Jason Hartman is interviewed by Al Rantel discussing, inflation, immigration and investing.
What Wall Street and The Government Isn’t Telling You About Inflation, Immigration, The Dollar and How You Can Profit from It
When we think about the flood of immigrants – both legal and illegal – into America you probably didn’t know that the government has the largest economic incentive for not securing our borders.
- The link between outsourcing, cheap immigrant labor and the government’s ability to hide inflation.
- How the government hides the true inflation rate by not including costs of food and energy in the “core” rate.
- How the government pays for the needs of these immigrants by utilizing an insidious hidden “tax” that destroys lifestyle.
- Why instead of yelling and screaming about illegal immigrants, smart people need to play to win by investing in the assets they need.
- Hard truths no one tells you like how the stock market is an insider’s game and your home is a liability — not an asset.
Announcer: Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Newport Beach, California. During this weekly program, Jason is going to tell you some really exciting things that you probably haven’t thought of before, or 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 nine states. This program will help you follow in Jason’s footsteps on the road to financial freedom through real estate. You really can do it. And now, here’s your host, Jason Hartman.
Jason Hartman: This is Jason Hartman, President of Platinum Properties Investor Network in Orange County, California, and this is Podcast No. 17. We’d like to do something a little different today. We are going to share with you a recording of a radio interview I did just last Friday, June 15, 2007. This one is at the KABC studio. KABC is No. 2 radio station in the Los Angeles Talk Radio market. Did a great interview here with their host, Al Rantel and I think you’ll enjoy this interview. We talk about investing, we talk about inflation, we talk about the reason for the immigration debate based on inflation, and I think you’ll enjoy kind of an interesting perspective there.
So listen in and enjoy, and again, if you require more real estate investing advice, call our offices at (714) 820-4200. That’s (714) 820-4200 here in Orange County, California, and any of our professional investment counselors can help you with your real estate investing advice.
Remember that this is copyrighted, creative material and also, if you require tax or legal advice, to consult the appropriate tax or legal professional. We are real estate advisors and that’s what we are good at, but we can’t be experts in everything, so consult the appropriate professional for that.
Anyway, join us for a copy of this live interview at KABC Studios and enjoy. We look forward to seeing you soon.
[Radio Announcer for KABC]
Al Rantel: All right, we are back with a very special hour here on the Al Rantel Show. I have persuaded Jason Hartman, the smartest man I know in the world of economics, and I mean that, to come in and give up an hour of his Friday night, and he’s – I am grateful he agreed to do that. He is, of course, the man who you hear me talk about, the Platinum Properties Investor Network based in Newport Beach, and I mean it when I tell you the first time I saw Jason talk, I said to myself, God; this guy is so smart about everything to do with finance. I’ve gotta get him as a guest on the show. I gotta ask him a bunch of questions about what’s really going on because the listeners are gonna love this guy. And we never got around to doing it, and then Friday night here, normally we would have the U.K. to – we’d have Mike, the Mike Mendoza Show, and it turns out Mike is off tonight because of doing some, I don’t know, special programming out there at their station in London, and so I said, hey, Jason, you busy on Friday night for an hour? And so here he is. Hi, Jason.
Jason Hartman: Hey, Al, how are you?
Al Rantel: Thank you for coming on.
Jason Hartman: Good to be here.
Al Rantel: And no, I’m not just saying that. You are – when I hear you talk at some of the seminars I went to, I mean, where do you – God, you know, and you’re young. You know this stuff like crazy. Were you born this way?
Jason Hartman: No, not at all. I’ve just always really been interested in finance –
Al Rantel: You have a passion.
Jason Hartman: –and the world of money.
Al Rantel: You have a passion.
Jason Hartman: It’s interesting, yeah.
Al Rantel: When you have a passion for something, you do it right.
Jason Hartman: Yep, definitely.
Al Rantel: That’s just it.
Jason Hartman: As do you on your radio show.
Al Rantel: That’s exactly right. I knew you were gonna say that. I was leading you right into that. No, no, but I do appreciate you coming in. You know, I gotta tell you something. I was, a week ago, but I was talking about the immigration thing.
Jason Hartman: Yeah.
Al Rantel: And is there a connection? I’m dying to ask you this. I don’t think I’ve even asked you this one-on-one yet privately. Is there a connection between the illegal labor market and the economy, and the fact that they wanna keep these people in the country, they wanna bring more cheap labor into the country, and this whole economic – well, how does it fit in with it because you know they always said in Watergate follow the money. There’s gotta be a money thing here. Can you fill in some blanks?
Jason Hartman: Yeah, absolutely. Of course, there’s a money thing, Al. The way to hide inflation and keep the numbers down, one of the ways to do it, is, of course, to offshore manufacturing and you’ve seen millions of Americans lose their jobs and so forth as we’ve off shored manufacturing to China and call centers to India and etc. But then you look at the debate over the border issue and why the heck is it so – I mean our President will just not control our borders. He will not enforce our laws.
Al Rantel: Clearly, it’s by design.
