Jason comments on the Perfect Storm, riots over food shortages and interviews Gary, a client and long-time business traveler, about the changes in China over the last 20 years and what they mean to real estate investors.
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. Good day. Thank you for listening to show No. 51, Creating Wealth No. 51. Glad to have you with us today. We’re going to talk about a few different things, but before we get into the main content of today’s show, I wanted to remind you of a few things. No. 1, the perfect storm is upon us as far as investing. The opportunities are becoming quite plentiful, very nice. Of course, we’re staying away from the overvalued markets that so many investors are deceived by and in addition to the overvalued markets, staying away from those, we’re staying away from the markets that look cheap and are cheap for a reason and will probably never recover and never make any sense. We’ve talked about these different markets before, so I don’t need to go into it at this time.
But as the perfect storm continues, we are starting to become interested in REOs. REO means real estate owned, meaning real estate owned by a bank or a lender that has foreclosed on the property. We’ve kind of shied away from these for a while now because we really just haven’t found them to be that great a deal and while so many, as the old saying goes, fools rush in, so many fools have rushed in to buy these, catching the proverbial falling knife and not waiting for the deals to get good enough. We’ve sat on the sidelines. We’ve waited for the deals to get better and better and they’re starting to get a little bit interesting now, so we will keep you apprised of the foreclosure and REO market.
If it becomes interesting, believe me, we will let you know. We are just very, very picky about the type of product we bring to you and about the markets we bring to you and the investments because again, we’re tied to the outcome of your investments. We’re here with you all the way through and we have to buy what we sell. We practice what we preach, unlike so many others out there that will tell you one thing and will do another themselves. We’re tied to it more than they are.
The other thing I wanted to mention is we’ve had a lot of people fly out to see us from all over the country recently and we just had a gentleman come in, a podcast listener, come in who flew in from New York, from Brooklyn specifically, and you know who you are because I just saw you today. Thank you so much for flying in. He jumped on a plane, came out to see us, and that was really the only reason for his visit to California, just to meet us and see that we’re for real and we are. So you’re always welcome to come out and visit us, but my recommendation would be if you come out, come out when we’re having an educational event.
And here is the deal. I wanted to extend this offer to our out of area listeners. If we are having an educational event and you have to get on a plane to fly out here, we will comp you in for free, compliments of us. If you go to all that trouble to fly out and see us, consider it free. We had a lot of people come in for the Master’s Weekend and we thought, you know it’s so great to have out-of-towners come in and see us. You gotta pay for your hotel and your airfare, etc, but if you’re willing to do that, this seminar is free and we’ll give you a couple of free meals while we’re at it, so it’ll be worth your while and just the education you get.
And the other thing is we are expanding rapidly and I tell you, the job market doesn’t seem like it’s that great out there folks because I recently put a posting on the internet for a position we have open and in just about an hour or so, I got about 30 some odd resumes. And we’re actually conducting group interviews. We’re hiring for several positions as the company grows. And so if you are looking for a career opportunity, talk to us, talk to one of our investment counselors here. Let them know what you’re looking for. We’re looking for business development people, investment counselors, and a bunch of other things. So just wanted to mention that and remind you.
New listeners, this show will be a little bit different than most shows. We’re sort of gonna just talk about some impressions of China and of the global economy and what’s going on out there, and I just wanted to remind all of you to make sure you listen to our core content. And if you have a pen handy, write down these numbers of these shows. These are the show numbers I’m going to give you for the core content and if you go to www.jasonhartman.com, and you click on the Education link, and you’ll see the Podcast and Radio Shows, there is a small link there, but it’s not super apparent. It says, “New listeners, listen to the Core Content first.”
Here’s the Core Content. Show No. 15, on Jason’s Ten Commandments of Successful Investing; No. 16, ROI, Some People Just Don’t Get It; No. 18, the Great Inflation Payoff; No. 19, Eliminating Investment Risk; and No. 24, the Three Dimensions of Real Estate Investing; and finally, No. 30, which is Refi Till You Die, which is all about extracting the wealth from your investments.
Even you regular listeners, some of you I can tell, you say you’ve listened to every single show and believe me, we appreciate that and we love to hear it and we’re so happy you’re excited about all the shows we’re doing. All of this content again is completely free. So we’re glad you’re listening, but once in a while, we all need to go back and get a refresher. So this is sort of the core material. There’s a lot of other great stuff, but just make sure you get at least these core shows under your belt, especially if you’re a new listener, and repeat listeners, as well.
Also, go and request the free CD, the free audio CD from our website at www.jasonhartman.com.
Okay, enough of that stuff. That’s just a little housekeeping here. Now, let’s get into the show. You know it is amazing to me what is going on in the world today. You know we’ve got the cover of the Wall Street Journal, front page of the Wall Street Journal, two days ago, talked about the riots. Yes, violence, violent riots, that are going on all over the world due to food shortages. Why are there food shortages?
