Can Stocks Beat Income Property? Maybe...

Hello, friends.

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Yes. Hey everybody here with Jason. Jason is a multi talented individual. He is getting all the tech, the slides ready. We are extremely, extremely efficient and professional. And Jason is making sure the slides are just perfect because we want the presentation to be very educational and inspiring and motivating each of you. Yes.

So everybody, it has been been a while since we've been live on Sunday night and we're glad to be back with you. And Evan, thanks for joining me. Tell us what you want to talk about today. And you know, the title gives it away, but the question is, could the stock market ever beat income property?

Well, anything's possible, but it's highly unlikely. I mean, you know, I mean, as you know, as an economist, you always talk in probabilities and nothing is absolutely impossible. But given history and given the extraordinary advantages of income property, it's very unlikely. If you follow our strategy.

Especially it is the most historically proven asset class in the entire world. No question about that. So give us a little insight into this discussion as I kind of get these slides queued up for you, Evan.

Well, there's a couple of things, there's a couple reasons I thought we should talk about this today. First of all is we have seen so much attention to the stock market recently. You know, with the whole GameStop Reddit phenomenon that you've talked about on the.

Podcast Wall Street Bets. Yes.

Yeah. I mean, so that is, there's just a lot of attention. There's probably some serious change going on in the stock market. I mean, you've always said that Wall street is the legal version of organized crime or the modern, modern version.

Yes.

Yeah, but it's illegal too. I mean, so it's a modern legal version of organized crime. And the. Maybe that's going to change a little bit because it's always been an insider's game. That was another thing I learned from you is, I mean, I talked, I talked to a lot of our clients and they, they, a lot of them have invested in the stock market before and they're like, well, where's the money? You know, the market's gone up and I put in the max plus the matching and it still doesn't feel like very much. And that's true because it's the insiders who really profit, right?

Yeah, it is an insider's game, no question about it. And you know who's super famous in the hedge fund world now, or really ETF world, I guess I should say, is Cathie Wood with Ark Invest and she's making a lot of news. And it's interesting because I saw a video this afternoon about how someone really dressed her down and kind of showed the fallacies in her pitch and her track record before and the track record of her people at ark. Now, I'm not saying that's true or not, because I've been really interested in Cathie Wood's message, too. But the point is that no matter what happens, the fund manager always makes money. And not just a little bit of money, a lot of money, because of the way the game is structured.

So, you know, kind of like the syndicator, right?

Right. Syndicators and real estate deals. Same thing. Absolutely. But, you know, Evan, what's interesting about it is when the pitch. And this is particularly true of Cathie Wood and Ark, when the pitch is, look, these are big, mega disruptive innovations, right? They're big things that are going to change society, they're going to change the world, you know, the future technologies. And when it's those things, the pitch is that investors may have to wait a long time for their return. And as they're waiting, the fund manager just racks up profits and profits and profits and says, look, you know, these are big, giant disruptive innovations. Genomics, blockchain, you know, whatever it is, right? Autonomous vehicles. It takes a long time to get there before you see the profits in this stuff in biotech, whatever. And so that's sort of particularly an ARC thing that they can take advantage of, that they can really exploit. You know.

So, I mean, it is. I'm sure she's brilliant, and I'm sure she's, you know, I know she's gotten great returns for investors, but it's starting to feel a little bit like a mania with her, you know, within. With the ARK fund, when you start to see them everywhere after one year of huge performance, that. That raises my. Raises my concerns.

Yeah, yeah, absolutely. Well, good stuff. Let's go ahead and dive into this now that we are all ready. And, Evan, can you just tilt your monitor down a little bit? Yeah, yeah. Okay, good. So first off, if you need to reach us, Jason hartman.com or in the U.S. you can call us at 1-800-hartman and a funny little piece of trivia here, Evan. You're so informed on the news and you always follow every story. You're a voracious reader. But the famous Wall street bull, the sculptor who created this, just passed away. And what I was amazed to learn about this, it's just a little trivia here. Folks, before we get into the, the, the meat of today's topic, what I was amazed to learn is that this was originally a gag, a $350,000 prank. That's what this is, right? And, and so here's the story, okay. Intended as a joke, it became a cursedly serious thing, right? The artist behind the Wall street bull has died. And it says here that he sculpted the charging bull, right, the bronze statue in New York which became the iconic symbol of Wall Street. Okay. And he lived in New York, I guess for like 40 years. He moved back to Sicily, which is where he's from, and that's where he passed away. But what did I want to tell you here? This is the interesting thing. The artist reportedly spent $350,000 of his own money to create a three and a half ton bronze beast that came to symbolize the resilience of the US economy after the 1987 stock market crash. So he put it there, he got a crane and he just left it there. That's an amazing story. It really is.

