1892: Stop Losing Your Investment Capital to Inflation! Tom Wheelwright, Live Event: Recession Proof Investing Summit

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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 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 1892. 1892. And I tell you, I feel the power. Can you feel the power? What do I mean by that? Well, you heard Monday's show and a lot of you gave me some great comments on Monday's episode. You know that this big weight is lifted off my shoulders. My case is done. This big case we had with this competitor trying to ruined my business, ruined my life for the last four years. We won handily, got a nice big judgment and the jury sent a message. So that was really good too. They did a great job on that. Many of you have asked about the case and we will have a full length episode about it where you will learn so much. I tell you, over the last four years I have learned so much in pursuing this case. It's like I said, it's like starting a whole nother company, a whole nother business. We had to hire so many people and I learned so much about cyber investigations, about investigations in general, about the legal process, et cetera, et cetera. It was just incredibly educational. But I wouldn't wish it on anybody because it was very, very challenging. But I tell you, it's like a whole new lease on life. I mean, I've been working out. It feels so good. I let my fitness go, I didn't let my nutrition go, which was good. But I was not too good at keeping fit during this whole time. It was just mentally very draining, very time consuming, very financially consuming as well. So I'm feeling the power and I hope you're with me because it just feels really good. So last night we were talking with our empowered investor pro group about some rental information and what's going on in the rental market. And you know, I interviewed yesterday Eric Basmajian, an economist who was on the show before. We did a second episode yesterday that'll be published soon. And so many people, one of the, one of the things I proposed to him is that how so many people just look at real estate wrong, they look at the real estate market wrong, they look at investing the wrong way. And I said, look, why is everybody so focused on this myopic idea of is the market going to go up or is it going to go down now, hey, look, it's worth talking about that, I agree, but it's not worth making that your sole myopic focus because it doesn't matter that much. And you're thinking, chase, are you kidding me? Sounds like you're talking your own book. Look, I don't need to talk my book folks, I could have retired 17 years ago. I don't need to be doing this. I'm doing this because I think it's an important mission. So here's the thing. When people try to time the market and they try to figure out, okay, well, gosh, you know, if there's a correction and I can buy at a 10 or 15 or even a 20% discount, which would be pretty phenomenal, by the way. Pretty crazy, right? It would be like Great Depression, 1930s and it would be like 2008 Great Recession. Right? Those are once in 70 year events. Okay? So if you're waiting for that to happen, you know, don't hold your breath. But regardless, it could happen. Okay, let's go with that thesis. It could, it could happen. So the thing is, as you wait, how much yield are you going to lose in waiting? How much yield on the investment? If you go to jasonartman.com properties right now and you've watched the video on the front page of Jason hartman.com, that great free video, it's about 30 minutes long, teaching teaches you how to analyze a deal. And a lot of people watch that video and they say to me, I mean, tens of thousands of people have watched it and they say to me, jason, do you have a house like that anymore? At that price, with that kind of rental yield? The answer is no. Sorry. The video was made a while ago. Those prices are gone. The boat has left the dock, the ship has sailed, Right? But you know, it's like the old saying, what's the best time to plant a tree 20 years ago, what's the second best time to plant a tree today? In every 10 year cycle or so in the real estate market, there's A time where you just make yield on your investment. You are a yield oriented investor and you get a yield. And if you go to jasonrmon.com properties, you'll see that today, without any extraordinary appreciation level or anything extraordinary happening, the yield projections on Those properties are 15 to 20% or even more, because income property is this beautiful, incredible, very unique multi dimensional asset class. And by the way, those yields, those return on investment projections don't even include my trademark strategy of inflation induced debt destruction, which adds to the yield, but the software doesn't calculate that. Now Jason Hartman and Sam Zell, the big real estate mogul, he's way richer than I'll ever be. You know, we talk about inflation induced debt destruction, he doesn't call it that, but he's alluded to that idea. And most people, you know, were really unaware of it when I started teaching this in 2004. So very important to understand that. But so you wait and you miss the yield. So say, for example, you wait a year and you think the market's going to correct next year, you lose out on 20% yield. But not only that, what else are you doing with the capital you would have invested, right? You lose the 20% yield from the income property, but you also lose if you're keeping that money in the bank because inflation is attacking it. And so you're going to lose 9.1% officially. But unofficially, the real rate of inflation, as we all know, is 15 to 17%. So that's how much you're going to lose. So think about how much you're going to lose if you wait. You're going to lose 29.1% pretty realistically. I mean, look, they're all projections. Inflation could decline. The yield we project could be wrong. Okay, fine, right. You know, say it's half that. Say you only make 10% yield on your property and you have 9.1% inflation. So there you would have lost 19.1% or 29.1%. Or with more realistic inflation numbers, you would have lost either. If you're to go on 10% yield, you would have lost 25 to 27% in one year. Or with the less conservative yield projection, that'd be 20% plus 15 to 17% inflation, you would have lost 35 to 37%.

