1689 FBF: Self-Directed IRAs, Foreclosure Rates & Pit-Falls of Real Estate Investing with Bryan Ellis

Welcome to this week's edition of Flashback Friday.

Your opportunity to get some good review by listening to episodes from the past.

That Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing, fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors. Hey, welcome to the Creating wealth show. This is your host, Jason Hartman. And thank you so much for joining me today for episode number 421. I sure hope you enjoyed our last episode, a tenth show with Mark Devine talking about the Way of the Seal, which was really interesting. I also just finished an interview for probably my holistic survival show with John Teigen, who was a Blackwater contractor and a former Marine, but a Blackwater contractor who was right there on the ground at Benghazi at the time of the tragic incident there. And he wrote a book called Thirteen Hours I think is the name of what really happened in Benghazi. And it's been on the New York Times bestseller list for the past few weeks. And that was a very enlightening interview. So just speaking of military people, I just it's called 13 the Inside Account of what really Happened in Benghazi. And he's a former security contractor for Blackwater, which you know, is the huge, huge military contractor that is controversial to say the least. But for whatever that's worth is a great interview. Anyway, look for that when it's posted if you're a follower of any of my other shows and I think you'll be interested in that. Again, we try to give you some broad good content on a lot of things, but especially personal finance and real estate investing, which is of course our main focus on this show and a few of my other shows as well. And gosh, what should we talk about today? Well, a few things. Number one, and most importantly, we have a fantastic video on my YouTube channel. If you go to YouTube and type Jason Hartman, media Jason Hartman media. We've got a couple YouTube channels, but that's the one where we're posting a lot of content right now and video versions of our shows as well, of several of the shows. And this video on how to read a Performa is just critical and I played the audio of it several episodes ago and I tell you with some of the questions I get, I really just want to play it again and again. But I'm not going to do that to you. I'm going to ask you to go review that video on our YouTube channel. And I was really upset with YouTube because they took that video down and reposted it. I guess it was getting too many views and they thought that was suspicious. We had like, I don't know, 3300 views really quickly when that video was originally posted and YouTube said that they thought the views were fake. And I guess a lot of people kind of game the system on this stuff. So anyway, I was quite upset with them. We had spent a bunch of money to advertise that video, which I think is a really just a critical foundational understanding with investing. Okay. That is just fundamental stuff that how to read a perform a video. So please, please do check that out on YouTube or check out at least the prior episode if you want the audio only version of it. But it really does help to see it and see what I'm looking at and highlighting on the performance. So please check that fundamental knowledge and help for you on being a better real estate investor and understanding how to analyze a deal. So check that out. And a couple of interesting articles here. I haven't had time. I just accumulate all these things I want to talk to you about and it feels like I'm always behind on this stuff and I just never have time. This one published in business insider on September 15th. So it's not that old, only two weeks or so. And it is a really interesting thing. It's talking about the different states throughout the country that have the highest percentage of single adults. And it talks about how singles, and this is something I've been saying for quite a while, are a huge, huge demographic cohort. And why is this important to us as real estate investors? Well, I'll tell you why. Many, many years ago, when I first got into the business, more years ago than I even care to think about now it's been so long. It's amazing how couple decades will just pass in the snap of a finger and the blink of an eye. But they do. Many years ago you would never want to consider buying A one bedroom property that was just like the curse of death, and it still is. A one bedroom property is never going to get you kind of the ideal, most stable tenant. However, it's not as bad as it used to be. In fact, there are some decent opportunities in one bedroom properties. And the reason I mention this is because of the massively increasing single population. For the first time in the history of the country, from what I understand, there are actually more single adults of marrying age, we'll call it, than there are married couples. It's like 54%. And this is a major, major thing to think about as a real estate investor. Now, there are some interesting kind of broad conspiratorial theories about this, about the government wanting people to be single, the government disincentivizing through tax code and welfare and so forth, marriage. And we've certainly seen this in some certain racial components of the society where there's some realistic reason for this belief that they've encouraged single households with children and discouraged marriage through the tax code and so forth and through many other things. And this conspiracy also relates to good old Madison Avenue, the advertising community, Mad Men, if you watch the show. And it relates to them. Because if you think about it, if you're in the business of selling consumer products or you're in the real estate business, heck, isn't it better to sell two toasters and two blenders rather than one? Well, certainly it's a much bigger market if you have more single people, right? Because a single household will buy all the same basic things that a married household will buy. They're two households instead of one. So they're going to have two of everything rather than one of everything rather than sharing things. So this is a big deal. And I've talked before on prior episodes about how in the last three presidential elections, the largest voting block, although it's not really considered a voting block, oddly, was single adults. And most people think of voting blocs. They divide them by racial and ethnic categories, they divide them by age, like the aarp, that's a huge demographic or a huge voting bloc and a huge lobbying organization. Or they divide them by generation Y or generation X, my generation, which is very small generation, or the baby boomers and all these different things. Really the biggest, broadest cohort, if you will, is singles. That's the biggest one. And so when you look at this, it means that smaller properties are more desirable than they've ever been in human history in terms of what that household would contain, being just a single person. Household of Course I'm single and I guess I'm just ahead of the trend on all this stuff, folks. Now, now I'll probably get married or hopefully I'll get married sometime soon and then I'll be ahead of that trend when the pendulum swings back