In this Flashback Friday episode, Jason Hartman interviews investing guru Bryan Ellis. They discuss the several forms of investment, the common pitfalls of investing, and intellectual property as the key to successful investing. They also analyze the status of the economy and its impact on future investing and finances.
Jason Hartman 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present, and propel you into the future. Enjoy.
Announcer 0:16
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 than 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 0:58
Hey, welcome to the creating wealth show. This is your host, Jason Hartman. And thank you so much for joining me today for episode number 421. I sure hope you enjoyed our last episode a 10th show, with Mark Devine talking about the way of the seal, which was really interesting. I also just finished an interview for probably my holistic survival show with john tieghan, who was a black water contractor and a former Marine, but a Blackwater contractor who was right there on the ground at Ben Ghazi at the time of the tragic incident there. And he wrote a book called 13 hours I think is the name of it. What really happened in Benghazi, and it’s been on the New York Times bestseller list for the past few weeks. And that was a very enlightening interview. So just speaking of military people, I just, it’s called 13 hours, the inside account of what really happened in Benghazi. And he’s a former security contractor for Blackwater, which you know, is a huge, huge military contractor that is controversial, to say the least. But for whatever that’s worth, it is a great interview. Anyway, look for that when it’s posted if you’re a follower of any of my other shows, and I think you’ll be interested in that. Again, we try to give you some broad good content on a lot of things, but especially personal finance, and real estate investing, which is, of course, our main focus on this show, and a few of my other shows as well. And Gosh, which we talked about today. Well, a few things. Number one, and most importantly, we have a fantastic video on my YouTube channel. If you go to YouTube and type Jason Hartman, media, Jason Hartman media, and we got a couple YouTube channels, but that’s the one where we’re posting a lot of content right now. And video versions of our shows, as well of several of the shows. And this video on how to read a performer is just critical. And I played the audio of it several episodes ago.
And I tell you, what, some of the questions I get, I really just want to play it again and again, but I’m not going to do that to you, I’m going to ask you to go review that video on our YouTube channel. And I was really upset with YouTube because they took that video down and repost it, I guess it was getting too many views. And they thought that was suspicious. We had like, I don’t know, 3300 views really quickly when that video was originally posted. And YouTube said that they thought the views were fake. And I guess a lot of people kind of gaming the system on this stuff. So anyway, I was quite upset with them, we had spent a bunch of money to advertise that video, which I think is a really just a critical foundational understanding with investing. Okay, that is just fundamental stuff that how to read perform a video. So please, please do check that out on YouTube. Or check out the at least the prior episode if you want the audio only version of it. But it really does help to see it and see what I’m looking at and highlighting on the performance. So please check that out fundamental knowledge and help for you on being a better real estate investor and understanding how to analyze a deal. So check that out. And a couple of interesting articles here. I haven’t had time I just accumulate all these things I want to talk to you about. And it feels like I’m always behind on this stuff. And I just never have time. This one published in Business Insider on September 15. So it’s not that old, only two weeks or so. And it is a really interesting thing. It’s talking about the different states throughout the country that have the highest percentage of single adults. And it talks about how singles. And this is something I’ve been saying for quite a while are a huge, huge demographic cohort. And why is this important to us as real estate investors?
Well, I’ll tell you why. Many many years ago, when I first got into the business more years ago than I even care to think about now. It’s been so long It’s amazing how a couple decades will just pass in a snap of a finger in the blink of an eye, but they do many years ago, you would never want to consider buying a one bedroom property that was just like the curse of death. And it still is a one bedroom property is never going to get you kind of the ideal most stable tenant. However, it’s not as bad as it used to be. In fact, there are some decent opportunities in one bedroom properties. And the reason I mentioned this is because of the massively increasing single population, for the first time in the history of the country, from what I understand, there are actually more single adults of marrying age, we’ll call it, then there are married couples, it’s like 54%. And this is a major, major thing to think about as real estate investor. Now there are some interesting kind of broad conspiratorial theories about this about the government wanting people to be single the government disincentivizing through tax code and welfare and so forth marriage. And we’ve certainly seen this in some certain racial components of the society where there’s some realistic reason for this belief that they’ve encouraged and single households with children’s and discouraged marriage through the tax code, and so forth and through many other things. And this conspiracy also relates to good old Madison Avenue, the advertising community, Mad Men, if you watch the show, and it relates to them, because if you think about it, if you’re in the business of selling consumer products, or you’re in the real estate business, heck, Isn’t it better to sell two toasters and to blenders rather than one?
Well, certainly, it’s a much bigger market if you have more single people, right? Because a single household will buy all the same basic things that a married household will buy their two households instead of one. So they’re going to have to have everything rather than one of everything rather than sharing things. So this is a big deal. And I’ve talked before on prior episodes, about how in the last three presidential elections, the largest voting bloc, although it’s not really considered a voting bloc, oddly, was single adults. And most people think of voting blocks, they divide them by racial and ethnic categories. They divide them by age, like the AARP, that’s a huge demographic, or a huge voting bloc, and a huge lobbying organization, or they divide them by Generation Y, or Generation X, my generation, which is very small generation, or the baby boomers, and all these different things. Really, the biggest, broadest cohort, if you will, is singles, that’s the biggest one. And so when you look at this, it means that smaller properties are more desirable than they’ve ever been in human history in terms of what that household would contain. being just a single person household. Of course, I’m single, and I guess I’m just ahead of the trend on all this stuff, folks. Now, now, I’ll probably get married, or hopefully I’ll get married sometime soon. And then I’ll be ahead of that friend when the pendulum swings back to marriage being more popular, but But yeah, it really is amazing. This is an amazing article.
