Jason Hartman gives updates on the Coronavirus. He looks at income and how it has changed over the past four decades. Then he discusses the benefits of doing an internship versus going to college. In the second half of the show Jason talks about how not all return of investment is created equal.
Unknown Speaker 0:00
Mitch from lantana, Florida, I was invited to speak. And Jason and I are friends. But this is such an incredible opportunity that I had learned about that I absolutely cannot resist at this point, going deeper and learning more and begin the process of acquiring properties. So thank you, Jason. And thank you everybody for being so kind and sharing what you know, because it’s amazing what I have been missing. I it’s ridiculous that I’ve waited this long to do it.
Unknown Speaker 0:32
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer, and entrepreneur. owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:24
Welcome to Episode 1402 1402. And thanks for joining me today. Well, good news coming out of Israel. The Israeli scientists say they will have a Corona virus vaccine in just a few weeks, you know, and I kind of believe them. There’s a lot of brilliant minds in Israel. So, you know, that may not be hype, it may actually happen. Let’s hope it does, because the world needs it. And, you know, this is another thing when you hear this stuff from the environmental movement, the radical side of it, you know, Listen, I’m part of the environmental movement, we all need to be part of the environmental movement, to a degree to a rational degree. But we’re the whole thing breaks down is when they start to look at humans as the problem rather than the solution. Humans are the resource. I don’t know, call me Pollyanna, too optimistic, whatever you want. I just believe that every problem the world faces will be solved by humans. And guess what? If humans are not born, if there’s a one child policy, if they are aborted, guess what? If they don’t exist, they can’t solve problems. They can’t be a resource. So people solve the problems. They yes they are a cost to the earth and to the environment to some degree, but By and large, you know, just one one bright mind, or one discovery, even by accident can change everything. It changes the game. Because it’s scalable, it’s distributable, it’s communicate double. So humans are the resource, not the problem. Okay? And that’s the way we should look at it. So let’s hope that good news comes to fruition. It’s interesting, as we’ve talked so many times about such an important economic topic that affects us all. I almost wish it had another name, because I’m kind of sick of saying it and you’re probably sick of hearing it. But you know, that word that starts with I, because, you know, it’s the most common thing. It’s the thing that happens the most. Yes, we get that word that starts with D sometimes, or we get the word that starts with S. Other times that’s the rarest of the three maladies the economic maladies. And that’s why We got to talk about it because it’s the most common thing and it’s the most likely thing in the future. And you know what that is? It’s inflation, right? It’s inflation. Okay. So there was a recent article that I read, talking about the disconnect in the economy. And I think this was what was it from I do want to give attribution, but they have a Washington Post chart. And it was a little clip in morning brew, I believe. It says, trying to explain the disconnect in the economy. It says recent numbers about job growth and living standards show a booming, incredible economy. So why are so many families struggling to pay the bills? Well, the Manhattan Institute, which is a conservative think tank, Oh, those evil conservative? Oh, I don’t actually think that I’m just parroting some of the social justice warriors out there. Who are the most ridiculous people on earth? Anyway, the Manhattan Institute a conservative think tank set out to answer the question. And what they did what is kind of interesting here and it will sound possibly shamanistic. so be warned, get to your safe space if you need a safe space. You know, you can’t make this stuff up the ridiculous that goes the ridiculous this madness that goes on in the world, right? It says that the typical male Oh God, those evil males. The typical male annual income no longer covers a family of fours major expenditures which include housing, college, transportation, health care, you know, that kind of stuff, the basics, right? I’m sure this is not a tremendous surprise to anybody. And this is why you got two people working nowadays now in the good old 50s right. Watching movies and old TV shows, listen old music, read old books. I told you I told you that before. Hey, by the way, did you watch romance on the Orient Express that I recommended? Or did you watch Alfred Hitchcock’s vertigo? Yeah, you know, just interesting to see how the world was back then. And hey, you know, Cheryl Ladd is easy on the eyes. Okay.
