2454 FBF: Real Estate Wealth Formula with Dan Amerman

Welcome to this week's edition of Flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has handpicked to help you today in the present and propel you into the future. Enjoy. One way of looking at a mortgage is that it is a short against the dollar. It's as a liability, it's a short against the dollar, and it needs to be refreshed periodically, right? Otherwise it uses up its power. 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 Hartman 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 1649, 1649. We've got Dan Amerman back on the show today.. As you know, he's been on many, many times and always has some interesting new and innovative ways to look at things. And I think you'll enjoy this interview. We did about 41 minutes with Dan this time around. Really enjoyable. He's got a new book out on how people create wealth with their home. The only thing I want to say about that before we dive in is remember we did not go into the whole concept of rent-to-value ratios, RV ratios and how that impacts whether or not, uh, it makes sense to consider your home as an investment. There is more to it than we discuss here, but I didn't want to divert the conversation too much from his points. Just note that, you know, we didn't do like the comparison of having a high-end rental versus low-end properties that you rent to other people, and meaning the high-end rental you rent for yourself and so forth. So much going on in the world before we get to the interview. All of you know about the craziness with Texas, and I feel really bad. Our heart goes out to the people in Texas. Texas is very special because it has its own power grid. You may have heard of that. I remember reading that many, many years ago. A lot of it relies on clean, in quotes, or green, in quotes, energy, and that has failed. These windmills, these wind turbines just will not work in cold weather, and there wasn't much of a good contingency plan for them. So we have our own people in Texas affected by this. Of course, many of our investors have tenants there. Our podcast producer is there. One of our investment counselor team members is there, and it's absolutely crazy. So I saw an interesting meme— actually, Ashley shared this with me— and it is a picture of one of those giant windmills, wind turbines. And you know, if We've all seen these things from a distance, but have you ever been next to one? They are— they're ginormous. These things are huge, huge. The scale and size of them cannot be appreciated until you get up close to one because they are very, very large. Anyway, she shared with me this theme of a, uh, it's a picture of a helicopter flying over one of the blades of the wind turbines. And it's a, it's a tweet, and it says, a helicopter running on fossil fuel is spraying a chemical made from fossil fuels onto a wind turbine made with fossil fuels during an ice storm. Awesome. And, and that's just so ironic, isn't it? It's just total irony, uh, because When the environmental movement looks at the entire picture of the green energy, the, the clean energy movement, they seldom calculate all of the things into it, the entire ecosystem, the entire equation. And the deal is just not as good as it seems. I still believe, and I, I remember reading a book on this many, many years ago, I can't even remember the name of it, about a a, uh, the author, a woman who set out to write a book on how nuclear power was dangerous, it was bad, we shouldn't use it, uh, very anti-nuke. And she ended up writing— after researching it, she ended up writing a book about the complete opposite, how it was the safest, cleanest, most sustainable form of energy production. So again As I've said many times before over the years, that is one of the few things that France is doing right. Most of that country runs on nuclear power, and it is— that's been a very good move, and, and we should learn from that. Uh, it's absolutely crazy how things just, uh, just don't work out properly, uh, in the U.S. because of the media and PR and these crazy ideas that we get into our heads at a a sort of a cultural level, like this zeitgeist about how nuclear power is bad. And we'll take it from good old Jane Fonda's movie The China Syndrome back in, what, the '70s? And, you know, it's just— it's these new reactors are so much safer, so much cleaner, so much more modern. And all of these terrible predictions just never happened with nuclear power. The worst, of course, was in Ukraine. That was Chernobyl. Hopefully you all saw the series on Netflix. It was great, by the way. I think it was on Netflix, but whatever. Anyway, enough of that. So, uh, heart goes out to the people in, uh, in Texas, uh, and hopefully they'll get their power and water and everything back working again. But this also shows us that an individual level, we need to be prepared. And of course, I have another show on that The Holistic Survival Show, protecting the people, places, and profits you care about in uncertain times. So, uh, check that out, The Holistic Survival Show for more on that.

Welcome to this week's edition of Flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason Hartman has handpicked to help you today in the present and propel you into the future. Enjoy.

