CW 207: Investment Opportunities Created by Declining Homeownership Rates in America

Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing. Fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show. This is episode number 207 and I'm your host, Jason Hartman, and I have a co host sitting in with me today and that is Doug.

Doug.

Doug, are you with us?

I am most certainly with you, Jason.

All right, well, it's great to have you. The first thing I'd like to do is first of all call out some prayers and hopes that the people in Japan recover from this tragic situation that has gone on. Obviously, everyone has been glued to the news. It's just awful to see the damage that the earth can do and Mother Nature can do and the power of nature and the power of really water. It's unbelievable watching those videos. Doug, I'm sure you were similarly impacted, right?

Yes. Yeah. One of the things that I was actually very thankful for was that when they started having problems with some of the reactors that they got the people out of the area very quickly. I think that one of the great tragedies of Chernobyl is that there were so many people who were in the affected area for so long. In fact, I think some of the people are even still there.

It's interesting. We'll see what happens. We'll see if they end up entombing one of those reactors like they did in Chernobyl. But again, for the antinuclear people, the first thing people should realize is that I believe the reactor, and I'm no expert on this, that is most in question is the 40 year old reactor that was on the verge of being decommissioned anyway. So again, I'm a, I'm really a fan of nuclear power and I think it is clean, it is extremely powerful and I would just hate to see them create more and more dependence on foreign oil and propping up dictatorial regimes or terrorist regimes. I'm for nuclear power. I think it is very, very safe ultimately and I want to see more of it in the US and when Joe Bide came out and said maybe we should just halt everything, I thought, oh gosh, here we go again. With more dependence on foreign oil, more dependence on foreign sources of energy, and more impact on our economy. That will not be positive. Any thoughts on that?

Yeah, well, I think one of the things that you just really need to think about in the context of say, nuclear power is what are the reasonable alternatives? You know, I know everybody loves to think, say cold fusion, whatever that means. Because when most people say cold fusion, what they mean is sticking electrodes into a hydrogen tank. But you know, that's not fusion, that's just electrolysis.

Yeah, that's just making hydrogen with a lot of power. I used to make it in the sink as a kid.

Exactly, exactly. Yes, so, so if you're outside of the fiction, the now fictional, the currently fictional cold fusion, you have say your wind and solar, but both of those are only about 20% reliable. So there's no way you can build a grid on something with less than about 50 or 60% reliability just because you have to build power, power capacity to the peak and you have to build peak capacity with reliable power. So you figure as far as building a grid, wind and solar are off the table as far as being anything but a complement to your grid power supply. So then, okay, maybe you can do hydro, but there's only so much hydro you can do. So basically you figure, right, your highly reliable power source options are you have natural gas, oil, coal, and then nuclear. And so if we're going to say no nuclear, that means more oil, more natural gas, more coal. That's just mass, not politics, it's math.

The people who are screaming about nuclear power are the environmental crowd. And what do they want in return? Coal. They want more pollution in the air. It's crazy. It makes no sense. I mean, from the choices we have today, nuclear is a good option. And regardless of how this turns out in Japan, I think you're going to find me standing by that. Because this of course the situation when you look at a four decade old reactor and obviously some very special circumstances. It's not the same is what we're talking about with modern nuclear power and the incredible safety that is built in and implicit in that.

Well, one of the things to consider is when that reactor was built, vinyl LPs were the cutting edge music technology.

Oh, you mean it wasn't, it wasn't eight tracks?

Yeah, yeah, the best you could get for music technology when that reactor was built with either vinyl LPs, somebody might have had eight tracks. An eight track player probably cost you about 1000 bucks back then. I think that one of the things just to really wrap your head around is how ancient a lot of these reactors are.

