CW 489 FBF – 10 Reasons To Carry A Big Long Mortgage with Ric Edelman – America’s #1 Ranked Financial Adviser by Barron’s in 2009

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Our great podcasts, visit hartmanmedia.com hey, this is Jason Hartman. Thank you so much for joining me. Do you know what day it is? Yes. It is Flashback Friday where you hear the best of the Creating wealth show and you hear some good prior episodes, some good review. Remember, we've got almost 5, 500 episodes out. And you know what? Itunes doesn't even hold them all. If you're an itunes listener, if you are listening on Stitcher. Thank you for joining us. So we want to bring you some good review stuff. Now, what's interesting about Flashback Friday, it's a little scary for me. I gotta be very, very candid with you on that because you, the listener, you get the chance to hold my feet to the fire. Did I make any predictions? Was I right? Was I wrong? I've been right about a lot of things, but I've been wrong about a few. So you can give me a hard time about that if you wish. But it's Flashback Friday and we will give you the uncensored best of the Creating wealth show with a prior episode. So let's dive in. Here we go. Remember, this is not current. It's Flashback Friday.

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. Steps 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 your host, Jason Hartman. And this is episode number 186. I just got back from New York City and big trip to a whole bunch of other places. Well, let me see, that was two days ago and now tomorrow off to Austin, Texas and Dallas and Chicago and a whole bunch of other places. So probably get a chance to go over to Indianapolis from Chicago and check out our market there and that kind of stuff. A lot of you ask why is it that at various times we recommend one market over another and then we kind of stop recommending it? I've talked about this before, but remember, we are area agnostic and being area agnostic is the seventh commandment for successful investing of our ten Commandments. And when a market stops making sense and when we just can't source good inventory there, we really kind of stopped talking about it. And this is the case with Austin. I'm hoping to find something different because I think Austin is a fantastic city. But again, as a fantastic place to live, it's a little bit expensive. And when we get properties there, we put them up on the website. Sometimes they generate a little bit of interest. But again from a pure cash flow return on investment perspective, we're just not sourcing the inventory as well there as we used to. But I am going to take a look, see what I can find. I talked to our local market specialist. They are just yesterday and I'll be there Friday looking at properties. So I'll let you know what my findings are. I wanted to talk to you now about a new source that we have in the Phoenix market and we seem to be getting some very good properties from this particular supplier. And we've got a property here in Buckeye, Arizona and that's a Phoenix suburb and it's 1560 square feet. It's $69,900. Again this is built in 2001, three bedroom, two bath, perfect little cookie cutter type rental house. Only $45 per square foot and projected cash flow of $263 per month which brings you a cap rate of 10% and a projected return on investment of a whopping 35%. And an 18% cash on cash return is what we're looking for in this property. And now this isn't really any pie in the sky. Big expectation because guess what, the property is already rented. So this is a pre rented nine year old property and the tenant is in place. You can just buy it for $17,000 of course subject to qualifying for financing and your projected return on Investment here is 35% annually. Pretty incredible. By the way, it's got a really nice lot, size 7,300 square foot lot, a spacious corner lot. So that's on our website@jasonhartman.com with a lot of other properties. And I just wanted to also highlight here before we start today's show and get into the meat of our content. We've got some stuff in Indianapolis still. Again, India is that perennial market that we always talk about because the cash flow is so good, the cash on cash return is so good and it's just such a good stable linear market. But again, some of our properties in Indy are a little bit more complicated because you have to rehab them. And we have made this as easy as possible. But remember, you're putting your down payment on the property. Many investors are just paying cash on properties there. But then you've also got rehab costs that most of the time cannot be financed into the deal. So again, fancy, fantastic cash on cash returns in Indianapolis and overall ROI of anywhere here. I'm looking at our website between 26 and down to 20%. Well, actually we've got some as low as a 16% projected ROI, up to 26% at the top right at this moment, as I speak. So phenomenal opportunities. And again, on these ROI projections, I just always say, like I've said before, if it doesn't go as well as planned, say you only receive 50% of the projected ROI, you'll be looking at 13% annually, for example. I mean, where are you going to beat that? You're certainly not going to beat it on Wall Street, I'll bet. You're certainly not going to beat it in the bank, that's for sure. And I just don't know where you can come close. Income property is the most historically proven asset class in America. Remember, you're listening to Flashback Friday. Our new episodes are published every Monday and Wednesday. While I was away, I was in the airport in Puerto Rico and I happened to pick up a copy of Time magazine. And you should read this Time magazine article where it talks about homeownership being sort of a thing of the past, which is great for us as investors, isn't it? This shows that we landlords really, really have a very, very nice, bright future. Because what the article talked about is how home ownership actually paralyzes workers. And if you think about this, one of the key things in an economy like we've got today, where many people are kind of lucky to have a job, one of the key things you want is mobility. And we as investors can offer this mobility to our tenants. And if we look at some of the markets we've really liked over the years, whether they be Charlotte, Houston, Indianapolis, Florida, Phoenix, a lot of these markets have a fairly transient tenant base. And what I mean when I say transient is not people renting nightly, weekly or monthly, but people that will come to a place, they'll come to Indianapolis, they'll come to Houston. Maybe they'll work in Houston for one of the big oil companies, maybe they'll work for one of the big hospitals or in the healthcare industry, and they'll Stay there for one or two years, not quite long enough to lay down the roots, buy a house and really