to Marri being more popular. But yeah, it really is amazing. This is an amazing article and it's by Richard Florida, who I've been wanting to get on the show for a while. Admittedly haven't tried very hard, but I've talked about him a lot where he talks about the creative class cities and what that means to real estate investors and so forth. But get this, I thought I'd share a couple of these rankings because they're pretty interesting and kind of counterintuitive in some ways. In terms of singles, it says singles make up more than half the population in 27 of 50 states. And the share of single adults ranges from a low of 43.7% to a high of 55.7%, as the map above shows. And here are the top 10 and the bottom 10 states. So the states with the most single people. This one really kind of amazed me in some ways. Number one, most single people, you're not going to believe it, Louisiana. But if you think about that and you think about the conspiracy theories about the government promoting single households, right, because singles tend to be more skewed toward the left, they tend to be more democratic in their voting and they tend to receive more government aid and more government benefits. So Louisiana ranking number one, 55.7%. Rhode island, number two, the same number, New York. Now that one doesn't surprise me because when you take into account the highest populous part of New York State, which would be New York City, 55.5%, lots of single people in New York City. Mississippi, number four, New Mexico, California, that doesn't surprise me. Florida, number seven. California was number six. Massachusetts number eight. And you look in the cities and there's a lot more single people in cities, of course. So you got Boston there, Nevada, number nine. That's, I guess, a little surprising. I don't know. Vegas, baby. What happens in Vegas stays in Vegas. Maryland, number 10. And then the bottom 10 with the fewest single people. These don't surprise me too much, I guess. Montana, number 41. North Dakota, 42. Minnesota, Kansas, New Hampshire, Nebraska, Iowa, Wyoming, Idaho and Utah being number 50, you don't want to be single in Utah. You're definitely a minority there and that's really no surprise. Utah, very family oriented state. You've got the great Mormon religion which I don't care what people say. Listen, I'm not morm but I think every Mormon I've encountered has been a good person. I'm sure there are bad ones out there, but pretty good group of people and very family and community oriented, very self reliant people and I applaud them for that. Anyway, that's kind of interesting about single people. Okay. And I know by the way a lot of my fellow Christians think the Mormons are cult members, blah blah blah. I'm kind of not buying into that. So there you go. For whatever it's worth. I remember. I do remember though, an ex girlfriend years ago brought over a videotape, yes, a videotape, not a dvd and showed me this big tape about the Mormon religion and all of these idiosyncrasies and so forth. And I don't know, I just know my own personal experience has been pretty positive. And if Romney were running for president, I'm not saying I like everything about him, but I do like his business savvy and a turnaround specialist would probably be a pretty good thing, at least financially for the country. So that's my story. Hate me or love me, but that's what I think. Okay, now another thing which is interesting. I talked about this before I believe, but it was a USA Today article from a while ago about why $1 million may not be enough to retire. And if you're investing in income property, I'll tell you, you can easily achieve financial happiness and financial independence with good investments. And you know, because I've talked about refi till you die before and how absolutely excellent that plan is for investors in this article they talk about assuring that you'll have enough to retire. They look at a million dollar portfolio and a scenario and now this is of course part of the vast Wall street conspiracy here and toeing the Wall street company line of absolute stupidity. And it says in the past 10 years a portfolio equally divided between the Standard and Poor's 500 stock index, 10 year treasury notes and three month treasury bills returned an average of get this folks, don't fall asleep on me because this is disgusting. 4.24% a year where inflation, of course they're believing the idiotic official statistics. Most of these people, they've been losing money okay in this portfolio, but they think they're slightly winning because inflation averaged 2.4%. So basically their margin of return here before taxes take away probably a good 40% of it, okay? Their margin is 2% and then you impute inflation and you know, what are you left with there? You're left with what, 1.2% above the official inflation stats after you pay taxes and then you put in the real inflation rate and you know you are losing money. You are completely underwater. Okay, so that's what's going to happen to you if you're investing in the vast Wall street conspiracy and the typical absolute disgusting stupidity in the financial press. If you invest in income property in the most historically proven asset class in America, you can easily make retirement work, especially if you got a few years before retirement. And by a few, I mean, you know, 10 or 20 would be ideal. If you've got more, that's even better. But remember, I've cited before that pretty famous study that was done, and I believe it was back in 1994 and it was about can money buy happiness? And I have talked about this before and I'm gonna pick 1994 again. It's just from memory, but, but what I remember from that study in reading it, and it was pretty kind of revered at the time and I do agree with it. You know, in $1994, $1.5 million would be kind of the number that would, in quotes, buy happiness. Okay, that would be the number that would buy happiness. And if that's true, let's just adjust that for inflation. And based on the official statistics, which of course under state inflation, that would mean that today you would need two point. Well, I'll tell you exactly how much you need. $2,407,408.91 is how much you need to quotes buy happiness. Can money buy happiness? Well, no, it can't, but it buys a lot more happiness than poverty, that's for sure. And it's hard to argue with that one. Okay, so two and a half million bucks basically is the number you need. Well, through the plan that I've outlined, with a modest start, you can really, really achieve that by or before retirement, depending on what age you are. And remember, retirement isn't really something I think that any of us should be considering in any real way. Because retirement, my humble opinion, it's just not a good thing. It's not good for us. We need to be engaged, we need to be active, we need to be stimulated, we need to be challenged. That's the way the human animal works. So retirement, not ultimately a good idea. I think we should stay active and keep working and do whatever our passion is. But it's sure nice to be able to choose to make our own hours and to do something that inspires us and something we're passionate about, rather than being Dilbert and working the corporate job in a cubicle, Right? And so to be able to have that