Jason Hartman: Welcome to the Creating Wealth show. This is episode number 271 and this is your host Jason Hartman and thank you for listening today. I hope you enjoyed last episode where we had world-famous John Gray, the author of Men are from Mars Women are from Venus and all his related books to those, that great title. Boy I tell you with just a great book title you can go a long way in this world and that is no doubt a great book title. So we wanted to first talk – we will talk about a couple things on today’s show. I’m going to play an interview that I did on someone else’s show for you that I think you’ll find that of interest and talk a little bit about organizational techniques in our upcoming event as well, but first we have a caller Robert who called into the show and let’s play that now and I’ll be right back after that. Hey we’ve got Bob from Denver on the line and he’s calling in. Bob, how are you.
Bob: Great, Jason how is it going today?
Jason Hartman: Good, good hey thanks for calling into the Creating Wealth show. So you have a question and I know you wanted to share an experience you have too.
Bob: Absolutely. Well my main reason to call you too is to thank you for what you’re doing here. It is an invaluable service that has really absolutely changed my family’s life because now, yeah this is something I wanted to do 20 years ago, but didn’t have the means to do it and like you said this is such a perfect storm of the situation that you know you got to take advantage of and you know I wouldn’t have been able to do it you know once that I had to discover what you are doing and it’s really made a big difference for sure.
Jason Hartman: Well I’m glad to hear it. So that’s awesome. So I met you and your wife, I think the first time on our Phoenix tour, is that right?
Bob: Yeah we came down for that event.
Jason Hartman: And that was actually our first phoenix tour right, that was when we had last year or this year.
Bob: It was this year.
Jason Hartman: Oh it was the one this year in January, right.
Bob: Right and we came down because I actually stumbled across your program by finding your podcast and wanted to make that first, the Masters event back in October last year but you know it didn’t work out. So we came to that event in January and I may have wanted to have my wife understand what the program is all about and it’s very informative and that really helped us focus on what we needed to do. So and then after that and then we came to the Masters event back in April and learned even more.
Jason Hartman: Fantastic, well that’s great. So you are sharing with me before we started recording for the show that you took the equity out of one property and you were able to purchase four more properties right.
Bob: Yeah that’s correct. We told you, you know we are working hard over the last 15 years to pay down our house and we almost had to think to practically pay it off and so we put that money to work and by extracting as much equity out of it as I could and we turned that into four houses.
Jason Hartman: That’s fantastic. So where are the properties you bought. Yeah paying off your house is such a misnomer. It’s such a scam, don’t do it. It’s just not a good idea.
Bob: Well especially right and we made it very – and you know it is funny you mentioned too because when you mention that to people nowadays they look at you like you are from Mars or something, what are you talking about, but it makes when you look at your strategy because you are taking that low-interest fixed-rate money and you are applying it into property that are as cheap as they have ever been and now the opportunity I mentioned is like I wish I could have done this twenty years ago. Well this is an even better opportunity that it was 20 years ago because of the prices on these houses and they are selling for such cheap valuation and if you find the right properties, you got to get them rented. Boy it’s just a beautiful situation. So we took advantage of that like just I said and it is working out fantastic.
Jason Hartman: Yeah, yeah good, good. Where did you purchase the other properties?
Bob: Well our first one was in Kansas City and then second one was in Dallas in that suburb of [unintelligible 0:05:26] and then we ended up buying two in Memphis because we had a budget to stick to and we decided to go with two properties in Memphis because the valuations there were just extraordinary. I can’t believe that we are picking up the brick ranches here for next to nothing. I couldn’t believe what we are picking up, so.
Jason Hartman: Yeah, good for how. Now how much equity did you take out of the house?
Bob: We took out 200, well see we had to subtract out the balance of the loan. So basically I had 200,000 spend.
Jason Hartman: Okay so here now, I don’t know if you know these numbers off hand, but if you do it would be great because I think the listeners will really like hearing this Bob. So $200,000 in equity you pulled out of the house and how much does that cost you each month. What is the payment on that equity, just the principal and interest because you have the property taxes and the insurance anyway. So just principal interest do you know what that payment is on the $200,000 you borrowed.
