CW 982 - FICO Scores, Pre-Rented Myths, DNA, Goldman Sachs, The Fed & Recessions

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who's actually been there and done it. He he's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome listeners from around the world and happy Easter to all. This is episode 982, 982. And this is your host, Jason Hartman. I want to wish everybody around the world a very happy Easter as you celebrate today. Well, you're not hearing this on Easter Day, but you'll hear it the next day. Anyway, that's when I'm recording it. Several things going on in the world. As always, I interviewed a very interesting guest which will be coming up on the show, an economist who we are trying to book as a speaker for our Venture Alliance Mastermind in New York City coming up on Memorial Day weekend. So Venture alliance members, I'm sure you'll love that, non members, if you want to join us for that event, you can always come as a guest with a one time guest fee or check out full membership as well. Venture alliancemastermind.com Anyway, one of the things in reading his book and of course he'll be coming up on the show, did you realize that, that the Federal Reserve, of course, the Federal Reserve, our central bank that we've talked about a zillion times on the show over the years. Well, one of their charters of course was to even out to lessen the roller coaster ride that is the economy. Well, since the Federal Reserve was created and of course we took a Venture alliance mastermind trip to the place where it was created, Jekyll Island, Georgia, a beautiful resort there that we stayed at. And we had our Venture Alliance Mastermind meeting in the Federal Reserve room, the very room where they created the Federal Reserve. Boy, that was a very hysterical, I mean historical, a very historical occasion to do our Venture alliance meeting there. But one of the big charters, one of the big sales pitches if you will, to the people, to us, to the hoi polloi, us poor little people that need to be protected was that they would even out the ups and the downs, the peaks and the troughs, the highs and the lows in the economy. And of course, what, 15, 18 years after, 17 years after the creation of the Federal Reserve was the Great Recession, the biggest, the biggest valley in the economy so far. And then of course, seven decades later, just what, 10 years ago, we had the Great Recession almost as bad. But There have been 18 major recessions since the creation of the Federal Reserve. And since the time the Federal reserve was created, 25% of the time that has gone by that has occurred since then, the economy has been in a recession one quarter of the time. How they doing? What's the report card on the Federal Reserve? Well, it ain't that great, folks. It ain't that great, but pretty interesting stuff. I just thought I'd share that with you as a very big general view on a future episode. One of the things I've been studying lately is the lei. Yes. You know what the LEI is? Well, we talk about different things, different acronyms on the show, of course. Well, that's the Leading Economic indicators. And I want to take a bit of a deep dive into that. So I have been doing my homework on your behalf, studying up on the lei, the leading Economic indicators. And we're going to talk about that on a future episode. So look forward to that. Maybe I'll even talk about it from the Ice Hotel in Sweden because I'm on my way there in just a couple of days. Yes, I am headed for Stockholm, Sweden, and then we are headed as part of the Venture Alliance Mastermind to the Ice Hotel. And it's going to be very cool, pardon the pun. And I hope we get to see the northern lights. I have never seen that and probably most of you listening have never seen it. It looks incredible from the photos. We're going to report back on that. But the Ice Hotel supposedly has really interesting acoustics. And when you are a podcaster, you look for acoustics and. Yeah, well, we'll see. We'll see if we can record an episode from the Ice Hotel. I want to talk to you today about several things and permitting, I want to have a listener question, a listener who had a great question. We recorded that several weeks ago, but just haven't had a chance to get it on the air yet. And I've got a bunch of things we've recorded that we got to get on the air for you. So we will dole that out as time permits. As time permits. Gosh, you know, I was Watching a documentary recently, well, Monday actually just several days ago, I was watching a documentary and they were talking about the, the financial crisis, the Great Recession and they were talking about Goldman Sachs, the criminals, the leading criminal organization arguably on Wall Street, Goldman Sachs. Of course this is not necessarily technically criminal behavior because of course they have so many lobbyists and lawyers and accountants that they can make what I would consider just as a common man, as a layman, I would consider to be criminal behavior. But they can make it look like it's, you know, isn't really criminal. And of course nobody actually goes to jail. They just pay a big fine and fines for these big companies, these, these big organizations, fines are just part of their business plan. Just part of the business plan. So let me play for you a one minute clip from this CNBC documentary. It was really interesting. They're all on Netflix or Amazon Prime, I can't remember which one. Oh, and by the way, just for the record, folks, just for the record, speaking of Amazon, Trump, love him or hate him, Trump is right about Amazon. They are going to gobble up and destroy all of these