And it’s by Richard Florida, who I’ve been wanting to get on the show for a while, I admittedly haven’t tried very hard, but I’ve talked about him a lot, where he talks about the creative class cities, and what that means to real estate, investors and so forth. But get this, I thought I’d share a couple of these rankings because they’re pretty interesting. And kind of counterintuitive in some ways. In terms of singles, it says singles make up more than half the population in 27 to 50 states. And the share of single adults ranges from a low of 43.7% to a high of 55.7%, as the map above shows, and here are the top 10 and the bottom 10 states. So the states with the most single people, this one really kind of amazed me in some ways. Number one, most single people, you’re not going to believe that Louisiana. But if you think about that, and you think about the conspiracy theories about the government promoting single households, right, because singles tend to be more skewed toward the left. They tend to be more democratic, and they’re voting, and they tend to receive more government aid and more government benefits. So Louisiana, ranking number 150 5.7%, Rhode Island number two, the same number New York. Now that one doesn’t surprise me because when you take into account the highest populous part of New York State, which would be New York City 55.5% lots of single people in New York City, Mississippi, and Number four new mexico California that doesn’t surprise me, Florida. Number seven, California is was number six, Massachusetts number eight. And you look in the cities and there’s a lot more single people in cities of course.
So you got Boston there, Nevada number nine. That’s I guess a little surprising. I don’t know Vegas baby. What happens in Vegas stays in Vegas, Maryland number 10. And then the bottom 10 with the fewest single people. Please don’t surprise me too much, I guess Montana, number 41, North Dakota 42. Minnesota, Kansas, New Hampshire, Nebraska, Iowa, Wyoming, Idaho, and Utah being number 50. You don’t want to be single in Utah, you’re definitely a minority there. And that’s really no surprise Utah, very family oriented state. You’ve got the great Mormon religion, which I don’t care what people say, Listen, I’m not Mormon. But I think every Mormon I’ve encountered has been a good person. Sure, there are bad ones out there. But pretty good group of people and very family and community oriented, very self reliant people. And I applaud them for that. Anyway, that’s kind of interesting about single people. Okay. And I know, by the way, a lot of my fellow Christians think the Mormons are cult members, blah, blah, blah. I’m kind of not buying into that. So there you go. For whatever it’s worth. I remember. I do remember though, an ex girlfriend years ago, brought over a videotape. Yes, a videotape, not a DVD, and showed me this big tape about the Mormon religion and all of these idiosyncrasies and so forth. And I don’t know, I just know, my own personal experience has been pretty positive. And if Romney were running for president, I’m not saying I like everything about him, but I do like his business savvy. And a turnaround specialist would probably be a pretty good thing. It least financially for the country.
So that’s my story. Hate me or love me. But that’s what I think. Okay. Now, another thing, which is interesting, I talked about this before, I believe, but it was a USA Today article from a while ago about why $1 million, may not be enough to retire. And if you’re investing in income property, I’ll tell you how you can easily achieve financial happiness and financial independence with good investments. And you know, because I’ve talked about refi, to you die before, and how absolutely excellent that plan is for investors. In this article, they talk about assuring that you’ll have enough to retire. They look at a million dollar portfolio, and a scenario and now this is of course, part of the vast Wall Street conspiracy here and towing the Wall Street company line of absolute stupidity. And it has in the past 10 years a portfolio equally divided between the Standard and Poor’s 500 stock index, can your Treasury notes and three month treasury bills returned an average of get this folks don’t fall asleep on me because this is disgusting. 4.24% a year, where inflation Of course, they’re believing the idiotic official statistics, most of these people, they’ve been losing money, okay, in this portfolio, but they think they’re slightly winning, because inflation averaged 2.4%. So basically, their margin of return here before taxes take away, probably a good 40% of it. Okay, their margin is 2%. And then you impute inflation and you know, what are you left with? You’re left with what 1.2% above the official inflation stats, after you pay taxes, and then you put in the real inflation rate, and you know, you are losing money, you are completely underwater. Okay. So that’s what’s going to happen to you, if you’re investing in the vast Wall Street conspiracy, and the typical, absolute disgusting stupidity in the financial press. If you invest in, in them property, in the most historically proven asset class in America, you can easily make retirement work, especially if you got a few years before retirement. And by a few I mean, you know, 10, or 20 would be ideal. If you’ve got more, that’s even better. But remember, I’ve cited before that pretty famous study that was done, and I believe it was back in 1994. And it was about can money buy happiness, and I have talked about this before, and I’m gonna pick 1994. Again, it’s just from memory. But what I remember from that study in reading it, and it was pretty kind of revered at the time, and I do agree with it, you know, in 19 $94 $1.5 million would be kind of the number that would, in quotes, buy happiness, okay, that would be the number that would buy happiness. And if that’s true, let’s just adjust that. for inflation, and based on the official statistics, which of course, understate inflation, that would mean that today, you would need to point out.