By waiting. Now you say, well, Jason, I'm going to put my money in the stock market and I'm going to make a good return on it. Okay, fine. Stock market, very unpredictable, highly risky, not multidimensional asset class et cetera. Et cetera. So anyway, that's just something to think about because this conversation is just pervading the public mind and it is a wrong conversation. The whole thesis by so many people who call themselves investors, who think of themselves as sophisticated people, it's just wrong. They're just missing the dogs that don't bark. You cannot hear the dogs that don't bark. So very important to consider all of that stuff. Anyway, let's get into it. I will be playing an interview, so our guest today will be yours truly, along with Tom Wheelwright, Rich dad, author, talking about taxes and so forth. We're going to play a recent interview I did on his show here in a few minutes, but I've got some things to share with you first. So first of all, if you are not a member of the Empowered Investor Inner Circle, become a member. Join me and our team on Zoom Calls at least once a month. We used to do them, but now we're doing them a lot more often. If you want us to source experts for you on any subject under the sun, we get them on these zoom calls. You can interact with the expert, you can ask them questions. You can interact with, interact with me, ask me questions. It's not one way, it's two way communication. So very beneficial. So check that out. Go to empoweredinvestor.com for that. But let's go ahead and dive into some stuff here. So let's talk about rents. Okay, rents. Very, very important because the rents lag the prices. We've seen a lot of price appreciation, but we haven't seen the rents increase that much yet. Now, some say the rents have increased dramatically, but I say you ain't seen nothing yet because these rents are going to go up quite a bit more than they already have. They simply have to. We know that there is an entry level housing shortage and believe it or not, there is an overall housing shortage still. Some of that is going to cure itself in the middle and higher end properties, but it is not going to cure itself in the entry level properties that make good sense as rental property investments. So echoing the sentiment, let's go to CoreLogic. You've probably heard of CoreLogic. They're cited in the news media all the time. They keep tons of statistics on all of this stuff. And this is Molly Bozel with CoreLogic saying, quote, increases in mortgage rates and high home prices can be headwinds to the financial for sale housing market, but may be continually pushing up single family rents.