Isn't there one in Shanghai too?

I do not know. I don't know.

I thought, I remember that that was like a big deal when in Shanghai they unveiled the charging bull in front of their stock exchange.

Well, you know, that's so interesting that you mentioned that because, you know, I did a presentation in Miami at the Fontainebleau Hotel just about two weeks ago now. And one of the questions I got after the presentation was, you know, sort of, I don't know the exact question from the audience, but the gentleman was asking about China and what were my thoughts for about the competition between the US And China. And I said that I was interestingly more concerned about China in the near term than the long term. And what I mean by that is, look, I think the next 10 years for China are probably going to be pretty impressive as have been the past 20 years. But after that, China has very, very serious demographic problems and also Democratic problems. I almost stumbled and said they've got both problems and the one child policy just worked very well in China and they are on the verge of a demographic cliff. And so I am not worried about or impressed with China in the long term. In the near term, yes, communism is pretty darn efficient. They're doing a lot of things tech wise that are pretty impressive, obviously the building, the construction. But there are a lot of cracks in the facade of the Chinese miracle. Okay, folks, so do not be too concerned.

You know, when I look at that, at that bull, it's such A great work of art. And I love the symbolism of sort of capitalism and creativity and, you know, what John Maynard Keynes called the animal spirits that animate capitalism. But what you. One of the things you've taught me is that Wall street isn't really capitalism. Wall street is crony capitalism. Real capitalism are the small business owners. That's where the competition is real. This, the idea is beautiful, but where it's placed doesn't really fit.

Right, right. You know, Wall street probably in the old days used to be capitalism, real capitalism, but in today's world. Yeah, you're absolutely right. It's just cronyism. It's really what's interesting, especially with the Biden administration. And I'm not, you know, I'm not like, getting all political here, so don't tune out. Okay. You know, what we're looking at is, is a version. And Obama was this way too. Trump less so. And, you know, in some ways, because he was so hated by the corporatocracy, by, you know, he just sort of went against everybody except the American worker and sort of his idea of America, which was more insular. And, you know, really, I mean, there's a lot of good reasons for Trumpism, and Trump was a, A very looking back on it, I guess, predictable reaction to what was going on. And it will be another pendulum swing back after the Biden. But what we have is we have this version of what I'll call so socio fascism. And we certainly had that under Obama, under the Obama regime. And you can see that already with Biden. Look at the way the corporatocracy is just infiltrated the cabinet, and not just the cabinet, but the, the czars and just everybody that these two administrations, Biden and Obama have connected with. So it's like a corporate takeover. At the same time, more movement toward the left side of the political spectrum, the socialist side. So socio fascism. That's what I'm calling it.

That makes sense. I like that. That's a very good term.

And speaking of that, Evan, California. Wow.

We love to pick on your home state. I'm not from there, so I, I don't have that.

Let me tell you, just when you thought it couldn't get any worse, you know, California is. Is. And the reason this. Look at some of you may be thinking, by the way, post your location in the comments and tell us where you're watching from. I know you're. You're on Facebook and YouTube. Just quickly, right. You know, what city are you in? Where are you located in The US around the world, whatever. But the reason California is so important is because, what is this, the fifth or sixth largest economy in the world. If it were a country, it would be part of the G7. Right. And it's a giant economy. It's the biggest state in the US it tends to be a trendsetter. Hopefully not in this case. California has so many new ideas right now in ways to tax people. Well, here's another one. So now they want to do an excise tax on property owners in California who are renting or leasing property. So if you are a landlord in California, here is another reason for you to immediately run, not walk. Well, run with your fingers, okay? Like this. Run, run, run, okay. To Jason hartman.com and reach out to us. Or let your fingers do the dialing as the old saying goes, to 1-800-hartman and talk with one of our investment counselors like Evan or, or any of the other team members. Because you need to do a 1031 tax deferred exchange and sell your California income properties and diversify those properties into other more landlord friendly, more business friendly states. This is not just a single hit here. Okay.

Here I was talking to an investor, I was talking to a client on Friday that has three or four single family rentals in California. They're cash flowing for him. He's done quite well with him, but he thinks the exact same thing.

Well, they're only cash flowing because he's got too much equity.

Yeah, well, I, of course I told him that, you know, you know I did, but. And he, you know, he's done well with them. They've appreciated nicely. But he realizes that he could get so much more cash flow if he sold those properties or 1031 them and got several in Memphis or Alabama, you know, and he probably. And he would be safer too. He'd be diversified because he's got his beautiful primary residence in California, which has done well for him. And then he can have these other rental properties in at least three different markets, but not more than five. And he can, he can do well with them.

