Jason Hartman opens with one of the investment counselors as they discuss current news, rental properties and the biggest obstacle to investor success. More at: https://www.jasonhartman.com/podcast/ With our guest for this episode, you’ll hear opinions on some of the too-good-to-be-true advertising schemes out there. Jason and Doug will render opinion on, expose and debunk some advertising claims in this investigative report. This is just our opinion, as Dennis Miller says; we could be wrong – you decide. Here are a few very clever ad examples, targeted at investors, for your consideration:
“Stock Picks” newsletter:
• Isn’t anybody who advertises high-return stock picks usually “cherry picking” their winners while completely ignoring their losers? We think that may be the case. One example might be Porter Stansberry’s own report card, he under-performed the S&P 500 by around >10% in 2012 for the Stansberry Investment Advisory Newsletter. Still an interesting and well written newsletter in either case. Maybe this year or next year will be better for stock picking, we’ll see.
“Five Words” to get real silver from banks:
• Those five words are “do you have half dollars” … the idea is that half dollars minted prior to 1971 contained physical silver, and are worth far more than their face value.
• The problem is that most banks don’t carry half dollars any more, and most people’s time is too valuable to spend going to banks and picking through coins to try and find ones minted before 1971.
“Buy $2 dollar silver” – really?:
• This strategy is to buy a bag of “junk silver” at current spot prices of around $23/oz. Junk silver are old coins with physical silver content. The cost of a bag nets out to ~$2.00 for a dime with enough silver to be worth $2.00 in the open market. Effectively this strategy teaches you to buy silver at the market price. Isn’t this useless?
Female Voice: Welcome to Creating Wealth with Jason Hartman. During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk but walks the walk.
He’s been a successful investor for twenty years and currently owns properties in eleven states and seventeen cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
Jason Hartman: Welcome to the Creating Wealth Show. This is your host Jason Hartman and we are at episode number 323 today. Thanks so much for joining us and we have got Doug joining us today where we’re going to talk about some of those too good to be true ads that you see in these marketing gimmicks and so forth. And we’re going to touch on that but what I talk about with Doug today is hardly an exhaustive list of this because in our culture today we are bamboozled and fooled by so many gimmicks and so many marketing schemes and so many things are just sounding too good to be true and most of them really are too good to be true, they’re not true. But we’ll kind of dive into that and you know a lot of that goes with managing expectations and it goes with managing our own expectations as consumers but it also goes with kind of this copywriting culture that you see out there where this stuff is so compelling and you just think as you read it, well how can this not be true? I know I’ve fallen for that so many times in my life and it’s been very costly to me and don’t let it happen to you. Learn from experience rather than the most expensive which I’ve learned — what I want to say is learn from someone else’s experience rather than your own. It’s much less expensive that way. So anyway, I’ve got Sarah here to join me during the intro portion of the show and then we’ll talk to Doug about some of these schemes and gimmicks and some of this crockery out there in the world of marketing and Sarah, how are you doing today?
Sarah: Good. Thanks for having me back.
Jason Hartman: Good. Before we dive into some topical issues today, I first want to tell you that you are in big trouble because of what you just told me. Do you know what I’m talking about here?
Sarah: Oh my. You mean the great investment I just made?
Jason Hartman: Oh, this is not a great investment at all. In fact, the only investment I guess — well, it’s probably on par with the “investment” that you just made, but we can tell you’re getting successful here and I mean you’ve been successful for a few years, but you’re starting to like throw a little money around. And this one bothers me because you know I’m talking about learning from someone else’s experience. Well, I’ve already had this experience that you’re just getting into here.
Sarah: Well, you never talked about it on the podcast, so I didn’t know that.
Jason Hartman: I bet I did. You’ve not listened to every one of three hundred twenty two prior episodes. I think I’ve talked about this.
Sarah: Okay. So what are you talking about?
Jason Hartman: So, what’d you just do?
Sarah: Well, I just bought a boat. It’s summer time. Kids just got out of school. I’ve been begging my husband to get another investment property and you know, we’ve been wanting a boat for years and he talked me into it.
Jason Hartman: Well congratulations, you now have a hole in the water that you can throw money into because that’s what a boat is. They say that the two happiest days of a boat owner’s life, the day they buy it and the day they sell it.
Sarah: Oh, gee.
Jason Hartman: So, now you had one of your two happiest days.
Sarah: Oh boy, okay. Well, I’ll let you know how the summer goes.
Jason Hartman: Yeah well, at least your boat isn’t a big yacht like I had which is just more and more expensive. But I tell you, I guess — please don’t come on the show in the near future here and tell me you bought a timeshare, because then I’m really going to yell at you, okay.
Sarah: Oh boy. Well you know what, I don’t know, I mean [inaudible] a minute.
Jason Hartman: Okay. Well look at, you’re not out too much because this is just a small boat and the funny thing is, when I asked you well how big is it, you said you didn’t know.
Sarah: You know what, I’m my own worst investor and I do the same thing when I look at income properties you know and it’s funny because I have some of the most amazing detail oriented clients that do you know a lot of really good research. But when it comes to my own deals, and this boat included I just kind of — I think you described it as a ready, fire, aim one time.
Jason Hartman: Well oddly though, and this won’t come across as a logical statement, but from experience again, I have seen many times, many, many times, in fact, the vast majority of the time in life that people that dive in and just do things, even when they don’t analyze and agonize over them to death but just the wisdom of action itself, carries with it its own rewards. And that whole ready, fire, aim concept is really legit.
