Jason talks to two southern travelers about their thousand mile “Investor Road Trip” then Gary returns for a discussion of how the south is the location of the next great American industrial revolution. Stay tuned for Part 2 and “The Subprime Primer.”
Announcer: Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Costa Mesa, California. 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 real estate, 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.
Jason Hartman: This is Jason Hartman. Welcome to another addition of Creating Wealth. Glad to have you here today. I just returned from Argentina, looked at real estate there, and I tell you. I have looked in so many international markets. We’ve talked about that on the prior podcast that I did late last year. And I looked at Argentina. I’d been studying this market for several years now and I just wasn’t impressed with what I found. I didn’t think the investment potential was that great there, especially for one reason, and that is because no financing. One hundred percent cash to buy properties for foreign investors there, so while I like Buenos Aires very much, I went to one other town as well and I do think they’ve got potential for appreciation.
All things considered, they have had a lot of appreciation. They’ve got a lot of speculators in that market, undesirable financing, not a very desirable tax situation; still makes the good old U.S.A. the best place to invest, especially in one area, in the Southeastern United States, which is my favorite sort of region. Now, I have several other areas that I like to invest in as well, but that’s my favorite region.
So on today’s show, we have a few guests. We are going to be talking with Dave and Cathy. Dave is one of our clients and Cathy is and joined us a long time ago in terms of buying properties from us, and then Dave got his real estate license and actually came to work here, and he is an investment counselor with us as well. And they just got back from a long trip around the Southeastern United States and have some interesting insights to share as to what they saw. And then also, Gary, who has been on prior shows as well, will be talking to us in a two-part series, entitled “The South Will Rise Again.” And I think you will find his insights over these two segments, one on today’s show and another on the next show, to be very interesting as well.
But before we get into that, I just wanted to share with you what I got in a recent email newsletter that I receive. It says that the rental market is surging. Rents are accelerating in many markets across the U.S.A. Vacancy rates are down from last year. The average rent is projected to rise 5.3 percent in 2008, up from the average increase in 2007 of 3.1 percent, according to the National Association of Realtors.
Now, folks, here’s something I want you to be aware of and think about when you’re talking to and dealing with your property managers. Of course, you need to ask them for their advice, consider their advice, but sometimes they are a little too conservative, especially when it comes to rent increases. I tell you try to raise your rents 4 percent every year if you can. Some years, you can do better. Some years, you can’t raise them at all. It largely depends on other inventory in the market; what other choices do tenants have. Are there a whole bunch of new properties that have just been built that they can move into for a lower price? Are interest rates very low? Is it easy to qualify for a loan and buy a property?
Well, it’s not so easy anymore. And go back and listen to my podcast on the “Three Dimensions of Real Estate Investing” where you can really learn about the interplay between the rental market and the for-sale market and interest rates, and how these multi-dimensional aspects of real estate play together. But know this. Your property manager will typically charge you somewhere around 10 percent for managing your property, and if you have a unit that rents for $1,000.00, just as a nice round number example, and you want to raise your rent 4 percent every year or $40.00, think about how much the property manager gets by you increasing your rent. They get an extra $4.00 a month. Not very motivating, is it?
Well, it’s more important to you because you get an extra $36.00 a month. Now, you multiply this times 20 units or 6 units or 200 units, whatever it is that you own, and this is a substantial amount of money that you’ve got to think about here. So push your property managers to increase your rents because we are in the market where rents are increasing.
Now, every market is individual. Every metropolitan statistical area or MSA is individual and there are many micro markets within those areas, so you need to consider your property manager’s advice to be certain. Talk to them; see what they say, but push for rent increases. Now is a good time to be doing that.
Okay, let’s get into the show and here we are with our first segment.
I’m here with Dave and Cathy and they just got back from a whirlwind tour of Alabama and Mississippi. Welcome, you guys.
Cathy: Thank you.
Dave: Hi, Jason.
Jason Hartman: Great to have you, and Dave you’ve heard on the show before, but Cathy, this is your first time, so we appreciate you joining us. And for all of those, you’ve probably heard the story. Cathy had the funniest testimonial ever coming to our seminars because she said to Dave, “I’m going to the seminar just so I can say ‘no’ to your idea of investing in real estate,” and I guess I had her by the break. And now, they are big real estate investors. They have properties in several cities, and Dave, do you want to mention which metropolitan areas you have properties in?
Dave: Sure, we have property in Salt Lake City, in Dallas and Austin, North Carolina in the Charlotte area, and most recently, in Tuscaloosa and Mobile.
Jason Hartman: Excellent, excellent. Cathy, what about your trip? You landed in Birmingham, right? Where did you go? Tell us about the journey.
Cathy: Well, we landed in Birmingham late in the evening and we had our kids with us and we drove straight to Tuscaloosa. We spent the night there and everybody was excited because just from the drive in the twilight, the moon, we could see that we were in a wooded area that was going to be really pretty the next morning. And upon check-in, met a nice, little Alabama girl, who wondered why we talked funny, wondered where we were from.
Jason Hartman: Californians do talk funny.
Cathy: And said that she didn’t know why we were there on vacation. So we told her we were excited to see what’s going on with the city and we were not disappointed.
Jason Hartman: Okay, so speaking of which, Cathy, you mentioned maybe we’ll call this an investor vacation or an investor tour. And one of the nice things about that is that Uncle Sam picks up the cost, right, or part of the cost.