Jason Hartman 6:22
I have used myself anyway, back then. You could have a single income and support the whole family on a quarter acre lot in Lakewood, California, for example, or Levitt town, you know, or wherever, right in American suburbia with low crime and good schools and all of this kind of stuff. You could do that on one income, typically, man’s income. Oh, don’t say that. That’s so evil. Okay. Yes. So that was the typical deal. And this chart looks at what happened and by the way From the left wing Washington Post, so we’ve got a politically balanced article here shows that the median male income from 1985 to 2000. I’m kinda estimating 2018 went from just over Well, about $23,000 in 1985, in that unbelievable. Wow, really? That’s it, okay. And in 2018, it’s about you know, $55,000 or so. Okay. And the expense of college, of course, has gone up dramatically. Vehicle expenses have gone up too, but of course, adjusted for inflation. hedonic Lee, the vehicles gotten much better health care expenses, much higher housing expenses much higher. And you see that before there was this big margin in 1985. You had all of those expenses, okay, those four major categories of expenses totaled about $13,000 a year. So for 13 grand, you could cover a family of four. Okay, now, you know what it doesn’t say, by the way is what life stage for example, how old are these kids? Right? Because colleges in there and I didn’t see anywhere in the article that it you know says are you paying for your student loan? Are you paying for your kids college or the college fund to send them to college in the future college? Many times a waste of money, so don’t necessarily go and by the way, I want to suggest that again, look, if you have teenage kids, and you’re thinking like I gotta get this kid to college, so they don’t become a bum on the street college does set a ideally a floor on someone’s future, but it definitely does not Set a ceiling. In fact, it might set a lower ceiling than not going to college. And certainly we’ve seen this all over the place nowadays, because it’s become much more socially acceptable and probably a good idea to be a dropout. Okay? Or to not go to college at all. You know, we look at all the the famous examples of Bill Gates, Mark Zuckerberg, all the rest right? And Steve Jobs, okay, why finish college? When you can go make a bazillion dollars and change the world? Right? So it’s not clear on what this college expenses but it’s there. Okay. Oh, I was saying about your teenage kids, right? internships, get them some internships. In the time it takes to go to college for four or five years. They could do a lot of internships at four weeks, each one month each. And I think about it if colleges 48 months okay. I know there’s some summer vacation and some holidays and there I get it, I understand. But it’s 48 months, right? It’s four years, right? Maybe it’s five years for most, which is 16 months. And if they do one month internships, you know, it takes some work to line this all up. But hey, it takes a lot of work to go visit college campuses and research them and pay for them and fill out a million forms and apply and try to get financial aid and little that takes a lot of work to Okay, and to do the LSAT and all this kind of stuff, right? There’s a lot of work there. So if you could set up for your kid 1448 internships, and can you imagine if your kid got to go work for one month at a time in 48 businesses, they would be a Brainiac. They would have so much life experience and have so many connections out of those injuries. ships, I can’t imagine that they wouldn’t make easily, easily, you know, four to 10 times the income of a college graduate by just going and doing 48 internships over the course of four years. What do you think about that? Is this a good idea or a bad idea? Am I crazy or brilliant? Jason hartman.com slash ask Jason hartman.com slash ask. So the point of this article in this discussion is, look, it’s a lot harder to get by nowadays, all these expenses have risen faster than the income of the mail. Okay, it’s only median male income, the left wing Washington Post, go write them the letters about discrimination and not talking about women, okay, because it’s their graph. But the point being that you know, in the past with just the male being the breadwinner, mom could stay home, raise the kids, and you’d have a nice margin of about $10,000 every year of extra income in 1985. And today, you’re ever so slightly underwater as all of those expenses add up to just about $1,000 more than the male median income every year. So you got to have two people working, okay. Speaking and tell me what you think Jason Hartman, calm slash ask. We want to hear from you questions, comments, etc, etc. And I’ve got one of those right here. All right, so this one comes from our listener Sebastian and Sebastian, you asked a great question. You said that you were reading a Marcus and Milla chap that sort of Commercial brokerage, commercial real estate brokerage, you were reading one of their reports and I’ve read many of those over the years and I have not read this one. But, you know, they’ve got some good reporting and data doesn’t really apply to housing oriented real estate investors that much, but you know, they do some multifamily stuff and so it applies there. Anyway, you mentioned Florida, and rent control, you’re saying that I’m seeing Florida has legislation and being introduced about rent control, okay. Now, I don’t know about that. I have not looked into, you know, rent control in Florida, okay, or anywhere else, but if Bernie Sanders becomes president, God save us all, because we’re going to have nationwide rent control. Look, Florida is a super hot market right now. And, you know, it doesn’t seem like the type of state where the population would be very friendly toward this kind of concept, but Anything is possible. You never know. I would not worry about it. You know, worrying about something like that is like worrying about the market declining or worrying about the next economic crisis. The type of investing we do is so conservative and so prudent that it can survive rent control. Okay. Why, why do I say that? Well, if you’re in the Socialist Republic of California, my former home state for most of my life, and you have rent control, they’re in a place where you’re already crippled by terrible rent to value ratios and massive amounts of other regulations, and an environment where it is tenant friendly, and landlord hating. By the way, I’m going to say something about that also in a moment because I just got a webinar invitation about that very thing which was quite interesting. You’re in that type of environment. You know, you are already fighting an uphill battle. And your property does not make sense. It does not follow my commandment number five of Thou shalt not gamble. Now, a lot of homeowners or landlords, I should say, Don’t you love that name though? landlord, you’re the Lord of the land. You just want to be a real estate investor. So you can have the title. It’s a cool title. I mean, it’s like your God. You’re the Lord of the land. Landlords. Yes, I’ll take it. I like it.
