Jason starts today’s show with Adam and they look at the concept of Inflation Induced Debt Destruction. The two go on to discuss economic numbers in the current headlines and housing affordability. Adam ends the show with a chat on mortgages with Joe the Lender for the February Mortgage Minute.
Jason Hartman 0:00
The reason I invest in real estate is because I was previously doing it a 401k and put my money there. And doing other, you know, traditional retirement plans that just doesn’t work didn’t work for us for 1015 years that we were doing it and was looking for something different. So I was doing a lot of research and listened a lot of podcasts. And found real estate is being a much better avenue for creating wealth and creating cash flow. Our first investment property actually happened by accident because of not being able to sell a previously owned house that we had, and moving out of that that area. So it turned out to be a really good thing for us. So after that, that made me really interested. The first intentional investment property that we purchased was in Florida. I found the cre wealth show and Jason, by him being a guest on another podcast that I had been listening to. It was about creating passive income. And he was a guest on that show and as impressed with his his knowledge. So from there, I made my way to his podcast right now. We have a total of 10 properties, we decided to go all in. I mean, we’ve been doing 401k and other traditional retirement plans and investments that most people are comfortable with, with really terrible results for lots of years. So I was okay, so we actually liquidated, everything we had in our 401k is paid the penalty on all of that, and are doing much much better with real estate and very happy about it. But I think it just comes down to being comfortable with the education. So I felt like we there’s plenty of information out there about real estate, there’s lots of people with great track records. And so I think if you follow a path of success, that it’s a lot easier to replicate and duplicate. So I felt like I was following other people’s paths of success, so I felt comfortable.
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. 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. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 2:32
Welcome listeners from 165 countries worldwide. Thank you for joining me today. This is your host Jason Hartman with Episode Number 1100 and 23 1123. And so Gosh, we got a lot going on today. lot going on today. We are five days a week with you Monday through Friday. So thanks for sticking with us and tuning in for even more content. Of course meet the Masters is Coming up, we have a price increase tomorrow that is tomorrow on Wednesday we will have a price increase. So get your tickets they’re selling like hotcakes and hotcakes. So reasonably fast, they sell pretty good. And remember, if you are a JH, you member our annual membership. login to the jvzoo portal and you’ll see a promo code to get you a discount on meet the masters. So take advantage of that. And a venture Alliance member, of course gets free tickets. And venture Alliance now only opens twice each year. It’s only open twice a year, up until meet the masters and then up until profits and paradise. So as we look forward to these two events that we have every year, we will have the venture Alliance membership open, but it closes for the rest of the year. Our plan is to just open it twice a year. It’s a much easier way for us to sort of make it and keep track of it sort of just makes the whole thing much more definable. By the way, we do have a new program for the venture Alliance membership. That is our mastermind group. And if you’re interested in learning more about that, just reach out to us at Jason Hartman, calm, really anybody on our team or the investment counselors especially can help you with that. And you can learn about it a little bit easier, a little bit lower time commitment, and a little bit lower money commitment as well. So we’ve kind of redesigned and iterated that membership, as we have taken feedback from our members over the years. And it’s available to you. So yesterday, I was talking with Adam and Adam is back with us today. Adam, how you doing? I’m doing great, good, good. It’s good to have you back on. You know, I’m not sure I missed this but I think I did when you were asking me about my own portfolio. And I was talking about over diversification. One of my mistakes of course, I’ve got the Florida property Is the Tennessee properties. Texas? I think I forgot to mention Missouri good old Missouri and Indiana of course we’ve got in there and Alabama. So yeah, I think that’s I think that’s where I’ve got properties. Now Oklahoma, we talked about the big one. So just wanted to make sure I covered because I think I left Missouri out. And hey, you’re the show me state. I don’t want to leave you out. So there we go. Adam, did you know the price of stamps is increasing yet again? Yet again? This the good old humble first class stamp is going up. It’s a big increase 10% increase? Who says there’s no inflation? Hmm.