Yeah, they're really old, there's no question about it. Well, anyway, we just hope everything will work out as good as it possibly can in Japan. Awful, awful tragedy. And again, that's a 9.0 quake. So best of luck and our prayers are with our people in Japan and we have clients in Japan as well, so we just wish them the best in this time of crisis. Let's talk a little bit about the Meet the Masters event. Just want to tell everybody I'm sorry we haven't had a show up since then. We've been so darn busy. And just want to say that everybody with a of bunch brain right now is looking to buy good quality income properties in sensible markets because the prices are phenomenal, the interest rates are phenomenal. The effective cost we think is probably the lowest we will see it in a long, long time, if not in our entire lifetime. When I say effective cost, of course we talked about that on the show before, but that is the combination of prices, interest rates, and then you might as well throw into that the income the property produces. Effective cost is believe at its very, very best deal right now for a person financing an investment and very close to its best deal even for a cash buyer. In the markets we recommend. I'm not saying California, I'm not saying New York, I'm not saying a lot of other places, but in the markets we recommend, we believe that is the case. So we are just phenomenally busy after the Meet the Masters event and really all year long because people that are smart are getting really, really greedy right now and looking to stock up on these GR properties. Your thoughts on that, Doug, or impressions of the event? Whatever you want to talk about.

So one of the things that I really liked about this Masters was that since you got the bigger conference room and we were able to get more people in, there was a really great vibe in the room. And I saw a lot of people get what I call the excited eyes, which is where when you kind of start seeing a few of the presentations, you're sitting there kind of going, okay, okay, I guess I kind of get it. And then all of a sudden something clicks in your head and you really start getting it and you think, okay, well if I pick up a property now and then it regresses back to replacement cost, then I can do a 1031 exchange with that and I can split it into something else and then maybe I can get something else that regresses back to the replacement cost and I can defer my taxes. And then you start doing the math about how you can multiply your wealth so quickly using just using the very powerful asset that real estate is.

Absolutely. I mean, people were very excited at this Meet the Masters event and they've been excited at all of them. And I think this was our ninth Meet the Masters event. We do it twice a year. And we had that fantastic room at the Hyatt Regency in Irvine. Really big, plush, comfortable seats and for all the gadget freaks, and I'm one of those, everybody had plugs and outlets right at their desk. It was just really cool because you can plug in, charge your devices, be online, whatever. And some great presentations. The two different presentations we had from people in Dallas, local market specialists there, one that we've been working with for quite a while now, had some great properties that they presented. They actually opened a new to deal in a different market segment. And then we had the 5% down opportunities in Dallas as well, which were of particular interest. Both of those speakers were pretty much mobbed and other speakers as well. Doug, tell the listeners if you would about the two presentations that you gave.

Sure thing, Jason. So I did two segments. The first was called Confessions of a Portfolio Hitman. This is a play on John Perkins book Confessions of an Economic Hitman. But what this is really about is, was about my experience as a former life insurance and mutual fund salesperson or underwriter, depending on how you put it. The basic thesis of that presentation was that a lot of the traditional financial products, and by traditional financial products I mean pretty much anything you'll find from Ameriprise is going to be very heavily loaded with commissions, fees, other things that are going to have nothing at all to do with you becoming more wealthy and will have everything to do with the person who sold it to you making more money. So one of the points that I did try to make is that there is one specific type of person for who these things can be beneficial and that is the person who otherwise would do nothing. Because if your choice is doing nothing or buying bad products, well, buying bad products is better than buying no products. But for people that have the self awareness and the discipline to do some research on their own, they can do a lot better than you see in traditional financial products. One of the points that I frequently like to make whenever I'm Talking about people who are big advocates of life insurance as some kind of quasi hybrid zombie investment product is that one of the things you just have to understand about business in general is that if you're a life insurance company and somebody buys some kind of insurance product that has all these goofy features, they buy it from you. The amount that you pay them has to be less than you earn on their money. Otherwise you go out of business. Any insurance company that pays out more than they take in goes out of business. So, number one, you have to figure every cent that you send into that insurance company, they will make a greater rate of return than you do. That's just like gravity. It just is.

Let me make a comment on that, if you would, Doug, before you go ahead, because we've all encountered them, and maybe we've all been guilty of it at one time or another in our own lives, but it's sort of that get rich quick, that quick buck mentality, waiting for your ship to come in type of thinking. And with that, that's the basic something for nothing philosophy. That's what's at the core of that thinking. Oh, I'm gonna buy a lottery ticket and I'm gonna win, right? And look at folks just without even understanding the complexity and the details of these life insurance products or these annuity products, which I basically think are horrible insurance for insurance sake, that's fine. Basic term life insurance, sure, no problem. But these, these things being sold as an investment, as a financial product, they are junk, in my opinion. They are just absolute junk. And if you think for a moment, a team of financial analysts, financial engineers, MBAs, some of the smartest people in the room, as the saying goes, if these big giant insurance companies that have been around a hundred years are going to do a deal with you that they're going to lose money on, you're out of your mind. You're a gambler. It's worse than being a gambler because on this one, if you really analyze it, you know you're going to lose. At least with gambling in Las Vegas, you're going to get a free drink and you might win.

