In this episode of the Creating Wealth podcast, Jason Hartman discusses the news regarding economic optimism under President Trump, as well as his predictions for the continuing growth of the economy. He also mentioned the concept of the Wheel of Life, and what to look for when relocating to a new area, including the income tax rate and property tax rate of a desired location.
Rich Dad Advisor Ken McElroy joins the podcast to talk about some of the most common real estate investing mistakes he sees, and gives reasons for why it is unwise to simply buy whenever an investor feels like buying new pieces of real estate. He offers various tips for real estate investors on their property management choices based on his real estate success spanning two decades.
Ken McElroy will also be speaking at the upcoming Meet the Masters of Income Property in La Jolla, California this January.
Jason Hartman on President Trump
Hartman begins the episode by mentioning that he understands why some people dislike or even hate President Trump. He says crazy things that rub people the wrong way and it’s understandable that many American citizens are not a fan of him. He also states that there is a possibility that his ramblings and shocking statements might be a stroke of genius that the president has used to gain control of the media.
Hartman explains that even though he is not well-liked, he is likely a good asset to the economy. He can be a benefit to our economic growth and people can still hate him on the same page.
He explains that though he has been wrong about things in the past, like interest rates, he has been correct in many of his predictions, including rental rates. Hartman predicted over a year ago that despite President Trump not being well-liked, he would be good for the growth of the economy.
The GOP tax bill is going to pass, and there is a good deal of economic optimism surrounding it. Hartman explains that this new bill might not be great for everyone, but that there is a strong chance it will be a benefit to most of the Creating Wealth listeners.
People who own expensive homes in areas with both high income tax and property tax are likely to suffer due to parts of the GOP tax bill, but that there may also be benefits. The bill is complicated and not easy to navigate without extensive tax knowledge, Hartman explains.
He also states that if investors own a good deal of real estate, the most tax-favored asset class in the world, they’re going to benefit from the features outlined in the bill.
Prime Features of a New Move
Hartman discusses an incident that took place after he visited one of his storage units. Because of owning several companies and needing to store information, he pays a good deal of money in storage fees. During his visit, he found a big box of old photos, bought a photo scanner, and scanned all his photos. While scanning, he found a photo of his meeting with Arthur Laffer, former member of President Reagan’s Economic Policy Advisory Board, and inventor of the Laffer Curve.
Hartman states that he sent the photo to his guest booker and would like to have Laffer on the show at some point.
During his reflection of the storage unit and photo digitization, Hartman mentions the desire to move again, as he has moved several times and enjoys giving new places a chance.
He moved to Las Vegas roughly a year and a half ago and while he doesn’t love Las Vegas, he does love the fact that Nevada is a “no income tax” state.
He advises listeners to try finding other states to live in that offer either no or low-income taxes and property taxes. The low costs of living and low tax states are an excellent way to plan life.
GOP Tax Plan and Economic Boom
Hartman predicts that the new GOP tax plan is going to take advantage of the Laffer Curve in the sense that the Laffer Curve points to an optimum economic position. There is an economic “sweet spot” outlined where the economy is doing quite well, and the government has incentivized all the players in the economy. Everyone is included in this, as everyone makes decisions based on their own self-interests.
The GOP plan is likely to make the economy boom more than it already has since the days past the recession. This means that there will be increased revenue for the government, even though the projection predicts an increase in both deficit and debt. Hartman mentions that these factors are very hard to predict.
Hartman explains that the House of Cards game that the government plays, creating their own money out of thin air, could go on for a great deal of time.
He has been on what he refers to as an “interview binge” regarding the topic of cryptocurrency, where he has interviewed as many experts in the field as he possibly can, and it has led him to make predictions of his own.
He predicts that cryptocurrencies will not work out very well, that is until and unless cryptocurrencies are backed by our government and or Federal Reserve as well as the big governments of other countries. Only then will cryptocurrencies have true success. He also mentions that it is early in the game to be certain.
CNBC on Economic Optimism
Hartman introduces a short video by Steve Liesman of the CNBC financial channel. During the video, Liesman and his co-hosts discuss President Trump’s changing approval rating as well as how it relates to economic optimism.
There has been a surge in economic optimism, and it has aided President Trump’s approval rating according to the CNBC’s survey, which has been conducted for over the years.
According to 51% of the population, the economy is doing great, and has surged since the start of Trump’s administration’s beginning.
Out of the US population, 41% say that the economy is going to get better within the next year, and they’re upbeat about future conditions.
In relation to this, President Trump’s approval rating is up four points in the positives, and the negatives are down three points. Liesman states that Trump is underperforming relative to the economy.
Trump already had a net positive of 43-41, and it has become 47-43, a little wider than it was. His approval is greater regarding the economy than it is regarding his overall performance.
He had a bad summer, but his approval has come back quite a bit, with a -7 overall, and a positive four points in relation to the economy.