get that kind of ball and chain, if you will, of owning a house. They just want to rent for a year or two. And that makes a fantastic tenant. These are bright, educated people that have good, solid corporate jobs. They're usually fantastic tenants and they're not ready to buy because they came there to work for a large company if it's in Indianapolis, I mean, the university, Eli Lilly, Rolls Royce, etc. Etc. And they'll work there for a year or two and kind of see where their career leads them. And we can offer this mobility to them. And that is a great asset. And I think this is all leading to one thing. We're going to see a lower rate of homeownership in America. And I think that's good because I think some people just can't handle owning a house. And I think the financial crisis has definitely shown us that. But also, as we see a lower homeownership rate and we see a growing population. What does that mean? It simply means there are more and more tenants. And as landlords, as investors, as income property owners, all of the proper, prudent rules of investing, the ten commandments of successful investing, we can really provide a great service to people who want to maintain flexibility and mobility so that they can go where their career leads them and be only committed one year at a time to a property. So that's a great, great thing. So check out that Time magazine article. There were two other real gems that I took from the article, by the way. One is that they showed an interesting graph in the article that showed in areas where the homeownership rate is high, you also had high unemployment. And I don't think this is quite as simplistic as they made it out to be in the article. Because being an expert and being in this business for a long time, there's a little more to it than that. But I definitely saw that logic playing out. And one of the other things they talked about is how renters are typically excluded from living in the nicer areas of any city because of zoning ordinances. A lot of cities, they don't really want apartment buildings being built. The rental property is typically lower end property. And if we get this nice middle class base, this sort of yuppie tenant, if you will, the young, urban, professional type. And it doesn't need to be a yuppie type tenant, but you get my drift. The educated, mobile, good, solid type of tenant that wants to live in a good suburb, in a good area where they have a safe environment for their family, for themselves, for their belongings, so forth. They don't want to live like a renter, but they want to live with the mobility of a renter. When you're buying single family homes, duplexes, fourplexes, you're providing a fantastic service and I think there will be more and more demand for that service in the coming years. So I think you're really in the right place. And of course you've got all the other factors going for you. You're buying properties for far below the cost of actual construction or the cost of replacement. You're a packaged commodities investor, as I always say, and you are locking in on 30 year fixed rate mortgages. And that's just a fantastic opportunity. Some really good opportunities there. Now we're going to kind of switch gears on this show because on this show I interviewed Rick Edelman. And Rick Edelman is a very well known author of many, many books, probably a dozen books or so, and he's a financial advisor who has a radio show where it airs in many parts of the nation. And I've been a fan of his for a long time. As you know, I'm definite not a fan of Wall Street. He's a Wall street guy and he sells stocks and life insurance and that kind of stuff. And I don't like those things much at all. But what I do like is Rick published a great DVD and we give this DVD away a lot at our live events and so forth. And it's called 10 Great Reasons to Carry a Big Long Mortgage and Never Pay It Off. And this is something you should really see or hear because it offers some great insights into my philosophy. And of course I've added a couple of I think really good points, points to that philosophy as well. But having that mortgage in future years, as long as it's a prudent fixed rate mortgage on a prudent property that made sense the day you bought it. That mortgage is really a big part of the income property asset. So we will go to the interview here with Rick Edelman in just a moment. But before we do that, I want to remind you the Masters Weekend, a gathering of experts, is coming up here in Irvine, California, Southern California. We're having it at a gorgeous hotel, the Hyatt Regency in Irvine, which is just a beautiful ven. Rooms are very inexpensive. I think you can get a room there, just call the hotel directly for about 99 or $109 per night. It's a very nice hotel, very nice accommodation, great restaurants on site and so forth. And we're doing something different. As you know. We are doing the Creating wealth boot camp on Friday before the Masters weekend and then we're doing the Masters weekend on Saturday and Sunday. This is going to be the best Masters weekend we've ever had. Get in on the early bird pricing again. The pricing escalates as we get closer to the so be sure to register@jasonhartman.com immediately. Do not wait. And here is another way to come without paying. We have a little contest that we've done that's very unique. Now I'm going to play for you a 1 minute and 30 second little audio track from a video that I recorded while on vacation on the beautiful island of St. Martin. And that was in the Caribbean. And this is a very unique contest. Now this is going to be interesting to you from two perspectives, not just one. Because if you are a business person and you have been interested at all in the Internet marketing topic and the holy grail of Internet marketing is viral marketing. Viral marketing, meaning you get something that is passed around, something that is contagious, something where people on the Internet do the work for you rather than just your own efforts. And that's what this contest is. So from one perspective, you may be a real estate investor or an aspiring real estate investor who wants to attend the Masters weekend. Well, that's a great opportunity right there. But from the second perspective, look how we do this contest and make it a viral marketing contest which has huge benefits to the person holding the contest. So you may want to consider something like this for your own business. And of course you should enter just to get the chance to win free tickets for the Masters weekend as well. So listen to the short track and then we will be back with the interview with Rick Edelman. It's just a minute and 30 seconds. We'll be back with Rick right after that. And here we go. Just a reminder, you're listening to Flashback Friday. Our new episodes are published every Monday and every Wednesday.