I listen to a lot of audio books. I just love audio books because they’re portable and I can listen while walking the dog, in the car, when I can’t be reading, but one of them I heard explained pretty well just last week I believe it was where the author was talking about the ready, fire, aim concept and I don’t even remember which book this was because I’ve gotten through about four of them in the past week. But if you look at it actually like the metaphor of a gun, if you are holding a gun and say you’re at the shooting range and you’re aiming, aiming, aiming and you don’t actually fire the gun but you spend a lot of time aiming, you don’t get any good feedback because as soon as you fire the first time, you can see where the bullet goes and you instantly get feedback of where it hit on the target, on the bulls eye. But if you don’t fire and you spend your time aiming and aiming and aiming, you have no feedback. And that’s why there is literally wisdom in action when you try things in life even when they don’t always work out perfectly well and God knows a lot of things in my life haven’t worked out that well, real estate not being one of them. Real estate’s been pretty darn good to me, but you know other things that I’ve tried, but you get feedback and you learn stuff. And the idea is learn inexpensively. Don’t learn in an expensive fashion because then you can recover more easily from them.
But yeah, so you bought you boat. You don’t know how big it is. I bet your husband knows how big it is. Guys are usually up on the numbers, you know.
Sarah: I hope he knows how to start the thing. That’s what I’m praying for.
Jason Hartman: But hey, you do a good job with your investment properties. I mean I don’t know why you would say that about yourself?
Sarah: You know, I pick some pretty good ones. I’m just merely saying I kind of just when I see a good deal and I’m ready, I just go for it and we’ve been wanting on this boat topic — we’ve been wanting a boat for years and we never really have looked for a boat and this opportunity just came up and I said, well let’s just do it. I have to write a check to the government for my quarterly taxes and you know I want to enjoy some of it. So, that’s what —
Jason Hartman: Your boat isn’t large enough, but on some boats you can actually take a second home write off if it has a kitchen and a head, meaning a bathroom and a kitchen, in landlubber terms but then it will just cost you more anymore, so who wants a tax write off that costs you money? Mine was a huge expense and I’m glad it’s gone. But anyway — well, congratulations on your new divestment. I wouldn’t call it an investment. It’s divesting, you’ll be divesting – it’ll be helping you divest some of your money.
Sarah: Well, I’ll let you know when the second happiest day of my boat experience that goes.
Jason Hartman: There you go, there you go. Well hey, before we get to our guest today I just want to talk about a few things here, because we’re going to talk about ad schemes. We’re going to talk about big promises and things that are under delivered and all that kind of stuff, but I’ve been thinking about managing expectations lately. And one thing, I made a much smaller purchase today. I just got it today and that is I got a new kindle. Now this is my — I think this is my fourth kindle that I purchased, Amazon.com kindle, the e-book reader and the reason I dove in and got another one because I usually just use and re-kindle books on my iPad and I love the iPad mini, the smaller of the two. That’s just a great little device, or even read them on the iPhone.
But the reason I got the Kindle because the new Kindle Fire HD for one hundred ninety nine bucks, it actually has a thing where it will sync a professionally narrated audio book with the text. And this is huge for me because I love audio books. So I can be listening to the audio book and then I can pause it and I can pick up the reader and sit down and read and then stop reading and it syncs to the audio. I mean technology is so amazing now days. And get this, now here’s another feature it has and maybe my listeners don’t know this, but when I was a little kid in elementary school I was — who knows if it was an accurate diagnosis by today’s standards but I was diagnosed with dyslexia and I think it was really kind of cured by this eye doctor I went to.
My mom, bless her heart, really paid attention to my reading difficulty when I was very young and now I read all the time and I love to read, but when I was younger you know I remember she spent a bunch of money and we didn’t have much money, putting me in a special school and helping me get ahead and keep pace with the other kids and really learn how to read well. And then she took me to this special eye doctor that kind of cured the dyslexia, I think if it can technically be cured, and what happened is when these e-readers came out and these kindle devices and so forth came out, I thought wouldn’t this be the most awesome tool for speed reading.
And I remember when I was in college, I took a speed reading class because I thought if I could speed read with my love of learning and love of knowledge, it would just be awesome if I could just read really quickly like — I remember I got the Evelyn Wood’s speed reading home study course years ago and I just never figured out the speed reading thing. But a lot of it is about moving your finger to train your eyes to move faster across the page. Well, guess what other feature the new Kindle has? Okay now keep in mind, I don’t own stock in Amazon.com and they’re not an advertiser on the show. But I just want to tell you this thing I’m real excited about it’s called full immersion reading, where you can actually hold the device and read it while the audio plays. And I’m thinking that might help people, including myself of course, become faster readers. I’m not sure yet because I’m not sure if I read faster than a person talks. I’m going to know soon but I’m hoping that you can actually adjust the speed of the audio playback so it will make you read faster. And I think that’s a big element of speed reading, is making your eyes move faster across the page.
So we’ll see. I’m really kind of excited about this. I think this could be a great tool too just become a faster reader and that means you’re a faster learner. So, I’ll let you know on the next show. But hey this is — we talked about personal finance and real estate investing here, right?
Jason Hartman: Yeah, okay so we’d better get on with that topic.
Sarah: Real estate, what’s that?
Jason Hartman: Oh yeah, there we go. Okay, okay. Well, we got your boat, I got my little Kindle you know, whatever. So you know, managing expectations, so Amazon.com right? I mean what a great company they are. When I checked the delivery date, I was supposed to get the Kindle tomorrow. Of course, it came today and when you look at companies like Amazon, Apple, I’ve always noticed that those shipping dates, your product always comes a couple of days before they say it will be there. And when you go to some of the most successful restaurants like the Houston’s chain and Houston owns Bandera, Gulf Stream, R&D, these restaurants are all over the country, and you know or Cheese Cake Factory or P.F. Chang’s or you know some of these big chain type restaurants, you know the ones I’m talking about, I called them HERs, that’s my own acronym, high efficiency restaurants because they’re some of the few restaurants that actually work really well and have really refined business models and make a lot of money.
