Jason Hartman does this episode solo touching on a wide range of topics. He starts by explaining real estate trends and the dangers of asset inflation. Later, he discusses the impact of the latest GOP Tax Reform bill. He goes through real estate and economic headlines impacting the real estate investors.
Announcer 0:02
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 and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:53
Thank you so much for joining me today. This is your host Jason Hartman and this is episode 955 nine Five Five. So listeners from around the world we appreciate having you and you know what? I got a song I’ve been thinking of that I just want to share with you for a moment. Not too long because I don’t want to violate anybody’s copyrights. Alexa, play stone in love
‘Alexa’ 1:18
stone in love by attorney playing on the everywhere group.
Jason Hartman 1:43
Alexa stop. Anyway, that’s what spring makes you feel like doesn’t it makes you feel like you know good music getting out there. And I tell you for some of you in some parts of the country in some parts of the world, we have listeners in 160 500 breeze. It doesn’t feel like spring yet, but it sure feels like spring here. And I love that love the changing of the seasons and the fresh air and having it not be too cold. So that’s good. So hey, what do we have to talk about today? Well, the first thing I want to talk to you about is market timing. So a lot of you are thinking, hey, when is the next big crash? We’ve been booming for quite a while. There’s got to be a crash coming, right? Yeah, well, you know, fair statement, fair statement. But the problem is what will cause the crash? That is the problem. Very typically in almost every cycle in every part of the real estate cycle, the downturn not necessarily crashed but downturn in the market has been caused by increasing interest rates. And it looks like rates are going up. And that is why you should hurry to buy now. Why is that important? Because if you’re in the position where you don’t like leverage, and you need to go to a psychiatrist or psychologist immediately and have your head examined, because I love leverage, in fact, debt is my favorite four letter word. You’ve heard me say that before. No debt is a very powerful tool, obviously, with income property, because what you’re basically doing is you’re basically buying the package commodities. When you invest through our philosophy and through our system, you are buying at or below cost of the commodities and construction cost. You’re not really paying anything for the land. If you are, it’s just a little smidgen. It’s not much at all. But if you don’t care about leverage, and if you are cash rich, if you have cash flowing out of your ears, that is the type of buyer that should be Buying in a high interest rate, depressed market. Everybody else who is using leverage and does not need their head examined and is buying properties based on a payment rather than the price, which is really the way the thing works. Okay? That’s really the way the thing works and is not buying in over inflated cyclical markets. The West Coast, the Northeast, South Florida, and if you’re thinking of other places around the world, they would be London, Dubai, Hong Kong, you know, these types of places that are just overinflated. nutso markets, right. They make no sense. They are going to crash and burn. Now you’re thinking Jason, don’t do your own sound effects. Get a professional. Okay, fine. But remember that when housing affordability declines, usually see prices decline. When housing affordability is high, that is the impetus for prices to rise. That is the like if I said before, if I had only one index, it would be the housing affordability index. It’s not everything. But that’s a big one. In my book, it’s one of the prime ways to look at income property and to look at real estate in general. Actually misspoke there. I should have just said real estate, not income property. Why is that? Well, because when you’re looking at income property, remember, it’s a beautiful multi dimensional asset class. And as such, you don’t really, if you’re doing it, right, of course, if you’re doing it the way we believe you should do it. You don’t really care that much about the overall price or the overall value. What you care about is the income, the cash on cash return, maybe the cap rate, but again, cap rate is a flawed metric. And you’ve heard Say that before to write, what you care about is the income the property produces, whether it be by rent to value ratio, or better yet cash on cash return, that would be the best metric. So the value fluctuations aren’t a big deal. So what happens when housing affordability declines, more people are forced to stay in the renter pool, and that puts upward pressure on rents. And you see, the other part is, is usually you have a slower economy in that environment. And when you have less velocity of money, and you have a slower economy, you see people falling down the socio economic ladder. And when you have these sweet spot rental properties, the kind we recommend, you will catch people moving in any direction in any economy. So you’ll catch people moving down. You’ll catch people that they’re homeless foreclosed on, you’ll catch people that want to save some money. Maybe they were a dual income family and one person lost their job or took a pay cut. Now, I know I’m talking about this, all of this as a way to plan in advance, because we are in the middle of a booming economy. Now yesterday, the stock market took a bit of a tumble. But you know what’s interesting? This is why you always have to ask the Jason Hartman