On this Flashback Friday episode, Jason Hartman interviews Catherine McBreen, President of Millionaire Corner and the author of “Get Rich, Stay Rich, Pass it On: The Wealth-Accumulation Secrets of America’s Richest Families.” They talk about the effect of stocks on the record number of millionaires. She also shares “Find an Advisor,” a service that helps people find the best financial advisor and analyzes investment newsletters in place of financial advisors. Catherine also shares the effect money has on happiness and marriage relations.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com. Welcome to the Flashback Friday edition of the creating wealth show with Jason Hartman.
Announcer 0:14
As he rapidly approaches 1000 episodes of this podcast, he has hand picked individual episodes that he feels is going to be good review for you to prepare you for the future by listening to the past. Let’s dive in.
Announcer 0:29
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 who’s owned properties in 11 states had hundreds of tenants Get 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 1:19
Glad to have you today. So I’m going to record an incredibly short intro. It’s because we’ve got two guests segments. Today we are going to talk first with Aaron one of our lenders, we’re going to talk about mortgage stacking something I have also referred to as mortgage sequencing, and I guess you could call it either one. But what it talks about is really how to maximize and strategically plan your financing which is more important than ever nowadays, because the number of loans you can get is limited. However, there are things you can do in the secondary or private market, I shouldn’t say secondary market because that has a double meaning. Fannie Mae is the secondary market. That’s kind of confusing. But there are things you can do to get past your 10 loan limit and do more. You’ll hear about some of those today. And we have talked about some of them on prior episodes. And so we’ll talk about that and then we will have our guest guest if you will, and that is Katherine McBrain, who is from millionaire corner who will also talk about some very interesting things. I guess the only thing I want to say before that is if you haven’t registered already, for our Austin property tour, be sure to do so at Jason Hartman calm and you get a free copy of the creating wealth home study course. And of course Austin is just such a fantastic market. By the way, I was looking over my portfolio and I know the property taxes are higher in Texas, obviously. But it’s just amazing to me how easily this passes through to the tenant because the rents are higher too. And Austin is just such a phenomenal city. I’m so glad to be back in there doing business again. And we will have our tour at the end of September there. So be sure you join us for that. Don’t miss it. Also we’ve got the contest for that, and a whole bunch of you have entered already. And that is available at Jason hartman.com slash contest. And we will pick our winner soon for that. But if you enter the contest and you win that contest, and you register for the tour, we will promptly refund your money of course, so either way you win registered for the tour at Jason Hartman calm in the events section and also enter the contest as well at Jason Hartman comm slash contest. And let’s go to Aaron let’s talk about mortgage stacking, how you can maximize your financing potential, and then we will have Katherine McBrain from the millionaire corner. Be back with that in just a moment.
It’s my pleasure to welcome Aaron back to the show he’s been on before you’ve heard him speak at our meet the Masters events over the years. And he is on today because I want to ask him some questions about how you can get past The the 10 financed property limit through mortgage sequencing or mortgage stacking, depends how you look at it, but either of those terms might apply properly. And you need to do this with with some degree of strategy working with your investment counselor. And if you’re not working with an investment counselor at our company yet, go to Jason Hartman calm, contact us through the website so that we can get an investment counselor helping you in making these decisions. I definitely have seen people go out and sort of not have a good strategy. And they really limit the amount of investing they can do because of this.
Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday.
So Aaron, welcome back. How are you?
Aaron 4:50
I’m really well Jason, good to talk to you.
Jason Hartman 4:52
Good. So mortgage sequencing as I have called it for a while now. And mortgage stacking is also So a good term for it. What’s the what’s the rule? Now? I mean, you know, it used to be, well, let’s just give a little history here. It used to be get as many mortgages as you can qualify for. And literally before the financial crisis, there were people that had hundreds of mortgages, it was absolutely crazy. And then the financial crisis hit, and it went down to four finance properties. That was the rule, you could just have four that was it. And now it’s pretty much back up to 10 in most cases, but if you’re creative, and you plan it, right, and you use a strategy, you can really go up to what 1919 as
Aaron 5:38
we haven’t said today,
Jason Hartman 5:39
yeah, and that’s today. And of course, this is subject to change. And hopefully, it will become more liberal in the sense that you can qualify for more mortgages. But that remains to be seen the bankers are still pretty stingy with their lending, but kind of outline just real quickly here a little strategy for this.