She's the principal economist at CoreLogic. Okay, now she goes on to say, well, the annual increase in the single family rental index, the SFRI for May matched April's growth rate. The gain remains at a record high level. Furthermore, month over month growth rate in for rents in May was well above this month's 19 year average. 19 year average. Now let's segment that. And what I love about this survey is it segments the rental increases into four different tiers. Okay? So in the lower priced market, which is where we're investing, you and I. Right. 75% or less than the regional median price. Right. Rents are up 14.3%. Okay. And up from 4.7% in May of 2021. So rents going up the most in that segment. Well, really in the lower middle, actually. Sorry. And the higher middle going up the most, but the high end going up the least at only 13.2%. But the biggest constriction and shortage in that housing market is in that lower and lower middle tier. Let's look at it on a chart. Here's how it looks. Okay. Now this goes back to 2005 and it's very telling here because you see that rents have been skyrocketing. But let's take a closer look. This chart divides it up by geography and as we've talked about before, Miami, about an hour and a half south of me here in Florida, in the free state, in the Sunshine State of Florida, Miami had just dramatic rental price increases as so many New Yorkers or other people in the expensive northeastern markets just were fleeing the impression of the pandemic and the mask mandates and all the ridiculousness that is still going on in a lot of these areas. Right. And they were coming south and they really made that Miami market a lot more expensive. But that will level now. Orlando, Florida was number two. Las Vegas number three. Phoenix number four. Hey, I've lived in those places, so I know those markets very well because I personally live there and then on down. So that's how it looks geographically. Also, if you want to dive in further on all of this stuff, join us for our upcoming virtual event. It's in the beginning of October and it is recession proof Investing summit. We'll start on Friday night, we'll go for about two hours on Friday night. And then Saturday we'll go for about five hours and you'll get a lot of good detail. And sometimes we just invite everybody who attends these virtual events to one of our empowered investor pro zoom meetings. So we may do that. I'm not saying it for sure yet, but we might. Okay, so Join us for this event. These virtual events are super easy. They're super inexpensive. No damage to the environment, no need to jump on an airplane or anything like that. But we are planning a live event as well. So stay tuned for more info on that. But in the meantime, join us for this virtual event. We're going to have some great speakers. We're going to have some local market specialists sharing their properties, their market profiles, some other speakers that are just going to be enriching speakers on this easy virtual event. And one of the great things about virtual events is you only have to buy one ticket for the whole family. The whole household can just join for the event. Right? So it's just one ticket and super inexpensive. We've got early bird rate that lasts I think two more days. Okay, so go to JasonHartman.com it's right at the top of the front page of Jason hartman.com and get your tickets for that. We sold five more tickets for that virtual event just last night. Okay, so let's look at rent a little more. Now this chart is really, really interesting. And this is from Calculated Risk. And I like this because of course it shows in the gray areas the recessionary times in the early 2000s and then the Great Recession and then a little bit of a Covid recession that didn't last very long because hey, you can cure everything if you just print trillions of dollars and pump them into the economy and give away stimmy checks, right? Yeah, you pretty much can actually. But there are consequences as the chickens always come home to roost later. So we see the rent of primary residence number two, the Zori or the Zillow observed rent index, and then the rent of shelter index and then the one that the consumer price index uses, the cpi, the very complex owner's equivalent rent. Now if you want to, it would be good homework for you to study or owner's equivalent rent. I think investopedia.com has a good description of that as I recall. But you know, just look it up on the Internet, DuckDuckGoit, and you'll find it. Try not to Google it because hey, they're evil. Yeah, duckduckgo it and learn about owner's equivalent rent. Why? Because that's about 35% of the consumer price index. And when it is understated, it is a big way to manipulate the consumer price index to show a lower number than reality. And as we all know, it's totally understated. It's totally manipulated. Right. And then we see the apartment list National Rent Index. So let's take a closer look at this, and I'm going to blow this up on the chart for you. By the way, if you're listening only go to YouTube, check out my videos and comment on them, because we love to see your comments and get your feedback on things, comments, questions, whatever. A lot of that goes into future episodes, so please do that. But you see how the apartment list index is much higher and the Zillow, the Zori. The Zillow observed rent index is much higher and the owner's equivalent rent hardly went up at all. We know this is simply not true. This is bogus. It's a scam. Because we know that rents have been skyrocketing. We all know that. Yet somehow the consumer price index, in its owner's equivalent rent metric is massively understating one third of inflation. This is just so telling that you see this happening, right? So I just wanted to point that out. Anyway, look, we're running a little long here. Without further ado, let's get to my talk with Tom Wheelwright. Here we go.

Welcome to the Wealthability show, where we're always discovering how to make way more money and pay way less taxes. Hi, this is Tom Wheelwright, your host, founder and CEO of Wealthability. And today I'm very grateful to have a very special guest, Jason Hartman, who's an old little friend. And Jason, welcome to the show.

Tom. It's great to be here, and I hope I can share some new ideas and perspectives on the current state of the market and maybe a little bit of history as well, and answer those questions, you know, what should people be doing.

That'S on everybody's mind right now? Because we might be in a point of real transition. We will see. We'll explore it together.

This will be interesting. So we've had an amazing bull market in real estate for the last, really 12 years. Okay? So since basically 2009, 10 came crashing down in 8, 9, 10 started coming back up in 11. It's been this incredible run. And at the same time, we've had incredibly low interest rates. So if you couldn't, if you didn't make money in real estate in the last 10 years, you were just had to be really stupid. I mean, seriously. I mean, everybody made money. It was kind of like from 2000. Right? From 2000, 2007. If you didn't make money during that time, I mean, because it's. Because you weren't investing. Right? So now we have this shift. We have the Federal Reserve. That's raised interest rates several times. They're saying they're going to rate, the next raise is going to be another half percentage point. So they keep talking about raising interest rates. We know it slowed down housing starts. We know it slowed down the mortgage financing and refinancing, which we kind of expected. That was the whole goal of it. And the question though is what does it do? Because normally, you know, and I'll have you talk a little bit about cap rates and how real estate is priced investment. Real estate is priced because make sure everybody, you know, gets on the same page with us. But typically what happens is interest rates go up frequently, then prices come down. Right. That's actually that the Fed's goal, the Fed's goal is to bring down prices by increasing interest rates. So if that's the case, I have two primary questions for you, Jason. The first one is are prices going to come down and if they are, by how much? And then second of all, if you're still wanting to invest in real estate, because we've got horrible inflation, we've got the crypto market, everybody going, well, that's an inflation hedge. Well, that hasn't been an inflation hedge. Okay. Gold hasn't really done anything. So, you know, you're thinking about a hard asset. And outside of oil, which is you're selling it. So it's yes, you can invest in it, but you are actually losing it. Whereas real estate, you don't actually lose, you just rent it. Is this still the place to put money? I mean, it has been for the last 12 years. Is it going to be for the next two or three years?