Sadly, you probably heard the news. Um, love them or hate them, okay, sadly, uh, conservative talk show host Rush Limbaugh passed away. And, um, the left is out with their evil, intolerant, awful— just some of the stuff that you read online, I, I can't even share it with you on the show, it's so bad. But here's a couple of examples. Uh, Mike Drucker tweeted, it's easy to make fun of Rush Limbaugh right now, but it's important to remember that he also brought a lot of— he brought a lot of people a lot of joy by dying. Yep, that's what we get with the tolerant people. Yes, they're so accepting and tolerant. And then here's another one. Billy Moe says, I don't want to say anything bad about Rush since he's gone, 'Only good. Russia's dead. Good.' Unbelievable. That's just pathetic. Uh, and here, here's another one called— with a handle, of course they use fake pictures, they don't have real names. This one is called This Girl, and she says, 'Hell just got a lot fuller.' That's the tolerant, accepting people on the left, folks, right there. And, uh, of course, Trump's impeachment defense attorney, uh, you know how his home was vandalized and in his driveway they spray-painted the word traitor. Just unbelievable. This is, this is the accepting, tolerant left. And, uh, if any of you are to the left side of the political aisle listening, which I'm sure you are, many people are, I, I have some left, left-wing views myself, uh, so, uh, you know, but is that the group you want to be associated with? Yeah, just really consider that. That's— it's just awful. It's really awful. Uh, so anyway, let's get into the show. We've got a good show from Dan Ammerman, and we've got a couple of exciting things coming up. Uh, we will announce for you next week. We'll just keep that all for next week. And oh, one thing though I do have to mention on Friday, you know, we do Flashback Fridays. Well, this Friday is a 10th episode show, so it's going to be kind of a double hitter, if you will. It'll be a 10th episode plus a flashback all in one. That's a very rare occurrence. So be sure to join us for that one. A very rare occurrence. All right, without further ado, let's get to Dan Amerman. It is my pleasure to welcome Dan Amerman back to the show. You've heard him on many times. You know, I have been a fan of his for many, many years, and he's out with a new book, The Homeowner Wealth Formula, subtitled The Best Investment Most People Will Make Is Their Home. Learn the historical formula that has created wealth for millions. Dan, welcome back.

Thank you, Jason. It's good to be here.

So this is a common discussion, right? Is your home an investment or is it an expense? And I have many of my own opinions about this, and I think it depends on the price of the home. But of course, with the mortgage being a big part of the asset, maybe we should ask the question: is the mortgage a good investment or a good asset? Or is it, as it's traditionally thought of, is it a liability?

It is a liability that can be arbitrage. But you're getting ahead to book number 3 in the series.

Well, you know me, Dan, I've been a student.

Yes, I know, I know. You just jump right ahead. You understand what's going on there. But I am really excited about this book, even though it appears to address some things that you and I have been talking about for many years. It's really very different too. After working with this for all these years, What I did was I took about a year and I intensively researched what's actually happened with single-family home prices in the US ever since 1975, which is when we start to get good data in terms of what they call pairs methodology, which is the same home. So you're tracking price changes for the same home instead of different regions or house sizes or different things like that.

Dan, before you go on, you know, that's an important point that you raise, and I'm about to do a video on the different indices. And you know, there— this is really something that people do not realize, is that the— when you look at one index versus another, they're really telling you different things. And so you're talking about tracking the same exact home, like 123 Elm Street did this, and, you know, 456 Main Street did that, right? Is that what you're saying?

Exactly. And the another big difference between the indexes that you hear about is it depends on what part of the country they are covering. The basis of what I used was the Freddie Mac House Price Index for all 50 states.

And is that, is that your favorite?

Yes, it is, because it covers all 50 states. Um, the media and Wall Street and so forth will more typically focus on the Case-Shiller, right, 20 Metropolitan Area Index.

I think that's a huge mistake. I've debunked that index many times because, yeah, you know us, we like, we like to look at the markets in 3 ways: linear markets, cyclical markets, and hybrid markets. And the Case-Shiller 20 only— well, not only, but 75% of that index is cyclical markets. You know, these are the high-flying sort of trophy metros that get all the attention, but they're really not most of the real estate in the country.

Absolutely. And where things get really interesting— I mean, this wasn't the track I was tending to go down, but there's some fascinating stuff here— is that, as you know, the metro areas, uh, you're calling them cyclical, have exaggerated price cycles, right, compared to the national average. So mathematically, what that means is that when you go to everything that's not the 20 metro, they're opposite enough where when we look at a national average, we're looking at the average of those two, but really they're much further away than that.

