In this Flashback Friday episode of the Creating Wealth podcast, Jason Hartman revisited Episode 111 from October 2011. He opened the episode with Brittney and the two discussed the properties she visited in Phoenix recently, the weather, California as a failing state, an upcoming discussion with Gillian Tett of the Financial Times, and several key properties.
Hartman then interviewed Robert Kiyosaki, author of the Rich Dad book series and his newest book Conspiracy of the Rich. Together, they discussed the benefits of financial education, as well as key points in his book, and why financial planners don’t always have their client’s best interest in mind.
Arizona Properties Going Fast
Jason Hartman begins the episode accompanied by Brittney, who has been on the show in the past. Brittney states that two days ago, she visited her hometown of Phoenix, AZ to look at new property offerings. She mentions that it was 113 degrees in the area, and Hartman notes that California has great weather, but he finds it boring. He states that he enjoys storms and weather changes, and while he wants to move, he wonders if he’ll miss the weather.
He explains that locals think that their weather is the best, and in Southern California, people say that Houston is too hot and muggy during the summer, but many people live in the area anyway. A lot of people are actually leaving California in favor of Phoenix. Hartman mentions that California is becoming more of a failed state, with huge financial problems.
Returning to Brittney’s trip, she states that the Phoenix market is hot both figuratively and literally.
Hartman notes that home prices have been cut in half lately and recalls that he was recommending Phoenix about four years ago. He states that he bought one property in the area, and that the market went way up afterward and then came way down again. As an opportunist, he explains that it is time to look at this market again, and the rent-to-value ratio is good right now.
Brittney mentions that she viewed some of the properties, and that half of the ones she viewed are now sold, even though only two days have passed. Hartman agrees that properties are moving, and states that it is now cheaper to buy a home rather than renting in the Phoenix market.
Brittney explains that there are many great properties still available, and that while some need a bit of rehab, many already have a tenant lined up at the time of purchase. The properties are relatively new, built since 2000. One property she visited was in Mesa, AZ and is selling for $107,000. The projected rent is $950, and it has both a 21% ROI and great curb appeal.
Hartman reminds listeners that if they’re curious about the projection of one of the properties, the information is available at www.jasonhartman.com/properties. Click the map, choose your state, click on the desired city, and then view the properties available in the area. Brittney notes that the Phoenix properties tend to appear close to the Apache Junction due to the map set-up, but they’re in Phoenix.
Hartman explains that when viewing a property on his website, a one-page performance projection comes up, and it offers projected ROI, before and after-tax benefits, cash flow, projected rent, square footage, and all of the necessary details.
The Market, the Economy, and Interest Rates
Hartman mentions that a lot of markets are heating up, and that if you’ve been following the news media lately, it’s apparent that buyers are out. He states that he is not very bullish on the general economy, but that in many markets, bargain hunters are buying quite a lot of property, sensing a bottom or a near-bottom ahead.
He states that he recently interviewed Gillian Tett, an award-winning journalist at the Financial Times, who recently wrote a book entitled, Fool’s Gold. He explains that real estate is a multi-dimensional asset class and that as of now, interest rates are quite low. An opportunity is present because of treasury auctions. China is not buying up US debt like they did in the past, which means that we are soon going to see higher interest rates. This is partly due to the fact that the US dollar is being debased. Hartman notes that it’s best to lock in rates when they’re low.
Gold is Not an Investment
Hartman reflects on recent activity in the gold community and mentions that he gets a gold newsletter. Every time he gets this newsletter, it says that gold is getting ready to do something big. He states that gold and silver are okay, but that the are not an investment. People are not going to be able to grow wealth with them, as they are basically money. Gold has not tripled in price like the community said it would.
He notes that one of the headlines stated that, “Gold will hit $1,500 within five years.” He explains that a good income property will give you a way better return. Gold doesn’t have tax benefits, and it can’t be financed. It is not an investment. Gold is better than dollars, but not an investment.
This being said, Hartman mentions that he has an interview coming up with Howard Gruff, who is majorly involved in the gold community.
Recommendations from Robert Kiyosaki
Hartman introduces Robert Kiyosaki to the podcast, the author of the Rich Dad series, the Real Book of Real Estate, and his newest book, Conspiracy of the Rich. When asked about his views on the economy and his recommendations for success, Kiyosaki states that it’s important to be financially educated. He notes that the people who are hurting financially today are those that are lacking the benefits of financial education. He also notes that our banking leaders do not put out good advice for us to follow, so the best thing that we can do is educate ourselves. Kiyosaki attributes his success to learning on his own, rather than listening to guys who sell mutual funds.