Well, so far this year, as we've seen rates go up and the stock market go down and the crypto market go down and precious metals sort of do almost nothing, Income property is the best performing asset class in the entire world this year so far. Okay. No question about it. The thing we've got to remember about income property, Tom, is that it's a multi dimensional asset class and we earn our return in a lot of different ways. And you asked about interest rates and most people, when they think about interest rates, they compare them to themselves. And you know, I see all these funny posts on Facebook and so forth. You know, someone will say, well, interest rates are too high. And then a whole bunch of people will chime in and say, well, you know, when I bought my first house, the interest rate was 14% or 18% or whatever. So interest rates are actually really low. But none of those are the right ways to think about this, the right way to think about it is by asking yourself the question I ask all the time on the podcast. On my podcast, and my listeners even dubbed it the Jason Hartman question. And that question is, compared to what? You shouldn't compare interest rates to themselves. You have to compare interest rates to the inflation rate because that tells us whether or not we're paying a lot or a little bit. And that's the key thing. Life's most important question for really anything. And we'll explore this today as far as money goes. But in every area of life, we simply ask ourselves, subconsciously, compared to what? When we're evaluating anything, is the food good at this restaurant or is it bad? Well, compared to our experience, that's what we're going to compare it to, Right? If someone just got out of the army and they were eating terrible food, any restaurant's gonna have great food, right? But if they just went to a really fine dining restaurant, you know, then they go to this one, it might be terrible. Right. You know, in the dating and mating market, we simply choose a mate by saying, compared to what? Right. What other experiences did we have? Well, when we compare interest rates, we shouldn't compare them to themselves. We should compare them to the inflation rate. And so everybody's out there saying rates are too high. But to answer the compared to what question, we have to do math like this. We look at the inflation rate and right now it's actually about eight and a half percent officially. Right.

We all know it's higher than that.

Yeah, we know it's higher. And I'll get to that in a moment.

Arizona. Jason, just so you know, we're the best in the country. Right now we're at 11% officially in the country.

Right. So. So the official inflation rate judged by the Consumer Price Index is a total scam. It's manipulated down. And the government has a huge incentive for tell us the inflation rate is lower than it really is. They manipulate it in three major ways. Weighting, substitution, and hedonic indexing. But if you think about it, the logic of the Consumer Price Index is sound because it takes a basket of things and compares them. That is the right way to do it. But of course, the index is highly manipulated, so we don't need to go down that rabbit hole too much. But if you can borrow today on a 30 year fixed rate mortgage at around five and a half percent, you're literally getting paid 2.5% to borrow money. That's a miracle. But let's look at the real rate. Of inflation, I say it's about 15%.

Do you agree, Tom?

Yeah, I think you're about right. It depends. I mean, if I look at food inflation over the last two years, I'd say it's closer to 40%. If you look at gas inflation, it's close to 100%. But I think overall, I think you're about right. I think it's 15% or more.

Yeah. So, you know, all of these things go into that basket to determine the real inflation rate. And we all have our own personal inflation rate because we all spend differently. Right. A poor person will spend differently than a middle class person that will spend differently than a wealthy person. And so inflation rates differ for everybody. Right. But let's call it 15%. Your listeners are sophisticated, so I think most of them will probably agree with that as we do. So now if you can borrow at 5.5%, you're getting paid 9.5% to borrow the money. But wait, there's more interest. Of course, you're a tax professional, so you know, interest is deductible. And so, you know, depending on your state and federal combined rate, you know, that kicker might be about a 2.2% bonus. So people are literally getting paid 11.7% to borrow money. It's a miracle. And, and this assumes that you're not even renting the property out, you're simply making money on the arbitrage between a mortgage rate and the inflation rate.

So let me ask you this, okay? But of course, price inflation, which like asset inflation, is different from commodity. Absolutely. And so if commodity, you know, you're right. Now I'm hearing commodity inflation, Right. When we look at 8%, we look at the CPI, that's commodity inflation, that's not price inflation. And over the last couple of years, we've seen huge price inflation, largely I think, because of the low interest rates. So when you're talking before you rent it out, et cetera, you're really talking about asset inflation, not commodity inflation, correct?

