2446: Graham Stephan & Melody Wright | Debunking Doomers and Examining Rental Value with Michael Zuber

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My name is Jeremy. I'm a big supporter of Jason Hartman, uh, and grateful to Jason for a lot of what I've learned over the last 4 years. I can attest to him, uh, we've had some good success using the strategies, being a little more conservative on some of the decisions. So we've purchased a couple of properties through the Creating Wealth Network, through Jason's network. I feel like I owe a lot to Jason and the team for the education part.

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.

Alrighty folks, it's been a minute since we caught up with the legend Jason Hartman, but there's been a lot of stuff occurring over the last 21 days or so. We have the one and only Melody Wright, or might I say Melody Wrong, doubling down on her 50% housing crash. And we've got a friend of mine, friend of the channel, Graham Stephan, saying that making millions of dollars with rental properties is not worth it. I thought both of these topics might be fun for Jason to react to, and again, I will let him as the guest pick which one he wants to start with. Jason, you want to talk about with Melody Wrong or Graham Stephan?

Yeah, let's talk about Melody first, I guess. So I love how you call her Melody Wrong. Nice lady, I've interviewed her on my show. She swore to me on the show she was not a crash bro, but that does not appear to be true. She seems to be the ultimate crash bro, and Yeah, I mean, how can you double down? You know, Michael and I covered this, what, a couple, few months ago, maybe 3 months ago, I don't know, when she came out with this prediction that real estate prices were going to fall by 50%. They're going to be cut in half. And I cannot believe she doubled down on that. I did not know that until you mentioned it to me. That's crazy. I mean, where's the data to support that?

You know, just in the last week she's doubled down. What really annoys me I don't know. At this point, I'm not annoyed. At this point, I just have to chuckle. She, uh, she is known for her calls, and she gets invited to doomer channels, and nobody ever holds her accountable. Yeah, and I will give you receipts. 3 years ago, she called for a 5% housing crash and was wrong. Of course, the next year she can't go on without getting worse, and now she said a 9% housing crash. And folks, I have these videos. And then she went on Thoughtful Money and is a returning guest on that channel.

And is that Adam Taggart?

Yes, Taggart.

Oh yeah, he's been— he's been on my show a couple times, both he and Chris Martenson. Nice people, I like those guys, they're smart, but they're just wrong, wrong, wrong. I mean, Adam and Chris used to be partners, I believe, in a business, and I I had the Crash Course book out. I was looking at it just yesterday. It's back on the bookshelf. But that's Chris Martenson. You know, he's been predicting the end of the world since at least 2005 or '06 when I discovered him. He created a really nice product, a set of DVDs called The Crash Course. And then he's had, I think, two books with that title. And it's the same doom and gloom. They've all been wrong, wrong, wrong. They don't seem to understand the most basic law of economics. Supply and demand.

I mean, well, it's, it's that, it's that for sure. And, and especially in Melody Wong's case, she has the worst case of PTSD I've ever seen. She worked through and dealt with the public during the worst financial crash in history, and I'm sure that was hard. I'm sure that sucked. I'm sure she had lots of sleepless nights.

What did she do again? Was she doing loan workouts or something?

Loan mods?

Yeah, yeah, right.

Yeah, yeah. So she was dealing with the public, which had to be Horrific. I mean, you, you could not pay me to do that. You're obviously going to carry that for the rest of your life. It's not lost on me that she earned, right?

First of all, that was an outlier. That was an anomaly. That was the worst economy in 7 decades, okay, since the Great Depression.

They were preceded by the worst lending in history. It was that special combination.

