2391: From Co-Living to Debt Destruction: Advanced Wealth Strategies for the Empowered Investor

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So far the event's been fantastic. Lots of great speakers, so many good contacts. Just the amount of different people you see here and meet here is probably the biggest benefit. And the speakers are unbelievable. And it's jam packed with content. Basically, can't miss a speaker. If you're on the fence at all about this, if you're even considering it, just jump on, do it. You won't regret it. You're going to be able to close those time windows that you think take forever. Just do it. It'll be a great experience for you as an investor and you're going to be able to learn just through osmosis, through all these great people you're around.

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 freed 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.

If you were down to your last million dollars. Okay. Your wife's gonna leave you. Well, I can't follow your analogy because my wife loves me with or without money. We don't know that to be true because you've had money the whole damn time. You have to invest the money million. And you can only invest the million in one thing. The last million, the last millie. Real estate. Perfect answer. Why? Why real estate? Because desperate people do stupid shit and you got to take desperation out of the equation. So I believe in myself. I believe if I have nothing, I would become wealthy again. Yeah. But if I'm down my last million, you know what I got to do? I got to build a foundation.

Yeah.

So I would take that money, I would invest in real estate, I would get an income stream and. And I would forget it existed. And then I would go out and do other crazy story of my life right there. God damn, that was perfect.

Greetings, empowered investors, and welcome to episode 2391. We're almost at 2,400 episodes. Can you believe it? That's what happens when you've been podcasting for 21 years. 22 years now. Whatever it is, it's been a minute for sure. Anyway, glad to have you here today. We've got a great show for you and a couple of announcements just before we get into today's content. Number one, we've got Empowered Investor Live coming up, our annual conference. This time it's back in Irvine, California, Southern California in May. Be sure to go to empoweredinvestorlive.com to register, get your Early Bird tickets and make sure you secure the important reason to register soon is to secure our fantastic room block deal. We got very good room prices this time. We don't always achieve that, but we definitely got that this time. The event is starting Friday evening and then all day Saturday and Sunday, middle of May. Empowered Investor live.com We are introducing some new things at this version of Empowered Investor Live and we are taking your request. We got some feedback from you that you'd actually like to have. I know this may sound counterintuitive, but fewer speakers and more content from yours truly. I'm honored that you say that and we are going to fulfill your request. So this time we won't have as many speakers and we will have a lot more of our content. I am so excited because I really want to take a deep dive into a whole bunch of things, whether it be co living, home equity investment and maybe the most important, our newly updated Performas. We literally made more enhancements to the property tracker Performa yesterday. So this is very current stuff. We're making a lot of lot of enhancements to these. And I was speaking in Las Vegas over the weekend and one of the things I said to people at that event when I was networking and from the stage as well is that it is so important. Probably the most important thing you can do as an investor, whether you are new or experienced, but especially if you're newer, is to understand the math. What I have always said and what has discouraged me from time to time is that so many investors are winning, but they think they're losing because they don't know how to do the math. And you just need to go to propertytracker.com set up a free account. Yes, there is an upgraded paid account, but honestly you don't need it. Just get a free account. Propertytracker.com this will make you just such a good investor. You will be so far ahead of every other investor in the marketplace if you simply do These single page first year projections, you standardize your data. One of the best decisions I made 22 years ago when I became a nationwide investor was data standardization and data benchmarking. This was just literally the best decision ever. So I want you to have that advantage. It is so important. So many clients that have been with us for years still aren't doing this and it amazes me. You must use Property Tracker. That is just an obvious must do thing. Propertytracker.com free. Okay? It will not cost you a penny. It'll cost you a lot if you don't use it actually. So learn how to do the math of real estate because remember, it's like that iceberg. So much of the iceberg is below the surface of the water. And it is really important that you understand the MA on a deep level. And one of the great things you can do with Property Tracker is you can change assumptions, you can make the rent higher or lower and see how it affects the bottom line. You can change the vacancy rate, you can change all kinds of things, different expenses and so forth, the appreciation level, whatever it is, and you can see how that affects the bottom line. This is the one core thing that will just massively improve your investing capability. Remember, we want you to be your own best advisor. We don't want you to rely on us, we don't want you to rely on anybody. We want to empower you to be an empowered investor, to be your own best advisor. And one of the core ways you can do that is to get good at the math. And I know you may be thinking, I don't like math. Well, this is simple math and the software does it for you. Okay? But just see how one number affects another. See how your investment