1748: The "I" Word, Hartman Comparison Index, Rental Cars, Home Mortgage, Haircuts, Inflation Induced Debt Destruction, America a Renter Nation

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Jason is a person that brings good energy, brings a good balance of information from different sources and I think he's expanding to other areas. He's trying to do a one single shop solution for investors and not only for that, actually, even to get a more balanced.

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 multimillionaire 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 high hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode 1748. 1748. So I almost hate to mention the word because I know we talk about it so much from now on, maybe we'll call it the I word. No, it's not iPhone or anything like that. It's the in word. Well, the inf word. Inflation. Yeah, I know, I said it. I said it. Yeah, I don't want to say it. Anyway, so I was doing some charts and they were going to be used in the speech I gave today, but I didn't use them, so I thought I'd share them with you here. I took $1 million and calculated the value of it over the time value of money. And in doing this, it was pretty interesting. Of course. Now what do we believe the real I number is? Well, you know, I think we could agree that it's legitimately 4% annually. Okay. But in reality it's much higher. Probably the I number now. Yes, I mean inflation, the I number now is probably 10 to 12% if you look at the Chapwood index. That's what they told you a couple of years ago and it's much more significant now. Oh, by the way, stop the presses. I gotta tell you something. So of course I am in Snowbird right now in Utah. Beautiful up here, the leaves changing. It's just such a treat. We got a light rain today. Absolutely beautiful. And this fund managers conference, I delivered the keynote speech for that this morning. And it Was really fun, you know, it's a really interesting conference, meeting a bunch of interesting people. We've got a couple of clients of ours I've met here as well. So hello to you. You're probably. Listen, listening. Great running into you. So tomorrow. The reason I tell you this is because tomorrow I am going to Phoenix. Yes, we got Ken McElroy's wedding reception on Saturday. I've got some other stuff to do there, you know, of course, I lived there for six years in Scottsdale and in and around the Phoenix metro area. So I'm anxious to go back. I really miss it. I loved living there. It was a great place to live. And I was absolutely in shock. Shock, I tell you. I went to look up rental cars. Are you ready for this? Yes, there's a chip shortage. Yes, there's inflation. Some of it is because of supply chain constriction. Some of it is just regular good old inflation. Well, go look up rental car prices in Phoenix or anywhere because I've heard this all around the country, not just in Phoenix. But I was absolutely. I'm still dumbfounded. I still don't know what I'm gonna do. I need a car when I get there tomorrow. Maybe I'll just, you know, take ride sharing around. Who knows? But I'd really prefer to have a car. Phoenix is sprawling. You need a car. Okay, the cheapest, crappiest rental car. A Toyota Yaris. Ready for this? $396 per day. Per day? Yes, you heard me correctly. Almost $400 a day for the cheapest rental car. I am absolutely dumbfounded. So I went to the car sharing website. Some of my friends have made businesses out of this. It's really remarkable. In fact, I'm going to have one on the show to talk to you because, hey, you might want to make a little business out of this side hustle. Renting cars on Turo. And I don't know if it's going to last quite the same way. So be careful because there's obviously a rental car shortage in the mainstream right now, but whatever. So it would cost me $2,400 to rent a car for my short stay in Phoenix. Yes, I'm not kidding.

But.

What if I just go buy a clunker? Maybe I'll just buy a clunker.

And use it for a few days. I don't know. I don't know what to do. It's absolutely crazy. Who says there's no I word? Who says there's no inflation? Right. Okay, well, let's Take this back to real estate investing here. So I took a calculation and I took $1 million and I wanted to know what that $1 million would be worth, because of course we're into inflation induced debt destruction over here and I did not use this chart in my presentation today. So it's a remnant. So you're hearing it first. So you take $1 million, you get an interest only loan for 10 years. So fast forward to 2031.

