In this Flashback Friday episode of the Creating Wealth podcast originally published in February 2015, Jason Hartman discussed information about the Mastermind groups and covered a USA Today article on investment and discusses the best real estate investments. He also reviewed his 10 Commandments for investing, talked about the US dollar, and the factors that make a market landlord-friendly.
He mentioned conflicts of interests involving financial advisors, issues regarding minimum wage, and how there truly is no such thing as passive income.
The Venture Alliance Mastermind Group
Jason Hartman begins the podcast by stating that he has been traveling and has recently participated in an event with the Mastermind group in Tampa. He notes that he is learning a lot and that this is what happens when bright people are put into a room together where they’re allowed to brainstorm.
He mentions that he’s excited about the launching of a new Venture Alliance group that has been developed to help investors solve their problems regarding Commandment 3, maintaining control of investments. He states that the bright people in this group have come together with their variety of resources to be your financial friends.
Hartman explains that yesterday he met with a Mastermind group, all of which were in the real estate business, providing inventory as well as investing in properties. The meeting involved a business to business discussion rather than those concerning business to consumers.
He notes that during the meeting, he thought about all the real estate that his group was responsible for and how the eighty people in the group generated at least $700 million per year combined.
Minimum Wage Increase Causes Inflation
When walking out of his hotel room recently, Hartman notes that he came across a front-page article in USA Today saying that bad financial advice costs billions. He states that in the article, it explained that Obama was calling for new rules for financial advisors.
Hartman mentions that new rules always seem to backfire and that most people aren’t able to see the big picture. Entitled people want the government to do things for them, and in the small picture it looks like a good move, but in the long-run these things work poorly. He notes that the issue with minimum wage increases pressure, and though he’s all for people earning money, he explains that citizens decide what they’re worth in society. He also refers to the Seattle McDonalds that began working with robotics when minimum wage was increased to $15 per hour.
Returning to the article, Hartman states that Obama is calling for a new rule for financial advisors that would require them to put client interests above their own. Hartman asks how that would work or be enforced and explains that if people want to take advantage of their clients, they’re going to find a way to do so.
Citing the article, Hartman mentioned that Obama noted that retirement is especially vulnerable, because there are advisors who receive backdoor payments by other parties to steer clients in the wrong direction.
Give Yourself Small Rewards
Hartman states that when investing in income properties and looking for the best real estate investments, people often make sacrifices to buy more properties. It’s important to ask oneself whether they’d rather make sacrifices or go on a nice vacation, and if it’s doable to make those sacrifices today for a better future. Hartman advises living somewhat conservatively so that you can work on bigger things. He explains that capital formation creates wealth, and it does so by saving and delaying gratification.
He refers to a telescope as a metaphor. If you’re looking at the moon through a telescope and you accidentally hit the scope, the view is knocked zillions of lightyears out into space. When Archimedes said,
“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”
He may have been referring to the concept of leverage, Hartman says. When you form capital, you increase leverage. Don’t be a spendthrift but balance your spending with the concept of rewarding yourself with small, reasonable things. It’s beneficial to afford ourselves small celebrations. In order to trick our minds, we can reward ourselves to encourage the behaviors we want to see in ourselves.
Hartman explains that with Wall Street investments, there are a lot of lawyers involved. There are a variety of facets that need to be looked at, rather than just the advisors. If they have not ripped you off yet, you have to get past the middle people, investment banks, boards of directors, and conflicts of interest. The executives all want to pay themselves huge bonuses and all of that whittles away profits.
Discussing Commandment 9
Hartman mentions that Commandment 3 was discussed but that it’s also important to consider Commandment 9, “Thou shalt only invest where there is universal need.” He states that according to Maslow’s Hierarchy of Needs, people need three basic things: food, clothing, and shelter. He advises listeners to let people buy or rent that shelter from them.
He notes that office space is less needed and can be outsourced overseas. A lot of business owners outsource their work to the Philippines, though Hartman states that he has not had success with offshoring his work. He knows people that claim it has worked, and there are plenty of people who send their jobs to both India and the Philippines, but it’s important to understand that a lot of office space demand has been sent to people’s homes.
Hartman recalls when he was a member of the National Speakers’ Association in Tempe, AZ, and he notes that during a meeting he had one speaker was asking questions about running her business because she did her work out of her home and worried about how it would look to her clients. This event was at least fifteen years ago, and now it isn’t such a big deal to work from home. Hartman states that about half of the population works from their homes and that three or four years ago, he gave up his last physical office and had his work become all virtual.
Americans Are Losing Office Space
Hartman mentions that a Newser article he read stated that Americans are losing their office space. The American workplace has been getting smaller for years. In 2010, office spaces had about 225 sqft for each worker. In 2012, it dropped to 176 sqft, and according to the New York Times, it’s expected to continue lowering to 151 sqft by 2017.
He states that things are looking even tighter in New York City, as a survey found that the average office space in the city was 120 sqft, with maximum spaces at 178 sqft and minimum spaces at 93 sqft.
Hartman mentions that it’s important to think of percentages, and how everything should be quantified in relevance. If five years ago, the average was 225 sqft and is now 176 sqft, it’s a big difference from a percentage basis. If you’re invested in office spaces, Hartman says, you’re going to see how employers aren’t tolerating big offices anymore. Business trends are moving to mobile, virtual workers.
He advises listeners to stick to investing in housing. People tend to think they’re sophisticated and buy shopping centers or high-rise office buildings, but humble, single-family homes continue to be the best asset class.