Well, there’s not really a shortage of food, if you will, but it’s a shortage of money because what’s happening is that this inflation is starting to show up all over the place in the global economy. The prices of rice have gone up over 50 percent or so in the past year. Don’t quote me on the exact number, by the way; I’m giving you a rough number. Grain, things like this, the prices have gone through the roof and people are really getting desperate out there.
You know I wanted to buy some new notebooks for our seminars, three-ring binders, and I called up a new vendor just the other day and I said the last time I bought these three-ring binder notebooks, they were about $2.00 a piece, and now, they’re $5.00 – $7.00 each notebook, so we can put our seminar materials in them. And I said what the heck happened? And he said, well, if you’re talking about vinyl or plastic, the petroleum prices have gone up so much that that’s what’s escalated the cost. I’m talking to the manufacturer here.
And then he said, if you’re talking about the metal rings that go inside the three-ring binders, he just got a memo yesterday – the gentleman’s name is Mel – from the supplier of them saying that they could no longer commit to holding prices for anymore than two weeks at a time and prices will adjust upward on the first and the fifteenth of every month now because of the cost of metals.
We are going to be hit by major, major inflation over the next decade, and folks, I have the only plan to protect yourself from it. So please, make sure you’re listening to my shows and following my advice because I tell you, whatever you think your standard of living is today, it is going to decline if you do not follow my plan. Things are different now. The rules of the game have changed.
Now, let’s go and listen to a talk I had recently with one of investors about some impressions of China and what’s going on in the global economy and some impressions on real estate investing. So listen in.
I’m here with one of our clients, an investor and friend of mine, Gary. Gary, welcome.
Gary: Hi Jason, how are you?
Jason Hartman: It’s great to have you on the show. It’s a first time. We have such interesting conversations. When we had our last interesting conversation, I was just thinking why don’t we have you on the Creating Wealth show and talk a little bit about all of this great knowledge you have and today, I want to talk about real estate investing in general and then also, let’s talk about China, a country you have visited for many, many years, many, many times, and have done a lot of business there and have a lot of interesting firsthand insight into. So I wanna talk about that.
But just first, Gary, what are some of your impressions about real estate investing and just some of the conversations we’ve had off the microphone? I just wanted to have you share some thoughts with our listeners.
Gary: As somewhat of a novice in this, on the real estate investing, I think one that strikes me on this is of the people I know – and we’ve talked about this many times – I’m sure there are many people who have made it in the stock market, Warren Buffet, obviously.
Jason Hartman: Well, Warren Buffet really invests other people’s money. He’s in the business of stock investing. That would be like saying get a real estate guru who’s selling books and tapes, who’s made a lot of money. You know what I mean? He’s investing other people’s money for himself as much.
Gary: That’s it. Of the people I know, and we’ve talked about this many times, the people I know, the only people that have made money are those that have invested in real estate. So I’m sure there are people who have made money in the stock market. I just personally don’t know any of them in my circle of friends, and my circle includes modestly to fairly highly successful people. You’re obviously one of those.
Jason Hartman: Isn’t that interesting, though, because I completely agree with you and I remember when you said that to me a few years ago. You said where are all the people that have made a bundle of money in the stock market? We know a lot of people who’ve done that with real estate investments, right?
Gary: And as you mention that about Warren Buffet, among some of our friends, our coffee buddies, they’re good at separating people from their money and making commission on the money, but as far as the people that had that money to invest in real estate, I’m not sure how well they’ve done. So all the people that have their hands in the pie, the people who work for the Wall Street firms and the brokers –
Jason Hartman: All the insiders.
Gary: The floor people. Yeah, all those people. They may have done well, but the average investor that has less than half a million dollars or maybe even a million dollars does not have access to the inside information and the good solid people, so he’s just got people with their hands out.
Jason Hartman: I agree. You know what I heard an interesting stat about that recently, Gary, and don’t quote me on the number because this is totally from memory and I see so much stuff come at me, but I heard the average Wall Streeter, they called it, makes $432,000.00 a year, some ridiculous amount of money like that. Average people that work for these brokerage firms, on Wall Street, in New York City; I thought wow.
Gary: And where does that money come from? Let’s talk about that.
Jason Hartman: It comes from us.
Gary: Yeah, the beautiful buildings with the granite walls and the floor to ceiling windows. It’s like when you go to Vegas, you’ve got gold-plated chrome fixtures in the bathrooms and free drinks and all. They’re not really free. As somebody who used to work in the dealership business, somebody would come in, well, it’s free. No, nothing’s free. It may be no charge to you, but somebody is paying for everything.
Jason Hartman: Yeah.
Gary: And ultimately, in real estate, you’re paying for all those fancy offices and those $5,000.00 suits and BMW 7 series cars. That’s all coming out of your pocket.