is really playing out. Understand inflation induced debt destruction. We're going to do this on a much deeper level with these newly enhanced performas at Empowered Investor Live. Get your early bird ticket. Empowered Investor Live. But get armed with the best evaluation software in the business. Propertytracker.com free. Okay. I mean, I can't make a better offer than free. That's about the best deal going. So two things you must do. Register for Empowered Investor Live and join us in person. Meet our teams, meet our specialists in May in Irvine, California. It's just a fantastic event. So many people rave about it and we've done it so many times over the years. So do that and then get your free Property Tracker account and become good at the numbers. There's many tools included with Property Tracker, but the core tool is the One year projection, that is just the core tool is that one year pro forma. It will make you such a good investor to really master that. And it's easy to master. So propertytracker.com, empowered investorlive.com and let's go ahead and get to today's core content. Here we go. It has been a real surprise to many, many so called experts that the real estate market has not crashed. Three years ago we had the fastest rise in interest rates in history. That never happened before. Jerome Powell, the chairman of the Federal Reserve, our central bank, has made just giant errors. In my opinion, he has just up badly. Okay. At first I thought he was pretty good. His response to the COVID crisis, you know, he made money very easy. He made it very cheap. You know, that's what was needed at that time because those were very scary times. However, he waited way too long to raise interest rates. He should have raised them much sooner and much more gradually, but he didn't. He shocked the system. And the real estate market in terms of sales volume just collapsed by about 33 to 35%. Okay, so we've got to remember when we see these quips of news and these talking heads on TV and you know, people saying all these crazy things on YouTube and so forth, we've got to remember that there's a big difference between sales volume and sales prices. Those are not the same thing. So volume has declined a lot. And you talk to anybody in the business, they're usually complaining. They're saying the last three years have been terrible. Whether they're a lender, mortgages, real estate, brokerage, title escrow, all the services. Right. You know, they're all complaining that business has been pretty slow, but at the same time prices have gone up. Now how does that happen? That you literally triple the cost of mortgage money and real estate is a credit based asset. You triple the cost of the money that's used to buy it and prices keep rising. That's just mind boggling. And I'll tell you why. I think most of the so called experts got it wrong. Okay, so we're going to go into that. This is a very important lesson. I think so few things here we have multi decade high interest rates. We have the fastest interest rate increase in history, the lowest housing affordability in over four decades. Young people complain that they can't afford a home. But here is the major issue. It's the wrong context that these experts are thinking in. They're thinking of housing affordability for new entrants entering the market. And that's. That's dismal. It's awful, right? We all know that housing affordability is, is just terrible. But what they're not thinking about or they weren't thinking about, you know, three years ago, even three and a half years ago, and ever since is the largest part of the market that controls the existing housing stock. The people that just are sitting there in their homes and aren't trying to sell them. Okay? So there's about 140 million housing units in the US and during a really, really busy year, I think the closest we ever got in highest sales volume was almost 7 million units. Okay? And a good year will have, you know, five and a half or six million transactions. But the last three years, we've only had about four million transactions. So sales volume, way down. Let me just show you on a chart. This is a better way to explain it. Okay, so 7 million real estate transactions. I say that this is kind of the deficit of transactions, the transactions that happened since the massive rate increases, right? Not too many transactions have happened compared to the norm. But what we have to do is look at. Not the transactions that happened. We have to look at all the transactions that didn't happen, okay? Because that's the more important thing. Sometimes on my podcast, I always say, you can't hear the dogs that don't bark, okay? And that idea came from a Sherlock Holmes episode where Sherlock Holmes was in, you know, the great detective was investigating a murder. And what they discovered in this investigation was that the dog didn't bark. So they realized that the. The killer must have been known by the dog. The dog knew the killer, right? And you know, sometimes in life, the most profound thing is the thing that doesn't happen. Sometimes that's more important than what did happen. And the way our minds work, we're programmed to see what does happen. We're not very good at all at seeing what might have happened or what didn't happen, right? So with the experts getting this wrong, the new entrants couldn't afford a house. So if, you know, it just goes, you know, with, like, their logic is, you know, pretty good. Half of it's pretty good. You know, if people can't afford to buy a house, well, the market's going to crash because no one can afford it. Okay, fine. But what they didn't account for is all of the people that got these ultra cheap Covid era mortgages that had just like zero motivation to sell their house because their deal was so good that they just didn't want to give it up. So here's how that looks. About 25% of the country has a mortgage at or below 3%. 