Bob: Well see, that’s a good question. See as just the principal and interest should be about almost I had about should be about $1200.
Jason Hartman: Okay so about $1200 there. Now let me ask you this. What is the positive cash flow on the four properties you bought with that $200,000 and by the way it is fair to ask did you keep any money out that you didn’t buy anything with like for example may be to buy the four properties it cost you $150,000 and you kept 50 on the side. I don’t know if you did, but I’m just asking that.
Bob: You know while we had cash in the bank. So this is what I actually did is I had 200 to spend, but we did leverage some of the money. I took an additional loan against on the property in Dallas, so now that’s like another 82,000 that we, so in essence we are spending 282,000 here, for total as well. So I have to add that in, so that would be another $650 if I take out the insurance and taxes and all that.
Jason Hartman: What I’m trying to get to is the net result of this, you know not including the investment return, but just based on the very simple equation of cash flow not investment return, okay. Which of course will amplify it tremendously, but for example would you say that you’ve gained in taking that money out, did you get more money back each month or are you spending more each month?
Bob: No I am getting back more than what we put out now.
Jason Hartman: So approximately how much because if you look at the net effect, look you had a house that was almost paid off and then you went and refinanced it because you listened to me and you know at first you probably thought I was crazy or at least your wife probably thought I was crazy and then you refinanced and you pulled the money out, you bought four more rental properties, you have diversified your portfolio instead of just having a property in Denver, now you have got properties in a bunch of cities. So that is fantastic, but what is the net effect like are you up all things considered, how much are you are up each month, how much.
Bob: Yeah I ran the numbers and everything I run, everything through actually pay everything including all of our expenses, management fees, taxes all of that. We are clearing $900 a month.
Jason Hartman: Fantastic, so you are up $900, isn’t that amazing.
Bob: 900 bucks a month. So that’s – and it would be better if we tweak things a little bit and try to be little conscious on some of our expenses, but yeah $900 bucks a month instead of and top of all the write offs that we get.
Jason Hartman: And of course you have got investment return and write of and all of that I get it. But just think the vast majority of American is listening to people like Dave Ramsey who just don’t get it. I mean look at his advice would be pay that house off and now you are in a far better position than you are owning that house free and clear. I mean your risk is much lower, you have diversified you don’t have all your eggs in the Denver basket, god forbid if there is some natural disaster that just wipes that house out you are insurance company is got to bad and fight with your lender I mean your lender is going to go to bad and fight with your insurance company for you to get your claim paid or if you own it free and clear you have got to fight with the insurance company you know that’s like there are so many aspects to it that make it so much better off to do exactly what you did. You’ve done the right thing, so congratulations. Now just a disclaimer on the Dave Ramsey thing. Okay I like Dave Ramsey for the market he serves I mean I think that for people who have a bunch of credit card debt and a bunch of student loans, you know he’s fine, but he’s a totally defensive strategy not an offensive strategy and what we offer is an offensive strategy. So I know you know that because you have listened to all my shows, so.
Bob: Yeah and you’re right, he keeps you those people who don’t have the discipline to keep their check book straight, so you are right. So let’s hope for what you do, you are for somebody who is looking to be more responsible with their money and try to keep their hard earned money and their wealth and want a strategic way of maintaining it. This is absolutely the best I have ever found.
Jason Hartman: Yeah fantastic. Well, hey I’m really glad and now thank you so much for your business. Do you have any other questions for me before we let you go.
Bob: Yeah I’ve been wondering as what’s your take on my mom as an example. She’s retired of course, 75 years old, lives in a house that’s all paid for but it’s not a very expensive house, it probably would be like approximately 225 to $250,000 house and she has kind of Social Security and she has her money left over from some investments that she gets monthly checks. Would she be just that one house to something like that can a retiree like her take that house and do exactly what I am doing with my house, my wife and I am doing with our house also.
Jason Hartman: The house is paid off, how much did you say the house was worth?
Bob: Should be somewhere around 225 to $250,000.