You'Ve still got a principal balance of $1 million because you're only paying interest only, or your tenant is paying interest only, because of course, we don't pay our own debts as real estate investors, we delegate that responsibility to the tenant and they pay us extra every month, aka positive cash flow. So what is that $1 million worth at a meager, modest, artificially low, fake news, untrue 4% inflation rate? Well, it would be worth $675,564. Right? That's the time value of money working in our favor. So we get a discount of over $300,000, about $325,000 for borrowing the money we get paid to borrow. We are in a negative interest rate environment. We know that, but this is inflation induced debt destruction. But wait, there's more. As they say. What if we calculate a more accurate inflation rate? What if we calculate an inflation rate of 12%, how much discount do we get? Now remember, you take out the mortgage today, you maybe buy four properties and you finance $1 million against those four properties, 250,000 each. And then you look at your mortgage statements, all four of them, and you owe $1 million today. That's what the statement says. And that feels like $1 million. You wait 10 years, you pay interest, only zero principal has been paid down directly. Only through inflation has it been paid down, not through actual writing of checks every month. And you look at your mortgage statements in 10 years, and guess what? They still say you owe $1 million. But the real value has been diminished through inflation induced debt destruction. And inflation in air quotes paid off $325,000 of that debt for you.

Such a beautiful thing. It's absolutely beautiful. Beautiful, beautiful. But what if we calculate a more accurate inflation rate? Remember, the CPI is a complete scam. It's fake news. It is bogus. It's B.S. it's whatever you want to call it. Now in that last example, you had a cumulative inflation rate based on that 4%. Because remember, inflation compounds, so it has a compounding effect to one direction or the Other and that cumulative inflation was 32.44%. Okay, great, so we got a discount. But let's look at a more realistic inflation rate. Let's take that to 12%.

That means that $1 million we borrow today. We look at the statements, it says we owe $1 million. And we look at the statements again in 10 years, still says we owe $1 million. But the real value because of inflation induced debt destruction of the $1 million 10 years from now, based on 12% inflation is only $321,973. That means inflation repaid 600 and what is that? $679,000. Rounding off of that debt for us. So we got a 67.8% inflation rate cumulatively over that 10 year period. And boy, looking at historical examples, I mean, that is still actually quite modest. It is really no big deal whatsoever. Now let's look at the Hartman comparison index. And I did share some of this today in my presentation, but I only had about an hour so time was running scarce. And hey, you know me, no one's ever accused me of being short winded, right? Okay, so let's look at the mortgage payment. We've gone through the Hartman comparison index. We've talked about how it applies to the price of the house and so on and so forth. But someone today asked me, well, are you comparing this to income? And I thought yes. And I shared an example based on income, both in the purchase of the overall house asset, but also the payment of just the monthly mortgage. So now what I want to do is I want to show you how cheap or expensive a house payment is today compared to what it's been like over the last 51 years since 1970. And let's look at that not in the shares of the S and P. Maybe we will if we have time for that. But let's just talk about how many hours you need to work at the average wage. 1970, if you wanted to pay your mortgage on your $22,000 house. Yes, that was the kind of number you're looking at back then. If you wanted to pay that mortgage, you would have to work 41 hours now. Also I want you to remember in 1970 there were a lot fewer two income households. So if you want to kind of gauge how is the standard of living doing, is it getting better or worse? You had mostly one income back then and before that certainly you had mostly just one income, just the father's income. Right. Wife wasn't working or maybe just working part time. But in either case, average income, 41 hours to pay your mortgage. By 1980, it got a lot more expensive. Well, think about it. We had a lot of inflation in the 70s and we had high interest rates by 1980, under the great leadership of Jimmy Carter. Yes, the country became an absolute disaster in the 70s. Okay, so by 1980, it's now 78 hours. Almost double. It's almost 80 hours. You got to work almost double the number of hours 10 years later to make your house payment. By 1990, it got worse yet, but only a little bit worse. 83 hours to pay your mortgage in 1990. Okay, now let's go another 10 years. Let's go to the year 2000. Boy. Remember all the movies and all the stuff we used to read before that about how in the year 2000 things will be so incredible and one great movie you should definitely see. Well, you've probably seen it, but you should watch it again, if just for no other reason than the incredible cinematography of Stanley Kubrick, which is the movie, of course, 2001 that I believe was made in like 1969 or something like that. Truly an incredible masterpiece movie. Stanley Kubrick. And the music is great, too. Okay, so by the year 2000, when we were supposed to be living in space stations and doing all of these incredible things and everybody was going to have hydrogen powered cars and you could take an icbm, intercontinental ballistic missile, essentially not used as a weapon, but you could take it on a trip and go from Los Angeles to Sydney, Australia, in 45 minutes. That was what they were talking about years earlier. Well, none of this happened because the world became so poorly managed. The welfare state took over. We didn't go to Mars. We didn't do a lot of things we probably should have done had we not turned into a big welfare state disaster. Right? And that's what happened with the world. Remember, luxury is the lull to apathy whenever a society becomes rich as it did we had, you know, the 50s was a time of great prosperity. We moved into the 60s, carrying a lot of that with us. And then things got all wacky as the baby boomer generation became teenagers and, you know, early 20s and, you know, the whole thing was kind of falling apart. And then we went off the gold standard. 1971 was the last connection with gold and the dollar and everything. Just, you know, the rest is history, as they say. Right. Okay, so by 2000, you had to work 69 hours to pay your mortgage. So now things are getting a little bit better. And of course. Why? Well, lower interest Rates, mostly it wasn't because incomes went up a whole bunch of by 2010. Okay, now we fast forward another 10 years. Only 50 hours to pay your mortgage. Remember 1970, it was 41 hours. So it's getting pretty good. Only 50 hours to pay your Mortgage in 2010. In 2021 this year it's only 46 hours to pay your mortgage.