choice, you can achieve this pretty easily. And you only have to beat real inflation and real taxation and returns in other investments, because all the returns like these idiots getting the 4.4% per year return in the USA Today outlined portfolio, terrible deal, right? But let's say that to keep up with inflation and to pay taxes and to have kind of a net that you really have to earn about 8% on your money. Okay? That's, we'll call that the break even number. I'd argue that it's even a little higher, but I'm gonna go with a lower number just to be more conservative and more in line with the vast Wall street conspiracy. And so if we can earn from our income property investments, if we can just earn 12 to 14% annually, we are vastly, vastly beating the rest of the human race. You're going to be in a very comfortable position if you just let some time go by and you can earn only 14% on your portfolio. Of course, if you go to JasonHartman.com and you look at the property performas there, you can see that properties have pro forma returns of easily into the 25, 30, 35, 40% annually return. And if it only goes half as well, well, what are you earning? You're earning, say, 20% in that example. And you can encounter quite a few problems and still earn 14% on your income property portfolio. You can encounter unexpected repairs, you can encounter evictions. You can encounter make readies between tenants where they mess up your property. Now, of course, you should get a judgment against that tenant. You probably eventually collect on that judgment and you'll collect with interest, okay? But you can encounter a lot of problems and still come out a big, big winner if you'll let 5, 10, 15 or 20 years go by and just keep running your portfolio. I mean, look, folks, we all know people who became very wealthy in their real estate investments, and we all know people who have won the game doing this. And all you have to do is stick with it and just do the day in and day out work. Put time on your side, you put inflation on your side, you put irresponsible government spending on your side. All the things that should normally upset an aware, rational human being actually work for us as real estate investors. If you don't like our current administration, if you think they're spending the country into oblivion like so many people do. Well, all that's going to do is point toward inflation, and that's going to be wonderful for you as an investor. Okay, So a lot of good things there. All right, One last thing before we get to our guest today, and that is I need a favor. Yes. I'm asking. How often do I actually ask you dear listeners, for a favor? Almost never. Right. And I thought this was a good time to do it because my birthday is tomorrow. So happy birthday to me. Gosh, I cannot believe another one is already here. Oh, wow. Age ain't what it used to be, folks. And that's a good thing. If you listen to my new show, the Longevity show coming out, you're gonna get a lot of tricks and secrets on that. And I just did another interview for that yesterday, and I've been accumulating them, and it is fun, fascinating what's going on. But the problem for us people, the challenge with this longevity thing, it's an opportunity and a problem is that, look, we got a really plan for this. We've got a plan so we make sure we don't have too much life left at the end of the money. We got to make our money last and make our money work more than ever. Okay? So on to the favor. It's really a double favor. I'm asking two favors because my birthday is tomorrow. So the first favor is please go and review the show. I get such excellent feedback from you listeners. You're constantly emailing me and posting things on our social media, and you're telling me how great you think the show is, but I know by just sheer numbers that many of you haven't reviewed the show. So please go to itunes or stitcher radio or however you're listening and just take two or three minutes and review the show and give it the appropriate amount of stars that you think it deserves. That really inspires us to keep coming up with great content and keep booking great guests for you. So that's the first favor. Now the other one. Check out this story. Remember several months ago, I had offered a supremely great deal on the physical products of the Creating wealth home study course and the physical product of the Meet the Masters combined event collection. Well, I thought we sold out of those. And then guess what? The company that makes those physical products and duplicates the CDs and puts them in the nice little handsome cases and creates the workbooks and so forth that go with these products. Well, I got an email from them a couple of months ago. And they said, jason, you've still got a whole bunch of product in our warehouse here in Illinois, or no, sorry, Indiana. I think they're in Indiana. The company's called Corporate Disc. You've still got a bunch of product here. What do you want to do with it? I'm like, oh, really? All of my storage units are full, I'm thinking. And so I got to go rent a new storage unit, which I did. And they delivered the product to me via FedEx ground a couple of weeks ago just before I left for Peru. And now I've got another storage unit full of this product. I've got dozens of these Creating wealth home study courses. The physical version, not the digital version. The one that looks really good on your bookcase and will impress you and all your guests that come over to your house or office and see this on your bookcase. And these Meet the Masters products. So I gotta sell them and get rid of these physical products now. So the Creating wealth home study course, we are selling for half price, $175. Okay. As a physical product, it'll look beautiful on your bookshelf. And the Meet the Masters home study course, we're selling for half price as well. 247. So please go and buy these things. Our profit margin is almost nil on this stuff because we're selling them so cheap. We'll pay for the shipping. And just so you know, the shipping on the master's course costs like $22 each to ship it to you, depending on where you're located in the continental United States. We'll pay for the shipping. We'll get these beautiful physical products out to you. And just go to jasonhartman.com click on Products and help me get these things out of my storage unit, okay? Because I can't use them. I want them in your hands so you can learn some good stuff. There's some just really great content there. So take advantage of that. Just go to jason hartman.com free shipping on those while they last. They won't last too long because we only have a few dozen of each of those. Would love to get rid of them. So that's my birthday favor, those two things. Thank you very much. Let's get to our guest, Brian Ellis. It's my pleasure to welcome Brian Ellis to the show. He is editor of the Brian Ellis Investing Letter. And that's a newsletter that I've been somehow getting in my email box for a while and I find it interesting and he has some good stories and some unique Stories as well. And I wanted to invite him on the show to talk about maybe two topics today, one being the foreclosure rate and then also some very unique stuff on self directed retirement accounts. Brian, welcome. How are you?

