2213: Inflation-Proof Your Wealth- Real Estate Strategy for Debt Destruction and Financial Freedom | Jason at the Limitless Conference Part 2

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Hey there Jason. Thanks for reaching out. What can I say? My life has truly been changing here since I joined your network. We just covered so much more, so much more in depth that we did not do in Jacksonville, especially that mortgage side. My wife was really impressed with that. Thanks again and I look forward to continue nurturing this relationship and overall, just awesome experience.

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 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.

Greetings empowered investors. I am coming to you today from Tampa, Florida where we were just told we have to evacuate the hotel. What a hassle. This is now the second time at this same exact hotel in a few years that we've been told we have to evacuate because of the hurricane that is coming in. And you know, I think this hotel is going to be just fine through a hurricane. But if there's a big storm surge, the ground floor could flood. So got to move to another hotel for the last couple of days here in Tampa. What a hassle. But I guess there could be bigger problems. You know that old hashtag hashtag first world problems, right? Could be worse for sure. All right, so today we're going to do part two of my recent speech in Dallas or from Dallas. And I wanted to share with you how an important study that is just out might go into a little bit more depth on this in a future episode. But here's the quick overview. The average homeowner just gained another $25,000 in equity. I know all of the Crash Bros. The clueless alarmist Chicken Little sky is falling. Doomers keep saying the real estate market is going to crash and they keep being wrong. Now granted there are all real estate is local and there are certain markets that are experiencing pretty significant inventory increases even back to the pre Covid levels in some cases. But Remember, the pre Covid level of inventory is not high inventory. It's not even normal inventory. The pre Covid era in 2019 still had inventory levels below normal. Quite substantially below normal, actually. So remember my metaphor about the kitchen sink. Visualize your kitchen sink and think of it like this. The faucet is new inventory coming onto the market. The basin of the sink represents the existing inventory on the market and the drain represents the buyer demand or the absorption rate. How many properties are buyers buying and removing from the basin of the sink or removing from the marketplace? Well, right now, if we considered the basin of the sink to be if it was full, if the water was just at the top level, at the rim of the basin, then that would be a normal market. If it was overflowing onto the countertop and onto the floor below, that would be a buyer's market, a market that most people would consider a quote unquote, bad market. I have more things to say about that, but we'll just leave it at that for now. So that's the compared to what? Answer. But what we have right now is we have a basin that is only half full. Now, this is most markets, this is nationally. Of course, there are some exceptions locally in certain cases. And as I always say, always ask yourself, when you look at a chart, an article, or hear someone say something, always ask yourself, what aren't they telling us? What are they not saying? Well, what they're not saying in this article. Well, maybe I'll just go through the article a little bit and show you a handy dandy chart here. That's interesting, Interesting. And then I'll tell you what they're not saying. So it says Maine, California and New Jersey led all states annualized home equity gains in Q2. According to CoreLogic, home equity continued to rise for the second quarter of this year as residential properties with mortgages.

That's one of the things that's really important to notice. With mortgages gained another 1.3 trillion. That's with a T $1.3 trillion in equity over the past year. But growth began to slow during these three months, according to CoreLogic homeowner equity insights report, which is the report I want to go into on a future episode in a little more detail. Aggregate equity gain was 8% year over year. Remember, the one thing you absolutely, positively must have to have a real estate crash is tens of millions of distressed homeowners. You know, those people that can't afford their payments, those people with very low equity or negative equity being underwater. You got to have that. You got tens of millions of those people that become millions of distressed home sellers. We are so far from that right now. We have the complete opposite situation. And I've explained that before in prior episodes. But all of those doomers somehow find a way to say this isn't the way it is. Yet they keep being wrong over and over and over again. So don't listen to them because they're going to make you miss the opportunities. Look, there will be little fluctuations in certain submarkets at certain times. This is the nature of any marketplace. But the overall macro trend is housing shortage, high demand, end of discussion. You know, prices soften more upward, pressure on rents because people aren't buying, they're staying in the rental pool. Prices increase appreciation, you win either way. It's just, it's a multi dimensional asset class. Okay, so let's look at the chart here. So in Florida they gained an average of $22,000. In California they gained an average of $55,000. And in Washington state, 41,000. And in Alabama, 18,000 or sorry, 11,000. In Alabama, Georgia, 18,000. So what is this not telling us? Well, the gains to be more accurate should be expressed in a percentage number rather than an aggregate dollar number because relative to the price of the home, the gains expressed as percentages, that would be an accurate way to look at it. But what's only expressed as dollars is you might think, oh my gosh, California, Washington state, those are the best places to invest. New York up $30,000 aggregate. Right. Those would be the best places to invest. No they wouldn't. Because those properties are much more expensive. The basis at which you're starting is dramatically higher because those properties are so expensive. So compared to what is always the right question to ask, what markets do.