And they always tell you that the wait is longer than it really is. Have you ever noticed that where you’ll go in and they’ll tell you the wait will be, which is absurd and ridiculous forty five minutes, but some of these depending on location are very popular on a major evening where people go out to eat dinner. And you always get seated faster then they say. So, I think this kind of the way this ties into real estate investing is the ready, fire, aim concept is one part of it but the other part of it is as investors, we all have to remember that we’ve got to focus on as Steven Covey says, keeping the main thing, the main thing. And in so doing, that means we’ve got to manage our own expectations and not become distracted with the little things that are just unimportant. You experienced this in your own life, Sarah and with your clients, right?
Sarah: Well yeah, and that’s true. And for the most part you know in working with Platinum Properties and our investment counselors, myself included, we do our best to not to over promise and then not deliver. We’re pretty good with our performer projections. You know, we’re pretty conservative, but every once in a while we don’t get it exactly right. And what I mean is, you know you’ve been hearing a little bit on past podcasts about rehab delays and construction delays and we do, we try to — we try and give you a realistic time horizon from when the completion is going to be on these properties. You know but every once in a while it rains in Indianapolis or St. Louis or you know wherever we’re working and you know there are delays. And so that’s one thing that we’re really experiencing is trying to readjust and really set the expectations with the clients, so they know you know look, this is ideally you know the property’s going to be done in sixty to ninety days, but just know that there’s no guarantee. And if it takes longer, there are many benefits to a property taking longer, especially in a market like this.
Jason Hartman: Yeah, in a market that’s appreciating, when you have delays and you’ve only put down a small earnest money deposit, I mean you’re basically benefiting from that. It’s better that it’s delayed. Now granted, you don’t get the return on your investment from the property being rented, the return that might be projected at just as an example, twenty five percent annually depending on the property and you know what tax benefits you qualify and so forth and how you finance it. But the return, although I haven’t calculated it, I would guess if you put down maybe a five thousand dollar deposit on the property rather than the full forty thousand dollars with what the down payment closing cost that you’ve probably benefited in a huge way by the delay. The delay has actually helped you because if the property is going up in value as we’re seeing in so many markets now, I mean why would you be upset about a delay?
I remember when I did some speculative deals in the Socialist Republic of California back in the day, and I’ve done that through a couple of cycles in California and have been doing this for quite a long time now. First of all, I never have experienced a new home construction being on time. That’s the exception, not the norm. If you think about all of the moving parts, all of the different trades, all of the different contractors, all of the different suppliers, all of the different inspectors, I mean that is just an incredibly complex thing.
All of those things that have to come together just right for a house to be constructed on the day inspected, it just almost never happens.
Sarah: Well and let’s not forget that many of these builders went through their own hardship, you know years ago like a lot of us did, and you know some of them went out of business or their business slowed down and so you know their own financing is not as loose as it was years ago and so another delay and it’s kind of a hidden delay that most people don’t think of is, they’re kind of doing their own rob Peter to pay Paul. They’re waiting for you know some of their first deals to close to find their next you know subdivision.
Jason Hartman: That’s right, yeah.
Sarah: And so when one client you know doesn’t get their financing documents and their — they don’t close on time for one reason or another and they have their own delays, they could be setting back another ten investors, you know.
Jason Hartman: That’s absolutely true, and a lot of that plays in with the lender and the way the lenders do construction releases. So, when a builder finances a tract of homes for example, they’ll have certain milestones that they have to meet. So if the tract has fifty homes in it and they release them in phases of say ten at a time and they have five phases, now this is obviously a fairly small builder we’re talking about, could be a large institutional builder they’re subject to the exact same thing just change the numbers a little bit. And when they do that, before they can open phase two they’ve got to have sixty percent of phase one closed for example, before they can get the construction financing for phase two or maybe it’s really phase three. I don’t know. You know, I’m just giving you an example of how that works and the bank will not release more money until they have those underlying transactions closed. So, that’s just like you say, it’s a thing that goes on behind the scenes in the builders business process that people are unaware of and they shouldn’t have to be aware of it.
I mean, the buyer investor listening to this doesn’t need to be aware of that, they just need to be aware conceptually that that does happen and that there are delays in construction. It’s the — whatever dates you’re given, just add twenty percent to it. I mean if they tell you it will take one hundred days, assume it’s going to be one hundred twenty days. It’s going to be four months in that case if they told you a little over ninety days. So just understand that. I mean as investors, do you really want to waste your time stressing about this three week delay and making a bunch of phone calls, sending a bunch of emails? I mean that’s just like majoring in minors. There’s nothing to do there. I mean you’re talking about an investment that depending on how things go, you might hold until the depreciation schedule has run out for twenty seven and a half years.
I mean, this is just not a big deal. It just doesn’t even matter in the scheme of things.
Sarah: You’re right. And here you know are some other thoughts on that is look, you know if you’ve been waiting for a few months and there’s just not an end in sight or you’re getting frustrated and another deal comes up that’s better than this one and it’s ready to close now, which you know sometimes those come up it’s just a good deal, it’s already been rehabbed and ready to go. Buy it, move on to that other deal and chances are, if you’re looking to buy multiple properties, by the time you close escrow on something that’s ready, you could still be caught up in that other delay and maybe close on both. And if not, you know it’s very rare that you know a client loses a deposit or anything like that and if the builder is late, you’re usually out of contract anyways or they’re out of contract.
