To start the show, Jason Hartman provides an update on different Florida rental markets. Then, he shares a new term, OTC ratio, which can be used alongside other ratios that he has created. He also talks about the unemployment rate versus the labor participation rate and how the unemployment stats are skewed. Jason ends by welcoming investment counselor Adam to discuss property profiles in Mobile, AL, and the growing wages in specialized blue-collar jobs.
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 1000s 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 0:53
Welcome to Episode 1625 1625. And I hope everybody had a very Merry Christmas. We are just kind of getting back into it over here. And we are very busy getting ready for a great new year, and preparing a lot of exciting stuff for you. We are going to be talking about a wrap up of this absolutely historic, crazier that we’ve had in so so many ways. I don’t have to tell anybody that I know. I know you know it already. But also, and maybe more importantly, what is life going to be like this coming year. We have all sorts of things happening, all sorts of converging trends, and we are doing a lot of analysis for all of this. We have moratoriums, we have economic changes that are absolutely staggering. We have vaccine news, we have money printing, ad infinitum. Folks, you just couldn’t write fiction like this. It’s absolutely absolutely absolutely crazy. So we thought what we would do this week is do some of our recap, flashback best of type episodes. And today, we have got one of those for you. If you want to join us for a couple of our webinars this week. Those are running, of course, Jason hartman.com, slash protect for estate planning and asset protection. And then also, we’ve got our Alabama webinar running as well, brand new construction there. And by the way, we were up in St. Augustine celebrating Christmas. That’s been a market where many of you have purchased short term rental properties. And I just have to give you my impression that market was absolutely Well, I don’t mean to say that market but but I can tell you actually that market, the short term rentals there are doing extremely well. Our clients are, you know, just every report I’ve heard is is just amazing right now, because there is so much movement to these areas where you can drive with him in for hours, and have a truly different experience. absolutely incredible. But I was amazed at how crowded that city was. I mean, of course St. Augustine is decked out in Christmas lights and but it was very cold. It was chilly. The weather was not pleasant for for me. Now some of you in the East Coast, in the northeast, I mean, and the Midwest, and the northern parts may be thinking Jason Don’t be such a wimp. And you might be right. You just get used to it. You know you get used to cold or warm or whatever you get used to you get used to it. You’ll you’ll climatized Anyway, it was absolutely packed. every restaurant was sold out. The hotel was sold out. The whole town was crowded, there was a lot of traffic. I was absolutely taken aback, I thought it would be much calmer in the era in which we live. And then we went up to Jacksonville for two days to look at properties. That was pretty interesting. Market is booming there. Also, I visited some new home tracks, and a couple of them were sold out that I visited. One had two homes left there were just two out of you know, hundreds and hundreds in the development and the resales were going very, very briskly as well. I talked to a few agents there. It’s times in which we live. These artificially low interest rates are doing massive, massive amounts to stimulate or over stimulate the economy. And of course, hypocrite elitist larry summers. You know him you’ve heard his name for many years. He’s been around the political environment and in different positions, and he railed against Trump’s proposal to Make the stimulus checks $2,000 rather than $600 as he’s, you know, living the highlife, Lawrence Summers, Larry Summers, and everybody is scraping by on $600. And it’s been so many months since they’ve received a check before that. It’s absolutely ridiculous. But that’s the way it is. That’s a world in which we live. So we will see how it all pans out. Hopefully Trump will get more to the people. But we’ll go over some of the arguments that Lawrence Summers made about that. How How to $2,000 would be disastrous. Got to keep the people down. You know, there’s no bread Larry. Let him eat cake. He says. So unbelievable. just unbelievable. Okay, so we’ll be going into all that stuff later. But today, we’ve got a flashback episode and I realize you don’t need to email me and tell me it’s not Friday, because I know that it’s kind of a holiday week. We’re rolling from one holiday to another. So we’re going to do a little flashback here. So let’s listen for that. By the way. Alabama new construction. I don’t think I gave you the link. Jason hartman.com slash sweet home like Sweet Home Alabama. But no need to say Alabama just sweet home. Jason hartman.com slash sweet home and Jason hartman.com slash protect. And here we go with today’s flashback episode. Greetings from beautiful Key Biscayne, Florida. It is absolutely stunning down here. I am at the Ritz Carlton Hotel. Just a beautiful place. As much as I liked the Ritz Carlton, I have to tell you, it ain’t what it used to be. Seems like it really peaked in the 80s, maybe into the mid 90s. Still certainly a great luxury brand, but not quite what it used to be not quite what it used to be. There