Well, I’ll tell you exactly how much you need $2,407,408.91 is how much you need to, quote, buy happiness, can money buy happiness? Well, no, it can’t. But it buys a lot more happiness than poverty, that’s for sure. And it’s hard to argue with that one. Okay. So two and a half million bucks basically, is the number you need. Well, through the plan that I’ve outlined, with a modest start, you can really, really achieve that by or before retirement, depending on what age you are. And remember, retirement isn’t really something I think that any of us should be considering in any real way. Because retirement, my humble opinion, it’s just not a good thing. It’s not good for us, we need to be engaged, we need to be active, we need to be stimulated, we need to be challenged. That’s the way the human animal works. So retirement, not ultimately a good idea, I think we should stay active and keep working and do whatever our passion is, but it’s sure nice to be able to choose to make our own hours and to do something that inspires us and something we’re passionate about rather than being Dilbert, and work in the corporate job in a cubicle, right. And so to be able to have that choice, you can achieve this pretty easily. And you only have to beat real inflation, and real taxation, and returns and other investments. Because all the returns like these idiots getting the 4.4% per year return in the USA Today, outline portfolio, terrible deal, right. But let’s say that, to keep up with inflation, and to pay taxes, and to have kind of a net, that you really have to earn about 8% on your money, okay? That’s we’ll call that the breakeven number, I’d argue that it’s even a little higher, but I’m gonna go with a lower number just to be more conservative and more in line with the vast Wall Street conspiracy. And so if we can earn from our income property investments, if we can just earn 12 to 14% annually, we are vastly beating the rest of the human race, you’re going to be in a very comfortable position, if you just let some time go by.
And you can earn only 14% on your portfolio. Of course, if you go to Jason hartman.com, and you look at the property performance, there, you can see that properties have performer returns of easily into the 25 3035 40% annually return. And if it only goes half as well, well, what are you earning, you’re earning, say 20% in that example, and you can encounter quite a few problems and still earn 14% on your income property portfolio, you can encounter unexpected repairs, you can encounter, evictions you can encounter make readies between tenants where they mess up your property. Now, of course, you should get a judgment against that tenant, you probably eventually collect on that judgment, and you’ll collect with interest, okay, but you can encounter a lot of problems and still come out a big, big winner, if you’ll let 510 15 or 20 years go by and just keep running your portfolio. I mean, look, folks, we all know people who became very wealthy in their real estate investments. And we all know people who have won the game doing this. And all you have to do is stick with it. And just do the day in and day out work. Put time on your side, you put inflation on your side, you put irresponsible government spending on your side, all the things that should normally upset and aware, rational human being actually work for us as real estate investors. If you don’t like our current administration, if you think they’re spending the country into oblivion, like so many people do. Well, all that’s going to do is point toward inflation. And that’s going to be wonderful for you as an investor. Okay, so lots of good things there. Alright, one last thing before we get to our guest today, and that is I need a favor. Yes. I’m asking how often do I actually ask you dear listeners for a favor? Almost never right? And I thought this was a good time to do it because my birthday is tomorrow.
So Happy Birthday to meet Gosh, I cannot believe Another one is already here. Wow. Age ain’t what it used to be folks. And that’s a good thing. If you listen to my new show the laundry Pre show coming out, you’re going to get a lot of tricks and secrets on that. And I just did another interview for that yesterday, and I’ve been accumulating them. And it is fascinating what’s going on. But the problem for us people, the challenge with this longevity thing, it’s an opportunity. And a problem is that look, we got to really plan for this, we’ve got a plan. So we make sure we don’t have too much life left at the end of the money, we got to make our money last and make our money work more than ever. Okay, so on to the favor. It’s really a double favor, I’m asking two favors, because my birthday is tomorrow. So the first favor is please go and review the show. I get such excellent feedback from you, listeners, you’re constantly emailing me and posting things on our social media and, and you’re telling me how great you think the show is. But I know by just sheer numbers that many of you haven’t reviewed the show. So please go to iTunes or Stitcher Radio, or however you’re listening and just take two or three minutes and review the show and give it the appropriate amount of stars that you think it deserves. And that really inspires us to keep coming up with great content and keep booking great guests for you.
So that’s the first favor. Now the other one, check out this story. Remember, several months ago, I had offered a surprisingly great deal on the physical products of the creating wealth, home study course. And the physical product of the meet the Masters combined event collection. Well, I thought we sold out of those. And then guess what? The company that makes those physical products and duplicates the CDs and puts them in the nice little handsome cases and creates the workbooks and so forth that go with these products. Well, I got an email from them a couple of months ago, and they said, Jason, you’ve still got a whole bunch of product in our warehouse here in Illinois, or no, sorry, Indiana, I think they’re in Indiana, the company is called corporate disc, you’ve still got a bunch of product here. What do you want to do with it on like, Oh, really, all of my storage units are full, I’m thinking. And so I got to go rent a new storage unit, which I did. And they delivered the product to me via FedEx Ground a couple of weeks ago, just before I left for Peru. And now I’ve got another storage unit full of this product, I’ve got dozens of these creating wealth home study courses, the physical version, not the digital version, the one that looks really good on your bookcase, and will impress you and all your guests that come over to your house or office and see this on your bookcase. And these meet the Masters products. So I got to sell them and get rid of these physical products now.