Aaron 5:56
Well, what you know, as you mentioned, it wasn’t that long ago, people can just go Crazy just get all kinds of financing. And as long as the qualified when with things going sideways as they did or downwards, however you want to look at it distinctly came from somebody go having a financial crash personally and having 20 or 30 mortgages and now they can’t pay any of them, testings still exist, that wound still healing. But we found that, you know, utilizing Fannie Mae and using the conventional processes to do those first four, and then that next six, and then most of the in most cases, persons capped out that we put together a partnership, if you will, to where we can utilize the capability go do four more, and then another five beyond them, and we have to actually do them in different in different segments, if you will. So to accomplish this, it really takes us to sit down with each individual who wants to go down that path and see if they have the financial wherewithal to do it because it does take more down we’re looking at 65% loan to value so 35% down on each transaction. On top of that there are some points in Because people are not going to go to this extent for free, they’re going to take advantage of the situation that exists now with the government putting that, that cap on things and the banks and the investors, capping us at that sometimes for many times 10. So they’re going to try and gather a couple of points to front load their their risk. And you’re also looking at slightly higher interest rates. And we’re close to the sixes, and a little over 6% in many cases. So a lot of people ask me why why such an expensive rate most let’s look at this, you know, historic, historically 6% phenomenal rate? No. So when you’re looking at the ability to go beyond what has been out there, as far as the availability of funds, and you’re still paying a very reasonable rate, considering it historically, there’s really not a whole lot to go to, to dig your heels in over, especially if you are looking at things and penciling it out to where it’s going to make a return on investment. As you’ve said in the past, if it returns great, if it doesn’t, it doesn’t then don’t step into it. So it’s a matter of finding those markets, which you’re you Our team has been able to, to almost pinpoint what market would work well, for something like that finding those that are at a particular price point, with a specific rental capability to continue to cash flow, when you’re talking about an interest rate about one and a half to 2% above the norm right now.
Jason Hartman 8:17
And those are still very low rates, what people need to keep in perspective is number one, they’re not paying that rate, the tenant is that you’ve outsourced your debt to a tenant. And so the tenant is paying, hopefully, all of it hopefully a little extra to you in the form of positive cash flow. But if they’re not, they’re paying most of it. And what they’re not paying is deductible on your taxes. And so then when you take all that into account, and then you add inflation into the mix, where I believe and most people that are, you know, informed, agree with me that inflation is currently about nine to 10%. And the likelihood is it will get much higher in the future. You’re still getting paid. To borrow, because you’re borrowing at a rate lower than the rate of inflation. And with that said, you’re not paying the rate anyway. So it’s it’s like you get this, this double inflation arbitrage, I call it where you outsource the debt to another party, you get the rental income from them. Hopefully the rental income pays more than the actual debt, even if it doesn’t, the rest of that is deductible so that the government is going to take about 40% of that, depending on your tax bracket, and what state you live in, off your load. And then the rest, inflation is paying for it because you’re borrowing below the cost of inflation. Even if you get the property vacant, and paid all the debt yourself. You’re probably still getting paid to borrow as long as inflation is higher than the debt.
Aaron 9:48
Exactly. It’s a matter of a person’s philosophy. What is it? How does how they see things, if you want to focus in on interest rate, and that’d be your main focus. This may not be the arena you want to play in, but it seems like Those people that that listen to the podcasts that talk to your investment counselors and speak with you, this makes a lot of sense for them. And a lot of them have looked at and said this pencils out with their philosophy they’re running for because this is an opportunity doesn’t exist anywhere else.
Jason Hartman 10:12
Yeah, it sure is. Okay. So just go through it again, if you would, how do you how do you stack up or sequence up to 19 mortgages, you go and you get
Aaron 10:22
10, Fannie Mae mortgages, right, the traditional mortgage, let’s start that actually a little bit a little bit before the 10. When we’re talking about an individual wanting to get into the game, I want to utilize the leverage to their advantage. Most people are going to have their first their their primary residence and most of them haven’t financed. So that’s going to be their one. They have the capability to do for basically three more up to four finance properties specific loan to value and a specific rate bracket, because those are bills fall under their own type of lending. So we take advantage of that because those first those first four finance properties or those first three investments, we’re going to give them a little bit of an LTV, LTV break, loan to value break, and a little bit of interest rate breaks, we might take advantage of those. And most of those that I’ve worked with like to put in the most expensive ones into that place, because that’s where you’re going to get your best best rates as loan devalues less money out of your pocket. As far as your downpayment to save for the future purchases, then we go into five through 10. those loans require about an additional 5% down the rates slightly higher. It’s very negligible when you’re looking at on paper, but it’s still there. So that’s also something that we want to look at. And we want to pause between number four and number five because we want to let things settle in before we jump into that next bracket of financing. Many people get very impatient and they want to finance 10 right now, but because they do that they lose out on the little benefits that come between 3423 and four. Because if we decide to buy four at the same time, you have 234 and five The lenders that are looking at that saying, hey, these people are trying to finance up to five finance properties including the primary, we have to count all of them as if they’re in that, that higher bracket and bump up all their loan devalues bump all their lender values down by 5% increase their down payments by 5%. So we have to keep that in mind, then when you start doing five to 10, we will begin want to stay where we’re not jumping over the 10 right away until we get it all settled out. Those are other ones you want to do some more expensive properties that got a fee of course that are going to cash flow, but that’s when we look at that now once those are all settled,
Jason Hartman 12:32
and let me just say something about that. Couple things here. Just hold that train of thought, Okay. Okay, first of all, so on the more expensive properties Remember, we’re only talking about residential style loans here. And residential is considered anything one to four units. So you might buy a four Plex so that you use a higher loan amount because they’re they’re only counting the number of loans, not the amount of money. You’re borrowing. Of course, you don’t want to go buy a property that doesn’t work in an expensive market like California, that doesn’t make any sense. But you might want to buy for a four unit building rather than a single unit in a market that works and makes sense, and has good cash flow, because then you get to accumulate more real estate, a greater number of units or doors, if you will, four doors instead of one in that example. And you’re still using only what is considered one loan. So so that’s one thing. The other thing I just want to say is that none of this has meant I don’t want anybody to get the wrong idea here. None of this has meant that you should not disclose to any lenders you’re working with about other loans that you have in process or other properties that you own. Of course, they can find out on your credit report. But if you’re in process, it hasn’t hit your credit report yet. You need to always be up front and make sure you’re disclosing this to the lenders and if you Don’t, not only could you get in trouble for it, but you could lose the opportunity to close because some people out there are doing sneaky things. And they’ll find out, all of their loans will be canceled. And it’s a big problem. So better to just do things by the book and do them right. But use good strategy. That’s what we’re saying.