are hipper, more modern hotels, I guess. And you know, every brand kind of has its cycle, and everything has its cycle. But one thing that doesn’t have much of a cycle at all. That’s always perennially great. Do you know what I’m gonna say? Yes, you do? Yes, you do. That is income property. And boy that if if that has a cycle, it has lasted 1000s of years. Okay, and Episode 1348. Today, I want to talk about something that just isn’t too much of a problem anymore. In fact, this former problem, and it has been a problem throughout the ages has been largely solved by a man that half of the country absolutely despises. Now, for homework, I want you to go and ask Siri or Alexa, to give you the definition of Trump derangement syndrome. TDs it’s funny. A lot of people have it, I see him all over social media spouting about it. So, you know, I talk a lot about the rent to value ratio. And I talk constantly about how ratios are really the most important things in life, when someone spouts out a statistic, and they say, Oh, you know billions of this or trillions of that, you always got to ask compared to what because compared to what is what a ratio is it is a compared to what question and a ratio answers that beautifully. So, we talked about the rent to value ratio, we talked about the another ratio that I created the L TI ratio, not the LTV ratio that most people know the loan to value ratio. This is the land to improvement ratio as part of the Hartman risk evaluator that can help you mitigate your downside risk in a real estate deal. Well, I’ve created a another ratio and you heard it here first down. Here it is, here it is. This is the OTC ratio, yes, the OTC ratio, it is the opinion to contribution ratio. Yes, the OTC not like it’s used in medicine, like aspirin over the counter or in the commodities market, the over the counter trades, right? The OTC is the opinion to contribution ratio, because something I have noticed that you have probably noticed too, dear listeners, it is that people who make little contributions, have too many opinions. And you know what? I think everybody’s entitled to an opinion. But if you want to spout them all the time, yeah. Need to Know Yes. And how do you earn them? You earn them? Well, if their opinions about the country, to some extent you earn them by paying taxes. And isn’t it funny that a lot of these people that pay the least, that contribute the least have a lot of big opinions? A lot of big stupid opinions. So that’s it. There you go. You heard it here, first, the OTC ratio, try it out, spread it around on social media. Hey, hashtag OTC, or OTC ratio. Now I have no idea what else that hashtag might stand for, because I haven’t looked it up. But I think it’s a good one, the OTC ratio, opinion to contribution ratio, it ought to be balanced. Try that with I know you all have that one person on Facebook, who’s got all these opinions? And who’s a total slacker? And, you know, it’s like, it’s like the over entitled teenager, okay? You got to earn your right to have your opinions. Okay, so there you go. Try that one out, and then see how it goes. So what is this problem? Oh, you know, this guy everybody hates or half the country hates. That’s, of course, our President trumpster. You know, love them hate him, whatever. You know, I admit he, he says a lot of dumb things that he really shouldn’t say. But he has earned the right to have an opinion. Anyway, whatever.
Here’s what I want to talk about, though. Let’s talk about something you heard a lot about during the Obama era. under the Obama regime, of course, we had very high unemployment, not all his fault, by the way, I’m sticking up for Obama. You know, certainly he inherited a tough situation. But to blame the inheritance after two or three years, you know, I think that’s the time you got to just accept that. This is now your economy. Okay. So, you know, Trump could have said the same thing, right. But, you know, he just went on and stimulated, stimulated, stimulated and listen, I don’t even about economics. Okay. As much as I think the economy is booming, largely, it is still an economy, like all economies in the world, the super symbolic economy, as I call it, built on a house of cards, built on smoke and mirrors. But hey, that’s the way every modern economy is. It’s nothing unique to the US. So it’s, it’s a glass house, right? It’s a glass house. In fact, that’s like the OTC ratio. People who live in glass houses shouldn’t throw stones. There you go. Same idea. Hey, I think that’s like a biblical idea. Right? Anyway, check that one out. Okay, so unemployment rate, versus labor participation rate. We heard a lot about this in the Obama era. We had john Williams on the show, the founder of that great website, Shadow stats calm. He talked about how, of course, the consumer price index is a lie. We all know that because we’ve discussed it ad nauseum over the years. But also, the unemployment rate is a lie, also. So another metric for this is the labor force participation rate, or just the labor participation rate, as many people call it. And I came across a couple of great little lessons on that. So I’d like to share I think, two of them with you. They’re very short. And one of them is from one minute economics, which is a great YouTube channel that’s got all kinds of great little quick lessons. And I like the way they did this video, go check out their channel, I am a subscriber. It’s a good video on labor force participation rate versus unemployment rate and explaining what the difference is. So let’s listen in.