Hi, it's Jason Hartman and I'm on vacation, but I didn't want to miss this opportunity to tell you about a very unique contest we're having where you can win two free tickets to the Masters Weekend. A gathering of experts. Now here's what makes this contest real special. First of all, let me tell you about the event. We only hold this event two times each year, so it's very exclusive. We fly in experts from all over the country to Talk about the latest ideas in income generation and wealth creation and you can get your two free tickets very, very easily. Now all you need to do is take 10 seconds, fill out the web form and you will get an entry into the contest. But it gets much better than that. You get a special tracking link and with this link you can share it on your Facebook account, you can share it with your Twitter followers, and every time one of those people enters, you get an additional entry into the contest. You can share it via email as well. So imagine this, say you've got 200 Twitter followers, for example. You share it with your Twitter followers, they enter, they share the link, and then you get additional entries each time that happens. So your chances of winning are extremely, extremely high. Again, fifteen hundred dollar tickets. You get two of them and it's super, super easy. Take ten seconds, fill out the web form, share the link and you're done. We will notify the winner and we look forward to seeing you at the Masters Weekend at Gathering of Experts.

It's my pleasure to welcome Rick Edelman to the show. He is a highly acclaimed financial advisor. I've been a fan of his for many years and I first discovered him when he published a fantastic DVD that you may have heard me talk about before, which is entitled 10 Great Reasons to Carry a Big Long Mortgage and Never Pay It Off. And he is a New York Times best selling author, he has five books on personal finance and it's just a pleasure to have him on the show. Rick, welcome.

It's my pleasure to be here. Thank you.

So Rick, what is going on in the and maybe you want to start with some general thoughts on the economy and where we are and where we're headed.