Right, right. A lot of people don't understand this, so let's just go over this. The Great Recession 2007-2008 was actually not one thing, it was two things, okay? It was first a mortgage meltdown, which I predicted starting in 2003. I used to get in vociferous arguments with real estate agents. I was doing seminars in my Newport Beach office on San Joaquin Hills Road, right in the kind of front area, the front room. We had kind of a training room. We'd have maybe 60 people in there. They would come in, they would argue with me. I would show them the emails that I was receiving because I owned a mortgage business at the time, okay? I would show them the emails that said things like, you know, B of A is offering, you know, zero down loans, one day out of bankruptcy, one day out of foreclosure. They might as well have said one day out of prison. 550 FICO score, you didn't have to be very smart to know that that was going to lead to a lot of defaults and a lot of bad loans. And so I easily predicted there would be a mortgage crisis and there would be, you know, a massive increase in foreclosures. But what I didn't know, and I did not predict, is what Michael Burry figured out in The Big Short, the book and the movie, right, you know, based on that. And that was what Wall Street was doing behind the scenes. I didn't know any of that, so I was completely ignorant to that. I did not know that Wall Street— what I call Wall Street, the modern version of organized crime, okay? It's really, it's really the modern mafia, okay? And, and so Wall Street was taking the same mortgage and bundling it into maybe 33 different pools and selling it over and over and over again. And they were lying about the quality of that mortgage. You know, that was like the whole second wave of the crisis. I remember I was in Romania, in Bucharest, Romania, and I turned on my TV. I was staying at the Intercontinental Hotel there. It was very hot out. I came back to my room, you know, I felt like I had heat stroke, it was so hot. I turned on the news and there was a story about a big mortgage company in the Inland Empire, which is Southern California, like Riverside, San Bernardino, that went out of business. That was like the start of the mortgage meltdown.

IndyMac, I think, was the first one.

Well, it wasn't IndyMac. I mean, that was, you know, that was huge, but it was one before that, a pretty big one though. Okay. Uh, not a name that everybody would recognize, but it was still a pretty big player. And, and so it was the mortgage meltdown was phase one, and then phase two was the Wall Street. I didn't know about AIG. I didn't know about the toxic assets. All the new— yeah, all the new acronyms we learned. You know, collateralized debt obligations, you know, everything. So that I was unaware of.

Yeah, so again, uh, Melody Wong, in my opinion, has the largest case of PTSD. Everything will always be the next GFC. It always has to be the next GFC.

But then, guys, it's been, what, 17 years, Melody? Or no, it's been like 19 years. It's 19 years. Get over it. It's time to move on.

You know, you come into this world, you earn your stripes, and she's got them. And, and, you know, but, but the problem I have is that folks like Adam Taggart and other channels never hold her accountable. How can you be wrong for 3 or 4 years?

Taggart is a doomer, man. He just, he just wants to get the clicks and republish the doom. I mean, these guys are just— I respect Adam Taggart. I think he's a very smart guy, but he's just wrong, wrong, wrong. You know, like, I mean, folks, I don't know.

I don't know him at all. I don't know him. Yeah, yeah, yeah. So yeah, so again, at the end of the day, Melody Wong has come out and said a 50% housing crash is coming. This was after a 38%. She goes from 5% to 9% to 38% to now 50%.

Folks, you got to keep getting more sensational till you bury yourself, you know?

Yeah, well, yeah, there you go.

Well, let's switch over. Before we switch, let's talk about a common thing that these predictors of doom do. Okay, okay, sure. And It's, it's a practice called data dredging. Okay, Peter Schiff does this, Harry Dent does it. Harry Dent's been on my show like 12 times now. He's the ultimate doomer. And you know, I used to love Harry Dent when I discovered him around 1995 or 1996. He was like brilliant, you know, he, he really did predict a lot of waves of things that's happening. But since then, he's just become such a doomer. And what these people do, and Melody's doing it too, like Melody, I get her newsletters. Okay, they're so long. I mean, they're just too many words, okay? It's, it's like the movie Amadeus about Mozart, you know. Did you see that? Remember that movie?

4 hours. I— if you need intermission in a movie, I'm not going.

Well, well, remember there was a scene in that movie where Mozart played for some king or something. I can't remember it very well, but the ignorant king said, too many notes. So, so that's kind of true. I mean, Mozart was brilliant, okay? Melody Wrong is getting it wrong. But what she does is she's got this massive amount of text in her newsletters, just all this text and these titles that are sort of like— they don't really say what it's about, okay? And this practice of data dredging is when they just throw so much at the wall, right, that some of it's gonna stick. Okay, and they're gonna get to be able to say, well, I was right about that little thing, I was right about that little thing. Okay, and Peter Schiff does this, and he's, he's a brilliant guy, but he's just wrong all the time too. Okay, you know, you can be really smart and have good sound bites, but you can still be very wrong, and that's the dangerous thing. So let me give you another concept that's maybe related to data dredging. If anybody believes in psychics right? I believe it's certainly possible that people could be perceptive and have ESP, right? But here's the scam psychics do, okay? What they'll do— and this is kind of an old-fashioned scam that they, you know, they did decades ago, they still do it today though too— they, they can take and make a whole bunch of predictions, and then they go rent a whole bunch of safe deposit boxes, and they write the prediction, stick it in a safe deposit box. And everyone knows the bank keeps a log of whenever you enter your safe deposit box, so you have to sign a little card or, you know, enter a key code. And so they know if someone was in there or not, right?