Aaron 14:19
And I can’t agree with you more on that one. If you’ve been if you try to hide something that may be going on with a different lender, or another loan you’re trying to do, it’s going to get found there’s there’s almost no way to hide that anymore. So disclose everything you’re doing, and let the people you’re working with help you strategize it to make sure that it gets to the point where you want to go Yeah, we
Jason Hartman 14:40
have people that come in and try to play games once in a while. And that’s just that just never works.
Aaron 14:44
It’s not it’s not worth it, you’re not going to get to your all you’re going to do is add more complication to your transaction and future transactions also is up weighing on the trust factor. If there’s anything there’s only one thing that we can have in this process is to develop trust. to somebody and never violate it.
Jason Hartman 15:02
Yeah, absolutely. Okay, go ahead with what you were saying no,
Aaron 15:05
but now we’re going into we hit number 10. So the individual has been able to take that institutional money that Fannie Mae money which is you know, down right now in the in the in the mid 4% without any extra points. Sometimes it gets a little bit lower depending upon for other factors, but you’re that you’re at that premium money.
Jason Hartman 15:24
Just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday and every Wednesday. Hey, one more common Aaron. Sorry, I got another call from you, folks. You see right there. What we’re talking about is those 10 Fannie Mae loans. Those are like gold, because real estate in America has been subsidized by the government since the Great Depression through Fannie Mae. And this is why it just makes so much sense to do this here, rather than in foreign countries. As I’ve talked about on so many of my shows, I’ve gone to 65 For countries, some of them several times, I’ve looked at Real Estate all over the world. And we just haven’t found anything more exciting than American real estate. If we had, we’d be talking about it, because we can sell that too, we can recommend that too. And put that into our referral network. But it just doesn’t work. I mean, the the American stuff is the best and, and, you know, look at those 10 loans, look at the unbelievably good interest rates on those first 10. And look at the great loan to value ratios on those subsidized by the government. The other countries, they just don’t offer that.
Aaron 16:33
And like you said, those are gold. And so get it gets right, let’s just step back a couple of steps to say about being very force forthright on what you’re doing. And being honest about what you’re trying to put together with somebody. You don’t want to lose the opportunity those loans because they are gold. So work with somebody that’s going to help you strategize with with a strategy to get those taken care of, and then move forward from there. So going forward to that loan number 11. Well, we have another bracket of 11 to 14 months that we want to focus on because we’re trying to distribute this. Even though we have lenders or hedge funds, however you want to reference them there, there’s investors out there that said that will finance above 10 those entities really only want to have a certain amount of exposure to one person. So one of them they’ll have an exposure up to four transactions for them, there’s another had an exposure up to five transactions for with with one person. Now one of them says that go up to 20 finance properties but don’t want to five person has five loan exposure with one individual. So in reality, we have to work in tandem with someone else. So we have the entity will go up for finance properties. You know, that’s where you start getting into the sixtus, you know, like a six and a half percent range, he started also getting into the point that you have to pay to Front Load the interest to make it make sense for the investor to do the transaction for you. So you do those next four. All all in succession. You got to do them all at once but doing whatever succession but don’t go beyond four, or don’t go into a commitment. As far as contracts or anything that effect beyond that for until they’re all closed and done, then you can start looking around for the additional transaction to bring me up to 19. And you have a then you have a little more freedom to just go out there and run and do do all at once if you like. But we really try and have everybody be very cautious between that number one, number one up until alone number 14, do it in order and do not start go out there and writing contracts before you start before you’ve settled out the other ones in these brackets, because even if you’re writing contracts, not even applying for financing, just writing contracts, you’re putting a date somewhere that you had an intention.
Jason Hartman 18:47
Oh, yeah, that’s good point.
Aaron 18:48
Yep. That intention. You know, intent is also is is has been argued in courts of law for hundreds of years. So we all said we have to take in consideration what your intent is. All right. Now we need to make sure that there’s no there’s nothing out there explaining to the show what your intent would be
Jason Hartman 19:04
good. So What number are we at now? Right now we’re we are we are going from 15 to 19. Okay, so now now we’re we’re in the homestretch here, folks. And after this, you either got to partner with people or you got to pay cash, or you’ve got to go get hard money or private lending, financing.