So the creating wealth home study course we are selling for half price $175. Okay, as a physical product, it will look beautiful on your bookshelf, and the meet the Masters home study course, we’re selling for half price as well. 247. So please go and buy these things. Our profit margin is almost nil on this stuff, because we’re selling them so cheap, we’ll pay for the shipping. And just so you know, the shipping on the Masters course, cost like $22 each to ship it to you, depending on where you’re located in the continental United States will pay for the shipping, we’ll get these beautiful physical products out to you. And just go to Jason hartman.com. Click on products and help me get these things out of my storage unit. Okay, because I can’t use them. I want them in your hands. So you can learn some good stuff. There’s some just really great content there. So take advantage of that. Just go to Jason hartman.com. free shipping on those. Well, they last they won’t last too long, because we only have a few dozen of each of those would love to get rid of them. So that’s my birthday favor those two things. Thank you very much. Let’s get to our guest, Brian Ellis.
It’s my pleasure to welcome Brian Ellis to the show. He is editor of the Brian Ellis investing letter. And that’s a newsletter that I’ve been somehow getting in my email box for a while. And I find it interesting. And he has some good stories and some unique stories as well. And I wanted to invite him on the show to talk about maybe two topics today. One being the foreclosure rate. And then also some very unique stuff on self directed retirement accounts. Brian, welcome. How are you? I’m doing very well. Jason, how are you today? Good. Good. It’s good to have you on the show. You’re coming to us from Atlanta, Georgia market that we have liked a lot over the years and still like
Bryan Ellis 24:31
oh, yeah, there’s a lot going on here. And if you keep your eyes open, there seems to always be opportunity that’s being overlooked on a national scale. But great things are happening here.
Jason Hartman 24:40
You wanted to talk about some interesting news that really runs kind of counter to the mainstream media, or, as Sarah Palin called it the lamestream media, which I always thought that was great. Yeah, that’s the foreclosure rate. And I have long said, Brian, that I think this is a fake recovery. That’s I don’t mean that the economy is going to necessarily collapse and In the same way people think of a collapse, which they usually think declining prices. There’s some detail we can hash out there. But tell us what’s going on what your thoughts are on that. And the new foreclosure stats that you recently learned about?
Bryan Ellis 25:11
Well, Jason, to me the whole economy as it exists right now, it’s a farce. It’s all a lie.
Jason Hartman 25:17
Now, smoke and mirrors. Absolutely, absolutely.
Bryan Ellis 25:20
Just ask anybody who is willing to be honest. What are the fundamental underpinnings of growth that we have right now? What is good that exists in this economy that didn’t exist? Six or seven years ago? Okay, so
Jason Hartman 25:33
I’m gonna answer that tell me technology is in doing incredible things. But granted, that doesn’t employ that many people. And in some ways, it displaces employment. Yeah, you’re right. It does.
Bryan Ellis 25:43
And you’re absolutely right. Technology is a powerful, powerful force. And that, Jason is the reason that we have forward momentum at all. It is because of that, and certainly not because of what’s going on in the broader economy. And absolutely not because of what the government is doing, that we have any perception of forward movement. You see, the reality is, there are more people not working right now than in decades, in decades. Right. And it’s not just that there are more people who are being paid to not work right now.
Jason Hartman 26:19
Right, then in all of history combined, the welfare state and the food stamp president.
Bryan Ellis 26:25
Exactly, exactly. Those things. What What we have here is an entitlement economy, a situation where, where our government has decided that it is better for the government to have power and influence over the citizens rather than for the citizens to have the strength and ability to rise up and make the country stronger in a real true fashion. So we’re in a bad way right now. And and the foreclosure situation that you mentioned, just today, a realty drag came out and announced that foreclosure activity has risen for the second straight month as of August now, that’s going to take most people by surprise. What’s your opinion of the conventional wisdom out there? You think people think things are good?
Jason Hartman 27:05
I think it really depends. I think we are in nowadays a very, very stratified marketplace. And a very stratified economy. I mean, some people are doing great, and they are killing it. Some markets are doing pretty darn good. And some are like frothy bubbles, my old home the state of California and lived in Southern California, virtually all my life. Three years ago left for Arizona. But I gotta tell you, California, I was getting a little bit envious again last year. But now I don’t know. I think the bubble is already showing signs of bursting. Yeah, you couldn’t have said it better. Just mini bubble the mini? Yeah, yeah. Yeah. not as big as the one before.