Right, Right. And the reason Evan says that is because that's what we say, you know, diversify. Take the most historically proven asset class income property, but diversify geographically. So you should be in at least three markets, but not more than five. So thank you for bringing that up, Evan. So this, this, this is a double hit. Okay. So first off, you've got so many things California is trying to do now. Didn't succeed on everything in the last election, but Mark My words, folks, once it gets out there into the ethereum, it does not go away. That'll be back on the next ballot. They are going to end Prop 13, which means property taxes will go up in extraordinary ways. They will win on that. At some point. They have to. They're broke. California is a fiscal disaster. And then Joe Biden at the federal level wants to do away with the 1031 tax deferred exchange. So many of our clients, including yours truly, I am a client of my own company, I want you to know they are repositioning their Portfolios and doing 1031 exchanges in. In fear that it may be the last chance. If Biden takes away the 1031 tax deferred exchange now, he may not be able to pull that off. I'm not sure he will. But the threat is there. He is. He has very much said that he wants the 1031 tax deferred exchange to go away. And then you've got all of these other attacks that California is, is doing. So.

Just when you're talking, when you were saying that about California and what's happening there, and I was just thinking back to that charging bull artist, and this may be a stretch, but one of the things that, that, that artist, as you pointed out, was from Italy and he created this beautiful charging bull that captured the American spirit. You think back the Statue of Liberty that was made in France.

Right.

Maybe we need outsiders in some ways to remind us of who we are because we're losing touch with that. We're losing touch with that spirit. You know, think of all the fear around Covid and this kind of just not that we should. Not that we shouldn't take things seriously. Of course we should. And I'm a big fan of taking things seriously. But we sometimes we get so enamored in fear and we need some artists from outside. We need people to remind us of who we are. And that's part of what made that bull so powerful, that spirit.

That's. That's a great point. Yes, we do, you know, we do a lot of times need outsiders, non Americans. And you know what's a great example of that is the immigrants that come here and do really well for themselves, or at least they used to. Right. You know, it's not the same world anymore as it was 50, 70 years ago. But these amazing stories you heard of like, you know, Japanese people who, During World War II, Sakioka comes to mind in Southern California, you know, this penniless immigrant who became this huge landowner right near where I used to live in office and in Southern California, in Orange County, California, and you know, own the land that one of the most famous malls in the country is sitting on, South Coast Plaza. So yeah, amazing stories like that. And it really kind of can be a grounding thing and keep us in touch with the incredible value that others place on the American dream that we have to be reminded of. Right. Because you tend to take it for granted if it's handed to you. Right. So good stuff. Evan, it's your turn. Take over and tell us about some of the stuff you put together here. It's on the screen.

Well, it was all. There was an article I read in. In was it. It was Bloomberg and it was by a really top notch economist at George Mason University. And he was comparing the returns of the stock market to real estate. And this was a guy who's, you know, probably as standard an economist as you could find. Not, not somebody that's associated with left or right. And he said over 120 years, real estate has outperformed the stock market and with less risk. You know, because there's all kinds of measurements for, for the risk of a portfolio with less risk. And the most amazing thing, he wasn't even taking into account leverage. He was assuming that if he. I think the data went back to 1880 and you know, that the data going back to 1880 is not perfect. Okay. You know, especially the stock market data, real estate prices are probably even better.

And guess what though, it's not perfect today either.

No.

Because it's so highly manipulated. So that's what we're here for, is to help you see through that manipulation and interpret it accurately. But go ahead.

Yeah, but if you held on, if you bought a house in 1980 or 1880 and you bought a stock or the s and P500 in 1880, I think the overall returns were 6.2% for the stock market and 6.7% for the house. And that's assuming you paid cash for the house. And so imagine if you put down 20% for the house, the returns would be times five. Right. You know, 20 times five is 100%.

So maybe because leverage, because leverage magnifies that return dramatically.

That's right. And so, and I was just blown away by that. Not that I needed any convincing, but it was really good data and really good history. And so I was asking myself, and we've talked about this, I was asking myself, why, why is this? Because, you know, when you, when you work with, with one of our investment counselors, we're, we don't just try to, to sell you. I mean, you know, part, that's part of it. But we're educators. Jason is an educator. I always say Jason is extraordinary teacher. And it's like, it's like you get a high level class just by listening to the podcast. Probably much more useful than you'd learn in college. And so you should understand why real estate works so well, because that's important. Because then you understand what to look for in investment, how to compare, you know, income, property with other investments. One of the things that you often say, Jason, is sometimes you don't actually see the performance and, but you do see it at tax time. And I say yay, yay for that because I was just working on my taxes and I see the cash flow from real estate and I see how depreciation and expenses knock it down. But anyways, so there are at least seven reasons why real estate will always beat stocks. Always.