Well, I know Aaron was talking to me. My wife was talking to me about buying stamps before it went up and my response was, well, we bought forever stamps before the last hike and we haven’t used but 1% of those. So we didn’t get any beforehand, but I know a lot of people were going out and getting some before They want to
Jason Hartman 6:00
Well, let me tell you something. The post office makes an awful lot of money on unredeemed stamps. These companies that sell gift cards make an awful lot of money on unredeemed gift cards. In fact, do you know what really well, this is my humble opinion. I’m not an expert at this, but I’ll just tell you what I think put American Express on the map. traveler’s checks those old commercials before you were born Adam or Carl molden was saying, don’t leave home without it. The American Express traveler’s check. Basically think about it with a stamp, a traveler’s check a gift card or a cryptocurrency you are basically printing your own currency. What a great business. That is. It’s pretty much the business of central banks and governments. So all around the world. It’s a great business. It’s their number one product. I can’t imagine they’re going to stand by and let Bitcoin get in their way of their business, because that is their business creating currency and currency. is not the same as money. Money has intrinsic value. Currency only has value by authority or by fee hot gift cards, traveler’s checks, crypto currencies, postage stamps, those are all currency. It’s pretty great when you can print currency that no one actually redeems for anything of real value.
Right? Well, it’s also going to be people aren’t going to be investing in cryptocurrencies if I don’t know if you heard about this, but 100 $90 million in crypto is gone forever. Because somebody who managed that money was the only one with the key to it. And he died. Oh, man, now they can’t get the money and it wasn’t just his money. It was a bunch of investors money. Oh my God,
Jason Hartman 7:43
folks stuff like that happens and people are that’s all your trust. I mean, that’s like a central government. That’s like a government going out of business. I mean, I wouldn’t trust it in that situation.
Jason Hartman 7:54
Yeah, you know, you might as well just buy some Venezuelan currency or some Bob way currency. You know, I mean look at I just hate to say I told you so again. But listeners, have you noticed how often I’m right. Yes, I am patting myself on the back here, right this moment. But I mean Listen, I’ve missed a few things certainly I missed the frustrate prediction by I was terrible at predicting interest rates that I will be the first to admit, but pretty much every market cycle I’ve been pretty much in line with those cycles. I told you on this cryptocurrency stuff I told you, you know, don’t do this foreign investing stuff. I mean, listen, I I could change my mind on any of these things. If something makes sense tomorrow. I’m telling you now about the opportunity zones, highly overrated. You know, someone look, if you’re listening to this, and I’m wrong. Go to Jason hartman.com slash ask and tell me what an idiot I am. Because so far, I just I haven’t fallen for the shiny object syndrome, right. You know, just stay the course. You know, you’re you’re in the most Historically proven asset class of all time, income property. And that’s just the thing that works,
isn’t it? It’s worked for me so far. Yeah,
Jason Hartman 9:09
yeah, absolutely. Hey, Adam, you got a listener question? I think
right. Yes, we do. We have a listener question from Seneca Wilkinson. Okay. And before we get to Seneca,
Jason Hartman 9:17
what a cool name, by the way. I think there’s a philosopher with the same name. Yes. Yes. Very good name. We are going to have a mortgage update today as well. So we’ll get to that. Yeah, listener question.
So Seneca says, Hi, Jason, hope you’re doing well. not technically a question but more of a comment slash thought about inflation induced that destruction, something you created that is very helpful when you’re investing in real estate. Seneca says I love the concept and think it’s great that you’re helping investors understand all the different benefits of rental real estate. I was thinking about a hypothetical scenario, where you buy a property, get a 30 year fixed rate mortgage, and keep the house for the full 30 years with at least out the entire time. In this case, certainly the real value of of the mortgage payment reduces over the years due to inflation. However, as the investor you’re not really making the mortgage payments your tenants are, the benefit you’re likely getting from inflation is in the form of increasing rents and increasing value, not the decreasing real costs of your mortgage payment. Essentially, inflation manifests itself in this deal, and the rent and value increases. And if inflation induced debt destruction is considered an additional benefit, then it’s been double counted. Again, I love the concept I’m not bashing it, but curious to hear if you think my logic holds, maybe I’m missing something.