Jason Hartman: That’s right. You’re absolutely right about that. Take if from someone who’s actually making money on the investment rather than making money selling the investment. Maybe that’s a good way to look at it, or someone who’s making money raising money from other investors, like these TIC promoters that promote the Tenant-in-Common deals. I’ve met several of them around town. They’re all rich. I’ve been to their offices. They’ve all got totally glamorous offices, nicer than our new office, by the way. And they’re living the high life, but the investors are making these modest 7 – 8 percent returns and they’re making millions and millions of dollars. And I’m thinking this isn’t quite right.
Gary: And if those investments go south, those same brokers, they’re still going to make money. Whether your investment goes north or south, they make their money. They’re going to make some percentage of your money going up or down, and they really don’t care. They just wanna churn the funds.
Jason Hartman: Right. Exactly, good point. So in terms of looking at the United States, you have a lot of opinions and thoughts on different areas in which to invest in real estate and why some are good and why cities exist, and what their past and their future is. Maybe you want to comment on that?
Gary: One of the first ones that, as we mentioned, is the line you use in your presentations. There is no undiscovered real estate. And the point of that is if you invest in gold, you’re investing in a commodity and it’s possible somebody could find a new gold mine tomorrow.
Jason Hartman: Or a more efficient way to extract the gold or the silver from the mine.
Gary: Right. And gold, as someone in the electronics business, gold is used extensively in the electronics business and if they found platinum or palladium or some other metal that they could use more efficiently than gold –
Jason Hartman: Or a synthetic substitute.
Gary: Yeah, the demand would drop, which is effectively the same thing as the supply rising. In either case, the price goes down. So if you invest in gold, you’re investing in a commodity whose value can go up and down. Platinum we didn’t have a lot of use for many years ago until they decided to put in catalytic converters in cars, so the price went up dramatically. Integrated circuits have values. Companies even have values. I don’t care how good an Underwood typewriter you make anymore. You can’t sell one. So if you invest it in the stock of Underwood typewriters, it was a disruptive technology called the computer that totally –
Jason Hartman: Changed the game.
Gary: Yeah, and eliminated the company. And a more recent one, of course, is Kodak, the company that made film. Well, there’s still cameras and the core market is image capture. The image capture went from a chemical base process to an electronic based process, which Kodak didn’t have. So while they were in the market, they were caught flat-footed. Real estate kind of since the beginning of man, people have lived in some kind of shelter on some kind of piece of ground and they’ve needed some kind of utilities, even if the first utility was an outhouse out back and maybe a well in front of the house.
Jason Hartman: But wait, when I was a kid, I kept watching the Jetsons cartoon, and they weren’t living on land. I guess that’s not really coming to pass.
Gary: Well, yeah, we don’t fly around in cars anymore and don’t have robots.
Jason Hartman: And we don’t have floating houses either.
Gary: Yeah, exactly.
Jason Hartman: So it’s interesting you say that because the preamble to the National Association of Realtors Charter is “Under all is land.” Under all is land. And you know that’s really true and of course, we don’t really believe in investing in land, per se. We believe in buying very cheap land with a set of commodities sitting on the land, namely in the form of a house or an apartment building or some sort of residential shelter. That’s what we like the best. We dabble a little bit in offices and other commercial properties, but we like residential the best. Single-family homes being No. 1, apartment buildings pretty good; four-plexes pretty darn good and that kind of stuff. But what’s your impression of that? I mean I love how you give that example about there’s no undiscovered land.
Gary: And to expound on that, is what I mean by that, is it’s unlikely there’s gonna be a new island the size of Australia pop up in the middle of the Atlantic or the Pacific Ocean. So we know where all the land is, and with minor variations, there were areas where there were swamps or if you look at the southeastern United States 100 years ago, there was a mosquito problem. We hadn’t really invented air conditioning yet. So the land there was somewhat lower cost, but the land was still there. It’s not like it was made technologically obsolete.
So land from that point of view is a much more stable, call it a commodity, and in effect, in investing in homes, years ago, somebody brought up the term land-banking, which is basically we are kind of investing in land, only whereas land would be kind of a dead soldier and not unlike having gold sitting in the bank. It’s just something that sits there. It costs you money. You have to maybe cut the grass or trim the forest or you have to have a fence around it and keep people from trashing it. You actually are using the land for something until there’s some higher use in the future.
Jason Hartman: And that’s the great thing about it because one of the things you’ve always pointed out is that you can discover a new gold mine, you can discover a new silver mine, you can discover a new oil well, a new technology to extract any of these commodities, but there is no undiscovered land. All land has been discovered, mapped, cataloged, and it’s known.
Gary: And the only minor variation of that is there may be some technologies that allow, again, in the South, there may be technologies like landfill technologies or air conditioning that make minor changes in what land is valuable for building or industry, things like that. However, it’s still not as dramatic as what we just talked about.
Jason Hartman: Yeah and then if Al Gore is right, there will actually be less land in the future when the polar caps melt. I’m teasing you because I know how you feel about that one, but we won’t go there.
Gary: And by the way, with global cooling, which I believe is the most likely case, there would actually be slightly more land.