Good, good stuff. Okay, so we're going to get to those seven reasons here. But tell us a little bit about this chart for example.

Oh, well, this chart's great because it shows you how much risk there is in the stock market. I mean look at these swings. Look at this. 86% in the Great Depression, the stock that, that's, that's the, the, the, the, the, the, the from peak to trowel.

So from peak to trough, you've got an 86% swing because this is September 3rd of 1929 through July 8th, 1932. That's a 34 month duration. Now Evan, we just got to put this in perspective, of course, because we're talking about the Great Depression, right? That was, you know, most people would consider the worst time in U.S. economic history. And if you had mentioned the Great Depression say before, night before the year 2000, 21 years ago, people would have thought, ah, you know, dismiss that. He's out of his mind. Like what's he talking about? Who cares? But now that we saw the dot com bubble, we saw the, the 2007, 2008, you know, global financial crisis or the great, the Great Recession, not Depression, recession. And now with COVID we know that we are on the verge of something, right? You know, they have papered over it quite literally by running the printing press and it has buoyed so much of the market, but it has created this massive cantillion effect because all of the people who already own assets have become so enriched. They've been able to refi their houses, they've been able to refi their apartment complexes. They've been able to refi their rental properties. They've been able to refi their commercial buildings and lower those mortgage rates. I mean, you know what I was thinking about today, Jason?

You're saying they. You should be saying you. Because if people had listened to what you were saying, I was just a quick aside. If you listen to the Flashback Friday episodes, which I do, there was a recent episode which was from 2012, and I was listening to it and I was thinking to myself, and I was swimming at the time, so I was really, I was like nodding my head in the water as I'm swimming.

I'm like, evan has waterproof earbuds.

If, if someone had followed what you had said in that podcast in 2012, they'd be in Hawaii right now sitting on the beach because they wouldn't have to work anymore. They wouldn't. I mean, literally, it was like, buy some houses and take out loans if you can. And you were talking about Indianapolis, where you could get 2% or 2% RV ratios. I mean, if someone had listened and done exactly that back then, my goodness, you know, it's amazing you would have been following this strategy all along.

You know, one of our clients today was talking about how, you know, she listened to an old podcast. And I don't, I don't think it's the same one you're talking about, but where I was talking about properties in Charlotte, North Carolina, and in Indianapolis, where both two markets were still recommending for $45 a square foot. Basically like one and two year old homes. They weren't brand new, but they were one and two years old. Right. So you can't even come close to that today. Right. But here's the thing. And now and then she was saying to me, well, you know, everything seems so expensive right now. And I will tell you exactly what I said because it's here on my phone. Let me find it. I think this was a text message actually reiterated. I said, it always feels that way. Then people look in the rear view mirror after some time has passed and everything looks cheap. And that's, you know, that's just always the way it is with income property. You know, it's the reluctant investors lament. That great poem that I've shared often. So, so that's so true.

Yeah. And the other thing is.

Hang on one second. I just want to say on this comparison to the Great Depression, right, Because that's where the chart starts. People would have said, you're crazy. Let's not even Talk about that. It's ridiculous. But now we've seen that the economy is very delicate. Right. And if they had not pumped that money into the market, the question is, what would in all fairness, real estate be doing right now? Not as well as it is. Okay. For sure. The stock market definitely would have collapsed. There's no question about that. Because it did collapse. And then, you know, Jerome Powell, our rich uncle Powell just papered over it. Right. And. And the Fed became the biggest asset buyer in the world. Go ahead, Evan.

Well, yeah, I mean, to go back to what you were saying about the reluctant investors. Lament. We shouldn't lament either. I like to tell these stories just to prove that what you're saying is so good. Yes, it would have been wonderful to buy in 2012, but it's still wonderful to buy now. I was thinking my best performing stock because I invest in the stock market too much more in real estate, but I do some just to diversify. And I bought some Apple stock about six years ago. And. And I was thinking, man, I'm late. It's already gone up so much. Well, it's done really well over the last six years, so you don't have to get in at the absolute bottom. These are durable assets. But one thing that was noting about this, Since World War II, the two worst recessions have both been since the year 2000, we are in a much more volatile market. In the stock market today, it's much more. Computers can trade me look, you know, 59% 2007, 2009, 49% 2000, 2002. We are in a time when markets can go up and down real quickly. And what is that old saying in the stock market? They take the escalator up and the window down.

In other words, they jump out the window going down. Right? Yeah.

That's why one of the things we're going to talk about later is one of the advantages of real estate is its relative illiquidity. It's not totally illiquid. You can sell, but it takes a while to sell and it's a long process to sell. So that is actually an advantage. The fact that it moves slowly is an advantage because you don't have those huge price swings, especially in the markets we invest in.