We like right now?

Well, I'm only going to mention it by states. And within the state, of course, there are many submarkets and they vary. So we don't like every market in every state, but just very generally as an overview, Indiana is going great, some Florida markets are going great, some are experiencing a little bit of increased inventory back to pre Covid levels. Alabama, fantastic. Tennessee also. And we have other markets around the country that we like as well. But those are kind of the prime focus right at the moment. And you can see with this map, if you're looking on video, you can see the state by state dollar amount of inventory gains. So what else does this go on to say? Well, Selma Hepp, the chief economist for CoreLogic, who's been on the show before that was a, you know, if you're interested in hearing what she has to say, go and look up that prior show with Selma Hepp. That was a really interesting interview I did with her. Said in a statement that home price growth has continued to fuel overall equity gains with existing homeowners and now averaging about $315,000 in equity. People empowered investors and doom and bloomers. That is an absolute record high right there. $315,000 in equity. I mean the padding, the cushion in this particular market is ginormous. There is a huge cushion. There is not yet. There will be someday, but at the time of this recording there is not a concern of a crash. It's just not there. I mean, show me the data that supports it. I love these people that make these hit and run comments.

Oh, you're wrong, you know, yada yada yada.

But they have no data, they don't show any data. And when they do occasionally share some data, it always leaves important other data out. And that's the, the important thing to note. The article goes on to say this is nearly $129,000 higher than the average equity per homeowner recorded at the start of the COVID 19 pandemic in 2020. Quote the substantial accumulation of home equity for existing homeowners has served as an important financial buffer in times of uncertainty as some homeowners facing higher costs of homeowners insurance and taxes. Well of course their taxes are higher, their property value has gone up and those two are indexed to each other. So you know when you got your property value that you've made a bunch of money on, you got to pay a little higher taxes. That's just going to happen that way. And have had to tap into their equity to prevent falling behind on their mortgages. Have explained, quote as a result of mortgage delinquency rates have remained at historical lows despite the inflationary pressures and higher costs of almost all non mortgage homeownership related expenses. Now the next thing it talks about is the underwater issue. Negative equity. That's underwater, which refers to underwater mortgages or those with higher mortgage balances than the home's value continue to see modest declines, not increases declines. In other words, fewer people have negative equity and more people have very, very, very positive equity. On a quarterly basis, the number of homes with negative equity fell by 4.2% to 1 million and now account for about 1.7% of all mortgage properties in the U.S. on an annualized basis, the decline reached 15% or 1.1 million homes. So this is great news. Less negative equity, more positive equity, that provides a really good cushion. But you can't hear the dogs that don't bark. As I always say, what dog isn't barking in what I just told you? Remember, always ask yourself, what are they not telling us? Well, what they're not telling us here is they said that this negative equity number was applicable to all mortgaged homes. And that would be fine because that's the only place it would really apply because that's the big encumbrance on a property that would make negative equity or an underwater home. But wait, 40%, give or take a little bit, of all homes in the US have no mortgage at all. So if you were to take all homes and look at the negative equity numbers, they're dramatically smaller than I just explained. A lot of cushion in the market. Anyway, we'll continue to look at this as the story unfolds.

And let's go ahead and listen in.

To my recent speech in Dallas.

This is the mortgage debt service compared to income. And you can see that people have some of the most comfortable mortgages in history. This chart goes Back to what, 1980? Look at it closely. Here it is blown up for you. I mean, it got. It was a little better during COVID but people are super comfortable and they're not selling. Okay, I gotta switch gears. Let's talk about inflation. I told you, I promised you that I would teach you how to win the game and maybe game the system. Okay, how many of you are going to the casino thing tonight, right? You like to gamble? Anybody? This is definitely not gambling. I don't gamble too much occasionally. But this is the way to game the system. You know, if you're gambling, you want to game the system if you can. You know, some people make this really bad decision, decision when it comes to real estate. And they think that the real estate game is about one thing, it's about price. Right. The whole game is one dimensional. It's buy low, sell high. Well, that's okay, I'll take it.

Sure.