Yeah, right, right, I agree.

So when you put those together, you get a very different price difference, you get a different volatility in terms of how the prices have changed nationally. And my research is based on looking at all 50 states with Pears methodology. So it's the same house and looking at it for the period from 1975 to 2019.

Okay, good. What does it tell us?

Amazing things, just amazing. What I did was I took those years and I looked for every possible 1-year combination, 3-year combination, 5-year combination, 10-year. So I looked at, say, 1986 to 1987, and I looked at 2012 to 2019. 2007 to 2017, or 1999 to 2009. I looked at every single one of those in terms of national average home price changes, in terms of inflation, in terms of what mortgage rates were in each of the starting years and what amortization would have occurred over that period and so forth. And I could be wrong here, but to the best of my knowledge, I've just done the most exhaustive study that anyone's done on changes in home equity during that entire period. And the results have been just amazing. And of course, this applies for homeowners, but this also applies equally to investors in single-family homes.

Mm-hmm. And I would argue that it actually applies more so to investors because investors have the benefit of not paying their own mortgage debt, right?

Exactly. And that's a huge benefit. And of course, they have the benefit as well that they have an appreciating property and they have an amortizing mortgage where the mortgage is being amortized for them from the tenant rental payments.

Good stuff. Okay, well, let's get in the mud here and talk about what it tells us. What did you find in this exhaustive research?

Well, first, the results are amazingly positive. And I also confirmed that using an entirely different source, which is the kind of the definitive source of information when it comes to consumer finances, which is the Federal Reserve's, uh, once every 3-year Survey of Consumer Finances. And what they found was just amazing. If you look at it in practice, about half of the net worth of the average homeowner is in their home equity, and the amount of home equity they have is almost twice what is in the average retirement account. If you're looking at median values.

So that's really their savings. It's not their, their qualified plan. It's not their retirement account.

Exactly, exactly. And you know, you talk to some financial planners who have the greatest respect for, and home equity is kind of a problem for them.

Yeah, they, they dismiss it. I, I don't have the greatest respect for them.

The, the, the issue is that from a financial planning perspective Homeowners have way too much money in home equity. Well, they should, they should have that money out of home equity. And they're saying it should be in stocks and bonds and so forth. But the problem is that's not really intentional when it comes to home equity. It's just homeownership, whether it's a rental property or your own home, has been such a lucrative investment that it puts so much money in there that the rest of the portfolio can't keep up with.

Yeah, right, right, right. And so this is where we get into kind of a funny thing because, you know, I would say that it's great that they're building equity and that, you know, they're getting a— that means they're getting a good return on their, their property. But leaving the equity in there and letting it fall asleep and, and be dead equity is a bad idea. So that's where I'll kind of agree with the financial planners. And, and I think you, you know about my refi till you die plan. I, I just like to make sure people are making that equity work for them rather than sitting in there But I don't know, you're— we have our little slight differences. We mostly agree on this stuff, but I don't know.

I don't know. No, no, no, I totally track the mathematics and that's part of what I've been doing there. Uh, what you really have in the one way of looking at a mortgage is that it is a short against the dollar. Okay. It's as a liability, it's a short against the dollar and it needs to be refreshed periodically. Otherwise it uses up its power. It uses up most of the power in the first 10 years. So yeah, there's a strong case to be made, all else being equal, that if you're looking at this and you can do so as an investment in particular, but also with home ownership, that you wanna refresh that every now and then because then you get the maximum power back to play the liability arbitrage.

I agree, good.

Is how that works. But the other thing I found out This is true national averages. If you look at 3-year home ownership periods, all the way from 1975 to 1978, up to 2016 to 2019, and there's actually 42 individual home ownership periods in there, and you average those together, the national average is to almost double home equity in 3 years if you bought it with an 80% LTV mortgage. That's amazing. How else do you, how else do you have a national average across all those decades of almost doubling your money?