Jason Hartman 10:33
Seneca That is a great question. Really, really well thought out. So thank you for that. Okay. So let’s just take the tenant out of the equation. Okay. And let’s just assume you’re moving into this house right. And you’re going to live there it’s an owner occupied home. And if you’ve been to any of our live events, Seneca many times that well all of them and by the way, for meet the Masters coming up, we are updating this And I am going to share, actually, you know, a little bit of a tangent one second little tangent, meet the masters. We always try to have a theme, right, we had the empowered investor. You know, we’ve done themes over the years different, you know, the trade of the decade. Well guess what this theme is for this meet the Masters, brainstorming with Doug. And he said, Jason, I think this one should be all about the big boring idea. Yes, the big boring idea. That will be our theme for our upcoming meet the masters and Seneca, we are updating the inflation induced debt destruction concept in the example because we’ve been using it for so many years. But if you’ve been to any of our live events, you’ve seen me go over this on our YouTube channel, which by the way, thank you all for subscribing to our brand new YouTube channel. We’re getting quite nice traction there, and we’re producing a bunch of content for that. So that’s different than what you’ll Here here, and you’ve seen me demonstrate this concept with a person who bought in owner occupied home. And this happened really to millions of people in 1972. They thought they were going to pay $36,000 in payments over the course of that 30 year loan. But 30 years later, by 2001, the dollar had reduced in value from the 19 $72. being worth $1 30 years later, that dollar was only worth 24 cents. And as such, when it’s worth only 24 cents, you’re paying back in cheaper dollars. Well, we know from that example, that I’ve shared many, many times that the real cost of borrowing was negative 1.16%. They got paid the borrow after tax benefits and mortgage interest. They got paid to borrow the money before tax benefits. The real cost of borrowing and forgive me because I can’t remember the exact number, but it was around 1%. So it turned negative where they actually got paid to borrow after inflation in tax benefits. So what if you rent the property out? Well, it can only be dramatically better than that, right? Because you’re outsourcing the payment to a tenant. And this Adam, you’ve heard me talk about this, I call it the ultimate investing equation, right? where basically you only pay or put down as a down payment, about one fifth of the value of the asset yet you control 100% of its value. And then you take and you think, Okay, well, the debt is pretty awesome because it’s long term fixed rate, investment grade debt, and inflation induced debt destruction kicks in. So that equation is already pretty great. But then you outsource the debt obligation to somebody called a tenant. And ideally, they pay you not only that debt, but they pay you a little extra every month, maybe they pay 150 $200 extra and each little house you own right? And then you go through time. And inflation destroys the value of the mortgage balance, but it also destroys the value of the mortgage payment. So the monthly obligation gets lower the rents hedge with inflation, the price of the asset hedges with inflation, and you get tax benefits all along the way. And I mean, those multi dimensional characteristics make income property so unique. So I would say Seneca that to answer your question, that it’s dramatically better because you would get that benefit even if you owner occupied the home. Those people in that example that I give, lived in that house for 30 years, and they got paid to live there. They got paid to live there. After inflation and tax benefits, so it’s pretty, pretty awesome.
It’s kind of like if it is being double counted, then it’s fantastic. Because you got the mortgage going down and the money coming in. So maybe it is being double counted, but it’s because that’s how it actually is it’s being counted twice.
Jason Hartman 15:17
Well, but the thing you can’t double count, here’s what yet it’s not fair to double count is if you have inflation, destroying the value of the debt, and then you have leverage on the property, right? Because you amplify the effect of that appreciation, right? Through leverage. So, you know, if you put down 20% and 100% of the asset value appreciates, well, you’ve got a four to one ratio or a five times multiplier on that money, right? And so the leverage makes it appreciate but the thing you can’t double count, at least I don’t think so. And, look, I’m not a theoretical mathematician here, but I play one on TV. But the thing you can’t double count is the value of the property going up. At the same time, you know, you can’t count the property going up the inflation induced debt destruction and the leverage, that would be counting more than once. So I would rather count the leverage and the inflation did do step destruction, those two things, I believe you can count and that’s not double counting. least in my opinion.