Bryan Ellis 27:44
It’s a lot more regional now than it was back in 2007 2008. Right. You’re absolutely right. And there are a number of markets, where the markets just on fire. But let’s take a step above that. And look on a broader scale, not just individual local markets. What we had back in 2007 2008, is basically the entire country fell apart. The best we had back then was some markets that held their value. Now what we have is several specific strategic markets, I strongly suspect the markets that you have your clients in, what we have now is a few markets that are doing really well. And that are showing some promise, but most of the country is kind of around the plus one to minus one growth range. Right. So there’s not a whole lot going on. And the reality of this announcement from realty Trac, is that, at least for me, it’s not surprising at all, because there are things going on out there with the way the banks are dealing with foreclosures that have been leftover from years past. It’s all about that the old foreclosure bubble still hasn’t completely burst and nobody seems to realize it.
Jason Hartman 28:52
It’s this fake recovery and prices have been going up. So that makes people feel like everything’s on track and Okay, again. And I think part of that stratification issue is that I feel safe, Brian, in necessity type of assets, the basic house that a family needs to live. Sure, that’s always going to have some demand unless it’s in an area with declining population like like Detroit, the poster child for big government disaster. I hope you enjoy my little snarky add ons here. I do indeed. Once we get past the hat in solid markets, I mean, the population is increasing. And people have three fundamental needs food, clothing and shelter, right. And so there you’re okay, but when you look at overpriced markets with high land values, whether they be in Miami, or Boston or any virtually anywhere in California, I intermix states and cities here because that whole state is just overpriced. If he asked me, you look at New York City, you look at all of the expensive areas around the country. Yeah, and I think they’re quite risky. Maybe I’m just getting too conservative at my old age, but I used to be the gambler I used to like the roller coaster. Now I just like The tried and true linear market.
Bryan Ellis 30:01
I think you’re absolutely right on that analysis. And here’s why. There’s really two reasons. The markets, particularly California, but the markets that are really bubbling up right now, except for Texas, there’s some fundamentally good things going on in Texas. Most of the markets that are really bubbling up, do that, because there is a certain inherent momentum to the areas themselves. It’s not because there’s anything particularly fundamentally great about the local economy. I mean, look at California, California is real estate market is still going crazy right now. I agree with you. It’s completely overvalued. It’s a bubble that will have to pop. But right now, it hasn’t popped up. But look at the economy of California. What’s it based on?
Jason Hartman 30:47
It’s based on government. It’s
Bryan Ellis 30:48
based on government. And what you have right now is like Hollywood right now, the entertainment industry is in huge decline. Interestingly, Brian,
Jason Hartman 30:57
it’s leaving California, it really is. And that might actually be a help for Detroit, because I read some articles about how Detroit really makes sense for a place to shoot movies. Yeah, it’s got lots of old decrepit buildings.
Bryan Ellis 31:11
It’s got lots of union workers that have been overpaid for so many years. And so long as the show is walking dead, there’s plenty of opportunity there. Right?
Jason Hartman 31:18
They are trying to incentivize the Hollywood types to come in there. I mean, they’re shooting in Wilmington, North Carolina, they’re shooting all kinds of other places. Yeah,
Bryan Ellis 31:26
you’re right, Jason. I mean, there’s a lot going on in that way here in Atlanta. To me, that’s a pretty good example of how local government checks are starting to be smart about trying to attract those dollars. But, you know, California is booming, but it’s based on nothing, that is a state where they’re doing everything wrong. And yet the real estate is going up. So it’s illogical. It’s a logical, it’s irrational. And so I think you’re right, I think, carefully selecting local markets, where there’s an increasing population, where there’s a good employment outlook, there’s basically just good opportunity to put the right types of people in your properties. That’s a formula for long term success, there’s going to be some ups and some downs. But it’s, overall, it’s going to be a very, very good thing. That’s wealth building. That’s smart.
Jason Hartman 32:16
I should say. The other thing about California, obviously, is Silicon Valley. That goes without saying, some of the California proponents and advocates, they say, look at how much venture capital is flowing into California, blah, blah, blah. I do agree with that. But there is so much poverty in that state. It’s like a banana republic, where you’ve got this rich class, in this low class, and the middle class in California is just being eviscerated. I spent decades there. And I have seen middle class people, friends of mine, just leaving the state in droves, because the rich can protect themselves from the government taxation to some extent with unique protection strategies and structuring and so forth, and businesses elsewhere. And the poor get the benefits of government, but the middle class, they’re just under attack.
Bryan Ellis 33:06
Yeah, you’re absolutely right. And you know, that Exodus is not just limited to the middle class, either. There’s been a massive movement of businesses, specifically from California to Texas,
Jason Hartman 33:17
right? Yeah. And that
Bryan Ellis 33:19
sort of thing is going to continue. But you know, the the bottom line here, Jason, is that foreclosures keep going up, or have for the last couple of months. And it’s surprising news to the to the typical person out there, most people think things are improving on the housing front.