Yeah. Now let me get my screen back here, Evan. Sorry about that. Don't you love it when this stuff just kind of freaks out on you?

Well, it gives me a chance to look at the comments. Now, someone in the comments was saying, Jason, your houses have hardly 4% return I, I, I, I don't know a polite way of saying this, but that's totally wrong.

That is totally wrong. You need to look at the overall return on investment, and Evan alluded to that earlier. And by the way, I'm multitasking your folks, so I apologize. But in the same, it's like an iceberg. That's how you need to look at it, like an iceberg. Okay. And that iceberg is, is, you know, most of it is under the water. Of course, we all know the iceberg metaphor. And since most of it is under the water, that's how the returns are on your income properties. Evan said, you know, you don't see all that return until tax time, but you also don't see it until you sell it, et cetera, et cetera. It's a multi dimensional asset class and there are many ways in which we earn our return on investment.

You should only sell it after 27 and a half years if you ever sell it.

Yeah, maybe, you know, but, but the point is that it's not just about the cash on cash return or the cat. And it's definitely not about the cap rate. That's one of the worst metrics out there. I know it is commonly used in commercial real estate because their financing isn't very good and their income doesn't increase that quickly like it does with residential properties. So not as good an asset. Okay, I found it getting back here, folks. Okay, I'm going back to that same slide. Evan, any other questions or.

No, but that illiquidity, that illiquidity premium is a good one. You know, the stocks move very quickly. Real estate moves relatively slowly. However, one of the good things about real estate is actually it is becoming more liquid as technology develops. And, you know, that actually is good. It will actually, I mean, it may not be good in the long, long term, but it's good for people who own property right now because, because it gives you more ways to exit a property.

The market is definitely maturing and there are a lot more, there are a lot more things out there that are available to, to liquidate assets and so forth. But in fairness, the more liquid a market is, the more volatile it becomes. Okay. And that's one of the reasons that real estate is less volatile, because it's less liquid. Okay. You know, it, people sell slowly. The market moves much more slowly. You know, stocks very liquid, so very volatile. Okay. Okay. You want to look at any other comments or questions?

Well, no, I just, I think this is a, this is a good, this is a good chart to remember how volatile the stock market can be and how, you know, with. With income property, you get both higher returns in the long run and, and you get less volatility. So it's. It makes it an even better asset.

Okay, so let's go to this one.

Oh, well, this is very. The reason I pulled out this chart is this, is this. This was from an article where the author, who was a professor, not. Not Robert Shiller, but someone who I think teaches with Shiller, and he was saying, is the real estate market overvalued right now? And he was actually going back to say, was it overvalued in 2008? And he actually made the argument that it might have been temporarily, for a brief period of time, overvalued in 2008. But he essentially is saying this time it's different, which I guess is a dangerous thing to hear. But he said that real estate prices are going to be higher for the future for a few reasons. First, because of lower interest rates. He basically says we're in a time where interest rates are going to stay low for a long time.

And.

And he also said essentially, while the United States has plenty of land still to develop, a lot of the really good land, good locations have been developed, and so there are less. You know, you mentioned the Japanese immigrant who bought all the land. And, you know, a lot of that is in prime real estate that you really can't recreate land like that anymore. You can't build another Las Vegas. A lot of that is sort of already priced in. So he essentially is saying, you know, we are. We over the last 20 years, we've sort of been in a repriced era of real estate that is just more valuable. And so we're really not in a bubble at all, which you have argued before for slightly different reasons than this author argues. But you're set. What you've essentially said have said is. No. That the value drivers are there.

Yeah, no, I am. You know, here's another one I got for you. I got to tell you. So I saw a comment today on one of my feeds that, you know, someone liked my stuff, they liked my education, all this kind of stuff. But they said I was talking my book, right? Because I'm bullish. I'm bullish on real estate prices. And I said, basically my answer was, you are totally misinformed. We have buyers coming out of our ears right now. Buyers are a dime a dozen. Everybody wants to buy. Okay, If I wanted to talk my book, if I was doing that. Okay, I would be saying. I would be lying. I mean, I don't believe this, but this is what I'd be saying. If I was talking my book, I would say, sell, sell, sell. Properties are going to decline and the reason you should sell. And I'd make up all these reasons.

And then we'd buy them all.

And then. No, not. Well, not that I'd buy them all. Sure, I'd buy some of them. Right. But we'd have more inventory. Yeah, we don't have any inventory, folks. There's like so little inventory. And look at one of our comments from Rated here, I'll put it on the screen. Okay. Austin, Texas, got two duplexes last year, two months apart, looking to buy another. And it's damn near impossible right now. There's nothing. He says in capital letters, I did not buy in Austin. I did not buy in Austin, elsewhere in Texas. So, you know, there's no secret that inventory is incredibly scarce. If I was talking my book, I would be trying to talk people into selling, not buying. Yeah, I don't have to talk anybody into buying.