You'll get a free drink. So, you know, so maybe you'll have a buzz by the time you lose all your money.

Exactly. So it'll be entertainment, that's for sure. But then the other funny thing is, when they sell you these life insurance and annuity products, guess what they invest in? Income, Property, real estate.

And that was really the second half. Is that. So you say, okay, well, the insurance company Takes your money, they're going to have some kind of product that pays you some rate of return, and the amount that they earn is going to be more than what they pay you. Obviously, once again, that's just math. So then what do they invest your money in? Well, real estate. What most insurance companies have most of their asset holdings in is Treasuries and income producing real estate. Typically insurance companies go after things like apartment complexes or office complexes, things that are very large, big deals that typically have lower rates of cash flow, but you know, big stable deals that are going to produce consistent regular cash flows. And so what's kind of funny to think is that, so if I have the option between giving my money to a middleman who's going to pay commissions to a salesperson and then take my money and then put it into income producing real estate, why don't I just take my money and put it right into the income producing real estate? Because, well, first of all, since I go after smaller deals, I can snake deals with better rates of return than things the insurance companies go after. And then I don't have to pay commissions to a salesperson. An absolute complete no brainer. It's just if you just get out a pencil and do the math, it speaks for itself.

It sure does. And the whole financial system, the Wall Street, I'll call it the vast Wall street conspiracy of which insurance and annuities and all the other crappy financial products are part of. Reminds me of that old saying, if you don't have a plan, you're going to fit into somebody else's plan. If you don't make a plan for your life and you don't follow your own direction and you don't think this out, you're going to end up walk to Merrill Lynch, Ameriprise or one of these companies that sells this junk. Now again, that's our opinion, that it's junk. You can make your own opinion, but we're entitled to an opinion. And you're going to fit into their plan and you're going to pay for their beautiful marble offices in gorgeous high rise buildings and all those people that are making great incomes selling you these products. And yet the person who is the unassuming real estate investor that owns half the town, that's going to be the person with some real wealth. So make your own plan. Stop fitting into someone else's plan.

I'm probably a little less dour on Wall street than you are. But the way that I think about it is that the purpose of the Financial sector, if you really think about it, is really to coordinate people who want to save and people who want to borrow. Because, you know, originally what a banking system does, what banks do is banks aggregate deposits so that they can turn them out to loans for people who want to start and expand businesses. And that is a very valuable service. But what's happened is the financial sector has kind of morphed into this big monster that isn't really that interested in the valuable service part because you don't make as much money on that end. The part where you make the money is where you have the fees and transaction costs. Every cent that Wall street makes either comes from a management fee or transaction cost. Anything you do that has. One LOATHE two that's Wall street making money. The place where I do agree with you most assuredly is that when your money comes from basically just taking one person standing in the middle of a person and a financial product and then taking a cut and then just standing in the middle of millions and millions and millions and millions of people and it's being the intermediary between them and some financial product that's exactly the same as other people sell for less money. Well, there's no value being added in that equation. There, there's no coordination, there's no contribution to productive assets. It's just taking a cut as a middleman. The only thing that's going to stop this, you can wave your arm at the TV and be angry and say they need to pass a financial reform bill or elect this person, elect that person. But the only thing that's going to stop it is to have people individually decide that they're not going to give their money to financial managers, that if they're going to invest in the stock market, just put it in index fund. So, you know, if you're going to invest self direct, your investments, do less transactions, less management fees, less of those costs, because that's where every cent that Wall street makes comes from.