Jason Hartman 33:34
So in terms of those foreclosures, can we segment that at all? I mean, is that higher end properties? Is it certain geographies? Or is it just general national stats? Which, honestly, Brian, in the United States, it’s just too big a country? national stats? They don’t just don’t tell you very
Bryan Ellis 33:51
much. Well, yes. And no, I agree with you. To some extent, there is absolutely no such thing as a national real estate market. But foreclosure data is something that is there’s enough data, that it is something that’s useful to aggregate. And this data is basically on a national level. And if you look, there, there is a reasonable correlation to the between the national foreclosure rate and the state of the housing economy as a whole over the last several years. That’s why I pay attention to this. Now, this particular issue is curious to me not because of the data itself, but because of the potential effect on on the populace out there. Because for months now, Jason, all we’ve been hearing is real estate’s booming. It’s great out there, things are getting better. Things are great. Now it’s time to buy it’s time to buy actually for a couple of years. But yeah, for the for a couple of years. That’s absolutely right. And so this is different. This has not been happening now. I know. And I suspect you know that the reason this is happening is because banks have been holding on to bad notes for years and years at this point. with whatever strategy they were hoping to deal with, but the reality is they just didn’t foreclose, like they should have in a reasonable timeframe. And so now they have this huge inventory of bad notes. Well, that’s what’s going on here is, is they’re dealing with that. But the relevance of this, I think, is that average Joe Blow on the street, he’ll probably never hear this data, yet, it’s gonna have to be several months worth of this before it gets gets down to, you know, to the Homer Simpson level. But when when it gets to that level, what you start to see is a change in the fundamental belief and confidence in the economy, and then housing. And then, you know, in housing specifically, that’s something that we all have to be concerned about and care about. And once the emotion shifts, once people out there start to realize that what they’re looking at in the economic world today is smoke and mirrors and a bubble. That’s when we reached the peak. In fact, that’s where we’re just a little bit over the peak, and the down downhill slide accelerates. So So to me, this is interesting, not because of the data itself, but because of the of the trend that that it creates, or potentially creates for bad economic emotional results.
Jason Hartman 36:17
It seems like there’s two economies and two classes of investors out there. There are people who control paper and fiat money and Fiat things like stock certificates. And then there are people that control real assets that people really need commodity based assets, resource based assets. And it’s the paper economy, the smoke and mirrors economy, the Wall Street economy, those are the people that cause these swings, because they can move and manipulate such large pools of assets, so quickly and abruptly. And that’s the dangerous part, if we would just get back to a Resource Based Economy where we had sound money, and real supplies, for example, Brian, when we talk doom and gloom, and we talk, oh, gosh, you know, things are getting bad. It’s interesting, because if you woke up in 2005, and you thought the world was booming, and real estate was booming, and it was, I mean, at least temporarily. That was toward the end, obviously, you thought everything was rosy, and sunshine all the way. And then you woke up in 2008. And you thought, oh my god, it’s the end of the world. The interesting thing about it, is the world had pretty much in those two different completely different times. And the way they felt it had pretty much the same amount of resources, there was almost the same amount of oil, there was the exact same amount of land there was about the same amount of water, same amount of copper, gold, silver, that didn’t change, it was just the symbols of all that stuff that changed. And it really reorients assets. It’s not that the world gets poor, it’s just that the assets reallocate. And we’ve got to put ourselves on the right side of that equation, don’t we?
Bryan Ellis 38:01
Yeah, I think that’s a very astute observation, Jason, you know, it, it is merely the representation of those assets that changes and not the assets themselves. That’s what the whole derivative mess was about that. There was just simply nothing real behind all of that whenever mortgages started to be sold as as packages without any of the buyers never understanding what they were buying, just based largely on the smoke and mirrors that existed at the time. And these were very, very sophisticated buyers. Right. Now, Bear Stearns has gone. Yeah, I mean, they were gone for years before Lehman Brothers is gone. I mean, it’s, it’s amazing. So yeah, you’re right.
Jason Hartman 38:42
I take it that you think the foreclosure trend will increase. You think we’ll have more foreclosures,
Bryan Ellis 38:47
I suspect that I am not a hardcore data guy. My gut and my observation of the real economy suggests that there is nothing fundamental to support what we have going on right now, which is
Jason Hartman 39:01
it’s smoke and mirrors growth growth, that’s not explainable. The Fed is always trying to pump up one bubble. And then the other really right now they’re pumping the real estate bubble in the stock bubbles, sort of both at the same time. We’ve got massive student loan debt. After this. They’ll try and pump up another bubble, they always move bubble, the bubble, you know, it’s like a musical chairs game. Well,
Bryan Ellis 39:21
it’s basically what that is. Jason is, you know, on the one hand, there’s welfare and entitlements given to individuals. On another hand, there is foreign aid given to other countries. And and on yet another hand, this pumping action, this this basic, inflationary tendency that the government has, that’s the way that the economy itself is put on entitlement input and put on welfare and in the business community is put on welfare. Because if you look at it, what we have in the stock market right now is it’s just boomed for the last several years but once that due to its due to nothing other than the government propping it up, we don’t know what what things are really worth right now.
Jason Hartman 40:00
It’s just a big money printing party again. And that always ends badly. What do you think is coming next? I mean, if the other shoe is going to drop, which, you know, I believe that it certainly could. What can we plan for inflation, deflation stagnation,
Bryan Ellis 40:16
I suspect there’s going to be a lot of inflation, I don’t really expect, we’re probably going to see some pockets of deflation for very short periods of time. But I expect fundamentally inflation simply because there’s so much not real money that’s floating around out there. I mean, the government’s pumped in $80 billion a month into just the stock market. That’s just the stock market and not anything else. I don’t see any wave for anything other than the devaluation of our currency to continue. I really think that what you were talking about earlier, and putting people into assets that have fundamental real value, which does not include stocks, because stock is just paper.
