Inflation induced debt destruction

The tables are turned in Episode 638 as Jason Hartman is interviewed by Brian Bain to talk about why inflation induced debt destruction should be your investment strategy.

Jason discusses how it all began

Before beginning the discussion about inflation induced debt destruction, Jason talks about how he got started in real estate investing. He grew up fairly poor in Los Angeles, California and when he was 16 years old it hit him that money is a significant part of life, it’s important. He didn’t think too terribly much about it before that. He happened to be at home and was watching an infomercial and there was a real estate guru talking about his book and how to buy property without money, the typical spiel that you’ll see on TV. He heard him talking about it and Jason went out and got his book and read three chapters of it. He put it down and his mom picked it up and read the rest and she became really interested in the topic. Two years later Jason was about to graduate from high school, and his mom said “You know, Jason, you’ve got me into this real estate stuff. You got me going to seminars, reading more books about it, and there’s one this weekend by Disneyland in Anaheim, California, why don’t you go?” And so he rounded up nine buddies from high school and got them all to go to the seminar with him. They all showed up on Friday evening and the first speaker was talking about something called points, and Jason didn’t know what points were.

By the end of the seminar Jason was hooked.  He stayed all through the weekend, through Sunday afternoon. He saw all the speakers while all of his friends had gone off to the beach to boogie boarding or work on their tans, but he stayed inside and saw every speaker and the first thing Monday he went and looked for a place to enroll in real estate school. And by the time he was 19, in his first year of college, he got his real estate license. A  couple of weeks before his 20th birthday he went to work at a Century 21 office in Anaheim, California, and started selling real estate part time while going to college. He sold five properties in his first full month of business.

Jason’s first real estate investment

One of Jason’s clients, a man named Jim Wool, was buying investment properties from him, and he was driving Mr. Wool around in a little Volkswagen Jetta.  Mr. Wool went to Jason about six months into his career, when Jason was 20 years old, and Mr. Wool said, “You know, Jason, one of these properties I bought from you, I don’t like it very much. Why don’t you take this thing and sell it for me, find a buyer, and I’ll buy another property with the proceeds.” Jason told him that he didn’t want to sell it for him, that he’d like to buy it from him. He subsequently bought the property, a small one bedroom condo on Coventry Lane in Huntington Beach, California and that was his first rental property. Unfortunately, he had what most people would consider a bad experience. His very first tenant stopped paying rent after a couple months. He had to evict them from the property and they left the property in bad condition. He ended up selling it to another investor who was doing a 1031 tax deferred exchange and he actually did okay on it. After that, he started buying properties and selling real estate while going to college.

Addressing the fear factor

Brain asked Jason what advise he would give for those on the fence, unsure of the risks of real estate investment and the fear factor involved with getting started.

Jason explained that income property is a multi-dimensional asset class so when you look at stocks if they’re non-dividend paying, you have one source of potential profit, capital gains only. If you look at precious metals, capital gains only. If you look at raw lands, capital gains only. But income producing real estate, income property is a multi-dimensional class, so you have capital gains opportunity through appreciation, you have tax benefits because it’s the most tax favored asset class in America. Taxes are the single largest expense in any of our lives, so that’s huge just on the tax angle alone and then of course you have income from the property and you have leverage.

Non-recourse loans

Jason said the vast majority of income property loans are non-recourse loans. You can walk away. That’s what he calls the explicit, nuclear option that 10 million people did during the great recession. In fact, a lot of them walked away and got paid to walk away. Countrywide, the Bank of America was literally paying people to do short sales, unsolicited, on their properties. They probably sent millions of letters that said we will pay you to do a cooperative short sale anywhere between $6,000 and $30,000. We’ll let you out of the loan, you’re off the hook, just sell the property. Of course they did that because of all the dynamics to which we’re not privy to but it’s probably tarp and the omnibus bailouts the banks got. And usually, very rarely, is there actually a recourse loan on a piece of housing. Walking away from a non-recluse loan can have a negative impact on your credit score, but there are some legitimate credit repair companies out there. Just be aware that there are some companies running scams and they do nothing for you. The bank will sell the home and if it sells for less you won’t be responsible for the deficit balance.

Inflation and real estate investing

Jason explained in simple terms inflation induced debt destruction. If you borrow for a $100,000 house in 2015 or 16 now, and each year there’s inflation, you’re still paying back the same fixed amount of $100,00 but your paying it back with cheaper dollars you can afford.

Old people generally have assets in the form of savings, stocks and bonds while young people generally have debt, so their debt is paid off through inflation, however, older people suffer because the value of their assets is debased by inflation. It’s all denominated in dollars or whatever currency is being inflated. More information can be found at

More from Jason Hartman:

Finding Cash Flow AND Appreciation in Orlando
How Enlightened Finance Restores Faith in Capitalism

The Jason Hartman Team