Well, if only anybody knew. And that's part of the dilemma. We have been experiencing an array of emotions over the past couple of years that are unprecedented. It began of course in 08 with shock and fear and that morphed into anger as people became very, very unhappy with what was going on on Capitol Hill. And I think there still is an awful anger about what's happening in Washington. And now the emotions have turned a bit into confusion as people are really confused not knowing what's going to happen next, what's the direction going to be with tax law, with regulation and legislation, where's the economy going? What's next for the stock market? There are so many different pieces of news coming in all different directions. There's a lot of confusion out there. And what we are finding is that people are getting so caught up in the day to day activities of the economy as, as well as the markets and on Capitol Hill that they're missing the big picture. And as a result, people are unnecessarily confused because we think the picture is really remarkably clear. We are in a period of volatility, and that's not a bad thing. People tend to think volatility is bad, but it's not. Volatility is simply a period where prices are rising and falling. That's what volatility means. Volatility doesn't mean prices are falling. That would be a bear market. And we know what that's like back in 2008. A period of volatility is where they're falling, yes, but they're also rising just as much. And we, we just have to recognize that's the way it is. It's not good, it's not bad, it simply is. And so rather than getting obsessed with the fact that we don't know what's happening one day to the next, we should do something very different. We should be looking 10 years down the road. I'm willing to predict where we'll be in 10 years. I'm not willing to predict where we'll be in 10 months or even in 10 weeks 10 years from now. The economy will be much stronger, the stock market will be much higher. Affluency will be much greater. And therefore, if you're a long term investor trying to get your kid into college over the next 10 years, trying to prepare and save for your own retirement in 10, 20, 20, 30 years, you can be very, very comfortable, very, very confident about what's happening right now.

Well, that's a good point. You think it's pretty easy to predict 10 years from now, but the hard part is two years from now. I agree with you there. Your latest book is entitled Rescue youe Money. Is that the latest one? It is. Okay, good. In there you talk about the two major obstacles that people will face. Taxes and inflation eroding their buying power. How would you say someone should be addressing these two big obstacles right now? Now.

Right. Well, these are the huge issues that nobody is really paying attention to, Jason. And it is just so incredibly important because we tend to be worried about the latest crisis du jour. What we don't realize is that taxes are always with us and so is inflation. And over long periods of time, they will severely erode your ability to achieve financial success. It's not what you earn that matters, it's what you keep. And if you're going to lose a 30 year profits to taxes. And if inflation is going to erode the value of your assets over time, we've got to pay close attention to those. And this is why I'm far more scared about people who have their life savings in bank accounts that are paying less than 1%. I'm far more worried about them than I am about people who are investing in a broad array of stocks through stock funds or exchange traded funds. So we have to recognize that people tend to fail because they take too little risk, not because they take too much risk. And that is very pervasive in today's economic environment.

That's a very good point. The people who are playing not to lose usually end up losing just because of the sort of static position they hold. While taxes are increasing around them. Inflation is eroding their buying power. And we've just got to get to the mindset of playing to win. I remember hearing you on the radio, Rick, when the financial crisis first hit and it was really gloomy out there. I mean, people were very scared, yours truly included. And you kept saying, don't look at your financial statements when you get them in the mail, your brokerage account statements and so forth, just don't look at them. Am I reiterating that correctly, that that was the advice?