Jason Hartman 41:01
It’s fiat money is fiat money. Now, I’m
Bryan Ellis 41:03
not completely against paper assets, for example, mortgage notes, I’m a big investor in notes. But
Jason Hartman 41:09
yeah, I like notes, too. I mean, you got to know what you’re doing, though. Yeah, there’s a lot of fraud. Oh, yeah,
Bryan Ellis 41:13
you certainly you certainly do, you certainly do. But what I like about notes, and this is the same thing I like about real estate is there’s something real behind it. It’s a real asset with real value that has a real potential to be sold and made into cash, right, you can’t do that with a stock certificate once the stock market falls apart.
Jason Hartman 41:31
And it’s even better than that, Brian, because I talk about something I call the ultimate investing equation, where you acquire these, you know, see, I don’t even really like real estate per se, what I like is all the commodities that go into it, I like getting super, ultra cheap or free land, and then just paying for construction materials. So I would say I’m a commodities investor, I like copper, that’s wire, and maybe pipes too. I like steel Steel’s and houses. I like glass, I like concrete. I like lumber, I like petroleum products, and energy and labor that goes into those houses. And so if I can buy that, at, or better yet below the cost of actual construction, like so many of our clients did over the past several years, that’s just an awesome investment. And then it gets better, you get the bank to pay for 75 to 80% of it, where you only put in 1/5 or one quarter of the investment, and you borrow the rest. And then that borrowing doesn’t really come at any real cost because you outsource the debt to a tenant, and they pay the debt plus they give you an extra $200 or so per month, it’s a pretty great deal. If you can duplicate that 40 5060 100 times, wow, you know, duplicated a dozen times you’re in pretty good shape.
Bryan Ellis 42:47
You know, I think the key to that is just making sure you get in at the right price. To me, that’s everything in my planning for real estate buying. I want to be in a situation where just just look back at the last. Anytime you buy real estate, look back at the last 15 to 20 years and look and see what was the worst peak to trough drop that happened. And if you can get in a situation where you’re, you’ve got a strong equity position that is at least a substantial portion of the biggest peak to trough drop that happened in the last 15 to 20 years, then not only do you have a great asset that the bank is paying for, essentially, you’ve got a great asset that’s not going to hurt you. Whenever the inevitable ups and downs come right that’s that’s a powerful situation.
Jason Hartman 43:33
I call that sustainable investing, you’ve got to have something that will be self sustaining. And that means pay attention to your debt coverage ratio. And just make sure you’ve got a good debt coverage ratio on that asset. You were talking before Brian about inflation and deflation, how overall and we agree on this, that the overall trend is inflationary with maybe little spots and bouts of deflation. And I agree with that too, by the way. And I just wanted to say that trying to time and pick those areas of deflation is like being the gambler in California or Manhattan, New York trying to pick the appreciation cycles. It’s very risky. You just I’ve never met anybody who can reliably predict inflation or deflation in real estate prices. I’m not saying in the overall economy. I’m just talking about appreciation or depreciation, I should say rather than inflation, deflation, same idea. And so just buy good quality assets that pay for themselves and give you something extra.
Bryan Ellis 44:34
Yeah, you’re totally right. Jason, I call it the grandmother rule. I mean, would it make sense to my grandmother Right,
Jason Hartman 44:39
exactly. Your conservative grandmother would that make sense and if you do that in business friendly climates, we love Texas, you know, all the major Texas cities we’ve done business in and Georgia and the right to work states that are in the southeast. They’re great. Look at all these auto manufacturers coming in there. They’re not moving to Detroit even though that did become a right to work state recently, which is kind of amazing.
Bryan Ellis 45:03
It really is, isn’t it? That’s could be a harbinger of good things for Detroit,
Jason Hartman 45:07
Brian, this is a great discussion. But I wanted to make sure we got some time to talk about some of your unique self directed investing strategies.
Bryan Ellis 45:14
Well, you know, Jason, there are a lot of people who are familiar with self directed IRA, self directed, 401, K’s and those sorts of things. And those can be absolutely critical for anybody who is looking to save for retirement. But I am of the opinion that it doesn’t always make sense to buy real estate through an IRA, or through a 401k. Just because there are, there are there are other really great tax advantages that are inherent to real estate investments that don’t necessarily make sense or that really aren’t even available aren’t even relevant in the context of a self directed IRA or 401k. And having said that, you know, one of the things that that, that my clients in the self directed investor society are tend to be really interested in getting involved in in this particular particularly tends to be the entrepreneurs among them, is intellectual property. Because if you think about it, where in the world is there more leverage than in intellectual property, it’s even better than in real estate. Because an intellectual property you you, you can create a thing by writing something on a piece of paper, and now it’s intellectual property. And all you got to do is find some interest in third party to use that and lease it from you. And now you’ve got a cash cow. But see, very few people are doing this. Tell us
Jason Hartman 46:39
more about that. It’s interesting that part of one of the rich dad books is about intellectual property. And I remember reading that and I hold several trademarks, or one of my company’s toes, I should say, and I’m very much interested in that angle. But the challenge is that there’s got to be a real market for that intellectual property in order for it to be worth anything, right? Wrong. Go, sir. Oh, tell me, tell me more. I am taking notes.