question. What is the Jason Hartman question? Well, Jason Hartman has many questions, but one of his favorites is what? Compared to what? And then you’ll hear people talking yesterday about the stock market, and how it took the biggest point drop in history. But who cares? We don’t measure things like that, because that would be the way an idiot measures things, but it makes for good idiot sound bites headlines, doesn’t it. If you look at the newspaper, or you look at any blog, or you look at, or you listen to the news or a podcast from the Wall Street Journal, and I like the Wall Street Journal, don’t get me wrong. But you know, these are the kind of headlines if it bleeds, it leads, right? And so they’ll say, Oh, no, the world is ending because the stock market at the biggest point drop ever yesterday, but as a percentage, which is the legitimate, intellectual accurate way to measure anything, right? Then you’ll know that the stock market yeah did take a tumble. But it was only like, just over 4% versus the 1987. crash. What was that Black Monday, right? That was like 22% in a day or something like that. Don’t quote me on these numbers. I’m not being exact. I’m just being conceptual. The percentage is the issue. Not The amount, the amount is meaningless. I mean, it just drives me absolutely crazy. Hey, I hope you’ll join me in San Jose on March 3, as we host, our Jason Hartman University event. Now this event is for the real practical hands on interactive education on income property investing, where you will learn how to actually do the math, how to evaluate the deals, we will go in depth into this subject of how to analyze a real estate deal. And once we do that, we’ll talk about how to build a portfolio, how to properly structure a portfolio, how to diversify it, how to sequence your mortgage financing, and it is a fun event. We do some gamification. You’ll meet a lot of people because you’ll be working with the people in the class, and it’s a one day event. You can check it out at Jason Hartman University comm Jason Hartman University comm we’ve been Been doing this event for about three or four years, and people absolutely love it. We’ve done it in San Diego and Salt Lake City. Now we’re doing it in San Jose. We’ve done it other places as well. I just can’t remember where offhand, but it’s a great event. And we try to do it about once a year. I asked her we did it in Oklahoma City. This time we will be in San Jose Silicon Valley. On March 3, Jason Hartman university.com Jason Hartman University comm Get your tickets today. And we’ll look forward to seeing you in Silicon Valley on March 3. Like yesterday, by the way, I interviewed a returning guest he’s been on several times now. And that was because one of you dear listeners requested that I have him back. I can’t remember who it was. But I do remember that you requested him. So we got him back. And that is Richard Duncan from macro watch. Right. We got him back on the show. And Richard Duncan is great. I love his work. He’s Keynesian. I do Don’t like that about him. And he seems to be, you know, have too much faith in government socialism. That’s just my impression. I didn’t ask him that. But I don’t like that about him. But I do like his thinking and, and unique approach to a lot of economic issues. And he was talking yesterday. And of course, this episode will be published soon it was, it was almost an hour, so we’ll cut it up into two shows, or two episodes. So we’ll have that coming up probably next week. You know, he was talking about how with the Fed now, their plan being the opposite of quantitative easing the opposite of QE, they’re going to start sucking money out of the economy. Whereas before, of course, the last several years since the Great Recession, they’ve been putting money into the economy. Obviously, the fear is that that’ll cause significant inflation. And it has Jeff, by the way, Jeff, our venture Alliance member who does these beautiful rants and he’s been on the show before Jeff, we need to get you back on the show. Okay, I hope you’re listening. You know, your Jeff in the venture Alliance and in our mastermind group, he has these wonderful rants on inflation. They’re just so awesome and so funny. I love them. I absolutely love him. And anyway, he argues with me and says, Hey, there hasn’t been much inflation at all. And you know, mostly he’s right. If you look at consumer prices, he’s right. Okay, they’re very, very tame inflation. However, when you look at the world of assets, inflation has been very, very significant asset inflation versus consumer inflation. Now, interestingly, at least, there’s no measure of this that I’m aware of in terms of like a CPI, consumer price index, you know, the CPI has several versions, by the way, you know, I only learned this many years ago, maybe 10 years ago or so. So there’s not just one CPI. The same thing is true with FICO scores. By the way, you know your credit score your FICO score, your Fair Isaac score? Well, there are many FICO scoring models. And for example mortgage people use one model they might use and I don’t know which one it is, I can’t remember they might use FICO eight, for example. And when you go to get a car loan or a car lease, they might use FIFO. Three. So not only are there three Well, there’s actually a fourth, from what I understand credit bureau. There are also several scoring models just in the FIFO system only. We live in a complex world folks, it is an amazing time to be alive, but it is a complex time to be alive. Okay, Jason, get back on task. There should be a consumer price index a CPI for asset inflation. That would be really cool to have a good