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 then 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.
Jason Hartman: Welcome to the Creating Wealth show. This is Episode Number 254 and this is your host, Jason Hartman. Thanks so much for joining me today. Well, we’ve got another great show for you today. We will have actually two guests in this show. One is Harry Dent, who is on again. He’s coming back to give us an update on what’s going on with him and his thinking in economy. So, we will be starting with that in just a moment. Then we will have our land local market specialist talking with you about some special financing and special exclusive inventory that we have.
Again, one of the great things about working with us is we have exclusive inventory that you won’t find anywhere else in many of our markets, because we have worked out those exclusive deals with our providers, our vendors and I think you’ll like it. So, you’ll hear about that towards the end of this show today. So, let’s go ahead and jump right into it with Harry Dent and then I’ll be back to talk to you about a few things including our St. Louis tour. I hope you’ve signed up for that and of course that is May 18th through the 21st, St. Louis and St. Robert, Missouri. You get to see both markets, and let’s talk to Harry Dent and I’ll be right back after that.
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Jason Hartman: My pleasure to welcome back to the show, Harry Dent. His latest book is the Great Crash Ahead. He’s out with some big predictions for 2012 and beyond and as you know, I’m a big follower of Harry’s. I have been for many, many years and I love the way he looks at demographics and how they impact the economy. Harry, welcome. How are you?
Harry Dent: Nice to be back, Jason.
Jason Hartman: Well, good to have you. You have a pretty different view then a lot of people in terms of your view of inflation and so forth. What do you see ahead for the economy?
Harry Dent: Well you know, it starts in our book, the Great Crash Ahead, which is, you know the latest book came out at the end of September, but we’re different across the board. We — we look at demographics as the private driver, not only economic growth but inflation and deflation. Young people are inflationary when they enter the work force and costs so much to incorporate, and older people kind of downsize and deflate everything. And you know, we have these booms and [inaudible], and we’re saying, look this boom from 1983 to 2007 driven by baby boomers, moving into the peak spinning, it’s over. And the Fed is acting like, well we can just stimulate the economy and get it back to normal. No, you got 92 million baby boomers. They’re going to save more, borrow less and spend less, no matter what you do with all your fancy stimulus and stuff. So, if you — they’re fighting a losing battle there.
The second thing we point out in the book is that everybody’s looking at the Government debt and trembling at 15 trillion growing towards 25 trillion in the next decade. We have 42 trillion in private debt. We’ve created four times as much private debt as Government up until 2008. Now the Government debt’s soaring because they’re having to deal with the downturn. Private debt, when it de-leverages, causes deflation. History’s clear on this and when there’s a lot more private debt, which there always is than Government debt, then the private debt ultimately de-leverages more than the Government debt goes up as the Government is trying to stimulate the economy and running deficits due to a bad economy.
So you know, we’ve been saying sooner or later the Government’s going to lose this war. It’s going to take tens of trillions of dollars of stimulus to offset these debt trends and demographic trends of the next decade, and we end up like Japan and the only thing about that is we can’t even end up like Japan because we came in here so much in debt, we don’t have the ability to stimulate as long as Japan did. So, we see another crash coming and — and — and it’s just a matter of when the bond markets realize that the U.S. and the ECD can’t bring their economies back to normal with all this stimulus and realize it’s a losing battle like they already did with Greece, Italy, Spain, Portugal, Ireland and then you know, this sort of stuff. And somebody’s going to realize this one day in Japan. They’ve been trying to come out of a downturn for 22 years, doing what we’re doing and — and they’re not coming out of it.
So — so, we tell people, look you’ve got to prepare for another crash and — and you know, each bubble goes a little higher. We’ve had three bubbles. The one that peaked in 2000, the one that peaked in 2007, now sometime in 2012 or maybe early 2013, we got another bubble that’s going to peak and each crash goes lower. So, if the last — you know, first crash was fifty something percent and the last one was you know, 60 percent. This one’s going to be 65 to 70 percent.
Now, here’s the big difference though since the book came out. We did not expect the ECB in Europe to come up with 1.3 trillion and — and QE2, you know, stimulus. They — they were talking austerity and they’re still forcing these countries into austerity to you know, bail outs and stuff —
Jason Hartman: And austerity is what they need.
Harry Dent: Yeah, yeah, it’s what they need. I mean, the truth is the U.S. went to extreme austerity in early ’30s. In three years our debt ratios went from 200 percent to 50 percent, Government and private included. Iceland had the biggest debt bubble of any country, kind of hit the wall first, had no ability to bail themselves out of that. They weren’t in the Euro so they could devalue their currency, which countries usually do. They — they eliminated 67 percent of their massive private debt. Now they’re growing to three to four percent. Unemployment’s dropped down to six percent and looks like it’s going to continue to drop. They’re the only healthy country in Europe outside of Germany, and it’s because they dealt with their debt instead of kicking the can down the road. So —
Jason Hartman: Is — is — isn’t it amazing how quickly Iceland recovered? I mean, that should be a model for the rest of the world because they — they went bankrupt. They were basically bankrupt during the [inaudible].
Harry Dent: Yeah, they were more than bankrupt. Their debt ratios — their private debt was almost eight times GDP. Ours is like three times — four times actually, you know, Government debts one time. They’ve got the highest debt in the world. Ireland’s second in private debt. And so yeah, they were more than bankrupt. They — they went from a nation of fishermen to a nation of speculators and drew in all this capital from Europe. Well, partly because a lot of the capital came in their banks and deposits from overseas. They just said stiff them and — and — so again, they cut their private debt, which is by far the largest debt, way more than Government debt, by 67 percent and it’s still a bit high. And — and — and home prices, if you have to fall there, because they had a big inflation when they devalued their currency. Everything — they — they import a lot of stuff obviously, because they’re sitting on a rock of ice and — and outside of fish, they import everything else. So, they got hit by inflation instead of deflation like most countries, so home prices didn’t fall. So yeah, Iceland is an example. Yes, it may be painful but get the pain over. Take some short term pain like the Iron lady would, you know, Mar — Margaret Thatcher, and move on. And they’re moving on and the rest of Europe just keeps stepping into recession and more austerity and more deficits and more bail outs, and it doesn’t work.
It didn’t work in Japan. Japan bailed out instantly, never came out of the downturn. If you don’t deal with debt, which we call the winter season, you don’t go into spring. And Japan’s proven 22 years later, after a debt bubble peak and in housing and stocks and everything else, just like we saw, they’re still in winter. They still can’t recover and go into a new era and they’ve got the fastest Asian population.
So Japan is dead. Southern Europe is dead. Now — now the U.S. is going down the same path, if we just keep coming up with QE2 and then QE3 and then QE4. I think we probably will get a QE later this year because bond rates have gotten low, not just because the Feds pushed them down, but you had a flight of capital out of Southern Europe into bond markets like the U.S. It pushed our rates down even lower. So, as long as our rates stay down low and the bond markets don’t revolt against the Fed, like they did against other Government, the Fed will view QE3 if the economy is slow. Economy is not slowing now. We think QE2 will wear off about summer or so and — and then we probably will get a QE3, but I think that will be the last one. I think, you know, inflation’s going to become a threat. The bond markets — you know, how many times do you take Viagra and nothing happens and you not go hey, something’s wrong here?
