This Flash Back Friday episode is a recording with Jason Hartman on The Al Rantel Show on KABC LA. He gets interviewed about the current economic situation and the 2008 recession as it was just declared. Then Jason Hartman explains inflation and relates it to real estate investing.
Announcer 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 is 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 1:11
This is Jason Hartman, thank you for listening to another edition of creating wealth. We’ve got an exciting show for you today. But before we get into it, I want to just mention a few things. Number one, be sure to join us for some of our live events. We’ve got tremendous live events, and also our conference calls if you’re not located nearby, tune into our conference calls. These are all posted at Jason hartman.com. conference calls are no charge, nominal fee for live events just to cover costs, food meals, and so forth. We’ve got a conference call coming up very soon. So check the website for that and join us also, our financial planning seminar fatten your golden goose is coming up on June 4, and then we’ve got our go zone seminar on June 10. poker tournament, which is a charity fundraiser for the Leukemia and Lymphoma Society. By the way, we would very much appreciate your support. And we do appreciate your support several of our clients have donated. Thank you very much for doing that. And anyone who hasn’t yet, just go to the website, you can do it right online just takes a couple of minutes. So of course tax deductible, but our charity poker tournament for that is Saturday, June 14, it’s almost full. And then we’ve got Of course, creating wealth the same day, and that’s on June 14, as well, Saturday during the day poker tournament is in the evening. All right. I wanted to share with you a radio interview from Friday, because it is timely, what is being discussed on here. So I wanted to share that with you right away. And also, thank you all so much for sharing your questions. We really love to answer your questions. So go to Jason hartman.com. Click on the Ask Jason button, and you can ask your questions in great detail. Over there. And we will be answering a few of those questions on this show. So let’s listen in music.
Announcer 3:15
Wow. That’s how long I’ve thought about the Friday thank you guys for remember hit their control.
Al Rantel Show Speaker 3:22
But somebody remembers what’s going on around here. And this is a very, very important day because money money money has been a huge issue right next to the political news. It’s been issue number one. In fact, CNN came up with a brand new program over the last few months called issue number one all about the economy, because everybody is concerned about the economy, about gas prices, about inflation, about food prices, about the value of their homes and where it’s all headed and all economic stuff that’s been in the news and are we going to recession Are we going to be in a recession. And as you may know, if you’ve been listening to the rental show over the years, Jason Hartman Our financial Maven, as they say, in China,
Al Rantel Show Speaker 4:03
you have had 440 $6 billion in Adjustable Rate loan resets. Wow. Wow.
Al Rantel Show Speaker 4:12
And I remember one of the things you said on the show was on the last show we did together was that inflation was a lot worse. Do you remember that that anybody was could tell by the government figures.
Al Rantel Show Speaker 4:24
And now suddenly, it’s all you hear about in the news. Right?
Al Rantel Show Speaker 4:26
Right. Exactly. I mean, I knew it because I told you I was going to the grocery store and just buying things. And I kept saying to myself, you know, especially with things like food and now of course, we gasoline at $4 a gallon. I kept saying to myself, What in the world is going on with prices? I mean, low for Brad is like, you know, three $4 something’s going on here.
Al Rantel Show Speaker 4:46
It really is out. You know, in the past year, sugar prices are up 27%. You know, a lot of this is the ethanol issue. It’s not just monetary inflation, but a big part of it is monetary inflation as well as the ethanol Issue, corn prices are up 67%. Wheat is up 73%. I mean, it’s like the same house of cards that the subprime mortgage debacle has been about, you can hide it for a while. But eventually the truth must come out and it must show and and that’s what we’re seeing the inflation numbers right now you
Al Rantel Show Speaker 5:20
told me that you believe that lots more inflation is on the way. Can you elaborate on that?
Al Rantel Show Speaker 5:25
I definitely do think a lot more inflation is on the way. There are many reasons for it. Number One reason is the way that the Federal Reserve system operates in this country. It is, to some extent, a big Ponzi scheme, frankly, and and that can’t go on forever. You know, you can’t just keep making money to pay for government programs for our politicians to buy votes from people, which, you know, we’ll talk about politics hopefully, yeah, during this call. Yeah. And and you can’t keep printing money and have the values stay the same of $1. So the value of the dollar is declining. You’ve got massive increase. tectonic shift in global consumption and global prosperity.
Al Rantel Show Speaker 6:05
explain what you mean by that.