measure of that. Now for me publishes their own CPI for the or at least they used to. I haven’t seen it lately. It’s the CPI for the wealthy folk. The cost of living well index. So instead of what does it cost to buy bread? Hey, there’s no bread. Let me cake. As Marie supposedly didn’t actually say, but that quote has been attributed to Marie Antoinette, of course, the cost of bread versus the cost of a mink coat or a private jet right there. Everybody has their own inflation index, obviously, but there’s no debate. Not even on Jeff’s part. I am sure that there is asset price inflation and the theory I’ve been working on which I talked about with Richard Duncan coming up, you know, maybe next week, by the way, no guest today, just yours truly. We got to have some quality time together, folks. We haven’t talked for a while. So I got a lot of things to talk about, but we won’t get to them all today. Of course. You got to have me back on more often, because there’s just some things we need to talk about without anybody else. This is one of those days now. Now you can all just tune out and go to the next episode, or the last episode, the prior one, because you’re like, I don’t want to listen to this guy. So yes, the cost of living will the asset price index. So the asset price inflation issue has now pushed many, many people out of the investment market. And I think that this is a massive factor in the wealth gap. Because if people cannot enter the investor class as easily as cheaply, then it really, really slows down wealth accumulation. And speaking of something that slows down well, destroys wealth. Now, this is one of the biggest destroyers of wealth, and it is the D word it is divorce divorce, the biggest destroyer of wealth. So lawyers are predicting a wave of divorces this year. Why would that be? Well, it’s interesting how tax policy affects so many things. Now, you know that I am a fan of the new tax law. I think it’s going to be fantastic for the economy. And I think it’s really, really good in so many ways, discussed on prior episodes. However, I guess alimony something that fortunately I’ve never had to pay, it will not be deductible after this year. So if you get a divorce, and you have to pay it, it’s interesting, how uneven how unevenly this will distribute wealth. Okay. So check this out. This is a news article. And it talks about why they predict that this will happen, the alimony tax deduction will go away in 2019. So, let me just share with you a little bit of this article. Okay. alimony deduction will be raced in 2019 under the new tax plan, and it has lawyers preparing for a wave of divorces. So it’s going to be good for their business obviously. And I’m complications here. payers have long received a tax break on alimony. While recipients have paid income tax on the alimony payments they receive, right? But after December 31 2018, alimony will no longer be deductible for the payer, and recipients won’t need to pay income tax on it. Right? So, isn’t that interesting how this will watch how unevenly this distributes well? Well, this will help recipients primarily women, in one sense, they’ll suffer in other ways. As lawyer Madeline Marzano lesson is which tells Yahoo Wow, that’s quite a name. A man at the highest income tax bracket who pays his wife $100,000 year in alimony 85,000 for the woman after taxes, okay, actually pays about 60,000 with his deduction in this example. Without it, he might argue that he should only pay 60,000 and alimony because it’s all he can afford to pay because he loses the deduction, leaving the wife with 25,000 less than before. So she’s receiving the money, the hundred thousand dollars in that example, and then only paying 15,000 in taxes, right? Well, he is paying $100,000 but only after tax really paying 60,000 because he gets to deduct 40 because he’s in a higher tax bracket. So you see how tax policy distributes wealth and how it can be engineered to distribute wealth. Well, not as much as inflation. That’s the most efficient distributor of wealth, right? So just an interesting note. We’ll see how that all plays out. You know, when I was in photography class in school, I had this really weird idea. I have a lot of weird ideas, but this was one of them. Remember, in the old days before we use digital photography, if any of you do, if you ever took a photography class like a traditional photography class film is really a cool thing. And it’s, you know, it has some characteristics recycled vinyl records have that CDs, or mp3 certainly don’t have it has like a certain silkiness to the sound. It’s kind of neat. And you’ve seen vinyl coming back, maybe just for nostalgia, if nothing else, but certainly it has a unique sound. Well, I always thought, you know, when you drop the photo paper in the developer and the developer chemical, it starts to black in right. It’s white initially and it starts to blacken and black absorbs light. Well, guess what? There is a thing a, I guess it’s really a paint. It’s a chemical substance right? Made of vertically aligned Carbon Nanotube arrays. I’m reading Wikipedia here. And it is one of the darkest artificial substances known to mankind. Right? It absorbs up to 99.965% of all radiation in the visible spectrum. So here was my weird idea. This is, by the way, a total tangent. It has nothing to do with income property, but I’ll be done soon. So I thought, what if you left the photo paper in the developer so long that the photo paper got so black, that it absorbed all the light in the universe? Was that possible? Maybe with this thing called vanta Black vanta Black is a trademark name owned by a company called Surrey nano