Yeah, it really is amazing. It's just such an incredible asset class because it's multi-dimensional, it's tax-favored, you know, you're shorting the dollar, which, which by the way, when you said that, I thought that was a great way to put it. I, I've heard that before. Is shorting the dollar wise? Because— and this is another rabbit hole we don't have to go down too long, but here's why I say that. I think it's wise, it's obvious that the dollar is being managed very irresponsibly. However, uh, they have been able to defy gravity much better than one would think if you're just doing the math. What I mean there is, of course, they're printing, they're spending, they're doing QE, their stimulus, you know, etc., etc. And you'd think there'd be like massive inflation by now. And yes, there is much more significant inflation than is being reported, but it's not as much as one would think. And I believe that's just because the US is in a very enviable position and can get away with it. But, uh, you know, is shorting the dollar wise? What do you think of those questions?

Well, okay, Jason, you just raised a whole series of issues that we could be talking about for the next 6 to 8 hours. Pretty easily. You're not necessarily really with— there's two different ways of looking at this. One of them is that you are looking at the inflation-driven destruction of the real value of the mortgage, but the historical look that I've taken at this shows a whole different way of looking at this that has been far more consistent when it comes to creating money. And that is you are really not just going short the liability, but more directly you're going long inflation. Mm-hmm. And I use some different data in the book as well, going back to 1940 and looking at US census data and so forth that doesn't have the Paris methodology, but it's still pretty accurate in broad strokes. And the average, or I should say the median value according to the 1940 US census for a home in the United States was about $2,900.

Okay.

And if you look at every decade after that, what is happening is on the one hand, yes, you could say, all right, the value of each dollar is falling. And that's a very steady process. But the other way of looking at that, and this is just a key part of chapters 2, 3, and 4 in the book, 'cause I think this needs to be more widely understood by homeowners and real estate investors. The falling value of the dollar is manifested much more directly by taking ever more dollars to buy everything.

Mm-hmm.

And as you know, there's a pretty good historical tie between single-family home prices and inflation.

Mm-hmm.

And that was part of what my research established as well, is it's actually overwhelming. If you look over the long-term, if you look at all these different periods, overwhelmingly inflation is far more important for determining home prices than changes in real market value. In fact, it's an exponential series. The formula, as I go through in the book, the formula for inflation, increase in the number of dollars it takes to buy everything, including homes, is identical to the formula for compound interest. A lot of people don't realize that.

Say that again. Let's make sure we got that.

Okay. The number one historically proven method for creating wealth over the in centuries, uh, when they're not artificially holding down interest rates like they are right now, is compound interest, right? It's your money working for you. Yes, it's your money working for you instead of you working for your money. And what a lot of people don't realize is that when we change our perspective on inflation from a decreasing value to the dollar to an increasing number of dollars being needed to buy everything Those are just two halves of the same thing, the inverse of each other, but they're representing the same thing. Inflation actually grows with the strength of the compound interest formula. So the compound interest formula says that a 7% interest rate will double your money in 10 years. Well, a 7% inflation rate will double the value of a home in 10 years. The math is identical, and inflation just completely overpowers real market value changes over time, which is— I realize a lot of real estate investors don't see the world in those terms. They think they're trying to make smart investments, and it's much better. It's much better to make a smart investment than a dumb investment, but really, changes in market value, real market value, are fairly minor.

Well, that means— and so of course, the mortgage being debased by inflation is a wonderful thing. The mortgage, the principal balance and the monthly payment both being debased by inflation— wonderful, wonderful. Um, and you know, real estate doesn't really go up in price that much over time. You know, it, it, it's somewhat close to the CPI. Some will say it outperforms the CPI by about 3%. Some will say it's about even. Is that what you're referring to when you say market value versus inflation? Because—

Yes, yes.

A lot of people listening, Dan, might think that, well, isn't inflation what's making the price of my real estate go up? Is there a distinction there you want us to make sure we understand?

Yes, there is, very much so. And it is kind of crucial to understanding, I would say, almost everything about where the money's really coming from when it comes to home ownership, when it comes to real estate investing. It's coming from some very different sources than I think most people realize. If we look at all 35, of the 10-year home ownership periods, starting from 1975 to 1985 and ending with 2009 to 2019, the average across all of that is in inflation-adjusted terms for a home to increase in value by 9.9%, call it 10%.

Mm-hmm.

Okay? Now, if we look at the increase in homeowner equity with an 80% LTV mortgage for all 35 of those 10-year combinations, the average increase in equity is 311%.

Wow.