Jason Hartman: Yeah, yeah. So sometimes — but you know I don‘t want to make that sound too easy. Sometimes you can get out of the deal, it depends, but if it’s the builder’s fault, you may be able to back out of the deal and get your deposit back. There are just all kinds of factors here to consider. So, just that basic idea is look, keep the main thing the main thing. Focus on what matters and what matters is getting good quality properties and making them work over time. That’s what really matters in this game.
Sarah: Yeah, I couldn’t agree more. I couldn’t agree more.
Jason Hartman: So anyway the bottom line is everybody, the important thing we’ve got to do is we’ve got to manage our own minds to keep the main thing the main thing, that’s what’s really, really important and not be sidetracked with little diversions that are just a little pebble in the shoe type thing.
But the next thing I want to talk about is some upcoming shows. We’ve got some phenomenal guests coming up and one of them we just booked today I’ll be interviewing later this week and then publishing shortly after that, and that is a name you may or may not have heard of, but let me tell you something. The name I’m about to mention, this guy was like a God ten to fifteen years ago in the investment world and that name is, anybody thinking of who it might be, it is George Gilder.
George Gilder is a — I mean he really — I met him. I remember I met him on a Forbes cruise with — and Steve Forbes was there and his daughters were there and I got to know them real well and hang out with a couple of them, and that was in Scandinavia and Russia and this was about ten years ago or so and George Gilder was one of the speakers on the cruise, and he made a bunch of very accurate predictions and he made some terribly wrong predictions too, as most of these guys. It’s a mixed bag when you make predictions it’s going to go both ways for you.
But anyway, I just can’t wait to interview him and hear what he has to say because I mean he really, really is a kind of a futurist in a way in the world of technology and what he calls the telecosom. I think he may have coined the term — I know he — I’m pretty sure he coined the term the telecosom, but I think he also coined the term blogosphere and he’s had zillions of subscribers to his newsletters that are very expensive, or at least they were at the time, and just really has some interesting insights. So, he’s coming up. I can’t wait to interview him and we’ve just got a whole bunch of other great guests coming up. Al Goldstein who I interviewed last week told a great rags to riches story of how he moved from little, crummy, single family flats and condos up into big apartment buildings and now his company has about eight thousand apartment units, so some really good guests coming up and some great stuff.
Les Leopold is coming up. He’s going to talk about hedge funds. Catherine McBreen on Millionaire Corner has some interesting stuff to say and some interesting advice for investors, and just a bunch of great shows coming up.
So, more to come up on that but Sarah before we go to talk about ad schemes and scams, let’s talk about a couple of properties real quickly. This first one in Texas I really like.
Sarah: Yeah, it’s a newer construction — well, it’s not new but newer. 2004 is the year built. It’s about just under twenty three hundred square feet. Purchase price is one thirty nine, five and this is you know a bank owned property that you do have to you know, submit an offer on. So, it’s not turn key in the sense that you know, you raise your hand, you buy it, it’s yours. You do have to submit an offer on this one and get it accepted.
Jason Hartman: And do you think you’ll have to pay above full price, and if so, how much?
Sarah: You know that’s an interesting question because we’ve actually had some clients offer a little bit less and have success getting those offers accepted, especially because these are contingent on inspections. You still have the right to inspect the property before you close and so if something comes up that you know didn’t initially meet the eye, you know you have a little wiggle room there with the bank and negotiating room.
So, we have seen some pay under asking price but I mean the way this market is really turning, I don’t give it long until you’re going to see these properties bid up. So I think we’re in a good little window of opportunity here of these properties. So you know, these may need a little bit of work after you close. We have a contractor in place, you’ve heard of him before in Austin, and we also have property management in place. So it’s still turn key, it’s just a little bit of a different process, and you know just give us a call. We’ll be glad to kind of walk you through the expectations there. But back to the numbers, you know estimated rent is fourteen hundred a month. You can finance these. The only part that you can’t finance is the repairs you just have to pay out of pocket, and we’re talking about very minimal repairs. Here it’s estimated at six thousand.
Jason Hartman: Yeah. No actually, this one’s sixty five hundred —
Sarah: Sixty five hundred.
Jason Hartman: — the one I’m looking at. Yeah so here basically, what you’ve got here is you’ve got a down payment subject to qualifying of twenty seven thousand nine hundred. You’ve got some closing costs and then you’ve got sixty five hundred dollars in fix up and repair costs that are not included and it cannot be financed Sarah, as I mentioned.
So a total of about forty thousand dollars to buy this property, but look at what happens here after yelment. The performer here says two hundred fifteen dollars a month positive cash flow. That’s almost twenty six hundred dollars a year and your debt coverage ratio, one point three nine percent. So again, that coverage ratio, if you’re a really, really conservative investor is the number you look at to say, look how likely is it that something can go wrong here? Could this go poorly for me? Could I end up losing this property and giving it back to the bank? Highly unlikely with that kind of debt coverage ratio because your rent to value ratio is ever so slightly above one percent here and this is in the Austin metro area. Now Austin, we haven’t been able to make this market work very well for a few years now. I own in this market. I love the city. I mean Austin is just — it’s a great city, no question about it, but again it’s a more expensive city than some of the others that we talk about. You know, it’s a lot more expensive than Birmingham or Memphis or Indianapolis or anything like that, but the return on investments here overall, when you look at all these projections is projected at thirty three percent annually. So again, the famous question for me is what if it only goes half as well? So, you’ll make sixteen and a half percent annually, that ain’t bad.
Jason Hartman: Anything else on that one or the area in general, Sarah?
Sarah: No I mean, just that you know in expectations with working with the local provider, he works very efficiently. He’s very responsive. Clients have enjoyed working with him. He’s bring on — giving us new inventory on a regular basis, but you know the price points I’m seeing in Austin right now is about one fifteen on the low end to you know one sixty fiveish. So, a good range of properties to different price points that investors are looking to stay at.