Aaron 19:21
And what we’re looking at what the whole goal is, is that if you’ve got 14 finance properties, that they’re able to yield you enough, they turn on a monthly basis that for that, when you hit that 19 Mark, you’re able to have that cash flow coming in to be able to reinvest into your business and start buying properties for cash. There’s no way why while you’re doing this, and building up this little Empire, if that person’s only reinvested, keep building your empire with with the return so that way, it’s feeding itself.
Jason Hartman 19:51
Let’s go 16, 17, 18, 19
Aaron 19:54
but with that being the factor that’s going to still fit into that, that 15 to 19 bracket Really, it’s at the pace that the individual wants to go at that point, we know that our cap is 19. We know that the that the, the entity that will fund that they’re not discerning between 15 to 19. They don’t care how fast you do that as long as they are only exposed to five, then it’s really a matter of sitting down and penciling out what’s going to get your best return for those particular lumps, it’s not something you want to go out and use that to go buy a property that’s way too expensive. based upon what your return is going to be free investment you still want. I would imagine in some form to be able to at least break even or maybe get some cash flow, but that’s something that your investment counselor can go over with you and and then we can look at the numbers wise and see if it meets your goals.
Jason Hartman 20:44
Good. Okay, what else should people know
Aaron 20:46
Really best thing I advice I can give to anybody that has even remote interest in this is to talk to the kid to your counselor get plugged into to those who will be able to put that financing together and start mapping out a strategy from day one. Don’t into this haphazardly, don’t just think that, hey, I’m just gonna start buying and then I know I can get a 19th. There’s a definite strategy involved, exercise patience, and set out a plan and don’t deviate from it.
Jason Hartman 21:11
Good stuff. Well Aaron, thanks so much for joining us today and talking about this very important topic. And we look forward to having you at another meet the Masters event and back on the show in the future.
Aaron 21:22
Thank you, Jason. It’s always a pleasure.
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Jason Hartman 22:09
It’s my pleasure to welcome Catherine McBrain to the show. She’s president of millionaire corner in interesting website that compiles research from the spectrum group. And I think she’ll have some interesting insights on on the marketplaces to share with us today. Catherine. Welcome. How are you? I’m great. Thanks so much for having me. Oh, good. Good. And I will call you Kathy. Throughout the interview. That’s fine. Yeah. So we’re seeing the US is seeing a record numbers of millionaires. And I remember many years ago, when I got into the real estate investing business, there were, I don’t know, almost a million millionaires in the country. And now there’s a lot more but of course, to accurately evaluate that number, we would have to adjust for inflation. And I haven’t done that actually. Maybe you guys have but we do have this sort of what many have called and I remember hearing that term for the first time about 12 years ago, the mass affluent population, and this is changing things. It affects the stock market affects spawn market, real estate market, precious metals, everything. What are your thoughts on that?
Catherine McBreen 23:12
I can tell you we size the market every year. So I can tell you that we believe that there are about 9 million millionaires today. So that’s, that’s a lot more than when we were younger. And there are about 14.3 million households that have about $500,000 in net worth. So those are the people that I would call the mass affluent. And I have to tell you, I am a big proponent of the mass affluent because I think the mass affluent people are the ones that have been, to be honest, been the most, I guess, for no better term screwed in the last five years by the recession by what’s just happened with the tax hikes, etc. Because those people in that group are treated as if they’re much wealthier than they really are. So I mean, people are probably other thing.
Jason Hartman 23:55
Obama thinks anybody that makes 249,999 dollars a year as a private jet. So yeah, he’s, he’s out of his mind, obviously. But yeah, I would say the mass affluent and the middle class have have been for lack of a better term screwed the most. But it’s interesting because the the mass affluent if you’re saying what a $1 million net worth, is that what you’re putting in the mass affluent? We define the mass affluent, usually as people between $100,000 and a million dollars in net worth.
Catherine McBreen 24:28
Oh, gosh, that’s the middle class. middle class, isn’t it? I mean, if you had somebody 401k balances, or if those people were lucky enough to have pensions, there definitely is what we would call the mass affluent.
Jason Hartman 24:37
Yeah, I know. I couldn’t agree with you more. I mean, I would Pew have a net worth of say, you know, we’ll take a middle number there are $500,000. And you live in an expensive place like California or New York City, your lower middle class.
Catherine McBreen 24:52
That’s not what we find when we do our surveys is that when we look at the people even in the millionaires, we what we call millionaires or one to five and they call people with more than a different, a different Free Angular, but about 10% of those are schoolteachers or households that include a school teacher. And that’s because they have a great pension. So it can be people that live down the street from you. They actually wealthier than you think. Yeah,
Jason Hartman 25:11
Yeah. Yeah. Interesting. Well talk to us about some of the effects this has on on the different markets.