So, if we compare our real increase in market value, which is 10%, to the total increase with the other 7 levels of the multiplication of wealth, that's what I did. I took a look at homeownership and I literally broke it out into an 80% 8-part multiplication formula, only 3% of the money is coming from the 5th level of the multiplication of wealth, which is real changes in home value. The other 97% is all inflation and the mortgage and various factors within that.

Isn't that amazing? That's just such an interesting asset class, uh, isn't it? Uh, okay, uh, tell us more. And I, I love that you said, yeah, we could spend 6 to 8 hours on that. Actually, Dan, We could spend 6 to 8 days on it, but—

Oh yes, we totally could. We totally could.

Yeah.

And it's not— just as an aside, it's not actually money printing. That's why they haven't seen the inflation yet. It's reserves-based monetary creation.

Okay, what's the distinction there? We need to know.

Um, Benjamin Bernanke in 2008 changed the nature of the U.S. dollar. Even though most people aren't really aware of this, the Federal Reserve went to a different way of creating money that was used to fund the rescue in 2008. It was used to fund the QE. Uh, right now it is being used to fund this enormous creation of money, this helicopter money that we have. And it's kind of interesting if you think about it, this is just a quick aside here. Virtually our entire economy and investment markets, this at this point are based on two radical ideas that Ben Bernanke was pushing. Back in the early 2000s. One of them is this idea, if we had a future crisis, of just using helicopter money and just showering huge sums of money down on the population to do it. The way they're doing that is— I put out a recent analysis, you may have seen it, Jason. If you look at it, even in inflation-adjusted terms, the US national debt went up more in a single year last year, in 2020, than it had in the first 208 years of the nation.

Wow.

That's not inflation, that's real dollars. And where are the real dollars coming from? The Federal Reserve isn't actually printing. They're doing a very complicated kind of shell game that lets them get access to dollars up to a certain point, a certain number of trillions, without triggering inflation.

So is this—

When they run through that, Then you're left with straight-up monetary creation, something like modern monetary theory. And at that point, then yeah, inflation would take off, and that would be tremendous for home investment.

Okay, so with, uh, with this method of increase— I mean, I don't know if my words are right— increasing the money supply but not creating inflation, is that a fair statement?

Yes, that's exactly what Bernanke came up with..

And does that work, or is it a game of smoke and mirrors? I mean, is it—

it's a shell game.

Yeah, I mean, it's a shell game.

Yeah, I mean, I've got, I've got a, I've got a 2-day workshop on this coming up in May.

Okay.

But, um, so it takes a good bit to explain it, I think, for the average person, although I can do that. I can get them there where they can understand that.

Yeah. But what is that? I went to your workshop back in, uh, 2007 or '08, I think it was. You probably know Dan, and it was fantastic. And many of our clients and listeners have have attended your stuff, so kudos to you. We, we really like your work.

Well, thank you. Thank you.

With what you just said, with what Bernanke came up with, is that something that can continue, or does it automatically have like an inherent expiration date on it because it's a shell game?

It's limited, and a lot of government programs are actually shell games. The funding for Social Security, for example. And the interesting part about the reserve space monetary creation that's creating the money that's keeping everything going right now is it has a lot in common with, uh, the real funding for Social Security. Uh, it's a very similar shell game that's going on, uh, in that essentially what they're doing is they are steadily draining the safety and reserves from the U.S. financial system and spending it today to bail out the economy and to keep the markets going and so forth and so on. But at the very same time, they're hollowing out the financial reserves of the country and of the banking system.

So Dan, that kind of begs a question. I mean, there's so many rabbit holes for us to go down, and of course we're limited on time, but you know, there's this whole thing that the millennials, you know, it's, it's kind of a viral meme that's going around called Hey Boomer, and the millennials are of course blaming their boomer parents for, you know, ruining the world for them. And you know, I don't think that's very fair because in a lot of ways the boomers You know, they had their contribution in building America. I mean, you know, they, you know, hey, look, Intel, Microsoft, you know, I mean, all of these, all of these big revolutions, you know, were boomer-driven. Now granted, the Greatest Generation before them sacrificed, you know, much more than the boomers. The boomers were much more hedonistic, and, you know, they did the drugs in the '60s, and they were the sort of Clinton-era people. Fair enough, but Is that a fair meme to, to say, hey, boomer, you know, like, in other words, you look what you left us with?