But that is a really shallow understanding of the way real estate works. Because income, property, especially the particular kind of real estate I like is a multi dimensional asset class. And, and there are so many different ways you make money from it. And so you don't want to be that person who just thinks it's all about prices and get too focused on that. But since everybody wants to know about that and talk about that, I thought I would. All right, let's talk about Shorting the dollar. So we all know Ken McElroy, right? Of course. He's my business partner in the collective inner circle mastermind that we run. And one of the things I said to Ken a few years ago is I said, ken, you know, maybe should be a little worried about my own investments. You know, I've got millions of dollars invested and I am long on everything.

I am.

In other words, my investment thesis is that everything will go up, right? I'm long, long position, not a short position. And you know, I'm long on bitcoin. I'm long on housing prices, I'm long on stocks. I'm long on everything. I'm expecting everything to go up. And maybe that's a bad idea. But then I realized after I said that to him, I'm actually short on one big thing because I think this thing is going to go down a lot. And I'm pretty sure I'm right and I'm pretty sure you're going to agree with me. What am I short on? The dollar. Right. How do you short the dollar? How do you really short the dollar? Well, you don't do it like a currency trader. That's way too risky. I want to show you a super simple, easy, almost guaranteed way. Almost nothing's guaranteed, but this is almost guaranteed that you can short the dollar and win. So here it is. These people or all the rest of them, right? There's Biden and Yellen spending all the money, right? And remember, one of the triggers for inflation is government spending, like was said on a panel earlier today. And it's really hard to get your head around this. It took me a long time to understand this, but understand that money is lent into existence. That's the way our super complex system works. The more money that's created, the less valuable the money is. Okay? Scarcity versus abundance, right? And so what makes a currency like the dollar or the yen or the euro or the Brazilian real or any currency or the peso or whatever, what makes it valuable? There are really only two drivers of value. Scarcity. It's got to be scarce to be valuable. We talked about gold. It's scarce. The supply is pretty limited. It's pretty hard to make more, right? It's hard to mine it out of the ground. Bitcoin, 21 million coins. End of discussion. It's done, right? That's it. Okay. Scarce assets. Real estate, very scarce. It's hard to make new real estate or new housing. Right? It's very hard to build houses. It's very expensive. So it's very inelastic. Okay, to make more, but with dollars, you can just make as many as you want. Right? I mean, I always wondered if, like, when the Fed increases the money supply, you know, do they go to some special corner in the Federal Reserve building, and does Jerome Powell, you know, turn on a computer, log in, and is it a Mac or a PC? I kind of even wonder that. It's probably a PC. And then he takes his mouse and he says, okay, let's just create more money supply. And all the existing supply of money goes down in value, right? That's what you can be sure of. And this is a pretty darn good bet. Now, how many of you think the country is in kind of a mess right now? Yeah, I think that's a fair statement. You know, I mean, there's a lot of reasons to think things are pretty good. There's great technology coming on the horizon. But let me just mention something about Doomers for a moment, okay? Because I am definitely not a doomer, but a lot of people are doomers. And the doomers have the biggest audiences on YouTube. They have the clickbait thumbnails and the clickbait titles. And everybody wants to know how the world's going to end. Well, you know, as the old saying goes, the world usually ends when. With a whimper, not a bang. Okay? But what really happens here is what the doomers don't realize is the incredible power of all of you. All of us, okay?

They don't realize that every morning.

And I know they're not all adults, I get it. But every morning, 8 billion people wake up, and you know what the currently dominant thought of every human on Earth is? Here it is, I think, disagree with me if you like, but I think what they think about all day long, it's certainly what I think about is how can I improve my situation, okay? Like, how do I get richer or how do I get more love or how do I have more fun? Or, you know, on the negative side, what if you're an addict, right? How do I get my next drink? Okay, you know, there's all kinds of ways people consider they're improving their situation. They're not always productive, but they think, how do I improve my situation? And thank God that most of the world now lives under capitalism. And the only way someone can legally improve their situation is by improving the situation of a fellow human. And that is an incredibly powerful thing. There's an awful lot of momentum to that. That trumps all the other bad stuff that's going on in the world. But let's look at the bad stuff for a moment. The countries in massive of debt. We've got over $35 trillion of debt and that number is increasing at a trillion dollars every 100 days. It's insane. It's never happened this fast. But wait, there's more. It's actually worse than that. See, that's our debt. But we have a lot of other problems. We have all these promises the government has made into the future. They're called unfunded mandates or unfunded entitlements. And there's a lot of disagreement on how big this problem is. But I've had Lawrence Cutlikoff, the Economist, on my show several times and he's probably done the deepest analysis of this and he'll tell you that it's somewhere around $220 trillion. You know what, I hate when people talk about these big numbers and they're like meaningless. A trillion here, a trillion there. You know, it adds up eventually. Okay, here's the thing. Compared to what? How big is that? Well, the GDP of the United States is about 25 trillion a year. So everybody's effort of working all year long is worth $25 trillion. The entire planet is worth just over $100 trillion a year. Everybody in the world working and contributing to the economy is over 100 trillion a year. Well, the IRS takes in about 4 trillion a year. Year. The debt is 35 trillion. The unfunded mandates are 220 trillion. Maybe disagreement. Right. But whatever, we'll take that number. How do we ever pay for the problem? You can't. There's. It's mathematically impossible.