Jason Hartman: I mean it’s totally by design. And they can’t even really give a good reason for it. And so I think the major reason behind it all is to hide the inflation by importing cheap labor because if you and I have to pay more for services, I mean think about all the jobs that these immigrants do, for better or worse. Everything would cost a heck of a lot more, the restaurants, the services, the movers, the people that are taking care of your house, and all this kind of stuff, if those borders were controlled. And so, it’s a way to hide inflation. And then, of course, —
Al Rantel: So it hides inflation by artificially driving down the cost of certain services.
Jason Hartman: Absolutely.
Al Rantel: And even like construction, for example, where they use a lot of this labor.
Jason Hartman: Very good point. Very good point, and you know –
Al Rantel: Now, what you’re saying, people might say well, this is a good deal. We’re getting this cheap labor. It’s keeping inflation down. It’s keeping the prices low. Is that a good deal?
Jason Hartman: Well, it’s actually not a good deal because it affects a lot of things, of course, sociologically and crime and so forth. But let’s just talk about economics specifically here because when you look at it, there’s been a lot of analysis that you’ve done on your previous shows that I’ve heard on the radio and other KABC hosts about the benefits of illegal immigration versus the cost of it. And really all of this analysis seems to indicate that the cost is much higher than the benefit, with the medical care via emergency room, the schools, the traffic, everything, okay.
Al Rantel: And then if they use public services, whatever they use. These are very poor people.
Jason Hartman: Right, absolutely.
Al Rantel: So they’re gonna need – you know, they’re gonna need social services or programs.
Jason Hartman: You’re absolutely right, so the way the government pays for all of those services is by, of course, greater tax burden on the working class, which is completely unfair, but secondly, they just print more money and cause more inflation, and provide the services by printing money and borrowing money, and really destroying the future of the country.
Al Rantel: So that’s why they don’t care about the cost of putting – let’s say all these people become legal on Social Security. They’ll just print money.
Jason Hartman: Yeah, that’s what the government gets to do. It’s the government’s privilege.
Al Rantel: And when they print money, the money Al Rantel and Jason Hartman have in their wallet –
Jason Hartman: Becomes much less valuable.
Al Rantel: Becomes less valuable.
Jason Hartman: Absolutely. And so –
Al Rantel: You know you look at that – I just came back from Canada. Memorial Day weekend, I went up to Vancouver and you know, there was a day when in Canada you’d get like, I don’t know, $.25 or $.30 more on the United States dollar. It’s practically even now.
Jason Hartman: Yeah, it’s not as good as it used to be shopping in Canada.
Al Rantel: Europe is a $1.35 for the Euro and the British pound is $2.00 for a pound. The American dollar is worthless. What’s happened?
Jason Hartman: The entire world is starting to recognize how irresponsible our government has been for so many years through the welfare state, which I guess really started mostly in the ’60s, and a little bit –
Al Rantel: Has ballooned every decade, right.
Jason Hartman: And it just keeps growing and growing and growing. I always believed that the best government is a small government because if you look at the founding fathers and what they said, there were really just a few things that the federal government is supposed to do; promote the general welfare, which has been taken away.
Al Rantel: Defend the country.
Jason Hartman: Provide the common defense. Secure the blessings of liberty to ourselves and our posterity.
Al Rantel: Right, right.
Jason Hartman: All of these social programs have just ballooned and ballooned and ballooned, and the way to pay for it is by borrowing and printing fake money. We’re off the gold standard, so I say as an investor and as an economics and a financial guy, which is obviously my specialty, buy hard assets like real estate and not only that, borrow money to buy them because the people who benefit from inflation are the borrowers. Not the lenders. The lenders get really screwed under inflation because when they loan money, they’re paid back in cheaper future dollars.
Al Rantel: But how are the lenders – the lenders meaning the banks and financial institutions. They seem to be doing really good. Is that because they have like these 30 percent interest credit cards going around and all that stuff? Yeah.
Jason Hartman: Well, yeah. I’m saying borrow responsibly.
Al Rantel: Right, right.
Jason Hartman: Borrow mortgages to buy appreciating assets.
Al Rantel: Right, right, but not borrow money to buy a whole house of furniture that you’re gonna pay 30 percent interest on.
Jason Hartman: Absolutely. If you wanna – and I know this is never the focus of the show – but if you wanna look at like a positive point of immigration, if you own rental properties, everybody’s gotta live somewhere and so the more people, the better. So I say understand what’s happening and play the game to win. We can yell about it, we can cry about it, and hopefully, something can be done about it. Hopefully, idiots like Trent Lott will listen. Who knows if they ever will, but I can’t believe his remarks about –
Al Rantel: Oh, yeah, yeah, well, that’s because they don’t like hearing it. It’s “kill the messenger” time.
Jason Hartman: I thought he was a good guy. I met him about five, maybe seven years ago at the Four Seasons Hotel when he did a speech there.
Al Rantel: Oh. Yeah. Well, the fact that so many conservatives have been co-op-ed on this issue just goes to show you where the money interests are, as you said.
Jason Hartman: It’s certainly –
Al Rantel: Maybe they’ve figured out that this is the way of – I wanna go back to this inflation thing as this fascinates me, Jason, what you said, and we’re gonna more into all this other stuff, too. But so little time, we’re not gonna have enough time anyway, but this inflation thing. First of all, I don’t know about you, but I don’t believe for a minute – forget about the fact that the gardener’s cheap because he’s illegal or whatever – the government keeps saying that inflation is very low and it’s under control. Everything I buy and I go, I shop, I go to the grocery store myself. I buy my gas. I’m out there. I know what everything costs. I’m not one of these guys that has somebody shopping for me. I know what everything – everything I buy is more expensive.