Uh, boomer is a, um, an unfortunate generalization.

Yeah, of course.

Like, there are younger boomers, there's middle boomers, there's older boomers.

Yeah.

And the role of the younger boomers, such as myself is to pay taxes for our entire lives, helping to support the Greatest Generation when they retired and the older boomers, and to some extent, the middle boomers, but we'll probably be the ones who get shafted when it comes to getting our money that's on the way.

Yeah.

So, you know, it's kind of an inter-boomer thing to some extent, where the older boomers are really benefiting from the younger boomers, but the younger boomers aren't gonna get what's coming to them. Yeah, but it's not like they're taking any— it's not like we are taking anything from the millennials, right?

And, and we know for sure though that just by virtue of inflation, and you could say that that's happening because of the irresponsible fiscal and monetary policies of boomers, there's going to be a wealth transfer to millennials, just in an inflationary wealth transfer, because, you know, the older people usually have assets and savings and the younger people usually have debts. So So that helps them whether they know it or not to some extent. So there's a consolation prize maybe. Yes.

Inflation is a traditional way of transferring wealth between generations. And it takes the wealth that's been accumulated by one generation and essentially wipes it out while transferring it to the younger generation if you happen to live in a time of high inflation. So yeah, that's a very distinct possibility. If you look at what's going on right now in terms of the monetary games that are being played in these fantastic increases in the national debt, is that unfortunately, by the time all is said and done, after having paid taxes for their entire working careers, when the time comes to cash in for many younger boomers, they may lose that to inflation unless they're prepared for it.

Yeah. Right.

And that's where things like, um, Income Property Investment, the Homeowner Wealth Formula, all those can work really well. And that was a key, that was a key part of the research I did is just how tremendously effective home ownership is, or owning a rental property with a mortgage, when it comes to not just surviving inflation, but really turning inflation into wealth. There has been just an amazing amount of wealth created over the years. Another statistic from the Federal Reserve Consumer Survey, the Federal Reserve Survey of Consumer Finances, is that if you compare the, uh, median net worth, uh, for homeowners to the median net worth for renters, there's a 40-to-1 differential.

That's, that's incredible.

Yeah, $40. And I would argue that it's exactly these things that we're talking about, exactly what I've determined in the book from my research The 8 Levels of the Multiplication of Wealth, most of which relate to taking advantage of inflation, whether people are doing it intentionally or they're doing it accidentally. And if you understand what you're doing there and you think, and you look at this, okay, the national debt just went up more in a single year than it had 208 years. This is not going to have a good ending. Well, homeownership or buying rental properties, if you understand how the underlying math is doing, and that's what my your research brought out, these 8 different levels of multiplication of wealth, it's a fantastically good way to come through times like that with more real net worth than you started with.

You know what I've been talking to people about lately? I've been talking to them about the economist, uh, Richard Cantillon and the Cantillon Effect, which I'm sure you're probably familiar with. The, the thesis is that, uh, the people closest to the money, uh, get enriched the most, right? And so of course those are all the Wall Street insiders, the folks Goldman Sachs. And, uh, I just have to throw that in. Yeah, intentionally. And, uh, and, and, and, you know, the politicians and the, the elites, of course, right? And this, this, the, you know, owning income properties with mortgages, with these incredibly cheap mortgages thanks to our, what I'll call our rich uncle Jerome Powell, okay, uh, is the way to become a cantillionaire like they are, right? Because we're aligning our interests with them. And philosophically, we all probably disagree with what they're doing, but like the old saying goes, never bet against the Fed. Uh, and so this, this puts us in alignment with, with what they're doing, and, and we become enriched by it, uh, as well, right?

Yeah, that's something I've been talking about for many years, um, at many workshops, many different materials on that. Is the advantages of, okay, if you're facing this terrible overpowering force that's doing all these unfair things in terms of forcing interest rates artificially low, taking huge risks with inflation, all this kind of stuff, you can get mad, you can get upset about it, or else you can say, you know what, I disagree, but I'm going to align myself with them. So as they serve their interests, as much as I may disagree with them, they're going to serve my interests too. And over time, if you look at how things historically work, people have made a lot more money aligning themselves with those forces than trying to fight against them.