65% has a mortgage at or below 4%. So these people have such a good deal that they just don't want to give it up. See, 21 years ago I started teaching a concept I created called inflation induced debt destruction. And that idea, which I'll tell you about in a little bit, is the idea of borrowing dollars at today's value and paying them back at the lower tomorrow value after inflation has debased the value of those dollars. You borrow them at the current value, pay them back at a lower value in the future. I call that inflation induced debt destruction. And that's the hidden wealth creator that has made really tens if not over a hundred million people in the United States very rich and maybe a couple billion people around the world. Now the US is really unique because it has a very special real estate in a very special mortgage market. We've done business in, you know, the vast majority of the country in many different markets. And people are always coming to empowered investor and saying, hey, I've got properties in Mexico, in Costa Rica, in Argentina, in Australia, in any European country, in China, Japan. Why don't you promote these through your network and sell them to your clients? And we have just never found anything that comes close to American real estate. Because coming out of the Great Depression and then subsequently World War II, the government started sponsoring the mortgage industry, right? And we've got all these government sponsored mortgage entities, Fannie mae, Freddie Mac, FHA, VA, USDA, etc, right. And this is basically a welfare program for real estate investors. So if you ever felt as many people have, that you really don't like all these deadbeats we have in society, you know, people claiming disability insurance benefits when they don't really have a disability, people sitting at home watching daytime TV and not working when they should be working and paying taxes and contributing to the economy. Right. You know, certainly you'd have a very good reason to be upset about that. It's quite reasonable to be bothered by that. But if you can't beat them, join them, be a real estate investor and get the welfare for real estate investors, a fantastic US government backed 30 year mortgage that may soon become a 50 year mortgage. Which by the way, the 50 year mortgage will be one of the biggest gifts you could ever get. Okay, the 30 year mortgage is a huge gift. But can you imagine buying a rental property today and thinking you're not going to have to make the last payment on that rental property until 2075. And you might think, well, isn't that like debt slavery? Isn't that ridiculous? I'm going to pay so much more interest. So what? When you're a real estate investor, you're not paying the debt. The tenant pays the debt, okay? So that's the first thing to know. But after that, you pay it back in cheaper dollars. I mean, how much inflation do you think we'll have in the next 30 to 50 years? Right? If you ask yourself that question, the answer is going to be like, everybody pretty much believes that we're going to have inflation. We have 37, $38 trillion in debt. We have all these unfunded government programs we can't pay for. You can't tax your way out of it. There's not enough tax money to get, okay? And there's a whole variety of reasons that inflation is the future. It's certainly been the past, okay? I mean, the dollar from the time the Federal Reserve was created in 1913, in that hundred year period, the dollar lost 97% of its value. Literally. If you had a hundred dollar bill from 1913, it would be worth $3 in 2013. And it's even worse now because we've had more inflation since then. So there's just a lot of interesting benefits about income, property. What really mattered was the 133,000 homeowners that didn't have their house for sale, that did nothing, that sat there and are still sitting there saying, no problem, I got my mortgage here when rates were low. I didn't get it up here when the new people entered the market like they'd have had to do in the last three years. Okay? This is the new people entering the market paying higher rates. I got the low rate and I've got 27 years left. I have literally no urgency whatsoever. My deal is so good, my payment is so cheap and I have so much equity in my house. Here's the thing. I always say, if you want to have a real estate crash, there is one absolutely, positively necessary ingredient. I mean, if you want to make an omelet, you need to have eggs. Now, I know you're going to say, well, you could have some fake egg mix. I know, okay, generally speaking, you got to have eggs, right? Well, if you want to have a real estate crash, there is one ingredient you absolutely, positively must have or you will not have a crash. What is that ingredient? It is tens of millions of distressed homeowners who become millions of distressed home Sellers, without that, you ain't having no crash. And that's exactly the situation we're in. All these 133 million homeowners that didn't transact are sitting here just saying, I'm super comfortable, I don't care, I've got a great deal. And this is really going to create a bigger and bigger wealth divide into the future. And people have realized finally, I started teaching this 21 years ago that the mortgage is an asset, it's not a liability. Now it would be a liability if the inflation rate was 3% and the mortgage was, you know, 17%. That might be a liability, but even at a six and a quarter mortgage that you could get today, that mortgage is not really a liability. And I'll show you why. Before we get to that, let's look at the home sales volume. Okay, so here we saw the home sales volume super high during the COVID era, right? Almost 7 million units. Okay. And since then we've seen, you know, we're bumping around the 4 million unit category, right in this range. This red line here represents a giant deficit of what I call shadow demand during the Great Recession. If you Remember back to 2007, 2008, we heard a term that was coined and popularized a lot. That phrase was shadow inventory. What did that mean? What they were referring to is they were saying, look, there are all these people in distress, there