Right.

And then they keep a log cataloging all of the safe deposit boxes with all the predictions. And then they'll say, oh, number 17 prediction at the box at this bank was right. So I'm going to call up a reporter from the media, and I'm going to have them come down there with me, and I'm going to open the box and show them that my prediction was right. But what you didn't see— you can't hear the dogs that don't bark— what you didn't see is all of the wrong predictions. And so that's really data dredging, right? It's you throw so much stuff at the wall some will stick. And I think Melody does that. I think Adam does it. I think Nick Gurley does it. It's like data diarrhea, right?

Yeah. And let's, let's give people some actionable information.

Yeah.

So again, if you are a consumer of—

the actionable information is don't fall for it.

Well, again, I'll give you something even more explicit. Again, if you, if you are watching their stuff, and clearly a lot of you are— I have analytics. I see who watches my stuff and their stuff. And there are a lot of you. And what I would ask you to do, just like you do to me, you all hold me accountable when I make a call and I'm wrong. Until these folks can admit and tell you why they've been wrong for 3 years in a row, stop watching them. They are just running a game. They are tapping into a vein of negativity. Negativity gets clicks. Clicks equal money, and money pays their rent. These people are not rich. These people are feeding off of you. They're feeding you poison and you're eating it. You're drinking poison and you don't even know it.

All right, you're doing is you're, you're consuming mental junk food. Okay, you're eating candy bars when you click on that crap, that doomer stuff that's just always wrong. You're eating candy bars all day. Stop doing that and pick a solid foundation and follow that. The fact is, the people who own assets win the game, okay? Own the assets. Don't be like those doomers that Michael's talking about, because you're just going to miss out again like they did. They, they missed out, and that's why misery loves company. They want to bring you down to their level.

Yeah, at the end of the day, folks, I think it's worse than candy bars. I literally think it's poison and it's killing you. It's giving you, you know, economic cancer. So just stop being stupid. Now again, I will admit that I learn a lot from being wrong. So if one of these doomers could actually articulate why they've been wrong and why the next time is going to be different, I actually might listen to that because maybe I can learn from that. But they won't do that. They will always say they're right. They're not. But let's move on. Let's switch gears, do a different topic. Friend of the channel Graham Stephan has come out and put out a video indicating that he made millions of dollars with rental properties, but it wasn't worth it. Don't know if you saw that video.

I did see it.

Yeah, I'm curious.

I didn't watch the video. I saw the thumbnail though, and I, I saw his newsletter article because I subscribed to his newsletter. So first of all, Graham bought properties in Los Angeles. What the hell are you doing buying in LA? Okay, I mean, you know, he had like a huge problem. I think it was building a fence or something like that, or repairing something. He had to get 99 permits. I mean, First of all, don't do business in landlord-unfriendly environments.

Toxic. I mean, it's like, it's like anti-landlord in LA County. Somebody gave me a home there, I'd sell it immediately.

I agree. Yeah, yeah, I agree, I agree. So that's the first lesson. And you know, he didn't— honestly, he didn't know what he was doing, okay? Not only because he invested in a landlord-unfriendly market, a toxic market, but also because he doesn't— he doesn't know the most basic thing of rent-to-value ratios. You know, and, and like, why would you buy a property in Los Angeles? That would never make sense. The only reason you could make sense out of an LA property is to, you know, get lucky and have some massive appreciation. Investing for appreciation is not investing. That's speculation. That is gambling. Michael and I are investors. We buy properties and help our people buy properties that make sense the day they buy them, folks. Never invest waiting for something extraordinary to happen. Appreciation is very unreliable. It's great when it happens, we all love it, of course, but it's not a strategy, okay? Cash flow is much more reliable than appreciation. And so that's what you want to be investing for. And that, that, those were Graham's mistakes.