Jason Hartman: Yeah, definitely. One quote came to mind and I remember this quote from when I was about eighteen years old. I remember this quote that I always try to remember because a lot of times as we were talking about the expectation issue at the beginning of this episode, and this is a quote — I believe it was Jack Paar who said it, and he said my life seems like one giant obstacle course with me as the chief obstacle. So again folks that message that we were talking about I didn’t want to forget to tell you this is about getting out of our own way. Let’s not become our own worst enemy. The market has turned. It is largely a seller’s market. I don’t want any of our — I hope none of our providers are listening to this right now, but I know a few of them are probably, ultimately going to be hearing this somewhere, somehow. Maybe some of our clients who are listening will go and tattle on me for saying this but you know, in some ways these sellers and these people that — they’re kind of doing us a favor. I mean it’s just — this is not a buyer’s market anymore. It has turned. The seller has the power now and that has dramatically turned from the way it was two years ago. So, we all got to adjust our expectations there.
But the funny thing is, even though that may be the attitude to some extent, and I hate that that’s the attitude and I hate to even say that and have to bring that up because think about it, you’re buying something that’s a high ticket item. You know it’s one hundred, one hundred thirty thousand dollars maybe, but the deals are still fantastic. So, we’ve got to keep this in perspective. I mean you’re still getting deals that are — I mean they’re not quite as good as they used to be, but they’re still pretty darn good.
I mean look at this next one. This is a Memphis property built in 1980 and only fifty five dollars per square foot, well below the cost of construction, land is free and Sarah talk to us a little bit about this one.
Sarah: Yeah, this is a hard one to come by. It’s kind of a not sweet spot that investors are looking for in terms of price plane. It’s seventy nine nine, it’s about fourteen hundred fifty square feet and yep, cost per square foot, fifty five dollars which is great, estimated rent, eight ninety five a month.
Jason Hartman: So a little more than one percent RV ratio.
Sarah: Yep, and estimated cash flow is — and this is with twenty percent down is just under two hundred dollars a month and you know, 1980s you know it’s not new but we’ve certainly sold older homes, but this one comes rent ready so you know it’s already been renovated. You know it’s a nice looking little property. Great curb appeal and you know your point of entry is under twenty thousand dollars if you can qualify for the twenty percent down financing.
Jason Hartman: Yeah, that’s fantastic. I mean and look at this, the debt coverage ratio here is one point five nine percent and the cash-on-cash return projection is twelve percent annually. So if it depreciates in value to half, which the market’s going the exact opposite direction of that right now, but say that you’re a total pessimist and you think that we’re going to have massive deflation, as long as the deflation doesn’t happen in the rent and the expenses stay the same — remember expenses would deflate too under the deflationary environment, which I think is like so unbelievably unlikely but for the three people out there in the world who still think deflation is coming, that one’s for you okay. For the other three hundred million people who don’t think that in the U.S. your cash-on-cash return twelve percent annually, overall return on investment projected at forty three percent annually. And on these properties — you know this one’s back to 1980, we adjust and increase the maintenance percentage to five percent, assuming you’re going to have more maintenance expense on an older property like this, so fantastic, yeah good, good deal.
Sarah: Well one of the things too I’ve just noticed on this property, and once again it’s hard to come by but this one has a solid tenant in place that’s been there it looks like for seven years.
Jason Hartman: Oh yeah, yeah that’s —
Sarah: So, that’s that.
Jason Hartman: — that’s interesting yeah. And you know my Mom was on the show and I talked to her the other day about this, I said hey is that tenant from 1989 still in that one house you own? And she says, yep still there, never painted it, never changed the carpet. I can’t imagine what that place looks like.
Sarah: So, your Mom’s tenant probably has a bunch of rental properties all across the country that she doesn’t know about.
Jason Hartman: Yeah, that might be true, that might be true, yeah very interesting. Well Sarah, any other insights that you’d like to share about the market place or investments or anything like that?
Sarah: You know really I just want to say, be patient but don’t wait too long to act. You know we’re hearing rumors that the interest rates are creeping back up. We don’t know how quickly that’s going to happen, but they’re still good today. There’s still a lot of great deals. Yeah, the properties are selling quickly but just contact your investment counselor and we’ll be glad to help you narrow it down and pick out a good property.
Jason Hartman: Fantastic, well good stuff. Well hey folks, happy investing. Let’s go to our guest and let’s talk about advertising schemes and by no means is this an exhaustive list and I apologize in advance if the audio quality is not up to par on this. I’m not sure how it will sound. I think it’s okay but just so you know, I had to record this one mobile, which means I was at a Starbucks actually and I was doing it and that’s pretty rare. In fact, I don’t think I’ve ever done that. But no, I did it one time with one of our local market specialists, we sere sitting at the Starbucks. So, I apologize for sound quality if it’s not totally up to par, but once in a while you just have to do it. I feel like the topic’s important and the guest was available and I just jumped in and went ahead and did it. So anyway, we will be back with our guest here in just a moment and thanks so much for joining us today. We’ll be right back.
Female Voice: Now, you can get Jason’s Creating Wealth in Today’s Economy home study course, all the knowledge and education revealed in a nine hour day of the Creating Wealth Boot Camp created in a home study course for you to dive into at your convenience. For more details go to Jasonhartman.com.
Jason Hartman: Our next segment here really corresponds with the old saying, if it’s too good to be true it probably is. I’m sure you’ve all heard that well worn cliché and for that, we’re going to talk about some advertising schemes. I don’t necessarily want to call them scams because they are apparently legal, but in my opinion they’re pretty misleading. And so we’ll kind of dive into that and we’ve got Doug here to talk about that. How are you doing, Doug?