systems limited. And so there you go. Maybe this was really true. Now it didn’t happen with the photo paper. But this vanta Black is so black, that it absorbs 99.965% of all the visible light, right? That’s insane. And obviously this has military applications and all sorts of stuff. So yeah, kinda interesting. Why did I bring that up? I actually don’t know. But I just did. And I’m looking at Facebook here, and I gotta tell ya, I posted my photo with Ron Paul from meet the Masters today, and it is getting tons of likes. So if you don’t have your photos with Ron Paul from meet the Masters, go to Jason Hartman comm slash photos and get those and there’s a lot of other photos of the event in there as well. And it was so great having everybody So if you went or even if you didn’t Jason Hartman comm slash photos, you can check out all the photos from meet the masters. We’ve got like 350 photos in there. So those are there available for you. So experts are predicting. We have a lot of listeners who live in the Socialist Republic of California. My former home state experts are predicting once again, they’ve been predicting this for a while, that California is long overdue for a another giant earthquake, right. California is currently an earthquake drought for events with a magnitude of seven or greater. Now you know how the Richter scale works. The Richter Scale is not in even scale. So when you hear about an earthquake that was a six versus a seven, that is not just one point more, it is an exponential or geographic progression on the on the scale on the Richter scale. So when you have a seven versus a 7.3, that’s a big deal. Okay, that’s a really big deal in terms of the results. Now, the vast majority of people in California, do not have earthquake insurance. And even if they do, it’s not adequate. And even if it’s adequate, it doesn’t mean that it will cover the damage. And hey, we’re not just talking about property here. We’re talking about lives. So if you die, you can’t invest in real estate anymore. So that’s no good. So once again, another reason yet another reason to vote with your feet and try to make a plan to get out of this Socialist Republic of California. Okay, did I finish the concept of the timing that we talked about at the beginning of the show, so remember, every one percent interest rate and just like the Richter scale, although it’s not a geometric progression, the 1% from five to 6% or 4% to 5% interest rate is not a 1% increase, it would be a 20 or a 25% increase relative, because you asked yourself, compared to what always right, that’s the important question to always ask, compared to what. So everyone percent equals about 10% in sales price in terms of making the deal the same, keeping the payment the same. Now, we were on our monthly team call today, and one of our clients who also does a little consulting and you’ve heard him on the podcast before and by the way, if you’re in the audience, and you’re brilliant, or have a talent that we can use, please Raise your hand. And let us know that you might be interested in working with us in some way. Because this is the best place to find good people. And we need good people for all sorts of stuff, whether it be writing, content creation, video production, all sorts of things. You know what, whatever it is, whatever you’re interested in, if you can help us grow the network and bring on new inventory or more clients, go to Jason Hartman comm slash ask and raise your hand and tell us what you do or what you know when or what you’re interested in. We just love to connect with you. So Jason hartman.com slash ask. So we were on our team call today. And I invited Doug to the call. Doug has spoken at some of our meet the Masters events over the years. years ago, you might know Doug, he was talking about the option value, right. And that’s another way of for example, Ken McElroy was talking about the infinite return model of income property. And I call that refi. till you die, it’s basically the same idea, okay? We just have different names for it. And I talked about how with income property, you can renegotiate the deal over time. So remember how in the beginning, we were talking about buying with cash, and how in a perfect world if you knew when you were at the bottom of the market, and when you were at the top of the market. Now, I don’t mean in terms of rental prices, because that’s something almost nobody talks about. They don’t evaluate the peak and the trough in the market cycle by rents. They evaluated by prices, which I think is silly, because it’s a multi dimensional asset class. And evaluating only by price by one dimension is absolutely stupid. But it is one dimension nonetheless. So we’ll talk about it. If you knew when you were at the bottom and when you were at the top, and you were cash rich, and had the ability to refinance and get your cash out later, then the best thing to do would be to acquire massive amounts of property at the trough at the bottom of the cycle, and then refinance them. When financing became available in somewhere as the cycle was coming back. And housing affordability was really high, then hold them and ride them up more and maybe do the most prudent strategy, the one I default to, which is the buy and hold strategy. Because with a buy and hold strategy, it’s really hard to lose. If you don’t have faith that you can time the market and you don’t want to think about it a lot. And you want to just be in the game and create true wealth. Then the buy and hold strategy is for you. And you know what, in all my years like I’ve said before, I’ve never met anybody who can accurately predict the market cycles. Everybody