And let me, I mean, you know, obviously working for you, you know, I'm not unbiased, but I would say you are extremely honest. And if, if you were in it just to make money, you'd create a syndication and people would sign up for it and you could make a lot more money doing that.

I'd make way more money doing that.

But you, you don't believe in that. You believe in this because of the fundamentals. It has nothing to do with how much money. You know, I would be suspicious if someone wasn't talking their book. I want people to believe in what they're doing because, you know, if someone isn't invested in what they're trying to sell, that makes me more suspicious than someone who is really passionate about what they sell.

Yeah, of course. And when you say doing this, you know, basically we help people directly invest. We believe in direct investment. You know, my commandment number three is thou shalt maintain control, meaning that you are a direct investor. You buy the. You pick the property. You buy the property, you own the property. It's your property. Property, you can decide what to do with it, how much to rent it for, when to refinance it, how to finance it in the first place, when to sell it, you know, when to improve it or not, whatever. Right. It's you. You are a direct investor. And that's the way people get really, really rich. The way the way others get rich is off Other people is they start a fund and then they collect money like Cathie Wood. Okay, yeah, go ahead.

And somebody wrote in this overvalued market, I don't think hoping prices to increase is wise. I don't think it's an overvalued market at all. I think in some ways I think it's an undervalued market and I think we're gonna.

It's not overvalued yet. It will be at some point, but.

Of course it always. That's capitalism. It always overshoots.

I'm looking for that comment. I want to put it on the screen. Oh, here it is. Here it is. It's the last comment. Okay. This overvalued market, I don't think hoping prices increases wise. Yeah. It's just I, I don't know why people think it's overvalued. Housing is from a mortgage payment perspective, your mortgage payment today, it, well, look it, I don't want to say something. As of four months ago. As of four months ago, your mortgage payment four months ago. And it's a, it's about the same today. It's not that much different. Is cheaper than it was 14 years ago. Okay. When you look at it from a mortgage payment perspective, which is how everybody buys a house, nobody buys it on the cash price. They buy it on a mortgage payment perspective. Houses are cheaper adjusted for interest rates, inflation and current prices. Okay. I think people think it's overvalued.

I think, Jason, I mean, I think people think because real estate prices have risen so much this past year that they're overvalued because they're only looking at the price.

They're not looking at the monthly payment. They're not adjusting for inflation.

Right. And Covid, I mean, you know, that has been good. It's been good in some ways because people realize the value of a home. I mean, I'm sitting in my new home office here. But the, the other thing is, imagine how many people didn't want to put their home on the market because they were afraid of people coming into their house with COVID and masks and everything. And that once the, you know, the economy returns to normal, there's going to be even more price increases and more demand.

Right, right, right. Okay, a follow up here. This is a good question. A ramis. Okay, so you are correct. Yes. Property taxes are higher because those are indexed to the price of the house. Other expenses. I don't know. I mean, insurance may be a little bit higher, but it's not hugely Significant, but those things also have to be indexed to inflation. Remember, we must deal in a world of real dollars, not nominal dollars. Okay, Let me show you something, Evan. I don't know if I've shown you these before, and I'm going to show them to everybody. One of my podcast listeners, longtime listener to the Creating wealth show, many years ago, sent me a gift, and I just found them again. I was looking for them, and here's what he sent me. He sent me these beautiful Zimbabwe dollars. Okay?

Yeah, you showed that to me.

You saw these? Okay? So these, you'll look at these. These are Zimbabwe dollars. Here is a 50 trillion dollar bill. Okay? That's 50 trillion Zimbabwe dollars. And here, Evan, if you need to buy a coffee, I'll give you a 20 trillion dollar bill. That'll get you a latte. Okay? And Here is a 100 trillion dollar bill, okay? 100 trillion Zimbabwe dollars. And look at the Zimbabwe dollar used to be worth something before they debased the currency, before they inflated away the value of it. All, right? So we have to adjust everything for inflation. So we're talking about real dollars, not nominal dollars. So what do I mean by that? Nominal? The definition of the word nominal means. I mean, look it up. It means in name only. That's nominal. If you know, if this were a $100 bill and I asked you, what is it? You'd say it's a hundred dollar bill, right? If. Just assume it was a US Dollar, right? Same thing with Zimbabwe dollars. Doesn't matter. Right? And if I asked you that, that's the name of it today. And guess what? The name of it was 50 years ago was still called $100 bill, but the value of it is lower today. So you have to adjust the monthly mortgage payment for interest rates, current prices, which are higher. Current prices are higher. Okay? But then you have to index the prices to inflation, and they're not as high as you think they are. Okay? And then you have to index the price. Property taxes, the insurance, everything has to be. So you're considering it in real dollars. And guess what else has gone up? The rent has gone up in both nominal and real dollars. So we got to think in real dollars, not nominal dollars. Okay? Okay, Evan, thoughts?