Jason Hartman: She can absolutely do that. Now the thing you got to be careful of though if someone that age is of course you got to be more conservative and more careful okay. But she can definitely do it the other thing is how old is she if I may ask?
Bob: She’s 75.
Jason Hartman: So the other question is, you know look my mom is up around that age too. But the other question to ask is you know does she have the temperament and will she be willing to sort of manage that portfolio. Of course through our network she doesn’t have to manage the property herself but she does sort of have to manage the manager and you can do it for her, like how savvy and how confident and how willing is she in terms of doing it herself because that’s the other thing you got to think of with a person that age, I men my mom manages all her own properties, she doesn’t use managers and you know she loves it, but she’s little bit weird. I will be the first to say. You know that may not be thing for your mom.
Bob: That definitely takes a certain personality and you are right about that, no doubt about it.
Jason Hartman: So the question can she do it, can she pull money out of that house. You know people that age too are also eligible for reverse mortgages that’s another area to explore and I don’t know much about the reverse mortgage area, but it’s worth looking into. And that might be another thing to consider, but probably just a typical refinance, if she can qualify for it pulling that money out of the property and then diversifying it into may be two or three different markets. I would diversify a little less with her because I’d rather have her own maybe two properties in each of two cities rather than four in different cities. So at least she will be — she has fewer parties to deal with, and she has a little more business for that property manager, so a little more weight with them, but you know I think our oldest client we’ve had is about 89 years old now, a retired doctor and you know he is doing a lot of business through us, we certainly have people of all ages buying through our network and doing exactly that. But can she do it, yeah she can do exactly what you did.
Bob: Yeah, it’s she has wanted to invest her time and help in manage it, so that make a lot of sense though.
Jason Hartman: There is one another area that I would mention, the private lending is kind of a good deal for someone that age too because with the private lending opportunity there is a lot les management and look I have said this before on the show. I do a lot of private lending, I just wired 64000 off today to do another deal in Georgia that I am doing. And I love private lending. It is not as good as actually owning the real property though. The property is better but the thing I like about the private lending is the simplicity, it’s a lot easier. You basically just wire the money and you get more back. I mean there is a little more to it than that, but you don’t have to deal with any mangers, there is just very little complexity to it. So another thing to think about and she would earn about 12. 25%, so you know that’s another area that we might want explore.
Bob: Okay yeah I didn’t even think about that yeah thank you.
Jason Hartman: Yeah and they are just short-term loans they are usually only about 4 to 6 months each time, so you get the money back quickly and you see it roll and you know you get it back you put in your account and you look at another deal and make another loan and does she use e-mail.
Bob: Yes she does.
Jason Hartman: I know that maybe a silly question but you have to ask. Yeah some older people don’t. You know so they can just e-mail her deal. She can look at it, you know they could copy you on it, they can copy me on it. We could kind of look at it for her and she could do that, that might be a good way to go.
Bob: Yes, sir all right very good.
Jason Hartman: Okay good, well hey Bob thanks for calling in the show and we will talk to you soon.
Bob: Yeah thanks for your time, Jason.