Right.

So what can the government do? They can default. They can just say, sorry, we made lots of promises, can't keep them. Tough luck. They could say we're going to raise taxes. You can't raise taxes enough to solve the problem. They're taking in 4 trillion a year. The whole economy is 25 trillion. We'll tax you at 100%. You're going to keep working? Probably not. Okay, so you can't solve the problem with taxes. If they taxed all of us at 100%, it would take 11 years just to pay for the unfunded mandates.

It's impossible. We'll never get out of it by paying taxes. Okay, so how about a yard sale? We could sell off assets. Remember years ago when they talked about selling the ports to Dubai?

Right.

You know, the country has assets that it could sell. Could sell some land. You know, the Bureau of Land management sells off land to developers all the time. So there are assets to sell steel. We could use the US military or economic hitmen to go and take the oil from Iraq.

Right.

A lot of people accuse us of doing this. Not really quite true, but you know, that's the history of the world map is theft, right? Did you see the Napoleon movie? I just watched that. Right. Napoleon was basically a thief with an army, right? That's, you know, that's the way it works. That's how the map got designed, by stealing from other countries. Okay, here's a good news. Technological innovation. Maybe some great thing will happen in biotech, AI, nanotechnology, energy, and it'll just make us all more proud, prosperous. And I think this is actually quite true. You know, another one of my sayings, it's an amazing time to be alive. And it really is an incredible time because with artificial intelligence, well, there's a couple big hurdles coming up. So one, you probably saw that movie the Imitation Game years ago, right? That was a great movie. Alan Turing, this brilliant, brilliant inventor and scientist, so it was named after him called the Turing Test. And that's when a computer can fool a human into thinking it's a human chat. GPT basically has passed the Turing test pretty much. Okay. Because you can have a conversation with it and not know it's a computer. Okay. You really can. What's the next step? Artificial intelligence. Becoming as intelligent as a human. And then Ray Kurzweil talks about the singularity, which is the computer being as intelligent as a human costing less than $1,000. You know, my laptop was like $4,200. Don't steal it, okay? A thousand dollar computer that is as smart as a human. I mean, humans are incredibly smart, even the dumb ones. Even the Democrats are pretty smart. Some of them, not most of them. I mean, now Kamala Anderson is an exception. She's really stupid, okay? I mean, think about it. You know that saying, a penny for your thoughts? If you gave her a penny for her thoughts, you'd get change back. Like, she is so dumb. I can't believe how dumb she is. Go and look up the video of her trying to explain cloud computing. It's hilarious. Oh, yeah. The data goes up in the cloud, rolls around and comes down and you know, but we're unburdened by what has been. I mean, God, I mean, I'd rather have the mean tweet guy that's orange at the tanning booth, but, you know, whatever. Now some of you hate me. See, she's leaving.

Okay, you hate me now.

Yeah, I knew it. All right.

Okay, Democrats, get up and leave. All right, sorry. Hey, listen, I like some Democratic policies. I just don't like idiots. Okay, sorry. Okay, so enough of that. So then the next step is the AI becomes as intelligent as you or me, right? That's pretty incredible. But the biggest one is artificial intelligence. General intelligence. Can you imagine the AI being as smart as every human on Earth, networked together with other AIs? I mean, this is really Terminator too, you know, this is pretty scary stuff. And Elon Musk is talking a lot about that. Another Democrats leaving. Okay, sorry.

He got a phone call, probably from Kamala Anderson or Henderson or Paris. Well, what's her name? Yeah, anyway, okay, Cognitive decline. I need my AI assistance. So there's pretty amazing stuff with tech, but here's what's most likely to happen. They will just simply inflate away the problem. That's the best business plan for governments and central banks. And it should be your business plan, too.

