly positive in one of our boring linear markets like Memphis or Indianapolis or whatever, right? They’re all kind of similar in terms of the numbers. And I compared it to a San Diego property that would have been a sensible San Diego investment right now, I don’t think anything ever makes sense in a cyclical market like San Diego, or orange county or any high end market, right. They’re great places to live, though. Well, if you don’t have to pay the taxes, but other than that, they’re great places. So I compared it though, and even with very enhanced, phenomenal appreciation, and the negative cash flow you would have there versus the positive cash flow and I was only taking like a 300,000 Dollar or $350,000 san diego property not an expensive one that had really bad cash flow, you know, by cyclical market, high flying market standards. That was a pretty good property. Okay. It was about the best you could do in a place like California. And I compared it with one of ours. And interestingly, with the cash flow, which most people don’t pay much attention to, they only look at the appreciation because it’s so much more sexy, right? are boring market investment beat the sexy market investment in San Diego in that example, and I got to find that show because that analysis was pretty interesting. I could do it again. But I did it pretty well. I thought then, so I really need to find that episode. Yeah. Good point.
Drew Baker 35:45
Yeah, yeah. Well, I think that people in San Diego, I mean, I went down there, because I wanted to get a house in Coronado. And I mean, it is so expensive. I mean, it’s, if you wanted to rent something, it would be, you know, probably a third of what it would be to own it. It’s just incredible. So you know,
Jason Hartman 36:06
I get it. I totally get it. Well, well, interesting stuff. Drew. Hey, we got to wrap it up. We’re going pretty long here. But thank you for talking to us about this today. Any final word that you want to mention?
Drew Baker 36:16
So yeah, I think the final word that I would say is if you think about 2016, I think most people thought Oh, I don’t know, the economy’s getting pretty dicey here. And so, you know, everyone had thought maybe the downturn was going to happen then in stocks are real estate. And it is not happening. Now. I think if you look at the appreciation that has happened since then, if there had been a crash, if you had gone into the market, and had that cash flow accrue, I think you’d be out of the weeds by now. And you would save all that appreciation, or you you know, you get all that cash flow that would get built up that you know, the opportunity costs of keeping your money on the sidelines, just goes out the window if you just wait. So having that be on your side, collecting the tax benefits of you know, scheduled depreciation, all that stuff is powerful when you have time on your side, right? If you don’t deploy the capital, you know, I think Warren Buffett says, a Full Wallet is like a full bladder. And so if you’re not using your money and putting it into assets, you know, you’re just gonna lose the game.
Jason Hartman 37:23
Very interesting. Very interesting. Good stuff, Drew, happy investing to you and all our listeners when thanks for joining us again.
Drew Baker 37:30
Thank you.
Jason Hartman 37:32
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