Jason Hartman: Yeah, you just can’t keep — you can’t keep juicing the economy forever obviously, because —
Harry Dent: Yeah. Right.
Jason Hartman: — you can get massive inflation and devaluation of a currency.
Harry Dent: Well, although you lose people’s confidence —
Jason Hartman: Of course.
Harry Dent: — because I mean, there was a recent pole. Economists — 66 percent economists agreed that the stimulus had been affected but 81percent said, they don’t want to see any more QE. In other words, enough is enough.
Jason Hartman: Enough [inaudible].
Harry Dent: People are thinking they’re saying —
Jason Hartman: Yeah.
Harry Dent: — you can’t — like you said, you can’t — if you have to keep juicing the economy to keep it going, it’s saying the economy doesn’t want to grow. So you know, you — if you keep doing that like you say and you just run into inflation, you pervert the markets, you get bubbles everywhere. And that’s what we have, we just got bubble, bubble, bubble, bubble. Gold bubbles, silver bubble, oil bubble, commodity bubble, you know, emerging markets bubble, U.S. Stock markets bubble, bond bubble, junk bond bubble. I mean, this is ridiculous.
Jason Hartman: Life insurance investment bubble —
Harry Dent: Yeah, anything.
Jason Hartman: — I don’t know what it’s coming to. It’s unbelievable. We are very good at creating bubbles, no question about it. Here — here’s the thing, you know Harry, I — I thought you were really talking deflation the last couple of years counter to the trend. I mean — but — but you just mentioned inflation. Can you distinguish that for us?
Harry Dent: Yeah, well we have inflation terrible — here’s — here’s how to make it simplest. You got the Government inflating to fight deflation. When the banking system — and it was our private debt. It wasn’t our Government debt melting down like in Europe. It was our private debt melting down in 2008. We had their money supply contracted six percent. That’s real deflation, the first time since early 1930. The Government saw that and said, oh holy smoke, we’re going into great depression if we don’t really do something strong and hard. So, they’ve injected two trillion i8n the economy. They did tarp. They’ve done all types of bail outs, guarantied all types of loans, trillions of dollars of stimulus if you add it up. Let’s say it’s four to five trillion. Well, that’s gotten us back to three to four percent inflation and monies fly is now growing at four percent.
Well to me, if — if you’ve gone from minus six money supply to plus four, and they do a QE3 a little later this year, well who said that money supply doesn’t go to plus six or seven and inflation doesn’t go to five to six. I don’t think we can keep stimulating when you get inflation that high. They — the targets for the Fed are two percent inflation.
Jason Hartman: Right. And I’d say that real inflation, at least with food and energy quite a bit higher than the official members, you probably agree with me, but rather than heckle over that —
Harry Dent: Oh yeah, yes, definitely.
Jason Hartman: Yeah okay, all right.
Harry Dent: Now — now on the other hand, Jason, real quick, people omit that housing’s been the biggest deflator and we — I don’t think we count fully. You know there’s — there’s t5hings about equivalent rents. I don’t account for the level of housing deflation. So yes, you’re right. Food and energy and most things are higher than people think and more inflation, but housing, which is our biggest cost of living and mortgage borrowing, has gone down.
Jason Hartman: Right.
Harry Dent: Since [inaudible].
Jason Hartman: Right, right. And — and when you say equivalent rents, you’re referring to how the consumer price index calculates the inflation rate —
Harry Dent: Yes.
Jason Hartman: — with the equivalent rent issue.
Harry Dent: Yes.
Jason Hartman: But here’s the thing — a bunch of things you said. There’s so much there and we have limited time of course, but you know when you look at Japan’s lost two decades, they used to call it the lost decade —
Harry Dent: Yeah.
Jason Dent: — now it’s called the lost two decades, really moving into the lost third decade, Japan doesn’t have the reserve currency. They do have that huge demographic problem. They’re not replacing themselves. Their fertility rate is meager.
Harry Dent: Yes.
Jason Hartman: They don’t have immigration. We have a lot of young people in the U.S. We have GENY and that is a — a big, big issue, especially when you look at housing., because GENY is right now moving into a prime housing formation years and they’re going to consume rental properties or buy properties if — if they can. They’ve got a huge student loan debt bubble over their head, most of them.
Harry Dent: Yeah, and that’s going to burst.
Jason Hartman: Oh, absolutely. That’s a bubble we didn’t mention and that’s I — I think it’s almost a trillion dollars now. What are your comments on that?
Harry Dent: Well, first of all, you’re right. We have a stronger echo boom I call them then — then most countries in Europe. Not as strong as Australia and — and a few, but — but it’s still — that generation has never got as large and then its number of consumers and birth as the baby boom. That’s number one. Number two, that generation is moving into their peak in the next several years of rentals at age 26, but most of that generation is still in school, at college, and it will be many years before they move into their peak of starter home buying and then trade up homes.
So, they’re starting to buy homes, but — but the economic environment’s not good. Home prices are falling and credit’s hard to get. We think in about three or four years you’re starting to see, you know, a stronger trend in starter home buying, but nobody’s going to want big mansions. So, this generation is not large enough in the work force or old enough yet to offset the baby boomer’s downswing. I mean, we are spending way of analyses shows that the economy should slow from about 2008 to 2020. Kind of flatten out 2023 and then the echo booms starts to cause more growth than the baby boomer’s hard to climb. So, it takes a while to transition from the peak spending of one generation to the next generation, having enough momentum to offset their decline.
So — so, echo boomers are going to start to help it, but the — again, most of them aren’t even in the work force yet.
Jason Hartman: Yeah, yeah. Fair — fair enough. And — and the issue of Japan not having the reserve currency, so they can’t bail themselves out, Iceland couldn’t bail themselves out, The U.S., you know, for better or worse, we’re still in that position where we can print and — and force a lot of our debt —
Harry Dent: Yeah.
Jason Hartman: — on the rest of the world. It is a — a bully pole pit to some extent, but what are your thoughts about that?
Harry Dent” Yeah, I mean we can do that until the bond markets start to say no, this isn’t working. All we see is endless deficits and that’s what they said in Southern Europe. It — it stops working when people — again, if you’ve got 81 percent of economists who basically, mostly believe in Canes Economics, staying enough is enough. You know, citizens have got to be feeling the same thing. There’s a point where you just can’t keep doing this.