Yeah, you're absolutely right. Because when prices were going down so steadily in 2008 into early 09 and people were looking at the value of their account, not just every month on their statement, but every day by going online and looking, all it was doing was it was breeding fear and anxiety and it was freaking people out and encouraging them as a result to sell. And out of worries that prices would fall even further, nobody was worried about it when the dow went from 14,000 to 12,000. But by the time it hit 10,000 and then 9, 8, 7,000, people were downright panicking. And what did it translate to? They sold after losing 40 or 50% of their money, which was the exact worst time to be doing it. Everybody is an emotional creature. We all are. That's how we're wired. And as a result, we tend to to want to buy when prices are high and we tend to want to sell when prices are low. It's the exact opposite of what we're supposed to do, but it's emotionally how we're constructed. So by looking at your statement and by looking at the account value every day, all you're doing is encouraging yourself to do the very wrong thing at the very wrong time for all the wrong reasons. So my Attitude is very simple. Stop looking. I mean, imagine the farmer who plants a seed in the ground. Would he come back the next day if he wants to see how it's doing? Would he dig it up to check it out? It doesn't make any sense. The farmer knows you plant the seed, you come back, come back in six months and you harvest. That's what investors have to do. We have to take a long term focus, plant the seeds in the ground, invest the money today, come back in 10 or 20 years. If your kid is 5 years old and you're saving for retirement, or rather for college for that kid, he's 5 years old, you're saving for college in another 13 years. What does it matter how the account's doing today? Come back in 13 years, we'll talk about it. And that's the approach that people need to be taking. It's not about what's happening today. It's where we're going to be in the future, the account.

Rick, I definitely agree with what you're saying. The concept of let cooler heads prevail is a good way to put it. Because when The Dow hit 6400 and everybody was selling off like crazy, all you had to do is wait a little longer and you could have sold off at 8,500 or 10,000. But if you look at the last 10 years, that argument doesn't sit very well with a lot of investors today because there's been no nominal gains and certainly there have been real losses due to inflation. What would you say to that? Is the future just a lot different than the past 10 years?

The last 10 years makes me very, very excited for one simple reason, Jason. If we take a look at the historical performance of the stock market since 1926 and we look at the S&P 500, there have been only three times since 1926 that the stock market has not made money in a 10 year interval. Two of them them occurred in the 1930s and one of them occurred in these last 10 years. So you're right. The last 10 years the stock market failed to make money. In fact, the average annual return of the S and p these last 10 years was a 0.5% loss. So it lost on average 1/2 of 1% per year. Now that tells me two things. Number one, it is extraordinarily rare for the stock market to fail to make money over a 10 year period of time. It's only happened three times since 1926. That gives me a very high degree of confidence that it is Extraordinarily unlikely that I'm going to experience it again for a very long time. That's number one. And number two, even if I do experience it, I think that a 1/2 of a percent loss per year is pretty far and away something from across the I mean we have to get a grip. We have to put ourselves into practical context here and recognize that people who had invested in the stock market 10 years ago have not gone broke. They might not have been as profitable as they would have hoped, but their money is still essentially intact. And although they might not have earned the profits they wanted to have earned, that's a far cry from saying they just flat out went broke like someone who invested Enron did 10 years ago. So I'm feeling very, very comfortable because of the long term performance numbers rather than skeptical or nervous about it.

We'll be back in just a minute.

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Nowadays investors, Rick, are so, they're just so outraged at Goldman Sachs and you mentioned Enron. So it made me think of it. And all of these scandals on Wall Street. Do you think finrag, the new financial regulatory reform or any of these government, any of this government legislation is going to clean this mess up at all? Or do investors just have to sort of expect that there will be scandals and you diversify to prevent a lot of damage from any one scandal? God forbid those people that put all everything into Enron or WorldCom or Global Crossing or the list goes on and on. What do you think about just the malfeasance in general?

Well, your statement is correct on both counts. It's not a choice of either or. Yes, the government agencies are doing a fine job at making sure that what just happened doesn't happen again. That's the first answer. Now as I mention that I don't want you to conclude that therefore there will never be another crisis. Every time this country has gone through an economic crisis crisis, it has been unprecedented, meaning it has never happened before. And then the government comes in and changes the rules in order to make sure that that particular crisis never occurs again. Look at the crash of 29 and the depression of the 1930s, the government created a wide series of rules. Won't bother going into them here, that are designed to make sure that that type of economic calamity never occurs again. And guess what? It has never occurred again. They fixed the problem. But then in 1987, we had another market crash, and it was caused by a totally different set of circumstances. And the government came in and created a new set of rules to make sure that never happens again. And it hasn't happened in the last 20 years. And now we've got a new economic crisis the past three years, the credit crisis, and the government has just released another new set of rules to make sure that never happens again, and it won't. And now we just had the flash crash in May, which was another crash. This one only lasted 20 minutes, but it was still a big crash. The Dow dropped 1,000 points and recovered itself in just 20 minutes. And the government, within two weeks, created a new set of rules to make sure that never happens again. So we will never see again what happened recently, because the government has created new rules to prevent it. But what it means is simply that the next crash will be for something totally different, something that's never yet happened and something that no one has predicted. So the good news is we won't go through again what we just went through for the same reasons. We will go through something different for a different set of reasons. So it's a good news and bad news scenario. Which leads me to the second point, which is what you made. You can therefore not assume that the government will protect you, because the government can't. The government is a reactive agency, not a proactive.