Jason Hartman: Yeah.
Al Rantel: Everything.
Jason Hartman: Right. The only thing –
Al Rantel: What is all this stuff about low inflation?
Jason Hartman: The only part I would debate with you on is technology-based items.
Al Rantel: Well, yeah, yeah, yeah. You’re right about that.
Jason Hartman: Those are – certainly, your TV now is better than –
Al Rantel: I know my flat screen television isn’t $5,000.00 anymore.
Jason Hartman: It’s cheaper than it used to be.
Al Rantel: It’s now – right, exactly.
Jason Hartman: And it’s better, too.
Al Rantel: Right.
Jason Hartman: But, you know, that’s legitimate. We should expect progress.
Al Rantel: Right, right.
Jason Hartman: Progress is the way of the world, so you deserve it.
Al Rantel: What’s the real inflation now?
Jason Hartman: Well, the government does a few things. No. 1, they outsource to China and India. They import cheap labor, mostly from Mexico, but the way they define inflation has changed so much over the years. They have something called the Core Rate, which is a measure of inflation, but it strips out food and energy. Now, Al, I’ve got a question.
Al Rantel: The two things we use the most.
Jason Hartman: Can you live without food or energy?
Al Rantel: Right.
Jason Hartman: Absolutely not, right? And I have an article here that’s June 13, a couple days ago, right, and it talks about how food prices are going through the roof. Butter prices are up 31 percent, cheddar cheese up 65 percent; non-fat dry milk up 117 percent. Broiler chickens up 17.5 percent, beef up 12.8 percent, yet they tell you the inflation rate is only 3 percent and you fill up your car and you pay your house payment or your rent, and you buy food and you go out to dinner, and you think this is ridiculous.
Al Rantel: Well, see, Jason, I think that’s why when you ask people is the economy good or bad, you get a bad answer from people. Everybody keeps saying, “Why are people so negative. Why, the economy is great.” But I think people feel – don’t you get a sense that people feel that things are not what they should be on paper?
Jason Hartman: You know, I think they do, but I think most people are pretty jaded and they don’t trust what they hear from the government statistics and so forth anymore, which I don’t believe they should. But it depends who. There are certain people who have really learned how to sort of harvest and take advantage of how things are today.
Al Rantel: Well, see, that’s it. You have to know how to play the game according to the rules.
Jason Hartman: You gotta know how to play the game according to the rules, exactly. And so the rich are getting extremely rich in this country.
Al Rantel: Isn’t that something? Have you seen some of the numbers of the growth of the ultra-high net worth people?
Jason Hartman: It’s amazing, and you know, when we talk about the housing market, we’re seeing the middle segment decline and depreciate. We’re seeing the high-end market very little effect. That market is still doing relatively well. It’s not great like it was, but high-end homes are – there are a lot of people to buy them; $5 million, $8 million. I mean in Orange County, there’s a development called Crystal Cove near Laguna. I can’t believe the prices of the properties. It’s insane what’s going on. So the middle class is getting torn apart and that’s always been a great stabilizer for the country is that large middle class.
Al Rantel: Right.
Jason Hartman: And there are the working poor and I’ve included –
Al Rantel: Included the illegal labor.
Jason Hartman: Yes, and the legal ones, too.
Al Rantel: Legal and illegal.
Jason Hartman: And you gotta have some sympathy for them definitely. And then there’s the rich rich and the ultra-rich are just piling up money because they use all of these things to their advantage. The way they invest, the way they borrow, the way they outsource. They own companies that benefit from cheap labor in India. You know, nowadays – I’m reading an interesting book right now called the Four-Hour Workweek and it talks about playing the outsourcing game as an individual, the same way the large companies play it and you can hire a virtual assistant in India. There are all sorts of companies that provide services like this, $5.00, $4.00 or $5.00 to $15.00 an hour for high-end MBA level work. It’s incredible. It really is.
Al Rantel: And they do the work for you in India.
Jason Hartman: While you sleep.
Al Rantel: While you sleep.
Jason Hartman: And you wake up and whatever projects you need done are in your email box in the morning. It’s incredible. So the people that are paying attention to all of this –
Al Rantel: Boy, the colonists thought they had it good with slavery.
Jason Hartman: Yeah.
Al Rantel: Man, I’ll tell you what! We got nothing on them.
Jason Hartman: The people that are paying attention to this can really make it work to their benefit and I hope everybody listening will.
Al Rantel: Yeah, well, let’s come back and talk about how. Jason Hartman is with us, one of the smartest people I know in the financial world and he’s giving us some great insight here that you won’t get any place else. We’ll come right back and ask him some more stuff, and also, we’re gonna tell you the truth about the stock market, aren’t we, Jason? Because people keep seeing the numbers. Oh, another 200 points today and then people – well, I didn’t make any money. My 401k didn’t go up. What happened? So we’ll come right back, talk about all that, and be taking your calls, too. The Al Rantel Show, 790 KABC.
[Commercial Break]
Al Rantel: I’m with Jason Hartman from the Platinum Properties Investment Network, my smart guy when it comes to money. Now, let’s see. You know that guy Larry Cramer from CNBC?