Jason Hartman 15:42
I’m a landlord and a lot of places myself, it’s pretty cool. Okay, so you’re already fighting this uphill battle. And then you layer on to that rent control. And then you layer on to it. Landlord unfriendliness, where if you have to evict a tenant, if You have to go to court with a tenant. You’re walking in the courtroom viewed as the big evil Lord, the land Baron, the person with the power, who is taking advantage of this poor innocent tenant who has not paid your rent in four months and should be able to live in this beautiful California Coastal property for free. Because your purpose in life was to provide free housing for poor innocent tenants who deserve free housing. You know, you’d think Bernie Sanders would do this for people. Now he has three houses. Why doesn’t he let? I guess he can keep one for himself. I mean, he ought to take on a few roommates. Don’t you think if he’s so generous and socialist, but his other two houses, he should certainly let people occupy those for free right? mean, that’s what he’s telling us to do. Okay, anyway,
Jason Hartman 17:06
enough picking on the idiotic, delusional old man from Vermont. So I got this other thing. So Sebastian, thank you for the question. I wouldn’t worry about it. That’s my point. Okay, because you’re going to buy properties that make sense from day one. Even if you have rent control, you’re going to be entitled to some, like inflation adjusted increases every year, probably a little higher. And the likelihood of seeing rent control is pretty low. Okay. Remember the, the beautiful thing is, you have a lot of partners who are out there automatically protecting you, because the real estate investor industry and the and the broader real estate industry is a giant lobby. You have a lot of people out there lobbying for your rights. You know, he we’re doing some really unique exotic thing where you were in a marketplace where there were Hardly anybody doing what you were doing. You wouldn’t have a bunch of people on your side a bunch of people lobbying for your rights as a landlord. Okay, but you do so take comfort in that. So the poor landlords in California though, I just got a notice from the California Apartment Owners Association, and it was an invite to an educational webinar. And I found it interesting and scary for our poor fellow landlords in California because it says, Now this could be true. Any place, okay, to a much lesser extent. But it would be true to a big extent in of course, California, but also places like Oregon, Washington State, New York, any place with a left leaning government and a left leaning political orientation. Going to have this be true to a larger extent. Here’s what it says. acting as a landlord in California can be a risky business. Landlords can face claims of wrongful eviction discrimination personal injury occurring at the property, not to mention costs due to property damage caused by natural disasters burglary and vandalism. If the landlord has one employee or more, he or she must also maintain workers compensation insurance, landlords without or with insufficient insurance can be faced with catastrophic business interruption and financial loss. Okay, learn about the various types of insurance available to you as a rental housing provider including recommendations for renters insurance and options provided through the California Association apartment Owners Association insurance program. So it just shows you That in places like that, where you have that left leaning environment, you really your risk is much higher being a landlord. So that is something to be very mindful of. Okay, let’s wrap it up for today. But we’re going to wrap it up with a little clip from one of our blog cast. Now, what’s interesting about our blog cast, and you can listen to this and subscribe on Alexa or you can subscribe to the blog cast directly. And all I mean by that is we hired a while back some voice professionals, voice actors to read a lot of our blog content. And we just had so much we have so much content on the Jason Hartman. com website available for you that we wanted to turn some of this into audio form. And what’s interesting about it is we did a lot of this stuff years ago, and in listening to it today The same stuff applies. That is one of I think the wonderful benefits about real estate investing, you know, it only changes slightly and slowly, the same core principles that were true 10 years ago, 2030 4050 years ago, even hundreds of years ago, are still true today. One of the beautiful things about this business, you know, you don’t have to watch it like a crazy person, like you do investing in stocks, you know, because you have to watch the market fluctuations, but you also have to watch legal and regulatory climate, which changes often and you don’t even know that it changes and how it affects your investment in that company or that mutual fund or that stock index. And you know, these changes are typically not in favor of you the investor. Okay? They are in favor of the insiders. So let’s wrap it up with that little clip and here it is.