Here's how it works.

Write this down. This is worth writing down. Okay? To understand inflation, we need to distinguish between real and nominal. Remember the dollar example earlier? The name of it is a dollar. The word nominal literally means in name only. That's the name, but it's not the value.

Right?

So we need to distinguish between these, you know, price and value. Those are very different things. Inflation is an insidious hidden tax that destroys purchasing power. Inflation destroys the value of savings, stocks, stocks, bonds, even your equity in real estate. And I like real estate. Okay? It destroys that. And thankfully, it destroys the value of debt. Now, debt is my favorite four letter word. It's a really good word and you should use it to your advantage. It's a very powerful thing. Inflation is the most powerful method of wealth redistribution. It's not taxation, it's inflation. Because inflation, inflation is a hidden tax that very few people really understand. Yeah, we all understand prices are going up, you know, but it's really. There's a lot more to it than that. But here's one thing to know for sure. Inflation redistributes wealth from lenders to borrowers. So this is the game right here. This is the secret. You borrow money in today's dollar value and you pay it back in time, tomorrow's lower dollar value. And I call this beautiful thing inflation induced debt destruction. I trademarked this term years ago because it is the most amazing hidden wealth crater that people don't think about. They buy a property and they think, oh, I bought it. For this I sold it. For that I made money. But what they didn't consider is how the value of the debt went down so much. Here's a real world example that happened to millions of of people. You don't need to look at every number on this chart. It's pretty easy. Look at the first line of the chart. 1972. Okay, this example is someone buying the median price house in 1972 of just over $18,000, putting 20% down. They got a mortgage of just over 14,000 at 7.37% which was the interest rate back then. I know you think rates are so high now. They're really not.

Historically.

Historically they got a 30 year mortgage. In 1972. How much was a dollar worth? A dollar, because no time had passed. It wasn't destroyed by inflation yet, but by 1984. And if you haven't read that book lately, George Orwell's book, it's all coming true. So read that book, 1984 by George Orwell, it's brilliant. And read Fahrenheit 451 and Atlas Shrugged and a bunch of other ones. There's a lot of good books out there. Obviously. Yes, someone likes who is John Galt? Okay, yeah, that's Atlas Shrugged thing. Only people in the club know. Okay, so by 1984, that same dollar was only worth 40 cents. You're looking at the last line at the bottom of the slide. 40 cents. Now, at the end of the 30 years, that dollar from 1972 that they borrowed was worth 24 cents. This is inflation induced debt destruction. I want you to look at one other column here with what time I have left with isn't much. Look at the monthly payments. And you see how it starts in 1972 at $101 per month. Okay. And then it's inflation adjusted. Every month they're writing a check for 30 years for $101. But over time, don't you think the value value of that check got a lot lighter and easier? Sure it did. Because by 1984 it only felt like $41, even though the amount of the check still said 101. And then by the end of the time, that check only felt like $24. This is inflation induced debt destruction. It destroys the value of debt. And if you have a lot of debt, your debt gets cheaper to repay. It's an incredible hidden wealth creator. But it happens in two ways. It lowers the value of the monthly payment, but it also lowers the value of the loan balance. They both get cheaper, which is Incredible. Think about it. If you go to your favorite website, Jason Hartman.com, i know it's your favorite, and you click on the properties page and you say, I'm going to buy four properties today from Jason's network, Empowered investor. Okay? And you, you do that, and then you borrow, say, a million dollars to buy those four houses. Okay, what happens in five years when there is inflation of, you know, real inflation of like 8% per year? The value of that million dollars keeps going down and inflation pays it off for you. This is what it did for millions of people. Here's the actual numbers. 1970, 1972, a dollar was a dollar. 1984, it was 40 cents. 200124 cents. They borrowed at 7.37%. So with inflation induced debt destruction, their real interest rate was only 1.06%. But wait, there's more. Remember, interest payments on mortgages are tax deductible. Oh, behave. Okay, it gets me much better than this. They had a negative interest rate for three decades. They lived in a house for free. They got paid to live in the house. They got paid to borrow the money. Negative 1.16%. And this is a regular homeowner that lives in the house. Imagine how much better this gets when you rent the house to somebody else and they pay the mortgage for you. It's an amazing time to be alive if you understand how to game the system with inflation induced debt destruction.

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