Jason Hartman talks about a few headlines from the news. He connects them with his investment philosophy, more specifically, Commandment #3 (Thou Shalt Maintain Control.) After, he looks at a scandal plaguing Wells Fargo which signals signs of an economic slowdown. Jason talks about riskier loans by the bank then wraps up the show with a story on how expensive California is becoming.
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 0:52
Welcome listeners from around the world. Thank you so much for joining me today. This is Episode 1048 this Is your host Jason Hartman and again, 1048 episode number, you know, some podcasters think numbering the episodes is bad, some think it’s great. I just think it’s really convenient when the episodes are numbered, you know, it’s easy to refer to them. So yeah. 1048 And plus, we’re up in the four digits, aren’t we? Yes, we are been doing this for many, many years for a long, long time. Okay, so, you know, I talk about the 10 commandments of successful investing. And you know, commandment number three all too well by now. Well, sadly, occasionally, I learned the lesson about commandment number three, sometimes myself, but when I do it, I kind of look at some of my stuff is a lab, a laboratory, because I am reporting to you on various investments in things and so occasionally I lose out not following my own commandment number But more so I mostly I mostly stick to it. But you know, occasionally occasionally I go off and do something a little wild, we all got to do something a little wild once in a while. And usually it’s costly, wild thing. But sadly, many, many investors out there in the world are learning this the hard way all too often. And there is a another story now, you know, I am embroiled in i a case where I am. Well, I don’t I can’t mention too much. But I believe there is a company out there running a Ponzi scheme, or at least some sort of investor fraud. Now there is another one of those in the news. The SEC just shut down a company called equity build, they were buying properties and I guess they really were buying the properties. So they weren’t a complete scam. But they were running various real estate funds and the SEC claims that this company was running a 135 million Dollar real estate Ponzi scheme. Now Ponzi just to review a little bit. Mr. Ponzi was an Italian and I don’t remember when he first ran his scheme, I want to say it was back like and then early 1900s, or something like that. I remember studying this a little bit before. And you know that that’s the whole idea that you pay investors with other investors money, rather than the fruits of real investment gains. And of course, we know the biggest Ponzi scheme in the world. You know what it is, or at least the biggest Ponzi scheme in the United States probably in the world? That is, yes, we all know what it is. We’ve all heard of it. And you think I’m gonna say Bernie Madoff, don’t you but you are wrong. I’m not gonna say Bernie Madoff, the biggest Ponzi scheme in the world. You think I’m gonna say the Federal Reserve Don’t you know, the Fed is not really a Ponzi scheme. What really is a Ponzi scheme. I think anyone could agree with it. Even those who have something to do with it
Jason Hartman 4:04
would have to agree. It is the Social Security system. Yes, our Social Security system is the Ponzi scheme that Bernie Madoff actually said inspired him to commit his Ponzi scheme. Now, this would actually be funny if it wasn’t so sad, wouldn’t it? But yeah, so another Ponzi scheme busted these investors, this hundred and $35 million, that will probably be investor losses. And you know what they never count when they talk about these various schemes and scams out there. They never count the opportunity cost, which is a fair thing to count. So in other words, what that means is the Ponzi scheme is really much bigger than it sounds. Now, I don’t have specifics or math on this one, so I am speculating to some extent here but this real estate Ponzi scheme The SEC alleges equity build was doing. They might say, okay, it’s 130 $5 million. Now what does that mean? Is that the amount of money they collected from investors? Is that the amount of real estate that they say they bought? I don’t know exactly. I’m guessing it’s the amount of money collected from investors. But what it doesn’t count is that you can hear the dogs that don’t bark, it doesn’t count the opportunity cost. When we talk about opportunity costs. That’s really another way of saying, You can’t hear the dogs that don’t bark. Because if those people that invested this hundred and $35 million into this Ponzi scheme, were able to put their money somewhere else that would have worked better for them, or obviously better than this. Then their gains would have been in excess of the amount of money invested. Well, of course it would right and that is the real loss here, it’s not 130 $5 million. I’ll just do some simple math. Of course, investment returns should compound. And I’m not going to do it compounding because I didn’t sit down and take out a spreadsheet or a calculator and do the compounding numbers here. But say, for example, you know, they were to earn 10% annually on their money, well, that would have been $13.5 million in total. And if this Ponzi scheme was run over 10 years, that’s another hundred and $35 million, not even compounding it and of course it compounds. So yeah, the Ponzi scheme could easily be double the number that they’ve quoted here, right? That’s the real fact. It’s the opportunity cost the compared to what you know, if