Catherine McBreen 25:16
Well, one of the things that we’re finding, we’ve been doing a lot of surveying around how people feeling like now compared to a year ago, or how do they think things are gonna go in the future, because you know, as you see the stock market go up, everybody assumes that everybody is really positive, but this classic, this group that you and I would call the mass affluent, or you know, the people with 500,000. They’re really the ones that are the most distressed at this moment. They are less than half of them feel like they’re better off than a year ago, and fewer than half of them also feel like they’re going to be better off in another year. And part of that is because because these people have to have, I guess, bills to pay. And they’re not the ones that are going to get financial aid sending their kids to college, and they’re the ones that are probably helping an older parent maybe make it through to being retired. But these are the ones that are getting hit very hard with what’s going on. And so they’re very, they weren’t able to take a lot of their assets and put them into the markets, they kept a lot of them. Our research shows that they kept a lot of their assets in cash for the last three or four to five years. And so they weren’t able to put it back into the market and see the uptick, like the people who had more money were able to do so we see people within you know, who in a millionaire market or above that they’re doing really well, because they’re really happy they were able to reinvest in the markets. But these people were basically keeping money in cash so that they could meet their obligations that they needed. And so they they’re really kind of stressed at this particular point,
Jason Hartman 26:35
You know, so Well, I mean, the markets are up, but not in real dollars. I mean, I did a calculation from the the prior peak, I think it was and the Dow would have to be at 15,800 by my rough calculations to to equal where it was before the downturn. So it’s always so misleading when you talk about nominal dollars and real dollars, but why do you say they’re stressed? I mean, I know From a political perspective, you know, as we both agree we use the S word, they’re getting screwed, or they’re being threatened at least pretty harshly. But in terms of if they’ve just left their money in the market, they’re not doing they’re not doing great. Yeah, they got it out. Yeah. So when do you think they took it out? How
Catherine McBreen 27:16
Do you know that I took it out, like, probably 2008 or 2009? Because that’s only historically when we look at portfolios of people, before that before 2008 most wealthy people, even people in the mass affluent market would have like five to 6% of their overall portfolio in cash or money markets. Right after obviously, right after 2008. There were huge amounts, like up to 30% of people, up to 30% of their portfolios was in cash. Today, still people that we call mass affluent have about 19% of their assets in cash, or somebody who’s a millionaire or wealthier, they have, they’ve gone they still have more than they did before the recession in cash, but they still have only like 10% of their assets in cash, whereas this mass affluent group still has about 19 to 20% in cash, and cash or cash equivalents. So you know that that’s not getting any kind of return. And they’re hesitant because you know, they know that they’re going to be paying higher taxes. And so they don’t think that they really assessed what that means to them on a day to day basis. And they don’t get financial aid when they send their kids to college. And, you know, it’s a lot of all those different types of things. And they haven’t been able to save for retirement. And a lot of that group as opposed to a lot of the people that we have we see that are millionaires or even wealthy are already retired so that they’re not worried about retirement, they’ve already faced that hurdle. With a lot of these people are still working during the 40s and 50s, and a contemplating retirement and they feel like they’re way behind where they need to be
Jason Hartman 28:40
Well, and they’re the sandwich generation, you know, they have parents who are still around, and they’ve got to think about care considerations for those aging parents that are maybe right around the corner, and then they’ve got children too. And so they got they got to take care of the kids that haven’t left the nest yet. And they got to take care of the parents that are coming back into the nest. If you will, or at least into some sort of care situation. So yeah, a lot of a lot of pressure No, no doubt about it. You You recently released a service called find a financial advisor. And he had some interesting things we talked about off air with the SEC that I found kind of fascinating. Tell us how this helps people find an advisor.
Catherine McBreen 29:18
So we had created find an advisor, as part of our millionaire corner site with the idea that I don’t know if any of your viewers are familiar with, you know, like Open Table or Angie’s List or something like that, with the idea that we could have people go and look on a survey site and we would do a private survey of that advisors, clients. So the advisor couldn’t make it. You know, they couldn’t make people say good things. And if people said bad things, it was going to be recorded, just like the good things were on our site. And they would have a rating system like how proactive is your advisor, you know, how knowledgeable is he or she does he communicate with you frequently that kind of stuff. And the SEC, because there’s a lot of compliance. In this particular industry. We felt that it was best that we funded it out front and went to the SEC to try to get what they call it no action letter, because a no action letter would say this is okay, this is good you, we’re not going to like come after you for doing this. Well, the SEC didn’t want to grant us that no action letter because they said that they don’t like the idea of an advisor being able to tout themselves or advertise himself in conjunction with people giving testimonials about his or her services. And we tried to argue that these are not advertisements, really, because there could be negative comments on here. But the SEC wasn’t quite ready to get to, I guess, in this new century, they’re still kind of back in the 1990s about this particular topic. So hopefully in the future, they will be
Jason Hartman 30:41
Yeah, and you know, I’d like to make a comment on that. And if you have any thoughts, please share them on this. Maybe you I don’t know if you’ll want to share them or not. But I think that the SEC, in a way is really in cahoots with the advisors. They kind of like the large companies on Wall Street. They pretend to complain about all these strict regulations, and yet at the same time they like them because it limits competition. And it keeps new entrants out of the market. I mean, if a company is a private company and wants to go public, the compliance cost in doing so is massive. So that creates less competition in the IPO market, you know, in for investor dollars in public markets. So if you’re already in the game in the inner circle, and you’re already public, are those regulations really so bad for you? They’re keeping the competition low. They’re they they make a high barrier to entry for competitors. So in that way, I mean, I believe that there’s something that goes on, but but in this way when it comes to regulating advisors, I can’t tell you the number of times I’ve you know, advisors have been pitching me pitching me pitching me on Oh invest with us, you know, my group my team at Merrill Lynch or my team at you know, Ameriprise or maybe they’re independent, Edward Jones. Whatever the company is, doesn’t matter. They’ll be patient. Me on why I should do business with them telling me how great everything is how their clients are making so much money. And yet when I say something so simple, like, just send me the performance, you have model portfolios for your clients, just send me the performance of your model portfolios for the past three and five years. Oh, we can’t do that the SEC won’t allow it. You know, I can’t give you anything in writing. And I gotta just think that that regulation is benefiting advisors?