says, and I’m hearing this more and more lately, I can’t wait till the market crashes and we’re at the bottom of the cycle next time, and I’m gonna buy up everything, I’m gonna preserve my cash. So I can go in and be the bottom feeder. Trust me, you won’t know when we’re there. You just won’t. I won’t either. None of us will. None of us will. Because when you’re in it, you always wonder how much worse it can get. And when you’re at the top, you always keep wondering how much better Can I get or how much worse is gonna get you know, you think both ways all the time. Anyway, it’s a fool’s errand to try and time the market. I’m telling you just buy prudent properties and hold on to them and understand that you have option value built into the characteristics of this beautiful, multi dimensional asset class, that is the most historically proven asset class in the entire world. If you don’t like the deal you got when you bought the property, you can continue to renegotiate it throughout your ownership over the years. Have you ever dealt with one of those people that you know you make a deal with him? You shake hands, you’ve signed the contract. You agree that this is the deal? I’m gonna buy the widget for x or I’m gonna pay you X to do X. Oh, like an attorney or something? Oh, attorneys what a disaster. Anyway, not all of them. Just most of them and they know that that the good ones out there know that most of their professionals like that. Hey, listen. Don’t think I’m picking on you attorneys. I’ll pick on real estate people. I mean, real estate people suck to ah, it’s a constant battle we have with property. Managers with local market specialists with contractors with realtors. I mean, does anybody really care about integrity anymore? Does anybody care about doing the right thing? Just because it’s the right thing? Does it even matter anymore? God? I’m gonna stop asking myself that question because it’s gonna drive me crazy. Okay, entrepreneurship, capitalism, free market capitalism. One of the things that makes the United States Well, for whatever degree of free market capitalism we have, which admittedly, ain’t what it should be, and probably ain’t what it used to be, but we still have a decent chunk of it compared to compared to what? Well, compared to a lot of countries, it’s better here. Some countries are beating us too. So I just love this funny story, right? This was on rt.com rT has some great stories to use. RT is A media outlet. It’s it’s interesting that it’s a Russian backed news organization that you just wouldn’t think would be credible, but I think they’re pretty good. I like our tea. You know, we’re obviously read everything with intelligence and appropriate level of skepticism. But this is just a funny story. So, a Girl Scout decided to get smart. She wanted to sell her Girl Scout cookies. So what does she do? She goes and sets up shop right outside of a marijuana dispensary in San Diego. brilliant, brilliant, brilliant. So when all the stoners are going in and out to get their, quote, medicine, unquote, which, Hey, I’ll admit, you know, marijuana probably does have medicinal properties. I mean, many people have said that and there are many studies on this stuff, right? But hey, the pharmaceutical companies hate it because they can patent it and protect their monopoly right? It’s just a plant. So she sets up shop outside of the marijuana dispensary sells 300 boxes of cookies. Hey, you gotta give her credit. You gotta give her credit. That’s funny. So Taylor Swift is in the news and a she is being sued by a real estate broker. Yeah. Douglas Elliman is suing Taylor Swift for I think $1.1 million for breach of contract. Now what kind of contracted the gorgeous Taylor Swift breech? Well, according to them, she hired them to be their buyer’s broker. And a buyer’s broker agreement in real estate is kind of the opposite of a listing agreement. A listing agreement says that the seller will list the property with the agent and most listings are exclusive right to sell listing agreements. exclusive right, which means for that certain timeframe, that broker has the exclusive right to sell the property and no other broker can interfere with the listing agreement. Well, apparently, Taylor’s representative signed a buyer’s broker agreement with Douglas Elliman said that they had the exclusive right to find her a property in a certain market. The article goes on to say that, you know, basically the deal was that she or her representative, her team, whoever had the power to sign the agreement, didn’t want to buy a property. They worked hard to find her a property and apparently they showed her her representative a property on 153 Franklin Street and I This was in New York City, I would say 550 to 100 or 5100 square foot townhouse. She bought it without telling them Okay, and so they said, Hey, wait, you can do that you agreed to buy through us. And we agreed to work hard for you. So I don’t know how much the property was, but the commission was $1,080,000. That’s a lot of money. So, yeah, they’re suing Taylor Swift, and we’ll see what happens. And hey, maybe she’ll write a song about them. So there you go. All right. If you have any questions for me, go to Jason hartman.com slash ask and ask some questions, and I’ll answer them on the show here. If you have any talents that you want to share, or you have a desire to work with us in any capacity, hey, we’re all ears. We love to hear from our audience. So Jason hartman.com slash ask a SK, and we’d love to hear from you. And until then, until next time, happy investing and thank you for listening. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.