Jason Hartman: Yeah.
Gary: So, but either way, there’s a certain amount of land and as the population increases, which there’s nothing that says it won’t for our lifetime, land is somewhat like a commodity. There are going to be more people with more resources chasing that fixed amount of land that can be built on, and we can only modify slightly what that land is. The tall skyscraper still has to go on a piece of ground. As you just said, there is no floating home yet.
Jason Hartman: Right, and that leads to another thing, which is the second part of the rental property equation. One of the things I want to say to our investors is that we do not invest in real estate. I know that sounds odd. We invest in rental properties, income properties on very cheap land that are a set of commodities. So the skyscraper, for example, that’s built with a whole set of commodities, glass, steel, energy, petroleum products, copper wire, all that sort of stuff, right?
So let’s talk about the second part of the equation because we do buy land, but we buy a very small quantity of land. That’s a very small part of the value equation when we buy it, the way we invest. Now, of course, there are other people who think they know how to invest in real estate, but they really don’t. They may have been lucky as speculators investing in the past, but they really got lucky. They weren’t smart and I always say it’s better to be lucky than good for sure. But why not be good, too, and lucky at the same time.
Gary: But see, by investing in that little speck of land, we’ve, in a sense, invested in a piece of technology that can’t go obsolete. Even if you invest in Intel, if somebody comes up with, say, a biologically active microprocessor, Intel could be made obsolete overnight. We’ve talked about it. Xerox, for whatever reason, even though they invented the copier, they’ve been kind of bypassed. Kodak, they were the kings of photography. They were bypassed.
Jason Hartman: And that’s all disruptive technology and that can change the game.
Gary: Right.
Jason Hartman: But I just can’t see any disruptive technology for our two components of our investments, No. 1, the land, which we’ve talked about; No. 2, the set of commodities, the building materials that it takes to build the shelter. Unless we all are going to start living inside a force field, the house is an electronically generated force field, it’s built out of commodities. How much cheaper can it ever get to make concrete, lumber? All this stuff is going up in price, steel.
Gary: Well, go back 100 years. There was no – go back 20. We were just talking today. I was dealing with my business manager and we were talking about, oh, why don’t you just use FedEx? Well, in 1980, FedEx hadn’t been invented yet. We, at the company I was at, they’d invented fax machines, but they were $2,000.00 – $3,000.00. You didn’t have them unless you were fabulously wealthy.
Jason Hartman: Hardly anybody had one so it didn’t work unless you had the network effect.
Gary: So look how different the world is today. Cell phone? What’s that? You talk on this thing on your desk. That’s only 28 years ago, 1980. Go back 100 years. People are still living in homes that were built 100 years ago.
Jason Hartman: Right.
Gary: So the technology, they’re still built out of sticks. They’re still covered with drywall. Back then, there was more plaster, but drywall is just a different form of plaster in many ways.
Jason Hartman: It’s basically sticks and bricks. Those are the ingredients.
Gary: Right and it’s built on a piece of land.
Jason Hartman: Yep. None of those ingredients have ever changed throughout history and I just don’t see them changing too much in the future for sure.
Gary: Go to Boston Faneuil Hall and its block buildings sitting on property that happen to be on film.
Jason Hartman: So let’s lead into the next part of this discussion. Let’s lead into the commodities, the materials that build the properties, and that’s a good lead in for what’s going on in China, all right? And obviously, what’s going in India, too. What do you think the future holds for these commodities, for these packaged commodities? What does the future hold for the price of lumber, the price of concrete, the price of glass, steel, copper wire, energy, petroleum products, all of that stuff?
Gary: I think you were the one that quoted Michael Milken, the investor who landed in jail, but that doesn’t detract from the fact that he was obviously a very smart guy and he pointed out there’s a coming asset shortage, and again, for any commodity, commodity is driven by supply and demand and the price will go up whether the supply goes down or the demand goes up. I mean that’s very simple. It happens with gasoline, water, electricity, food, anything you can imagine. So there are going to be more people chasing fewer resources.
And talking about China, I don’t speak the language, I haven’t lived there, but I’ve been traveling there since 1987 and this isn’t on holidays.
Jason Hartman: So 21 years you’ve been traveling to China and doing business there without speaking Chinese, speaking English, and you have seen a lot of change because one of the big things that I always point out is we’ve got 2.5 billion people that weren’t even playing in the economic world game 20 years ago. This is like an epic, historic change in humanity that has never, ever happened in history.
And that’s why I think when you look at history and you look at, for example, appreciation rates and inflation rates of the past, I think we ain’t seen nothing yet. Whatever has happened in the past, when you look at the last 38, 39 years in the United States and you look at an average appreciation rate of residential real estate at 6.4 percent, I think that is going to be just nothing compared to what we will see in the future.
But look at the change. What’s going on in China in the past 21 years?
Gary: Well, as you pointed out, I think the 2.1 or 2.2 billion people you’re talking about are China and India and I happen –
Jason Hartman: Yeah, but I’m counting a lot of other smaller countries in that 2.5 billion also.