businesses. They've already done it massively. We are obviously in the midst of the retail apocalypse you've heard me talk about many times as we see vacant retail centers all across the country, really all over the world now. These businesses just being destroyed by Amazon, right? Which, look, this is creative destruction. The economist Joseph Schumpeter talked about it. It is an okay, legitimate thing so long as it's fair and it's not a violation of antitrust laws. And interestingly, Trump is right about Amazon. I'm going to just put that out there. No matter what you think, love him or hate him, he's not right about everything. He's a bit of buffoon certainly and you know, a controversial character for sure. But he's right about this. And he's right about some other things. A few other things he's got right and I'm right. I am right about Facebook and Google. These are the scariest companies on earth. And thankfully Facebook's stock has just gotten pummeled recently. Yay. Yay. But you know, it doesn't matter to these guys because they're so mega rich, it's irrelevant, right? But these are the scariest companies on earth. They know way too much. They are violating antitrust laws, in my humble opinion. Probably not technically. Obviously the government hasn't nailed them yet. But these companies are becoming too big to fail. They need to be chopped up into smaller parts or regulated like utilities yes, the libertarian Jason Hartman is actually saying that. I don't know, maybe I'm contradicting my own beliefs, but I'm okay with it. Folks, these companies scare the hell out of me. Amazon, Facebook, Google, they're just too big. Any company that controls this much of our, our news, our thoughts, our information, the stuff we get to say censors us, censors videos. Scary, scary stuff, scary stuff. So we gotta bust them up. Okay, I want to play for you this little clip from this excellent CNBC documentary about Goldman Sachs. And then I want to talk about film FICO scores and your credit score. And I want to take a little bit of a deep dive. It won't take very long, just a few minutes on some different types of FICO scores, what they mean, and of course maybe a little bit about how you can improve them. Because your FICO score on your personal balance sheet, one of your assets is your ability to borrow your credit. Right? And we're always going to try and help you have better credit and manage your credit. But first I want to play for you this little clip that illustrates how the disgusting folks at Goldman Sachs were playing both sides of the market and violating their obligation to their own clients. Listen to this.

Goldman used its Hudson deal to bet against the mortgages it had sold as investments just months earlier. It started with homes like this at 785 Wayside Road in Cleveland. In 2006, Goldman bought the mortgage on this house, pooled it with others and created a mortgage backed security that it offered to customers. This empty lot on Wayside is where that home once stood. It turns out Goldman made two deals that included the mortgage for this home in the same year. The mortgage backed security and the Hudson synthetic cdo. In the first, Goldman offered an investment to customers who expected the mortgages would be paid back. In Hudson, Goldman was wagering its own money that the mortgages would not be paid back.

That raises the question, was the bank selling investments it assumed would go bad? Goldman insists it was not.

So isn't that interesting? That's how Wall street operates, folks. And when you invest on Wall street, that's just one example of the zillions of conflicts of interest. You know, I watched the interesting documentary also about Bernie Ebbers. Remember Bernie Ebers? Yes, Bernie Ebbers, WorldCom, right. You know, bought MCI, was the hero of Wall Street. Until he wasn't. Until he wasn't. There are many companies out there like this that are always the darlings of the community. You know, maybe they've got A little fund where they're doing real estate syndications or they're a big Wall street firm. And. And then, you know, you wait five or seven years and you find out they're a bunch of disgusting criminals and they've been ripping people off. Ripping people off. So don't let it happen to you. Don't fall into their trap. Okay, let's talk about FICO scores for a moment. So maybe you don't know this, I've talked about it before on the show. But there are several different FICO scores. Of course, you know there are three major credit bureaus, right? Experian, TransUnion, Equifax. So there are three bureaus. But in addition to the three bureaus, if that wasn't complicated enough, you've got all of the, the ways that impact your FICO score, right? You've got, you know, your payment history, your utilization ratio, how much credit is available to you versus how much you've actually used, right? And the more you've used, the greater your risk and the lower your score. You've got the number of inquiries on your credit report, and then there are hard and soft inquiries on your report. There are all these different nuances and complexities. Well, to make matters even more complicated, there are several different FICO scoring models. Okay? You've got the three bureaus, which all have a different score for you, probably. Okay, they certainly do for me. I mean, you know, two of the bureaus, my scores are like 729 and 734. And at one of the bureaus it's way lower. And I can't figure out why I'm trying to fix that. But it's like, I don't know, 30 points lower and it just bugs the heck out of me. So that's the three bureaus, the makeup of the bureaus, right? Now also, I want