you have a bunch of equity sitting in in your properties, including your personal residence, if you have a bunch of money sitting in the bank, if you have any thing that is not working for you, you all have to think compared to what you have to think you can’t hear the dogs that don’t bark, you have to think of opportunity cost, because there is always an opportunity cost. And I’ve talked so many times about how people who don’t leverage their properties, people that have the old style of investing, you know, pay it off or pay cash or put a lot of money down, they tend to not be as attentive to their investments, because they don’t have the pressure of the leverage of the debt service on those properties. In that pressure, I would submit to you actually motivates them to be better investors. When they get all that lazy equity sitting in a property. They get kind of mushy in the brain, you know, and I’ve seen it over and over a million times. I’ve seen investors that have own properties for a long, long time and it always reminds me of where I used to live Corona Del Mar, California. quaint little beach town, very expensive place part of Newport Beach, California. You know, when I lived in Corona Del Mar and I had many friends that lived in Corona Del Mar, I remember, you know, a lot of people on all of those various streets named after various flowers. in Corona Del Mar, also those streets happened to be in alphabetical order. So, yes, the flower names are A through Z. And you know, there were lots of landlords that owned those properties for many, many years. And they had very low or even no loan balances on those properties. And when they were in that position, it made them lazy about rent increases, because they would rationalize to themselves and these are people it’s funny. These are people, highly educated people that have sophisticated jobs. They drive down the street down Pacific Coast Highway in the morning, and they go to work at places like PIMCO.
Jason Hartman 8:58
Yes, the big bond fund the biggest one in the world, right PIMCO, the bond trader, okay, you know, Bill Gross remember Bill Gross, he worked there for many, many years made fortunes, fortunes fortunes. It’s funny, though they don’t treat their own portfolio, like they treat the bonds they trade at PIMCO, right. That’s just an example. I mean, fashion Island right down the street, or right up the street because it’s north of Corona Del Mar is known as the wall street of the West. These are financial people, okay. And they’ll just let their brains go to mush when it comes to their own properties they own. They all have a million dollar house that they rent for 30 $500 a month. Now, if they had that property fully leveraged, properly leverage, then they would be pressured to collect higher rents on the property. Now, they really could never do it because of the rent to value ratios being so bad on expensive properties, but I’m just giving you an example of how when You have that opportunity cost when you have that lazy equity. When you have that equity sitting in a property.
Jason Hartman 10:07
It makes us lazy. We start to rationalize, look, folks, we’re all human. But none of us is immune to this, not even yours truly. Okay? And we say things to ourselves like, Well, hey, my mortgage is only $3,000 a month, and I’m renting it to these folks, and they take good care of it, and they pay me 3500. So I have $500 a month positive cash flow, right? When I could take that property and do a nice 1031 tax deferred exchange on it, and buy 10 properties in three different diversified markets throughout the country. And I could find those properties. Jason hartman.com, or I could find them on the property cast. Yes, the new property cast, which is a podcast for properties, so make sure you subscribe to Jason Hartman his property cast in addition to this podcast, and you’ll have have properties delivered right to your computer or mobile device real real handy for you. Okay? So avoid those schemes, follow commandment number three. Once again, commandment number three, thou shalt maintain control. Don’t put your financial future in somebody else’s hands. Be a direct investor, because when you’re not a direct investor, you leave yourself susceptible to three major problems. Number one, you might be investing with a crook, these guys running the Ponzi scheme Crux, right. Number two problem assuming they’re not correct, is they might be idiots and you’ll lose your money just because of their sheer stupidity. So assuming they’re honest and competent, you jump through those two hurdles. They take a huge management fee off the top for managing the deal. So three major problems when you violate commandment number three, okay. Now speaking of credit The disgusting criminals at Wells Fargo, maybe showing us and this is not about their scandals, because they’ve had so many that we’ve reported on. But we don’t even have time to report on all of Wells Fargo scandals, because it seems like there’s one every week or do maybe every month in total. But Wells Fargo, this might be the sign of a market slowdown. They are cutting 600 mortgage jobs nationwide 600 mortgage jobs. Now. What does that mean? Does that mean? Well, it’s just because of the higher interest rates and the refinance business has gone away. And remember refinance business, I’ve owned a few mortgage companies throughout the years. So I I know something about the mortgage business, not an expert, but I definitely know something about it. The refinance business that Well, let me just say this