Doug Utberg: I’m doing pretty good Jason. How are you doing today?
Jason Hartman: Good thanks. And I just want to tell the listeners, I apologize for the sound quality because I am in a public location here in Newport Beach today, but I wanted to get this show done because we’ve been trying to do it for weeks or get this segment done I should say and we’re finally — let’s just do it. Forget about certain quality, we’ll do the best we can and muddle through it.
But you wanted to focus on three advertising claims that seem pretty ridiculous, right?
Doug Utberg: Yeah, yeah there are two that seem to just set my teeth on edge. One was claimed as a pretty popular newsletter provider saying that you can force banks to give you real silver for your paper dollars. And of course this appeals an inner conspiracy theory and all of us are saying, yeah you know I want to stick it to the man and force these darn banks to give me real silver.
Jason Hartman: Yeah, all the gold bugs will like that one.
Doug Utberg: Oh yeah, yeah. The gold bugs all go nuts over that. The second one was to buy “real silver” and then it says hold in your hand silver for three dollars. And then the third one is you know just one of those ones you see – it’s the old penny stock newsletter scam right. You know you see someone comes out and says hey, if you followed my past in investing in this one stock it would have gone up over one hundred percent. See how stupid you are for not subscribing to my newsletter and following my advice?
Jason Hartman: Now, let me address this silver one for just a moment. Basically that silver one — I think the assumption in everybody’s mind when they say — when they hear that three dollar silver is that it’s an ounce of silver, but silver’s about thirty two bucks an ounce at this time of this recording, I think. And so if that’s a tenth of an ounce, then it should be three twenty, right? So is three dollars really a good deal?
Doug Utberg: Why how much do you [inaudible], Jason. In fact I’m going to let the cat out of the bag and be out of order a little bit, but what that is talking about is buying what they call junk silver. So, as many people are well aware and in years long gone by, just regular point edge, regular clear points had a certain percentage of silver in them. And what you can do is you can buy a bag full of old coins that you know may contain a certain percentage of basically the bullion value of silver or what they call melt value. And I think a bag of ten thousand — you can get a bag of ten thousand of those junk silver dimes for roughly three dollars per dime.
So, what they’re advertising is exhorting you to do is to go out and pay market price for a bunch of silver. Well, that is literally no different than me going down to the local coin huckster and paying thirty three bucks for a silver eagle. No different, there’s no difference. The only difference is I bought a whole bunch of little silver eagles instead of one big one.
Jason Hartman: Yeah, but the thing is to wade through that. I mean look at the cost in time. You’re going to have to probably watch a very well done marketing video, read through a huge letter, a direct response letter written by a brilliant copywriter.
Doug Utberg: Allow me to clarify, you will have to wade through a long video that you can’t click out of and the reason why I know is because I signed up for a couple of these things under the free look period. Basically you know, I signed up for you know a couple of weeks just to see what all this stuff is and I just canceled it out and said I’ll get my money back. Yeah, you have to wade through this about a fifteen minute video that you can’t click out of then you have to go through this long list of copy. And then as soon as you sign up your email box will just be flooded with marketing copy over and over and over again. And then of course, the thing I keep wondering is if this advice is so great, why is it that I have about a fifty to one ratio marketing copy of actual advice and content?
Jason Hartman: Right, it’s over complicated.
Doug Utberg: It’s almost like a — and I’m going to give away my bias here, it’s almost like these companies aren’t really in the business of providing advice, they’re in the business of the marketing copy to sell this advice. Therein lies the secret of all these too good to be true email things.
Jason Hartman: All of these things, it makes you wonder because these kinds of — this marketing copy, this is all regarding very scalable investments that could easily be duplicated quickly. So if you can buy silver for one tenth of its value, which is what it’s misleading people into thinking, then that makes you wonder why the heck are they even bothering to be in the newsletter business? I mean that’s a scalable business. Now people can ask me that about real estate, why don’t you just invest all day? Well, I have a good answer to that.
Investing is a more involved thing when it comes to real estate because you’ve got to find the deals to acquire. You’ve got to negotiate the deals, but buying silver is a click of a mouse, basically. These are very scalable things. Stocks the same thing you’re going to talk about some of the stock scams or schemes I should say or great marketing copy and all of those things are very scalable. As soon as you make one dollar and double it, you can take that two dollars and reinvest it a second later. And you can scale that up in a matter of a month and be retired on you know owning your own island. So —
Doug Utberg: Exactly, that’s the thing that’s so appealing. You say oh go for it. You got to sell it for a few dollars and all those suckers working at the office and I’m going to show them — I’m going to repeat this so many times and I’m going to be retired by next month. You know and of course, naturally you end up finding out, oh all they did was show me how to pay market price for silver. Oh thanks for that, can you maybe show me how to pay twenty percent over spot for gold? I mean, you know.
Jason Hartman: Yeah, it’s ridiculous. Okay, go onto the next one.
Doug Utberg: Sure. So the next one is the — and this is staying on the silver, on the silver trend for a minute and the forced banks to give you real silver for your paper dollars. And this attracts gold bugs like moth to flame, right. Everybody who is paranoid about the government who these days that many people who aren’t at least a little paranoid about the government, they’re thinking oh all right, yeah let’s get some real silver. I don’t want these worthless paper dollars anymore. Well what they’re talking about with this is again, like we were talking about before, is how in years gone by there were a certain percentage or there were certain coins that had a certain silver content in them and one of those coins were the fifty cent pieces and the half dollars. And the thesis of this whole strategy, you’re being an [inaudible] money for half dollars. And with the idea being that you’ve got to look through all the half dollars to see [inaudible] made at or before the mid sixties that has an actual silver content.