Jason Hartman: Jim Cramer.
Al Rantel: I’m sorry, Jim Cramer. He let the beans spill recently, I think unintentionally, basically saying – and he’s the guy all the young kids watch on TV; he’s big on the college campuses.
Jason Hartman: He’s got a great like shtick. It’s so new. It’s not the typical talking head. It’s entertaining.
Al Rantel: Yeah, that’s why young people like him; because he’s not some boring talking head. In any event, he basically said, look, all the insiders make all the money in the stock market.
Jason Hartman: Yeah, and that’s true.
Al Rantel: And you watch these numbers on the stock market and you watch how much people who make high incomes, like I do – I make a high income, but the government takes it all anyway in taxes. So the more you make, they’ll turn them in on tax, 50 percent tax rates, by the time you’re done, you don’t see any of your money. So if the insiders are making all the money – you do agree with that, first of all, that the stock market is the insider’s guys game?
Jason Hartman: I think it is totally the insider’s game.
Al Rantel: Yeah.
Jason Hartman: Yeah.
Al Rantel: I looked at my 401k very recently because we switched companies so I had to look and move it here or there or whatever, and because if you need to leave your company, you gotta roll it over and all that stuff, and I thought to myself this thing never goes up. Except for the money I’m putting in!
Jason Hartman: You know, Al, in the stock market, if you can do better than taxes and inflation, if you can at least beat those two things, you know, make a profit after inflation and after you pay the tax on your gain, consider yourself doing great.
Al Rantel: But that’s not gonna help you much.
Jason Hartman: You know, it’s not gonna help you much. It’s probably more of a way to sustain or hold what you have than really make any money. I mean I just around town –
Al Rantel: So who’s making all the money?
Jason Hartman: The insiders. I mean the fund managers, the advisors, the –
Al Rantel: I read these stories about how the guys on Wall Street at the end of last year, they had all this cash because they were cleaning out the car dealers of the Porches and the Aston Martins.
Jason Hartman: Goldman Sachs?
Al Rantel: Yeah. Did you see that?
Jason Hartman: You know, the head of Goldman Sachs got like over $50 million bonus.
Al Rantel: Right.
Jason Hartman: And every employee got an average of $630,000.00 I think it was.
Al Rantel: Right and they went and bought cars.
Jason Hartman: And Morgan Stanley, $51 million bonus for the head of Morgan Stanley. You know, and everybody else is getting eight, 10, maybe 12 percent. Let me tell you, the last time you interviewed me, I was on the phone with you. Right after that interview, some financial planner guy, stock market person, he emailed me a big nasty thing and attached a bunch of articles about how your house isn’t the investment you think it is. Look, I don’t think your house is an investment either. You know what I think is an investment? Something that produces revenue. That means a rental property, something you can buy and use someone else’s money to buy it. Borrow the money from the bank and then get someone else to pay the bank back on your behalf, a tenant.
Al Rantel: Sure.
Jason Hartman: That’s an investment. My home is not an investment. My home is a liability. Your home is, too.
Al Rantel: In fact, you don’t wanna have equity in your house, right, because what good does it do you?
Jason Hartman: Equity is a total liability, too, but when you talk about the insiders on Wall Street, you talk on your show sometimes about the political elite, the liberal elite, the Limousine Liberals, those types. There’s a Wall Street elite, too.
Al Rantel: Mercedes Marxists we call them.
Jason Hartman: Never heard that one before.
Al Rantel: Yeah.
Jason Hartman: That’s good. But I say be in an investment that is a direct investment. In other words, it’s something you own, you control, and you know exactly what is going on with it. When you buy a rental property, you own it. It’s your deal. You are a direct investor. You are in control. There’s no manager of a fund skimming the money off the top.
Al Rantel: Right, right, right.
Jason Hartman: There’s no one at Enron like Kenneth Lay who can cheat you.
Al Rantel: Stealing it, yeah.
Jason Hartman: You know, it’s your deal. It’s you, your property manager, your tenant, and the bank that you’re paying the mortgage to. It’s just a direct thing.
Al Rantel: It seems like even people who make a lot of money, it’s all eaten up in taxes.
Jason Hartman: It is, yeah. You’ve gotta –
Al Rantel: I mean the people don’t have much left to invest because the government takes most of it.
Jason Hartman: You know, Al, you’ve been to the Master’s Weekend seminar.
Al Rantel: I have.
Jason Hartman: And I have the Ten Commandments of Successful Investing, and the tenth one is thou shalt only invest in tax-favored assets.
Al Rantel: What is a tax-favored asset?
Jason Hartman: Well, real estate, or rental real estate specifically, is the most tax-favored asset in America.
Al Rantel: Is it really?
Jason Hartman: Oh, absolutely because you –
Al Rantel: It’s the most tax-favored.
Jason Hartman: Most definitely, because not only do you have deductions based on expenses, but you have what’s known as a Phantom deduction, or a Non-cash Deduction, known as depreciation, and what the IRS says is like each rental property is like a little business.
Al Rantel: Right.
Jason Hartman: And I own several of them in multiple states and highly recommend everybody else do the same thing because it works, and each property eventually will decline in value and the house sitting on the land will fall to the ground, someday.