Well, it depends. And that's an interesting question you ask because the way we spend money is in price inflation most of the time, and the way we invest money is in asset inflation most of the time. Correct. So you really do have to kind of segment those two. But for the purposes of discussion, we could just say everything is at 15% inflation. And then the example holds true. The first thing too is that the Fed and the government and the current administration, this one is terrible. The one before was better, but certainly not perfect. And every administration brags about asset inflation and said and tries to deny price inflation.

Right.

It's, it's really interesting. Like why is that? It's just a weird thing. But yeah, right.

So, so, but let me ask you this question then because I, I, of course, I want your predictions now. So from an asset inflation standpoint, what, because we've seen housing starts come down. Okay. Recently, we've seen them come way down and we, and that would, is what you would expect. Right. We've seen more inventory in the market. You were showing me that earlier. So we've got more inventory in the market. So what do you see just from a, an asset inflation standpoint for. Let's just take single family homes, because I know you're big into single family homes. Let's take that asset inflation. What do you see happening to housing prices this year?

Well, when we look at the supply demand metrics, things are still very, very low in terms of supply. And for those watching, and of course, I'll explain this audibly for those listening only, this is just kind of interesting. I posted this on social media maybe a month ago. Okay. And basically what it says is, it says, you know, let's say there's a thousand buyers who can afford a home with the old 3% mortgage and there's only 800 who can afford it at 4% and only 600 who can afford it at 5%. Obviously, increased mortgage rates reduces affordability and it limits the buyer pool. We all know that. Right. But none of this matters when there are only 100 homes for sale.

There's still a huge difference.

Is there that much of a demand versus supply issue still in the housing market?

Well, I updated this post and here's what I put, and you're probably going to laugh. Tom. 120 homes for sale.

Got it. Okay, so.

Those are the numbers you're finding is that there's actually, there's only, there's one home for five buyers.

No, these aren't exact numbers. This is meant to illustrate a point, but here are the exact numbers. Okay? So we started off the year with historically low inventory, the lowest inventory ever since they've been tracking this stuff. And I think that comes from like the 60s, but don't quote me on that. It depends who's tracking, you know, And I do want to say also that it depends on what survey you look at because they have a different way of calculating this. So nar, the national association of Realtors, they always post inventory, but they count it differently. And so their number is higher. They include contingent sales and pending sales, which I don't really agree with the way they do it, but if you're using that survey, then use it consistently and you'll be okay because you know what's going on. Right. This is from Altos, and they just look at only the actual for sale homes in the mls, every listing in the country. And we started out with 293,000 homes for sale, and then at the end of the first quarter, we actually went down to 241,000 homes. So inventory declined as rates were actually rising, but then rates rose even more. Now, this put us in a position where the experts will tell us that we should have anywhere between 900,000 and 1.5 million homes for sale. So think of it like this. You walk into the grocery store and 66 to 80% of the shelves are empty. That's the housing market. Okay? Now, recently, though, it has increased a bit and inventory is increasing. And now we're at about 344,000 homes for sale, and it's still ticking up and it's going to get higher. But the message I want to convey as of today is that we have a long, long way to go. We need to see inventory increase by 3 to 500% to get to what most experts would agree on as normal. We're not even close to normal. So that's what's going to cause prices to continue to rise, even in the face of lower affordability and higher interest rates.

Okay, so if you will, for those who aren't, you know that. I think that's a really good explanation what happens with general home prices, because home prices generally are supply and demand. Right? That's. That's what they are. Whereas invest. Investment real estate is different. Right. Because investment real estate is based on income. Would you just. Just for the sake of making sure everybody's on the same page, walk through how investment properties are priced?

Yeah. So investment properties are priced based on the income they produce. In commercial real estate, the common metric is the capitalization rate, or cap rate, they call it. And I don't like that metric very much because it excludes two big factors, Tom. One is leverage, and another is appreciation. And the reason I think they use that in commercial real estate mostly is because, number one, the properties don't usually appreciate that much because their metric is tied to income on residential investment.

Right, so you're talking about appreciation coming from demand as opposed to appreciation coming from income.

Forced appreciation. Got it. Yeah, yeah, yeah, definitely. And forced appreciation is a concept more applicable to commercial real estate. Because you can increase income by, if you have an apartment complex, adding a laundry mat, for example, or, or something like that. But here's the thing. The metric we really want to use is overall return on investment. Okay? At least use cash on cash return, because then you're including leverage and appreciation. And that's a more accurate view. But here's the thing people have to remember is that it's not a game of comparing to what used to be. Yes, that'll bum people out psychologically. Humans say, shoulda, coulda, woulda. We all do that to ourselves. We torture ourselves with, hey, I should have bought all these houses, you know, in 2010, or whatever, right? We all say that stuff. But what we really have to do as investors is use the acronym tina, T I n A. And that acronym, TINA is used to describe the alternatives available. And it means there is no alternative T I n a the acronym. And so all we do as investors is we go out into the marketplace. If we have capital that is not being invested or used and we want to deploy it, it, we simply look out in the market and we say, what is the best available thing I can do with my capital? And, you know, no one at the moment is going to say stocks, cryptocurrencies, or precious metals or bonds, okay? And even though real estate isn't as good as it used to be, I'll be the first to say that it's still better than everything else because it's a multidimensional asset class and we earn our return in a lot of different ways.