That's a great way to put it.

Problems. After the problems have been identified, it's not very good at anticipating problems. And as a result, you are responsible for your own defense. And how you defend yourself is stipulated in a single word. And you used it, Jason. Diversification. Even though I'm very optimistic about the economy and I'm very confident that the stock market will do well over the next 10 and 20 years, that doesn't mean I'm willing to put all of my money into the stock stock market. I don't do it for myself. I don't do it for any of my firm's clients. Instead, we hedge our bet. I am not willing to make a big bet and gamble my financial security on being right. So we diversify. We have some money in stocks, but we also have some money in bonds. We also have Some money in real estate. We also have money in gold and international securities and oil and gas commodities, a wide variety of asset classes and market sectors to protect us against the risk that we might be making the wrong decision at any given time.

It's interesting, a lot of advisors and a lot of gurus and experts out there, it seems like they can sort of be categorized or cast into they're an inflationist, they're a deflationist, they're a gold bug, they're a resources person, or they're a stock market bull or bear. What sums up sort of the Rick Edelman philosophy, if you will, toward investing three simple strategies.

First is diversification, as we mentioned. Second is to maintain a long term focus, which also mentioned. And third is to rebalance that portfolio in order to make sure that you maintain the diversification that you're desiring to develop. So that's really it. Diversify long term and rebalance the portfolio. And if you accomplish that, you'd be amazed how easy it is to generate above average returns with below average risk and below average cost.

Good, good point. Would you consider yourself a contrarian?

To a degree? I think you can argue that we definitely do believe that most consumers make the wrong investment decisions at the wrong time and we stand apart from that. So I do believe that to a degree what we're doing has a little bit of a contrarian element. We are not pure contrarian. I mean, there are some folks who deliberately and specifically make investment decisions that are the opposite of what the masses are doing. We don't do that, but we do look with disdain at the general school of thought that most people emulate at a given point.

One of the things I really love about your work, Rick, by the way, is that you really put it into very plain, simple language that everybody can understand. And that really is. It takes a lot of wisdom to do that. And my original discovery of you was the 10 great reasons to carry a big long mortgage and never pay it off. And I think you just start out with reason number one, and maybe we'll go through a couple of them. You can take your pick. But your mortgage doesn't affect your home's value. And that's so interesting because the market will do what it's going to do. It'll go up, it'll go down, but it's not related to the amount of the mortgage, which it's just so funny that people don't see that sometimes.

You're absolutely right. And in this past economic crisis with millions of people have lost their homes due to foreclosure. A lot of people are blaming the mortgage for all of this, and that's not true at all. Nobody in the last several years has lost their home because of their mortgage. The reason they lost their home is because they simply bought a house that was too expensive. They couldn't afford it. The mortgage had nothing to do with it. And we need to recognize that point because as you've noted, your house is going to go up in value or not. Whether there's a mortgage on it or not. The mortgage is not relevant to it. So people who fear mortgages fear them unnecessarily and incorrectly. And that is why you got. The first step is to get comfortable with the fact that your mortgage is unrelated to the value of your home.