I'm doing very well. Jason, how are you today?

Good, good. It's good to have you on the show. You're coming to us from Atlanta, Georgia, a market that we have liked a lot over the years and still like.

Oh yeah, there's a lot going on here and if you keep your eyes open, there seems to always be opportunity that's being overlooked on a national scale. But great things are happening here.

You wanted to talk about some interesting news that really runs kind of counter to the mainstream media or as Sarah Palin called it, the lame stream media, which I always thought that was great. That's the foreclosure rate. And I have long said, Brian, that I think this is a fake recovery. I don't mean that the economy is going to necessarily collapse in the same way people think of a collapse which they usually think declining prices. There's some detail we can hash out there. But tell us what's going on, what your thoughts are on that and the new foreclosure stats that you recently learned about.

Well, Jason, to me the whole economy as it exists right now, it's a farce. It's all a lie now.

Smoke and mirrors.

Absolutely, absolutely. Just ask anybody who is willing to be honest. What are the fundamental underpinnings of growth that we have right now? What is good that exists in this economy that didn't exist six or seven years ago?

Okay, so I'm going to answer that.

Tell me.

Technology is in doing incredible things. But granted that doesn't employ that many people and in some ways it displaces employment.

Yeah, you're right, it does. And you're absolutely right. Technology is a powerful, powerful force. And that, Jason, is the reason that we have forward momentum at all. It is because of that and certainly not because of what's going on in the broader economy and absolutely not because of what the government is doing that we have any perception of forward movement. You see, the reality is there are more people not working right now than in decades. In decades. And it's not just that there are more people who are being paid to not work right now than in all of history combined.

The welfare state and the food stamp president.

Exactly, exactly those things. What we have here is an entitlement economy, a situation where our government has decided that it is better for the government to have power and influence over the citizens and rather than for the citizens to have the strength and ability to rise up and make the country stronger in a real, true fashion. So we're in a bad way right now. And the foreclosure situation that you mentioned, just today, a realty tract came out and announced that foreclosure activity has risen for the second straight month as of August. Now, that's going to take most people by surprise. What's your opinion of the conventional wisdom out there? You think people think things are good?

I think it really depends. I think we are in nowadays a very, very strat marketplace and a very stratified economy. I mean, some people are doing great and they are killing it. Some markets are doing pretty darn good. Yeah, that's true. And some are like frothy bubbles. My old home, the state of California. I lived in Southern California virtually all my life. Three years ago, left for Arizona, but I gotta tell you, California. I was getting a little bit envious again last year, but now, I don't know. I think the bubble is already showing signs of bursting.