Al Rantel Show Speaker 6:06
Well, never before in human history have we have this India and China effect. And you know, it’s not just India and China, that’s who gets sort of all the PR, but there are a lot of other countries, most notably Brazil. Brazil is a country that is going to build something like 9 million new homes or something, you know, don’t quote me on the number out, but it’s a lot.
Al Rantel Show Speaker 6:26
Yeah, I heard about that. Having a boom.
Al Rantel Show Speaker 6:30
Going, right. Yeah. And what does that
Al Rantel Show Speaker 6:32
do that what does that what does that mean for us since we’re thousands of miles away?
Al Rantel Show Speaker 6:36
What it means is consumption. I mean, you look at these horrific earthquakes in China, too. That just means more consumption of all the raw materials to rebuild. Right. You know, yesterday was the beginning of hurricane season. When when Katrina happened a few years ago, that was massive additional consumption of all these raw ingredients, all the commodities to build houses to build office building. And to rebuild things and it’s just going up and up, you know, there may be short term down downturns in these building material costs, but the overall trend is way up, in my opinion, I know you’re
Al Rantel Show Speaker 7:11
gonna stay with me because while eventually we’re gonna get to questions from the audience, and eventually we’re gonna get to, you know how the investor protects themselves, given the cards that are on the table right now. We’re gonna get to that. But I just want to ask you, in the last six months, you’ve witnessed what’s gone on in this? Well, I think you were the one that called them on my show liar loans, where people were giving while remember that people are giving loans for homes, they obviously could not afford and they do you know, with no documents and all this kind of stuff. And where are we now? Because there is no national real estate market as you’ve taught me before. Every market is different. But where are we now in this whole subprime mortgage massive is there more to come?
Al Rantel Show Speaker 7:56
Well, there is more to come, but we are largely Through a lot of it, you know, last month, Elena, or I’m sorry, in April, which was the last tabulated month. For closures in California. We’re just over 64,000 new foreclosure filings, and in Florida about 35,000. And those are the two leading states. And then you go down from there, but what’s happening here is you’ve got this sort of hidden foreclosure issue. And here’s what it is. Banks really don’t want to foreclose on properties because of the way their accounting works. And what we’re seeing banks do, which is seldom talked about immediate, is actually intentionally postpone foreclosure, or approach the foreclosure process from a different angle known as a judicial foreclosure, rather than a statutory foreclosure, which is a slower process so that they don’t have to put these properties back on their books so quickly. So there are a lot more foreclosures coming. I mean, we’re going See a huge additional waves of it. But it seems to me and this is just sort of an impression rather than a data oriented opinion. But it seems to me that now everybody has become skeptical of the credit markets, right has become skeptical of these crooks on wall street that are doing this bogus accounting methodology to cook the books, essentially. And people are cautious now and they’re aware. And so I think the best analogy I heard, which I do agree with was some commentator somewhere said, you know, if this were a baseball game, we’re in the fifth inning. And I kind of agree with that. I think we’re, we’re largely through this there. There’s a lot more effect to come from it, but it seems that it’s somewhat known now. Is this what we’re really
Al Rantel Show Speaker 9:46
Is there gonna be a recession?
Al Rantel Show Speaker 9:48
I think we’re in a recession.
Al Rantel Show Speaker 9:51
Because Because, you know, the the first quarter economic growth came out and it was point 9% increase yesterday, so I assumed that that that means We’re technically not in a recession,
Al Rantel Show Speaker 10:02
you know, those numbers are manipulated, frankly, and I don’t trust them. I just know that in my life, our business is a little bit slower. It’s still pretty good. But everybody I
Al Rantel Show Speaker 10:13
talked to says that everybody’s
Al Rantel Show Speaker 10:16
complaining like crazy. So, you know, if you asked me We’re interested recession.
Al Rantel Show Speaker 10:20
I tell you why. When we come back, I want to get more into your thoughts on what does the average person do? And it’s, you know, the investor do in a situation that we find ourselves in Now, given the, you know, the, the way we just set the table here just now. And also maybe you can give people some input on what the real estate market is like and where it’s headed right here in Southern California. Because like I said, there is no national real estate market. They’re all different, right? Jason Hartman is our guest. He has always been our financial guru here. The real estate market situation people have seen the value of their halls depending on what country you live in, where country, what part of the country you live in. drop dramatically and so people don’t know whether to buy whether to sell whether weight whether to hold whether they’re going to be underwater. What’s the story? And can you zoom in on Southern California to?