Bryan Ellis 47:06
The reason that entrepreneurs tend to be particularly interested in the strategy that we teach is because with proper structuring, the intellectual property that is used in your business that you use on a daily basis, can be essentially outsourced to a retirement program or retirement plan, ultimately, for your benefit. But that you can pay into that you
Jason Hartman 47:34
can be the market for that intellectual property. Okay. So in other words, it’s your own intellectual property, but you’re using it between yourself for your company and your retirement account as separate entities, right? Absolutely. Now, this
Bryan Ellis 47:48
is a sticky thing. It’s not a simple thing, it and you have to dot the i’s and cross the T’s exactly right. Otherwise, you’re going to be doing something called self dealing, which is a very bad thing. But just think about it, Jason, the patents and trademarks that you have, they’re worth something to your company. They’re absolutely worth something to your company. There are probably a lot of things that you don’t even have reduced to formal intellectual property that are really worth something. Sure. There’s
Jason Hartman 48:15
there’s goodwill and all kinds of systems and things that are good. Well,
Bryan Ellis 48:21
yeah, exactly. The strategy. You know, the the process you use for having your staff set up a room when you whenever you do a seminar, yeah, right. Well, that’s a process and there are probably a gazillion of them. Yeah. And if there was a way that you could offload that stuff into a self directed retirement account for your benefit, and then have your company lease that or sign a formal rental or usage agreement, well, then what you have is a situation where you have created your own market, and every dollar you spend for the use of your own property is not only going to be spent anyway, but it is 100% tax free forever. Wow, this
Jason Hartman 49:00
is this is really intriguing. Okay, so how does someone do that? I mean, what what do you do? what’s the what’s the technique?
Bryan Ellis 49:06
That’s a substantial conversation? And it doesn’t it doesn’t involve attorneys, because it’s a different answer is the same fundamental answer for every person. But there are a lot of specifics that are different, but I will tell you in general, the idea is that there are completely independent third parties that are really interested in doing business with folks like me and you who are creating intellectual property. That can be a benefit to our own businesses, but not directly. So it is frequently the case that either a third party entity can be formed that’s owned by someone else entirely. And you got to pick that someone carefully. And there are a number of ways to do that very intelligently. But so that you can have a third party entity owning that, that stuff and placing it into a retirement account for essentially for your benefit. But not necessarily directly for your benefit. There’s a little creative thinking that’s that’s involved here. And there are generally two or three different layers of activity. But that’s the nature of how this works is that you have an independent third party, unrelated third party that gets involved in this, and they’re going to take a little bit of the money they’re getting, they might take, you know, 10% of whatever you’re paying to your, to use your own intellectual property. But if you’re paying more than 10%, in taxes, that’s a gimme. And furthermore, what that does is it lets you put a huge a much larger amount of money into your self directed retirement account for use in the here and now. So that’s it’s really hard to beat, it’s it’s a, it’s not a simple thing. And it’s not something that is appropriate for the entrepreneur who has just started their business and is trying to get on their feet. This is more something for people who have already experienced a level of success. And they are trying to protect themselves from the horrible effects of taxes. So it is a powerful thing. And we really focus on that type of strategy. We also focus a lot on on joint venture arrangements for funding our deals, so that we don’t ever have to go into debt.
Jason Hartman 51:13
Brian, you have a lot of subscribers to your newsletter. I just want to give you a chance before you go. Are there any other hot stories? You don’t have to tell us all about them in depth, but just mention them? And then just give out your website?
Bryan Ellis 51:26
Yeah, well, there’s always something interesting going on, you know, we, we recently had a story about and this one went like gangbusters. It just kind of anecdotally interesting. The Playboy Mansion, the original one was in Chicago still there. And it’s basically just a bunch of condos at this point. And what is interesting is that Chicago over the over a long period of time has has gone up in value. But that particular that particular piece of real estate, really is kind of stayed exactly where it is for years and years and years. And there is that that’s fascinating to me, because you would think that having the the, the the kind of notoriety, yeah, the brand recognition that that has, that it would be a much more desirable property. But I think really the lesson here, Jason, is that fundamentals are what matter? Not not flashiness, not not crazy branding, but fundamentals and in that case, who really deeply cares if they end up with a condo in the Playboy Mansion? Ultimately, nobody because of the value really hasn’t changed over time.
Jason Hartman 52:39
What is your website?
Bryan Ellis 52:39
My website is investing dot Brian Ellis calm that’s br y a n e Ll is calm investing. Brian ellis.com.
Jason Hartman 52:46
Good stuff. Well, very interesting discussion. Brian, thanks for joining us today. I’ll bet you what we talked about is probably going to come true in terms of inflation just kind of the way this is all gonna work out. I don’t know how it can do anything else. I mean, with history as our guide, the evidence is just overwhelming. Yeah, there’s got to be a little bloodletting. You just got to prepare yourself for it and plan for it. And you can actually benefit from it. Absolutely good stuff. Well, hey, it was great having you on the show. Thank you, Jason. It’s been my pleasure.
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