Jason Hartman: Well I hope more of you will call into the show and again the call-in number for the show, it’s great because I had one of our listeners from Australia call me last night it was kind of late that he called but heck I didn’t mind and I took that call and we really want to encourage more of you to call into the show. Let me give you an updated call in number that we are using and this is a Google voice line, it is 480-788-7823, that’s 480-788-7823 to call in to the show and get your questions answered. Some of the most important parts of your real estate investing business you know we all want to think of this as you are going to become rich and successful and you are not going to have to work and you are going to get whatever you want and live the life of financial freedom, but really some of the most important parts of your business if you will as a real estate investor are the non-sexy parts and those are the parts of just doing your thing day by day that really, really make it work and I’d like to encourage you to go back and listen to one of our old episodes, it is actually episode number 44. I believe that still up, if it’s not up publicly it’s in the member section of course and you can find at jasonhartman.com, if you are a member but I really wanted to stress just a little quick overview on the importance of getting organized in your business. Now, I’ve always believed that the best way to do this of course use the property tracker software that is vitally important. But in addition to that use a file system that includes two physical files and these two physical files are number one, your acquisition file and your acquisition file is what you use when you acquire the property and that has all of your documents related to the purchase of the property as the name would imply, it is the acquisition file. So here you use this six tab organization or classification folders and you can get these at any office supply or on line on amazon.com. They are kind of expensive, but hey you don’t need to buy very many of them, maybe you will have 30 or 40 properties so you have 30 40 of each file. No big deal really and on your acquisition folder, each of these six tabs is meant for six different things and I learned this just by organizing my own property. This is my own method and I created it with Careen my operations manager one of my old companies and you know we just kind of found this works really, really well. So the acquisition folder is a legal sized folder, so it’s the longer paper, the legal sized paper, tab one, you have a description of the property, the sales brochure, the plot plans any photos anything like that tab two you have the purchase contract, and the final HUD 1 statement. In other words the closing or settlement statement. Tab number three you have your insurance information and a copy of the warranty on the property if any and most of them have warranties. Tab number four, you have your loan package. Okay so I love the concept of what I call tenet backed debt on good properties that can create extraordinary wealth. We outsource our debt to out tenants, so tab four will have out loan package and that’s the first loan package. Sometimes you get two loans with the property, sometimes you refinance the property. So there may be ultimately multiple loan packages. Tab number five you have the appraisal or any competitive or comparative market analysis information for the property, and finally tab six in the acquisition file you have the second loan package. So if you have a second trust deed or second loan on the property or any miscellaneous documents, or any refinance documents of the property that can all be organized under tab number six. In our next meet the Masters event we are going to go over this in little more detail because this is just pretty simple stuff, but it’s pretty important stuff and on the next episode time permitting I will talk about the operations file and that is the file where you manage the ongoing operations of the property. The acquisition file that I just discussed you know once that’s created you can pretty much put it in the bottom drawer and you are probably not going to look at it very often and the other thing we will talk about in subsequent episodes of course as we’ve talked about in prior episodes is we will talk about software and using property tracker and other software to organize your investment portfolio. So stay tuned, we will talk about more of that stuff but I just wanted to quickly mention that acquisitions file and how you organize it. These simple little things that are not complicated of getting yourself organized can really, really help you. Also be sure to join us for our Atlanta property tour, that’s at the end of September and a lot of you have registered. I am very glad to see that and I hope a lot more of you register for that as well. You can do so @jasonhartman.com/events. That again is jasonhartman.com/events and the Atlanta property tour has some fantastic early bird pricing for September 28 through the 30th, we look forward to seeing you there. Of course we will have on Saturday the Creating Wealth boot camp. So you really get two things in one. The property tour and the boot camp all at the same time and the same great weekend. Okay so let’s go to an interview I recorded a couple of months ago actually. Well yeah about two months ago I think and this was on one of the guest we had on our show. He interviewed me on his and I think it was an interesting interview where you can hear more about kind of gold and inflation and investing and you know lot of the stuff we always talk about, but there’s always a new nuance, new wrinkle to it and so we will be right back with that interview in just less than 60 seconds. Don’t forget to register for the property tour, creating wealth boot camp and don’t forget to call into the show. I love to get your calls and your questions, so we will be right back with that interview here in just a moment. Be sure to call in to the creating wealth show and get your real estate investing and economics questions answered by me personally. We would love to have you call in. Share your experiences, ask your question and a lot of other people listening have those very same questions. So be a participant in the show at 780-788-7823, that’s 780-788-7823 or anywhere in the world via Skype Jason Hartman. ROI, that’s Jason Hartman ROI for return on investment. Be sure to call into the show and we are going to enter all of the callers in a draw for some nice prizes as well. So be sure to call into the show and I look forward to talking with you soon.
Daniel: Hi this is Daniel at futuremoneytrends.com thanks for joining me with today, I am with here with my friend Jason Hartman of jasonhartman.com. He also is host of the Creating Wealth Show. Jason thanks so much for being with us today.
Jason Hartman: Hey thanks for having me.