Gary: But let’s just, to keep the conversation simple, let’s take that and if we take the so-called developed world, which is Europe, throw in Australia, Canada, and America, that there’s really no –
Jason Hartman: Yeah, and you know you’ve gotta put in Russia and Eastern Europe.
Gary: No, they’re not really – yeah, I’m talking what we think of as the first world.
Jason Hartman: Right.
Gary: There’s maybe a billion people there. And now, as you just pointed out, the video we just watched is no surprise to me. For most people going to China, they would think they’re in a zippier, newer, cleaner, cooler New York.
Jason Hartman: Right.
Gary: Or cooler L.A. So at the surface level, not that everybody enjoys that, but when you go to China anymore, it’s a country that’s got, instead of one New York, it’s got dozens of New Yorks, okay? And they all require the steel, glass, concrete, and all those things you’ve talked about.
But to go on the changes, again, there’s a big difference between going someplace as a tourist, whereas I say, you look at buildings. When you go over there to work, it may sound like, oh, that sounds kind of boring, but you meet people. When you’re working in a country, you’re there. You meet people, you have to buy food, you have to drink water, you have to find bathrooms, you have to get taxis. You have to do all the things you’re insulated from when you’re there as a tourist.
And in the ’80s, when I landed at the airport, first off, coming into the largest city in China at the time, which was more than 10 million people, you would have sworn you were coming in over farmland. No lights. We landed at an airport in a gaudy, Communist-looking terminal, still a lot of people wearing the Mao tunics. There was a two-lane road going into the city of Beijing.
Jason Hartman: And this is 1987?
Gary: In 1987. There was a guy on the floor that would write down on little scraps of paper when you came and when you went that you knew was going nowhere because there were hundreds of thousands of these guys and it was just a way of employing people. Again, no lights at night. There were no private restaurants in the entire city. Ten million people, no private restaurants.
Jason Hartman: All state-owned.
Gary: All state-owned, unless we were in what we called the oases, which were the hotels. You had the Holiday Inn. If you were at the Holiday Inn when you were doing business there, you ate at the Holiday Inn restaurant and you went to the Holiday Inn bar and you stayed in the Holiday Inn room and then you would go on the state-sponsored tours of China.
Jason Hartman: There was really no place to go.
Gary: There was no place to go.
Jason Hartman: Was there a nightlife in 1987?
Gary: Yeah, no.
Jason Hartman: Could you go out to a nightclub?
Gary: No, you were in the Oasis. You stayed in the hotel and the hotel disco was there, and if you wanted the tour of the Great Wall, you went on the state-sponsored tour of the Great Wall. But what they couldn’t stop was all the workers in those hotels were Chinese. Even though they were cleaning rooms, cocktail waitresses, you could see the girls on the side tapping their feet to the disco music and these were all the good Communist workers and it started there. That’s where the infection started and they couldn’t – if they were going to modernize, they had to let some of the people in. So the desk clerks, they would see the nice clothes, they would see the mannerisms that I’d set at the time in 1980.
Jason Hartman: And they’d start craving the Western world.
Gary: These were, but more than that, those were the future factory managers because this was a whole country full of workers, of worker bee ants that didn’t know what with sheep. And the people that were working in those hotels, that were sons and daughters of the Communist Party members, those were the future managers. I’d love to do a study on that, but those were the people that learned, okay, boom; you’ve got to be here at 8:00 a.m. Somebody comes up to the desk, you have to talk to them. You have to get them a room. If there’s a problem, you go get a manager. You handle some yourself. That stuff was totally foreign to Chinese. All those people had moved to Taiwan in 1949, so Taiwan was a land of managers and entrepreneurs.
Jason Hartman: So China missed that whole revolution because of their Maoist tendencies for quite a while.
Gary: They lost – well, the whole manager entrepreneur class self-exiled themselves to Taiwan, Hong Kong, Singapore, America.
Jason Hartman: So it was a brain drain from China that really occurred.
Gary: Entrepreneur drain. There’s a difference between brains and creative people.
Jason Hartman: Okay, so smart people, some smart, but many people stayed, but some smart people that were creative and ambitious left.
Gary: Right.
Jason Hartman: So what happens? Give us some impressions now. Fast-forward a little bit and let’s go from 1987 to say 1993, 1995. What’s going on? You know we had the Berlin Wall fall now. We had Russia start to open up and they had all their economic problems. And what was going on in China in the mid-’90s?
Gary: Let’s go back, 1987. I went into Beijing. There were still oxcarts in the street. Not a lot of them, but it was not unusual to see an oxcart on the street. You had left-hand drive cars, right-hand drive cars, bicycles all over the place.
Jason Hartman: That had to be confusing.
Gary: They were all on the correct side of the road, but it was still a mess. And like I said, there were animal carts coming into the capital of the largest city in China. If I had to make a phone call, I had to get a taxi, which could take hours because there were shortages of taxis.