Catherine McBreen 32:27
Well, I do think that it is time because the SEC or other government agencies, I don’t know what is it is a new Consumer Protection Division. I mean, this would be a perfect kind of tool for consumers. Because what we are trying to say is we’re trying to disclose in a way that investors understand in most cases, investors really don’t understand what’s going on in this industry. And it’s because it’s so shrouded in secrecy or compliance or whatever, or it’s just like you said, if my advisor can’t show me how he or she’s done in the last few years, well, why is that? And I mean, I understand why To some extent be because of the intricacies of all of the different types of returns, etc. But at the same time, this would provide a tool for people to say, gee, this is somebody I’ve trusted or not trusted, or, you know, it’s good or bad. We even offered to add as part of the overall review before we would let somebody onto our site because first of all, we wouldn’t let anybody onto our site if they had any sec violations or FINRA violations or any any kind of regulatory violations. And we were going to review their materials, their disclosure materials, and give those a rating on our own, like, does this advisor provide discloses fees clearly for investors and give them a rating of one to five, and they still didn’t want didn’t go for it? So it would have been a great tool for investors and we were really disappointed.
Jason Hartman 33:42
I mean, does the SEC keep people from going on Yelp and rating their advisor?
Catherine McBreen 33:47
Exactly what that was what we tried to explain to them and they said, The difference was that, you know, an advisor doesn’t pay to be on Yelp and an advisor actually would pay to be in our service because we’re promoting him or her net promoting this act of endorse. But like, it’s almost it’s more, I guess we’re providing these services for the advisor. So he’s paying us. So you in essence could go if you had an advisor across the street from you that you hated and competed against, you could go on Yelp and say bad things about him or her.
Jason Hartman 34:13
And none of that happens. No question people know
Catherine McBreen 34:15
That it goes on. But the reality is, that’s not you don’t know whether that’s true or not everything that we were doing was very, you know, driven by, you know, what’s going to be 100%, a client that has been validated and all of that stuff.
Jason Hartman 34:27
Yeah, that kind of like Angie’s List. I mean, that’s what Angie’s List claims to do is that their actual clients, people can go and write a bunch of fake reviews. And Amazon has done that in, you know, in recent years with the Amazon verified purchaser, which certainly the competitor could purchase the product on Amazon and write a negative review about it. That’s not hard to do, especially if it’s a $20 item. It’s much different than taking half a million dollars and giving it to an advisor that you don’t like it’s your competitor.
Catherine McBreen 34:54
We thought that they would like this because it’s really a highly regulated way to get feedback on these advisors as opposed to things like Yelp, but apparently they weren’t ready for Well, that’s the SEC is in the dark ages. What can we say? The government is right?
Jason Hartman 35:07
Well, I’ve heard it called the scoundrels encouragement Commission, the SEC. I like that acronym. That’s pretty cool. Good. Well, what are your thoughts on investment newsletters? I mean, there’s so many that’s such a big business. There are not advisors, just newsletter publishers, making millions and millions and 10s of millions of dollars a year, just publishing newsletters. What are your thoughts on that whole cottage industry? It’s not really cottage anymore,
Catherine McBreen 35:35
But I personally, I think our investment websites the best personally but and are just free. But what I would comment on is, I think that what we’ve found so we do all this research with investors and what we found a lot of times is that the newsletters that you might get from your own advisor that you might get from somebody that you have an account with, whether it’s a big bank or a big brokerage firm or whatever. Those types of newsletters aren’t very appealing to investors and we’ve we’ve read through And the reason is because one, one, sometimes they’re afraid that they’re being pushed a product. And so if you read some of these newsletters, they are saying, they’ll be giving you a long, long explanation around why ETFs are interesting and at the end telling you that you should invest in them and then saying, oh, by the way, come to us to buy them. So investors don’t really like that. But the other thing that they don’t like is the fact that, you know, they come home after work after a long day, whatever it is that they do. And most investors don’t want to read college level types of materials and they come home, they want to read something that’s explained a little more clearly a little more light, a little more interesting. So a lot of these like really in depth investment newsletters are only appealing to the people who are really, really into investing as opposed to those who are just kind of trying to keep abreast of what’s going on or learn interesting things. So
Jason Hartman 36:45
Yeah, interesting thing. I wish all these advisors and newsletter writers just had to publish their results in the same exact format. And the same thing with people in real estate. I remember the founder REMAX many years ago, Dave Linacre, he was trying to get a law put into a factor. And you know, he, because he didn’t do it from a regulatory side. He wanted to do it just from a competitor side by issuing a challenge to his competitors, saying that I dare Coldwell Banker and the other companies to publish the number of sales their agents make every year. And of course, that doesn’t mean that the agent is good, just because they have a lot of business necessarily, but it’s an indicator, you know that the marketplace will figure them out. It’s not perfect, but it’s better than nothing, maybe. And I just wish with advisors and newsletter writers, there was a standardized format, and everyone had had to be using this standardized format. And people could just go and look it up. And they don’t know.