Cathy: He picks up part of the cost and our kids knew before we left what exactly would be taking place, that we would be doing some investor business, looking at property, which they love to do.
Jason Hartman: You’ve got those kids well trained.
Cathy: We’ve got them onboard.
Jason Hartman: Now, tell us about your kids. I think Dave may have mentioned them in the show before, but you have two girls.
Cathy: Two girls.
Jason Hartman: And what are their ages?
Cathy: Our oldest is 16. She’s a sophomore in high school and we have an 11-year-old daughter. They’re both very good in math and Dave talks to them a lot about our business, and after visiting these different cities, they’re very onboard and interested in what we’re doing.
Jason Hartman: I know that one of the things Dave shared with me in the past is that he wants both girls to own rental properties by the time they’re 18 and I just think that’s fantastic.
Cathy: Yeah, yeah, they’re – especially our oldest, she’s not really interested in purchasing a car. She feels she can borrow one of ours.
Jason Hartman: Right.
Cathy: And she’s really looking at owning property.
Jason Hartman: That’s great. Awesome. Awesome. You know these are kind of a way to take tax-deductible vacations and you’ve got 12 properties, I believe, and you’ve now visited after the fact, after you purchased, every property you own. You’ve made it a point to do that as an afterthought. Tell me your general impressions of those and then we’ll get back to the specific trip.
Dave: Well, it’s a little bit of a leap of faith to buy something just based on some pictures that people take and a worded description in an email, but I’ll tell you that I’m very pleasantly surprises with how accurate the descriptions are and how our expectations were exceeded when we actually got to all these different properties and saw the locations, their relation to colleges and jobs, and access to freeways. Just very lovely, brand new construction.
Jason Hartman: And I didn’t even know you were going on this trip until you had emailed me about a week ago, saying you just got back and you traveled on this trip over a thousand miles, right?
Dave: Yeah.
Jason Hartman: Wow, that’s great. So you really explored some different areas. Okay, so Birmingham to Tuscaloosa to Jackson, Mississippi, down to Biloxi, Gulfport, Pascagoula, and then Mobile.
Cathy: Right.
Jason Hartman: All right, what were your general impressions of all these areas you visited on this trip?
Cathy: We were thrilled with the beauty of the area and everywhere we stopped, we like to visit with people and we like to talk to people about their impressions of the area if they’re natives. Many of them were. Many of them were transplants from Tennessee, surrounding states, and even as far as New Jersey. People came there, realized their quality of life could really be wonderful, and they stayed. Just the friendliness. I do have to tell you that here in Southern California we get quite fast paced, get caught up in the throng here, and so when you talk to people and find out there’s a slower pace, it also helps us as investors as we work with people from another area to learn a little bit about their customs.
Jason Hartman: Sure, because people don’t move as quickly as they do in the overpriced areas that we live because – we were kind of mentioning this before we started recording – but in an area like Southern California, where it’s very, very expensive to live, especially the housing cost is so high, but most other costs are higher, too, and it’s kind of a survival mechanism here that we don’t have any time for people. And I’m laughing while I frown when I say that because it’s not good really, but it is the way it is.
Dave: They have an expression there: It takes all day to say I only have a minute.
Jason Hartman: So why bother, right?
Cathy: Yeah, exactly, and the weather, a lot of our friends were concerned about well, it’s humid there. I know we were there in April and we saw it at its most beautiful. Everything was blooming, dogwood, azaleas, everything. But the quality of life that’s there, I don’t think I would mind a little humidity.
Jason Hartman: Right, well, my mom’s building a home in Gulf Shores, Alabama, and you went by her area and looked at it and had some impressions on that. But one of the things she says is I love the humidity; I don’t have to moisturize my skin so much. I look younger when I’m there.
Cathy: I know. That’s what I was telling everybody is that I think the moisture would be good, but we’re ready to be your mom’s neighbor.
Jason Hartman: Yeah, right, right. She’s building a nice big southern mansion there. It’s gonna be nice for her. So Cathy or Dave, your first real city that you really did any real estate work in is Tuscaloosa, right? Did you meet with our agent in Tuscaloosa?
Dave: Yeah, we met with Brock with Builder’s Group.
Jason Hartman: Okay, great. So how was Brock and what did you see and what did you do there?
Dave: Brock set his day aside for us and showed us where our existing properties are and then showed us some new perspective properties as well. And then Cathy gave him an idea of the kind of place she would like to live and why don’t you describe what you saw there.
Jason Hartman: Now, but you’re not looking to move or anything, right? I mean you’re entrenched here in Orange County, California.
Cathy: I’ll tell you what. Dave and I both and our kids are natives of Southern California. But when I saw Tuscaloosa and talked to some of the people and then Brock treated us like family, he was wonderful. He had everything planned. We didn’t have to wait on him to get his bearings. He knew exactly what he was doing and he had some really good ideas for us. And I loved it and I said, Brock, I’d like to see something with four bedrooms that we could bring our family and live. He knew exactly the area to take us and it was very spacious lots. The homes were, I would say, southern plantation looking and new construction. The house that we saw was about 3,500 square feet. It had all the builder upgrades.
Jason Hartman: And I’m going to guess the price is $300,000.00.
Cathy: It was a little more than that because it was on a very big lot with a huge deck. It was in the $400,000.00 range.
