In this Flashback Friday episode, Jason Hartman becomes the interviewee on the Financial Survival Network with Kerry Lutz. Jason explains why residential property investments beat multi-family and commercial and how to tell if your real estate portfolio is diversified. In Jason’s editorial, he tackles the merger of eLance and oDesk, and the scam of life insurance as an investment.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com. Hey, this is Jason Hartman, thank you so much for joining me. Do you know what day it is? Yes, it is flashback Friday, where you hear the best of the creating wealth show and you hear some good prior episodes, some good review. Remember, we’ve got almost 500 episodes out. And you know what? iTunes doesn’t even hold them all if you’re an iTunes listener, if you are listening on Stitcher, thank you for joining us. So we want to bring you some good review stuff. Now. What’s interesting about flashback Friday, it’s a little scary for me. I got to be very, very candid with you on that. Because you the listener, you get the chance to hold my feet to the fire. Did I make any predictions? Was I right? Was I wrong? I’ve been right about a lot of things, but I’ve been wrong about a few. So you can give me a hard time about that if you wish. But it’s flashback Friday, and we will give you the uncensored Best of the creating wealth show with a prior episode. So let’s dive in. Here we go. Remember, this is not current. It’s flashback Friday.
Announcer 1:23
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 20 years and currently owns properties in 11 states and 17 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.
Kerry Lutz 2:06
So when is the collapse coming? Is it coming? And if it doesn’t come for another 10 years, you got to have income. And you got to have it now, which is why we’ve got our prime sponsor, Jason Hartman, of Jason Hartman, calm on with us now. Jason, welcome back.
Jason Hartman 2:24
Hey, thank you, Kerry Lutz, good to talk to you again.
Kerry Lutz 2:27
You too, so. So we got this quandary. Some of us like myself believe that this merry go round can’t keep on spinning forever. Others believe that it’s going to go on for quite a while longer. We don’t know how long. And you got to figure out a way to make some money and hopefully, give as little away to the taxman as you possibly can. And that brings us of course, to real estate, right?
Jason Hartman 2:55
Well, it does. I I think it’s the most historically proven asset class in American history, if not world history.
Kerry Lutz 3:03
Yeah. And for obvious reasons, and you happen to be in the former camp, you don’t believe there’s going to be a collapse, do you?
Jason Hartman 3:10
Well, I used to believe that for many, many years, and I would still believe it carry if the US did not have a particularly interesting and advantageous set of circumstances including, but not limited to, to sound lawyer speak, how’s that sound, included, but not limited to the largest military in the world, which allows us to bully other countries around and and this whole thing is predicated on the fact that if we want to keep spending, like idiotic drunken sailors, which we do, and you know, I don’t condone any of this, I don’t agree with any of this, I’m just telling you the way I see it. And so if our government wants to keep spending like drunken sailors, the business plan has to be that we force our ever devaluing debt onto other countries like China, most specifically, so that we can keep spending. And in order to do that, we need to have the bully pulpit. And I say we do, for better or worse, fair, unfair, it’s the way it is we’ve got the largest military in the world by a huge margin. We’ve got the largest economy in the world by a huge margin, even though it is built on smoke and mirrors, but but other economies are built on smoke and mirrors to we’re not the only one that does that. We’ve got the reserve currency of the world. I know many countries would like to change that, but I don’t think they’re going to be able to for for the reasons we’re discussing now. We’ve got the largest brand name in the world. And recently, we we now know we have the largest energy reserves in the world, which is, which is our new huge, huge advantage. And that one actually is real. It’s not bully pulpit. It’s not smoke and mirrors. It’s not fuzzy math. etc. But for, for those reasons, including the brand, and some people when I said that may not have understood what I meant, so let me just elaborate on that one, the others, we all know, we’ve got the biggest military, etc. But, you know, still, when you look at studies of, you know, China, for example, you’ve got all these people. And I’ve got a friend who’s very knowledgeable, very interesting guy who lives in China. And, you know, he’s constantly talking about how great China is and what a disaster America is. And you look at the press freedom index, which just recently came out. And China, you know, along with Saudi Arabia, and some other ridiculous countries in North Korea, are at the bottom, they’re the worst, there’s just almost no press freedom, right? Us isn’t so good, either. The Scandinavian countries are great, by the way, but Chinese millionaires, they want to move to the United States. It’s not the other way around. Now, Jim Rogers, he’s an exception. And I’m a huge Jim Rogers fan had him on