Al Rantel: Right. It falls – yeah, it deteriorates, of course.
Jason Hartman: Yeah, so, you know –
Al Rantel: But the land is still there.
Jason Hartman: But the land is still there, so you can’t depreciate the land. You don’t get a tax benefit on the land, but the house, the IRS says, will fall to the ground in 27 ½ years, their arbitrary number, but I say a house lasts 50 years, maybe even longer.
Al Rantel: If you maintain things, yeah.
Jason Hartman: In one of my seminars –
Al Rantel: Call Jeff Hiatt and get the termites out.
Jason Hartman: You shameless self-promoter. Oh, you gotta love that. But hey –
Al Rantel: Hey, gotta get them all in.
Jason Hartman: One of my clients at one of our seminars, I said how long does a house last. He said it depends on the tenant.
Al Rantel: Exactly, exactly.
Jason Hartman: But this depreciation is like a phantom tax benefit. You don’t pay to get it, yet the IRS lets you take a deduction without actually writing a check for it. And that is what makes real estate so tax-favored. Wealthy, wealthy people, who make loads of money, shelter their income through real estate. You can’t do it with municipal bonds or any of this stuff.
Al Rantel: Right, the government sees all of that.
Jason Hartman: Yeah, it doesn’t work.
Al Rantel: And takes all of that.
Jason Hartman: Yeah, they do, but real estate –
Al Rantel: So that’s where the smart, rich people are, is in real estate.
Jason Hartman: I say so, yeah, or they’re in a business. They were one of those fortunate people like a Bill Gates, who made a zillion dollars in a business.
Al Rantel: Yeah, but how many of those are there?
Jason Hartman: And some people do make it in businesses, but businesses are tough. I say that I don’t like businesses because they have too many moving parts. They’re too complex, too many out of control things. Real estate, it’s simple. Everyone needs a house. It has universal need. Everyone needs a place to live. We just hit the 300-million-population mark last October. Experts say, and depending on what happens with the wall at the border –
Al Rantel: Yeah, right, the wall.
Jason Hartman: Experts say we’ll hit 400 million in the next 34 years in this country, and every single one of us –
Al Rantel: Needs a roof.
Jason Hartman: Needs a roof.
Al Rantel: We’ll come back with Jason Hartman. Well, I gotta allow time for calls here. I have 1-800-222-KABC. Anything money or economics, so you wanna ask about how it all ties together. 1-800-222-KABC, and I promise to get all of you in, but you’ll have to call quick because the line will fill up fast. Right back.
[Radio News Break]
Al Rantel: All right, I can already see that the minute I gave the phone number out, every line lit up to talk to Jason and we won’t have enough time to get to everybody, so you can find everybody at www.jasonhartman.com. The smartest guy I know in money, www.jasonhartman.com and find him there. How’s that?
Jason Hartman: That sounds good to me.
Al Rantel: You don’t mind using it because my listeners love to send email or nag you or come and see you, or whatever it is, and I know you’ll take care of everybody. Oh, just real quick, Al has one more question. You talk about buying real estate. It’s California. Can we talk about California, because we’re local here? Is California – what? Good, bad? We have a lot of foreclosures going on. A lot of people think the market is overpriced. There was a time when people put their house on the market, they’d get five offers. I had a guy in real estate, a friend of mine, he’d say, “I had five people competing for my listing. They wanna pay $100,000.00 more than the asking price.” And I was like what’s going on here? Now, it seems like that’s all gone.
Jason Hartman: The tables have turned on California and my prediction is it’ll be about a two and a half year softening that we’re into – we’ve got about two, two and a half years more to go until we sort of hit the bottom. And predictions, for whatever they’re worth, this is mine. I think we’ll see this year, from the beginning of the year until the end of the year, an 8 percent decline in prices, but you’re taking into account the whole market. So realize that that’s a complex thing. There are different areas, different segments, even in Southern California. You’ve got four counties, six counties –
Al Rantel: So Orange County might be different than L.A. County or what. Even smaller than that.
Jason Hartman: Yeah, but it’s not even just that. It’s segments of market, price segments.
Al Rantel: I see.
Jason Hartman: So the low end, the middle, the high end, the ultra high end. So it’s all different, but I think we’ll see about 20 percent off the peak by the end of the slide. California is going into a declining period. It’s been in it for a little while now and I really blame the irresponsible subprime lending, the adjustable rate loans, the yuppie, instant gratification mentality, which is hey, why not buy the house on this adjustable rate loan today and we’ll worry about tomorrow, tomorrow. And obviously, tomorrow someday comes and it’s here, and so loans have adjusted and people could really never afford the house they were living in.
Al Rantel: What’s the best place in the United States to buy investment property?
Jason Hartman: Well, you know –
Al Rantel: Today in 2007.
Jason Hartman: Every time we do a seminar, Al, and we have one tomorrow at our Newport Beach office – if any of your listeners would like to attend, we’d welcome them – but every time we do one, someone asks me what’s the best market. Well, my answer is commandment No. 6 is thou shalt diversify. So diversify into several markets. These little rental properties that we deal with mostly, they’re inexpensive. I mean they’re $180,000.00. You know we’re not in California.
Al Rantel: Right, I was gonna say, yeah.