Yeah, I mean, there's, there's a lot in his video because I did watch, watch it, you know. Obviously he admits step one is he just never raised rents, right? Again, he wasn't an operator. He bought it a wonderful—

he's a nice guy too.

Yeah, oh, he's absolutely a nice guy. But again, he didn't raise rents. He thought if he was a good landlord, any tenants would stay forever, and they have, right? So his thesis was correct. But unfortunately, this communist, you know, county of LA County implemented a very strict rent control. And frankly, every year that he didn't raise rents meant he was farther and farther behind. And ultimately, as he uncovered now, it hurt his value because his rental properties are not worth as much because the rents are so artificially low. So again, that is a big mistake. Second one, uh, he talked about, you know, stuff breaks. And, you know, he talked about, hey, I, you know, you can have these things for 8 years and nothing happens, and then all of a sudden the roof goes, the pipes burst, blah blah blah. And I'm like, well, that's kind of only half the story, because if you're doing this right, you've been reserving capital for 8 years, so you should have a big piggy bank to fund these things, because folks, I don't know whether you like it or not, but stuff's going to break and some expensive stuff's going to break. So you need to be setting across reserves every year. Now, on your tax return, you're going to have a negative year, but that's not going to come right off the top of rent. That should come from the capital account that you've been reserving for forever.

Yeah.

So again, I think there's something there as well.

Yeah, absolutely. You know, I think his, his one property, kind of like his first one that he talked about a lot on the show, was a much older property. So, you know, and that's Los Angeles. I mean, you know, it's an old city, so most of the properties are older. So, you know, you buy older houses, you gotta have reserves. You know, we perform a— for brand new houses, we perform a 2% maintenance budget on a brand new house. You know, you're probably not going to have any repairs or maintenance your first couple of years, hopefully. I mean, it'd be surprising if you did. You've got a builder warranty and everything. And then on the older houses, we perform a 5 to even 8%. Yeah, so you've got to have—

you'll be socking that away.

Yeah, yeah.

And, and that— and again, that was kind of missing from, from Graham's thing. And then the last thing, uh, I always want to admit when, when talking about Graham is he's a unicorn. He has created for himself a 7, if not 8-figure business. And frankly, anything including real estate that takes him away from his unique gift, his unique activity is frankly brain damage. I'm not here to tell you that real estate investing is passive. It's pretty passive, but it's not passive. You will have phone calls.

There's no such thing. Nothing is passive. Nothing.

Yeah, you, you will have crap to deal with. And for him, if you are a unicorn like Graham Stephan, I will admit you should never do real estate. Go hard at your uniquely gifted thing. And run that thing into the ground. So again, for Graham, because he is a unicorn, I agree it is not worth it for him. But for 99.9999% of people out there, real estate is the best way for most of us to get rich, to get wealthy. Most of us aren't Graham Stephan. I'm sorry, we are just not. Yep.

Yeah, no, I, I mean, I, I can understand that. If you— he has a business that is booming, he's making many millions of dollars, and He doesn't want to be distracted with small things, right? So you've got it, you've got to keep your eye on the ball and make sure you're doing something. Like if you're a real estate investor, right, it's got to be big enough to move the needle. You know, his little investments compared to his business, they don't even move the needle. Okay, you know, and also, you know, one more thing about that. I mean, he, like anybody, okay, has fallen into the trap of being sensational to get clicks. Okay, and so the title of that video automatically is going to get a lot of clicks. Oh, it's a doomer video, we should give up on real estate, real estate's not the thing. Yeah, I mean, that's another reason. I mean, let's be honest, okay, he's very good at what he does. I mean, oh, he's very good.

Not getting twisted, he's very good.

Yeah, no question, no question about it. He's a great guy.

Yeah, yeah. At the end of the day, folks, uh, Melody Rong, uh, has been calling for something I believe has PTSD And again, it's not just her, it's the whole collection of folks that interact with her. Stop watching their stuff. They are not trying to help you. They are trying to pay their rent. And then, of course, folks like Graham, if you are a unicorn like Graham and have an 8, a 7 or 8 figure business, by all means, go hard at your unique thing. But for most of us who are W-2 employees looking to save a little bit of money, create a little nest egg and grow that nest egg over time, real estate is the best way to get wealthy.

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