Jason Hartman uses this show to discuss a variety of headlines shaping our world. He talks about the home as the center of the universe given the pandemic situation, work at home, remote learning, and lockdowns. In addition, he discusses bailouts that are coming, Wall Street, and how real estate investing continues to trend positively. Jason also looks at inflation and connects it to his own personal experience of car shopping and purchasing a BMW.
just invest. It’s still a great thing to do. I know it can be scary to a lot of people. Jason’s been doing this a long time. He’s got a lot of knowledge. We’re in an age of technology and everything’s at our fingertips into a lot of homework on your own. But, in the end, make sure you’re talking to professionals like Jason.
Well, 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 1:10
Welcome to episode number 1415 as we continue part two of the return policy for real estate, and by the way, I sarcastically said yesterday, you know, it’s just like returning anything else, right? No, of course it’s not. I mean, you guys get it. This is this is different because when you return real estate to your lender, you will have a restocking fee. There is a restocking fee. For some, they think it’s a significant restocking fee. For others. They think it’s not that significant. And, you know, you only have to pay it for a year or two as you work with a service that can help reimburse your restocking fee.
Jason Hartman 1:55
Oh gosh, we have to put these in whole new terms whole new ways to think about As well as we continue in the era of pandemic investing. My predictions are coming true already. Of course, Fannie Mae has said that they are suspending foreclosures, HUD while Fannie Mae, Freddie Mac and HUD, which had means, you know, FHA loans, suspending all foreclosures and evictions. So I guess the deal is now property owners don’t have to pay their mortgages, but tenants don’t have to pay the rent either. This is what I call Trickle Up economics instead of the commonly used trickle down economics that you heard throughout the Reagan era, supply side economics, Arthur Laffer, the Laffer curve. I had the privilege of meeting Arthur Laffer back in about 1989. At at the then government owned by the way the ven government owned beautiful Phoenician hotel and resort And it was owned by the government because during a crisis a few years earlier, which was the Charles Keating, Lincoln savings and loan crisis, it really wasn’t the Lincoln savings and loan crisis. It was the SNL crisis in general. But Charles Keating and Lincoln’s and Lincoln savings and loan were kind of at the forefront, they were this sort of the scapegoats, the iconic figures in that whole debacle. And, you know, so we always have a various crisis, right? Every, every seven to 10 years, we’re gonna have some kind of crisis. It’s just the cycle works kind of, you know, this one is different, this flavor of this one is totally different. Nobody knows what to expect, including yours truly, I don’t know. You know, I’m just gonna tell you, this one is, it’s just a different beast. But what’s interesting about it, is that of course, the home is becoming the center of the universe. Of course, there is going to be a migration to lower density. suburban style living. I talked about that yesterday as I added commandment 22 to the list of my 10 commandments of successful investing. Yes, yes, we have 22 of 10 commandments government math. And that is, thou shalt invest in low density environments, those good old single family homes that you can find at Jason Hartman, calm slash properties. Those are even going to be more popular. Because after we get past this quarantine era, and after we get kind of out of this, which we will I predict and you’re going to see it, there will be news stories, there will be a migration out of high density downtown, urban city type environments, even in suburban environments. Like you know, I’ll take any suburban environment in the country as an example, where you have a four story apartment complex, with an elevator. Remember the metric is if had had An elevator, caution, caution, caution. That’s the word. That’s the word. The elevator it is the indicator of high density. Okay, so we are witnessing the biggest money printing extravaganza in world history. And we have more to come. Home is the center of the universe. Thank God for the distributed capabilities of the internet because without that, people would really be very unproductive at home, but we can maintain some level of productivity. Hopefully, this will put the nail in the coffin of some things that needed the nail in the coffin, one of them being the college student loan debt, government debt slavery complex, whatever, you know, I’ve called it many things over the years. But the that whole scenario, I think, I think the world is going to see that the emperor has no clothes. What do I mean by that? Well, all these colleges and universities and, and schools, you know, they’ve told everybody to go