They sure have. Very good point. Very good point. So Dan, then could we agree that the worse inflation gets, the, the better it is for people following this plan?

Absolutely.

And then absolutely take that one more step. Can we predict that inflation is going to be worse in the future than it has been in the past, given all the, you know, the spending and the, you know, stimulus and blah blah blah? You know, there's so much of it.

Yeah, you know, this is the time when I usually reach for my crystal ball, my crystal ball, but there's a problem with that, Jason. I always find out I don't have one. Yeah, okay, so we need to be careful about about saying that we know certainty. Uh, what we do know is that there are enormous financial pressures that are going on right now. We do know in terms of alignment, um, we have many centuries of information on what happens when governments get heavily indebted and the way they always choose to get out if they can do so is inflation.

Because it's a great business plan for them. That really is.

It's survival.

Yeah.

It's survival. They can't afford to really pay the money back. They'll never default unless they borrowed in someone else's money. That's why Argentina defaults, 'cause they borrowed in US dollars.

Right.

If it was pesos, they would never default. They would just create inflation. And that's the same thing for the US government too. If you wanna look at, the consistency is amazing. But if you want to look at why the dollar is only worth 5 cents compared to where it was when the US went off the gold standard for domestic purposes in 1933, that's why. As a matter of policy, they create inflation every year. One of the really interesting parts of what I develop in the book, I believe it's in chapter 5, is that I take a look at government interests and creating a 2% annual rate of inflation just as a minimum. And I show that how through home ownership that can be turned into a 10% annual gain.

With leverage, because that's the leverage in the mortgage, right?

Right. Yeah. This combination, 97% of the historical returns from homeownership or owning single-family homes over a 10-year period, looking at all these different 10-year combinations, is the other 7 layers of the multiplication of wealth that all revolve around inflation in the mortgage in different Combinations thereof. Yeah, it's real changes are only 3%.

It's truly amazing. The, the problem with all the historical references, Dan, are, are, are that, you know, when we look at Hungary, Argentina, you know, Zimbabwe, you know, whatever, right, all these examples, is that none of those countries had the position the U.S. enjoys— the reserve currency, the biggest military in the world, um, etc., etc. It's just such a different world nowadays. And, and I say that understanding completely that the famous last words of every investor are, "This time it's different." So, uh, you know, I just, I just wonder if they can just sort of continue to, as I say, defy gravity and, and not let the chickens come home to roost. Um, You know, this is, you know, when you look at the Peter Shifts out there who've been predicting the end of the world for so long and they're just never right, uh, at least not yet, um, you just wonder, you know, I mean, in, in this world we have to get other countries to keep buying our debt and financing the whole thing, and, and they're not going to do that if they believe we're debasing our currency too much. How does—

you know, we don't Yeah, you're— I'm sorry, I'm sorry.

You're thinking— no, how do you think this all plays out?

You're thinking old school there, Jason Hartman.

Yeah, okay, all right, fair enough.

We don't need other countries to buy our debt, okay? That's not what's happening right now, okay?

What do we need?

That's not how the, uh— we just funded, um, a $4.5 trillion deficit in the calendar year 2020, uh, that was primarily done through monetary creation in the part of the Fed. So this particular path that we're going down right now is historically unprecedented.

Sure.

Never seen anything like this. And it actually works internally. Now, you are absolutely correct that there is a scenario that happens. Let's say potentially—

Because I still think these countries are wondering, look, okay, even if we don't buy any more debt after today, We're still holding a bunch of it, you know, to the tune of like a trillion dollars. And is that going to be debased as they debase the dollar? They're still worried about that, right? Not, not as—

not to the extent you might think, because that debasement then, um, could potentially benefit them in terms of the balance of trade and so forth. But I think the real issue here that we're looking at is that so much of our standard of living is based upon other nations assigning value to the US dollar as a reserve currency. If we were to lose that, that would trigger a very high rate of inflation very quickly, because we simply can't pay for— we don't make enough to swap for what we take in from other countries. If you look, you've really got multiple different things going on here. We can look at the US being the reserve currency over a period of decades. And that's the entire period that I looked at, that I had the really good data for, 1975 to 2019. Uh, the US was the number one nation in the world economically that entire time. They were the superpower for that entire time, but we still had an enormous amount of inflation creating a great deal of wealth. For real estate investors as well as homeowners. And if we lose that, then probably we're going to even more inflation, which then creates even more wealth for real estate investors and homeowners, at least in that aspect of their life.