There’s true fallacy to this strategy. One, I actually tried this and when I went to the bank they go we don’t carry fifty cent pieces anymore. As soon as we get them in they go right back out the door. So one is that you’re going to have to go all over the place to find places that even have fifty cent pieces, and then two, let’s say that you do find a bank that has some fifty cent pieces, let’s say you do sift through all this stuff. I think the melt value of a forty percent fifty cent piece is around ten bucks. So then you start saying, what is your time worth? If it takes you an hour to get one ten dollar silver piece traded out, then that’s what, ten dollars an hour? That’s not a very good use of your time.
Let’s say you happen to have some education, right but let’s your time’s worth thirty bucks an hour, well you’d need to be able to turn one of these things out like what, every twenty minutes in order to make it worthwhile. So essentially are they not only trying to get you all excited about doing something for the most part can’t be replicated, but they’re trying to get you excited by doing something which is an impatient unproductive use of your time.
Most people would you know would [inaudible] ability can go out and just go out and get a job, get a regular job or get a second job and work and then buy silver at spot at a faster rate than it would take for you to use this loophole in order to build silver bullion users.
Jason Hartman: Assuming the loophole even works in the first place in real life.
Doug Utberg: Assuming it even works in the first place.
Jason Hartman: Yeah.
Doug Utberg: Yeah exactly, exactly. Yeah it gets people off for obvious amount over the idea of trying to stick it to the man when you really do the math on it, you find out that the only thing you’re doing is sticking it to yourself.
Jason Hartman: Yeah right, right. And you know, one of the things I think people have to realize is the whole sticking it to the man idea, the man knows how people try to stick it to him and has already put up road blocks to make that difficult. All right, what’s the next incredible scheme that’s too good to be true?
Doug Utberg: So and another one that I got was something saying, oh if you followed my recommendation from last month and invested in this one stock that it’s doubled past then. And you know if you’d done that you would have doubled your money and you know with the entire thesis being you’re such a cheap skinflint, you won’t even subscribe to my ninety nine dollar a year newsletter, and if you had I would have told you how to double your money. You’re such a moron for not following my advice. That’s the implied thesis on all this.
I mean and it’s the same as all the penny stocks. You know you see this thing in the mail, oh this penny stock is going to go up in value. And the next week they say, oh you see how stupid you were, you didn’t put your money in. Right after I recommended it, it went up by forty percent and then you get oh, it just went up another thirty percent. So even if you buy the second letter, then it would have kept going up. But there’s a couple of layers to the fallacy in this whole pump and dump — I call it the pump and dump stock fallacy.
In almost every situation, the way these types of things work is you have some — they’ll make a whole bunch of recommendations and not cherry pick the ones that work out well or the ones that shoot up like a roman candle and that’s what they’ll send the email out on. So the very same group that sent someone that market copy did their own report card and it turns out that the average of all of the recommendations didn’t even beat the S&P 500. They got — so yeah it turns out it’s really easy to cherry pick something that just went up like a roman candle, but it’s really hard to cherry pick stuff that’s going to go up like a roman candle every time.
When you’re picking stuff in real time and you’re trying to do what’s in real life it turns out it’s really hard to figure out what’s going to go up and when.
Jason Hartman: You know the problem with the whole stock thing Doug, is that it — the SEC and the industry in general gives the public the impression that it is so highly regulated that they can’t get hurt and what really happened it’s — like it’s amazing to me that there’s not a law against that or that there’s not a law that says — that identifies the exact way these investment advisors have to calculate their returns.
I mean it’s a joke. Like even investment advisors that will be on the radio that I’ve heard them talk about how they’re audited, how they’re — you know they have auditing firms that audit their results and so forth. I mean even that isn’t what it sounds like. They’ve just figured out a way to say it so well that it sounds great but in real life, you really don’t know what you’re getting. I mean it’s amazing and I’m talking about the advisors that have model portfolios that might have three model portfolios that they use and it’s just ridiculous. It’s totally ridiculous.
Doug Utberg: And another thing too with —
Jason Hartman: The same with newsletters.
Doug Utberg: — and I was going to say if we can go down a little bit of a tangent and this is one of the things that I’ve actually been thinking about a lot lately is when you talk to most of the people, they refer to themselves as wealth managers. Well, in Wall Street [inaudible] wealth manager is exactly a financial babysitter.
A wealth manager doesn’t do anything to actually manage your money. The only thing they do is they sucker people into giving them money so they can allocate it for money managers. Money managers are the people who actually make money decisions, but they hate dealing with clients. Money managers don’t ever deal with clients and so any time you talk about one of these people who’s an advisor or a wealth manager, their sole purpose in life is to generate sales copies so that you give them their money so they can take a percentage so that they can shove it in the portfolio of the money manager who also take a percentage and they actually manage your money. So the thing is it’s like the — what you really have to think about what a lot of [inaudible] proverbial Wall Street investments is how many layers of middle men have you gone through? I mean there is real money to be made on equity investments.
But if you do, you’re going to have to pay a bunch of middle men. You actually have to learn how this stuff works and probably need to start becoming your own advisor, which is a lot of work. All the people that make money in Wall Street put in a lot of work. And I guarantee that the money managers don’t make their decisions based on some newsletter that they get once a month in their email box.