first. There are sort of two types of mortgage people out there, right or not. mortgage companies out there, there are shops that really focus on refinance business. And there are shops that focus on purchase business. Most companies or mortgage reps do both right they do both. But the siren song of the refi business, remember, you know, this is from the Iliad in the Odyssey, right, the siren song, where the sailors had to fill their ears with wax, and they had to tie themselves to the mast of their sailing ships in days of old because the beautiful voices of the sirens, these women that would sing was so attractive that they would sail toward them and crash their ship on the rocks, right? So the siren song to all of us is instant gratification and easy money. And for the mortgage people, the instant gratification and the easy money is in the refinance business. Because it just comes Like a flood, and when rates are low, and the whole country is refinancing their real estate, tons of business comes in, but it dries up like that. It goes away really quickly because it’s very rate sensitive. I have literally heard so many stories. Remember when I lived in Orange County, California for so many years, most of my adult life, the mortgage companies would go in and out of business so quickly, office commercial real estate landlords hated leasing to mortgage companies, because the minute that refi business just boom, it just dried up. They were gone. Literally, many of these mortgage companies would I mean, I would hear stories like this from my commercial real estate friends. In fact, I even toured some of these properties, looking for office space for my companies, when I lived there. And literally, what one company it’s famous, they pulled the fire drill Everybody went out in the parking lot. And someone from the company got up and said, You’re all laid off, and they lock the doors. And that was it. The commercial real estate broker, friends of mine would tell me that there were times when these companies went out of business so quickly, that they literally they just, of course, they left all of their furniture, okay, they would just grab the files that they needed to have for legal requirements, you know, that were probably in record storage or digitally stored, but there were literally half full cups of coffee on the cubicles, you know, that no one even bothered to clean up, they cancelled the cleaning service right away. They just said, boom, we’re done. And all the vendors and the landlords get stiffed, right? So anyway, Wells Fargo’s laying off 600 people. Now here’s the question we need to ask ourselves, right? There’s a little lesson in the refi versus the purchase money business. Oh, by the way, let me give you the comparison on that just quickly, the purchase money business, the business that our lenders engage in the people you meet at our live conferences, like the one coming up in Hawaii on Waikiki Beach in November that you’re going to join us for because you’re going to go to Jason Hartman calm and and register for that if you haven’t done so already, those people do the harder business. They do the purchase business, and the purchase business for the lender from their perspective, it’s tougher, it’s a harder business to do, right. And it’s slower, and it’s more work and it’s, it’s more character building really, but it’s more consistent. It’s not as temperamental roofies are just purely a rate driven rate sensitive thing, and that’s what it means. Okay, we shall see what this all means, but there are definitely signs of a slowing market. Now that has not hit us yet. This market is slowing from the top down. The higher end of the market is the part that slow the lower end into the market. The sensible income properties that we deal in are booming. It’s still booming, it’s booming, booming, booming, we do not have enough inventory. We would love more inventory. In fact, if you have any connections with people that could provide us with more inventory of properties, we will give you a nice reward. I think that’s what we need to do offer a reward to our listeners. So there you go. I haven’t thought this out. I don’t know what the reward is. But we’ll give you a reward. Okay, and it’ll be more than a nice dinner. Okay, much more than that. But yes, inventory is very scarce in our part of the world. But, you know, in this article, it cites how in the northeast home sales have dipped by 8.3% the most in any region of the country. prices in the north, east were up 6.8% at the same time, that volume dipped by point 3%. Right. And the median house in that region now costs 308 Thousand $700. But here’s the question we didn’t get the answer to in this article and this is what I hate. Everything in life in terms of statistics should be done by percentages. Because you have to ask yourself compared to what? When you get a percentage you get a comparison, right? What they don’t say they’re cutting 600 jobs in their mortgage division, but they don’t say how many total jobs they have. What percentage is that of their workforce? In the mortgage division of the scumbags at Wells Fargo? Is it 1% is a 10%. Is it? Is it 50%? I don’t know. Because the article doesn’t say that. It just says they’re cutting 600 jobs. That’s all we know. Now, our Fed chair is defending the gradual rate increases. They have their annual meeting you know in Jackson Hole Wyoming Of course you’ve heard of this. This is where all the ultra rich people who control the world Hey look, you look at the you know, remember the old saying gifts Someone