Yeah, and look, I agree in concept that hundreds of years ago when the first joint stock company opened and people were able to buy stock in it, I agree conceptually that that's a good thing. It allowed companies to grow and get scale and reach economies of scale which provided better products for consumers and the whole economies grew from that. I mean, conceptually I certainly agree with it. But it's, it's been perverted into this thing that's just taking the money. It's just robbing the middle class of all of their wealth and consolidating wealth at the top. And the little guy is, it's just a bad deal for him. The system is, quote, rigged. The name of the documentary we're working on, and I just want to mention one more thing on that, Doug. John Perkins, by the way, Confessions of an Economic Hitman. I interviewed him on the Holistic Survival Show. So if any of our listeners want to go listen to that, I definitely recommend it. Tell us about your other talk.

So the second segment was called Six Years, Six Million New Renters. And the thesis behind this is that currently we're in a situation where the homeownership rate is going down. I think the homeownership rate peaked at about 69% in 2004. It's currently at about 67%. I think at the bottom of the Depression, it was about 44%. And as of about the 60s and forward, it's been in the low to mid-60s or so. From the mid-80s through the mid-90s, it averaged right around 64%. So what I did was I did some modeling and said, okay, well, let's assume that from now through 2016, about six years, that the homeownership rate regresses back to where it was for that decade between the mid-80s and mid-90s, just before the tech bubble got going and then before the credit bubble got going. Then if we layer on top of that just normal historical growth rate in the number of households. So as many people know, the number of households is considerably less than the total population. I think that the rate at which households grow is a little less than the total population growth just because sometimes people double up, etc. Etc. But the total number of households grows at about 1% per year. Not a huge number. But when you couple that with a declining homeownership rate, what that means is in the next six years, you're looking at at least 6 million new renters. And the reason why I say at least 6 million new renters is because there's a very real possibility we could see the homeownership rate drop much lower than 64%. Because that 64% number is plucked from a decade between the 80s and 90s. When we had Fannie Mae, we had Freddie Mac. You know, we still had a lot of these government programs that, frankly, the government doesn't have money to keep subsidizing. It's not a whole lot of a secret, even though politicians don't want to admit it, but the government's broke. The only way they have money is to borrow it or print it. And so if they borrow it, they're going to run out of people who are going to loan them money. Especially now that Japan, one of the biggest holders of U.S. debt and biggest buyers of U.S. debt, is trying to work its way out of a catastrophe. Japan can't afford to buy our debt anymore. What that means is sooner or later, interest rates are going to have to come up, and when that does, it's going to make housing less affordable. So it's going to push down the homeownership rate some more. Well, then let's say that on top of that, the government decides that they need to. They basically need to spin off and unwind Fannie Mae and Freddie Mac. They can't afford to sink, I don't know, what, like $100 billion a year, $100 billion a quarter into accumulated losses from all the defaulted mortgages. Well, if that happens, then the only loans you're going to see are going to be portfolio loans or loans that people basically send out and then hold or potentially collateralize. But they have to actually get other people to buy them, not just collateralize and sell them to the government, take the money and then run. So then what's going to happen is you're going to see higher interest rates and shorter loan durations, which is going to decrease affordability even more. And so then the more affordability comes down, the harder it is for people to qualify for loans. The more they have to pay for their mortgages, the more they're going to be renting instead of buying. And so then what that's going to happen is it will have a suppressive impact on prices. Prices will flatten, possibly decline, but you'll see a whole bunch of people renting. The shift that I think is going to happen, especially in income properties, is for people who buy. Right now, you're probably at the. Especially in the markets where Platinum recommends, you're at probably what might be your lowest total cost of ownership, meaning the combination of price and interest rate. So for credit buyers, now is the time to buy. So if you're going to buy with credit, if you're going to buy with leverage, if you're going to carry a loan, now is the time to move. So what's going to happen is as the affordability of housing gets worse, then prices are going to come down, but then the interest rates are going to go up. So that means that, let's say that five, six years from now, when you have to put 35% down on a property and the interest rate is 9%. Well, what's going to happen is it will have a really strong capitalization rate. So that means the rents relative to the price will be really high. But if you have to carry a loan on it, you won't make any money. So in the market that's coming, the cash buyers are going to be king. Well, actually, I should say the cash buyers are going to be clean. The people who are going to be king are the people who bought right now and watch their rents inflate while the mortgage payments stay the same.