Jason Hartman: It’s amazing. It’s amazing. Folks, I tell you, we have listeners listening to this podcast in 26 countries around the world and if you live in an expensive city, you listeners, really, please, if you haven’t check out some of these other areas around the U.S., but around the world, of course, too, there’s a lot more to life than living in your beautiful, expensive area, and that’s what I’ve really learned since we are nationwide. And of course, we look at international properties, too. I’ve even told you guys not to get off on a tangent, but I leave for Buenos Aires in about a week and a half.
Dave: Do you need somebody to carry your bags?
Jason Hartman: There you go. And you know, I’ve been studying a lot of these international markets for five, six years now, and Buenos Aires has been one of them, so I’ll report back to the listeners and to you, of course, and let you know how it is. But there are just a lot of great areas all around the country, all around the world, that are beyond where most of us sort of think our whole life exists and occurs.
Cathy: Right.
Dave: I would also say open up your perspective because there’s the preconceived notion that you might have about an area and then there’s the reality of it. And when we went to Alabama, I certainly had my preconceived notions, but it’s just spotless clean and all the construction’s new. It’s, in many respects, just a brand new city. They also have a downtown district where they preserve the historic district and just everything about it was wonderful.
Cathy: Oh, and Dave reminded me. Because our properties are in college areas, then the cultural aspects are very high. Music, arts, and just the overall feel of just an exciting area where things are happening.
Jason Hartman: Yeah, college towns, most of them, have a really good vibe. I like them, yeah.
Cathy: Absolutely. Yeah, we loved it. Brock had us go down to a beautiful area in the University District for a local hangout for lunch, and we were thrilled. Local artists had their items hanging in the restaurant and the best seafood. It was fresh. It was great. We had a great time.
Jason Hartman: Good, good stuff. Let’s leave Tuscaloosa. Let’s talk about Jackson, your next destination. Now, Jackson, Mississippi, is one of our markets. It is a GoZone and we’ve put a lot of clients into that market. We think it’s a great market. What were your impressions of Jackson? Did you do real estate work there or were you just having a little fun?
Dave: That was the main purpose was to again, identify some potential investment property. So Mississippi, driving from Tuscaloosa to Jackson, we drove through a forest for three hours and it was just as pretty the next day as the drive getting there. And we went to a couple of different places. We went to Madison County and we went to a place called Byram and were pleasantly surprised to find out that properties there, after you pay for all of your expenses, can be at least cash neutral, if not cash positive from Day One.
Jason Hartman: Okay, now, you know how I am about that kind of statement. Here’s what I’m going to say. It’s such a common thing how people say this. I had a guy call me the other day, say he wanted to come and talk to our investors at one of our meetings. And he said all of our properties are cash flow positive. They have positive cash flow. And I’m like excuse me, sir, what the heck does that mean? The big question, of course, that’s unstated is how much down? Is that with 100 percent down? Is it with 50 percent down or 10 percent down or 20 percent, or what is it? So that’s why we go by RV ratio and of course you guys know that. What does that mean? With how much down?
Dave: That was 10 percent down.
Jason Hartman: Cash flow positive or neutral?
Dave: Neutral at the very least; positive on two properties that we looked at.
Jason Hartman: That’s terrific. That’s terrific. Now, did you buy anything yet?
Dave: We have three properties under contract.
Jason Hartman: Congratulations.
Cathy: Thank you.
Jason Hartman: I know that Cathy didn’t want you to even have one and look at you guys.
Dave: No, I talked her into buying one. Now we’re up to about 15.
Jason Hartman: Good for you.
Cathy: And Jason, I have to say, I’m so glad that we did this. Looking at it as a family business has just been wonderful and to have a legacy to give our kids and places to visit and travel when we retire, we didn’t think we would be able to do that.
Jason Hartman: You know I tell you Cathy, I completely agree with you. Don’t you feel so secure about your financial future now?
Cathy: Yes.
Jason Hartman: Think about it. You own properties in a bunch of different cities. You’re totally diversified. Every property you bought, I think – now, you can comment on this; maybe it didn’t – but every property you bought should have made sense the day you bought it. They’re all sustainable investments and all you have to do is sit back in the comfortable assurance and the comfortable knowledge that time is now on your side.
Cathy: Absolutely.
Jason Hartman: And the dollar is becoming more and more worthless every day, which is actually good for us as real estate investors because that causes inflation. And listen to the old shows about how much we love inflation, right?
Cathy: Right.
Jason Hartman: You know, what other –?
Cathy: We were very happy with the people that took us out looking at property because they were upfront with where they get a lot of calls for leasing because when you go in, you’re not really sure. But they had their property management team in the same building and they would say, well, I know you’re interested in Area A, but we’re getting a lot of calls for rentals in C and B, or C and D, whatever.
Jason Hartman: Sure.
Cathy: And so that helped guide us to the area –
Jason Hartman: As to which areas had the hottest rental markets and rental returns.
Cathy: Yeah, exactly.
Jason Hartman: Good. Good stuff. And now, the next part of your trip was taking another long drive and you went down to the coast, and you went through Gulfport/Biloxi type area and I know you didn’t get a lot of time to spend there. By the way, for the listeners, that is one of our markets, as you may know, and we really love that market. Nancy and I just returned from there a few weeks ago and it’s on another show we talk about that. Maybe we won’t go there much. But then Pascagoula, did you do any real estate business in Pascagoula?