Daniel: Jason I am very interested in everything you have to say on your how because you are focused on inflation, you’re focused on the devaluation of the currency, you’re focused on everything you know someone who is concerned about inflation or inflation bug or gold bug and except you are buying real estate.
Jason Hartman: Yeah well the things are a mess and I used to say that I was an optimist and now I am an opportunist. So we’ve got to move to how can we – we are not, we are probably not unless we are on [unintelligible 0:23:42] okay we are probably not going to see any major sea change in the way our nation and our world acts. We need to just exploit the opportunities that are available to us and I believe that we are going to see very major significant inflation in the future in most parts of the economy and you know how can we exploit it, you know most people all of the gold buys for example, they have the right premise, they’re not wrong on their premise, their understanding of history, their understanding of the problem is completely accurate in my opinion. However their solution to the problem is massively simplistic. You know we believe that the metals gold and silver are a one-dimensional asset class. They are okay, they’re just not great, they are defensive, they are offensive and you know maybe the best way to illustrate how I kind of really had my aha moment with this is to understand what happened when I got a phone call from a local gold dealer a company name Monex [PH] and you know I was on their list and their telemarketer called me up and said you know Mr. Hartman gold is a $420 an ounce. So you know what happened here right, and you know Iran-Iraq you know uncertainty, inflation, the Federal Reserve blah blah blah you should buy. And he went on with his spiel and you know everything he said made complete sense to me and this was you know several years ago of course and I was already purchasing some gold and silver and little bit of platinum and palladium too. And I liked what he had to say and I said okay look stop selling me. I will buy okay you sold me I will just you know this was my first time as a client with them, I said look I will send you a $5000 check you send me the 12 coins and I will do that tomorrow. You have sold me so you can stop selling I just have a couple of questions now. Okay my first question is and I went on to explain that I like income properties one of the reasons I like income properties is that I can finance them for three decades at incredibly historically low interest rates, right will you finance my gold and he said no we don’t that. And I said okay fine I will pay cash. Then the second thing I said is I said you know the other thing I like about my income properties is I can rent them out to other people and they produce income as the name would imply and he said ,well I don’t think anybody rents gold coins. It really drives the point home that income property is a multidimensional asset class and the uninformed person they look at it and they say you know the cocktail party conversation is oh so you are in real estate what do you do, residential or commercial and I say housing. Okay it doesn’t have to be residential or commercial. It could be large apartment complexes. Those are commercial properties it could be single family homes duplexes and fourplexes. Those are residential properties okay. But housing is where it is at because one thing we know for sure is that they can outsource all the manufacturing jobs to China they can outsource the call centers to India and the Philippines they can outsource retail purchasing to the Internet which lessens the need for retail properties and shopping centers and so forth and we are seeing all those trends most certainly, right. But at the end of the day the population of the United States is increasing and everybody needs a place to live and they only have three choices buy, rent or be homeless. So back to the gold story, the uninformed person when they talk about real estate they say you know the typical cocktail party conversation is well is in real estate still going down. Well yes and no it depends where. This is a country where we have about 400 local markets and the old saying in real estate is that all real estate is local and it is it is very localized. So if you talk about places like you know socialist republic of California okay where I used to live and where we happen to be now, prices are still declining and any high land value market is in for still more of the rude awakening in the north-east. Many parts of Florida still wouldn’t touch them Las Vegas is still too early I wouldn’t touch it and the Chicago land area is another good example of you know still declining. But even if prices are declining the prudent investor that understands the multi dimensional nature of the asset class says so what I know how to play the game either way. Because if I get a certain cash on cash return from that property based on the income it produces if the value drops to 0 and it still produces the income and I can maintain the expenses the way they are who cares. It’s a bond it’s an income property bond.
Daniel: So when you look at real estate you’re not looking at it as if someone bought gold they are hoping the gold is going to go up. For you for real estate of course you would like to see it go up, but in the end does it matter to you if it goes up.