to go study at home to go study online, I think we’re going to see that we only need one professor in each topic to teach the entire planet. We just take the best professor in each topic. And that’s who teaches everyone on Earth. Okay, not that, you know, of course you want some multiple perspectives. So maybe you got a few but you don’t need universities owning the being the biggest landlord being the biggest real estate owner in any given city. Okay, that is improper. That should not be that way. And you don’t need universities raising their prices at three, four times the rate of inflation that is an absolute scam. More bailouts are coming if you are in an affected industry, which is almost everybody. Don’t worry, more bailouts coming? I promise. They’re coming. They’re coming Don’t panic. They will be announced and the money printing will continue. But what what’s kind of interesting about this one is that, you know, you’ve got to think look, like I’ve said, this could all blow over in a month or two, it really could. We’re all going to remember it. And I think there’s going to be a, a generation long memory. And I think we’re going to see a massive decline in handshaking, which is probably a good thing. Because the handshake after you know, do you know, you know, do you think much about this? Do you know what the biggest killer of humanity is? The biggest killer? It’s not terrorism. It’s not nuclear war. It’s not conventional war. It’s not, you know, it’s not genocidal and homicidal maniacs. It’s, it’s nothing like that. And it’s not, you know, medical mistakes. That’s one of the biggest killers in the US, right. And it’s certainly not mass shootings. That’s like, statistically almost nothing. But of course that gets all the news because we live in a dysfunctional world. Okay, but the biggest killer, some of you know what I’m gonna say, right? You know what I’m gonna say? The biggest killer is the humble, tiny little mosquito. Yes, that is the biggest killer and illness carrier that has affected mankind over the years. And one of the biggest advances, maybe the best inventions in history is literally it’s not the internet. It’s not the automobile. It’s not the steam engine. It’s not the computer. It’s not the solid state chip. It’s not software. It’s the mosquito net. Yeah, the humble mosquito net, has saved a lot of lives. So I’d say that the second biggest killer, or at least illness carrier, is the handshake. Yep, it’s the handshake. We’re going to see a a huge decline in popularity of handshakes. That’s another prediction I’ll make, but here’s the thing. So this could all blow over in a minute. A month or two, it really could. And if it doesn’t blow over in a month or two, then and when I say blow over, I mean, you know, there’ll be a vaccine, there’ll be a better treatment protocol. The curve will be flattened as people stay home and quarantine around the world. We’ve never seen anything like this. It’s truly spectacular. It’s amazing. So it’ll flatten out, you know, the weather will warm up in the Northern Hemisphere. And this thing doesn’t like warm weather. It doesn’t like UVA and UVB rays. All of this will happen and it’ll it’ll flatten out it’ll blow over right? And so isn’t this just kind of a massive overreaction on the part of governments and central banks all over the world? I mean, in Italy, you don’t have to make a mortgage payment in the US kind of looking the same way. You know, Fannie Mae, Freddie Mac and Hud all suspending foreclosures, you know, the bailouts, these massive bailouts that will be bigger. My prediction is ultimately if you add them all up, After this thing is over or even way before it’s over, and compare them to the Great Recession just over 10 years ago, this will be bigger, even in real terms, meaning inflation adjusted terms, not nominal terms. This will be inflation adjusted, there will be more bailouts and more QE than the last time around. So, isn’t it just an overreaction for something that’s maybe going to be like, one terrible quarter of GDP, and the second quarter being less terrible of GDP, we’ll have a contraction, you know, for anybody who says, Oh, we might not go into a recession. Well, please stop smoking crack, because that’s what you’re doing. We’re already in the beginning of a recession, folks. Okay, give me a break. I mean, that’s just Pollyanna craziness. Anyway, it’s going to be interesting to watch. Of course, we’ll stay with it. Fascinating times to be alive. Don’t worry, but you know, I do have a question. If anyone listening and I’m sure there is someone listening has been affected by coronavirus, not economically because that’s everybody listening at least you will be some point in some way. And it’s not all bad By the way, some people will increase their profits during this time and grow financially. And remember, economics is a relative game. So if the economy is shrinking, if everyone else’s net worth and income are shrinking, if yours is stable, or growing, then it’s terrible as that is to say look at economics is relative. Like I said, during the Great Recession Look, if your net worth is a million dollars, and your neighbor’s net worth was a million dollars, but goes down to $500,000 then your head in relative terms Economics is a relative game. All right, because all the prices in the marketplace adjust based on the crowd and how many dollars they have to chase that limited supply of goods and services. So don’t panic, okay,