Versus 51 years earlier. It was 41 hours. And guess what? I would argue that the house you're going to live in today is going to be a significantly nicer median priced house. It's going to be a modern house. Right? It's going to be a better house. However, the one takeaway from that, yes, the house, the structure is better, but the density is worse. You get much less land with it and you're packed in. You know, these houses are zero lot line. They are really crammed in. Whereas that typical earlier house, it just reminds me of where I used to live in Long Beach, California. Very kind of middle class environment, very nice. I liked living in Long Beach, California. And the town next to Long beach was called Lakewood, California. Well, it's still called Lakewood, California. And in Lakewood, California you just saw this like stereotypical post World War II baby boomer kind of stuff where you had a little house and these are all over. It's. I'm just giving one of many examples. Okay, a little house, but it was on a big lot, maybe a quarter acre lot, so the density was much lower. So these studies really mislead us when they say things like, well, you know, Americans are living better because the average square foot of a house today is double what it used to be back in. Whenever you want to pick, you know, 1970, whatever you want, right? Yes. And that's true. The house is bigger, there is more square footage in the house. But guess what? Outside you got nothing. You're, you know, there's no yard, there's no space, you know, there's no space for your dog. It's just all crammed in. So you can see these things are complicated. Of course they are complicated. Right? But yeah, just some stuff to share there. Did I share with you haircuts yet? I, I don't think I shared that here in, in haircuts. You know, how many haircuts would you trade to buy a house?

Right?

How many haircuts, if you cut hair for a living, would you have to do to afford a house? You know, how many haircuts would you have to trade to buy a house? 1970, 9100 haircuts. 1980, 13,200 haircuts. Well, 13,300 actually, I'm not rounding quite right. 1990, 7200 haircuts. 2000, 8000 haircuts. 2010, 8000 haircuts. Again, didn't change much. It changed slightly, but I'm just rounding. It's about 8,000 either way. Today.

9,700 haircuts. So how many haircuts would a house be worth? Right, and that gives you an example of the price of a haircut. We've even done this in the Hartman comparison index, haircuts for houses. Right. And so you can see that it's not far off from what it was in 1970. 9100 versus 9700 today. Not far off. And this isn't for the payment on the house. This is the overall price of the house. So I hope that's helpful. I hope it makes sense. Be sure to enter our contest. The odds are very good that you will win something. Many of you have, and we thank you for that. Just make your video go to jason hartman.com contest. You can see some details there. And go ahead and submit the video that you post on YouTube. Submit the link to it, we'll check it out. And we can't wait to pick some winners. We've only got a few days left for the contest, so hurry up. We're gonna decide on October 10th. This is my birthday month contest. We really look forward to seeing your great videos and can't wait to have more. Okay, now we've got a little segment for you to end today's episode. So we're gonna play a little segment just a few minutes long to give you some more education.