Jason Hartman: It doesn’t matter you know I considered appreciation the icing on the cake. You know there is two kinds of investors. There is the dairy farmer and the cattle rancher. The dairy farmer milks the cows like kind of like the story of the golden goose right, the goose that laid the golden eggs, milk the cows and sells the milk. That is the income. The cattle rancher slaughter the cows and sells the beef and that’s the speculative investor that you know invests only from a capital gains perspective right. And so the gold bugs that is the way they are. They are into seeing prices go up and you just have no control over it I mean I have yet in my many many years over two decades of being involved in the real estate industry. I have yet to see anyone who can really accurately predict price appreciation. And you know you are a total expert on gold and metals and things like that and you are unsure will admit nobody can really predict the prices of gold and silver either.
Daniel: No it is very difficult for a lot of other — they are you know a metal that is on the radar the central banks and stuff.
Jason Hartman: Well yeah you know that’s a great point that make Daniel because gold and silver 6 billion well now 7 billion people on earth not all of them are above age obviously, but you know they agree with one thing. Gold and silver are money and I agree with that too. But money is not an investment. Money is great it’s better than not having money I like gold and silver I think it’s a great way to save money I think it’s better than fiat money I think it’s better than depreciating dollars. But the problem is that entities far more powerful than us central banks around the world and government around the world like to spend irresponsibly so they can buy votes. You know gold and silver being real money as opposed to currency like the fake stuff they bring you know that’s competition for them. They don’t want people investing in gold and silver because that takes away from the fiat money scam or maybe a nice way to say is scheme.
Daniel: Okay let’s take it to the individual. An individual is concerned about hyperinflation or massive currency devaluation over the next 10 to 20 to 30 years.
Jason Hartman: Which will happen in my opinion.
Daniel: They buy a house. Say they go 20% down they have got a 10% return on their money as far as the down payment. How do you see the inflationary environment playing out for them. What are they going to experience with that investment for the next 10 years?
Jason Hartman: It’s a great question. They are going to experience a whole bunch of things. The first thing that they are going to experience and I’m going to talk about some of the unique aspects first may be okay. And one of the really unique aspects I think is what we call inflation induced debt destruction. So inflation is always attacking assets or helping assets. It’s attacking our savings in our bank account. It’s attacking the value of our stocks, the value of our bonds and already for a real estate the value of our equity and real estate. Okay inflation attacks those things but fortunately and thankfully it also attacks the value of our debt. So if we have $ 1 million in real estate loans and the inflation rate is 10% which I think it is already you know currently we are experiencing 10% in real inflation when you don’t look at the official statistics right, so if inflation is at 10% one year from now you only in real dollars owe 900,000 but the statement still says you owe $1 million. The question is you know what is the nominal value and the real value of those dollars. So I think entirely possible. I mean abundantly possible for us in the next several years to see an inflation rate at 20, 25, 30% which historically when you look at other countries that’s nothing. I mean that is nothing compared to. The crazy examples are Myanmar Republic, Zimbabwe, Hungary you know Argentina I mean that’s nothing. They had much higher inflation rates than that obviously.
Daniel: Now when you are looking at interest rates and the overall economy because I’m in overall we do like you said we often agree on things just maybe the solutions are different. So we have got high unemployment, long-term unemployment still around a record. You’re probably going to continue, there is no driver for jobs.
Jason Hartman: Real unemployment at probably 24% to 26%.
Daniel: Very high. So if we see a spike in interest rates, it’s probably going to hurt the economy more. So when you talk about real estate you know you mentioned that you didn’t like Vegas. You said Florida not yet, north-east not yet. What approach should people take I mean how, how can someone, how can someone in Vegas, what are they supposed to do?