Al Rantel Show Speaker 11:12
Yeah, good question. You know, in terms of Southern California, I was, I was criticized a lot for the last three years or so about being too pessimistic about the California market or the Southern California market in particular, saying that, you know, I thought when this all ended, we would be about 25% off the peak in terms of our prices, prices would drop by that much. And, you know, I’m kind of updating my my predictions as we go along. And I’m actually getting a little more pessimistic. I hate to say that, I think I think we we know what’s coming at us now, as I mentioned before the commercial break, but I really think we’re going to see another 10 maybe 15% of a decline and I just, I wish it weren’t true, but I I just don’t think there’s real good news on the horizon
Al Rantel Show Speaker 12:02
over you mean over the next year?
Al Rantel Show Speaker 12:05
Yeah, about the next year, maybe even a year and a half. I think things could start to get better by next summer, you know, a year away. But there’s just a lot of foreclosures in the pipe that haven’t hit the market. Yep. And in terms of the adjustable rate reset. So there’s some good news about that, you know, we’re largely through the worst of that. March was really the worst month with about 110 billion dollars of adjustable rate loans, resetting. And if that number is declining, you know, this month in June, we’re only going to see about 75 billion next month, about 50 billion. So it’s healing but there’s a lot of pain still in that pipeline that needs to be dealt with behind now.
Al Rantel Show Speaker 12:48
But when there’s pain for some, there’s pleasure for others. And still, you still believe that real estate can be where it’s at. If you know what you’re doing.
Al Rantel Show Speaker 13:00
You know, well, I almost don’t even want to call it real estate because our investment philosophy here at Empowered Investor investor network is one of really not investing in real estate. And I know that may sound funny because we are a real estate investment firm. But we really invest in areas around the country and 37 markets around the US with very low low land values. So you know, you call them real estate, but only a small percentage of what we buy is actually real estate. The rest is building materials and as we talked before, the break building materials are what we’re really buying. That’s really the investment
Al Rantel Show Speaker 13:35
that would be like concrete and copper and glass and steel and lumber, right, all that stuff.
Al Rantel Show Speaker 13:39
You got it, you got it, and those prices are headed nowhere, but up over the long haul, in our opinion. I mean, I you know, I just don’t think there’s any other case against that. So we invest in those and what we do is by putting the real estate label on it, we get really, really desirable financing, and we get really, really desirable tax benefits. And we get another really, really desirable thing called a tenant who pays the financing for us. So it’s just the perfect equation. And right now in the markets around the country, it’s the perfect storm, because of all the negative media news about real estate, you know, it’s an imperfect market, and there are little pockets of opportunity in so many places. If you look at the southeastern United States, or the Mid Atlantic portion of the US, I mean, there are just some phenomenal markets and and, you know, just a few days ago, that Case Shiller index came out that showed all of this depreciation in the 20 major metro areas.
Al Rantel Show Speaker 14:37
Yeah, when I saw that, it was 19 of the top 20.
Al Rantel Show Speaker 14:41
Right. You know, I largely agree with that. But what it doesn’t tell you is it didn’t talk about the 360 other markets. It’s a it’s a total snapshot and the country is so large and diverse right
Al Rantel Show Speaker 14:55
there. In other words, if you’re in Alabama or Mississippi or North Carolina You could be totally different than if you’re in some Las Vegas.
Al Rantel Show Speaker 15:04
Yes, absolutely. You know what I say Las Vegas is starting to look a little more attractive. It’s not it’s not at the bottom yet, but it’s gonna be attractive. We’re starting to pay attention to some of these old markets we’ve been ignoring for the past few years.
Al Rantel Show Speaker 15:17
And how does, how does inflation help an investor?
Al Rantel Show Speaker 15:21
Well, I think inflation is really one of the most wonderful assets to an investor because what it does is it inflates your rental prices, it devalues the dollar, it devalues the loans you owe on your properties and the big hidden wealth creator out is that so many people that bought real estate and rented it out, you know, in the in the 70s in the 80s and the 90s, where we had much higher inflation rates and the government will ever admit. But you know, even in low inflation rates, it still helps you what really happened, what really created their wealth was the decline in the value of the mortgages. they owed on those properties. So it behooves an investor to use as much financing as possible. Because when you pay it back, you pay it back and cheaper dollars. I remember when I was a kid, I used to watch this cartoon, Popeye and pop. Yeah, Popeye.