Jason Hartman 12:16
you’re gonna be fine. But you know, if anyone is actually affected health wise from the corona virus, and I’m sure someone listening out there must be or knows someone who is please go to Jason hartman.com slash ask, and let us know about it because I don’t know anybody personally, that’s been affected. You know, I see these terrible stories on the news and so forth. But I’d like to know just hear some firsthand experience about that. So please come forward. Let us know Jason Hartman comm slash ask. And of course we’re here to help you with the pandemic investing strategy. Yes, we have a strategy a pandemic investing strategy. Go to Jason Hartman, calm Fill out any web form, get connected with an investment counselor or call us at one 800 Hartman. That’s one 800 Hartman. All right, part two of the return policy for real estate. Here we go. Absolutely. I remember one of our clients had purchased a whole bunch of properties. The Great Recession came, and it wasn’t really the properties that got them into trouble. It was the loss of employment. Okay. Employment was the problem. See, sometimes your ship doesn’t take on water from the source, which you think it is. It’s another source out there, right. And in this case, it was simply job loss, right. And so he wanted to unload some of his properties. And the lenders did loan mods on some of them, short sales on a couple of them and even paid money to do the short sale. They said, Look, we will give you it vary based on the loan amount of the property, not the price of the property. But these were anywhere from like, I don’t know, four to $12,000. I think on little investment properties, I’m sure if it was a big, you know, expensive property, they probably would have paid you a lot more. But on these little investment properties, they call you up, and they’d say, look at we’d like you to do a cooperative short sale, if you will. Put the house on the market, get a buyer, bring us the offer. We’ll work with him. And we will reduce the loan balance to allow you to sell the property and for your cooperation. We’ll give you a $9,000 Can you imagine? And now keep in mind, this is the same. And this is a hypothetical and well it’s not hypothetical, but it’s a this is the same john doe investor. Okay, that sort of all, you know, every investor, right, who had had that property and stopped making payments on that loan six 812 18 months ago, and they were still collecting the rent, and the rent was like their income. So think about this concept, right? The investor has that property, they don’t make a payment for a year, the rent is 1500 dollars a month. So they take that $18,000 and they use it to live on. Okay, right. And maybe they got a few other properties. So they, you know, piece themselves together an $80,000 income, right with with with rent, they’re receiving payments, they’re not making, okay. And then this is how upside down the world is none of this is right. It’s just the way it is. Okay? I don’t philosophically I disagree with all of it. Okay. And then the, you know, the lender comes along and says, Look, if, if you question With us in a short sale, put the property on the market, we’re going to pay you another $9,000. So by the time the deal closes, it’s now six more months down the road 1500 dollars a month, more time six $9,000 more. Plus they pay him another $9,000. So they got 18,000 they got $36,000. I mean, seriously, and then they said, All you got to do is own the asset.
Jason Hartman 16:30
All you got to do is all you got to do is own the asset. Yeah, yeah. And they they chop, you know, $40,000 off the loan balance to allow them to sell it. I mean, what a deal. You can’t. This is crazy. It’s it’s bothersome, really, you know, it. It kind of bothers me. But, you know,
because the banks are getting the bailout as it is. Yeah. Taking a loss because they’re getting money from the government.
Jason Hartman 16:56
Exactly. They got the money from the government and look at you know, it’s funny. Hard to feel too much sympathy, because there are very good arguments that the banks caused that entire crisis, okay? They had no brakes on the system. They appraisals were ridiculous. They threw all that cheap money into the market, and it got overheated. And nobody had any there were no parameters. They were making loans to anybody who could fog a mirror, you know, so they can take a hit, you know, they, they they caused that problem. Okay, so, yeah, that’s the return policy. Any more thoughts or questions on that we should touch on because I want to talk about one more subject.