Yeah, maybe the other—

that aspect.

Yeah, yeah. I mean, their purchasing power declines, but they've got the, the magic asset that protects them from, from that. So as prices go up, it's like they, they look around and they go, wow, It's ridiculous what everything costs, but they're fine because they have the wealth effect of those properties and those mortgages.

As long as they have that. If they don't, they just get hurt worse and worse. And that goes back to that comparing the median net worth for homeowners and renters from the Federal Reserve Survey of the Nation's Consumer Finances. If inflation goes up, then that differential becomes a lot larger than just 40 to 1.

Yeah, it sure does. Well, Dan, what else do you want people to know? Just anything you want to share about this? The book is, uh, is excellent. And this is a series, right?

It is, it is. I'm going to be releasing number 2 probably within the next month or so. I cover the, the most important 4 levels of multiplication of wealth in book 1. Then I have the next 4 levels, so up to all 8. So we're up to all 8. By Book 2. And then in Book 3, I take a look at some of the, the best information of all, some of the best ways of building wealth, which is looking not at changes in home equity but looking at monthly cash flows.

Okay, wrap it up for us for this book, or, or even the future ones, whatever else you want us to know.

There is literally, based on my research, a historically proven methodology for building wealth that is the American homeownership experience. It's just amazing because what I have been studying is literally generations of people under widely different circumstances in terms of different parts of the nation, different interest rates, different inflation rates. And there's just this extraordinary consistency to the amount of wealth that is being created that is truly life-changing. Number one, there is— if you know anyone who's thinking about whether they can afford to buy a home or not, or whether they should make the life changes that would be necessary for them to do so, there is an extraordinary, historically proven formula here where homeowners build a lot more wealth over their lifetimes than people who aren't homeowners. It is a natural result of the process. And even after having worked with this for all these years, really putting all this national data together and seeing where the money comes from, first, there's more of it, and it's more consistent than I think most people have any idea. And second, it doesn't come from the places people think it does.

Mm-hmm.

It's the relationship, the multi-tiered relationship between inflation and the mortgage that has historically produced the vast majority of this highly reliable, over the decades, uh, form of building wealth.

Yeah, it sure has. And this didn't really work before 1971, did it? It all— that— it just all changed. And by the way, we're on the 50th anniversary year, right?

So, uh, it worked, it worked fantastic before 1971. It worked unbelievably well. In the 1940s and 1950s. It worked even better then than it has recently.

Really? Because I, you know, when I look at these price charts that go way back, uh, you know, further, and they go back into those decades, I don't see the type of radical price appreciation, which I know is not the point, but it's, it's, you know, it's correlated to inflation at least.

Oh, the key is which years you're looking at. If you're looking at things historically, if you're looking at long-term homeowner prices then what you're looking at is the year that the nature of money changed, which was 1933. That was the year FDR, in his first 3 days in office, did the bank holiday. He did the gold confiscation. He totally changed the nature of the dollar. That set in motion all these decades of inflation and also the financial repression that was associated with paying for World War II. So those were some amazing years. Now, if you go back further in time and you're looking at, say, the, uh, 1900s, 1910s, 1920s, when you had a gold-backed currency, did not have the reliable inflation, and it became much more of a crapshoot at that time in terms of whether you'd make money or not by owning a home.

It just seems as though when Nixon, you know, put the final nail in the coffin on gold, that's when it really started to become just frenzied, you know. I mean, that was like the start of it, you know. But you're saying even, even before that, back to, uh, Roosevelt, huh?

Oh yeah, I track it. And I have, I'm stuck with the 10-year census numbers at that point. It's a lot harder to get good information about it, but I do track it over those years. And probably the single best 10 years that we have seen in our lifetimes for investing in homes would have been 1971 to 1981, just because of the degree of inflation during that time. But there were some really good times in the 1940s, 1950s, early 1960s. That worked really well as well.

Interesting stuff. Dan Amerman, thank you so much for joining us. Give out your website.

DanielAmerman.com, and Amerman is spelled A-M-E-R-M-A-N.

Thanks for joining us, Dan. It's always great to have you on the show.

Thanks for having me, Jason. It's always good to talk with you.

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