Jason Hartman: Yeah, that’s for sure. If it were all that easy, everybody would be doing it right. Because see the difference is — and I just want to stress this in lieu to what like I said before, the difference is with income property investing, that does take some effort. If you can read a newsletter and go online to a brokerage account and trade some stocks and make a fortune, I mean that’s easy. Everybody would do that, that’s a scalable, easily, easy business. You could deploy ten dollars, you can deploy ten million dollars all with the same amount of effort. With income property it’s different. You’ve got to go find deals, negotiate them, make it all happen. It actually takes some time to do it. So —
Doug Utberg: Yeah, yeah it takes some time and effort and then I kind of want to close the loop with can I talk about the penny stock pump and dump scam. So see, the way this — and I’m not necessarily saying that the newsletter I got was a pump and dump scam but the way the pump and dump scams typically work is that you’ll have a person that publishes in a newsletter and it’s you know in a penny stock or some kind of very low liquidity stock, and what low liquidity stock means is, it’s a stock that has limited buying and a limited number of share — a limited — they’re kind of — they’re available [inaudible]. And so what will happen is you’ll have a group that will go out and say, hey [inaudible] involving stock or there’s some other stock and they’ll write pages and pages and pages of marketing copy and say I’m going to give you the inside tip, this stock is about ready to just go off like crazy. Well so then what will happen is — so then people will say okay I’ll read this, okay I’ll go buy a few shares.
Well, if this letter goes out to five hundred thousand people and ten percent of them go buy a few shares, they’re so small that those people that are going out and buying the shares will push up the price. Well, I can guarantee you that the person who sent out the letter bought their shares and picked up part of the float before any of these people they sent that letter out to bought. Then what happens is, when those people buy it, it pushes up the price. [Inaudible] letter saying oh see everybody who is reading this actually if you followed my advice, you’d be up thirty percent by now. Then they get the second kick and at that second kick, that’s going to be the people who originally bought in, that’s when they sell out because now they have liquidity so they can get rid of their position at a higher price.
Well if all these people that are looking at how much money they made on this thing, if they actually try to sell out there’s nobody left — there’s nobody left to buy because what they’ve done is they’ve doubled up the price. So now if they want to sell, they have to push the price back down. It’s actually what Gordon Gekko did in Wall Street. It’s blue horseshoe with anacott steel. What is it that he’s doing with that? Well, the whole idea of that is you take something with a limited float and you jack up the price and you get [inaudible] and to acquire it, it increases the price on them or you jack up the price and the people that you just told to buy the stock look like they’re [inaudible] your position at an escalated price that whole time and then all those people that you just told to buy in, if they try to liquidate the float vanishes and then the price has to fall back there it should have been the whole time.
That’s how the volatility cycle goes and if you don’t know about that in advance, it’s real easy to get sucked in by the marketing copy and say oh look, look how much money this guy’s making. The stocks going up to the moon, but the thing is just because there’s a certain price on a stock doesn’t necessarily mean — let’s say you own a stock and the price is like really high and this current market price is really high, it doesn’t necessarily mean that you’re going to be able to sell your shares at that price. It just means the last transaction was at that price.
Well, when you go to liquidate your shares it may be that there’s nobody left that’s willing to pay that price. The only people may be willing to pay ten percent less than that or twenty percent less than that or thirty percent less than that. Whenever people talk about the current price of a stock, the current price is your last transaction price and for high balling stocks, it tends to be pretty stable because there tends to be enough volume, enough of a float to where the prices tend not to jump so much.
When you’re talking about low volume, low float stock, the prices jump all over the place. They can go way up or way down just based on the availability and liquidity.
Jason Hartman: Because a small amount of trading will make a big difference.
Doug Utberg: Yeah, exactly.
Jason Hartman: Yeah.
Doug Utberg: Yeah, it’s because you come up with any kind of volume and you want to buy shares you’re going to have to bid the price up and then you have to have [inaudible] you’re trying to unload then you may have to push the price down.
Jason Hartman: Well, what would you like to just wrap up with on this subject? I mean, obviously don’t believe everything you read. Don’t believe everything you hear. I mean folks, think about it. If it sounds too good to be true, it probably is the well worn cliché.
Doug Utberg: I think the main thing that I would say is that number one, just write down and always repeat to yourself that there are no shortcuts. The shortcuts do not exist. The only quick way to wealth is the self subscriptions to idiots who think there’s a quick way to wealth. There is no shortcuts. It does not exist unless you’re dishonest, and then I think from there it’s not so much about this is the best way. There are lots of different ways. Income property happens to be one of the very good avenues because it’s the primary thing that you need to be successful in decent property is patience. You need to be patient because the real problem becomes the long term effect.
And so if you have or can develop patience, you can be successful in income property. If you’re talking about like trading equities, you could be very, very, very, very disciplined for a very long time because a lot of the profits from trading come from grinding [inaudible] profits over and over and over again. You’ll have profitable trade throughout the [inaudible]. You have to grind it out for a long time. Well that is a very hard case. Not everybody has that kind of temperament and demeanor.
So I think the most important thing you do in your investment is knowing yourself. Know what your demeanor is the most important to know and I think the reason why income property is good for a lot of people is because say the patience is something you can develop. Getting beat up by the market every day and not getting depressed, that’s kind of something that you have or you don’t just because it’s very easy to get depressed when things move against you and being able to withstand that and stay disciplined in the trading strategy is really hard. That’s why more people don’t do it. And so I think the main thing for income property is just that the key component to success is that most people can develop.
So it is an avenue [inaudible] people have access to and can execute successfully. I think that’s what’s valuable.
Jason Hartman: Sure, yeah. Good point. Well hey Doug, thank you for sharing this with us and I think your insights are great and folks, if it sounds too good to be true, it probably is. Don’t get scammed out there, be smart, be prudent, be conservative and be realistic.
Doug again, thank you so much, appreciate it.
Doug Utberg: Not a problem, Jason.
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Female Voice: This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.HartmanMedia.com or email [email protected] Nothing on this show should be considered to be specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc., exclusively. (Top image: Flickr | B Rosen)
Transcribed by Debra
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