Cathy: We visited friends who bought new construction there in Pascagoula.
Jason Hartman: You work for the City of Irvine, which is, of course, a big city here in Orange County, and that was one of your friends that retired and left California to move to Mississippi.
Cathy: Yes, she had a son there working in Mississippi in the Pascagoula area and she retired a little bit early to be there with him. She wasn’t sure what her future would hold, but she was able to purchase a 2,000 square foot, brand new townhome in the area where it was just being rebuilt from Hurricane Katrina. So she’s kind of in a belt of the area where it’s rebuilding. There’s a lot of area because they were very hard hit and there’s a lot of areas that haven’t even been touched yet, but she happens to be in this beltway of repair. And she has such a quality of life there that she would not have been able to have here in Orange County.
Jason Hartman: Yeah.
Cathy: Not at all, not in her retirement.
Jason Hartman: Yeah, there’s a lot more to life than being house poor, isn’t there?
Cathy: Absolutely, absolutely. And she’s probably three blocks from the Gulf Coast and things that she likes to do. Her family’s there. But just to have the beautiful home that she has and we were looking and they would make – I think they would make nice rentals.
Jason Hartman: Sure, yeah. Okay, any other points on Pascagoula? Dave, did you have any?
Dave: We just got to see some of the historic features of Pascagoula. We saw Longfellow’s House. We also saw Trent Lot’s house and we saw mansions that are being rebuilt that are just spectacular. They’re beyond words. So just really pretty.
Jason Hartman: Okay, and then the next and last leg of your trip was driving over to Mobile, Alabama. And Mobile is a really hot market for us. One of the things I just want to point out on that is that the appreciation has been terrific there. That’s where the new steel plant is going. There’s just a lot of big industry going on in Mobile, and on our website, of course, we have some videos about Mobile. And actually, we have some videos, by the way, for listeners about a lot of these areas. We’ve been posting a lot of new videos lately, so please go to www.jasonhartman.com. Click on Educational Videos. We’ve posted a bunch of new inflation and monetary policy oriented videos, a bunch of new area videos, and we’re constantly putting new stuff on there. I’d say check our website once a week. We’re always updating it and we try to be very diligent about bringing new info to you.
So Mobile, tell us about Mobile, Alabama.
Cathy: Mobile was beautiful and we didn’t realize how close Mobile is to Florida, the Gulf Coast, the Gulf Shores, Orange Beach. The area is full of historic sites that are breathtaking. The city was very clean and you can see the new construction and just the boom of what’s happening there.
Jason Hartman: Last time I was in Mobile, it took me a little while to find the Starbucks, but it was there. A lot of these Starbucks, by the way, in the South are drive-through Starbucks. They have – you can go in, but you can also drive through. And that’s where I discovered – I was there about two and a half years ago or so and I own several houses in the greater Mobile area; love that area – that’s where I discovered Panera, Panera Bread, because it was a new place and I’m like what is that? Now, they’ve got them all over. There’s several of them in Orange County. So a lot of development, yeah.
Cathy: Lots of development, and since we spent the most time in Mobile, our family had picked out things they wanted to do. I wanted to see Bellingrath Gardens, which was just fantastic. Dave wanted to see the U.S.S. Alabama. That was right there. It was wonderful. Our oldest daughter wanted to eat catfish and that was her big thing.
Jason Hartman: You mean a teenager that wants to eat fish?
Cathy: She wanted to eat catfish.
Jason Hartman: I thought you didn’t like fish until you were like 25.
Cathy: And then our youngest daughter had seen ads here for C.C.’s Pizza, but C.C.’s Pizza is not on the West Coast. So we found C.C.’s Pizza and ate there.
Jason Hartman: I don’t know what C.C.’s Pizza is.
Cathy: Buffet. But we all had something that we wanted to do and it was right there in Mobile.
Jason Hartman: Yeah, that’s great. Dave, any comments on Mobile?
Dave: Well, if you get out a map, you’ll see that there’s Mobile Bay and then Mobile is on the right-hand side of Mobile County. And then on the other side of the bridge is Baldwin County and we explored both sides of the bay. So on the Baldwin County side, we took a historic drive along the coast and we saw millionaire homes right on the Gulf and we went all the way down to where Jason’s mom is building the house of her dreams.
Jason Hartman: In Gulf Shores, Alabama.
Dave: Yeah.
Jason Hartman: And you know Dave, by the way, before you move on, I just gotta comment on my mom because she was born in Upstate New York in between Buffalo and Rochester in a little town called Bliss, where the population was like 300, including cats, dogs, and cows, okay, in a little, tiny town, and lived back East a bit. And when she was about 18 or so, came out to California, as all of their siblings did as well. Went to Berkley and lived pretty much in California all of her life in Los Angeles and very cosmopolitan environments.
And it really shocked me because she took a couple of years, really, to travel around the South. She just decided you know I’m retired; I wanna live in the South. She went through every state. I mean she would go on these extended trips for 3 – 5 weeks at a time, where she was just going from place to place and driving through Louisiana, Mississippi, Alabama, Texas, Florida, everywhere. She looked at a lot of stuff and it surprises me because the thought I had, and I went on a trip to Mobile and Gulf Shores with her, and it just kind of surprised me that someone that buys opening night tickets for the opera every single year and really sort of a “cosmopolitan” type city person would move to Alabama. Any comment on that?