Republicans stepped away from Trump in the past, but they’re coming back with more positivity, though very little of Trump’s overall approval is not related to the new tax plan.
The GOP tax plan has not polled very well, and remains tepid even among Republicans with only a 56% rating. There is a large portion of “don’t knows” related to the plan, at 30%. This could have a lot to do with the population not knowing the details of the new tax plan.
5 Year Plan and Meet the Masters
Hartman reminds listeners that the 5 Year Plan contest is ending. For more information about the rules of the contest and the prizes listed for the winners, please visit www.jasonhartman.com/contest.
Also, the Meet the Masters of Income Property event is set to take place January in La Jolla, California. You can sign up or upgrade your tickets to attend a dinner with Dr. Ron Paul at www.jasonhartman.com/masters.
The Wheel of Life
Hartman mentions that he spoke at Ken McElroy’s annual retreat last week, where he gave a speech about the Wheel of Life, a concept he learned from Dennis Wheatley, one of his four great mentors.
The Wheel of Life is about balancing one’s life by using a 1-10 rating system to teach people how to make an even wheel regarding the factors of one’s life.
Steven Covey talked about how the wheel can have seasonal imbalance and still be acceptable so long as the imbalance is not permanent. Even if a new project is started, and things are not even for a while, try to correct it and move on with life.
Speakers don’t usually discuss the size of the wheel, though. Hartman mentions that if you rate yourself as a “1” on every aspect of life, the wheel will be round but quite small. He advises listeners to have larger wheels, live bigger lives and engage in adventures. Bigger wheels can be more stable when it comes to rolling over cracks in the road, both literally and figuratively.
Ken McElroy on Mistakes
Rich Dad Advisor Ken McElroy has over two decades of success in real estate investment and development. He has over $700 million in investments and has written several books on the subject of real estate investment as well as hosting audio programs on how to find and keep good tenants and how to get bankers to say yes.
His company has a low turnover rate and he has two circles of employees, the corporate and onsite employees. With 10,000 units, his company employs just under 300 people. Each year, he schedules a retreat where he and his employees study a book together to improve productivity.
He mentions that most of the time, the two biggest real estate investing mistakes he sees is: getting caught up in the flipping hype, and letting in the wrong tenants.
He explains that his company almost never sells properties, as he strongly prefers the buy and hold cash flow method of investment.
Hartman mentions that people who get involved with house flipping have spending money, but people who practice the buy and hold method of investment have real wealth.
McElroy states that finding a good real estate deal is the hardest part of investment, and that people who get caught up in flipping pay a lot of money to the government when they flip and sell properties.
In his career, McElroy did condo conversions and projects fifteen years ago and it took a lot of effort to sell them. They were successful, but once the selling was complete, there was no real estate left and the company shrank because there was no revenue. He had to buy more properties to keep his career moving.
At this point, he is close to having $1 billion in assets by buying properties and creating cash flow. He states that when investing in properties, there will be corrections and concessions, and occupancy might go down, but if you’ve got well-positioned assets, you’re going to last through the bad times.
Hartman advises against investing in super-cyclical markets, nothing in expensive, over-populated cities like Los Angeles and San Francisco.
McElroy agrees, having invested in properties in Phoenix and Dallas. He has properties that are over 20 years old, and needed upgrades. After upgrading, his properties are nice, with gates, clubs, gyms, and sometimes pools.
Bad Tenant Mistakes
To avoid making the real estate investing mistake of letting in the wrong sort of tenant, McElroy runs criminal checks, credit checks, and sex-offender registry checks on all his potential tenants, and even with 10,000 units, he has not had to evict many people. He states that when you find a good family that wants to live a quiet life and pay their rent, everything works out well compared to the opposite.
He explains that he has made mistakes in the past and learned from them to develop the criteria he has for allowing new tenants to move into his properties.
He mentions the importance of choosing good tenants from the start, as many problems can arise when bad tenants move in, and it can take a good deal of money to evict them in places like California.
Hartman mentions that in his network, there are A, B, and C rated properties available, but that he tries to avoid selling the C rated properties.
Though both Hartman and McElroy state that C rated properties can work out well, the averages point to the idea that better properties bring about better tenants.
McElroy explains that he has over 30,000 apartments, and that two C rated properties in particular stood out to him as being troublesome. One had a police substation in the rental office and the other had a policy that made it to where police only visited the area in pairs.
He recalls visiting a unit that had an AK-47 propped against the wall by the front door and with this unit came gang and drug-related issues for management to handle.
He notes that the properties on either side of that unit had no problems, but the one in question was rented by a wheelchair-bound drug dealer. He’d become wheelchair-bound when he was shot while dealing drugs, yet he didn’t stop his behavior and had the police watching him.
He warms listeners to be careful who they let into their units, because one bad tenant can cause a lot of problems, including the influence they have on convincing good tenants to move out. It can happen with any property, even highly-rated ones. Be careful which tenants are chosen to live on your properties to avoid common real estate investing mistakes.