Right. Because it's always better to use leverage if you can. So I like that analogy. The king and the queen. So the financed buyer, the leveraged buyer will be king because they've got the double inflation arbitrage that I talk about. But the cash buyer will also be doing pretty darn well because they've got a whole series of situations. So you've got upward pressure on rents coming down the pike. You've got upward pressure on interest rates, meaning that you people only have a few choices when it comes to housing. They either are owners, they are renters, they are homeless, or jokingly, they move back in with their parents. And so there just aren't a lot of choices. People have to do something. They bump up against real life decisions. And if interest rates are high and financing is unavailable, they've got to rent. They have no other choice but to do that. And so that puts upward pressure on rents. And it also, if interest rates are high and financing is low, meaning the availability of financing is low, then it means that there really isn't much in the way of development, if anything in the way of development. I mean, just look at what's happened this past couple years in this credit crisis. You've got a situation where developers couldn't finance their projects. They basically had to just shut down and stop their machine. And that limited supply. So you see limits on new supply being introduced, you see upward pressure on interest rates, you see upward pressure on rents, you see inflation, which debases the value of mortgage and increases the value of commodities. And we are packaged commodities investors. So this is really a phenomenal time. If you are not excited about the time we are in right now, get excited. This is a pivotal point really in economic human history of the entire globe. Because when you combine all this with globalization, it makes things very, very, very attractive. So, yeah, good. Any more thoughts? Just to close that one up, Doug.

So one of the things to really think about in the way that the, especially the real estate and income and property in general market is shifting is that as the events we are talking about unfold, then the way that you make money from real estate is going to go away from appreciation and toward income and toward cash flow. Because if you think about it, the only way that you get appreciation is when you have more people that want to buy than want to sell, because that is the only way that you drive prices up. The whole genesis behind the real estate bubble was that the government made credit so easy that anybody who could fog a mirror could get a loan. Well, in that case, then you created this massive influx of buyers. Now you have the exact opposite. You have a bunch of people who want to sell, many of whom are banks that are holding foreclosed properties, and you don't have that many people that can qualify to buy. Well, that trend is not going to reverse at any time in the near or possibly distant future. So what that means is it's going to put a lot of downward pressure on prices to where prices either continue to compress in some markets or stay flat and don't escalate like some people have come to expect. But as we've said, then what happens is as more people become renters, that increases the cash flow. So then the person who wins at real estate isn't going to be the person who buys a property, sees it go up by 20%, sells it, buys five properties, sees all them go up by 20%, sells all those buyers, 20 properties, sees all them go up By 20%. The person who wins is going to be the person who bought in, locked in their cost of capital, let's say 5% for 30 years and just keeps cashing those checks every month, just keeps the checks coming in every month, just keeps picking up a new property, keeps picking up new attractive deals and just keeps watching that cash flow come in. Just because right now there's a little bit of forced depreciation from regression to replacement costs. But we cannot count on prices continuing to escalate forever.

Not in real terms. We can in nominal terms because we are going to see a lot of inflation in the future. We can't say exactly when, of course, but it is coming. I mean, the forces are overwhelming, saying that we are going to see hyper inflation at some point. So in nominal dollars we're going to index for inflation or maybe beat it slightly, but in real dollars, maybe not. But we've leveraged that. So if we do that at a 10 to 1 ratio, we're beating inflation even if the asset, the real estate, is only keeping up with inflation. We're beating it 10 times exponentially because we have leveraged that and we debase the debt. Your comment?

Well, because one of the things you have to, that people really need to understand is that there will be a lag between when inflation hits the economy and when it hits real estate. And the reason for that is because things that like food and energy are what I call high velocity cash based products. So in other words, when most people buy gas, they pay cash. When most people buy food, they pay cash. So in that case, then what happens is when the Federal Reserve inflates the money supply, when they just print new money, then it hits things that people buy with cash first. So then it's going to take a while for those impacts to matriculate out to things that people buy on credit, such as real estate. It will happen. But my comment was really referenced more reference to the fact that relative to a lot of other things, real estate will seem to be flat for a very long time just because it's a credit based asset and not a cash based asset.

I think we're already there, aren't we? Haven't we been seeing that the last good year and a half that we've had real inflation yet real estate has just sort of sat there and done nothing or even depreciated or even bought. Yeah.