Al Rantel Show Speaker 16:16
Popeye has to do with inflation. But go ahead,
Al Rantel Show Speaker 16:21
buddy. I’ll gladly pay you Tuesday for a hamburger today.
Al Rantel Show Speaker 16:27
The money is worth less tomorrow than it is now
Al Rantel Show Speaker 16:31
wimpy can teach us a lot about inflation. That’s really the role right there.
Al Rantel Show Speaker 16:35
So the rule is you don’t you when you buy something, you buy it with as much borrowed money as you can.
Al Rantel Show Speaker 16:44
Yes, and you buy a set of commodities, those building materials that have a lot of appreciation coming to them? Well, the debt against the asset is depreciating. So you’re winning two ways and in real estate We don’t pay our own debts or tenants do. So it’s just a perfect storm. It’s a perfect equation, and no other investment has those type of characteristics. Let’s say,
Al Rantel Show Speaker 17:09
well, we’ll do that there’s a lot of questions about the economic situation that we find ourselves in. We’ve talked about a lot of it in the last couple of segments, but I want to leave the very last segment, which is only, you know, to the quarter hour, here’s, you know, to our listeners, Jason, would you be willing to answer their questions? Absolutely. I would just, I would just ask them to keep the question right, as brief as you can so we can get to as many people as possible. We’re talking about all the economic news with Jason Hartman. Glad to have him back. Jason. I got to get a couple of callers in because I promised that we’re gonna run out of time. Gary, you’re on kvc. Without
Al Rantel Show Speaker 17:40
Hi, Al. Welcome back. Glad you’re doing well.
Al Rantel Show Speaker 17:43
I am Thank you.
Al Rantel Show Speaker 17:45
Chase it. I was at a meeting yesterday and a mortgage
Al Rantel Show Speaker 17:49
woman told me that big institutions like wamu and Wells Fargo, are so backed up with their foreclosures that people have been living in their houses. Virtually rent free for about a year. And she said she thought it would take him another year to even get her getting around to serving them. So is that? Is that why you base your figures on another 10 to 15% drop in
Al Rantel Show Speaker 18:14
value, because it’s going to take so long to clear up this mess? Yeah, it is scary. And so that’s a great question. We alluded to that earlier in the talk today. And there are just a ton of foreclosures sitting in the pipeline. I mean, I couldn’t even give you the numbers, because really, it’s kind of like the subprime collateralized debt obligation issue. You know, nobody knows exactly. And the banks are slow to foreclose, and people that are living in homes they could never really afford in the first place are really getting the benefit of it, frankly, because I saw this happen in the 90s where people were sitting in their house for, you know, nine months, 13 months, no payments. Even worse sometimes for the banks is occasionally they would be renting their property out they’d be collecting rent without paying the mortgage.
Al Rantel Show Speaker 18:59
Yeah. double dipping
Al Rantel Show Speaker 19:02
on the mortgage and collecting rent. I don’t like sign up for that deal.
Al Rantel Show Speaker 19:06
These are all the quote unquote victims, right? Yeah, they’re getting a free ride. It’s
Al Rantel Show Speaker 19:11
very that was a great question. Thank you, Kathleen. You’re on k ABC with Alan Jason Hartman.
Al Rantel Show Speaker 19:17
Oh, it’s so good to hear your voice.
Al Rantel Show Speaker 19:19
Oh, thank you.
Al Rantel Show Speaker 19:20
So I have a quick question. I have a home loan, my primary residence 1,000,007 50 is the outstanding balance. We had a teaser rate that’s set to reset in February. Right now it’s 4.25%. I know those are crazy rates. But we’re wondering if we should pay down to a million dollars get all the Bennett tech benefits possible, pay down a million dollars and get a better rate also for a fixed rate. Whatever is available at the time we do it before the February change.
Al Rantel Show Speaker 19:52
Well, we do recommend getting fixed rate loans and the properties are you going to stay in live in that home and you’re going to stay there Okay, I would recommend getting a fixed rate mortgage. And I just think it’s a, it’s a prudent idea. I don’t like the idea of paying down your mortgage. If you can refinance without having to pay it down. I would keep as much debt on the property as possible, and as much money in the bank as possible or use that money to invest elsewhere. But putting equity into a property is never a good deal. So basically
Al Rantel Show Speaker 20:22
free up the money so I can buy some of the things that are people
Al Rantel Show Speaker 20:25
are getting foreclosed on. Yes, there are some good opportunities, but don’t buy them in California. Yes.