Now Japan, they don’t have the reserve currency. I mean, they do. They can buy their own bonds like we do, so they do have a printing press, but Japan’s been doing this since I think about 1998, consistently. Their bond rates are one percent. That’s the only thing that stopped Japan from being bankrupt. If Japan even had to pay three percent interest, their interest would take their entire Government revenue. Japan is a thug looking for a windshield. They are going to default. It’s a matter of whether it’s two years from now or 10 years from now, and when we come out of this winter season and you get higher inflation rates around the world, their rates are going to go up. The other thing Japan’s had that we don’t have — they had very high savings rates among their consumers. Well, they’re getting so old now in Japan with their negative demographics, that they’ve gone from 18 percent to like one percent savings rates.
So, at — at some point when people retire, they start spending down their savings. Japan’s not going to be able to sell their bonds to their own citizens. When they have to go out to world markets to fund their massive government debt, they are going to be bankrupt. It’s that simple. So Japan’s strategy will prove not to work. They could have de-leveraged their private debt. They never de-leveraged most their private debt. They substituted massive public debt to ease the pain. Now they’ve got 230 percent g — massive GDP and rising. And again, a move to two percent long term interest rates with damn darn near would — would bankrupt them and three percent the — their interest would take all their revenues and leave no money for anything else. But Japan’s dead. We just got to wait for the funeral.
Jason Hartman: That is a scary scenario for Japan.
Harry Dent: It is.
Jason Hartman: They just don’t have anywhere to go. That’s a — they are boxed in. You talk in Chapter 8 in your book about the last great bubble, China and — and capital investment.
Harry Dent: Yeah, I mean this is something people are starting to become aware of. We started [inaudible] this two years ago and people are like, what, I’m here by the notch. China’s the one’s that’s going to bail us out of this down term. China’s the biggest bubble in the world. All emerging countries, especially in East Asia, have kick started their economies with strong government capital spending. The Government favors certain export industries. They put it in infrastructures, and that is something you should do in the early stages. It’s — it’s like raising kids, but China has done this twice as long as any other East Asian Country, much more intensely. Instead of 30 percent of their economy on infrastructures and government capital spending, it’s been like 50 percent and higher. You can’t sustain that, they’ve got 24 percent vacant homes. They’re building housing twice the ratio —
Jason Hartman: they’ve got — they’ve got vacant cities. I mean, —
Harry Dent: Yeah, whole vacant cities. A million people, nobody in them and they got 20 — 30 percent access capacity in steel, aluminum, all these major industries, cement and they’re building roads and bridges and railways. So, China has been keeping their migrant population of workers that comes in from all areas employed by building stuff that nobody needs, not the world, not them.
So, the world slows down, China’s bubble going to burst big time. So, China’s the last bubble to burst and China drags down commodity prices. They — they — they control 40 to 50 percent of the — the industrial metals and — and resources in the whole world, and it drags down the emerging world that exports to them. So, China makes this a world wide crisis, not just a developed world, Europe, U.S. crisis.
Jason Hartman: So, they — they just don’t need the infrastructure they have. They just totally over build, is what you’re saying?
Harry Dent: Yeah. They’re — they’re overbuilding on purpose to keep people employed, because the Chinese Government —
Jason Hartman: They’re like Government [inaudible] programs, basically.
Harry Dent: Yeah, yeah. Civil unrest, but they’re civil unrest and I don’t like the government one party system, and their biggest way of growing has been moving people from rural areas to urban areas, which is smart because their income triples, just — no difference in education. Take somebody out of the rice patty and make them a taxi driver in Shanghai, three times the income, three times the input to GDP. The problem is, they’re doing that too fast and they’re having to keep building stuff. They’re just saying, look we’re going to need it one day anyway. The world’s going to need it one day anyway. We’ll build it now and worry later. That’s not a good policy. That’s a bubble. So, Europe has more of a sovereign debt problem because they’re private debt and lease in Southern Europe is not as high because they don’t have big SUVs and houses and appliances. U.S., U.K, Ireland, has — has more of a private debt6 bubble and — and Chin has a Government building bubble. Governments are pushing projects down, the local Governments, and — and they’re borrowing money from banks, and they’re going to default on their loans and China’s going to be in trouble.
Jason Hartman: Wow, amazing things the way this all interplays. Tell us — I know we’ve got to close here, but what are some of the strategies people can use to — to survive and thrive with their investments, their careers?
Harry Dent: Well you know, right now we’re telling people to be cautious on stocks but — but we know because of this big QE in — in Europe and all this stuff in the U.S., probably a QE3 currently, we’re probably going to get a correction in the next couple of months, but it would probably be one more rally, especially we have QE3 in the United States. So you know, you can add the stock if we see that, but — but somewhere late this year early next year, you got to get out of stocks. The U.S. dollar’s the best hedge if things go down, UUPs and ETF will play that.
If you wanted to be safe and sloop at night, don’t buy 10 year treasury bonds, but treasury bills and get no return, cause treasury bonds can fluxiate if interest rates can go up because they can go up to four percent in a heartbeat from two percent. For more aggressive investors, you know you can basically bet on things going down instead of buying SPY, which bets on the S&P 500 going up each year, you buy SH and of the S&P goes down 50 — 60 — 70 percent, which we think it eventually will, you make 50 — 60 — 70 percent.
Jason Hartman: Fifty, 60, 70 percent reduction in the S&P 500, wow, that’s going to hurt.
Harry Dent: How many — okay in ’87 we saw 40 percent overnight. In 2000 — 2002, we saw about 50 percent, of course 78 percent in text stock, and then in 2008, early 2009, we saw about 55 percent. The next crash is going to be 60 to 70 percent.
Jason Hartman: So the S&P 500 may actually be 500?
Harry Dent: Yeah. No — no exactly, that’s somewhere — you know, somewhere between like 300 and 500, that’s kind of our target. It hit 667 last time. So —
Jason Hartman: And — and what about —
Harry Dent: — if you —
Jason Hartman: — what about the Dow, Harry?
Harry Dent: The Dow’s somewhere between 3,000 and 6,000.
Jason Hartman: Whoa, how — wow. That’s — I mean, we looking at a Dow at 13,000 now —
Harry Dent: And it — it hit 6440 last time. It hit 6440 last time. So I mean, we call this a megaphone pattern. If you look at the stock and look at the Dow, look at the S&P 500, the three tops, the one that’s building now in the tube of four, each top has been higher and each crash bottom has been lower. It’s called the megaphone pattern. It’s the most [inaudible] pattern, because it — it means the next crash, and often you break below that bottom megaphone tread line, but each crash is going to be bigger. And I mean, that makes sense. If the Government’s going to pump up a bigger bubble every time there’s a crash by lowering interest rates and all this quantities easing and pushing markets because these banks get all this money from the Government, and they don’t lend it out because nobody’s wants to borrow, and they don’t want to lend and so they just speculate and market? You know banks, investments banks, brokerage firms, everybody’s a hedge fund now. Then you wonder why you get these old — oil goes to 147 one day and it’s 32 the next. It’s just a big speculation play.