Gold Bugs and Other Forms of Currency
Hartman states that doomsayers have predicted that the US dollar would die, and some of the people he interviews think that the dollar is at an end. Gold bugs and people involved in Bitcoin say that the dollar is doomed, even though it’s the most crowded trade in the world. Hartman mentions that David Rosenburg states that there are plenty of reasons why the greenback should be the currency darling. We may be there in terms of the US dollar story, as it is long in the tooth, but not totally over.
Hartman explains that Rosenburg is saying that the dollar is old news and that it doesn’t look good. Perhaps it’s a bubble, but Hartman reminds listeners that the dollar is still backed by the most powerful military the world has ever known. If gold bugs and Bitcoin participants think that the government and central banks are going to stand by while people destroy or allow the destruction of their currency, Hartman believes they are out of their minds.
He mentions that they often say that the government can’t control gold or Bitcoin. They don’t know how much gold people have stocked away, but they certainly can control it. While Hartman understands the argument, he points out that the government could make gold or Bitcoin illegal if they so wanted.
Those in favor of Bitcoin say that it is unique and has blockchain, but Hartman says, “so what?” Blockchain is open source, and the government can make a new cyber-dollar tomorrow. They can stamp a label on it, name it whatever they want, and there it will be. He points out that this is important because the ultimate business plan of the government has to be inflationary. They weren’t defying gravity until about a year ago.
US Dollar Will Remain the Reserve Currency
Hartman states that these alternate currencies will not last, and they will fall apart in a connected world. The dollar will probably be the reserve currency for many years, or even many decades to come. It will slowly be inflated away, Hartman says, unless there’s an incredible technological revolution that is evenly distributed to all classes around the world. This may happen, and it might save us from the inflationary pressure. For real inflation, the government does not need to continue its poor management. It’s already baked in, he says. The only thing that can stop it for the long-term is technology.
Personal Commandments For the Best Real Estate Investments
Hartman mentions that he has been thinking about his commandments lately, and that it’s time to review them. He had a speech with the Mastermind group yesterday and reviewed Commandment 4 there: “Thou shalt use prudent financial planning techniques.”
He explains that he wrote his ten commandments over ten years ago, and it’s amazing how they’re written in a way the Constitution was supposed to be written, with abstract flexibility where it can still apply 200 years into the future. The commandments are applicable in all market cycles.
He states that while Commandment 3 points out that Wall Street is evil, Commandment 4 highlights something good that they bring to the table: financial planning. Wall Street brings about the concept of financial planning, though, rather than diversified planning.
Hartman notes that diversification perpetuates the wealth that someone already has. Concentration, betting the farm, creates wealth for people.
He mentions that he read How to Win Friends and Influence People at the age of seventeen and in the book, Dale Carnegie advises readers to,
“Put all of your eggs into one basket and watch that basket.”
He states that as an investor, we can do both and have the best of both worlds with the best real estate investments. All real estate is local, he says. As such, investors can diversify but still have all of their eggs in that asset class. You can own properties anywhere and be diversified into three good markets (any three).
Consider Your Goals in Financial Planning and Best Real Estate Investments
Hartman explains that it’s important to consider your goals in financial planning for your best real estate investments. Are your goals appreciation based, income based, or are you aiming for tax benefits? What is the goal, the time-frame, and what is your risk-tolerance as an investor? He notes that some investors are not sure about their goals, and in those cases, they are never put into highly risky markets.
Hartman states that he tries to put unsure investors into middle grounds, in markets and properties that are likely to have better appreciation potential. Some want better cashflow potential, and he explains that he takes more risk-tolerant investors and helps them develop a diverse portfolio. If they’re conservative, they go toward the cashflow market.
He mentions that many people take personality assessments into account regarding their identities. Many listeners have studied the Meyers Briggs, DISC, or COLBE assessments and found something that represented them. Hartman’s team attempts to quietly assess the personality of the investor to guide them toward their best markets, whether they’re more hands-on or relatively uninvolved with their properties.
No Such Thing as Passive Income
Hartman states that there is no such thing as passive income. It doesn’t exist, and truly passive income is a unicorn. Every form of income requires some kind of work, and income properties are as close to passive as can be. Investors can be as engaged as they want to be, and his team does what they can to match these investors with the right market and local market specialist for the best real estate investments possible.
He mentions that Commandment 5 says, “Thou shalt not gamble.” Every investment must make sense the day you buy it or don’t buy it at all. If you’re looking to throw the dice and gamble in big appreciation, Hartman says he wishes you luck, but that this isn’t the sort of thing his company does.
Commandment 6 says, “Thou shalt diversify.” Keep all of your eggs in one basket and diversify geographically. Hartman notes that up until the last downturn, the worst economy in seven decades, there was not a national downturn in housing between those points.
Commandment 7 says, “Thou shalt be area-agnostic.” Hartman explains that it’s important to avoid becoming attached. Be willing to shift markets if necessary.
Hartman states that there are thirteen fundamentals to consider when it comes to finding landlord-friendly markets. His team looks at:
- The Cost of Living
- Regulatory Climate (growth, rent control, taxes, etc.)
- Overall Quality
- Real Estate Market Trends
Hartman states that his team searches for landlord friendly markets, and for them to recommend a market that isn’t landlord-friendly, there has to be something significant to offset the unfriendliness of the market.
For example, he says, Chicago is not a landlord-friendly market, but the offsetting factor that makes it desirable is the appreciation ratio and rent-to-value ratio.
Hartman closes by explaining that the path to progress is considered to be growth in population. This is why areas that are deeply blighted are not on the radar. For example, Detroit has some signs of life, but Hartman states that he is not convinced the market is doing well in the city. All of his theories, in order for them to work, require a stable increase in the population.