to say one thing, and I've said this before. If your credit score is too high, I believe I say you are making a mistake. Yes, a mistake. Now why would that ever be considered a bad thing to have a credit score that is 850, for example, credit scores go from 300 at the low up to 850. Okay? If your score is 850, you have not borrowed enough money. Yes, you heard it right here. You are not borrowing enough money. Now, I'm not encouraging that you go out and borrow in terms of getting rip off student loans or credit card debt or anything like that. I am simply encouraging that you borrow to buy more properties. So it's like the person who says, I've heard this in real estate. I remember realtors when I was in the traditional side of the real estate industry saying this. Well, you know, I've never had a deal fall out of escrow, you know, oh, well, how many deals you do last year? Three? You know, clearly you are not doing enough if you've never had a deal fall through. Right? Okay. You know, so this is the kind of the same mentality. Look, folks, if you've never had any failures in life, you're not doing anything in life, you're not taking any risk. When you put yourself out there and you're courageous and you're a risk taker, and I don't mean an imprudent, stupid risk taker, obviously, but when you do things in the world, when you make dust in the world, when you make things happen, you're going to have some problems, okay? It's like the person that says, well, you know, I've never been in a lawsuit. Well, what have you actually done in your life? It's like you never have any problems with vendors if you have like three transactions a month. But guess what? When you have hundreds of transactions a month, the law of large numbers says you're going to have a few that go bad. You're going to have a few problems. And the law of large numbers, by the way, also works in your investment portfolio. So if you have one property, you know, you've heard this before, right? You know what I'm going to say? If you have one property and it goes vacant or the tenant doesn't pay, well, 100% of your portfolio has gone bad, if you have many properties, you put the law of large numbers on your side, right? Because that law of large numbers says that over the portfolio, you spread the risk and you start to get a decent, consistent yield, right? Because the law of large numbers works in good ways and bad ways. You know, if you have a lot of transactions, you're bound to have some problems because you got a lot of vendors you're dealing with, right? And I'm talking about, you know, for you folks in business. But hey, even if you're not in business, if you have a complicated life and, and you've got a boat, you've got a plane, and you've got a big house and landscaping people and contractors coming in all the time and you're cutting a lot of checks every month and you're paying for a lot of stuff. Hopefully that's not your life. I've had that life. I don't like it. I used to own a boat. I bought two airplanes. I had a 48 foot yacht. I had a big motorhome, a 38 foot motorhome. I've had all these stupid toys. Don't buy them. They're a ripoff. Don't buy them. Don't buy them. They depreciate. Buy some more properties. I've been there, I've done it. Take it from me, it's not worth it. Better to rent than buy. Because no matter what you think you will use all those toys far less than you think you're going to use them. So just rent them from somebody else. And in the sharing economy, it's so easy to do that nowadays. There are so many ways to do it. Okay, think you got the point? If you don't have the point, then just go to Jason hartman.com ask Jason hartman.com ask and I will try and address your questions on the show. By the way, we've accumulated quite a bit of those lately. So thank you for participating in Jason hartman.com Ask and by the way, also thank you for all of you who are registering like we are selling tickets like hotcakes. I guess hotcakes sell pretty fast. For our Philadelphia event. We've got a super swanky hotel and we've got the largest room at that hotel. This event will definitely sell out. Our Philadelphia event coming up in May. So Jason harmon.com click on events. Get your tickets. Okay, FICO scores. So the range is from 300 to 850. FICO score eight. The eight scoring model is the most widely used version. Okay, now let me go through several of the versions here. Now there may be more versions than this. Okay. But FICO 4, let's go through the 4 model. FICO 4. Right. FICO 4 is an older version, but the real estate industry is kind of an archaic industry. Embrace the fragmentation. Right? You've heard me say that. And put up with the inefficiencies in the market. That's how you'll make money. Because some people don't want to put up with those inefficiencies. If you're willing to tolerate them, then you've got a barrier to entry. Right? There's a barrier to entry and you've gone over the barrier or through the barrier. And so you're getting the yield that other people who are unwanted willing to do that will never get. Right. They will never make that money that you made. So FICO 4 is most widely used in, guess what? Mortgage financing. Yes. So when you buy that property, FICO 4 is probably the model being used. FICO 8 8. Number 8, not number 4. FICO 8 is most used in automobile financing. So if you go buy or lease a car, they're likely to use the FICO 8 score. Now, I can tell you my FICO 8 score, for example, is 750. It's quite good. Right? But my FICO 4 score is 7 11. It's not as good. By the way, I have to say I don't know which bureau I'm talking about because remember, the score is