Jason Hartman: Yeah, it’s all just a big casino. It’s unbelievable. I — I love the way you said that everybody’s a hedge fund now.
Harry Dent: Yeah, everybody’s a hedge fund.
Jason Hartman: Yeah, and that’s basically — yeah, yeah, and that’s basically the way they’re all operating now days.
Harry Dent: And — and the Government’s saying fine because they want these banks to make money so they don’t fall down from the bad loans. But when the bubble bursts, these people are going to loose money and the whole economy’s going to come down. It’s — it’s — it’s the craziest thing ever done in history and it’s not going to look good five or ten years from now. What — what the Government and the Federal Reserve and the Treasury did, it’s going to look like, were — were you people smoking — what?
Jason Hartman: Yeah.
Harry Dent: You know.
Jason Hartman: It’s — it’s unbelievable.
Harry Dent: You put the economy on crack and you’re surprised that it crashed?
Jason Hartman: Yeah.
Harry Dent: You know.
Jason Hartman: Yeah, they — they just think they can keep kicking the can and never — never stop dosing it with crack or caffeine or whatever you want to call it.
Harry Dent: Yeah.
Jason Hartman: Yeah, amazing. Well Harry, tell people where they can get the book and learn more.
Harry Dent: Yeah, yeah, the best place to get the book is Amazon.com and our website can get the book too, but it’s easier through Amazon. The best thing to do is go to our website. We got a lot of free reports and you can get a free copy of our newsletter.
Jason Hartman: And that’s HSDent.com?
Harry Dent: HSDent.com.
Jason Hartman: All right, excellent. Well Harry Dent, thank you so much for joining us today. I appreciate the update. We’d love to have you back every year or so, so we can keep getting your perspective on things. Thank you.
Harry Dent: Okay. Thank you, Jason.
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Jason Hartman: Well hey, I hope you enjoyed that segment with Harry Dent. I tell you, when you talk about the multi-dimensional nature of the housing — I’m looking at some news articles here, and it — it just amazes me. I mean, haven’t I been saying all this stuff for like eight years now? Yes, I have, maybe longer than eight years. Well, there’s a Zillo report out. It says, medium rent prices on the rise as home values drop. And I mean, I’ve been saying this for what seems like forever. It — multi-dimensional asset class where some of the indicators are contrary indicators.
So, when — when prices are dropping and there’s no urgency to buy, or people can’t buy and maybe that’s the reason prices are dropping. You know, there are reasons people do and don’t buy, obviously. One is their general outlook, the — what’s called the wealth affect. Do they feel that they’re rich enough to buy, to make commitments, to make purchases? And what is their ability to obtain financing?
So, with those things in mind, right now you’ve got incredibility good financing and of course I have to mention again, that we have special financing for you investors who are foreign nationals. If you want to buy American real estate and you’re from Australia, Canada, Europe, New Zealand, wherever in the world you’re from, Asia, it doesn’t matter, we have financing for foreign investors. It beats pretty much anything else I’ve4 ever seen out there, or at least ever — when I say, “Ever seen”, ever seen since the mortgage meltdown. Okay. There used to be some great programs years ago, but in contemporary ways, pronominal financing, IRA investors, people with too many loans, foreign nationals and as low as $5,000 down at some of our markets. Talk with some of our investment counselors about that. You can reach them at JasonHartman.com, but this Zillo report, it’s just saying what I’ve been saying for many, many years. When there’s no urgency to buy, or when people can’t buy because they can’t qualify for financing. As attractive as financing may be, and it is incredibility attractive right now, it just shows that rents are on the rise because of this, because of peoples’ inability to qualify. And this trend will be with us for many, many years as the homeownership rate declines. And we as income property investors, heck, we love it when the homeownership rate declines. That just means there’s more renters and — and it’s kind of got a double affect because not only is — is the rate of homeownership declining, displacing those people into the rental market, but at the same time, the population is dramatically increasing.
So, you’ve got a two-fold effect there, and then when you segment it demographically by age and so forth as we’ve talked about, and you look at GENY and the aging baby boomers, both sides of that spectrum right. You’ve got the aging baby boomers that are staying healthy too long. Remember what I told you in the last show about the — the ski resorts loosing money on those passes for senior citizens? Really quite an amazing time we’re living in, for sure. You know, all of these combined to see some great stuff for us.
So, back to this article here I just — one of the quotes from it, it says, well it seems that rents are rising at the expense of home values, the opposite is true. A thriving rental market will stimulate home sales, as investors snap up low priced inventory to convert to rentals, said Chief Economist for Zillo, Dr. Stan Humphrey’s in the release. So folks, it’s the perfect storm, it really is.
Last episode I told you about JP Morgan and how they got nailed with that 20 million dollar fine, probably just part of their business plan. Pennies to them, nothing significant. Well, here’s another one we love to talk about and that’s good old Goldman Sachs. There’s an AP news story that I just saw the other day, and so I pulled it off. It says, Goldman Sachs paying a 22 million dollar fine to settle charges.
Washington, D.C., Goldman Sachs has agreed to pay 22 million dollars to settle regularitory charges that its anal lists shared confidential research with favored clients. Would you be one of those favorite clients? Probably not. That’s ultra auger rich, right. I hope you’re one of those people but probably most of us aren’t, right.
The release goes on to say, The regulators alleged that Goldman Sachs held weekly “huddles”, you know where everybody gets together for a huddle in the office, right, from 2006 to 2011, where they discuss confidential research on stocks with the firm’s traders. The analysts then passed on the ideas to a select group of top clients, the regulator said, they said, that that created a risk of research being passed on to special clients before it was published publicly.
So, the rules are that everybody gets access to the research at the same time, right. Well, you know that doesn’t happen, of course, and that’s why one of the many reasons Wall Street is such an abject scam and traditional middle and upper middle class investors should be direct investors. They should invest in things they own and they control so they don’t leave themselves susceptible to commandment number 3 in my ten commandments.
So, when — when you look at that, it’s — it’s pretty interesting because what amazes me about these people with — like the stock market, is forget about the fraud, forget about the illegal dealings, forget about the scandals, forget about the insider trading, the options back dating, forget about all of that stuff. Hey look, even forget about the fact that the executives and the boards of directors are paying themselves big giant bonuses and salaries, as the shares are plummeting in value. Forget about all of that. Okay, because you know, even if they’re plummeting in value, you can be a short seller, right? There are ways to adapt to the — to that. And — and forget about the fact that you don’t really have the information. It’s so incredibility complex and there are so many factors that influence the value of a stock, now just normal fundamental business factors, as would make sense to most people, forget about all of that.
The high frequency traders, the Quants, okay, the Quants. The Quants are those brilliant people on Wall Street, of course, that would have been rocket scientists or — or scientists of some sort, if science paid better, but it doesn’t. So they go to work for Wall Street and they install these high frequency trading systems. Now, 60 Minutes did a story on this about a year ago maybe, and it was quite interesting and there’s been lots of stories about it, and you know, you’ve read about it, maybe. But the high frequency traders literally, the speed of light is 186 thousand miles per second, not per hour, per second. So, light can go around the earth, it can orbit the earth, seven times in less than a second. It’s pretty darn fast, the speed of light, isn’t it?