Kerry Lutz 5:57
Singapore, though
Jason Hartman 5:58
he’s, I know, I know, I know. He’s in Singapore. And I’ve had him on my show a few times, I know you have to and, and you know, he’s a big proponent of China, and see all of these economists out there. They’re doing something called math. And what I’m saying to your listeners carry that math doesn’t matter that much. And I don’t think that’s right, I’m just saying it is the way it is. It doesn’t matter that much when you’ve got the big military, when you’ve got the big brand, when you’ve got the reserve currency and the means to maintain reserve currency status. Now, if it was just about math, the country would have collapsed by now, the reserve currency status would be gone by now. But the fact is, it’s not just about math. Okay, it’s about all of these things in America is in the very enviable position of having the bully pulpit, if you will. And I say we can keep this charade this house of cards going for decades to come? I really think so. I do. I do. I think so. I don’t think we will have a collapse as long as we can force other countries to buy our evermore worthless debt. And I think we can keep that game going for a long, long time. Am I crazy? I don’t know. Tell me pick up pick up my idea. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday
Kerry Lutz 7:30
and Wednesday? Well, I just think I see a lot of laws and the Chinese economic model as the EU, their military is coming up pretty fast, but their pollution, all their cities are contaminated. And if you I was there, 17 years ago, and every young person I met there wanted to get the hell out of there, and come to flushing New York, and San Francisco, they wanted to come to America. And I you know, just even if they’re making more money, they still want to get out of the place. It’s unhealthy. And from my way of thinking, like you said, the Chinese billionaires, they’re buying up property in Vancouver, in Australia, in New York, in San Francisco in Miami. And interesting thing that’s overlooked in all of these real estate reports, they’re always saying, cash sales are huge, bigger proportion of sales than ever in real estate, and they’re always attributing it to investors. That’s only part of the story, because international buyers when they buy real estate in foreign countries are cash buyers. So when they, when they look at that statistic, they get the wrong conclusion, they draw the wrong conclusion, because the international buyers are becoming a bigger part of the international markets, which are generally the ones you stay away from, by the way, you know,
Jason Hartman 9:01
Kerry, I remember years ago in my creating wealth seminars and on my creating wealth podcast I used to discuss and I should bring it up again, because it’s interesting to look at things like that and look at them again now. And Milken Institute report where Michael Milken, and Jeremy Siegel wrote a very interesting report about how we don’t have an asset surplus in the world, we have an asset shortage in the world. And when you look at all of these other countries, that, you know, we have, we have more and more people around the world coming into the middle class. You know, estimates say that globalization has lifted at about 300 million people out of poverty. And, you know, certainly China’s the biggest place where that’s happened and there are many environmental problems. And you know, listen, I’m not moving to China. Okay, you know, there there you you can’t access Facebook or YouTube in China. My God. Are you kidding me? That’s absurd. Okay. So it is great as, as China is doing with a lot of this stuff. And then you add that to the demographic problem they have, you know, with it, which is an outgrowth of their one child policy in 15 years, China has a huge, huge demographic problem facing it, meaning that there just aren’t enough young people, you know, you’ve got to have young people coming in to support the older people as as they start to age and retire. And, and, you know, granted, there aren’t there’s not much in the way of entitlement programs in China, like there are here, but as people age and get out of the workforce, and need more medical care, what are you going to do with all these people? I mean, China, China has an incredibly big problem facing it. You know, there’s a huge shortage of women over there. When you have a bunch of men who don’t have access to women. That’s like a prison situation. It is not good.
Kerry Lutz 11:04
Like Alaska.
Jason Hartman 11:05
Yeah. It’s it’s not a good thing. Yeah. Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday.
Kerry Lutz 11:18
I agree, the collapse, but it can happen anytime, just like in 1913. Nobody expected World War One to break out six months later. And there it was. And then they thought it was going to end right away wasn’t going to go on for four or five years. And there it was, went on for four or five years these things happen. And they happen very quickly. But on to the next thing, had a listener ask her name was June, am I better off with multifamily housing, pulling up money with friends and family buying a housing complex 10 2030 or even more units? than I am just buying up? single family houses? And I’m sure that’s a question you get, get asked kind of regularly. Jason, what what’s your take? Right, right.