That’s not I agree. I mean,
Jason Hartman 16:27
because if you’re going to say, Okay, well, the value of the property went up at 6% per year to on average, right, that you can’t double count, then you are double counting. Okay, because you already got you took the benefit of the inflation already.
Right. It didn’t go up. 30% it went up. 6%.
Jason Hartman 16:43
Right. Okay, good. Good question. Thanks.
Yeah, absolutely. And if you have a question, make sure you go to Jason hartman.com slash ask. We’ll get to it as soon as we can.
Jason Hartman 16:52
Yep. And we know we owe you a few. By the way these questions. They take a little time to answer especially when someone is wrong. winded with her answers.
Yeah, sorry. I’ll try to keep my answer shorter.
Jason Hartman 17:05
Good one, Adam. Okay, hey, hey, can I give you a couple of economic updates real quick? Absolutely. I haven’t done this lately. So I feel remiss here, I just want to get back on track with it. Consumer confidence was down last month, likely affected by the government shutdown. Still, overall, historically, consumer confidence is very high and very good. new home sales were up 16.9% in November now it’s February right notice, I want you to notice the lag time with real estate statistics talked about this many times over the years. One of the reasons that looking at statistics is is dangerous because it’s always several months in the rearview mirror. When you look at real estate stats, you know, the deals have to close, the transaction has to be recorded. The data has to come from various counties where it is recorded, and then it has to make it The news media and all the statistical offices and so forth. So very, very difficult. Okay, versus 2.9%. That was expected. So I don’t think that’s any big deal. Look at that number 16.9% increase in sales in one month. That’s an anomaly. If you were to average that out over the course of the year, I don’t think it’s any big deal. I would. That’s almost a throwaway statistic. If you ask me. I don’t want to say things are that good? Because they’re not that good. Okay. median sales price of new houses sold in November 2018 was $302,000 and change pending home sales were down slightly in December. Although tight supply continues to play a role a drop in mortgage rates is expected to help Case Shiller the very misleading Case Shiller index, because it i’m not saying it’s misleading because it’s false. It’s I’m sure it’s accurate. I’m not complaining about that. I’m just saying that. The main Case Shiller index, the one that everybody quotes, the one that’s been around For so many years, it’s only 20 markets. And three fourths of those markets are cyclical markets. Only one fourth linear, okay, so just just not enough data, not enough information, okay? Even still values increased by 5.2% annually up until November, only down from 5.3% in October, okay. That’s the annual rate. The Fed left policy rates unchanged at the FOMC meeting. They also signal that future rate hikes this year are less likely. Now remember, this is the most transparent Federal Reserve in my lifetime, at least right? Or at least since I can remember because it’s really been mostly Greenspan throughout my life, at least since I was conscious of it. JPL, Jerome pal, you know, he said he was gonna raise rates a couple more times this year. You heard us talking about that. And now he says, Well, maybe we hit the brakes too hard and we’re going to lay off and let the economy coast for a while. See what happens. And I think that’s good because I do think they hit the brakes too hard. And Trump was right saying they were trying to spoil his party. They they were but at least they laid off a bit talking about home birth. You want to talk about California? Oh, the Socialist Republic of California. my home state from for many, many years. Yeah. What about it? Yeah.
So we’re trying to make friends with all of its city. Yeah. Cities, and they’re actually suing one of their own cities for not having enough affordable housing.
Jason Hartman 20:28
Yeah, that would be like suing your own children and folks, so yeah, really? This is going to be good for business.
Yeah, they’re suing Huntington Beach, because they say they’re not in compliance with the state housing law. And they supposedly tried to make some attempts to get them to fix it. But they couldn’t or wouldn’t do it. They said the city is willfully refusing to build more affordable housing.
Jason Hartman 20:49
You know what I don’t blame them. First of all, and this is just another stupid ill conceived government ruling by fiato idea the free market should decide what houses get built, not the stupid government. Gosh, when will they learn? This doesn’t work. central planning does not work.