It wouldn’t make much difference. If you were a high frequency trader, and you had your computers executing the software based trades, based on these algorithms that these incredibly brilliant people, the Quants, come up with to program these computers to execute trades of stock and — and literally move the market because there’s so much money doing this, do you think it would make a difference if your high frequency trading servers and computers were in say, California versus New York, or in New Jersey versus New York, right next door to the Stock Exchange, at 186 thousand miles per second? Yeah, actually it does.
Light speed is not fast enough for these high frequency traders, so they have literally located their servers, their computers right next door to the Stock Exchange in New York City so that they can execute their trades faster than the others because light speed, traveling around the earth seven times in less than one second, is not fast enough. It blows my mind that people actually think they’re going to outsmart that. That they’re going to out trade that. That is unbelievable, really unbelievable.
I’ve talked to you in the past about how what gets rewarded gets repeated. I’ve talked to you about how all of the bad behavior seems to get rewarded now days and — and here’s another example of it. This is an article from DS News. Bank of America to offer principle reductions of more than — are you ready? You sitting down? You listening, of more than one hundred thousand dollars. Oh wow.
So in other words, taking on big debt, taking on big risk and not paying your mortgage, the thing that shouldn’t be rewarded, is actually rewarded the most. It’s kind of like winning the lottery, huh? Instead of going to work, having a job, being responsible and saving your money and not gambling, you gamble and you get rewarded. So, the article says, some Bank of America borrowers may be in for principle reductions in amounts exceeding one hundred thousand dollars.
According to latest developments in the settlement, the Bank and four other large services made with State and Federal Regulators. One of the five services participating in the settlement, B of A, is set to pay the largest portion of the total 25 billion dollar settlement, the Bank will pay 3.24 billon dollars to the Government, and 8.58 billion dollars to borrowers of B of A’s total one billion dollars is part of a separate settlement regarding loan origination issues for Countrywide, remember of course B of A acquired Countrywide back in 2008, it says for deeply under water borrowers, this may result in more than one hundred thousand reduction. And what they’re — what they’re saying is that they want these banks to get the loan to value or the LTV ratios for these borrowers at 120 percent or less, meaning if you have a property that maybe you paid $200,000 for, maybe you put nothing down, hopefully you borrowed as much as you possibly could, as I’ve been advising you to, since the beginning of time, because I know that mal-investment is actually rewarded in so may cases. There’s — as ridiculous and philosophically disheartening as that is, that’s just the way it is and we’re not going to change it, all we can do is work within that environment.
So, you got that house for $200,000. It went down to $100,000, it’s value was cut in half, and now what they’re saying is, if you have — say you have a $220,000 loan against it, they’re going to lop $100,000 off so your loan balance can be $120,000, and that would make the loan to value ratio 120 percent, 120 percent of the value of the property at $120,000.
You know folks, debt is good as long as it’s long term fixed rate, prudent investment grey debt, but then again, it doesn’t even have to be prudent because a lot of these people weren’t very prudent and they got rewarded. Not very fair but it’s just the way it is.
We have Ken coming up in a minute, who’s going to talk to you about some financing stuff and some exclusive properties that we have in Atlanta, Georgia for just a moment. And then again, this is not a market profile of Atlanta. We’ve already done that, but before we get to that, I just thought I’d talk to you for a moment about one of our other markets, Phoenix. This is not just true of Phoenix, but I’d say it may be a little more true of Phoenix, and we — we just got a line of a whole bunch of new inventory in Phoenix, which I’m — I’m glad to say, we’re working on that. It’s not on the website yet, but do look forward at JasonHartman.com. You should see it pretty soon, as early as maybe next week, late next week. And we’ve got a whole bunch of new inventory coming your way there. But, I tell you, it is getting really, really tough to do business in Phoenix and in some of our markets because the inventory is just so darn scarce and there are multiple offers on so many properties.
And I — I — I pulled off a — a real estate agent’s blog. I thought this was kind of interesting. Top ten signs the Phoenix real estate market has gone bananas. Number 10, answering office phones — and this — you know, this is what a real estate agent would think. Okay, this is a real estate agent writing this to other real estate agents. Number 10, answering office phones is no longer a way to just get an easy way to just generate leads. Answering office phones is now an easy way to end up committed for post traumatic stress disorder.
Okay, Number 9. A listing agent tells you that the house you want to show can only be shown Saturday between 1:00 and 2:00 p.m. In other words, only one hour a week, because the owner breeds pit bulls on the property. And also, just an FYI, the house will definitely need all new paint and flooring due to the pit bull breeding. Your buyer still actually wants to see the house, because there’s just nothing else available.
Number 8, you begin to screen your calls against annoying, unsolicited all cash back offers on your listings, that are firmly under contract. I mean think about it, one real estate agent wouldn’t want to answer their phone and get an all cash back up offer just in case the deal falls through, right.
Number 7, you develop a psychic sense for when a new house has come on the market for one of your buyers. By the time you pull up to the house, set up an appointment to show the property and make it over there with the buyer at 8:05 a.m., on day zero of the listing, you find that the house is already under contract. It’s already sold. And — and I’ll tell you folks, I functioned in this market many times over the years and I know what they’re saying. It is — it is definitely true.
Number 6, you’re no longer deterred by the “multiple offers received” field in the MLS service, in the Multiple Listing Service. Until the buyers have moved in, that sucker is fair game. In other words, you’re willing to just put in more offers on multiple offer properties.
Number 5, you show a house that mentions a sparkling pool in the listing description, except that the back yard is nothing but grass and dirt. The seller explains that she doesn’t know why the agent put that in there, because they threw the pump into the bottom of the pool and pumped all the water out and filled it with dirt last fall. Despite this misleading description, in other words, the house gets eight offers first day on the market.
Number 4, no trouble finding buyers, reigning buyers, trouble finding a house for buyers, Stress A part of the brain in charge of grammar, some buyers please go away. Thank you. And you know what, I — I remember someone saying that to me. One of the executives I was dealing with in Southern California saying to me, you — you know, the real estate market is too crazy when you can’t find a real estate agent to help you buy a property. And that’s true, it’s getting like that where agents only want listings because there’s just too many buyers and not enough sellers.
And again, you’re not reading this in the news media, folks because the news media reports that three to five months late and they report all segments, not just the segment in which you would be attracted to or we’d recommend as investors. We’re talking about the investor’s segment of the market here, mostly.
Number 3, your spouse has become accustomed to soothing you back to sleep after you wake up in the middle of the night, drenched in sweat screaming, not again, it can’t happen again. Didn’t we learn anything from 2005?
Number 2, those water bottles that realtors are always carrying around to stay hydrated, well it’s not water in there now.