And you know what's interesting about what you just said is that no one really lost their home because of their mortgage. And I agree with you, Rick. And they lost it because they were living in a home that they could never afford in the first place many times or their circumstances changed and made it so they couldn't afford, you know, job loss, etc. Right. But what's interesting is the way the politicians, you saw it with both McCain and Obama, the way they made this, this mantra of let's keep everybody in their home. Never mind the fact that someone who's a schoolteacher and has a lower income is living in a house way beyond their means. Now, if they paid cash for that house, had, if they had the cash, or if they put a lot down on the, on the house, they still wouldn't have been able to afford that, but they would have taken the hit to their, their sales savings, their equity in the house themselves. Whereas the lender many, many times took the hit through a short sale or a foreclosure. And it's really odd how this becomes a political football when these people got the benefit of the bargain. I think in almost every case, it's.

A very complicated situation. Obviously, as to the causes of the credit crisis, there are lots of guilty players involved. The politicians are guilty. So is the mortgage industry, so is the real estate industry, the appraisal industry. So are the consumers themselves who insisted on buying homes that they couldn't afford and creating the demand to which the industries and the government responded. So everybody's guilty in this situation. And I think we're all simply hoping that we've all learned our lessons about this and that we don't repeat it. We hope that the lending rules get tighter to prevent people, people from Obtaining loans that they really frankly can't afford. We hope the regulations are designed to prevent abuses in the industry and we hope that consumers start to act a little more maturely and not demanding something that quite frankly is beyond their financial reach. So hopefully there are lots of lessons learned in this economic crisis because if we don't learn the lessons, then we are simply doomed to repeat them.

Santayana said those who don't learn from history are doomed to repeat it. But you, you are very right, Rick, that there were a lot of co conspirators, including the, the secondary market, the derivatives pools, all of that good stuff in this whole thing. Tell us about though, some of the other 10 reasons.

Well, another one that I really like is the fact that a mortgage will not stop you from building equity in your house. It's really interesting that people fear that if they have a mortgage, it means they're always going to owe a huge amount of money on their house. They're never going to get rid of it. And that's simply not true. Because although housing prices have fallen over the past few years, that's only because they had risen so dramatically in the several years prior to that. Over long periods of time, 10, 20, 30 years, housing prices have always risen. And therefore, because your house is going to grow in value at 3% a year, the house is going to double in value in about 23 years. So at that point pace, even if you never make a repayment on your loan, your house will be worth twice as much as it is today. So clearly the mortgage is not going to stop you from building equity in your house.

Very good point. No, it has nothing to do with it.

Another element that I like, Jason, is that right now mortgage rates are at historical lows. They're around 4%, four and a quarter percent on a 30 year fixed rate loan. You will never see this again. We haven't seen these kinds of rates ever. And as a result, you have to ask yourself a question. Can you invest money for a 30 year period of time and earn more than 4.5% per year? The stock market's averaged 10% a year since 1926. The bond market has averaged about 8% a year since 1926. The real estate market has averaged about 9.5% a year since 1926. So clearly the opportunity to earn substantially more over very long periods exists. That doesn't mean you're guaranteed to do so. It just simply means that historically the potential has been achieved. So on that basis, the fact that mortgages are so incredibly Cheap creates a wonderful opportunity to help you build wealth. And of course mortgages are tax deductible under current law, which makes that 4.5% rate even cheaper. I mean to be able to borrow on a 3% net of taxes rate is absolutely fabulous and people should really maximize their opportunity to take advantage of it.

Let me take a brief pause. We'll be back in just a minute.

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One of the financial advisors that we work with here, he always says most people think of it as the house is the asset and the mortgage is the liability. When in some ways that's reversed because the mortgage, if it's a 30 year fixed rate mortgage at a low rate, that is really a huge asset. And I would much rather see people lock up those long term fixed rate mortgages on multiple properties and then use that money in other ways rather than putting it into the property itself and use the borrowed money in the property. As long as it's long term fixed rate, low rate debt.

It's interesting you say that you refer to it as an asset and you're absolutely right Jason. I don't like debt. I'm, you know, no self respecting financial planner would ever encourage people to go into debt. I don't like debt. Debt is dangerous. It's very bad. And we've seen the big problems people have with payday loans and auto titling loans and credit card loans and things like that. But a mortgage is not a debt. A mortgage is a financial planning tool that can help you actually achieve wealth. Because if you have a mortgage it means you didn't give money to the bank when you bought the house. It means you were able to retain that money which you, you, if you manage it prudently and properly, could have invested enabling you to create wealth that you otherwise would have been denied. So a mortgage is not the same as other debts. It is in fact an asset building tool.