Yeah, you couldn't have said it better, Jason.

The mini bubble. The mini bubble, yeah.

Yeah.

Not as big as the one before.

It's a lot more regional now than it was back in 2007, 2008. You're absolutely right. There are a number of markets where the market's just on fire. But let's take a step above that and look on a broader scale, not just at individual local markets. What we had back in 2007, 2008, is basically the entire country fell apart. The best we had back then was some markets that held their value. Now what we have is several specific strategic markets. I strongly suspect they're the markets that you have your clients in. What we have now is a few markets that are doing really well and that are showing some promise. But most of the country is kind of around the plus one to minus one growth range, so there's not a whole lot going on. And the reality of this announcement from Realty Track is that, at least for me, it's not surprising at all, because there are things going on out there with the way the banks are dealing with foreclosures that have been left over from years past. It's all about that. The old foreclosure bubble still hasn't completely burst, and nobody seems to realize it.

It's this fake recovery and prices have been going up. So that makes people feel like everything's on track and okay again. And I think Part of that stratification issue is that I feel safe, Brian, in necessity. Type of assets, the basic house that a family needs to live, that's always going to have some demand unless it's in an area with declining population like Detroit, the poster child for big government disasters. I hope you enjoy my little snarky add ons here.

I do indeed.

Once we get past that in solid markets, I mean, the population is increasing. It is. And people have three fundamental food, clothing and shelter. Right. And so there you're okay. But when you look at overpriced markets with high land values, whether they be in Miami or Boston or any virtually anywhere in California, I intermix states and cities here because that whole state is just overpriced if you ask me. You look at New York City, you look at all of the expensive areas around the country and I think they're quite risky. Maybe I'm just getting too conservative at my old age, but. But I used to be the gambler. I used to like the roller coaster. Now I just like the tried and true linear market.

I think you're absolutely right on that analysis and here's why. There's really two reasons. The markets, particularly California, but the markets that are really bubbling up right now, except for Texas, there's some fundamentally good things going on in Texas. Most of the markets that are really bubbling up do that because there is a certain inherent momentum to the areas themselves. It's not because there's anything particularly fundamentally great about the local economy. I mean, look at California. California's real estate market is still going crazy right now. And I agree with you. It's completely overvalued. It's a bubble that will have to pop. But right now it hasn't popped. But look at the economy of California. What's it based on?

It's based on government.

It's based on government. And what you have right now is like Hollywood right now. The entertainment industry is in huge decline.

Interestingly, Brian, it's leaving California.

It really is.

And that might actually be a help for Detroit because I read some articles about how Detroit really makes sense for a place to shoot movies. Yeah, it's got lots of old decrepit buildings. It's got lots of union workers that have been overpaid for so many years.

So long as the show is Walking Dead, there's plenty of opportunity there, huh?

Right, right, right, right. They are trying to incentivize the Hollywood types to come in there. I mean, they're shooting in Wilmington, North Carolina. They're shooting all kinds of other places.

Yeah, you're right, Jason. I mean, there's a lot going on in that way here in Atlanta too. That's a pretty good example of how local governments are actually starting to be smart about trying to attract those dollars. But you know, California is booming, but it's based on nothing. That is a state where they're doing everything wrong and yet the real estate's going up.

It's illogical.

It's illogical, it's irrational. And so I think you're right. I think carefully selecting local markets where there's an increasing population, where there's a good employment outlook, there's basically just good opportunity to put the right types of people in your properties. That's a formula for long term success. There's going to be some ups and some downs, but it's overall, it's going to be a very, very good thing. That's wealth building. That's smart.

I should say the other thing about California obviously is Silicon Valley. That goes without saying. Some of the California proponents and advocates, they say, look at how much venture capital is flowing into California, blah, blah, blah. I do agree with that. But there is so much poverty in that state. It's like a banana republic where you've got this rich class and this low class and the middle class in California is just being eviscerated. I spent decades there and I have seen middle class people, friends of mine just leaving the state in droves because the rich can protect themselves from the government taxation to some extent with unique protection strategies and structuring and so forth. And businesses elsewhere. And the poor get the benefits of government, but the middle class, they're just under attack.

Yeah, you're absolutely right. And you know, that exodus is not just limited to the middle class either. There's been a massive movement of businesses, specifically from California to Texas.

Right, yeah, no question.

And that sort of thing is going to continue. But you know, the bottom line here, Jason, is that foreclosures keep going up or have for the last couple of months. And it's surprising news to the, to the typical person out there. Most people think things are improving on the housing front.

So in terms of those foreclos, can we segment that at all? I mean, is that higher end properties, is it certain geographies or is it just general national stats, which honestly Brian, in the United States it's just too big a country. National stats, they don't just don't tell you very much.