No, but I think I think it’s, it’s revolutionary. If you understand it, it’s just it’s a great way of thinking about income property. It’s another it’s another way of reducing your risk. You know, that that you? Let’s say you buy $100,000 house and you put down $20,000 worst case scenario, if something awful, awful, awful happened to you lose your job, or the house Switching. Okay, you’ve lost $20,000
Jason Hartman 18:02
and maybe you didn’t maybe, maybe, maybe you actually gained 16 I just gave no sign. Oh, yes.
But it gives you a sense of the limit. Just like leverage. You know, like, let’s say the house appreciates 5% you know, you’ve actually made 25% if you put down $25,000 or $20,000. So this gives you another layer of protection to think about it that way. Yeah.
Jason Hartman 18:32
Yeah. It’s, it’s, it’s, it’s pretty interesting. Like I always say, the best insurance is a high loan balance. If you if you have a low loan balance, nobody is going to help you. Nobody’s going to be incentivized to help you. When if you if you experience a problem, the lender is not going to work with you. They’re not gonna have any incentive to work with you because they don’t have any risk on the table. If they come to the table where each party is at stake. They’re, you know, equally yoked, if you will to use the biblical concept, then they’re going to work with you because they got the yoke on. Okay. They care about,
you told me about I don’t know if it was in New Orleans after Katrina, where certain homeowners, like they said, you don’t have to pay your mortgage for six months. Right. And the people who had paid off their homes like
Jason Hartman 19:26
they do anything. Yeah. Yeah. And and the people who have the highest mortgages in that example, got the most relief, because think about it. If you had a $500 mortgage payment, you only got that much relief. But what if you had a 1500 dollar mortgage payment, because you didn’t put that extra $50,000 down on the property and you kept that 50,000 in the bank, or you bought other properties with it, or used it for something else, you’re better off than that. person who seemingly did the right thing. It’s totally unfair. It’s not right. I’m just saying this is the way it is. Okay. So that example, Evan, just let me explain that. So all the listeners understand it. After Hurricane Katrina years ago, the attorneys general have, like six states in the effected states made a deal. I don’t know if there was litigation, there probably was or maybe it was just a consent decree. I’m not sure what. But they basically made a deal, I think, with the lenders, all the major lenders to put a moratorium on charging anybody mortgage payments for the article I read was six months. I have a feeling it was extended a lot longer than that. But I remember reading an article that said for six months, they can’t collect any payments, and they can’t do any bad credit reporting or charge any late fees, or any extra interest or anything like that. They just a moratorium. mortgage payments. Okay, so if you were the person the sucker with a free and clear house or the low mortgage payment, you got either no relief or very little relief in that case. Yeah. It’s, it’s the way the world is, folks.