And I do think cap rate is important just because, like you say, that is how commercial real estate is priced. And when you look at cap rates, a lot of cap rates really is what you're talking about because it's. What is, what is real estate compared to everything else. So if, because cap rate is just cash, basically, cash return on the asset, right? So if I pay cash for it, I don't. I don't leverage it. What's my return on my investment? And so if my cash return on real estate is 5%, but my cash return on a bond is 1%, then real estate is five times better than a bond, right?

So it's 500% better yet.

And that's why there's been so much money going into the real estate market, because what we've seen is a flood.

The demand is much higher than it's ever been. We've just seen a flood of money coming into the real estate market. Because like you say, there is no Alternative. So what is the alternative here? So let me ask you the next.

Question, because, Tom, before you ask that next question, I just want to say one more thing that I forgot to say earlier, and that is that everything you say is absolutely accurate about how people value investments based on income. Definitely. All true. The beauty of single family homes or residential real estate in general though, is that we have two different sets of buyers when we sell it. We have investor buyers and we have homeowner owner occupant buyers.

Okay, that's true. That's why the market in single family homes is so different from the commercial.

Market in a good way. Yeah, absolutely.

So, but I do want to go back to the investor market because, you know, we're talking about real estate is investment for most people. So what do you see happening with rents? Because rents have just skyrocketed over the last two years and you know, so inflation actually, as long as you don't have, have rent controls, which I think we're going to start seeing more and more of, frankly, as long as you don't have rent control. So as long as you're staying out of California, New York, New Jersey, etc, where the rent controls are socialist countries. Yeah, we call it the prc, the People's Republic of California. Right. As long as you're staying out of those states and you're in states like Arizona and Texas and Florida and Georgia etc, then you know, you tend to, to not have that same rent control type issue. But the reality is is there's got to be an upper limit on rents anyway because it's an affordability issue. Right. And so right now rents have be, you know, rents. I remember back in 2008 when, when one of the problems was when the housing market came down, rents also came down because people started moving in with each other and you start to have multi generational living, you know, living conditions. And so Brent, I actually saw some rents come down by 50 more in some projects at the same time when there was less housing available, which I thought was a really interesting condition. And so when, when you see that with rents going up and affordability getting lower and lower because we, we don't see wages keeping up with inflation. So, you know, what's that cap and how do you see those rents going over the next couple of years?

So at the beginning of the year, I predicted prices would increase by 12% this year and I think I'm going to be right. Even though I did not expect interest rates to increase this much. I also predicted that rents would increase by 8%. So if someone is renting a house or apartment or whatever for 2000amonth, that means next year they're going to be paying 2160, okay? And here's the thing that people make a huge mistake about. They think that will be the same person renting the house.

And that is a giant blind spot, okay? So you mentioned something very astute. You said there has to be a limit because affordability. Right? And here's the rub on that. Yes, that is true. But inflation is a robber and a thief. It's a pickpocket. And what it pickpockets is people's standard of living. So you ask yourself, what gives? Well, what gives is the standard of living, the quality of life that declines. That's what goes down. It's not that there's really any big limit to how high prices can go. The limit is only, can the same person continue to afford to occupy the same property. I'll give you an example of that. About a month and a half ago, I went on Zillow and I said, what can you buy for a million dollars in Jacksonville, Florida? That's one of the markets we do business in, okay? And so for a million dollars, you got this beautiful home. If you're not seeing this, it's gorgeous. Trust Tom and I on this. Beautiful. And it's almost 5,000 square feet. It's a gorgeous home. It looks like it's in great shape. It's got marble floors, big lot, big yard, et cetera. But if you take that same million dollars and you go to New York City, this is what you're gonna get. You're gonna get a 653 square feet, little efficiency unit with a compact mini dishwasher and a mini stove like I used to have in my old motorhome, okay? You know, you just. Your money just doesn't spend as well there. And so that's what happens. It's an illustration of how the standard of living just declines. And if you look at. Look, I was born in Europe. Europe. And Europe is a socialist disaster, most of it. Okay? And, you know, Europeans don't realize how really bad their standard of living is, frankly. Now, I'm not saying money is.