Hartman mentions that bankers and people who sell mutual funds often advise clients to stay long in the market, even though it doesn’t work.
Kiyosaki agrees, stating that this plan has never worked and leads up to financial suicide. He wonders aloud why people would put their money into such volatile systems as stocks, bonds, or mutual funds. They’re good for short term investments but they are not designed to go long. Kiyosaki mentions that Jim Kramer is a trader and that he is in and out of the market, even though financial planners are still advising to go long.
The Issue with Financial Planners
Hartman agrees but wonders why mainstream financial planners even offer that sort of advice. He asks if it’s due to laziness, or due to the way brokers were accused of trading or churning accounts in the past. Now, in a managed money model, they’re advising long on everything and the industry does not work that way.
Kiyosaki notes that this topic was covered in his Conspiracy of the Rich book. Listeners can find more information about it at www.conspiracyoftherich.com.
He explains that there’s no mistake about it, these financial planners are advising clients to go long because it’s how they get money. The same goes with savings accounts. The bank wants that money, and Kiyosaki advises listeners not to buy into these schemes. He states that the financial crisis was a long time coming and was on its way for years before it hit.
Hartman recalls receiving an email about Conspiracy of the Rich, and he read the single chapter that was available at the time. He notes that the subject matter was interesting, as was how Kiyosaki involved other people in his project. He developed a fascinating model, says Hartman.
Conspiracy of the Rich
Kiyosaki explains that the same sort of financial crisis has happened before throughout history, and he thought that it would be interesting to write a book on history as it was unfolding. He states that he wanted the people reading to see that this has happened before and that it was not a mistake or accident. The whole financial model is based on bailing out the banks, and their aim is to get your money legally, via the government.
He states that there are four things that make people poor every single month: taxes, debt, inflation, and retirement plans. These factors make middle class people poor, but people on Kiyosaki’s level rich. This is because he’s financially smart, and with his education he can make millions of dollars and pay almost zero back in taxes. He owns thousands of apartments and uses debt to get rich. Because of the way he developed his plan, he doesn’t need gold, silver, or a retirement fund.
Hartman adds that the 401k retirement plan is one of the worst deals going around at this time, and Kiyosaki agrees that it’s a disaster, but there are people who trust the “go long” idea because their financial advisor claimed that it was a good idea when it wasn’t, further proving the benefits of financial education.
Opportunities for Prudent Investors
Hartman states that we are living in an interesting economic time, because of government spending and fake fiat money. He inquires about Kiyosaki’s thoughts on the opportunities available to prudent investors.
Kiyosaki keeps it simple, stating that if you’re an idiot, you’re going to lose your money no matter what you buy. There are four asset classes, and the first is business, with the richest people in the world being involved. Real estate is the second asset class. The third is stocks, bonds, and paper assets. The fourth asset class is commodities. Kiyosaki owns all four and is a student of all four. He states that you have to learn or you’re going to lose your money, because getting lucky is not going to happen. He states that,
“Trying to get rich is like flying an airplane. You don’t just climb in and take off because you will crash.”
Robert Kiyosaki on Property and Debt
Hartman adds that people can make money in any medium of they know what they’re doing. He also asks if Kiyosaki thinks that this is a good time to be stocking up on properties and mortgage debts. He explains that one of his plans is to buy properties as packaged commodities, where the land is cheap or free. He buys at or below construction price and locks in a long-term fixed rate mortgage. When the commodities increase, it wipes out the value of the debt.
Kiyosaki doe not agree, and states that this method is counting on too much. He explains that if a property doesn’t cashflow, he doesn’t buy it. His view is to buy and increase the debt on a property rather than decrease it.
Markets and Jobs
Kiyosaki explains that if a person is not smart, they are not going to make it in the business world. He notes that real estate, like the economy, has a lot to do with jobs. One can buy the best properties on the marker in Detroit, and if the jobs keep leaving the area, you’re going to lose money. He only buys in places where the job market is strong, like Tulsa, Oklahoma City, and Houston because of the oil. As long as there’s oil, there’s jobs.
Hartman mentions that he has seen promotors push properties in Detroit and while it used to be an economic city, the population has been cut in half since then and he sees no future there. The same can be said for why he isn’t recommending properties in California.
A, B, or C Properties
Kiyosaki mentions that it’s also important to know if you’re buying A, B, or C properties. A is high end, B is in the middle, and C is the slumlord class. The people in A-class properties are getting crushed and you have to be highly-specialized to handle C properties with Section 8. He is strictly working with B properties and knows how to focus on his product.