Jason Hartman: In 1987.
Gary:
- But if I needed to make a call to the United States, I had to get in a taxicab and go to the local PTT, Postal Telegraph Telephone office. I would hand a phone number on a slip of paper to somebody at a desk and sit down on a wooden bench. When my turn came up, I would go into a glass and wood box and there was one telephone in there and a seat. No desk, no place to work, no computer, and I would wait until they dialed the number and that was my shot. And you would hope somebody was at the other end of the telephone. Typically, this was calling work. There was no way you could call family, friends, anything like that.
And if you were lucky, you got your spot and you talked to someone. But if not, you got in the taxi and you went back to your hotel.
Jason Hartman: Unbelievable.
Gary: If you wanted to make a plane or a bus or a train reservation, same thing. Taxi, an hour to the local office, and since there were no computers, you could only book three days out. So I didn’t travel a lot in the mid-’90s and that’s kind of what made it so interesting. I was there just before Tiananmen Square, when things were just starting to open up. I mean it was less than a year.
Jason Hartman: So you saw a really stark contrast from earlier visits to late, more recent visits.
Gary: Yeah, and things were starting to open up, but at the time, again, in addition to the no phone, you had to dial an operator to call intercity. We didn’t fly on airplanes. We only took trains, which could take days because airplanes had a habit of coming down, not wheel-side down and not necessarily on runways.
Jason Hartman: Ouch.
Gary: So we stayed on trains, although they had their problems, too. And totally separate currency. So fast-forward to a few years ago was the first I’d gone back in extensively.
Jason Hartman: So fast-forward to maybe 2003, 2004?
Gary: Yeah.
Jason Hartman: Okay.
Gary: I go into China. I need to make a telephone call. I’m in a car. I whip out my Cingular telephone, boom, China mobile pops up. Not only can I make a car anywhere in the world, I’ve got full internet access. Okay, so I went from going to this office in a taxicab to cellular phone service that’s at least the equal and maybe better than anything we have here, with my Cingular card.
By the way, while I’m doing this, I’m on a superhighway and I was just there last year. I was in a car, nine hours a day, for five hours straight on mile after mile after mile of beautiful, straight, flat superhighway, four-level interchange like you see in L.A.
Jason Hartman: And lighted everywhere. They light them really nicely there because it’s kind of a national pride thing to show how great the infrastructure is.
Gary: Streets are all signs in English and Chinese. The bridge abutments were graffiti free, which disgusted me when I was in Europe lately. It’s just disgusting how the infrastructure in Europe and most American cities have just been destroyed by vandals. They’re not graffiti artists. They’re vandals. The major difference between the freeways there and here, in the median, and on the side of the road, mile after mile after mile of beautifully manicured vegetation. You know just day and night.
Jason Hartman: Tell us about your impression of the psyche of the Chinese worker and the people you would do business with in China. What are they like? I’ve heard you say to me before they understand entrepreneurship there. Now, we’re talking about a country that is still technically a communist country, for whatever that means.
Gary: You know the people calling China a communist country probably haven’t been there because anybody that goes there, you’ll find it’s more capitalist than America. China, Viet Nam, and just a slight diversion, I was in Viet Nam last year and I happened on a conversation with two Portuguese and they were talking about doing some work for painting ships for the government. And they made the comment, “We’re here in Viet Nam to try and set up a company and make our fortune because there’s no hope for setting up a moneymaking business in Portugal. It’s too socialist and they’ve ruined the economy.
So it’s ironic that all the ex-communist countries are where the entrepreneurs are flocking to make their money and in China, I related some of the things I did to you, that the Chinese people I was dealing with were all typically under 30, so a lot of them weren’t even born when I was there before. I’m 57 so everybody knows. And while I can’t speak Chinese, I either have interpreters or – okay, so the language is essentially not a barrier.
And I was telling them the oxcart story and the phone, and they looked at me like I was crazy. It would be like if we were talking to somebody today from the 1900s. They can’t even imagine what we’re talking about. So they have a prosperity that was unknown.
In ’92, right before Tiananmen Square, I was in what I was told was the first – the first private bar in all of Beijing, which was a little probably 1,000 square feet and the guy had a boom box on the wall and about five bottles of liquor. And he had some art on the wall from his friends at school, but it was the first private business entertainment club. Now, holy cow, discos with the lights and the fog and excitement at a level you can’t even imagine here. It’s just an exciting, dynamic, energy-filled place.
Jason Hartman: Yeah, so it’s like a cooler, more swanky, higher end version of the coolest, poshest place in New York City.
Gary: Absolutely.
Jason Hartman: I mean the airports are clean and gorgeous and massive. The highways are incredible. The people, though, let’s go back to the psyche a little bit. What is their attitude about the future? What do they want for themselves and their lives? What are they doing? What are they thinking? How hard are they working?