And the Number 1 reason the Phoenix real estate market has gone bananas, you pass a stranger in the grocery store who has a desperate defeated look in her eye, the skin on her face is saggy and grey from too much fast food eaten on the run, her cloths are rumpled, she’s wearing two different shows and she badly needs a root touch up for — on her grey hair. You feel deeply sorry for this hollow shell of a person until you realize that you’re standing in front of the mirrored display in the floral section looking at yourself. Boy, that is true. It has gone bananas in a lot of places, folks. And I’m not saying that this is a turning point in the economy or anything like that, but I am saying good inventory’s getting gobbled up awfully fast.
So, get busy, get working with an investment counselor at my company and we will — we will get you the newest best deals as they come available. Again, go to JasonHartman.com and register at the website so we can contact you. Do the contact section. Make sure you include your phone number and we will get busy working for you because the good inventory is disappearing faster than you can believe, fast enough to make your head spin. So hey, let’s talk to one of our local market specialists about that here, but be sure — I know we’ve jumped around. We’ve talked about Phoenix, St. Louis and now we’re going to talk about Atlanta, but be sure to register for our St. Louis Creating Wealth in Today’s Economy Boot Camp and our St. Louis tour that is coming up and also St. Robert tour, and that is May 18th through the 21st. Early bird pricing on the website at JasonHartman.com in the Event Section. We look forward to seeing you there. It’s going to be a great time, a great trip and al — also should — should be very fun as well as educational and you’ll get a first hand look at this tour of the inventory in St. Louis and St. Robert, some of our best cash flow markets.
Well hey, let’s go to our local market specialist in Atlanta and our next show, we’re going to talk about — we’ll we’ve got a bunch of great shows coming up for you and I’m not going to go over them all now in the interest of time. Here is our Atlanta Local Market Specialist, talking about financing and exclusive inventory.
Hey, it’s my pleasure to welcome our Local Market Specialist, Ken back to the show. He is from Atlanta and wow, business is booming in this market. People always say, Jason what’s your favorite market. Well, I don’t have one. It’s like asking a mother which one’s her favorite kid. I like all our markets for different reasons and you need to be diversified, of course, but I got to tell you, I really kind of favor Atlanta right at this very moment.
I’ve been doing a lot of private lending there and all that private lending that I’m doing and our clients are doing that is generating exclusive inventory for us. You can’t find this inventory anywhere else except on JasonHartman.com. That’s the only place, so exclusive inventory is really cool and again, it’s — it’s darn hard for our competitors to do this stuff because they don’t have the capital we have, most the time at least, and they’re not creating exclusive inventory like we are. So, we are your first stop, JasonHartman.com Properties Section.
Ken, welcome. How are you doing?
Ken: I’m doing great. Thanks for having me.
Jason Hartman: 2012’s off to a pretty awesome start, isn’t it?
Ken: It is. I tell you what, man, we’ve had a lot of activity so far this year.
Jason Hartman: Yeah, you know, my best year in the business personally, was 2008 and I — I tell you, 2012, I — I feel like it’s — its’ almost going to be that good. And most people, they say their best year was like 2005 and my — my business, individually it lasted a lot longer than that. And — and into 2008 was a really year, but let’s talk about two samples, Ken. And these are properties that are exclusive to us. People can only find them on JasonHartman.com and I’ve got the performers in front of me. Let’s talk about maybe this first one in Douglasville huh. What do you think?
Jason Hartman: That’s some nice property.
Ken: But this is a house that you’re actually going to be lending on.
Jason Hartman: Yeah. So —
Ken: You’re going to be the better lender on this particular house.
Jason Hartman: — I — I am the lender that’s financing the deal for you — for your business, and I just love doing this. It’s a win/win/win relationship all the way through the supply chain, and first of all it’s a gorgeous property, built in 1998, so it’s newer. It’s three bedroom, three bath, 2,200 square feet and one of our investors can buy this property today for $88,900. Tell us more about it, Ken.
Ken: Yeah, it’s in West of Atlanta in a town called Douglasville, which is an area that experienced a lot of growth over the last five to ten years. Just a really good, traditional, suburban neighborhood, very owner occupied neighborhood, but this is a very typical style house in Atlanta. It’s a split level where you kind of walk in to the middle and you either go up — the upstairs or down to the downstairs. It’s a two-car garage. Good thing about Douglasville too, lower property taxes out there. In fact the tax is right around $900 for the year.
Jason Hartman: That’s — that’s amazing, yeah. That generates a return on this property. I know you had to actually adjust the tax down because it’s such — the rate is so low there, and — and the overall return on investment for this property is projected at 34 percent annually based on all of our very conservative assumptions. But the cash flow here, over $300.00 a month, positive cash flow, on a property that only takes you just over $2,200.00 to get into, all — all in. I mean with closing costs and everything. Cash on cash return here is projected at a whopping 17 percent annually. Wow. That means that the property declines in value, which I don’t know how it could when you’re only paying $40.00 per square foot. But if the property goes to zero — say you pay $88,900 today, the property depreciates to zero, it’s worth nothing, but you simply generate the rental income and keep you expenses where they are. You’re going to make a cash on cash return of 17 percent annually. Phenomenal.
Ken: Not bad.
Jason Hartman: Not bad, not bad. You know what someone asked me the other day? They said Jason, why don’t you buy all these properties? Why don’t your vendors just keep them all? Why would they ever sell cash flowing properties, and that’s such a silly stupid question, because you know of course, you’re running a business and I’m running a business. I’d love to buy all these properties. I don’t have the capital to buy them all. I loan on some of them. I turn my money around when — when I get paid back when our end investor buys them and I get a nice return on my lending, and then I just roll that into another property, but I can’t — I can’t buy them all. I wish I could.
Ken: The same thing here. We — we get asked the same question and I give them the exact same answer. I’d love to hold all these properties as long as I could but I — unfortunately, I’m not made of money.
Jason Hartman: Yeah, we don’t have another — limited amount of capital so — so the one thing we do is, you run your business of buying properties through banks and foreclosures and ad auctions, and — and selling them to the investors we refer to you, I run my business and we all try to pick up some deals for our own personal portfolio along the way.
So, we’ve created exclusive inventory here. Now, let’s — let’s look at the flip side of one of these deals and this is not the same deal but you just paid me off on one of my loans and I remember making this remark to you yesterday Ken that, you know, I really wish you didn’t pay me off so quickly. I wanted that money to be in play longer and then you, rightfully so, pointed out to me that because of the — the funding fee, really when they turn quickly like that, you’re — I — I only had the money out for 32 days. Wow. What — what did that deal look like for me. I signed up to — to loan you the money at 12.5 percent and my loan amount was $57,500, but let’s kind of de-construct this deal and — and the reason we’re de-constructing it is that anybody listening, I’ll be happy to refer them to you or any of my private lending sources if they want to loan money and keep their money from a lending prospective.