That’s a concept to understand as as an investment investor, I just understanding that concept really helped me think differently. It’s sort of like a keystone principle, if you can understand that you can understand so much more Velocity of Money, opportunity costs, all of that. Now, if you think about it, it’s really not fair for the person who’s paid off his or her whole home, they don’t get this benefit. So they’re reducing their risk by keeping a high loan balance. This is it’s just so counterintuitive, but so important. And once you understand it, you actually give yourself more opportunities for diversification. Instead of paying off your home, let’s say you have a $500,000 home You have $300,000 in equity, you’re probably sitting pretty thinking, I only have, you know, I have more equity than I have, I’m alone. But what if you took out $200,000 of equity and bought a couple of properties in Little Rock in Memphis, then you’d be getting the income from them and you’d be getting the opportunity for appreciation from them. So you’re more diversified and bringing in less risk. it’s counterintuitive again, but so critical,
Jason Hartman 22:25
and you’ll be getting the opportunity to have more tax benefits and all of the inflation induced debt destruction, all of the benefits of income property. That’s so true. And just remember that high loan balance is good insurance for you. That is asset protection. Right there. Okay, that is asset protection. it’s counterintuitive. It seems like it’s the more risky thing. It’s really the more conservative thing. Okay. So interesting. Okay. Hey, Evan. Before we go, I just want to share a little inflation example before I Forget, okay, because all these things happen in life. I happened to be and I’m not really car shopping, but I was just kind of browsing. Okay. So I was at the BMW dealership the other day. And I was looking at cars trying to avoid salespeople. And I wasn’t sure you know, I’ve got so many models nowadays, I can’t keep up with them, but I wasn’t sure what model this car was. And I was kind of admiring it. And the window was open, it was inside the showroom, and I put my hand in and felt the seat and I thought it felt really nice. And I looked at the sticker on the window, and it said it was $108,000. And I thought, Gosh, these cars are expensive nowadays. And I looked at the back to see which model it was and it was a BMW 740 I and I remember that I used to have a BMW 740 i and i leased that car in 1994. Okay, and I don’t remember exactly. What my numbers were on that on terms of my lease payment. I think it’s a pretty good deal to lease cars. So I do lease them. Even if I could afford to pay cash I, I try to do a car lease. I like the lease veteran. And again, I want control my cash, I’m not gonna put a bunch of equity in a depreciating asset like a car. Heck, I don’t even want equity and appreciating assets like real estate. Okay. I like control of the money outside of the asset. Okay. So, in 1994, I leased this car and I thought it was pretty expensive at the time because it was $62,000. And before that, I had like a couple of $40,000 cars. I had a Mercedes 300 each that was like 40 grand. I had a Lexus, the big Lexus. That was like 40 grand. What about your old Volkswagen that used to drive? That was before that. That was the Volkswagen Jetta. That was my first new car. I don’t know how much that was. But I remember my payment was 189 per month. I do remember that. Okay, so So anyway, was looking at that BMW 740 I and thinking how much nicer it was than the one I used to have in 1994, the one I paid $62,000 for. And I remember the lease payments because the interest rates were much higher back then. I think the lease payments were around 1200 dollars a month or something like that, which I thought was really imprudent of me. But Heck, I was making a lot of money. I was young and dumb, and, you know, so I leased that car and I thought it was cool car. Anyway, the same BMW 740 I will the same model, but it’s much nicer now. Because there’s so much more technology in the car today is now $108,000. And so I went, I went back and I adjusted $62,000 for inflation from 1994 based on the official numbers, and guess what I got $107,923 there’s there’s been 74 Point 1% inflation since 1994 when I had my 740 I when I leased it. And what’s kind of interesting about this is remember we always talk about how the government understates the inflation index in three major ways. They manipulated they understate it. And Evan Do you remember how
he done x? Waiting? institution and waiting?
Jason Hartman 26:27
Yep, substitution and waiting. So substitution, hedonic and waiting, okay. And so what they do is they substitute things well, if you you know, if the cost of beef goes up they say you’ll eat chicken but maybe you don’t like chicken because chickens a dirty bird, okay. So they substitute things right. So that may manipulates it and makes it look lower than it really is. They wait it they wait different things in the basket of goods differently. Okay, yes. And then also they had dynamically adjust Well, the beam does 740 is a great example of hedonic adjustments, right? Because now that’s not in the consumer price index. Okay, that would be in maybe some luxury index that Forbes magazine would do. But the car today is essentially the same cost. The price has not gone up since 1994. It’s, it’s still equivalent to $62,000 what it cost in 1994. But the car today is so much better. I mean, no one would argue, except for looks and styling, I think the 1994 one did look better. But the car today is like a, you know, it’s a modern computer that, you know, I mean, just does all kinds of stuff. It’s much better than it used to be, and much more
efficient. So in this in this case, then we would say there hasn’t been much inflation, right. I mean, there’s been the normal inflation but it’s so much better. So arguably Who should be paying more for it? Well,
Jason Hartman 28:02
fair enough if you hedonic Li adjust, but the problem with hedonic indexing, and hedonic, by the way, it comes from the word that derives pleasure hedonism is pleasure seeking, right? So, you know, hedonic says that, you know, how much pleasure do we get out of the item today versus back in 1994? Okay. And I’d say you’d get a lot more pleasure out of it today, because it’s a much better product, no question about it in all, like almost every way. The problem is that when you hedonic Li adjust, it basically says that we, the consumer, do not have the right to progress. Of course, everything’s better, it should be better. Heck, things have gotten a lot better since the wheel was invented. And since fire was discovered, okay, every Of course everything’s better. when life gets better. we all expect that Right. So that’s, you know,
yeah, it’s so interesting inflation. I mean, you you teach so much about inflation and one of the things that I constantly have, there is inflation. You just, it’s different for every person but there is I mean, I just paid for my one of my kids summer camps for eight weeks $10,000 back when I got just not long ago, it was three. My parents, like my parents complained about the three I remember that. And, and now it’s more than tripled in about about 20 years. So certain like that college costs and healthcare has truly sky Oh, wait.