I think that's a great, great point Rick. No question about it. The mortgage is a huge asset. And one of the other ways I like to say it is that a mortgage is self sustaining or better yet a mortgage is self liquidating debt. So when it's not against your home, when it's against an investment property. That property should be self sustainable and the property itself, the tenant pays the mortgage for you. You're outsourcing your debt the same way large companies are outsourcing their call centers to India.

I just want to make sure that when you're dealing with investment real estate that you have ample cash reserves, right? In case you do have a problem with that tenant because eviction is very, very difficult, you in the meantime still have expenses associated with maintaining the property. So we just want to make sure that if people are going to acquire investment real estate, which is perfectly fine for a diversified portfolio, that you have sufficient cash reserves to be able to manage the property effectively.

Good point. No question about it. Rick, what are some of the other hot tips on these 10 reasons? And by the way everybody, the website is rickedelman.com where you can find the 10 reason reasons and that's R I C edelman.com and these are just great. But pick a few more for us Rick.

Sure, it's the easiest way to spell it is rice delman.com just call me Rice. Easiest way to spell the website Another reason that mortgages are favorable is because the payments get easier over time. If you get a 30 year fixed rate loan, you're going to have a monthly payment and that monthly payment will never go up. Your P and I, your principal and interest payment will be locked in for 30 years. But over that 30 year period of time your salary will grow, if only because of inflationary increases. So because your income is going to grow and the payment does not, the payment effectively gets easier and easier to make as you get older. People tend to struggle hard with their first few months of payments because they've applied all their available cash to the down payment and they're not making a whole lot of money and they're struggling. But five, 10, 20 years out, that payment becomes very, very easy to make. So mortgages, which seem daunting in the beginning, become a no brainer as you get older.

It's interesting how that perspective changes. I remember when my mother, Rick, bought her first house in 1976. The payment, which I do remember as a child, her stressing about the payment of a whopping $416 per month for a house in a decent area in West Los Angeles. And over the years she still owns that property, lived in it, rented it out later, and that payment seemed like nothing. By the time you hit the mid-80s, the 90s, it turns into nothing through inflation. So that's a very good perspective. One other tip on the mortgage thing. And then we'll maybe wrap up here.

Another one is that by having a mortgage, as we've briefly covered, it enables you to invest money more quickly than you otherwise would. And by investing more quickly, you're able to create more wealth. So all these ideas are talked about in greater detail at my website and in my book, the Truth About Money. The fourth edition is going to be published in December, and all of these ideas are going to be there, including a new 11th reason that I have figured out as a result of the credit crisis. We now have 11 reasons, Jason, why carrying a big mortgage is in your best interest.

I'm dying to know the 11th reason, but I have a feeling you're going to keep it a secret, right?

You'll find out when the book's published in December.

Hey, Rick, out of all of your books, which is sort of your flagship book, which is the one, should people read the most recent one if they're going to pick one of them or one of the others?

Each book has a little bit of a different emphasis. If you are struggling with confusion over how you should manage your investments right now, then read my newest, rescue youe Money. I wrote the book in response to the credit crisis and the current economic environment, and it will explain in a very quick read. You can read it in a single evening. You'll flip through it very, very fast, and it will tell you exactly what you need to be doing right now with your investments. If you're looking for a more fundamental understanding of how money works, covering the entire spectrum of personal finance, then read my classic, the Truth About Money. And the new 4th edition will be out in time for Christmas. It's greatly expanded and really looking forward to seeing that hit bookstores in December.

Excellent. Good stuff. Well, Rick Edelman, thank you so much for joining us today. Anything else you want to say in the closing to people just to kind.

Of wrap this up, just to recognize that the current economic environment won't last forever and you want to position yourself today to take advantage of what's coming next.

Good advice. Well, thanks, Rick edelman, and that's rickettleman.com Rice delman.com Thank you for joining us today.

My pleasure, Jason.

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