Yes. Yeah, exactly. Yes. So the effect that I'm talking about is definitely already going. And if what we think is going to happen plays out where interest rates go up to where the availability of long term financing goes away, then there's a very good chance that that phenomenon could extend out exactly how far, I don't know. But one of the things just to understand is that the more money the government prints, the more it's going to impact things that people, things that people buy with cash or commodity products people buy with cash. I read an article today in the Wall Street Journal. It was very good. It was called you can't eat an iPad.

I love that article. That is so true.

You can't eat an iPad. And it's because in Federal Reserve Board of Governors was in Queens because, you know, basically they were trying to tell people that hey, you know what the CPI says inflation is not that high. Okay, yeah. The price of gas is up. Yeah. The price of health goes up.

Yeah.

The price of energy and the price of food is up. But hey, look at this iPad, right? IPad2 is the same price as the iPad1 and it's twice as powerful. And since somebody raised their hand and said, yeah, but I can't eat an iPad. And the thing to understand is technology has a natural deflationary curve where the economics make it so that you have products that are consistently becoming more powerful. But the thing is you can't eat a computer, you can't eat technology. One of the things just to understand is that the things that are true necessities are going to be impacted by inflation. A lot of ancillary products are much more resistant to inflation. But the, the core food, energy, healthcare type of products, those are going to be, they cannot not be impacted by inflation.

Yeah, there's no question about that. So the things that matter, food, clothing and shelter, that's where we're seeing inflation. And of course energy is integrated in everything. And you can't eat an iPad. And that's partially integrates with Moore's Law. So we've talked about it on the shows before. But the way the government lies about inflation, what substitution weighting Hedonics. And that's an example of hedonics, the hedonistic index saying that, oh, the new iPad is the same price as the old iPad and it's twice as powerful as an example. But it's not really half the price. When they consider the cpi, they're just considering it to be half the price because it's twice as good. So just a phenomenal batch of lies. And it really just says that people are not entitled to progress. The powers that be that print the fake fiat money at the Federal Reserve and the treasury, they get all the benefit of progress. Not the people, not we the people because of the way they do the math. So just a really big bogus thing. Hey Doug, what do you think of some of the other speakers and just the rest of them Meet the Masters event.

Naturally everybody loved Mark Kohler. He's a really animated guy. He's one of the only people I know that makes taxes, LLCs and S corporations cool.

He's one of the only guys I know that makes taxes cool. I'm intrinsically nerdy, so I'm interested in that stuff to begin with. But there were a lot of decidedly non nerdy folks. They were very captivated by what Mark was saying. I think there were a lot of really fantastic area presentations as well as you said. We had both Texas Cash cow and we had the lowdown Dallas payments. We had the folks from Atlanta and Orlando, had Zach from St. Robert, we had Andrew and Joe from Indianapolis. Just a lot of really fantastic products, a lot of fantastic deals, a lot of ways for people to get into deals if they have different types of preferences. So for example, with the Indianapolis deals, I have two properties in Indianapolis. It's the reason why I'm talking about it. I think Indianapolis isn't quite as packaged as some of the other markets. Whereas what you can do is you can work with Angela, you can buy one of these properties at foreclosures, you can work with Joe, get it rehab, get it rent ready, and so that then maybe say probably a month or two after you buy it, you're ready to put a tenant in. And when you look at the total rate of return relative to the cash that you put in, your cash on cash return is outstanding. And it actually gets even better than that. And I've discovered this because I'm doing my taxes right now. It's even better than that because when you buy a property, you depreciate the structure on a 27 and a half year schedule. But many repairs you can depreciate on a four year schedule. So that means whatever you spend on the rehab, you can depreciate on a faster schedule. So like for example, with my Indianapolis properties, my depreciation totally offsets all the cash flow. I pay no taxes on the cash from that property while I'm depreciating the repairs. That's a good deal.

That's known as cost segregation. And we've talked about it on the show before. So it's done commonly in the commercial real estate business and bigger properties. But you can do it on residential too, so just a great opportunity there.

These tricks are all legal too. Yeah, this isn't any smoke and mirrors. It's not sleight of hand. This is legal. This is what the big kids do.