Jason Hartman 29:38
Yeah, no, there’s there’s certainly a lot of inflation out there. No question. Technology. You know, it’s the battle between good technology that is deflationary and bad monetary policy, which is inflationary, Who will win? I don’t know. But with what’s going on in the world right now. They are printing they are loosening and the money is flowing, so I get advantage of it. I know who will win.
Yeah, there’s gonna be income properties from you that this income, they’re going to win. There’s no question about it.
Jason Hartman 30:12
Yeah, no, I mean, it’s almost like a no lose proposition as long as you wait long enough, okay, you know he will always win the game in real estate it’s game of staying power. So with that said, Evan, go to Jason Hartman calm call us at one 800 Hartman and we’ll be happy to help you build a nationwide income property portfolio that will help you manage and deal with all the stuff that’s going on out in the world and get some free money just like you did, Evan on that property you just bought through our network.
Yeah, I love that property. Yeah,
Jason Hartman 30:47
that was a great deal. And by the way, folks, if you didn’t hear the show, Evan was on how long ago was that about a week and a half ago, Evan,
and I would never have known about that property had it not been for my investment counselor Doug I wouldn’t have I didn’t even I barely knew it existed this kind of short term rental. So, you know, that’s the advantage of working with somebody
Jason Hartman 31:06
and you got a 3.75% mortgage
Jason Hartman 31:13
that’s truly unbelievable. Think about it. You’re not gonna make if you keep that mortgage the whole time. You don’t have to make the last payment on that mortgage until 2050. I mean, do you realize how significant that is? 2050 that’s the year when we used to watch sci fi movies. Well, we even still do. I mean, 2050 is the future. That’s like the world will change so much by then. And there will be almost 100 million more people in the United States by then do know what the demand for housing, it’s going to skyrocket. And with what we’re seeing now with the coronavirus, we’re seeing once again, the US is thought of is the Safe Harbor for the world. And that money is flowing this direction. So it’s good.
We talked a lot about options. You have to have options today with different banks and right you with this house, even though it’s a short term rental, it can be it could be a long term rental. It could, and would it would still exceed the rent from a long term because I did the research on what would be the long term rental rate in that area, it would still be slightly higher than my mortgage payment. Of course, I wouldn’t make it to money as a short term rental, right? That’s an layer of protection. Sure, you know, think when you’re buying real estate, you’re taking lots of risk. Like I talked about this with my mom, she’s like, well, you’re willing to take more risk than I do. I think to myself, not really, it really isn’t. I mean, you everything in life has some degree of risk. But there are so many ways to minimize the risk with income property. It’s incredible.
Jason Hartman 32:49
Yeah, yeah. No, it really is because you can work with it. The assets malleable, it’s flexible. It’s multi dimensional. It’s good stuff. Alright folks, we better wrap it up, Evan Thank you for joining me and letting me ramble on about the return policy for real estate. There you go. You got it, folks. And on other shows, we’ve talked about the exchange policy, the 1031 exchange, another great option for you. Alright, we will talk to you all tomorrow. 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.