Jason Hartman 12:11
Well, I like when it comes to I of course, love income property, any, any real estate that produces income, I think is far and away the best investment going. And then within the income property category, of course carry you could have office buildings, you can have retail centers, you could have apartment complexes, single family homes, you know, a bunch of other things, but those are the main ones, right? And, and so, I like housing the best, because at the end of the day, everybody needs a place to sleep. You know, they say there are three common human needs at the bottom of Maslow’s hierarchy of needs. And those are food, clothing and shelter. So let them rent that shelter from you. Housing is needed, they can outsource call centers to India and the Philippines, lessening the need for office space in the US. They can outsource shopping to some extent and retail to the internet, lessening the need for retail properties. And we’ve certainly seen huge impacts on shopping centers, you know, with Circuit City going out of business Best Buy on the brink, and you know, JC Penney, Sears, you know, I mean, of course, this is always changing. And those problems are complex and multi dimensional, but certainly retails being impacted in a in a negative way by the internet. industrial properties. I didn’t mention that one. Of course, they can outsource manufacturing to where we were just talking about China, okay. But at the end of the day, the population of the United States is increasing. And and people only have three choices they can buy, they can rent, or they can be homeless. Okay? And one when I said that during one of my seminars, someone a smart alika heckler heckling me raise their hand and said, Oh, no, Jason, they can live with their parents. Okay.
Kerry Lutz 13:59
Yeah, that’s more and more now these days.
Jason Hartman 14:02
The Boomerang generation has Gen Y, right? But when it comes to single family versus apartments, first, the first thing you want to consider Kerry Lutz is diversification. There’s an old saying in real estate that all real estate is local. So you want to take the most historically performing asset class, income property, but diversify geographically. So if you were looking at a situation where you could only afford to buy one apartment building and I, by the way, I should disclose to the listeners. I own single family homes, and I own large apartment complexes to Okay, so I do both. But you’ve got to make sure first that you can diversify in hopefully three different cities. And my company helps people buy properties all over the country in markets that we like. So if a typical person came to us and said they had enough money to purchase $300,000 worth of real estate We would say, diversify that into three different cities, maybe Houston, maybe Memphis and maybe Atlanta, for example. And those are just examples. We have other markets as well. So buying one apartment building where all your eggs are in one geographical market can be risky. Now, if it’s a wealthier client, and they say they have $10 million to invest, they can buy three apartment buildings in those three different cities, three $3 million $3.3 million apartment buildings in those three different cities, and they would be geographically diversified. But I want to hopefully see them investing in three different market areas because one can have a downturn, while another is having an upturn. In a country as large and diverse as the United States. There are about 400 local real estate markets. And and and there is no such thing here as a national real estate market. All markets are local, all real estate is local. So the first thing is, can you diversify into three markets? That’s the first question, whether it be huge apartment complexes in three cities, or three single family homes in three cities. That’s one thing. Now the next thing is single family homes historically tend to appreciate much better than apartment buildings do because single family homes are not sold. Thankfully, based on the income they produce. They’re mostly sold by comparison, and comparison carry. When we get in one of these, you know, bubble markets, these feeding frenzies, where you know, rates are low and housing affordability is high, things start to get very illogical. And residential homebuyers that buy single family homes, they buy based on comparison, which can be way out of sync with income. And that can work for us as investors, because we can capitalize on seeing higher value appreciation in our properties, and maybe liquidate some of them and gain some nice capital appreciation at that point. apartment buildings, on the other hand, are sold based on the income they produce. So there you’ve got a more perfect market and a more educated buyer and a more educated investor. And whenever a market becomes more perfect, if you will, and I sort of put perfect in snarky quotations, okay, because Wall Street is sort of a more perfect market. And, you know, I hate Wall Street, I think Wall Street is the modern version of organized crime, okay. But, but But in a way, it’s more perfect because you have a stock exchange, and, you know, if you own shares an apple, you can’t call your stockbroker and say, Hey, do some creative marketing and try and sell my shares for more than they’re, they’re going for on the exchange is gonna think you’re nuts, right? Because you are done. Yeah, the exchange dictates the price period, it’s perfect in that way. But with real estate, you can add some creativity to the mix, and you know, a little bit of luck to the mix. And you can, you can really enhance the value of a property. So historically speaking, single family homes, more appreciation than apartments, however, conversely, here’s an apartment advantage with an apartment building, you can buy an under performing building, and you can add value to it more so than you can with single family homes. Here’s one example of that, you know, say for example, the apartment building has a laundry facility, but it’s not well operated. Not many of the residents in the complex use it or whatever, right? Well, you can go in and believe it or not just by, you know, improving the laundry facility, you can improve revenue there, and the apartment building is sold on a multiple of revenue. So you know, if