Because they have nothing to compare to. You know, it's like. It's like when it's the reason that, you know, back in the. In the Soviet days, they didn't let people leave.

Yeah.

Because they didn't want them to see us. They go, wait a minute, this isn't what I was told. You Know, I still. This, this horrible place and, and you know, people were just degenerate and so forth, so on and so forth. And here are these beautiful houses and beautiful cars and people are enjoying life and so forth. So that is comparison. That reminds me of a lesson I learned a couple of years ago. I'd like your comments on it. I was sitting with the marketing director of Marcus and Millichap, big commercial real estate firm, and he said, he said something really interesting. He said local people value real estate based on the past and people looking from the outside in value it based on the future. Can you comment on that?

That's a good statement. Yeah. There's a poem that I share on my show sometimes called the Reluctant Investors Lament. And it talks about how this real estate broker and investor who wrote it in 1977 is commiserating about all the deals he's missed out on and that he should have bought. Right. Because he thought in 1977, Tom, everything was so overpriced. And look, we always think that. And the saying I've always used is that every real estate deal looks like a great deal in the rear view mirror. Exactly. There is no time, almost no time that someone thinks they got the most incredible deal ever when they bought it. But time makes it better because we know for sure that the strategy that the government is going to employ, and every government, not just the US Government, and the strategy every central bank on the planet will employ is to simply inflate away their debt obligations. Okay? That is the strategy they're going to use. And so we can complain about it. Philosophically, it's terrible. I agree completely. But the fact is, like the old saying, if you can't beat them, join them. You got to align your interest with the two most powerful forces the world has ever known, governments and central banks. And that's what we want to do as real estate investors. And we have the perfect.

So let's talk just for a second, if we can, let's talk about something. I can't help but talk about it, which is the government side of that, which is the tax side. And I want you to think back to the numbers that you showed and you showed. If you had 15% and you had five and a half percent, then you have 9.5% return, right? But I think what we forget is that it's really not the deduction of the interest that matters, it's the non taxability, the income, income that matters. So in real estate, so you really, what you really have to compare to, I Mean, like my, in my new book, the Win Win Wall Strategy, I, I look at real estate specifically and say, what does, what does an investor get? What's their share of the deal? Because the government gets a share, right? Because the government's your partner and you get a share. The government puts in money and then you both take out money. That's the way it works. As a general rule, what's interesting with real estate is not only do you not pay tax on the front end, but you don't have to pay tax on the back end. So if you compare, for example, a 10% return in real estate to a 10% return in the stock market, the stock market, you can't get out without paying tax. And especially if you're like in a 401k. So let's say you're at a 30% tax rate. I mean, that's a minimum tax rate you're going to be at, right? So to 30% tax rate in the stock market, you're gonna, you're gonna pay, basically you're gonna get 7%, but in real estate, you're gonna get the whole 10%. And plus, you might even get more because you might get an offset to other income, right? So it actually may reduce your overall taxes. So I, I think that one of the magic, I think there's really a couple of things that are magic with real estate, and one is certainly the tax benefits. And, and that you never have to pay tax, right? That was the whole buy, borrow, die that, you know, we had this whole discussion about this the last couple of years. And I talk about it in my books, buy, borrow, die, which is you never really have to pay tax on real estate. You can, you can get, you can eliminate the tax forever. But there's also the idea that, you know, you're, remember, you're paying down the mortgage, so that's another return on your investment. You're paying down the mortgage so you get more of the, you get more of that equity. Actually, your tenants are paying down the mortgage, right? So you've got the, you've got the appreciation, you got the depreciation, which is the tax benefit. You've got the amortization of the loan and you've got the income. So I, I do think real estate is one of those hard assets. One of my, one of my favorite personal stories, I was in Africa, southern Africa, in Zimbabwe, a number of years ago on an eco safari, and our guide was talking about what happened when the Zimbabwe dollar went to zero.

I've got some right Here for you, Tom. I got 100 trillion Zimbabwe dollars.

So he's lived there his whole life, right? And so he said every time he got paid, he went and bought a cow, a sheep or a pig because he needed to turn it into a hard asset quickly. And so, you know, something that our mutual friend Robert Kiyosaki always says is that the purpose of business is to buy real estate, right? The purpose of, you know, you generate income and then you buy real estate. And I think a lot of what you're talking about is, I think there's a lot of fear right now in the market. But I do remember, I mean, it wasn't that long ago the interest rates were over five and a half percent. And if you're interest, if, if you can get even, even if you're, even if your inflation rate's only at 8%, okay, and you can get that two and a half percent spread, okay, as long as you're again, not in one of those communist areas, frankly, one of those socialists. Sorry, it's not, they're not really communists, but one of those areas that, you know, puts rent controls and so forth, that government control economy so much. But when you can do that, then what happens is, is that you've constantly got this increase in value in a hard asset and you're actually protecting against inflation. So I really appreciate that. So if you would, if you would just give us.