Renter majority suburbs are on the rise. Hey everybody, are we becoming a renter nation? You might have heard Jason talking about this before, but there is quite a bit of evidence out there pointing in this direction. The last decade has seen 103 metro suburbs transition from homeowner dominated to renter dominated zones, according to a recent report from rentcafe.com using US Census Bureau data. With the recent transition of these 103 suburbs, 242 out of 1,105 analyzed suburbs within the 50 largest US metro areas are now renter dominated. The number of suburban renters has increased by 22% compared to a mere 3% increase in homeowners in these 50 metro area suburbs in the last 10 years. And out of these 103 suburbs that have become renter dominated, most are located within the metro areas of Washington D.C. miami and Los Angeles, whose famed suburb Beverly Hills is now renter dominated. And what's more, it seems as if the wave of temporary migration that we saw in the early days of the pandemic in 2020 has turned out to be not so temporary. Jason was one of the first people talking about it and according to this report, 57 more metro area suburbs are expected to follow suit and become renter dominated in the next five years. Of these 57 metro areas expected to become renter dominated within the next 55 years, most of these are located in California or Florida. But there are others located in Georgia, Maryland, Missouri, New York, and one in particular, Maple Heights, Ohio. Located in the Cleveland metro area, and with an already doubled renter rate, up 87% in the last decade, Maple Heights represents the suburb most likely to transition the soonest to a renter dominated majority if its current growth rate continues. Millikan University Associate professor of Sociology Kenneth Laundra connects the recent effects of the coronavirus pandemic to the projected uptick in renter dominated suburbs. With the increase in remote work, short term projects and side hustles, there's every reason to believe that the future will be a more transitory, migratory existence. Most of this migration will be towards cities and urban landscapes, where even the suburbs will cluster most closely to urban areas. Who makes up the majority of the renter demographic? Not surprisingly, millennials and Gen Zs. According to Census data, with 55% of renters younger than 45. For more information, please visit jasonhartman.com.

So George Gammon, Jason Hartman and I have. We've created a high level mastermind group called the Collective. The goal of the Collective is for you to learn from the three of us as well as of course the other members on how to build and more importantly, how to maintain your wealth. In this video we're going to go into detail about what the Collective is and what it can do for you. Enjoy. So I'm Ken McElroy. I've been in real estate for over 30 years. Started with a two bedroom, two bath using my own money. And now I own over a billion dollars worth of real estate that I bought over the years. Built a big company, we have a construction company, a development company, a property management company, and of course an investment company. And typically now we syndicate and work with large, both private and public institutions for the equity and the debt. And so what I bring to the Collective is how to scale, how to grow. Starting with one really small property with no experience at all and growing it into an organization which I've been able to do that basically runs almost without me. So that's what I'm going to bring to the collective. We decided to start the Collective because one I met George Gammon and George brings a very interesting perspective about the economy and the Fed and the way money works and bitcoin and alternative types of investments, which quite honestly, I was super focused on real estate almost the entire time. And even I want to be a little bit more diverse. So when I talk to George and to Jason, they're always doing very, very different things. On the investment side, Jason specifically is more focused on the single family housing and what's going on in that market so that we could collaborate and have different viewpoints on different things. And so that's why I thought the collective would be good because I think everybody's kind of searching for the same kinds of answers. So the collective means to me basically the collective group, the whole. And I've always been a big believer of team and collaboration. So for me it really means collaboration of everyone kind of coming into a room and learning from each other based on their individual highs and their individual lows and to be very, very respectful of all their independent views on things and to be more open minded, transparent and authentic. So I cannot wait for the group to get together each and every quarter because we all have very different walks of life that we're going through. And so it's very, very cool to get into one room with like minded people. I think the right person for the collective is somebody who's into personal development, somebody who's trying to be a better individual, somebody who's trying to have that work life balance, trying to figure out good decision making on the investment side specifically, good decision making on the personal side perhaps, certainly on their health and on their wealth. The members that have already signed up are people typically that have businesses that they're growing, businesses that they've started or businesses that they've sold. So typically they're higher net worth and they're trying to figure out what to do with their money. They're probably a little bit afraid of inflation. Inflation. They're probably a little bit of concern about where to invest and they're obviously looking at real estate as one component. Somebody that's trying to do the right things both on the personal side and on the financial side. So some of the experiences that members can expect to get out of the collective are certainly the network. And I think that's always super powerful. I've been involved in groups like this before like EO and ypo, the Entrepreneurs Organization, and ypo, which is Young Presidents Organization, which is kind of a peer to peer network. And I that's what I envisioned and I think people are going to certainly get that out of there. They're going to have lifelong friends for sure from this, and they're going to meet people at every single event. But also we're going to have fun. So as an example, things like race car driving and doing all kinds of really cool things and meeting celebrities and things like that and fashion shows are going to be part of it. So it's kind of a how do we have fun and learn together? And we're going to have that at each and every event. So thanks for watching. If you guys are interested, there's a link below you can click on. It'll take you right to the website, which has a load of information on exactly what the collective is, where the next events are, and what exactly you'll be getting if you become a member. Thanks for watching.

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