Gary: They want the same thing as everybody and I’ve traveled all over the world and for the people that say, oh, maybe they don’t understand democracy or human rights, believe me, everybody wants the same thing. They want to own a house, they want to own a car, they want some nice clothes; they want good education for their children. It’s all the same everywhere and these people are working hard. A lot of these people I’ve dealt with were their own private businessmen, so all this stuff you hear about government regulation is nonsense. If you want to go and start a company, you go start a company. But unlike here, you’d better make it work because they don’t have a lot of government handouts subsidizing a lot of money-losing businesses.
Jason Hartman: So in other words, there you have true capitalism, which means that you are allowed to fail and the market has an efficiency to it because everybody now, we’re in the middle of this mortgage meltdown and bail out Bear Stearns and all of this crap that’s going on with our government and bail out everybody. And I hear people on both sides of the political aisle and both sides of the spectrum in the capitalist world and the marketplace. And they say you need to allow people to fail. This is what cleans out the excess and inefficiency in the system. This is what capitalism is.
And this morning I was talking to someone and they said we all want capitalism when we’re working for the upside and we want to get rich and have prosperity. But as soon as failure steps in, we all want socialism.
Gary: And you’re right. And here, there’s not enough money and I’ve said this many times. You and I have had these conversations. Your family, you can have too much money for your own good. In America, in some respects, we’re victims of our own success and there are a lot of people that hate the wealth and hate the opportunity and hate the comfortable lifestyles we have, whereas in China, the people we’re dealing with now, they lived in the one-room house with one fluorescent light bulb on the ceiling, with no light and maybe a dirt floor.
And they are hungry. They crave the things that a lot of people here hate and they’re willing to work hard for it and they have to work hard for it because there’s not enough money to cover a bunch of people that are lazy and don’t want to go out and work.
Jason Hartman: You know it seems like, okay, it’s true with the individual, it’s true with the nation, and it’s true with society. It’s Napoleon’s old quote. He said the most dangerous moment comes with victory. And the reason that is true is because people become complacent, so Westernized countries had a really good century behind them. They’ve had a great run, especially America. Now, it’s getting fat and complacent and we have all these sort of socialist tendencies setting in.
But all in all, it may sound like we’re kind of promoting China and kind of down-talking the good, old U.S. of A., but the great thing you have in the U.S. especially, and you have in these Westernized countries around the world, which you have to an expanding degree now in China, is here you have rights, you have democracy. You know that whatever you achieve in the U.S. will not be taken away from you, by and large. Now, there are stories here and there, but by and large, you can become wealthy in the U.S. You can become wealthy in China and you want to invest your money in the U.S. You become wealthy in South America; you want to put your money in the U.S. Why is that?
Gary: Part of it, some of that security in human rights come from – and these are comments I wish I could quote who had told me them, but I don’t who they are – but first off, China’s had one continuous civilization for 4,000 years now, as long as civilization on the planet. However, what they’ve never figured out how to do is an orderly transition of government and that leads to some of the instabilities you’re talking about. You had a very weak government, of course, when the Europeans came in and ran the country through the 1800s, the Japanese through part of the 20th Century, and then the Communists did a lot of bad things. And one good thing Mao did was the speaking in Mandarin, forcing that on everybody, which has unified the country, one language, which we can’t seem to nail down here.
Jason Hartman: Like a single language, sure.
Gary: It’s the glue that binds the country together. So the human rights will come. If you look at China, take Korea, take Taiwan, and even Japan up to a point, after World War II, Japan was basically a kingdom run by – and the king was MacArthur. Korea, while they had elections, it was really run by kinda sorta dictators, and they had the window dressing of elections. But the dictatorships in Asia, for whatever reason, have all been benevolent dictatorships.
And what happened in Asia was I believe the reason they’ve been so successful is that the freedom of – the rights and the freedoms followed the capitalism. The prosperity came first, whereas Russia tried to do it the other way around, whereas the freedoms came first without the prosperity, which caused a lot of instability and they had one revolution that almost happened except for some good fortune. And they’ve been nowhere near as successful as the Asian economies have.
Jason Hartman: Sure.
Gary: So you look at Korea, you look at Taiwan, you look at Hong Kong, you look at Singapore. God bless the British for a lot of that, by the way, but even China, and China, I believe, will happen as people get more prosperous, they will demand and they will get more freedoms. They’ll worry more about mine safety, they’ll worry more about auto accidents, but right now, they’re eating. They have food.
Jason Hartman: Right.
Gary: They have a house. They have cellular – everybody has cellular telephones.
Jason Hartman: So here’s the next thing I want to just say to our listeners and we’ve really gotta wrap up because we’re going pretty long here and we’ll have you back to talk in the future. But the thing about what’s going on in China and also in India is this prosperity’s being created and when people become prosperous, they want more. The human psyche is, by nature, discontent and that constructive discontent is good in many ways because it creates a lot of progress. But what happens is workers demand more. Workers unionize now. As I understand it, it’s actually illegal to unionize in China, but there are still informal unions. There are still workers asking for more and getting more.