are all these banks that have all these reo foreclosure properties on their books. Books or about to have them on their books because the people aren't paying their mortgages, they're in default. And that is going to represent shadow inventory of more properties that will hit the market. And they ultimately did hit the market and the market suffered. Right. But right now we have the opposite problem. We have millions of people who have been waiting to buy a home and they've been priced out of buying a home because of the massive interest rate increase in a market where prices were already very elevated. So this deficit that we've had for the last three years represents shadow demand. And I'm going to show you that this pent up demand, this shadow demand is going to come into the market and it's going to surprise everybody as rates come down. Look, if you as an investor are thinking that real estate, the whole game of real estate is buy low, sell high, you're missing out. Don't miss out income. Property is a multi dimensional asset class. You make money in lots of different ways and this has been around for decades. I did not make this up, but the ideal acronym represents income depreciation. In other words, tax benefits. Depreciation is the holy grail of tax benefits. Income property is the most tax favored asset class in the entire country. And it's the most historically proven asset class in the entire world for literally thousands of years. Okay. I did a little pet research project and I found out that in ancient Rome where they use the denarius as their currency rather than the US dollar, obviously the US did not exist yet, right. That the rent to income ratio was about the same as it is today. Isn't it interesting that if you earned a thousand denarius a month, you could afford a rent of about $330 a month. It's about the same as it is today. I mean it's. That just blew my mind when I discovered that. Anyway, equity growth, your mortgage gets paid down, appreciation in value and of course leverage. The most amazing thing of all, using debt as a financial tool to do a lot more than you could otherwise do. Now that's ideal. That's been around for a long time, right? A lot of old folks will tell you about the ideal acronym, but what I add to that is inflation induced debt destruction, which makes this just go into hyperspace, it's warp drive. Let's talk about inflation a little more because this is just so important. Like I hate to keep even saying that word so much, but it's just so important. It's like fish, okay? Fish live in water and they probably don't notice the water. I don't know, I haven't asked them, but they probably don't notice the water. But they live there. And everything in their world is generated out, you know, from that water. That environment they live in, that context they live in. We live in an environment of inflation and we've got to like plan our whole financial lives around that. So what is the strength of certain assets vis a vis inflation? Right. You know, which assets do well in an inflationary environment? Well, historically gold, you know, has always been the inflation hedge, right? The value of real estate tracks inflation very nicely. Usually beats it by a small margin, but nothing to write home about. But the big asset that everybody misses is the mortgage because you have inflation induced debt destruction. Okay? So these are very strong assets against inflation to keep up or beat inflation. Medium assets would be the income at your job. Hopefully you're getting, you know, if you have a regular job, you're getting cost of living increases. So your income, the rental income from your tenants of the properties you own. Hopefully you're raising the rent to keep up with inflation. The stock market, you know, keeps up with inflation pretty well. You know, look at the S and P. It'll usually beat inflation by a little bit, but it doesn't have the multidimensional benefits of real estate. Now which things really get hurt by inflation? They have low strength cash. That's terrible. Gets debased by inflation. Becomes less valuable as you hold it. Bonds, because bonds are really the opposite of a mortgage. A bond is just a loan. You're basically giving someone else a mortgage is what a bondholder is giving you, essentially. Right? So bonds perform very poorly versus inflation. Your pension income, very poor versus inflation. And then taxes. The IRS does not understand inflation very well. Sometimes that hurts you and in some ways it benefits you. It just depends, okay? Most Americans think real estate is the preferred long term asset. Now what's interesting on this chart? What did I leave out? Always ask yourself, what dog isn't barking? You can't hear the dogs that don't bark, right? What isn't he saying? What isn't the chart showing us? Cryptocurrency. We don't have any bitcoin in here, do we? I've got to add that. And listen, I own enough bitcoin, okay? Bitcoin has got such a short track record, okay? And listen, I believe in the story. I love the story of bitcoin. I would love to see a decentralized currency that is not controlled by some central banking entity that the government can't directly influence. I love it. It's a great idea. But who knows if it'll stand the test of time. It's only been about 15 years so far, so it's got a long way to go to catch up to any of these assets. I'm going to skip going into this in the interest of time because I got a lot of other stuff I want to cover. But I do want to say that a very important thing for you to do. When you look at this pro forma 21 years ago, really 22 years ago, almost. When I got into the business of helping investors buy real estate nationwide, one of the first really good decisions I made was standardizing my data. And I used this software starting, you know, almost 22 years ago. Basically it's called Property Tracker. I actually ended up buying the company about seven years ago because I just like the software so much. He used to charge for it. I made it free. You can get it for free. Just