Dave: I would have the same thoughts and the same reservation, but after having been there, I’d say your mom chose wisely.
Jason Hartman: Yeah.
Cathy: She did, Jason. She chose very wisely because once we were in the city, it was a metropolitan feel. They do have arts there. The tickets are cheaper and you probably have a better chance of getting one, but all of it’s right there, art. And as Dave and I are getting a little older, we want to consider airports, hospitals, shopping. It’s all right there and it’s great.
Jason Hartman: Yeah. She was going to build her southern mansion that she wanted to build – my mother now I’m talking about – out here in California and it’s just too expensive. It’s just not worth it to be burdened with so much obligation, especially in retirement years. And so when she saw “Gone with the Wind” as a little girl, she always wanted to have a southern mansion like Tara. I guess you call it Tara in the movies. And so she’s building it on Gulf Shores of all places, like 8,500 square feet, so big enough, I guess.
Cathy: Yeah, I can see how she can do that there and I would love to be her neighbor.
Jason Hartman: Yep, well, maybe you will be someday. Who knows? Who knows? Who knows? This is just great. I guess we’d call this kind of soft information about the investing side. We’re not being real analytical here. But just some of your impressions are great to share with a lot of people who haven’t been to these markets and it’s just real interesting. Any concluding thoughts on this?
Dave: Well, the main purpose was strictly business and it was just nice to include the family in the business part of it, and then every place we went there was something to see and do for the kids and have fun with them. Cathy?
Cathy: It was a wonderful family vacation and we’re looking forward to our next trip, where we’ll start over and go back to Utah.
Jason Hartman: Yeah, or you’ve got to buy another property in another new city that you haven’t been to yet, so you can go there tax deductible.
Dave: But we promised the kids we’ll just stay in one hotel on the next trip.
Jason Hartman: Oh, okay, not move around quite as much. Good. Well, Dave and Cathy, thank you so much for sharing this insight with our listeners and we really appreciate having you.
Dave: Thanks, Jason.
Cathy: Thanks, Jason.
Jason Hartman: I’d like to welcome Gary back to the show. He’s been on before. Welcome, Gary.
Gary: Hi, Jason. Thank you for having me back.
Jason Hartman: My pleasure. I really like this new idea that you proposed to me the other day where we do a series. This will probably be done in two segments, entitled “The South Shall Rise Again.” And as our listeners know, we really like some of the Southeastern United States particularly well as a place to invest in real estate and buy rental properties. There are some other areas, but the South is probably the largest sort of region that we’re into. We do have a few exceptions outside of the Southeastern United States.
But Gary, let’s talk about some of the causes and effects of this national migration to the Southeast that is going on right now by first looking at history and looking at some of the problems of the past. So we’ll kind of go in a chronological order here in this segment where we’ll talk about the past, the present, and then we’ll probably do the next segment where we’ll talk a little more about the present and then the future. So tell us about the past and the problems.
Gary: There were some things, Jason. First, I’d like to point this is very personal to me because as I’ve discussed in the past, I am an investor in some of the properties that we’ve worked together on, that your company represents, and my property is in the South. And I have traveled in the South. So beyond the history of it, I like the South; I’ve been in the South.
Jason Hartman: And last time you were on the show, you were talking about how you traveled a lot in China.
Gary: And that’s true.
Jason Hartman: So we’re going to get real domestic in this show.
Gary: Right. What I’d like to talk about here is if you go back to the founding of the United States, the South had some problems that ultimately led to the Civil War, and some of those problems leading up were if you looked at the North, of course, we settled the Northeast first, there was a lot of water power up in the Massachusetts, Boston area. Industries developed up there. There was coal, there was some iron ore, and factories tended to develop up there.
So one of the things that we had in the South, it was more of an agricultural, agrarian society, and a big problem was slavery. And I’m not going to go in and I don’t want 400 phone calls, but we’ve heard; there’s books written about the human toll on it. But beyond that, there was really an economic toll and having just finished the book by Nile Ferguson called “The Rise and Demise of the British Empire,” it turns out economically, in the long term, slavery wasn’t a very good thing either because it hid a lot of inefficiencies in the economy because you had unpaid labor. And you tended to have labor when that labor was very cheap, in some senses, free, although there was quite a lot of cost. Slaves were actually very expensive. But there was a cost and it distorted the market where we might not have industrialized as much as we would have had we had to pay people for that labor.
So you gradually developed from the 1600’s, culminating in the 1800’s, you developed an industrial command economy in the North with good infrastructure, roads, canals, and in the South, you ended up with essentially farms. And the only steel that was in the South, the only steel industry was in Birmingham, Alabama, and it was a fraction of what was going on in Pittsburgh and Indiana at the time.
Jason Hartman: Sure, and this is, of course, why the South lost the Civil War because you can’t fight a war with cotton, right?
Gary: And yes, that kind of pushes into the point. So the agrarian economy combined with slavery led to a lack of infrastructure and all of this culminated in, in a sense, two different countries, and that’s what civil wars are about. One felt – well, they were an agrarian society and they felt they needed slaves to survive. The other one had no need for slaves. They had industry. And as you said, the country that could produce the most, which was the North, beat the country that couldn’t produce, which was in the South.