Gary: Well, they’ve gotten more and just a quick interruption on that, last year, they instituted a social security program. They get time and a half wages after eight hours a day. They get time and a half on Saturday and double time on Sunday, so if any of that sounds familiar.
Jason Hartman: It sounds familiar because it’s right here in the U.S.A.
Gary: Absolutely, so it’s already happening without unions.
Jason Hartman: Yeah, and it’s time and a half and it’s workers’ rights, but they’re starting at much lower wages to base from. But here’s what I think is happening, Gary, and I think you’re going to see a lot of this. We are going to see just tremendous global inflation over the coming decade because what’s happening here is by opening up China and Clinton getting in there and getting all this free trade through, which cost a lot of Americans their jobs, frankly, what’s happened there is China has exported deflation to the U.S. And Mexico has exported deflation to the U.S. by sending over cheap workers and China sending over cheap products.
And what you have here is two things that have really hidden the true rate of inflation and I think that is going to slowly – and it already is; I see signs of it around the world now. Even in India, there’s a real global labor shortage in a lot of these markets for the better labor.
And so what happens when you have shortages is you have simple supply and demand. Wages are starting to rise and they’re going to rise a lot more. And the standard of living is going to become better in these countries, as it already has. It’s going to get a lot better in the coming years and that’s going to mean the cheap stuff you’re buying at Target and Wal-Mart and wherever from all of these companies and the cheap back-offices services like tech support that companies are outsourcing to India, that is getting more expensive. And as it does, we’re going to have a lot more inflation, which is going to make the rental properties we own in the U.S. a lot more expensive. Any comments on that?
Gary: It goes back to your coming asset shortage again and the world economy, I believe, will become more evenly distributed. Hopefully, we don’t go down. China, India, Asia, in general, is rising rapidly, so there will be less differential. There will be more demand on materials. Historically, man has made ever more efficient use of the materials, but I believe like you do that the demand for those materials will go up much more rapidly.
Jason Hartman: So when you say this, you’re talking a lot about building materials, construction materials.
Gary: The whole thing, oil; you know we used to burn wood. Then we went to coal. Then we went to oil. Then we went to natural gas. We made log cabins. Today, we build homes out of sticks. There’s some concrete and Styrofoam blocks anymore. So we will find evermore-efficient ways of using our resources.
Jason Hartman: But the thing is when it comes to providing housing and investing in rental properties, there won’t be, at least not that I can see, any big disruptive technology that’s going to change the game. Yes, it will get a little more efficient. Sure it has to. And it sure did in the ’90s. I remember when the real estate market was really bad in the ’90s. The developers got a lot better, the ones who stayed in business, and that’s capitalism. That’s cleaning out the system of inefficiencies. The good ones survived. The bad ones went the way of any old technology or old-fashioned company, and that’s good, but no big disruptive technology in the future for housing, right?
Gary: Well, and remember what I said. I said while we are making evermore-efficient use of our building materials, labor, and all that, I believe the demand will rise faster. So while the supply is rising somewhat, the demand will rise faster, which plays into what you said, which inflation goes up. As long as the population in America is going up and there’s nothing that says it isn’t.
Jason Hartman: And the population around the world is going up. In America, they say in 34 years, we’ll have another 100 million people. In the world, we’re going to have 9.5 billion with a B. That’s a 50 percent increase almost from where we are now, by 2050. I mean those are just unbelievable numbers coming at us. And the one thing everybody has in common is they need food, clothing, and shelter. And I say let them rent your shelter from you.
Gary: And just a comment on that that we haven’t talked about, the new nugget for the conversation today is while the wages in the world have kind of leveled and the economies are going to kind of level, what else is going to level is population densities. People in China are going to come here and think they are in the Wild West, so there’s gonna be tremendous pressure on countries that have a low population density from the countries that have a high population density. And as those people get wealthy, they are going to want to move to those places, which means even more people here and more people chasing the limited resources, which gets back to what you just said. There will be more demand on housing in areas where you want to live.
Jason Hartman: That’s good and maybe we can talk a little bit more about that equalizing factor that you just brought up in a future show. So Gary, thank you so much for being with us. We’ve gotta wrap it up. Any comments in closing?
Gary: Thank you for the opportunity and again, real estate investing, I think it’s a great way to do it. You can see what you have. There aren’t a lot of middlemen taking huge fat cat sums of money from you and as you said, you see what you own. You can touch it. You can feel it.
Jason Hartman: Nothing like being a direct investor in a tangible asset that everybody on the globe needs, huh?
Gary: And for me, I like copying what works and I don’t know anybody that’s made it in the stock market. I know a lot of people that have done well in real estate.
Jason Hartman: Good stuff. Thank you, Gary.
Gary: Thanks, Jason.
Jason Hartman: 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 opening 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.
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 and 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, 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.
Randy: All right, Jason.
Jason Hartman: 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: 55 minutes