‘Audio Clip’ 14:00
The labor force participation rate tells us which percentage of the entire working age population is economically active. In other words, it tells us which percentage of the people capable of working are actually working, or at least looking for a job. Let’s assume you live in a country with 10 million working age people. We’ll also assume 5 million are currently working and 500,000 are actively looking for work. So we have five and a half million economically active people. In this scenario, the labor force participation rate is 55%. The unemployment rate on the other hand, tells us which percentage of the total labor force is currently unemployed, but actively looking for work. To figure out how many people are jobless been actively looking for work, the authorities figure out how many people are receiving unemployment benefits and other forms of help on the one hand, and on the other hand, they also analyze data from unemployment offices to measure how many people are making an effort to find The job. See, that’s where it gets dicey. But it gets even worse when you deal with what’s called the discouraged workers. Now, thankfully, this is not much of a problem nowadays. But it was a big deal. During the Great Recession. A lot of people were talking about this. In fact, they were saying, as the unemployment rate approached 10%, you know, it was it was getting up there.
Jason Hartman 15:24
I mean, it was getting pretty bad. You know, it didn’t count the, what I call the underemployment rate. I don’t know if anybody uses that phrase, officially, I called it that, though, the underemployment rate, which I think is still a very valid thing, even today, even in much better economy than we used to have. But some would calculate that the true unemployment rate was approaching levels, that it was approaching during the Great Depression during the 1930s. You know, they didn’t want to say it was ever that high during the Great Recession 10 years ago, but many evaluated it that way. And so it’s interesting, you know, what do you think of this? What is the more accurate way to look at things? Is it better to look at the unemployment rate, which is widely used, widely quoted discussed all the time, you hear it all over the news media constantly, or the less discussed labor force participation rate? Let’s keep going.
‘Audio Clip’ 16:24
In the previously mentioned scenario with the labor force of 10 million people and 500,000 people who are looking for a job, the unemployment rate is 5%. The unemployment rate alone can sometimes paint an overly optimistic picture. So the labor force participation rate complements it nicely. Together, they help you accurately assess the health of an economy.
Jason Hartman 16:47
Okay, so what do you think? Well, here’s another take on it, which I think you’ll find interesting. And this one is from Prager, you, another great YouTube channel with lots of very interesting and very thought provoking content.
‘Audio Clip’ 17:02
When you hear that the unemployment rate has gone down, you usually think that the economy is doing better, right. But the numbers don’t always tell the full story. This is what’s not said, if someone has gotten so frustrated that they’ve stopped looking for work, or just decided that they won’t work anymore, they no longer get counted as unemployed.
Jason Hartman 17:23
That’s the discouraged worker component. And that was very important, especially during the Great Recession. And it’s still an issue today, you know, a lot of people aren’t counted, even though the unemployment rate is extremely low. In fact, some would consider the unemployment rate today to be full employment, because everybody who wants to work can get a job.
‘Audio Clip’ 17:48
So imagine you had a town with 100 people and 10 of them were unemployed and trying to find jobs, the unemployment rate would be 10%. Makes sense. So now imagine if five of those people got tired of looking for jobs and decided to move into their parents basement, the government would now say that the unemployment rate has gone down to 5%. If they wait, Now, that doesn’t make sense, the people in the basement are no longer part of the labor force, because they’ve given up so the labor force participation rate goes down to not exactly a reason to celebrate. So while the unemployment rate is important, the labor force participation rate, which as you can see, tells the real story. Now that makes sense. Remember this The next time you hear a reporter on the news, say the unemployment rate is getting better.
Jason Hartman 18:39
So does that make sense? So you don’t hear much about the labor force participation rate. And this is another so many ways where we are just constantly constantly misled. And Adam is here today, and he has a property to tell us about in the great state of Alabama, we have done a lot of business in mobiele. I own property in that area. And Adam, what do you have?