No. 100% agree. And that's the beautiful thing. And one thing that you. That you've always taught is rents don't move as fast as prices, but they eventually catch up, right? And so I've started to see that, you know, in Memphis, which is one of our great markets, and I Wish we had more inventory there right now, but you know, prices have been going up in Memphis the last three years. Really? It's nice. Appreciation. And I own some properties there and.

I've grown up pretty much everywhere.

Yeah, without question. So. Yeah, we have a great student here, Anthony. He's, he's really, he's answering the questions before we can. Thank you, Anthony.

Thanks for your answer. That's a good answer.

Yeah, that's right.

Oh, hey, wait, Anthony made another comment here. And besides, appreciation is simply icing on the cake. I never count on appreciation to make my properties pencil out. I invest in cash flow and sometimes value add. Anthony. Yeah, absolutely. Here, let's give Anthony a hand. Okay. Very good. Good stuff. Okay. All right, let's move on. Evan. So anything else you want to say on this chart?

No, it's a good chart. Okay, good chart.

Okay, so here you go. Yeah.

This is what I was talking about earlier. This is that, that, that study. I was. Equities average. I was wrong. I said 6.2 and 6.7. It was 6.7 equities. This is a. Since 1880, equities average a 6.7 return per annum. And housing 6.9% for the US alone. Equities return 8.5%. Housing 6.1%. The latter figure being lower but, but still quite respectable. The standard deviation of housing returns, one measure of risks is less than half of that for equities, whether for cross country debt or for the US alone. So it's less risky. And the 6.1 and 8.5%, remember, that's not including leverage. That's assuming you pay all cash.

Yes, thank you. Absolutely. Wait, wait, wait, wait. That's, that's assuming no leverage. It's all cash for the equities. You're not leveraging them for the real estate. Hopefully you are. Yes, absolutely. That was actually the wrong sound effect. Okay, here's what I wanted to do.

Just. Yeah, so, I mean, just so for, for the very basic. For those of you, imagine you have a hundred thousand dollar house and let's say it goes up 6.1%. So you have 100, 6100. But if you only paid, if you took out an 80% loan, you only paid 20, $20,000. So you got a $6,100 return on $20,000, not on $100,000. That's why it's so much better.

Absolutely. The leverage. The leverage makes it. For phenomenal.

Debt is your favorite four letter word.

Debt is my favorite four letter word. Exactly. And, and you know, but good debt, mortgage debt, good quality, long term, fixed rate mortgage debt that is paid by somebody else. See, people remember this phrase, write it down. When we use debt on income property, it is self liquidating debt. Self liquidating debt, okay? The debt liquidates itself, it pays itself. The tenants, we outsource the repayment obligation to the tenants. We don't pay our own debts. I don't like debts when I have to repay them myself, but I like it when someone else pays them. You can delegate, you can outsource the debt obligation to the tenant. So.

And not only, not only are the returns better with real estate and you know, we're numbers people, we love returns, but there is also just a general comfort level. I mean, especially now when you see the stock market and you see how something that is at 10 can go up into the three hundreds and then back down to 40. You know, it's almost like you can get, you can get crazy watching the stock market. I'd rather, as you said, a slow, steady ship, good income, property in good cash flowing markets, giving me a check every month that I can rely on. I don't even have to think much about it. I can turn off the tv, turn off the noise and just enjoy my good returns. That's, you know, especially as you get older, that just becomes even more valuable, that peace of mind.

It's a lot easier. Definitely is. So Anthony says, tell them about inflation induced debt destruction. Thank you for the reminder. So I like this big phrase so much, I trademarked it years ago. And so inflation induced debt destruction, inflation pays our debts back for us too. Okay, And Anthony, thank you for the reminder on that. We don't have time to go into that today because it's a whole topic for like a whole show. But of course it's on the podcast, it's on the YouTube channel and you can learn about.

Did you trademark that term?

I did, yeah. Yep. It's a registered trademark, so. But that will not stop sleazy operators from stealing my ideas. They're out there. And, and he knows who he is. He might be listening. He's a thief. I. I have a thief. At least one out there.

At least one.

Well, actually, no, I know I got another one. You know, I was listening to this woman the other day and I was thinking, you sound just like me. You're saying everything I say, the home is the center of the universe. The, that, this, that, like I was.

Like, I'll never forget when that person. I'll never forget when that person copied the Whole sofa summit idea. Because I remember you saying that term and said sofa some. I said, that is really brilliant.