Well, yes and no. I agree with you to some extent. There is Absolutely no such thing as a national real estate market. But foreclosure data is something that is, there's enough data that it is something that's useful to aggregate. And this data is basically on a national level. And if you look there, there is a reasonable correlation to the, between the national foreclosure rate and the state of the housing economy as a whole over the last several years. That's why I pay attention to this now. This particular issue is curious to me, not because of the data itself, but because of the potential effect on the populace out there. Because for months now, Jason, all we've been hearing is real estate's booming, it's great out there, things are getting better, things are great. Now it's time to buy. It's time to buy actually for a couple of years. But yeah, yeah, for a couple of years, that's absolutely right. And so this is different. This has not been happening. Now I know, and I suspect you know that the reason this is happening is because banks have been holding on to bad notes for years and years at this point with whatever strategy they were hoping to deal with. But the reality is they just didn't foreclose like they should have in a reasonable time frame. And so now they have this huge inventory of bad notes. Well, that's what's going on here, is they're dealing with that. But the relevance of this, I think is that average Joe blow on the street, he'll probably never hear this data yet. It's going to have to be several months worth of this before it gets down to, to the Homer Simpson level. But when it gets to that level, what you start to see is a change in the fundamental belief and confidence in the economy and in housing, in housing specifically. That's something that we all have to be concerned about and care about. Once the emotion shifts, once people out there start to realize that what they're looking at in the economic world today is smoke and mirrors and a bubble.

That's when we reach the peak. In fact, that's where we're just a little bit over the peak and the downhill slide accelerates. To me, this is interesting not because of the data itself, but because of the trend that it creates or potentially creates for bad economic emotional results.

It seems like there's two economies and two classes of investors out there. There are people who control paper and fiat money and fiat things like stock certificates. And then there are people that control real assets that people really need. Commodity based assets, resource based assets, and it's the paper economy, the Smoke and mirrors economy, the Wall street economy, those are the people that cause these swings because they can move and manipulate such large pools of assets so quickly and abruptly. And that's the dangerous part. If we would just get back to a resource based economy where we had sound money and real supplies, for example. Brian, when we talk doom and gloom and we talk, oh gosh, you know things are getting bad, it's interesting because if you woke up in 2005 and you thought the world was booming and real estate was booming and it was at least temporarily, that was toward the end, obviously you thought everything was rosy and sunshine all the way. And then you woke up in 2008 and you thought, oh my God, it's the end of the world. The interesting thing about it is the world had pretty much in those two different, completely different times in the way they felt, it had pretty much the same amount of resources. There was almost the same amount of oil, there was the exact same amount of land, there was about the same amount of water, same amount of copper, gold, silver. That didn't change. It was just the symbols of all that stuff that changed. And it really reorients assets. It's not that the world gets poorer, it's just that the assets reallocate and we've got to put ourselves on the right side of that equation, don't we?

Yeah, I think that's a very astute observation, Jason. It is merely the representation of those assets that changes and not the assets themselves. That's what the whole derivative mess was about. There was just simply nothing real behind all of that. Whenever mortgages started to be sold as packages without any of the buyers ever understanding what they were buying, just based largely on the smoke and mirrors that existed at the time. And these were very, very sophisticated buyers. Bear Stearns is gone. I mean, they were gone for years before Lehman Brothers is gone. I mean, it's amazing. So, yeah, you're right.

I take it that you think the foreclosure trend will increase. You think we'll have more foreclosures?

I suspect that. I am not a hardcore data guy. My gut and my observation of the real economy suggest that there is nothing fundamental to support what we have going on right now, which is it's smoke and mirrors. Growth, growth that' the Fed is always.

Trying to pump up one bubble and then the other.

It really is.

Right now they're pumping the real estate bubble and the stock bubbles sort of both at the same time. We've got massive student loan debt after this. They'll try and pump up another bubble. They always move bubble to bubble. You know, it's like a musical chairs game.

Well, it's basically what that is, Jason, is, you know, on the one hand there. There's welfare and entitlements given to individuals. On another hand, there is foreign aid given to other countries. And on yet another hand, this pumping action, this basic inflationary tendency that the government has, that's the way that the economy itself is put on entitlement and put on welfare and the business community is put on welfare. Because if you look at it, what we have in the stock market right now is it's just boomed for the last several years. But what's that due to? It's due to nothing other than the government propping it up. We don't know what things are really worth right now.

It's just a big money printing party. Again, always ends badly. What do you think is coming next? I mean, if the other shoe is going to drop, which, you know, I believe that it certainly could, what can we plan for? Inflation, deflation, stagnation?