a gun, they can rob a bank, give someone a bank and they can rob the world. Right? So remember that give someone a gun, they can rob a bank, give someone a bank, they can rob the world. Right? So all the people robbing the world, the big banksters. They meet in Jackson Hole Wyoming for their regular meeting, Jerome Powell or new hedge, someone new Fed chair is defending the strategy of gradually increasing rates. So look, that’s why the urgency is here, obviously to get into the market, right? And buy more of these good, quality, inexpensive, good rent to value ratio properties, because the rates are definitely definitely increasing. I would argue that this is the most transparent Federal Reserve that we’ve maybe ever had. I mean, certainly in my adult life, it is because Alan Greenspan you’d never knew what he was going to do next. You know, he talked in code and abstractions and you could just never probably the the least coded thing. Alan Greenspan or old Fed chair from, you know, before Bernanke that he ever said was irrational exuberance, right? And that was probably the the least opaque thing he ever said. So, but this Fed is pretty transparent. You know, they’re just saying, look, we’re raising rates rates are going up no question about it. That’s what’s going to happen. So go and react marketplace just go react. Okay so another thing and this is from the Wall Street Journal interesting article here this is on the front page of The Wall Street Journal Weekend Edition, and maybe that’s why it’s even more significant title lenders push risky loans. Now we have talked a lot on the show since the great recession of how the banks have overcorrected how the banks have really been quite conservative, quite concerned. But at the same time, I have often said that Americans have very short memories, don’t we? Don’t we have short memories. And the last time around when this mortgage crisis hit the mortgage meltdown, it was obviously because of these insane, ridiculous, silly, dumb loans. And I’ve shown you the emails I received back in 2004. And how my prediction was just right on about how the end of the good market would be november of 2005. I sold my real estate company to Coldwell Banker, and the deal closed on November 11 2005. And that was right around the end of the market. But nobody even noticed it until the following spring. Nobody really noticed because they thought, Oh, well, that’s just a typical holiday slow down. You know, we got to adjust for that. Bah, bah bah, but Jason Hartman was out there, too. Everybody, I was getting an argument I was doing seminars in our Newport Beach office back then on San Joaquin hills road with our terrible landlord that we had, they ran the the slum of fashion island that landlord did. You know, in commercial real estate, you got no rights. So this residential stuff that you do, you know, there’s lots more rules. It’s great. It’s harder for someone to take advantage of you even though many of us many times feel taken advantage of, if you feel that way, because you got a lame property manager who’s not doing things right. Trust me, compared to the cutthroat world of commercial real estate. You ain’t seen nothing yet. Okay? You ain’t seen nothing yet. This is lightweight compared to what these these scumbags in the big world do in commercial real estate. Okay, where was I going with that? Okay, so yes, I was doing these seminars in our Newport Beach office back then and in 2004 and I was saying, hey, the markets gonna slow down We are going to have a crash eventually here, if they keep making loans like this, they’re silly. They’ve got all these 30 these adjustable rate loans that have the teaser rates last three to five years, these five one arms three, one arms, arm is adjustable rate mortgage, obviously. And you could just tell when the big bulk of those loans was done and you could just time it forward, it was pretty easy to predict that there would be a mortgage meltdown that was not a hard prediction. I don’t think even though most of the world one did deny it, but it was not easy to predict and I certainly didn’t predict it and I didn’t know was coming what was behind all of that stuff, which was the Wall Street shenanigans, the selling the loans off and multiple pools and you know, just bankrupting the country of Iceland. You know, bankrupting what Vallejo in Northern California. What happened in Stockton? I mean, the stuff behind the mortgage meltdown, I had no idea that was going on. You’d have to be a Wall Street Insider. But hey, that’s why we got books and movies like The Big Short. Right. So Michael Lewis, so tell you all about it. You probably saw The Big Short, if not see it again. And the other one to see is margin that was really good. Talked about the great recession. Why? Why are we talking about this stuff that happened really starting 13 years ago? Because it’s important. There’s an old saying for this, you know what I’m going to say? Those who don’t learn from history are doomed to repeat it right. So maybe that’s what this article is saying. It says lenders are stepping up offers of consumer loans with few strings attached, often to individuals with poor credit histories. They all but ignored in the past years after the financial crisis See, the bank’s kind of overcorrected. And now loosening, loosening, loosening, loosening. So this is something to be watchful out and to be careful of The offers promised a way to help pay down other debts or fund home renovations or vacations, fueling concerns that customers could overextend