it’s sold on an eight times revenue multiple, for example, if you can add $500 per month, that’s $6,000 per year, just for round numbers sake, we’ll make that 10 times multiple, although not many of them are sold at 10 times, you could add 6000 times 10 $60,000 in value to your property, just on a little small enhancement like that, where you can’t do that in a single family home. So so there are there are many differences to consider. They’re mostly, you know, most of our clients are buying single family homes. They’re simple, they’re easy to operate, they’re very easy to understand. They they historically will appreciate better than apartment buildings will, you know financing is is better. The and let me mention that one. One of the beautiful things about single family homes is the you can get a three decade long, fixed rate mortgage for rates. I say now Below the rate of real inflation. So effectively, you have a negative cost of borrowing, meaning you get paid to borrow. Because if you believe as I do, and probably you do, although I don’t know that the inflation rate is higher than the government would have us believe, okay, for sure. And in fact, if you believe that inflation rates are higher than mortgage rates, is the inflation rate higher than about four and three quarters percent, which is the rate an investor can borrow at, then you’re getting paid to borrow, but it gets even better. Because when we own income property, we don’t pay our own debts, our tenants pay our debts for us. So we outsource the debt to the renter. And then we borrow below the cost of inflation. And we fixed that rate for three decades. So Kerry Lutz maginness, it’s February 2014. If someone borrows and buys a single family home today, they won’t pay that loan off potentially, until 2044. I mean, just comprehend that for a moment, maybe maybe there will or won’t be a total economic or dollar collapse by then. But certainly, we all agree, there’s going to be a lot of inflation between now in the next 30 years. And that inflation is going to benefit us dramatically. Because it reduces the cost of our debt, it pays off our debt for us. But it also increases the price or the value of our commodities. And what is income property, what are single family homes and apartment buildings made of, they’re made of commodities. They’re made of petroleum products, they’re made of energy, they’re made of lumber, they’re made of concrete, they’re made of copper wire, they’re made of glass, and steel, and all of these great things. And so so that’s fantastic thing. Now, if you were to buy an apartment building, you can’t get a 30 year fixed rate loan, the longest you’ll get on an apartment building, and I have one of these on one of my apartment buildings, I have a loan amount that’s just over $3 million on one of them. And it’s fixed for 10 years, which I thought was about the most awesome deal ever, in a commercial loan. Because typically, you can only get it fixed for five to seven years. But my single family homes, they have 30 year fixed mortgages on the apartment building, it becomes adjustable after five, seven or if you’re really lucky, like I was on this one deal. 10 years. So that much better financing on the residential and less money down to usually. So
Kerry Lutz 22:41
So I your leverage.
Jason Hartman 22:43
So the answer to the question is that it depends on the investor. But you got to make sure you can be in three different markets, three different cities. Okay. And that doesn’t mean that the city, that’s a suburb of the main city, okay, it means a totally different market, you know, we say, diversify geographically. And we help people do nationwide investing. And so, so three markets, you got to be able to afford to be in three markets, at least, if not, you know, four or five even. And then all of the other factors that I mentioned, you know, if you’re, if it’s a wealthier client that has 10 20 million $30 million to invest, then hey, they don’t want to mess around with little single family homes. Okay, it’s sure. It’s just
Kerry Lutz 23:26
small potatoes for economies of scale.
Jason Hartman 23:28
Yeah, economy of scale, and they’ll take a lower return to have ease of management, and that’s what they all get. But if it’s the the typical middle class person, and they want to buy six or 10 or 12, single family homes for 80 to $120,000 each. Oh, that’s the way to go.
Kerry Lutz 23:50
I mean, yeah, no brainer,
Jason Hartman 23:51
you know, you you can buy two single family homes in three different cities. And you have a nice diversified portfolio and, and you’ve got, you know, $600,000 worth of real estate working for you. And then after that, try and buy two more every year and by golly, in five years, you got a you got an empire you know,
Kerry Lutz 24:11
yeah, we that’s what reinvesting
Jason Hartman 24:13
that’s what we help do. That’s what we help people do.
Kerry Lutz 24:16
And, and that sounds like the way to go because you can’t gamble on when this collapse if it’s gonna happen, or when it’s gonna happen.
Jason Hartman 24:25
I’m like most people that are out promoting real estate, those are gurus, you know, they just go out and they say, hey, buy real estate, buy my course, sign up for my coaching program. Well, we actually have properties that people can buy, we’re a real estate broker. So what we say has to be conservative enough to come true in real life. You notice we’re not talking about going out, buying a property tomorrow, flipping that property and making $200,000 in a month. Okay, you know, this is this is the long term, real way to invest. It’s not a bunch of hype.
Kerry Lutz 24:58
So if you want To get started in this, Jason Hartman University is really a great place to go. Just go there. Great place to get started. get your feet wet. And then when you’re ready, you talk to one of Jason’s counselors, and you’re on the road. Alright, Jason, Hey, thanks for being on as always, and we’ll talk to you again next month. You’ll be well
Jason Hartman 25:21
sounds good, happy investing.
Announcer 25:28
This show is produced by the Hartman media company All rights reserved for distribution or publication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered 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 Empowered Investor network, Inc. exclusively.