Yeah.

And then literally three weeks later I got an email from, well, you know.

Ideas, ideas float around, there's no question about that. I mean, look, you know, I learned from someone else back in the 80s, okay. A long time ago. Right. You know, so we all learn from other people. Okay? But when you just don't have any original ideas and you're just like copying people ad nauseam, it's just, it's just pathetic. Okay, so you talked about leverage. Anything else in leverage?

Yeah, well, I mean, it's the greatest thing. I mean, it just allows you to do so much more. And you know, leverage can be dangerous too, of course, in the short term. But you know, one of the things that I think is there are certain underlying assumptions for, for our investment and in fact for any investment. And one of the big underlying assumptions is over time prices will rise. What is that, the Phillips Curve? And the fact that there's an increase in population, there are certain base assumptions that in the aggregate, long term, now it hasn't been true in Japan for the last 30 years, but in the long term, prices will rise. And so when you use prudent leverage, over 30 years, you're going to do well. And I remember reading that really, over every 10 year period, real estate has risen, on average, has risen in price. So, you know, leverage just gives you, it magnifies those returns. But as you always say, Jason, you have to be able to get through the difficult times. There may be a two, two year, three year period where prices go down and if you're over levered and you have no reserves, you're going to be in trouble. That's why we teach our investors to have reserves.

Right?

But in the big picture, leverage is.

So we teach them to have reserves. Yes, but not just that. You buy properties that make sense from day one. Commandment number five is thou shalt not gamble. The property must make sense from day one or you don't buy it. The reason people get into trouble with leverage is because they buy a property that just never made sense. They were speculating on appreciation. You know, it's like buying Bitcoin with your credit card. That is a death sentence. And it wiped out a whole bunch of people last time around. Right. And there will be pullbacks. You know, these cryptocurrencies are insanely volatile. These are very speculative assets. Okay? And listen, I own a little bit, you know, I'm gonna play with a little Small amount of money. Okay. But you don't make that your main money. It's only what you can afford to lose. And when it's a volatile asset that is not self sustaining, meaning it doesn't produce income, someone else doesn't pay the debt for you, then you do not use leverage. Okay. That's. Leverage is only used when someone else pays the debt. And ideally you have some positive cash flow beyond the amount of leverage you're using. Okay. And it's a really conservative asset class, like income, property.

Well, you always say the best insurance is a big loan balance, right?

Yes. And that's more in the natural disaster and economic peril kind of way.

If you really want to understand that idea, you're going to have to read our book.

Yeah, yeah, yeah. We should have talked about that. Gosh, I should have put the book cover on here. Yeah, well, I didn't. Well, Evan and I have a book coming out and guess what it's called. Here, I'll show you. It is called. There, Howard.

Investor.

Empowered Investor. Yes.

That's you.

That's.

Those are our clients. You're empowered. We're just, we're just your guides. You know, we, you know, this is the hero of the book. You know, every book has a hero, is the investor.

Yeah.

It's not Jason, it's not me. It's not. It's you. It's the people who get up and invest. We're just your guides. We help you along the way. But it's you who make money. It's you who take action and really take advantage of this asset class. Because, you know, we're just there to show you the way. But you take action with what you learn in this book. It's. It's off to the races.

Right, right. And on the podcast and the YouTube channel and that kind of stuff. So the book isn't out yet, folks, so. So stay tuned for that. But I love the book cover. I think it looks really good. And so. Okay, so rethie til you die. What do you want to say here?

Well, I mean that, that is another advantage of, of real estate over stocks. Now if you want to get your money from stocks, you have to sell. Now. You could take out a loan against it, a margin loan. I don't advise it. You know, it's, it's riskier. So essentially, if you want the cash from stock appreciation, you have to sell if you want to pull out. And then you pay taxes on what you sell.

Right.

If you want to get your money out of real estate, just refinance it. And that's, you know, so let's say what Jason teaches is it's like every 12 years. But, you know, it could be dependent. It depends on the time period. So if you have a property that has doubled in price, you can pull out all of the cash you put into it, plus some bonuses, get another. Get another loan against it, and you have this big chunk of money. And not only do you have that chunk of money, you, you don't have to pay taxes on it because technically it's a loan, but it's really, it's a loan against yourself, you know, so it's a beautiful strategy. And we can't explain all of it now.

Beautiful asset class, because it's one of the few asset classes where you can, you can buy it, you can get all your money back and still own the asset. And you get all that money out of it tax free because there's no tax on borrowed money. And the way. And when you lever it again through that refi, you add more leverage to it. You're adding leverage that is paid for by the tenant, not you. That's why income, property is the most historical.

I heard someone say something that I just thought was clever. He said, why earn money when you can borrow it?