Yep, it certainly is. It certainly is. And I just actually flipped a property in Indianapolis and in three months, which it took me longer than it should have because I did it. My timing wasn't so great in the winter, and then due to global warming, we had terrible ice storms and the city basically frozen over. I'm being snarky, by the way, just so you know. It's warming because it's cooling, Right? Funny leftist logic. But I flipped this property inside of about three months and my net net before tax is about a $26,000 profit. So phenomenal opportunities that you can make. Those aren't easy to get, but you can do them in some of our markets. And I know, Doug, that you recently bought something in St. Robert, Missouri, another market. And I bought a 10 unit building there as well. And I just bought an 11 unit building in the Phoenix metro area in Arizona. So folks, you've got to be gobbling up deals out there right now. This is the time to be buying. And I hope I don't sound too salesy, but I really believe it. All the stars have aligned, all the facts have aligned to say that this is if you're in the right market and you're structuring your deals the right way, this is the time. There is just no question about it because you're a mailbox money buyer. You're a cash flow buyer. You're not dependent on appreciation. You're not dependent on anything exceptional to happen. Just basic, simple, very reliable cash flow. So take that into account, folks. Doug, I think we've gone pretty long here for an intro as we usually do when we get to chatting. I want to just do a couple more things here if we can on this talk. And one of them is I just want to answer a couple of questions that we had from listeners and we really appreciate that. Go to the Platinum Properties Investor Network Facebook page, post your questions there. We'll do do as best we can to answer them for you. And also I want to make sure that you know that we did make an we made an error. I think it's our first real mistake and that is on the last two podcasts because we repeated the mistake twice. Actually on number 205 and 206, we meant to put the Dallas Performa, which we predict out of our predictions or forecast book for 2011 at about 19%, a little over 19% ROI this year accidentally made a mistake there and we predicted that at like 9% because we confused it with another market which I believe was Detroit, which is actually, believe it or not, as a cash flow market. Not as bad as one would think because Detroit is a disaster in almost every other respect. But we just wanted to let you know that we have gone back and changed that. And so you may want to just re download Those shows number 205 and 206 where we find fixed those. So note that there was an error in there. But a couple questions here. Number one, Brian posted on our Facebook page. He said I do not qualify to write off my passive losses against active income this year, but do I carry those passive losses forward in future tax years and how many years does this 2010 passive loss get carried forward? Okay, and then the next question from also Brian, it's related so I just want to read them both. Can I count those losses against active income next year if my adjusted gross income is above $150,000. First thing I want to say, we are not tax or legal advisors. We're not qualified to advise on that. We'll just give you some concepts. Check with your tax advisor or one of the people that I've had on the show before, like Mark or any of the other CPAs. First of all, yes, you can carry that forward. That is my understanding of it. And also there are ways to get around the $150,000 maximum. One of the very best ways, if you can qualify for it, and that is an if, because it's not super easy, is to become a real estate professional. Again, a complicated subject we have addressed on other shows and we will address again in the future. Arthur asked, what if you do not have money to invest and cannot take out any more loans? I'm looking for a few strategies or examples of other people who have done this in today's market not 10 years ago. Arthur hey, that's a tough one. I'm not sure I can answer that. The best thing I would say is partner with somebody. Partner with someone who has something you don't have. Either you found the deal and they have the money, or you found the deal and they have the credit. And then you put together that partnership and you can purchase properties and invest that way. Doug, I don't know if you have any comments on those, but I just thought I'd open them up to you.

If you do the thing that I would definitely say on the passive losses and naturally consult your cpa, but my understanding is I'm pretty sure you can carry those forward indefinitely. And typically I think the rules of thumb is that passive offsets against passive and active offsets against active.

Yeah, that is correct.

So then if you have passive losses, well, then now is a good time to be investing because five to 10 years down the line you're probably going to have a lot of passive income. So then what's going to happen is as your portfolio starts generating more income, what will happen is eventually you'll just start getting to eat away at those passive losses that you rolled forward over the years. I know it hurts to not be able to take your tax deductions right now, but especially with a lot of these deductions that roll, what you really need to do is just think long term. Think about, say, the 10 to 20 year horizon and within the next 10 years we're going to see a lot of these passive assets that people are buying right now are going to start producing lots of cash and we'll probably start kicking out quite a bit of taxable income, and being able to offset that income with some passive losses is going to come in really handy down the road.