themselves, quote, take control of your finances unquote says one mass mailing quote, your dream can come true on quotes as another. Here we go again, folks. American Express company Goldman Sachs, Lending Club and social finance, Incorporated, are among those behind the onslaught of unsolicited mailings, offering unsecured loans known as personal loans as large as $100,000. In the first half of this year, lenders mailed a record 1.26 billion solicitations for these loans. According to market research, firm composites composites scam, I guess is how you say that now the thing they never tell us as compared to what right Like, how many did they mail the year before? I don’t know. You know, but anyway, it sounds like a lot. So there you go, risky, crazy loans coming again, hey, all my California friends and all our California clients, my home state, California has certainly suffered some terrible fires lately. And our heart obviously goes out to the people that have been affected by this stuff. And you know what they are now talking about, in addition to getting rid of Prop 13 there is a new movement, I guess, against prop 13. That’s what has, in my opinion, and I’ve said this many times before, has allowed prices in California to go up as much as they have, because California over taxes you on everything. But thanks to Howard Jarvis and maybe back in 1978, or somewhere around there, and his tax movement to keep property taxes low through proposition 13. That has really lasted quite a long time. That’s been Very enduring in California. So I’m, I’m proud that California has not overturned prop 13 yet. But there’s another move to make that happen. We’ll see if it does. If that does that is going to be devastating for California real estate devastating. So keep an eye on that. Because if California real estate was taxed at the same percentage rates as many other places around the country, I mean, New Jersey has the highest property tax rate, I think in the country. It’s, it’s insane. So Gary, I know you’re listening out there, right. They’ve been on the show before they’re in New Jersey, and property taxes in New Jersey are nothing short of insanity. Right? I think it’s the highest taxed in the nation. If California had taxes that were allowed to rise, believe me that the government in California would take the money, but it would really cause downward pressure on real estate prices. So that’s bad, but what they’re talking about now, and it’s on the cover of USA Today a couple days ago. fireproof homes fireproof homes now these homes would have no roof fence because I guess what happens is that feeds the fire that venting Class A fire retardant roofs, aluminum doors and windows stucco walls with no open seams, concrete patio pavers, the use of fire resistant wood on the outside, such as IP hardwood for decking, steel for outside stairways and making these homes. Well. Nothing is totally fireproof, I guess, but very fire resistant. And if that happens, Wow, that is going to just make cost massive for construction in California is if they weren’t bad enough already, right is if they weren’t bad enough already. So we’ll see where that goes. Hey, folks, we got to wrap it up. But be sure to join us in Hawaii. First week in November. A lot of you have already registered. We’re looking forward to Senior there, we are going to have a great conference with a whole bunch of new content and new thinking on investing. This is a totally new event for us. And we have not launched a new event since we launched Jason Hartman University in 2015. So this is a completely new event. And then we have pushed back our annual meet the Masters conference to kind of line up these two events, we’re going to do this kind of event in a paradise oriented location. That’s why we call it profits in paradise every year, but we’re going to move it around and won’t always be in Hawaii. So next year, it won’t be in Hawaii. And by the way, Hawaii is a very expensive place to do events.
Jason Hartman 29:43
So Yikes. It’s expensive for sure. But we got good rates on the hotels, you got to give us credit for that. So we have great room block rates for for the hotels and we are at the most iconic hotel on Waikiki Beach. And then we’ve got our venture alliance in Hawaii. Right after this one, we moved meet the Masters back to approximately march of 2019, tentatively planning march for that event. So we could space them out a little bit and do profits in paradise in the fall, and then meet the Masters in the spring the way we used to do it years ago, and this will be our 21st anniversary meet the Masters event, when we do it in approximately march of 2019, the 21st one, that’ll be really cool. Okay, so join us for that go to Jason Hartman comm to register if you have an Amazon Echo, and we’ve given a few of those away on the show. By the way, if you have an Amazon Echo, be sure to enable the Jason Hartman flash briefing skill, it’s free and you can hear it on your Amazon Echo. Every single day. New information is published and we are going to be creating a lot of content for the Amazon Echo. real soon here, we are working on that. And we’ve been hiring people like crazy to do all kinds of cool stuff as we are in a serious growth mode right now, what else should I say property cast, be sure to subscribe to that and get the properties delivered right to your mobile device or your computer as soon as they come out. And that’s it for today. We’ll talk to you in a couple of days. And until then, happy investing. 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.