Al Rantel Show Speaker 20:32
That’s a great question. Susie, you’re on KBC. Without
Al Rantel Show Speaker 20:36
Yes, hi. Thank you. First of all, I’d like to say being a cancer survivor. I’m especially excited to know that so well, and that you’re back. So
Al Rantel Show Speaker 20:44
God bless you back then. Thank you. Thank you.
Al Rantel Show Speaker 20:47
Now my question is, it’s just a brief one, but I’ve not heard it address before. I’m curious how the depreciation in the value of real estate here in Southern California relates to Income property, I happen to have a property with three homes on it. And I’m curious what the impact is on that type of real estate?
Al Rantel Show Speaker 21:08
Well, it now there are two depreciations to talk about when it comes to real estate, there’s an actual decline in value going on. That’s the bad kind. And there’s a tax depreciation on investment properties. That’s a good kind of depreciation. It’s actually a tax benefit. So I assume you’re talking about a decline in value. Is that correct? Yes, exactly. Okay, generally speaking, and I’ve got to really paint with a very broad brush here. The income properties in Southern California are in largely the same boat as the residential housing in Southern California with a little bit of a time lag. So you know, this is just a triplex essentially three homes on it. And my assumption would be that that would be in the same type of situation that any other single family homes and commercial properties larger commercial properties locally are just have been starting, but they started to feel it later, the effect of the decline in the market. And generally speaking, it’s about an 18 month lag time between the residential and the larger commercial type investment properties, you know, apartment that larger permanently shopping centers that kind of stuff
Al Rantel Show Speaker 22:18
office Susie, Susie, thank you so much. And wow, Jason that time went by, you know, I just love how smart Jason is. I can listen to smart people talk all day long. And Jason is one of them on the top of the list. So Jason, thank you for your time. And thank you for everything else you’ve done and people can find you at Jason Hartman calm and we’ll talk again soon. Bye Bye. Thanks to you.
Al Rantel Show Speaker 22:45
I appreciate all of you going to the Jason hartman.com website and filling out the Ask Jason portion of the website. Ask all your questions. We love to hear from you listeners, and answer all of your questions on the creating wealth show on the air on The next show was the time. So, Laura, we have two questions this week, right? Yes, we
Al Rantel Show Speaker 23:04
do. Let’s start with Ben Smithers, who’s referring to our show number 55. He comments in this podcast you stated that equity and properties are constantly eroded by inflation. I don’t believe that’s true. Inflation is actually a key part of what creates equity. Mortgage pay down inflation and demand growth are all key components to equity creation, property and other hard assets are hedges against inflation mainly because they hold stable and value as currency devalues. So I actually see inflation as my friend. As the value of the dollar is eroded by inflation. My houses appreciate the dollars i borrow decrease in value, and my equity position goes up. I fully agree though, that we need to harvest the equity periodically to put it to productive use and to keep the multiplier effect maximized. I love your podcast and I particularly enjoyed this one again. meet some ideas for maximizing my long term profits. Thanks, Ben.
Jason Hartman 24:05
Okay, Ben, that’s a great question. Thank you so much for asking. And you know, we just appreciate these questions, because as one person asked, like Ben did so many of you are probably thinking the same thing, then your question is mostly correct. There’s just one minor distinction that you’re missing. So I want to bring that to your attention. You are right, that assets, including real estate, and the commodities that build the properties, the building materials are a great hedge against inflation, and the debt declines in value due to inflation. Here is the distinction that we’re not seeing though, so let’s make sure we see it.
Al Rantel Show Speaker 24:43
Thank you for listening to the creating wealth show. This is Jason Hartman, your host and we appreciate you following the show. We have many, many episodes, hundreds of episodes, and some of the older episodes have been archived and placed in our members section and that applies to this one. So we include a sample that’s About 25 minutes long, and then for the rest of the show, you can go to our members section at Jason Hartman calm many of the other shows are still in their full length complete version. However, some of the shows like this one are in our member section where you can hear the show in its entirety. And again, you just need to go to Jason Hartman calm and you can get the full show there in the member section plus a whole bunch of other great members benefits and resources, whether it be documents, forms, contracts, articles, other video and audio content, just a great resource, so be sure to join as a member at Jason hartman.com and thanks again for listening to the creative world show.
Al Rantel Show Speaker 25:54
This show is produced by the Hartman media company All rights reserved for distribution republication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own and the host is acting on behalf of Empowered Investor network, Inc. exclusively.