Catherine McBreen 37:46
Right, they like to compare apples to apples because this industry has so many different kinds of fruit I would be one way to say that it’s hard for them to understand what what they really should be looking like and why one thing seems to be important in one newsletter, whereas another No one has a totally different spin.
Jason Hartman 38:01
Yeah, that was a pretty brief answer. Yeah. I mean, yes, it’s apples to apples. You’re right. There’s so many different kinds of fruit, great metaphor, but apples to apples, pears, pears, Bananas, bananas. It could be done. Right?
Catherine McBreen 38:14
Right. Yeah, the thing that people find interesting or that that investors get frustrated with is, they don’t really understand what how different financial advisors are different from each other. And in their mind, they’re just going to somebody did they want to have helped them manage their money and do the best for them as a person, and then they find out they will, this advisor really is focused on selling you insurance products, and this advisor is really focused on selling you equities or whatever. And they really don’t, unless they go to like a to financial planner, they don’t realize that they’re not going to get a financial plan or their financial plan is going to be geared around doing specific things. So they really get confused about why are all these advisors different and why can’t somebody just help me with all these things that I don’t understand? And we find research, but that’s one of the biggest challenges that that investors have. They want somebody who can answer all their questions and Find it a lot of lack of trust. Yeah,
Jason Hartman 39:02
Sure is no question about it. We’re talking about money here. And a good question to ask is, how much does it matter? People would be naive to say, it doesn’t matter it does in a modern non modern society, for sure. But how much does it matter? And what effect does it have on one’s overall happiness? What effect does it have on their marriage, you know, on their children? And how much is enough? is there is there a right number and I have some thoughts on this too. But I, I want to ask yours first.
Catherine McBreen 39:31
Well, we did some research about a month ago and I’m not gonna be exactly specific about the percentages cuz I don’t have it in front of me. But we asked people, overall, the questions, do you believe Money makes you happier? And if you have money hasn’t made you happier? And those kinds of things to equate, you know, does money really make you happy? Because we always assume that money buys happiness. Well, of course, the people who had less money believes that the more money you have, the more likely you are to be happy, and the people who were well We’re less likely to say that money buy you happiness. So, an overall when we ask people, what do you think how much money is rich? And you know, how much money do you have to have to be rich? Well, people who don’t think a million dollars is enough anymore. That’s not surprising. But as far as income levels, they think that if you if you make over $500,000 a year, then you’re then you’re rich.
Jason Hartman 40:22
And a lot of this a lot of this Kathy depends on where one lives. I mean, because because the the major costs most people have is housing. And if you live in an expensive housing market, by the way, where are you located?
Catherine McBreen 40:36
We’re located in Lake Forest, Illinois, the suburb of Chicago.
Jason Hartman 40:38
Yeah, yeah. Not tremendously expensive. But you know, if you live in a tremendously expensive housing market, like a couple of areas in California or New York City, then you’ve got to just adjust those numbers so dramatically for that for that amount. But But you your survey said 500,000 a year and in net worth, did you have a number
Catherine McBreen 40:58
That was an income that was intended Worth net worth people thought that if you had like $2 million, you were wealthy.
Jason Hartman 41:04
That’s pretty interesting, because I’d say that’s probably pretty accurate. And the survey I assume was nationwide, and you had people in different, different markets. I remember reading an article in one of the financial magazines, and I’m guessing here the year, but I’ll just share it with you. They talked about can money buy happiness, and they found that there was a certain number that pretty much did the job. And, you know, I’m gonna just guess, Kathy that that was way back in 1991. So it was a long time ago. But while you were talking, I just did a little inflation calculation. And the number they mentioned, that was the number that sort of bought happiness was $1.5 million net worth, which comes pretty close to your survey because adjusted for the official rate of inflation, which of course i think is understated and you probably agree with me, but just based on official numbers. Today is $2,490,000. So not far off. Oh
Catherine McBreen 41:59
Yeah. And even though people had too much money, we’re quick to say then that money doesn’t buy you happiness. Obviously, there are other things that make you happy. You know, it’s your family and your relationships and all that. Sure. But I think that it’s a lot easier for somebody who doesn’t have money to say if I had more money, I could be a lot happier.
Jason Hartman 42:14
Right? Right. Right. But but then you get those other people that don’t have it kind of dissing the whole subject saying, oh, it doesn’t buy happiness. And all I like to say to them, is it it doesn’t buy happiness, it just buys more than poverty does. That’s all. It does. Sure does. Well, any closing thoughts? So the website is millionaire corner calm and you know, any closing thoughts you have for us?