Jason Hartman: That couldn’t produce, yeah, that didn’t have heavy manufacturing. You know I hate to say it, but other than a few points in the South, like Alabama, where we’ve got the new steel plant and our listeners have heard all about that – first one to open in the U.S. in, I think, four decades; huge news – but we’ve kind of outsourced a lot of our manufacturing as a country, which I’m not so keen on in a lot of ways. But that’s sort of tangential. Do you have any comments on that, though?
Gary: Yeah, and folks, if you’re interested in that, wait for Part 2.
Jason Hartman: Okay, we’ll wait for that one.
Gary: And there was one last thing. So again, this discrepancy culminated in the Civil War and there was one last thing that in the South, malaria was endemic. We think of malaria as something you get in Africa or India or in Southeast Asia, but the last case of malaria in America was in the ’40s, believe it or not. So you had this very hot, very humid climate that made it very difficult to do any kind of factory or office work, leading back to it was kind of people outside working in the sun.
So now we’ve talked about why the South was at a disadvantage to the North, and again, culminating in the Civil War, which left them at a tremendous disadvantage because countries that lose wars, it typically takes them about 20 years to recover that. You can look at Korea, Germany, so on and so forth. And it takes a good generation. And like that with the South, it was probably the early 1900’s before things had even turned around a little bit, which brings me to, well, what happened.
And one of the sayings I’ve had is there is no undiscovered land and by that, we mean even if you buy gold, you can discover a new gold mine. Somebody can find a new use for gold where the price of gold will go up. Gold can be replaced by another metal and the price of gold can go down.
Jason Hartman: By the way, Gary, I wanted to mention something because you brought that up the last time we talked on the show and there was an interesting article in the Wall Street Journal about a year, maybe a year and a half ago, and it was talking about diamonds. And our investors, of course, they’re considering what do I invest in? Do I want to invest in precious metals? Do I want to invest in – you know a lot of people invest in actual diamonds, but this is just an example or maybe a metaphor for other things like this when you think of what to invest in.
And it was on the front page of one of the Wall Street Journal sections and it said that these look like real diamonds. They actually are real diamonds. They’re not cubic zirconium. These are real diamonds, but the difference is they cost about 15 percent less because they’re made in a laboratory. So they have now figured out how to make diamonds in a laboratory believe it or not, and I don’t know the details, so don’t ask me. I’ll find you the article, though, because I did save it.
Gary: I do, but – and by the way, the other big difference between those diamonds is they’re perfect. They have no inclusions. They have no imperfections.
Jason Hartman: But that’s what gives them character.
Gary: Right, you’re right.
Jason Hartman: For the natural ones, right?
Gary: Right.
Jason Hartman: But the point is what if you were an investor in diamonds, what if you invest in companies that do diamond mining? What if you invest in any of the related things these stocks of these companies or the diamonds themselves, just like you invest in precious metals? All of that stuff can be replaced and land – but really, like we talk about, we’re not really into land; we’re into rental properties, which means building materials – those things are simple. They’re sticks and bricks. They’re necessary. They have universal need and we’ve got so many people around the world pushing the prices of them up.
Gary: And we’ve discussed this in the past in that the diamonds you just mentioned, the huge market that most people don’t see that I see as an engineer, is they’re used in cutting wheels, grinding wheels, so there’s hundreds of uses that use – I can’t give you the percentage, but it’s a large percentage of the diamonds are used for other things. So if you can make them for less money, yes, it can hurt your investment in a diamond mine or in diamond cutting operation, things like that.
Land, and like you said, well, we don’t invest in land, it’s an important component of the investment itself in that you can’t build a house on jet rocket packs. It has to be built on land, okay? And the technology of land has been here for a few billion years.
Jason Hartman: It’s pretty low tech, huh?
Gary: Right. And so while homes have a lot of innovations in them, they’re still basically the same as they were 100 years ago, maybe even 200 years ago.
Jason Hartman: Sticks and bricks, that’s what I say. Okay, so talk to us about the rest of that and your thoughts on the Tennessee Valley Authority and what that is.
Gary: Yeah, and again, to repeat the quote, there is no undiscovered land. And by that, I mean there are some technological advances that can change the value of land. Not dramatically like diamonds or gold or anything, but it does change. And in the South, let’s go back, there was disease, so when you’re dying of malaria, it’s hard to have a productive job. When you have no roads, no electricity, no sewage systems, it’s hard to have a job or live.
And so what happened is in the 1930’s, during the Depression, in addition to the Hoover Dam and a lot of other public works projects, the Tennessee Valley Authority was formed. And the Tennessee Valley Authority’s job was to go out and the projects were “Make Work” projects, but they were very productive “Make Work” projects. The big one was they damned up a lot of rivers and by damming up those rivers, this was the first large scale use of renewable energy.
Jason Hartman: Right.
Gary: So for all the talk about renewable energy, we had a great energy policy in the ’30s, which was to build some dams that produce renewable energy. This brought electrification to the rural South.
The other thing the Tennessee Valley Authority did was malaria reduction and one of the easiest ways they did it – this is incredible – but it was screen doors and screens on windows and spraying of swamps, draining of swamps, and the reason the last case of malaria happened in the ’40s was we drained the swamps, we used probably, at the time, DDT to kill mosquitoes, and we had screen doors and screen windows. So all of a sudden, this land we had that had value all of a sudden became more valuable because electricity brought jobs, the roads brought jobs, and of course, when you have jobs, you need people, and when you need people, you need homes.