Jason Hartman: You can get into these –
Al Rantel: I got a tent I can sell you here for $100,000.00, $180,000.00.
Jason Hartman: Exactly, half a garage.
Al Rantel: Right.
Jason Hartman: But, you know, you can get into these properties for $15,000.00 each.
Al Rantel: Well, what states are they in?
Jason Hartman: And you know we like –
Al Rantel: Is it in the south?
Jason Hartman: We like the southeastern United States the best. It’s warm. It’s got a lot of natural beauty. It’s low cost. A lot of retiring baby boomers; 26 million baby boomers hit retirement age in the next five years, 80 million baby boomers total. They want to go to places that are warm, that have natural beauty and a low cost of living. Texas, Georgia, the Carolinas, Alabama. These are all great places that the southeastern states, and there are a few other exceptions, but that’s where the thrust of our investing activity is.
Al Rantel: All right. Let me get callers in because they’re waiting patiently. Tikko.
Caller: Al, how are you?
Al Rantel: Good, thank you. You’ve got Jason here.
Caller: Thanks for having Jason on. Hey, listen, so I moved here five years ago from Chicago. I work in the film business. I make about $100,000.00 a year and I was sticker shocked when I tried to buy a home here. I’m maxing out all of my tax-deferred options for retirement, such as the 401k and a Roth IRA. Am I better off not doing that and trying to take that money and buy a home to live in? I’m renting an apartment, right now, Jason.
Jason Hartman: Tikko, it’s actually a very good deal right now in Southern California to be a renter because one of the things that we teach in our classes is what we call the RV Ratio or the rent to value ratio.
Caller: Okay.
Jason Hartman: And the typical rent to value or RV ratio in Southern California right now is .3 percent, meaning you can go and rent a $600,000.00 property for $1800.00 a month. Now the typical – what I would do is I would keep renting here and have a nice place to live that satisfies you, and I would invest in several areas around the country where you can get an RV ratio of .7, meaning a $200,000.00 will rent for $1400.00 a month.
Caller: Oh, okay. Wow.
Jason Hartman: In these places, it’s a better deal to be a landlord. If we were in Texas right now, say we were in Austin, Texas, or Dallas, Texas, I would say you should buy if you live there because it’s a better deal to be an owner there than it is to be a renter. But here, it’s actually, at the moment – and it won’t always be this way – a better deal to be a renter because the RV ratio is so in favor of the tenant and not in favor of the –
Al Rantel: But could someone like Tikko, whose making that kind of an income – and he still has to live, he has to pay his rent here and live here, right – can he afford to invest in anything other than putting a couple of bucks in a 401k or that’s an IRA or whatever?
Jason Hartman: Well, you know, the 401k – how many people do you know that got rich off of their 401k?
Al Rantel: Nobody.
Jason Hartman: Nobody, yeah.
Caller: But if you listen to David Bach or any of these guys, it happens all the time. There’s millionaires every year off of the 401ks is what they’re selling.
Al Rantel: Who? Who was that?
Jason Hartman: David Bach is the Automatic Millionaire author. It’s a renowned book, which I have not read, by the way. I just wanna disclose that, so I don’t know exactly what he says. But I am not a fan of the stock market. I’m a fan of direct investing in real estate using someone else’s – meaning the bank’s money – to buy it.
Caller: Even if I bought somewhere else and didn’t live in that house, do I still get a good tax break even though it’s not my principle residence?
Jason Hartman: Oh, great question, Tikko. You actually get a much better tax break because you get what’s known as depreciation, which I don’t if you heard –
Caller: Yeah, I heard you talking about that.
Jason Hartman: Yeah. And you don’t get that on your personal residence. On your personal residence, you deduct property taxes –
Al Rantel: You get the mortgage interest.
Jason Hartman: –and mortgage interest, but remember; those things you get to deduct them, but you also have to write a check to own the deduction. With rental properties, you don’t pay for the deduction. It’s the best tax write-off ever invented.
Al Rantel: What do you mean you don’t pay for the deduction? Oh, because the renter is paying it, is that what you mean?
Jason Hartman: The renter pays the payment for you, essentially, okay.
Al Rantel: Right.
Jason Hartman: But that’s not the issue. The issue is you’re getting a phantom or non-cash write-off by depreciating your properties, which is just a paper loss, but the IRS lets you save real money from that paper loss.
Caller: Okay.
Al Rantel: So don’t tell me this. So Jason, you got a tax refund this year, I’ll bet. I don’t wanna ask you personal stuff.
Jason Hartman:
I was very happy filing my taxes this year.
Al Rantel: I paid. I have to tell you what I paid in federal income taxes this year, but you actually got a refund.
Jason Hartman: Yeah, I own properties in several states. I’ve got, I think, 23 properties now and I’m getting money back from the IRS. I couldn’t wait to file my tax return. I felt like I won the lottery. I made a bunch of money. My business is doing very well.
Al Rantel: But you got money back.
Jason Hartman: But I got money back because I’m playing the game, Al, the way they want me to play it. The IRS wants you to invest and provide rental housing for people. Do what they want. Follow the government’s advice.
Al Rantel: Right. In other words, if you just go out and work your ass off and make a lot of money, they’re gonna tax you to death. They’re gonna take it all.