Go ahead, Adam, what else supposedly the city was offering significantly fewer than they were supposed to. But in this regard, there’s also just the cost of construction itself, oh, you’re potentially asking builders to lose money to do this,
Jason Hartman 21:24
and they’re not going to do it. They’re not going to do it. They’re just not going to build. That’s why central planning and this kind of government fiato always leads to shortages. It always creates shortages, whether it’s rent control, low income housing, it’s the same result free health care. Now Adam, you can argue anytime you want, because I know your views. But free health care equals shortages, you know anything that’s price controlled, there’s going to be shortages. Look at I remember as a kid waiting in line for gas for you. No hours, like we had gas lines that would take hours and then you know Jerry Brown, our returning governor earth it came back decades later, right and now we just got rid of them and we got somebody worse Gavin Newsom, he’s even more radical than Brown. And Governor moonbeam, put this policy into place where you could only get gas every other day of the week, depending on whether your license plate number edit ended in odd or even number, right? And so this is just crazy. If you want to be forced to ration stuff, control the price of it, you know, and then and listen, I’m not blaming, like democrats on this because Nixon, a Republican president, you know, was very much involved in price controls. So this is not a democrat republican thing. It’s a just a globalist big government type of thing. Yeah.
And it’s also especially in states like California, even if you have affordable housing to begin with, then you have the problem of the people who bought the home have to pay the property taxes as that skyrockets up in value.
Jason Hartman 22:58
Yeah, and the one thing California It does have over 13 they have a prop 13 Howard Jarvis is prop 13. I remember that in the late 70s, when that happened, and I’ll tell you, prop 13 has probably been one of the things that have really allowed the California real estate market to appreciate so highly without prop 13. I bet that appreciation would have been much more muted than it was. But you can see there’s a lot of movement against prop 13 it’s probably not going to last California government makes some of the worst decisions ever. And I do believe that ultimately, we will see the end of Prop 13 we’ve already seen and run around it with these special assessment districts like mello roos, where taxes in real life can be like 2.3%, even though they’re only supposed to be you know, 1% and then usually a quarter for the county or the cities, but the state only contacts as much as 1% of the value but there’s a lot A lot of loopholes that they’ve created to get around it. Adam, I think we got to wrap it up and go to the mortgage update. All right,
let’s go talk to a lender.
Jason Hartman 24:08
All right, let’s see what they have to say about interest rates who we talking to today.
It’s Joe this time.
Jason Hartman 24:14
All right, Joe is back on the show. You’ve heard him before. And let’s get our monthly mortgage update.
Welcome to the February edition of the mortgage minutes. I’m here with Joe lender from Jason Hartman’s network. How are you today, Joe? Good, thank you. How are you? I’m doing pretty well. I’m wondering what are the current mortgage rates that investors can be expecting when they go into a contract on home right now?
So this week, we’re seeing a slight improvement in rates I think over the previous week, you know, and again, you know, as we know, rates are fluctuating on a daily basis, but overall, to give a general barometer of where rates are at, if you’re paying, if you’re purchasing a home for let’s say, $120,000 and you’re putting 20% down With good credit score 740 plus credit scores, today’s rate when the rates I’m selling today, I sold 20%, down at 5.75% with no points. And then with 25%, down on the same hundred and $20,000 purchase price was locking in rates at like 5.125. This afternoon. So I think the market has stabilized somewhat. And we’ve seen a small improvement in rates this week.
Right now we’ll get to the Fed’s decision in just a minute. But the IMF recently downgraded the expected growth rate of the global GDP. And the US government shutdown has hampered our GDP a little bit and potentially a whole lot more if we shut down again in mid February. How have you been seeing those things play out in the bond market and impacting interest rates?