Yes, so I wanted to bring this up to people, it’s a little cheaper than I usually buy. And, you know, it’s on the lower end of the price range. But I wanted to highlight this one, because as you said, we’ve done business there, but not a whole lot recently. But I just wanted to, you know, remind people that new inventory and new markets is coming. So this is one in mobiele. That’s $61,000. It is a resale property that has a rent of $750. So that’s almost one and a quarter percent rent to value ratio, and is estimated to cashflow at $238 a month with the cash on cash or 15%. And so that’s what the vacancy of 8% like usual 10% management 5% maintenance, so
Jason Hartman 19:55
That’s a good property. So what’s the price of it?
Jason Hartman 19:59
Oh, that’s inexpensive property for sure. How many square feet?
It’s 874, the cost per square foot of $69, which is kind of in line with your kind of mid range.
Jason Hartman 20:10
Yeah, so that would definitely be a C class property. Yeah, yeah, definitely. So those of you who like those bargain hunter deals out there, you know, if this were a new home, you’d probably pay about double double. Yeah, I was I was gonna say even a little more than double, like, 2.2 times that? Probably. That’s a very good. See, this is the kind of property we don’t love these types of properties. Okay. But, you know, a lot of our clients do, and that’s why we still offer them. And this is a very good type of property for a starter investor. And this doesn’t match, right. Yeah, this
was about the price point we did with our first one, just because it was kind of a dip your toe in type thing. It was one of the things that, you know, if if everything goes horribly wrong, you know, we’ve at least got the land down there. And when we get the land value, you know, we haven’t lost too much.
Jason Hartman 21:01
Yeah, the land is probably worth 20 25,000. Just alone.
Yeah. But projected 15% cash on cash. Yep. With a total return of 37%. Estimated,
Jason Hartman 21:17
wow, let’s just go over some of those assumptions that drive that. That is 8% vacancy, which means we’re performing that at one month per year vacant. And what appreciation rate maintenance percentage rate is set at 6%. I’m not
certain that mobile is going to get 6%. But I guess well,
Jason Hartman 21:37
I think the area could if it’s the right priority, you know, but I don’t think an older house like that. It’s going to get 6%. So that’s probably too optimistic. But I don’t hate. You know, I don’t know, man. There are some crazy appreciation rates going on in some markets and Oh, yeah, yeah, it’s wait till I think tomorrow, we’ll cover this, this massive amount of equity gain homeowners have received. And keep in mind, this isn’t the middle of a market where cyclical markets are declining, that’s been staved off a little bit by the dramatic cuts in interest rates. But still, those cyclical markets are hurting. And that makes up 75% of the Case Shiller index as we know, so it’s pretty amazing. This equity game, you’re going to hear about it. Okay. We’ll probably cover it tomorrow. I think
sometimes you hit the jackpot. Aaron and I bought a property about a year year and a half ago that in the first year went up 20%. Wow. It was in the we’re looking at we looked at the area and it looked like it was a nice up and coming area and we bought it for right around 100. And we got our Property Valuation back at the end of the year for property taxes, and they estimated it rally around 120. It was a good start. Which market that was in Memphis, Memphis. Yeah.
Jason Hartman 22:50
Fantastic. Good to hear. Good to hear. Okay, let’s talk about blue collar jobs.
Let’s talk about our tenants.
Jason Hartman 22:57
We were certainly talking about workforce housing, as they call it with it’s a nice way to say C class properties. You know, I don’t think this is necessarily our tenants, these blue collar jobs can make some nice money. And, you know, this is a very oddly, I’m gonna say trumpian thing. Trump is very much of a supporter of these types of jobs, these types of people, it’d be hard to argue that he’s some sort of elitist billionaire, you know, I mean, this is an interesting thing, you know, blue collar jobs, like plumbing, pay $90,000 a year without a college degree. And it’s driving more workers to trade school. And I think this is absolutely great. I’ve always said someone has to actually work with their hands and make things I love these kind of people. In fact, I am way more impressed with a lot of these type of people who are honorable, good, hard working people that I am with these highfalutin Wall Street CEOs that are basically scamming the world. Hey, you know, there’s an old saying, have a gun, you can rob a bank, have a bank, you can rob the entire world. Yeah. Okay. Tell us more about this, Adam. Well,
they looked at it and they’re saying, you know, blue collar professionals like plumbers and mechanics are earning more than the average salary for white collar jobs and they don’t require a college degree. Now this is obviously not every blue collar job. Oh, you know, you’re looking at your specialized blue collar jobs. Yeah, you know, especially if you live in a rural area. If you look at rural area, electricians and plumbers, they’re making 90,000 now they’re making in the low to mid six figures because they have a huge area they service and there’s aren’t many out there and it’s really cheap to live there. And guess what, if these people are making 90 grand the equivalent of a college educated person with student loan debt payment of,
Jason Hartman 25:02
I don’t know, you know, let’s call it $600 a month. That’s a pretty significant difference in net income.