I suspect there's going to be a lot of inflation. I don't really expect. We're probably going to see some pockets of deflation for very short periods of time, But I expect fundamentally inflation simply because there's so much not real money that's floating around out there. I mean, the government's pumped in $80 billion a month into just the stock market. That's just the stock market and not anything else. I don't see any way for anything other than the devaluation of our currency to continue. I really think that what you were talking about earlier, putting people into assets that have fundamental real value, which does not include stocks, because stock is just paper.

It's fiat money.

It's fiat money. Now, I'm not completely against paper assets, for example, mortgage notes. I'm a big investor in notes.

But yeah, I like notes, too. I mean, you got to know what you're doing, though. There's a lot of fraud.

Oh, yeah, you certainly do. You certainly do. But what I like about notes, and this is the same thing I like about real estate, is there's something real behind it. It's a real asset with real value that has a real potential to be sold and made into cash. You can't do that with a stock certificate once the stock market falls apart.

And it's even better than that, Brian, because I talk about something I call the ultimate investing equation, where you acquire these. You know, see, I don't even really like Real estate per se. What I like is all the commodities that go into it. I like getting super ultra cheap or free land and then just paying for construction materials. So I always say I'm a commodity investor. I like copper, that's wire and maybe pipes too. I like steel, steel's in houses. I like glass, I like concrete, I like lumber, I like petroleum products and energy and labor that goes into those houses. And so if I can buy that at or better yet below the cost of actual construction, like so many of our clients did over the past several years, that's just an awesome investment. And then it gets better. You get the bank to pay for 75 to 80% of it or you only put in 1/5 or 1/4 of the investment and you borrow the rest. And then that borrowing doesn't really come at any real cost because you outsource the debt to a tenant and they pay the debt plus they give you an extra $200 or so per month. It's a pretty great deal. If you can duplicate that 40, 50, 60, 100 times. Wow, you know, duplicate it a dozen times, you're in pretty good shape.

You know, I think the key to that is just making sure you get in at the right price. To me, that's everything in my planning for real estate buying. I want to be in a situation where just look back at the last anytime you buy real estate, look back at the last 15 to 20 years and look and see what was the worst peak to trough drop that happened. If you can get in in a situation where you've got a strong equity position that is at least a substantial portion of the biggest peak to trough drop that happened in the last 15 to 20 years, then not only do you have a great asset that the bank is paying for, essentially you've got a great asset that's not going to hurt you whenever the inevitable ups and downs come. That's a powerful situation.

I call that sustainable investing. You've got to have something that will be self sustaining and that means pay attention to your debt coverage ratio and just make sure you've got a good debt coverage ratio on that asset. You were talking before Brian, about inflation and deflation, how overall, and we agree on this, that the overall trend is inflationary with maybe little spots and bouts of deflation. And I agree with that too, by the way. And I just wanted to say that trying to time and pick those areas of deflation is like being the gambler in California or Manhattan, New York, trying to pick the appreciation cycle cycles. It's very risky. You just. I've never met anybody who can reliably predict inflation or deflation in real estate prices. I'm not saying in the overall economy, I'm just talking about appreciation or depreciation, I should say, rather than inflation deflation. Same idea. And so just buy good quality assets that pay for themselves and give you something extra.

You're totally right, Jason. I call it the grandmother rule. I mean, would it make sense to my grandmother.

Right, exactly. Your conservative grandmother. Would that make sense? And if you do that in business friendly climates. We love Texas, you know, all the major Texas cities we've done business in and Georgia and the right to work states that are in the Southeast. They're great. Look at all these auto manufacturers coming in there. They're not moving to Detroit, even though that did become a right to work state recently, which is kind of amazing.

It really is, isn't it? That could be a harbinger of good things for Detroit.

But Brian, this is a great discussion, but I wanted to make sure we got some time to talk about some of your unique self directed investing strategies.

Well, you know Jason, there are a lot of people who are familiar with self directed IRA, self directed 401ks and those sorts of things and those can be absolutely critical for anybody who is looking to save for retirement. But I am of the opinion that it doesn't always make sense to buy real estate through an IRA or through a 401k just because there are other really great tax advantages that are inherent to real estate investments that don't necessarily make sense or that really aren't even available, aren't even relevant in the context of a self directed IRA or 401. Having said that, one of the things that my clients in the self directed investor society tend to be really interested in, in getting involved in, and this particularly tends to be the entrepreneurs among them is intellectual property. Because if you think about it, where in the world is there more leverage than in intellectual property? It's even better than in real estate because in intellectual property you can create a thing by writing something on a piece of paper and now it's intellectual property. And all you got to do is find some interested third party to use that and lease it from you. And now you've got a cash cow. But see, very few people are doing this.

Tell us more about that. It's interesting that part of one of the Rich dad books is about intellectual property. And I remember reading that and I hold several trademarks or one of my companies does, I should say And I'm very much interested in that angle. But the challenge is that there's got to be a real market for that intellectual property in order for it to be worth anything, right?