So we’ve talked about disruptive technology today. Eliminating malaria, big disruptive technology back then. People could survive. The second disruptive technology was the electrification of the South, and the last one was air conditioning. And as simple and as granted as we take air conditioning today, that was a disruptive technology because now add all those things together and now you could build factories in the South, you could build offices in the South, and you could put computers there.
So all of a sudden, again, how did the South change? Electricity, elimination of disease, transportation infrastructure, air conditioning, brings industry, which brings jobs, which brings people who need to live in homes.
Jason Hartman: And that was really the re-emergence of the South, so that’s great. Now, let’s talk a little bit about the present. Just give us a preview of the present. We don’t have time for it on this show, so it will be the next segment, but we’re going to talk about work ethic and attitude. We’re going to talk about right to work. We’re going to talk about labor unions. We’re going to talk about climate and environment. Do you want to just mention any quick thoughts on that and then we’ll revisit this in the next segment?
Gary: I’d say, Jason, what we did is we talked about the South was at a disadvantage to the North from say the 1600s until maybe the early 1900s. All of a sudden, that balance shifted and where the South was at a disadvantage to the North because of some disruptive technologies, the South became a more attractive place to live and people voted with their feet as they so often do, and that’s what we’re going to talk about in the next show.
Jason Hartman: Excellent. Well, thank you very much, Gary. This is a great topic and we will look forward to talking to you on the next show.
Gary: Great, Jason. Thank you very much.
Jason Hartman: Attention agents, brokers, and mortgage people. Do you know that we cooperate? Do you know that our network is an open system that you can refer clients and outsource your investor clients to us and receive passive income? It’s a really great opportunity. All you have to do is register your clients at www.jasonhartman.com and tell them to attend one of our live events, our live educational seminars.
Listen to our podcast, go to the website, and request our free CD at www.jasonhartman.com. And if they invest with us per the terms listed on the website, you will get a referral fee. We have lots of agents, brokers, and mortgage people that receive surprise referral fees that they weren’t even expecting. They get a check in the mail and they are just happily, happily surprised. It’s a nice extra supplement to your income. So be sure to take advantage of our broker cooperation. Agents are welcome. We cooperate with outside people and we’d love to help you with your investor clients.
I’m here with a previous guest, Randy, and we are excited today to announce a new joint venture, a new seminar that we are offering for pre-retirees and retirees, entitled, “Fatten Your Golden Goose.” Now, I kinda think we should call that the Platinum Goose, but we’re going to call it “Fatten Your Golden Goose – Real Estate Strategies for Seniors and Pre-retirees.” Randy, tell us more about this exciting new seminar.
Randy: Jason, thank you. Yeah, we’re very excited about this opportunity to talk to people that are about to retire. They’re in that area, maybe five or ten years at the most away from retirement, or they just entered retirement, and they’re looking at all of these opportunities, or I should say stresses, in their life of what to do in terms of making sure that they’re minimizing their taxes, that they have enough money to last their retirement. They’re looking at things like the IRAs and the 401ks that they put together over these years and they’re wondering what’s really the best way to plan and use that money effectively as they go into retirement.
So what better to do is utilize real estate strategies to help these people minimize the taxes, increase their safety and liquidity, and help them to increase their income that they’ll have when they get into retirement?
Jason Hartman: Excellent and this is on May 27. It’s a Tuesday evening here at our office in Costa Mesa and it’s from 5:30 – 9:00 p.m. What else can you tell us about this event?
Randy: Well, aside from the ideas that we just mentioned, I think a big thing that people need to understand is that 2010 is going to be a very special year. In that, it’s going to be an opportunity for people to convert their regular IRAs or 401ks into Roth IRAs. And you know the benefit of a Roth IRA is that the money can continue to grow income tax deferred. But now, because it’s in a Roth, you can pull that income tax-free. The challenge is how do you move it from your traditional IRA or your rollover IRA to the Roth IRA without paying a bunch of taxes, and we’re going to give the people that attend this seminar some strategies to help them potentially eliminate 100 percent of that tax.
Jason Hartman: And you know, Randy, that is a great strategy and folks listening, this is a big deal, a very unique strategy Randy has come up with and I think you’ll really like hearing more about it. So be sure to join us on May 27. We will look forward to seeing you there. Go to www.jasonhartman.com to get registered. Thanks, Randy.
I’m here with Nancy and wanted to talk to you about two of our fantastic markets. One is our tried and true market that we’ll talk about in a moment that is strengthening and has gotten better. And one is a newer market. Nancy, welcome.
Nancy: Thank you.
Jason Hartman: Tell us about Gulfport/Biloxi area and Long Beach area. That’s Long Beach, Mississippi, not California. We were there a few weeks ago. What’s the scoop?
Nancy: Yeah, we had a great trip. Jason always talks about out of a disaster comes an opportunity and I really believe that’s what’s happening in Biloxi. The economy there via the casinos and the major boom on the ocean, they are now allowed to build on land. Biloxi is now the third largest gaming revenue area in the country, behind Atlantic City and Las Vegas.
Jason Hartman: So what you’re saying is that before, the casinos had to be built on barges.
Nancy: That’s right.