It sure is. It sure is. Well, good stuff. Well, hey, thank you everybody so much for listening. I guess we'll close with just a article from the Financial Freedom Report and we'll share that with you on this show. We've got Garrett Sutton coming up, one of the Rich Dad, Poor dad authors and he talks about asset protection strategies and he's really interesting. He did a great interview, so we'll get that one posted here real soon and we just don't want to go too much longer. So enjoy this article. And hey Doug, thanks for co hosting with me today. Appreciate it.

Thank you Jason.

Now you can get Jason's Creating wealth in Today's Economy Home Study Course all the knowledge and education revealed in a nine hour day of the Creating Wealth Boot camp created in a home study course for you to dive into at your convenience. For more details, go to jasonhardman.com.

High Maintenance Income Most people are associated with one or two people whom they would consider to be high maintenance or demanding of their time and attention. These people are the ones who call to ask why you haven't commented on their Facebook post. Sometimes this type of person is referred to as a diva or a drama queen. For some reason, these folks seem to seek out dramatic encounters that draw attention to themselves. In contrast to this, most of us also know people who are low maintenance or perfectly content to do their own things. These people are frequently engaged in what's happening, but exhibit a much lower propensity to become crazy makers who create drama for no other reason than attracting attention to themselves. In light of this, consider the way that you earn the income that is necessary to support your lifestyle. Do you have high maintenance income or low maintenance income? It is important to understand that a job, a business or an investment can be either high maintenance or low maintenance. And because of this, understanding the difference becomes quite important. First, the high maintenance income. Many hours and extensive effort are required. Reliance on expert ability limits your ability to scale revenue upward and your physical presence is required, which limits your mobility to infrequent vacations. Now let's compare that to low maintenance income. Fewer hours and minimal management are necessary. Reliance on systems and automation allow revenue to scale quickly and income can be produced and managed remotely, allowing greater freedom to travel. Now, on hearing this, most people will reach two conclusions, the first being that they would prefer low maintenance income and the second being that their main source of income is High maintenance. This is where we need to implement some premeditated planning. Most jobs tend to produce relatively high maintenance income. Some do have the flexibility for remote working, but even that requires significant effort and to achieve successfully. Many businesses also produce high maintenance income, and the business models that are low maintenance tend to be much more difficult to get off the ground due to intense competition. Even so, investment income is high maintenance in nature. If your success depends on scouring the financial markets each day to find and scoop up deals, consider that a person who earns $200,000 per year but works 80 hours per week must invest 20 hours per $1,000 in earnings. This equates to $50 an hour. Not too bad, but it still requires 4,000 hours per year of work time. It's difficult to have much mobility in that scenario. By the way, that same principle holds true for many highly compensated professionals who earn high hourly rates but must work large numbers of hours. They produce lots of income, but it requires large amounts of effort and it's not very flexible. Conversely, consider a person who starts a small web marketing business that produces a modest $5,000 per year of income, but only requires one hour per week of management. This equates to $100 per hour of work time and is much more mobile. Low maintenance income frequently comes in much smaller chunks than high maintenance income, but can allow us to leverage our time much more effectively. The key to long term success is to slowly offset your high maintenance income from a job, a business, or investment with low maintenance income. Practically speaking, this means that you will most likely end up building low maintenance income on the side while working at your primary occupation. The advantage of this strategy is that it allows you to test some business ideas that may fail and be able to absorb the impact of that failure since your primary stream of income is still intact. However, it is also likely that through continued effort and education, you will discover business and investment models that produce low maintenance income. As you grow the amount of low maintenance income in your life relative to the high maintenance income that results from your primary occupation, it may become possible to leave the primary occupation that currently produces much of your income and devote your time to other interests such as traveling, charitable work, or spending time with your family and loved ones. Ultimately, what matters to the next generation of income earners is not just how much money they make. What matters is how much money is made per hour of time invested and how much mobility they have to enjoy life outside of work. For people who wish to achieve high leverage over their time, it is likely that extensive upfront efforts will be necessary to assemble a portfolio of low maintenance income that allows them to be more mobile and more successful in their personal, professional and financial lives.

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This show is produced by the Hartman Media Company. All rights Reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.