going to vary at all three credit bureaus. Okay, so you got the bureau's, the score will vary. And then you've got all the FICO scoring models. The score will vary. Right? Okay, so let's talk about credit cards here. Okay. By the way, there's a FICO for auto source score. Okay. So sometimes automobile financing uses it, but mostly it's for mortgage financing. FICO 4. Okay, what about credit cards? What about credit cards? Mostly they are using FICO 8 and 4. They're mostly using 8. Actually, 8 is the most common one. They used to use 4. Most of the bank card credit card lenders are using FICO 8 now. Okay, FICO 8 now. It. Interestingly, there's not only a FICO 8. Oh, God, this does get complicated, doesn't it? There is a FICO8.8 bank card score and a FICO8 auto score. And they're different. Mine are different. Okay. I'm looking at them right now. I'm looking at my own scores. And then of course, all three bureaus, and they're going to vary there. So my FICO 8 bank card score is outstanding. It's probably too high. 762. Remember, you don't want to have your scores be too high because if they're too high, you're not using enough credit. So I could go out and borrow some more money. I have this nagging urge to get into debt. Which, by the way, you know that guest that I recently interviewed that will be coming up soon on a show and hopefully speaking at our Venture alliance mastermind in New York City, if we can get him, because he's an east coast person, he said something very interesting to me. This was kind of fascinating. This particular person has millennial children and is a big fan of the millennial generation. You know, the millennial generation gets a lot of. They get kind of a lot of bad press. They deserve some of it, but not all of it. Maybe. Okay, so you know it. Look at there's goods and bads in everybody and everything. And, and you got to weigh it all out, right? So the bad thing about the millennials is they're, you know, they're kind of spoiled, right? You know, they've been, they've been catered to. They've been carted around, a soccer practice. You know, they're definitely not latched. I was a latchkey kid, you know, I kind of had to fend for myself. You know, I didn't have much guidance as a kid. Now, these millennials, they've had maybe too much guidance and never learned to be independent. Right. Maybe I could have had a little more. You're probably thinking that. Okay, so they're good and bad. But one of the very interesting things this guest said to me, and you'll hear this episode coming up, he said, you know, a millennial doesn't really understand anything about, guess what? Inflation. Yeah, they have no real concept whatsoever of inflation. They've never lived through it. They don't understand even the, the concept of how prices would rise, asset values would rise really fast. Well, certainly they've had an asset inflation, but, you know, they're not really in the market buying much of those assets yet. So as they enter that market, if they can enter that market, and we've talked about that on many prior shows. We shall see. We shall see. But, but, yeah, you know, he was right. I mean, a millennial person who's 18 to 34 years old say, you know, they never really saw inflation during their lifetime. Now, I saw inflation. I saw inflation for sure. I remember when I was a kid thinking about inflation and how prices were just, you know, rising, rising, rising. You know, it's interesting how that all goes. So we'll see how they react to that. So more on that in an upcoming episode. Okay, so bank card score number four and bank card score number eight. Eight being the newer version, the four being the older version. Okay, what about some new versions of FICO? Guess what? There's a FICO 9 that is the newest version of FICO scoring, FICO 9, and it is now being used in auto lending and with bank cards or credit cards. Okay, not the mortgage industry is still using the old one. And you know what? That does not surprise me at all. That does not surprise me at all. I want to give you a word of caution on another subject here, and I want to talk to you about the rented home myth for just a quick moment here. Most of the properties we sell are unrented. We sell some rented properties. We have One investment counselor of our team that does not like to sell rented properties. Now, this particular investment counselor is very much actually against rented properties, because with a rented property, you can. I don't want to say never, but you will likely not have a very good quality home inspection. Certainly, you should always get a home inspection. But with an unrented property, there is very little argument as to the condition of that property. Right? And when our local market specialist sells you that property, you know what? You're getting a lot better in a vacant property than a rented property. It would seem on the face of it that a rented property is better, but the rental market is so hot right now that getting properties rented is certainly not a problem. Not a problem. I mean, occasionally there's an outlier case where it is a problem, but by and large, you know, it's like 1 out of 250 where there's a problem getting a property rented quickly. Properties are renting very quickly, so this is counterintuitive. Okay? But just understand, when a tenant has got all their junk in a property, all their furniture in a property, the home inspector is not moving their sofa to look at the floor underneath their sofa. They're not taking down the pictures on the walls to look at the walls. There's just some stuff they can't really investigate very well. And the home inspector may