Jason Hartman: And when Katrina came along and wiped them out, the city said, hey, let’s let them build on land. Let’s change the law. And that made the casinos so much more substantial. They’re huge now. They’re like 50 – 60 percent the size of a big glamorous Vegas casino.
Nancy: Right and there are 11 casinos currently up and running and they’re employing about 17,000 people. That’s about 2,000 more than all the casinos that were open pre-Katrina.
Jason Hartman: Tell us some of the big corporate names in the gaming business who are in Biloxi. I mean it’s amazing.
Nancy: Yeah, Harrah’s is there right now with the Grand Casino in Biloxi and they’re also building a $700 million resort with Jimmy Buffet, the new Margaritaville Casino that will be open in 2010. MGM Mirage is there with the Beau Rivage, which is the sister casino to the Bellagio in Las Vegas.
Jason Hartman: These are all big corporate names and those casinos, we were there on that trip, and they are unbelievable how swanky and glamorous they are.
Nancy: The Hard Rock is there. Interesting tidbit about the Hard Rock: it was there before Katrina. The whole casino got destroyed. The guitar remained standing. It was the only thing on the beach that remained standing.
Jason Hartman: Long live rock and roll.
Nancy: And they are – they have rebuilt the Hard Rock and it’s just amazing inside there.
Jason Hartman: I mean that Hard Rock Casino is gigantic, five, six levels of parking outside. I remember going through that parking garage. It was packed. I mean it’s just huge inside. It’s amazing how much money they have dumped into this area.
Nancy: Right. They have actually inked about $1.3 billion in casino revenues last year. Prior to Katrina, the gaming revenues were about $800 million. So they’ve just almost doubled the revenues in just a couple years. They’re also, because of the casinos and the tourism, they do $100 million in golf each year. There’s 20 golf courses there. This industry is just spurring all kinds of job growth, not just from the casino workers, but also construction workers to build these places. There is a major military installation there with Keesler Air Force Base, the CB naval base, a couple Army and Navy National Guard installations and also the Stennis Space Center, which is NASA’s backup space shuttle installation. So there’s just a ton of activity there that we really think is going to make this one of our booming higher appreciation areas, and we’re very excited about that.
Jason Hartman: And a shortage of housing because we had to look around a lot for that, Nancy. That’s excellent. Tell us real quickly about one of our tried and true markets, the market where I own and the market where many, many of our clients have invested, and it’s actually improving in terms of the rental market being very, very strong. Stronger than before, and this has just been a real dependable market. What’s the name of it? Everybody’s wondering.
Nancy: This is Kansas City, Missouri, and Kansas City is the 13th largest metro in the U.S. The statistics in Kansas City are just excellent. This is a strong, stable rental market. We talk a lot about our rent-to-value ratios and it’s .7 percent being ideal. All of the properties that we have in Kansas City, we get at least a .8 percent RV ratio.
Jason Hartman: On my property, my four-plex in Kansas City, I’m getting about a .82 percent RV ratio, so it’s phenomenal. It’s just a great property.
Nancy: There are some positive cash flow opportunities in Kansas City, which we haven’t seen for a few years. So if you’re looking for a market with some positive cash each month and a .8 rent-to-value ratio, Kansas City is your market.
Jason Hartman: Excellent. Thank you, Nancy.
Hey, I just wanted to announce a couple of quick things for you. If you are able to come to one of our live events, we would love to see you and meet you in person. We’ve had people fly in from all over the U.S. for them. So hopefully you can join us for some of those events.
I wanted to mention to you that we have a new offering, a free CD, a free audio CD, that you will really, really like. We’ve had so many people that have given us really good comments about them, and you can go to our website at www.jasonhartman.com and just fill out a little quick web form and you can either download it or you can have the physical CD mailed to you in the postal mail. But get the free CD, especially if you are a new listener. You need this. And if you are a regular listener and you’ve listened to all the other old shows, you don’t need the CD so much, but it will be a nice review for you either way. But if you’re a new listener, you definitely want to go to www.jasonhartman.com and request the free CD.
Remember that Platinum Properties Investor Network has moved. We are in our beautiful new office in Costa Mesa, California, 555 Anton, Suite 150, in Costa Mesa, California, 92626, and we’re right by world-famous South Coast Plazas. So come in for a visit and a little shopping.
Also, we just uploaded another video podcast and I’d highly recommend that you subscribe to that. There’s some stuff that just lends itself better to video than audio. If you want to see what’s on that, subscribe to it, you can go to www.jasonhartman.com. If you use iTunes or an iPod and you’re an Apple person, then you can go to the iTunes Store, type in Jason Hartman, and two podcasts will come up, the video podcast and the audio podcast. And you’re probably already, if you’re listening, a subscriber to the audio podcast, so make sure you get yourself a free subscription to the video podcast as well.
And this particular one that we just loaded in the video podcast is about Naked Short Sales and what goes on with this short sale and manipulation of the stock market. It’s a very interesting report from Bloomberg News and I think you’ll really learn a lot from that. So be sure to tune in and watch that.
Be sure to see appropriate disclaimers and disclosures on our website at www.jasonhartman.com. Remember that we are not tax or legal advisors.
Anyway, we’ll talk to you next week. Thanks for listening.
This material is the copyrighted creative work of either Jason Hartman, the Hartman Media Company, Platinum Properties Investor Network, Incorporated or the J. Hartman Company, all rights reserved.
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Duration: 51 minutes