I think to a certain degree, there’s been a more so with regard to the Fed announcement this week and their position on on rates. There was somewhat of a flight to quality to the bond market, you know, So that’s why I think our rates have seen a slight improvement. You know, there’s been some global interest in in US Treasury bonds again, and the yield is quite stable. So I think that we’ve seen, you know, quite a little bit of improvement as a result of not not necessarily the IMF decision, but, but certainly the feds announcement as well to, you know, basically slower averse, their reduction of their $4 trillion bond portfolio, I don’t think they’re necessarily going to come out of that bond portfolio as quickly as they might have thought at the end of last year and their policy outlooks. So I think that has created somewhat of a of a cautious tone with the Fed. So rather than reducing those holdings at a steady clip, I think they’re probably going to reverse that policy or maybe even stay status quo with their bond portfolio.
Right now, the Fed obviously didn’t change rates at the last meeting this week. And they hinted that moving forward, they’re not going to have a set of a plan for the interest rates. Now. Are you expected to cause more fluctuation in the market moving forward then, as people kind of try to guess?
Yeah, well, I think the short answer is Yeah, I mean, I yeah, I think the short answer is yes to that question. But if you look at how the Fed telegraphed their policy last year, throughout the year, indicating that they were going to raise the rate at a throughout the year, a quarter point, pretty much every quarter, they were going to do with three or four times that telegraphing of that policy is always pricing that into the market. So the market will always price that in, you know, a quarter in advance and the only way that they when they do raise rates, that the market will react differently. If they raise rates, like if they had telegraphed a quarter point but they went ahead then and change their mind and raise a half a point then the market would ripple right there, you’d have some, some market movement and reaction to the Fed decision or fed movement. So now I think with their policy outlook, being more of a patient approach, and taking into account a global economic and financial develop You know, there’s some muted inflation pressures now, their patient approach is such that, hey, we’re just going to look and see what the economic data yields before we make a policy decision on moving rates in 2019. So, ultimately, I think that will create somewhat of a, some volatility should they decide to move rates up or down, right, because ultimately, the district has a priced in any movement. So, so compared to last year when they had priced in the rate hikes. Now, there’s no certainty on whether the rate will move or not, or whether it will move up or down or not based on the economic status or economic, you know, state of the country of the of the economy, you know, so, ultimately, I think that it will create some volatility if they move rates up or down, as they proceed to their meetings throughout the year. So it’ll cause more of an immediate reaction after the press conference if they decide or right and so, yeah, so you kind of we’re going to be waiting for that decision and waiting for that announcement each time to see if they move on. And if they do, then it’ll move the market one way or the other. Yeah. Whereas last year, whereas before having telegraph that they’re going to move at a quarter point that was already priced into the market. And when they did move at a quarter point, there really wasn’t that much reaction from the market.
Now, how have you seen the mortgage starts for the investors in your company? Are y’all still seeing the same pace of mortgage applications? Or if y’all seen an uptick or a downtick?
I think, through the end of the year, you know, with the holiday season and stuff, we saw, you know, some kind of a flattening of applications. We didn’t see a growing application week over week, but certainly throughout January 2019, we definitely had higher application volume week over week throughout the month. And we’re entering now February, you know, if I looked at my calendar for the first week in February, in terms of just calls and applications of referrals that have come in, you know, we’re definitely on a higher pace clip of application volume for investment properties. There’s definitely a great demand out there from You know, investors that listened to Jason’s network and and listen to the podcasts that we provide. So there’s quite a bit of demand for investment, property, financing and acquisitions and growing portfolios among consumers. But yeah, as it relates to December over January, we definitely saw some increased application volume.
Alright. Well, thank you very much for your time today. I appreciate it. Joe.
absolutely happy to help in any way I can.
Jason Hartman 30:25
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Join us March 23 and 24th for the 2019 meet the masters of income
Jason Hartman 31:21
Let’s break this down and look at some of the strengths of income property as an asset class. And I found that this event is really helpful because I am totally a newbie to real estate investment. And so I picked up so much information. One of the great things about it is it’s so fragmented, right? embrace the fragmentation.
actually been learning a lot about the tax benefits to real estate and a lot of I’ve been investing actually well over 10 years now. And I learned a lot of new things today.
The other advantage of this weekend is networking. Meeting new property manager Meeting new area specialists and seeing the product they have to offer that changes here by you. Register now with Jason hartman.com slash masters