I think it’s great, just because this will promote more inside of our schools, as well, you know, getting back to promoting the trades and getting more of these workers. And, you know, people see jobs like this, they’ll, they’ll go for him. You know, if you say, hey, you can go to trade school for two years or, you know, one year and make a great job, it actually made me think of, I’m going through my kids love to listen to this series called The story of the world. It’s kind of a history textbook, we use the audio book, and we just heard about when the plague hit, and when the black plague came and killed, I mean, early 1900s. None of this was back, you know, before then whenever it came out and wiped out about a quarter to a third of the world’s population. Right. And that was news, mostly Europe was really hit. Yeah, yeah, this semester. But you know, one of the big, big impacts of that was, it drastically shortened apprenticeships, because you just needed the workers. And so we had to pump them out. And this is kind of, obviously we haven’t had the plague. But this is one of those incidents where it could be driving the movement towards the blue collar job, because if you tell somebody, hey, you can go to school for you know, two years at a community college that costs a 10th of what it costs to go to one of the four year universities come out with no too little debt, and make, you know, say maybe the same or $10,000 a year less, you know, would you take it, you’d get a lot of people who’d probably be willing to take it.
Jason Hartman 26:34
Well, that’s another cost of college that people don’t realize it’s four to five years of your time that you could be working or could be learning real world skills.
Jason Hartman 26:46
you know, again, listen, I don’t hate college, I just hate that it’s a rip off. And it’s overpriced. That’s all I hate about it. Otherwise, I
think it’s great. You’ve got millennials who are valuing their time, more than money, supposedly, I mean, obviously, they like to make money, and especially the coming generation. So if you tell them, hey, you can have two years of your 20s back. That’s a big draw. Yeah, you know, that’s big. And that might cause colleges to, you know, start looking at their pricing. So that’s when insert coming in with the student loan forgiveness, then might drive it even more. But
Jason Hartman 27:23
who knows, we’ll see which way that’ll turn it. It could go either way, I think. But the thing that has to happen is we’ve got to stop having the government ensure student loans, because if that stops happening, then funding will dry up. And the price of college will drop to where the market can meet it, and reasonably pay. And it’ll all get real good. But it’s just silly the way it is, by the way. Don’t forget, we don’t have time today. But I want to talk about a conversation I had with a very bright venture capitalist. today. I’m at this conference in Key Biscayne, Florida. You know, it’s the Ritz Carlton, there are hundreds of people very wealthy crowd. You know, I had a fascinating conversation about this gentleman’s thoughts. And he’s an experienced, wealthy older gentleman, who had some very interesting thoughts about the next big revolutions in the economy and technology. I think that’s going to be really important. I want to impart this conversation to our listeners, let me just assimilate a little bit, maybe tomorrow, we’ll talk about it.
But yeah, good. We want to look at real estate, how this is going to impact real estate, you know, we always want to drive it back to that. Let’s be honest, usually, community colleges aren’t in the ritzy, high end parts of town. It’s more in the blue collar parts of town. If more and more people and especially people in their 20s or 30s are going back to trade school or going to trade school, they’re going to be going to these community colleges, and that will create a demand for properties around those areas and in those blue collar neighborhoods that we’re investing in.
Jason Hartman 28:59
Yeah, absolutely. Absolutely. And it will also create a larger supply of workers driving down the cost of maintenance and repairs for our properties. So that’s okay, too. You know, it always seems to work out for the real estate investor, doesn’t it?
At least in the long term, not always in the short term. But in the long term, for sure. It’ll make Yelp reviews more important. So they want to service you better and get better reviews.
Jason Hartman 29:26
Well, there you go. And there’s going to be more competition, more supply of laborers in the market. So it’ll all be good. All right. Let’s wrap it up for today until tomorrow, everybody, happy investing, go visit Jason hartman.com. For more, or call us, yes, you can call us on the phone. Remember that phone, phone. I know. One 800 Hartman, one 800 Hartman, our investment counselors you can push to and be connected with an investment counselor, or leave a message and one of them will get right back to you. So the website Jason hartman.com. Or 1800 Hartman until tomorrow happy investing we’ll talk to you.
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