Catherine McBreen 42:34
Not really, we’d love people to come to our website, we’d love for them to send us emails, or comments about what we could do to make it better or more interesting, or even topics or ideas they’d like us to research because we research topics every month. So you know, sometimes they can be as broad as or as pithy as you know, do millionaires for for dogs or cats or hopefully more than things a little more in depth than that. Right. Fantastic. Oh, and you know, Kathy, I forgot to ask About one more thing real estate, you said a lot of people were coming to your site asking about real estate reading real estate investing articles nowadays. Just quickly, what are your thoughts there? Well, we have found even throughout the economic crisis, that real estate was an incredible investment that people have been interested in. And when we ask people what they want to invest in, people will say, I want to invest in alternative investments. But when we ask normal people, what’s an alternative investment to them? It’s real estate, and even people in California, which, you know, at the height of the recession, we did focus with their we’re interested in investing in real estate. And that’s such a, you know, up and down market in places like that. But yeah, we find that that’s something that people have continued to be interested in. And since the recession, we find more interest in the fact that people feel like, even though they’ve seen their home value has gone down or seeing real estate values go down. They feel like it’s a more stable asset and the fact that they have it, you know, they own it. The other thing that we’ve done is we did a book or a few years earlier, and one of the things that we found in households ahead, what we call perpetual wealth meaning generational wealth that they passed on, was they invested in income producing real estate, they weren’t people that invested in your house and fixed it up and flipped it. It was people who would buy you know, income properties, whether their apartment buildings or commercial rental facilities, where they would eventually pass those on to their children and grandchildren and thereby had an income stream that they were passing on that kept their families pretty well protected going forward.
Jason Hartman 44:29
Yeah, I couldn’t agree with you more Kathy, you know, I, I like to say whenever I do a seminar or talk about this topic, that I’ve seen the various real estate clients I’ve had over many, many years, the people who do the flipping and the buy and the sell, they have spending money, but the people who do the buy and hold of income properties over the long term they have real wealth, couldn’t couldn’t agree with you more. I’d rather have real wealth and spending money any day, although spending money is okay. But yeah, real wealth is much better. And for my money, I just like housing, whether it be apartments or single family Everybody needs a place to live at the end of the day. That’s a good point. And you do make the distinction between income producing real estate and one’s own home. And Robert Kiyosaki does that very well saying, you know, your home is a liability. If you have to spend money to own it, it’s a liability. So income producing real estate is the way to go.
Catherine McBreen 45:18
Yeah, we take on we do networth calculations, we take the value of your home, your home out of that, because, like, like you said, that’s just something that it can be a liability to you and it’s not really, you know, part of something that you can rely upon if you need it as an
Jason Hartman 45:31
It’s true. And you know, I gotta just mention one more point on that. I saw something interesting today. One of my friends who’s out house hunting, posted this gorgeous home on her Facebook page today, and it’s in north Scottsdale, Arizona, and it was $2.4 million. And you get a lot for that out here. Okay. Not as much in Newport Beach where I’m from, but what’s interesting about it is the posting said it was 2.4 million to buy or you could rent For just 50 $300 a month. So, I mean, that is a phenomenal deal as a renter, we’ve all got to live somewhere. So when you think of real estate investing, think of if you can afford a high end property, it’s almost always better to rent the high end property and own a lot of low end income properties, you rent to other people, because the ratios are so much more favorable to the renter in the high end property case, or to the owner in the low end property case. So yeah, great, great, great counsel.
Catherine McBreen 46:32
We met a lot of people at that, at the height of the recession that we were doing interviews with, and they would tell us things like, you know, they may have had a beautiful mansion that they decided to stop paying the mortgage because there was one down the street that they get that was better than theirs that they could pay cash for. And, you know, just walk away from the one that one that they had because they were able to upgrade to something that had fallen so much in value that these people have enough money that they don’t have to worry about their credit rating and And not being able to get another mortgage in the future, that kind of thing.
Jason Hartman 47:02
Right? Right, right. And then what’s interesting about that, that that’s what we call strategic default, and millions of people have done it, and millions are still doing it, maybe not millions anymore. It’s probably less than now. But lots of people do it. And you can make your own morality decisions on it. But from, from a strictly financial point of view, what you didn’t mention there, as many of those people lived in that house that they stopped paying on for a year or two years. If they were in Florida, maybe three years, and live there for free and then bought the place down the street.
Catherine McBreen 47:31
The morality decision, I see my grandparents flipping over in a great
Jason Hartman 47:34
Yeah, I know the old school would definitely not go for it. But you know, if you think about it, the contract says, Look, if you don’t pay, you give up the collateral, and they’ve given up the collateral as long as they didn’t destroy it, or do anything evil. That is the business deal they’ve made with the lender, and they’re obviously going to give up their credit rating too. So those are the consequences. Thank you for trainings can flashback Friday. We’ll talk to you next week, for a brand new episode.
Jason Hartman 48:02
Your studies are very interesting. Have you on the show?
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