Jason Hartman: Well if you are already there and you’re having problems with an income property that you have there I mean trying to work out with your lender and this is another reason I love that. You know I like to joke and say it’s my favorite four letter word okay because there is an old saying a book I read many years ago called the greatest management principle in the world by Michael LeBeau [PH]. And he said his famous saying there is will it gets eroded, it gets repeated and unfortunately philosophically I disagree with it but it’s the reality are not going to change it. What gets eroded is people who have lot of debt not only by inflation induced debt destruction that I mentioned but also by loan modifications work out and short sales. The typical foreclosure in the United States takes well over 700 days now. People live in the houses for free and that’s why so many people are strategically defaulting and you know frankly is crazy as it sounds is like the bizarre world okay, but people who are paying their mortgage have to ask themselves am I a sucker. You know should I really be paying my mortgage. It’s you know we have clients say that to us all the time and you know it’s kind of hard to answer that question because when you see everybody who has lots of debt, they are frankly getting rewarded because they are getting the loan modifications, the people who paid off their house, they are not getting anything. You look at what happens when you have natural disasters like a good example is Katrina you know several years ago. The Katrina hurricane you know there was a moratorium on mortgage payments placed in all of those affected areas in the Gulf Coast okay. You know the attorney general I guess went to the mortgage companies and they said they you know you got to give people a break I mean this is devastation right. And even regardless of the moratorium on people stop paying their mortgages and just walked away but someone who owned the property free and clear they didn’t get anything. Isn’t that unfair? It’s totally unfair, but it is the reality of the situation.
Daniel: Now just going over the overall housing market. You are an absolutely a real estate expert. You said housing does have some more to go. You look at the Treasury Department funding you know I don’t know last I checked it was around 90% of the loans. The Feds got interest rates at 0%. How much more is housing going, what is going to happen but interest rates are 10 to 15%.
Jason Hartman: Oh great question. So you know you asked me a minute ago when I don’t know if I totally answered the question, what can someone expect over the 10 years? So this is part of it. You know this is kind of blends into that question. Income property is a multi dimension asset class. People only have three choices. Buy, rent or be homeless. Someone in one of my seminars said no they can live with their parents. Okay well fair enough. Some people can do that. So if interest rates go up, that will massively reduce housing affordability. Housing affordability right now is fantastic. I mean prices are down and rates are low. It’s very rare to get that combination at the same time and that’s why there is so much urgency to buy and you know business is great for my company right now because of that. And so if you see interest rates go up, that will put, put people out of the housing market. So if we see higher rates people can’t afford to buy. So they have to rent. So then we see upward pressure on rents. I teach something on the Creating Wealth show that I call the three-dimensions of real estate okay it’s really more than three dimensions but that’s kind of a catchy way to say it. So you know prices go down, rents go up. Those are typically contrary indicators. Okay when prices are low and affordability is high and this is what we don’t have now and people can actually get mortgages which now you have got low prices and low rates and high affordability, but the banks are just not lending as much as they should you know and so when people can get the mortgage is then they’re rush in and they buy and that tends to cause prices to go on and that tends to soften rents. It puts downward pressure on rents because people are being sucked out of the rental pool into the ownership pool. Okay and you know George Bush had this thing he called the you know the ownership society which you know is kind of sounds good from the podium but in reality the fact is some people just can’t handle it, okay. You can’t handle the truth you know. They can’t handle homeownership and so you know for every 1% decline in the homeownership rate, it adds about 1 million new renters to the rental pool. So as a income property investor understanding that it’s the multidimensional asset class you just play the game either way. If rents are going up you are a dairy farmer. If prices are going up you might consider being a cattle rancher and selling the beef you know see what I mean. So your milk it for income or you milk it for capital appreciation.
Daniel: The less people that can afford a home, the more renters in the end. So possible rental boom even.
Jason Hartman: And the irony now though is that people can afford it now because rates are low and prices are low at the same time totally rare. But the mortgages are unavailable okay.
Daniel: In closing you are a very successful individual. I always appreciate your shows and anything you put out. What advice do you have for someone who just graduated high school or maybe they are in college, the first or second year and they are just picking up those general units. What is your advice, what should they be doing you know they are looking. You know they’re having trouble getting jobs. People with degrees can’t get jobs or they get laid off and what’s your advice for somebody young right now who wants to be an individual that can grow and have some wealth.