come there and inspect the property that's rented with a tenant in it. And they may want to be polite and, you know, so they won't really, you know, flush the toilets as well or, you know, run the dishwasher or, you know, do all the stuff they're gonna do. They may not really nose around like they will in a nice, simple, vacant property. So a clean vacant house can be a safer deal than a rented property. It's counterintuitive. That's why I'm raising the issue. I'm not saying never buy a rented property. I'm just saying there is an extra step of concern and caution there that you should be aware of. Also, always make sure that if there are punch list items that are not finished, not taken care of in that inspection, as I've talked about before, have the inspector go back and reinspect before you close. Do not accept a promise from the seller that they will do things. Only accept money. Yes, money. Cash. Cha Ching, get some money. Have them leave money in the escrow account with the closing attorney with the title company. That's more than enough to cover those items if they cannot do it before closing. Protect yourself. Protect yourself. Okay. Last thing I want to share today. DNA. Yes, DNA. What is it? Deoxyribonucleic acid. Hey, I took biology class and anatomy and physiology too. Okay, so I actually kind of like that stuff, you know, I could have been a scientist maybe. Eh, probably not. Okay, Anyway, I thought I kind of had an aptitude for that in high school and my whole two years of college before I didn't finish. Anyway, so good old DNA. I resisted this for many years. You know me, I don't like the orange Orwellian big brother society in which we live. And you know, we're all giving into it in one way or another. You got a new car with a GPS chip. Your phone has a GPS chip. They know where you are. Edward Snowden taught us that the NSA is frequently hot miking our phones and our computers and our iPads and they're listening, or they're even hot miking the camera and turning it on when you don't know it's on. Scary, scary stuff. Do any Internet searches? Google has kept every Internet search since the beginning of the company. Absolutely disgusting. Absolutely disgusting. I mean, Google, scariest company the human race has ever known. See, all of your constitutional rights. Well, if you're in the United States, all of your constitutional rights to privacy and such are only rights against the government, not against private companies. And guess what? When private companies get to be in bed with the government, you have no protection. Yet they're sharing the data with the government. So the private company is just a fricking proxy for the government. What's the difference? The government might as well violate our rights directly, you know, our constitutional, our civil rights. In the first 10amendments to the Constitution, the Bill of Rights, one of the greatest things humanity has ever known. Finally. I mean, there was the Magna Carta and then there was the U.S. constitution. And the U.S. constitution was a very special document. Why was it so special? Because it was really one of the first times a government charter told the government that the government was here for the people, not for the government's benefit. We the people, you know? Right. That was the whole concept. And it's a government of the people, by the people, and for the people. Now certainly I doubt we have that and you probably agree with me. But at least the document is still there and it's still standing and it still says it. But it was the first time that a government document actually limited the power of the government and said the individual has all these rights and the government does not have these rights. What a beautiful thing. What a Beautiful thing. I mean, it's beautiful, right? Well, big brother. So I finally gave in and I did one of those DNA tests. Yep. I did it because I wanted to know about my ancestry and my health. Well, just a few days ago, someone emailed me through that company's website and said, I believe I am your cousin. And I guess this probably can't be faked because. Or at least not easily faked because the company that does the DNA, you know, shows that this person is like a 10 DNA match with me and, you know, said, hey, I'm trying to find my biological father. This person says, so I've been helping him do this. It's quite interesting, and I think. I think it may actually be true. You know, at first I thought this probably some kind of a scam, but I don't think it's a scam. So it's pretty interesting stuff. You know, I hate to be in a database, but I figure, hey, the government's probably already got all of our DNA in a database and they're just not telling us, so. So we. We shall see. But just thought I'd share that interesting story as it is unfolding with you. And if you've done your DNA test and, you know, I did it on Coco the dog, my dog that was, I don't know, semi interesting. I don't think it was super accurate, but we'll see. So if you've ever done that and you have anything to share, go to jason hartman.com ask and tell me about it. I'd love to hear about your experiences. Anyway, that's it for today, folks. We've got to wrap up in the interest of time. We got a great episode coming up in a couple of days. On the next episode, I will be in Sweden. I will be in Sweden, Stockholm, and then the day after that at the ice hotel in northern Sweden. So I'll be in the Arctic Circle talking to you from a very chilly place. So until then, over and out. Happy investing. And I'll talk to you in a couple days on the next episode.

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