Jason Hartman: Earned income.
Al Rantel: Alternative minimum tax or earned income, right? All this stuff. It’s all gone.
Jason Hartman: Any money you earn on a job is taxed at the highest rate of all, so it is best to create wealth through investment vehicles that are tax efficient and tax favored, and nothing is more tax favored than real estate. There’s just no contest between any of these other vehicles, like these funky annuities and life insurance products, and all this stuff. You know, that stuff may have a small place, but real estate needs to be the lion’s share because it works the best. And when I say real estate, I mean rental properties. I don’t mean your own home, I don’t mean a vacation home; I don’t mean a speculative condo you wanna flip in Las Vegas or Miami. I mean rental properties that are non-sexy, little properties that people need to live in, the necessities.
Al Rantel: We’ll come back with Jason Hartman. He’s something else; very smart guy and well, I hope you’re learning something. And we’re learning a little bit about how the economy works. The Al Rantel Show. Be right back; 790 KABC.
[Radio Commercial Break]
Al Rantel: We still have a whole hour to go between 8:00 and 9:00 p.m. and we’re gonna do our Father’s Day tribute when we come back at 8:00 p.m. You don’t wanna miss that. We do it every year. www.jasonhartman.com is where you can find my guest here, Jason Hartman, so go there to find him or email him or find out about whatever you wanna find out because he’s happy to help you. You always give our listeners special treatment.
Jason Hartman: Absolutely.
Al Rantel: We appreciate that. I think this guy has a great question. Wayne, I think, has a very good question. Wayne.
Caller: Yes.
Al Rantel: Go ahead.
Caller: My question is this. How much would you put against your principle residence to refine, generate some income, or generate some cash in order to purchase some additional rental property?
Jason Hartman: Well, Wayne, amazing as this may sound, you are actually much less at risk when you’ve got a high loan balance on your property. I know this is counter-intuitive and in my seminars, it takes about 30 minutes to get this idea across correctly.
Al Rantel: But you’re saying mortgage your house to the hilt? Is that what you’re saying?
Jason Hartman: You know, look, all I ask is this question. Maybe this sums it up well. Have you ever loaned money to a friend or family member?
Caller: Certainly.
Jason Hartman: Okay, who was in control of that transaction? The borrower or the lender?
Caller: The borrower.
Jason Hartman: The borrower, always, right?
Caller: Yeah, absolutely.
Jason Hartman: So when you properly, prudently, and carefully borrow money, you are actually in a safer position than having your own equity on the table. So when you buy a piece of real estate, you can either put the money into the real estate or you can put the money in the bank. I’d rather have the money in the bank so it’s nimble and I’m in control of it. If the money’s in the real estate, it’s locked up and I’m not in control of it, and for the past few years –
Al Rantel: Well, it depends on what you’re gonna do with it, right?
Jason Hartman: Well, it depends what you’re gonna do with it, absolutely.
Al Rantel: I’m thinking if it’s a Vegas, that’s not good.
Jason Hartman: No.
Al Rantel: I know what you’re saying.
Jason Hartman: Yes, I’m saying be responsible with borrowing. So if you borrow money and you leverage your personal residence, and you borrow that money at say 7.5 percent, and you turn around and you buy rental properties that produce 40, 50, or 60 percent annually as a rate of return, then, of course, you should borrow because you get the effect of arbitrage, you know, exploiting the difference in those two rates of return. So I say make sure you can afford it, and there has to be kind of a financial analysis done to do this and we have software programs that help do this, and our investment counselors will be happy to discuss your personal situation if you wanna come to one of our seminars, or give us a call at the office. But the answer is yes, I would free up equity out of my personal residence, get control of it, and I would invest in safe, prudent, conservative rental properties with it, absolutely. That’s the short answer.
Al Rantel: Now people that put money in the bank, right, by the time they’re done with inflation and taxes, they actually wind up with nothing, do they?
Jason Hartman: Oh absolutely.
Al Rantel: You talked about that one day. I still remember that. I was like oh, yeah, I never thought. Do that math for me. It was so fine.
Jason Hartman: Yeah. You put money in the bank; you earn 5 percent interest.
Al Rantel: Right.
Jason Hartman: And you turn around and inflation, which is supposedly only around 4 percent –
Al Rantel: Yeah, right.
Jason Hartman: And then you pay taxes, which takes another 30 or 40 percent of your money.
Al Rantel: So you’ve actually gone down.
Jason Hartman: You lose money. But, you know –
Al Rantel: Putting money in the bank, you lose money.
Jason Hartman: You lose money.
Al Rantel: That’s why the bank has those beautiful buildings.
Jason Hartman: The bank has the beautiful buildings, but the only thing worse than the bank, believe it or not, is putting money into equity in real estate because equity in a house is like putting money in a bank account that pays zero interest and is not FDIC insured. So I’d actually rather have it in the bank than in the home equity because at least I have control.
Al Rantel: Interesting. Interesting. Thank you, Jason. I appreciate you spending part of your Friday night here. I really thank you. Happy Father’s Day to you.
Jason Hartman: My pleasure. Great to be here.
Al Rantel: And we’ll talk again. You can find Jason at www.jasonhartman.com if you want to email him because we’re out of time.