Jason Hartman: Well first of all I think the first thing is do not get the liberal arts degree. Okay because there are no jobs okay. Philosophy, it’s an interesting subject I love it. You know all these, all these liberal arts things, being an English major, what are you going to do with it. You know the teaching jobs are drying up, the cost of college as you well know because I know you were involved in a documentary on the subject is outrageous, it’s way above things. So study things that are hard sciences. We need to, in America we need to get back in the game as other countries have. You know they are taking our place, we are the leader in science and technology and R&D, and manufacturing in real things, you know tangible things that really do things in the world and are things that the economy needs to produce value. So don’t get liberal arts degree, that’s my first question. The other question is or the other thing is you know I can say and this sounds weird it sounds counterintuitive it sounds bad because I’m a big believer in education okay and I’m a big believer in self-education but you know you might consider not going to college. College ain’t what it used to be. It is massively overpriced. These colleges have become incredibly bureaucratic, they have become, the professors work 12 hours a week and have tenure and I mean aren’t teaching practical skills in many cases, some are. Okay so I don’t want to say that’s not a blanket statement, but you know I would be really, really concerned about piling of a bunch of student loan debt that as you taught me is not dischargeable in bankruptcy. Okay I did not know that before, before you told me that and that is a scary thing and I think you know if you want to get conspiratorial about that, that may actually be part of some grand plan, somewhere because basically they are making these college students who have the student loan debt indentured servants, slaves for life, it can never be discharged. So I would really, really think hard and long about taking on student loan debt.
Daniel: Yeah I think what you just touched on it is — it is I think it’s overall part of the entitlement, I remember that you are keeping incentivized to work, but everybody is conditioned to always get a job and the company is going to get your healthcare and the company is going to get your retirement plan and it just, it’s an extension of the mindset of not taking care of yourself.
Jason Hartman: Right, right, the entitlement society is over. Okay now granted it seems like it’s not over, okay I understand that when you have got you know Obama has massively increased the number of people on food stamps and you know like 47% of the country is receiving some kind of government aid now, but the fact is folks the government is broke, this is a house of cards, it is an illusion created by the whole system, the Federal Reserve, the treasury, the political elite. It is an illusion, this is not going to last and the hangover from this is going to be very painful for many, many people. But you know as we talk about on the optimistic side there are ways you can exploit the hell out of this and one way is to pile up long-term fixed-rate investment grade debt against what I call packaged commodities income properties because think about it, every house, every apartment building is made out of two by fours, wood, okay, lumber, lumber, petroleum products, copper wire, concrete, glass, steel silver, yeah it is all there. You are investing in a set of commodities that are assembled and usable in that form and you can get three decade long fixed-rate inflation induced debt destruction against those commodities.
Bob: Well I certainly do believe real estate is a hard asset, so hopefully I don’t get you in trouble with anybody in your network, but I’ve got to ask you because I know people are going to be curious, looking at real estate markets, you said there was 400 roughly in the US. What are your favorite five?
Jason Hartman: Oh gosh that’s like asking a mother to pick her favorite kid. I really and this changes, so it depends when you listen to this interview, okay and you know you are going to find my top five at jasonhartman.com and you know what we are recommending at the time, but we like to say that we are area agnostic we are not attached to any one market. Unlike these big national real estate firms, we have no physical presence in any market which is great, it makes us not tied to the treadmill of having to recommend something we don’t have to recommend. We are fluid. We move in and out, okay and right now at the moment we love Atlanta, we love Indianapolis, we love Dallas, we love Houston, we like Phoenix, although Phoenix is getting pretty hard to do business in at the moment because the inventory is so scarce, but you know there is still shadow inventory coming at us, so we look forward to shadow inventory, okay because that means when and shadow inventory maybe your listeners want to know what that is, that just means all of the houses that have not have yet to be foreclosed on and dumped on to the real estate market lowering prices potentially by increasing supply of homes for sales, but also think about it, someone lived in those houses. They go to become renters because their credit has been destroyed.
Daniel: Yeah it is very bullish. Jason if someone would like to reach out to you where is the best place for them to go?
Jason Hartman: You know just jasonhartman.com, that’s JASONHARTMAN.com and that’s my website you can find me there or just google me.
Daniel: Thanks so much for sharing with us.
Jason Hartman: Thanks Daniel.
The Jason Hartman Team
Transcribed by: Renee’