Now, I just have to say and feel free to comment on this, Ken. Personally, I like owning the actual property better, but the one thing I do like about lending on the properties on a short term basis like this is the simplicity. Whenever I do a — a lending, it’s just a paper transaction. I don’t have to talk to any property managers. I don’t have to sign any property management agreements. I don’t have to call any insurance brokers and shop for insurance policies. I don’t have to approve any tenants. It’s a paper transaction. All I do is I wire you the money and then I sign the docs, and later you give me more money back than I gave you. I like that deal.
Ken: That’s about it. That’s right.
Jason Hartman: It’s pretty simple. So, it depends on what type of investor you are and what I say is be both. Own some properties and lend out some properties. They’re both good.
Ken: Yep. I — I love the diversified approach. Own some properties and — and loan out some properties. That’s exactly right.
Jason Hartman: Well, de-construct this loan and let’s talk about how I did, because anybody listening can do the same thing.
Ken: I think this was what, $57,500 was the loan amount on this particular one and money was only in play for 32 days. I think you made about $630.00 in interest during that 32 day period, but you also got a $500.00 funding fee up front.
Justin Hartman: So, I made $1,130.08 to be exact.
Ken: Again, in — in 32 days, which when you annualize that, that’s about a 23 1/2 percent annualized return on your money.
Jason Hartman: Wha who.
Ken: Not bad.
Jason Hartman: Twenty three per — over 23 percent annually. You know Ken, I’m starting to feel guilty. I’m starting to feel like one of those sleazy pay day lenders, you know with those check cashing places —
Jason Hartman: — in all the bad neighborhoods.
Ken: You know, it’s just a — it’s — the thing is, it’s a win/win. I — I — I love the fact that we’re only in a deal for 30 days, that our — that our properties moved that quickly and using [inaudible} to make that kind of annualized return. It’s — it works out good for both of us.
Jason Hartman: Yeah, it does, it does. And so, I’m loaning the money to you, you’re my borrower. Now, do you feel like I really ripped you off?
Ken: Not at all. I mean, if — to me, you performed the model function for our business, so I don’t — I don’t mind at all that you made a great return on your money.
Justin Hartman: But you know, people ask, Ken, why do you need to borrow the money? You’re — you’re doing really well. I know how you’re — you’re doing well for yourself, congratulations, good job, and the reason you need the money is because you business — you know, when you buy houses, this is an expensive big ticket item. I mean this is a capital intensive business.
So, what else would you say to someone that says, why do you need the money? Why would you pay such a high borrowing cost?
Ken: Well, that’s exactly right, same thing I said before the reason I don’t hold onto all these properties is I’m not made of money. And it’s — you know, when you’ve got 30 or 40 houses going at one time, that’s a lot of capital requirement. And for us to partner with you know, investors that can do onesey, twoseys with us, it just — you know, it makes all the sense in the world.
The other thing is, I’ve got lending relationships with local community banks who have better interest rates, but there’s so much red tape and they’re so tedious and they want so much of my capital end, and it just takes so long. I’d rather be more nimble and pay a little bit more for the money and be able to move quicker on — on properties.
Jason Hartman: Yeah, and — and see the thing is for you, you know, like on this deal, I mean this is a very — this is the shortest deal I’ve ever done, just so everybody knows. I’ve never had one pay out this quickly. Usually there are three months or 92 days and you know, I got one out now in a different market, not in your market, but that one has been — it — it was going to pay off in like 90 days and then the deal fell out of escrow. So, we had to put it back in or we didn’t have to. I didn’t do anything, but just as a lender I — I called up my — my vendor, my local market specialist in this other market and I said hey, I thought my loan was paying off right at the end of the year, and they said, you know we did too, but the deal fell through. So, you’re going to carry it longer and get paid more interest and I’m like okay, twist my arm.
On that one I’m getting 12 and an eight I think on that one or 12 and a quarter, not quite as high as this one, but you know what was I going to say about that? Sorry, I lost my train of thought, but it’s pretty cool. So, you — you don’t have to pay that carrying cost for very long. That’s what I was getting at. Yeah.
Ken: I’ll tell you the truth. You know our — our average — in fact we just ran some — just some reports for our own business here over the last six months. Right now our average is about 62 days,
Jason Hartman: Sixty two days.
Ken: So —
Jason Hartman: So, you’re paying a pretty high cost of carrying, but it’s for a short time.
Ken: That’s right. And so a perfect example is the deal that we were just looking at, that you just did. If yours had gone out 62 days, which is our average, it’s still a 17 1/2 percent or so, give or take, return on your money that you would have gotten in an average length of time.
Jason Hartman: Yeah, and I just want to clarify that for everybody so they understand. See, the funding fee, the $500.00 funding fee that I got up front on the deal, or points — points are just pre-paid interest. So, what happens is, you’re getting a note rate or the coupon rate here on this deal was 12 1/2 percent, but the fact that it paid off so quickly, when you throw in that $500.00 funding fee, that actually increased my actual interest rate because it was so short. The longer it goes, the lower my — my rate gets, because you throw in the funding fee and then you — you take that over a longer period. You sort of amortize it over a longer period if you will. That actually lowers the percentage rate I get. Right, everybody understand how that works? Ken, anything you want to throw in there to help people understand that? I’m — I’m not sure everybody will see that right away and I just want to make sure they get it.
Ken: Right. So essentially, like you said, you’re starting with the 12 — typically what we do is the 12 percent interest rate but because of that funding fee of $500.00, which is fixed and it’s one time, it’s like you said, the longer that the loan’s in play, the closer you sort of migrate to that 12 percent. But if it’s quick, you know if it’s a quick turn around like you said, our average is about 60 days, 62 days, you know you’re going to be [inaudible] between 15 and 20 percent return on your money.
Jason Hartman: You know everybody listening, if you want to be on the lending side for some of your deals, and on the — on the buying property side for other deals, the trick is, it’s a little bit difficult sometimes to keep your money in play. And that’s why the properties really are your long term road to wealth.
The lending’s like really quick gratification. I just love it and I love the simplicity of it, but again, sometimes there isn’t a deal to lend on and — and your money’s not in play. So, that’s part of the problem. There’s a challenge to that a little bit. Is that fair to say, Ken?
Ken: It is, but I’ll tell you, the investors from your group right now that are lending with us, it’s rare that their money’s out of play for more than a week. I mean honestly, it’s usually a scramble to get the money back to them and turn around and get it back to the attorney for the next closing.
Jason Hartman: Hey, I just wanted to tell you something and you probably didn’t hear this because I know you only listen to my show sporadically, and — and that really bugs me, but anyway another point.
Ken: I’m so busy servicing your members, Jason.
Jason Hartman: I won’t give you too much of a hard time. But one of the things I did say recently on a show and no offence, because we’ve got people lending in different parts of the Country in different markets with different providers we have. One of the things I did say recently is I gave some guidelines for hard money lending, which I emailed you a copy of that, but a new one that I added to it is — is this one. And I said this on a show, recently, is I said, take your money back each time. Take your money off the table. And the reason I said that is because of the — the Bernie Madoff thing.