Wrong O, sir.

Oh, okay. Tell me, tell me more.

That's the beauty of this.

I am taking notes.

The reason that entrepreneurs tend to be particularly interested in the strategy that we teach is because with proper structuring, the intellectual property that is used in your business that you use on a daily basis can be essentially outsourced to a retirement program, a retirement plan, ultimately for your benefit, but that you can pay into that. You can be the market for that intellectual property.

Oh, okay. So in other words, it's your own intellectual property, but you're using it between yourself or your company and your retirement account as separate entities, right?

Absolutely. Now this is a sticky thing. It's not a simple thing. It ends up and you have to dot the I's and cross the t's. Exactly right. Otherwise you're going to be doing something called self dealing, which is a very bad thing. But just think about it, Jason. The patents and trademarks that you have, they're worth something to your company. They're absolutely worth something to your company. There are probably a lot of things that you don't even have reduced to formal intellectual property that are really worth something.

Sure, there's goodwill and all kinds of, of systems and things that are goodwill.

There's. Yeah, exactly. The strategy, the process you use for having your staff set up a room whenever you do a seminar, well, that's a process and there are probably a gazillion of them. And if there was a way that you could offload that stuff into a self directed retirement account for your benefit and then have your company lease that or sign a formal rental or usage agreement, well then what you have is a situation where you have created your own market and every dollar you spend for the use of your own property is not only going to be spent anyway, but it is 100% tax free forever.

Wow, this is really intriguing. Okay, so how does someone do that? I mean, what do you do? What's the technique?

That's a substantial conversation and it does involve attorneys because it's a different answer. It's the same fundamental answer for every person, but there are a lot of specifics that are different. But I will tell you in general, the idea is that there are completely independent third parties that are really interested in doing business with folks like me and you who are creating intellectual property that can be of benefit to our Own businesses, but not directly. So it is frequently the case that either a third party entity can be formed that's owned by someone else entirely and you've got to pick that someone carefully. And there are a number of ways to do that very intelligently so that you can have a third party entity owning that stuff and placing it into a retirement account essentially for your benefit, not necessarily directly for your benefit. There is a little creative thinking that's, that's involved here and there are generally two or three different layers of activity. But that's the nature of how this works, is that you have an independent third party, unrelated third party that gets involved in this and they're going to take a little bit of the money. They might take 10% of whatever you're paying to use your own intellectual property, but if you're paying more than 10% in taxes, that's a gimme. And furthermore, what that does is it lets you put a huge, a much larger amount of money into your self directed retirement account for use in the here and now. So it's really hard to beat. It's not a simple thing and it's not something that is appropriate for the entrepreneur who has just started their business and is trying to get on their feet. This is more something for people who have already experienced a level of success and they are trying to protect themselves from the horrible effects of taxes. So it is a powerful thing and we really focus on that type of strategy. We also focus a lot on joint venture arrangements for funding our deals so that we don't ever have to go into debt.

Brian, you have a lot of subscribers to your newsletter. I just want to give you a chance before you go. Are there any other hot stories? You don't have to tell us all about them in depth, but just mention them and then just give out your website.

Yeah, well, there's always something interesting going on. You know, we recently had a story about and this one went like gangbusters. Just kind of anecdotally interesting. The Playboy mansion, the original one was in Chicago, still there. And it's basically just a bunch of condos at this point. And what is interesting is that Chicago, over a long period of time has gone up in value. But.

That particular piece of real estate really has kind of stayed exactly where it is for years and years and years. And there is. That's fascinating to me because you would think that having.

The kind of notoriety, yeah, the brand recognition that that has, that it would be a much more desirable property. But I think really the lesson here Jason, is that fundamentals are what matter. Not flashiness, not crazy branding, but fundamentals. And in that case, who really deeply cares if they end up with a condo in the Playboy Mansion? Ultimately, nobody, because of the value really hasn't changed over time.

What is your website?

My website is investing.brianellis.com that's B R Y A N E l l I s.com Investing by Brian Ellis dot com.

Good stuff. Well, very interesting discussion, Brian. Thanks for joining us today. I'll bet you what we talked about is probably going to come true in terms of inflation. Just kind of the way this is all going to work out. I don't know how it can do anything else. I mean, with history as our guide, the evidence is just overwhelming.

Yeah, there's got to be a little bloodletting.

You just got to prepare yourself for it and plan for it and you can actually benefit from it.

Absolutely.

Good stuff. Well, hey, it was great having you on the show.

Thank you, Jason.

It's been my pleasure.

Pleasure.

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Really? Now how is that possible at all?

Simple. Wall street believes that real estate investors are dangerous to their schemes because the dirty truth about income property is that it actually works in real life.

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This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.