Unknown Speaker 22:08
All ROI is not created equal. The true ROI or return on investment is a common benchmark for evaluating different investment alternatives. For people used to the stock market, it is generally assumed to be the appreciation in price of a security from the time it is bought to the time it is sold. Many people who are familiar with income property investment have come to know the ID EA l or ideal framework for evaluating investment returns. I is income cash flow from your investment. For income property This typically takes the form of rent revenue. For stocks it takes the form of dividends for a business venture. It comes from your sales to customers. And for bonds. It comes from interest payments. income is one of the most important Investment characteristics because it provides consistent cash flow that does not depend on a future sale or increase in equity value. D is for depreciation. investment strategies that involve the purchase of physical property, such as real estate or equipment can benefit from depreciation. depreciation is a non cash expense that recognizes the reduction in usable value for a piece of property over time. Its power in driving investment returns is that it shields your income from taxation so that it can be reinvested to produce greater gains. Ease for equity. Some investment strategies such as income property or business ventures make use of a self liquidating loan to finance the purchase of physical property. As the loan payments are made. It systematically results and an increase in wealth for the investor since part of the payment goes toward and increased equity stake in the property. This aspect of investment is most powerful if the loan payments are financed by revenue from a customer or tenant a appreciation, the most typical investment strategy for generating value is appreciation. This is when the value of a stock or the value of a property increases over time. It has the potential to generate fantastic rates of return if values adjust upward very quickly, but can also bring dangerous values collapse. Furthermore, appreciation is only realized when the investment asset is sold. This can lead many investors to think they have made money when the value of an asset increases but they do not sell only they see the value of their asset punch when market sentiment shifts. L is for leverage the use of other people’s time and money constitutes leverage. Leverage allows an investor to amplify the impact of their money. It can produced tremendous gains and tremendous losses. For income property investors, leverage typically comes from alone use to purchase their property. for business owners leverage comes from the people that are employed to run their company. In both cases, it results in amplified profits during expansionary times and amplified losses during times of contraction. One of the great traps that many investors fall into is the assumption that all ROI is the same and that $1 of returns is just $1 of returns. This viewpoint fails to comprehend the impact of volatility on investment returns. Many people with 401k investment accounts have seen multiple charts showing the long term rate of return for the US stock market and assume that those returns will continue to compound out into infinity. Many other people saw large amounts of money being made by home flippers who purchased property quickly renovated it now sold it for a considerable profit. In both cases, people see a big payout that can be highly volatile, but fail to see the volatility. The other end of the spectrum comes from people who dislike the perception of volatility and choose to invest in fixed income securities with guaranteed principal value. These financial instruments are certainly less volatile, but frequently failed to keep pace with inflation. Some people do find debt instruments that exceed the rate of inflation. But that return comes with an increased risk of default that is not always comprehended by the investor. astute investors understand that ROI really separates into both stable and volatile categories. returns from income, depreciation and equity are typically stable, whereas returns from appreciation and leverage are more volatile. It is important to understand that all five elements are important parts of a holistic investment strategy, but excessive emphasis in anyone to the exclusion of others can spell disaster. Income property investors have benefited from the five drivers of ROI for quite some time. By prudently investing in assets that produce significant income, generate tax deductions, build equity through a self liquidating mortgage, and still generate potential gains from appreciation through leverage. It creates a holistic strategy for building wealth that is very difficult to replicate in the financial markets. A typical example of this is an investment property that is purchased at a discount from a distressed seller in a region with strong rents. Once the property is purchased and rehabilitated, it will generate income from rent paid by the tenant. If the property is prudently purchased in a strong area. This rent revenue should exceed the mortgage payment and expenses by comfortable margin. This will also generate regular net cash flows that can be reinvested into future projects. It will also result in the systematic building of equity from the self liquidating loan, even if no appreciation occurs. In addition to this, the investor may qualify for depreciation benefits that will reduce their tax liability. If the property is purchased with leverage, it will also amplify the impact of any future price appreciation, but will not cripple the investor if the price declines since the rent revenue is sufficient to cover the mortgage payment. by constructing your investments in this fashion, it effectively blends all five ROI factors to create a balanced portfolio of stable value with upside value potential and limited downside risk. Ultimately, it becomes quite clear that not all ROI is created equal. There is no one form of value that isn’t inherently better or worse than another is. Rather, it is about a creation of a blended value portfolio that balances the value drivers effectively to generate wealth and prosperity. This kind of holistic value cannot be found in the financial markets. Only investors who are astute enough to recognize the opportunity and assertive enough to act will be able to build this type of wealth portfolio.
Jason Hartman 29:34
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.