go to propertytracker.com, get a free account and you can run these performas so you know the numbers on your properties. Okay, this is totally free. Just go to PropertyTracker, get one of these accounts so you can analyze a deal. You don't have to be a detective. You've got a one page performer on every property and you're just much less likely to make any mistakes. Okay, I don't have time to go through the pro forma. Just go to Property Tracker and get that. It's really super easy to use. Now when we look at investments, when we were looking at that other chart, we've got to think, what choices do we have? Real estate is not perfect by any means. Nothing is perfect. But compared to what, what other options do we have? You know, we can do stocks, bonds, crypto, real estate, precious metals. You know, there's an endless supply of things we can invest in. But one of the things I love about real estate is that I can be a direct investor. We don't do any pooling of money. We don't have any syndications or any funds. We just simply help people buy properties that they own directly. Many years ago I created something, kind of a framework for some of my teachings called the Ten Commandments. And number three seems to be the one that has resonated with people the most. Thou shalt maintain control. And what that means is be a direct investor. If you invest in stocks, bonds, mutual funds, funds of any sort, syndications basically. If you invest your money in someone else's deal that is not your own deal, versus just buying a house and it's yours, and you run it and you manage it and you know what's going on. Okay? You leave yourself susceptible to three major problems. Number one, you might be investing with a crook. We all know the endless stories of Bernie Madoff, WorldCom, Global Crossing, Enron. They're just endless on Wall street, right? Scandal after scandal. And you'd lose money because they're a crook. Number two, assuming they're honest, you might be investing with an idiot. And they'll just make bad decisions and you can lose money because they're bad decisions. Okay? The number three problem is they take huge management fees off the top for managing the deal. So just be a direct investor, buy your own stuff, do your own thing. Nobody ever got rich investing in a syndication. A lot of people got rich by buying six or seven single family homes and renting them to other people. Okay, Lots of people did that. You, you all know those stories. Maybe you've done it yourself recently. This is top of news. This guy in Orange county, where I used to live. Marco Santarelli, he was just indicted and did a plea bargain pleading guilty to it. Bilking investors out of over $63 million. Some say it was a $90 million Ponzi scheme. You know, this is Narada Real Estate, Nerada Capital Management. So this is just a very current example of investing in someone else's deal, not being a direct investor, how you can lose money. What this guy was doing, well, what the government says he was doing, the SEC is suing them civilly and criminally. And he could get up to 20 years. But the sentencing doesn't happen till March. But what he was doing, they claim, is he was basically, he started this fund and the investments weren't working and he was paying out old investors out of new investor proceeds. That's a Ponzi scheme, okay, Invented by Charles Ponzi. And it is very dangerous. That's the same thing Bernie Madoff was doing. Same idea, right? So be a direct investor. Now let's compare a couple assets here, okay? Asset price inflation. This is the last 10 years. S&P 500 is the clear winner. A 195% gain in 10 years. That's phenomenal. Gold has really come back into people's mind. Gold has been this sleepy, boring asset for decades. And gold has gotten interesting lately. And over the last 10 years it returned 117%. And real estate, not as good. It's in third place. It only gets the bronze medal versus the gold and silver, right? The gold medal. The gold gets the silver medal, right? If we're at the Olympics, 93%. That sucks. Why wouldn't you just put your money all in the S and P? Well, that doesn't tell the whole story. Here's the real story. If you leveraged the real estate as most people do, this example $1 million real estate portfolio. In our world with empowered investor, you know, our typical property is about $300,000. So you buy like three properties and you'd have a million dollar portfolio value. You'd put down 20% and you take their number of the 93% appreciation over the last 10 years. That means you've got $930,000 in appreciation on a $200,000 investment. You've got a 465% return on investment. The folks that sell cryptocurrency and precious metals and stocks don't want you to think this way. They want you to think of real estate as this linear one dimensional thing. Pay cash for it, just like you do for gold or stocks. Or crypto and sit there and wait. Whereas with real estate, you're earning money in all sorts of different ways. Mainly you're leveraging it. Right? So that's. The real return on the. Real estate is far and away the winner. It beats the S and P by, you know, two and a half times, basically. So simple leverage. Example, million dollar portfolio, million down, 6% appreciation. And then after 3% inflation, you're only earning 3%. But if you leverage it, put 20% down, that's 27%. And this is with a 6% appreciation. Okay, only 6%. I have a Tesla. Okay, so what if you put it in ludicrous mode? That's not even really very ludicrous. During COVID real estate went up way more than 15%. Okay, but let's just do 15%. That makes your return 72%. Okay. Just from one of the six dimensions. Just leverage only not including any of the other things we talked about earlier. Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out this show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that you guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that and be sure to make it official and subscribe so so you do not miss any episodes. We look forward to seeing you on the next episode.