Jason Hartman: Okay, I hope you found that helpful, useful, and interesting. Join us for our next podcast visit, www.jasonhartman.com, or call us with any questions, (714) 820-4200. And until next time, happy investing.
I’m here with Senior Area Manager, Karam, and we wanted to talk to you quickly about his recent trip. He just returned yesterday from Jackson, Mississippi. Karam, what did you find there?
Karam: Well, Jason, it was a very interesting trip. Unlike other areas, this is a very unique area in the sense that we live here in California and we go to all these markets, and every market is different. Jackson, Mississippi, on the other hand, the way it is different from the other areas is they don’t have the apartment complexes like we have in most of our metro areas.
Jason Hartman: Yeah, so you don’t have that high density attached housing, huh?
Karam: That’s correct. So what happens is all these houses have high demand of rental, and on the rental side, there is not too many houses available for rental, so there’s a quick rental and you get the high rents, so the cash flow is better. But you have to drill it down to the micro area, the communities that we want to invest in, buy the investment properties. The first thing we look at is the school system. Now, if you look at any particular city and suburb, it may have a good school system or it may not be in the good school system. Now, one particular city may be half in one county and the other half is in a different county.
Jason Hartman: So that was true of Hattiesburg, right?
Karam: That’s correct, yes.
Jason Hartman: So if you look at Hattiesburg, you can’t choose by just Hattiesburg. Some of the area is not so good –
Karam: Not so good.
Jason Hartman: And some is a desirable investment area.
Karam: Right.
Jason Hartman: You were telling me about how they gave you a list of 131 properties that the broker thought would be good for our investors and the process of you narrowing it down and what you narrowed it down to. Why don’t you tell everybody about that?
Karam: Well, I just narrowed it down to 21 properties.
Jason Hartman: Out of 131.
Karam: Out of 131, and that’s all I will sell from, 21 properties, and they are in a good school system, good quality product. Looking at the communities, the location of the communities, location of the properties, and that’s all I came up with.
Jason Hartman: Excellent. So Karam, talk to us about this specific property you’ve got in front of me. This one is $179, 760.00, so we’ll call it $180,000.00. It’s almost 1700 square feet. The projected rent is $1500.00 a month and return on investment, Karam?
Karam: Yes, 42 percent believe it or not.
Jason Hartman: Forty-two percent projected ROI and if you qualify for all that goes on tax benefits, projected first year ROI is 128 percent. Don’t try that in the stock market, huh?
Karam: That’s correct. The reason is these areas, not only the high rent, but the property tax is very, very low.
Jason Hartman: Only $195.00 a month on that property. Wow.
Karam: Right.
Jason Hartman: Good stuff. Okay, Karam, anything else you wanna talk to us about. Let’s – you’ve got one more property. Maybe this one in Indianapolis; that looks kinda interesting. There’s some big discounts on this.
Karam: Yes, Indianapolis really surprised us, that market, and we are getting great deals.
Jason Hartman: Yeah, we weren’t expecting this one to be so good.
Karam: Yes. Great deals and I’ll give you an example of the property that I saw yesterday. Twenty one hundred and one square feet, four bedroom, two and a half bath, brand new single family house, comes with a rent-ready package, meaning washer, dryer, refrigerator, blinds, garage door opener, front and back yard sodded, for only $127,000. You know what that means, Jason, per square feet price?
Jason Hartman: Yeah, that’s amazing. You’re buying like very close to the cost of actual construction here. How much?
Karam: $60.00 per square feet only.
Jason Hartman: $60.00 per square foot. That is unbelievable. It’s like the downside risk is almost nothing. Go back and listen to our podcast on risk evaluation.
Karam: And again, return on investment is 41 percent.
Jason Hartman: So 41 percent projected return on investment, and these are some good properties. Give us a call or check out our website for more properties and all the details are listed there. And we will look forward to talking to you on the next podcast. Thanks.
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. Also, remember our rental coordinator is here to help with your rental properties. If you need assistance with your rentals, your property managers, your advertising, remember we’re here to help and we stay with you through the life of the investment. So feel free to call our office anytime and ask for the rental coordinator for assistance on your rentals.
Also wanna remind you, listen to our old podcasts. At least go back to podcast No. 13 forward and listen to all the podcasts after that. You’re welcome to listen to all of them. The ones before No. 13 are older, but they’re also good, but the newer ones are No. 13 and forward, which are really good ones to listen to, so please take advantage of that.
And remember, the overall market commentary right now, due to the mortgage meltdown, the subprime issues that are going on out there in the market, is that rents are going up all across the nation. When people cannot qualify as easily to buy a property, they are forced to rent. So let that work in your favor by accumulating more rental property assets and don’t be afraid to ask for more rent and raise your rents. That’s a good thing to do.
Also, if you are interested in career opportunities with us, our company is growing quickly and we would love to talk with you about career opportunities. We’re in the process of getting approved for franchising. If you’re interested in a Platinum Properties Investor Network franchise, we’d be happy to talk with you about that and get you set up there once we are finished with our approval process.
Be sure to see appropriate disclaimers and disclosures on our website at www.jasonhartman.com. Remember that we are not tax or legal advisors. So give us a call on any of these issues, and remember, we are here to help, and we will look forward to talking to you on the next podcast.
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: 46 minutes