Like say for example, you were a crook and I — you’re not, I know, but say you were running like a ponzy scheme out of this stuff, right, it — it would be really hard for anyone to run a ponzy scheme when the investor, the lender keeps taking their money back on every deal and then putting it back in play. So on every deal, I take my money out. It’s not in a fund. I’m a direct lender. I’m lending on a specific property and I’m in first position, and I’ve got a specific note or mortgage on that specific property. And that’s what all of our investors — members that we refer to you are doing on the lending.
So here, what I do is I get paid off. I get my money back each time and I stick it in my own bank account, and then I wire it out to you again for a new deal. Any thoughts on that?
Ken: We do — we do that on every transaction. And in fact, a lot of the folks they’re lending to us are borrowing out of their IRAs and it’s got to go back into the IRA so we can refill out the new paperwork. You know, they’re — whatever investment direction letters to come back to us. So, I think — I think you’re exactly right. If you — if anybody’s doing hard [inaudible] lending with you, I would definitely say, get it back, but in terms of how we operate, that’s exactly what we do.
Jason Hartman: Yeah, yeah. And you know, I like the fact that you hire the lawyer and you actually pay for the lawyer to do the transaction and your — your stuff is so well documented. And I’ve just been really impressed with how clean and smooth and official these transactions are.
Ken: Yep. And like, it’s — it’s on our nickel. Like — like you said and we spend $150.00 per transactions so that you’re as secure in your investment as possible.
Jason Hartman: What would you say about loan to value ratio and collateral and the lender being comfortable with collateral?
Ken: Well, we try to provide our lenders with comps. If — if you’ve seen that I sent to you, here’s a picture of the house, here’s comparable property and this is where we think it’s going to come in, and most of the time you’re lending 65 to 75 percent loan to value, you know on the ARV value once it’s been fixed up.
Jason Hartman: And A — ARV, that acronym after repair value, or after rehab value — it means a couple of different things. It’s the same thing basically, but that’s what ARV means, right?
Ken: Right, exactly. And so you’re in a very secure position. And the other thing is to emphasizes the fact that you’re in first lane position too. There’s no other loans, there’s no other liens against the property, it’s just you as the lender who is in first lane position.
Jason Hartman: Okay, good. So, speaking of exclusive inventory, there’s another one here, and this is another gorgeous looking house. I mean, I just love the looks of the houses in your market. They’re so substantial. Tell us about this one.
Ken: This one is in Ostell, which is in Cobb County, same thing as Westertown. I actually grew up in Cobb County. Great system to be in, very good schools. This particular house square — same thing, it’s over 2,000 square feet. I think it’s about 2,100 square feet. We’re asking $98,900 for it and that’s with the full scale innovation included in that price. The cost per square foot, $47.00. I mean this is half of what it would cost to build this house.
Jason Hartman: Yeah so, and — and you –by the way, that’s a great thing. We — we talk about regression to replacement costs. We talked about buying the low cost of construction or cost of replacement, and in your market for this type of house, about $100.00 a square foot is what it costs to build it?
Ken: Yeah, 80 to 100, somewhere around there.
Jason Hartman: Okay. So — so you’re well below cost of replacement and the monthly rent per square foot is projected at 52 cents per square foot or $1,100.00 per month and positive cash flow here, $304.00 per month or almost $3,700.00 per year, which brings a cash on cash return to the investor, projected at 15 percent annually.
Now folks, just realize again, I’m going to point out, I love this cash on cash metric because it basically just shows you that if the property — if the value gets cut in half, if there’s no tax benefit, if there’s nothing else but what you put into it versus what you’re getting back on it, you’re at 15 percent annually. Wow, that is mind boggling, Ken.
What are you going to get at a bank, about .2 percent now? The — the ROI is — is thousands of times better when you look at a — an overall projective return on investment here at 31 percent annually. Now, how do you beat that, you know?
Ken: Pretty strong.
Jason Hartman: Yeah, pretty strong. So again, we — we recommend you diversify into several markets, depending on how big your portfolio’s going to be, and I — I recommend you do some lending and then the long term strategy is owning and controlling that income property. Remember, the lending is not multi-dimensional. It doesn’t provide tax benefits. In fact, you get taxed on it. So, you use the long term wealth creation as to buy and hold your income properties because those are the most tax favored asset in America, and the lending you do for some quick pocket money and — you know what we’ve had Ken, that’s really interesting and we’ve seen some of our clients some of our clients grow so nicely with this, is they didn’t have much money to start with. And so what they might do is, they might do some private lending in the beginning and use that to sort of pyramid into owning income property.
So — so, they do that at like that dual past strategy. Any comments on that?
Ken: No, that’s exactly — exactly right. We have a lot of messengers who just either want to have a relationship with us, see what it looks like for them to get their toes in the water, and a three month loan is not much of a commitment. So, it lets you try it on, see how it fits, and then when — when they get a little bit more comfortable with us, and our houses, then you’re exactly right, they move into purchasing one and owning it long term.
Jason Hartman: Great stuff. Good stuff. Well, what else would you like people to know about Atlanta, about the properties? Again, this is exclusive inventory for us and there’s a bunch of exclusive inventory on the website at JasonHartman.com that you won’t find anywhere else, and the reason is, is that my deal with ken and the others is that it’s ours exclusively because we finance the deal. So, that can really bring some more choices to you as an investor that you won’t find anywhere else.
But anything on any one of I guess three subjects, the Atlanta, the Greater Atlanta Market, the specific, exclusive properties or other exclusive properties, or financing from a lender prospective.
Ken: Well, I think just in — in terms of being in Atlanta, I think Atlanta’s really on the map right now in terms of an investment market. I mean, our inventory’s been down three years in a row. We’ve really cycled through a lot of our foreclosures. Obviously, interest rates are still phenomenal. but out economy’s projected to be strong. We’re actually supposed to add over 50,000 jobs just this year, alone. A hundred thousand people per year for the next 10 years. We’re a growing market and our real estate just happens to be on sale right now.
So, it’s a great time to get into Atlanta, whether you’re on the lending side or the buying side.
Jason Hartman: Fantastic. Contact us through the website, JashonHartman.com and you can learn more or you can see some great videos on this market, and you can browse all the properties there right on the website with full performers, and they’re all totally consistent. So, once you’ve learned to look at the one page document we have at JasonHartman.com, everything is consistent. Just learn how to read that one page and you don’t have to be a detective, so it’s a great thing. Thanks so much for joining us today, appreciate it.
Ken: Thanks, Jason.
Female Voice: Are you interested in a property outside of our network? Do you need a second opinion? No problem. Let Jason’s experts evaluate the deal. Our deal evaluator is only $50.00. For more information, go to JasonHartman.com now.
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The Jason Hartman Team
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