Let me just comment on that for a second, if I may. So tangible things have intrinsic value, like your friend in Zimbabwe. And, you know, I've studied Zimbabwe and all the inflation stories around the world intensely. Those stories are, are really educational and really important to learn from. But people in Zimbabwe would literally, they'd get paid, they'd rush out to convert their money to goods as quickly as possible because the goods had intrinsic value and the fake fiat currency did not have intrinsic value. They just kept printing it. And so one of my listeners sent me these Zimbabwe dollars and you know, here's a $100 trillion Zimbabwe bill, right? And so it has no value at all. And you're absolutely right. The other thing I wanted to say is that if anybody goes to our website, which is just my name, Jason hartman.com and you click on the Properties page and you look at the performance and the properties, you'll see that we even have properties now because rates are up and prices are up and some of them have like 1% cash on cash return. It looks terrible, but the overall return on investment, when you take into account all the things you just Mentioned because it's a multi dimensional asset class, can be 20 or 25%. People don't know how to do the math, you know, and you just alluded to it so brilliantly and so I just wanted to share that. And when you learn how to do the math of real estate, you realize that it's not this simple thing like most people in these one dimensional assets they think, think, oh well, I'm going to buy this stock or I'm going to buy this crypto, I'm going to buy precious metals. Buy low, sell high. That's the whole strategy. If it pays dividends, buy low, sell high, get some dividends in between. But income property has so many ways you earn your return and that's why it is the most historically proven asset class in the world. And to your point, it's the most tax favored asset class in America.

Yeah, it is. Interesting enough we actually in the, the new book the Win Win wealth Strategy, we actually looked at, we actually looked at 15 countries.

I can't wait to interview you on your new book by the way.

Actually a preferred asset in most countries. So interesting Business and real estate, top two asset classes. And one thing I love about what you've been saying about real estate is I'm a, so I'm the youngest of six children. So I never had control of anything. I didn't get to control what my plate. I didn't get control my time, I didn't get control of my thoughts pots, right? So I, I loved, I love anything I can control is like a bonus for me. And that's one thing I like about when you talk about adding value to real estate. Real estate is something I can add value to. I can't add value in an oil well, okay? That is a price fluctuation and that's what it is. I can't add value in the stock market, but I can add value in real estate. I can add value in business. And so if you would just finish up and if you would just give your top two things that people can and can do and should do over the next six to 12 months when it comes to their investing in the economy.

You know, one of the things I love about income property as an asset class is that when you buy the property, you haven't finished negotiating the deal. Here's what I mean by that. You buy the property today and then maybe you do what you said, you add value, you know, down the road or you refinance the property or you do a 1031 tax deferred exchange so you never have to pay tax. Right? You can constantly reinforce renegotiate the deal along the way. When you buy a stock or an oil well or cryptocurrency, you don't get to renegotiate the deal. The deal you bought it at is the deal forever until you sell it or liquidate the asset. The income property though, you can constantly redo the deal and keep making it over. You know, if interest rates go down, you can refinance, right? You can do all of these great things. You can do creative things on the rental strategy, lease options, rent to own deal. Just, they're just like an endless number of interesting, unique things you can do. So I would keep buying properties. I'm in escrow to buy a property right now myself, property in Phoenix actually, and I'm closing probably next week or the week after. You always want to be buying properties and building your portfolio. Just make sure you follow my 10 commandments of successful Investing, which is a good kind of outline to make sure you don't make mistakes. And you can find out about that@jason hartman.com or on my podcast or YouTube channel. And also I've got a great free video that helps people do the math of real estate. Tom it's how to evaluate an investment property, how to read the pro forma.

How I love it.

The numbers in 30 minutes. Boom. People just get it. If they do nothing else, go to Jason hartman.com and just watch that video. It's. It'll really help you.

Hey Jason, this is Scott Crook. I was on the Empowered Investor Zoom call last night and just so thankful.

For the value that's created inside that group. And you know, you just consistently bring.

Subjects that are so important and relevant.

To what I'm needing and I believe other investors need.

So thank you so much.

I appreciate you and all that you've done for helping us become better investors.

Thanks, man.

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