Jason Hartman starts the show discussing how to use an Hp12c Platinum Financial Calculator and goes into the topic of inflation. He discusses current mortgage rates and compares them to 2006. He illustrates the benefits of long-term mortgages and how we factor in inflation and hedonic indexing. Jason ends the show look at the price of lumber.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:54
Welcome to Episode 1520 715 to seven I come on baring a gift, a gift for you, and it isn’t even a gift for me. Well, the information is a gift for me. But the actual content of the gift is a gift from your rich uncle Jerome pal. Yes, Jerome Powell has brought you a great gift. And we talked about this gift yesterday. And as promised, I did some research for you. I spent several hours on this last night, analyzing and agonizing because I want to make sure that your investment life is filled with joy and profits. So let’s make it profitable for you. All right, here we go. I got some papers here. All right, a stack of papers. Well, small stack. First off, I know that some of you might be curious, my HP 12 c calculator that I talked about, right? Remember I said it was $116 well I adjusted it for inflation. And today at $116 calculator, well, depends on which way you look at it obviously with the time value of money and the net present value analysis, but based on the inflation rate, since I bought the calculator, paying $116, basically, back then it was like paying $277 and 92 cents, based on the Bureau of Labor Statistics, CPI u index. But But But wait, there’s more based on the shadow stats index, which by the way, I must say, as much as I would love to believe the shadow stats index at shadow stats, calm. The founder, john Williams, of course, was on the podcast a few years back, and I interviewed him and his index, basically is the way inflation used to be counted. calculate it. But even I have trouble believing this one as much as I would like to believe it, I really would like to, because he says that the cost of that calculator today would be 1800 and one dollars. That’s the analysis of you know that that cost difference based on inflation. Now, a lot of years have gone by. So maybe it is, and here’s what I would like you to do. Just consider this. And I don’t know about you, but in my home, I have a lot of stuff. There’s just a lot of stuff in my house. You know, I’ve always been a bit of an accumulator, and I’ve tried minimalism and failed miserably at it. It’s probably a good idea. I have entertained the concept. I’ve looked at some books, I watched some YouTube videos, and it seems like a good idea, but let’s Somehow it just never works for me. So I have a lot of stuff. You know, when you go into most homes nowadays, American homes, especially, they just have a lot of stuff. There’s a lot of stuff. And if you look at an old movie or TV show, like I always say you need to do or even look at the depiction of an old movie or TV show set in a prior time. Take the extremely popular Mad Men TV series, and take that as an example. When you look around the environment in Mad Men, and you look around the homes of these people in their, you know, homes in that era. What was that? 1950s right, late 1950s, I think and you just don’t see much stuff. There’s just not much stuff. And maybe that really shows us how life has changed how the world has been flooded with cheap stuff, which would make you think inflation is low. But then if you walk outside of their home and look at it, and you think, wow, I would really like to have a cute little Cape Cod style house like this, in this beautiful suburban neighborhood on an acre of land or a half acre of land, that back then wasn’t even considered very large. That was just a normal yard. in a lot of places. You know, you live in this nice neighborhood where there was virtually no crime, and everything was good. And by the way, the mail was delivered right to your door. Remember, there used to be a mail slot in your door or a mailbox right by your doorbell button. Not anymore. Now you got to walk down the street to get your mail even if you’re in a high end area. That’s a sign of inflation, because the cost of postage is increased, but the service has reduced. So There’s inflation everywhere we look. It’s amazing, truly amazing. Okay, so yesterday we talked about the true cost of housing. And we talked about how a $100,000 mortgage in 2006, what many considered to be the peak of the market last time around at 6.41% was $626 per month. And today, you could get for that same monthly payment, about $1 off, so I’m just going to call it the same because it’s close enough for government work for the same payment. You could get that mortgage for $70,000 more. So you would get 70% more house or 70% more mortgage for the same monthly cost. But the real question is What is the value of that mortgage in constant dollars? So a $100,000 mortgage in 2006, adjusted for inflation, according to the Bureau of Labor Statistics, the official numbers they say today, that would be $127,000. In other words, that money has lost 27% of its value. So you could reverse that equation and think of it the other way it works either direction folks, works either direction. So, a $100,000 mortgage today is really like a $73,000 mortgage. Back then, right, adjusted for inflation. And I really wish this was on video, or we were on a zoom meeting like it meet the Masters And you know what we have for our VIP ticket holders. By the way VIP ticket holders and empowered investors, we got good stuff coming for you. We’ve got two follow up sessions for meet the Masters coming up. And we’re gonna get those announced here. Probably we’ll do the first one next week, and the empowered investor network and your property tracker membership that was included with that. I think we’re going to have an email out to some of you today. And some of you tomorrow I was working with our tech team today. And they were putting the final touches on the social network, which is super exciting. I was in that meeting today. So look for an email that’s coming to you real soon so you can get into property tracker, and you can get into the empowered investor network. So very, very excited. I think this is going to be one of the best things we’ve ever done. Because it will allow me even if you’re not watching the YouTube channel, to show you things, and you know, we just have our own social network where I can just I think And just show you these examples in print. Because this stuff is helpful to see in print. And maybe we’ll do a demonstration of this on the, the meet the master. So follow on sessions for the VIP ticket holders to. Okay, so a $170,000 mortgage in 2006 would be equivalent to a $216,000. Mortgage today by the official numbers of inflation, which are always understated as we know. Now, like I said, I think the shadow stats numbers are probably overstated, but it’s complicated, right? Like my favorite relationship status. It’s complicated, but suffice it to say that if you adjust this for inflation, it is cheap, cheap, cheap to have this house today, because that hundred and $70,000 mortgage is really remember the equivalent is $100,000 The interest rate in 2006, it would be $626 a month. And in 2020, that same hundred thousand dollar mortgage would be, which is really $127,000 today, because I hope I’m not confusing you. We’re doing two things here, folks, three things really. we’re calculating interest rate, differential, inflation differential, and then Time, time as well. So 2006 $626 2020 you get $70,000 more in mortgage, which is equivalent in $2,006 to a $216,000 mortgage. You get that right, you follow me? It’s really a $216,000 mortgage. But since the interest rate is so much lower. You get that same mortgage, or that same house for the same price as it was 14 years ago. This is what the media commentators never tell you. They might, they might adjust for interest rate. But frankly, I’ve never seen it. I have seen economist it, like a breakfast meeting, I’ll go to do this, or I’ve seen maybe a video on this type of thing. But you never hear it on CNBC, for example, or in the mainstream media. So understand that housing is less expensive than anybody wants you to believe it is. It is dramatically less expensive when you adjust it for inflation. Now, the next part of this research, I’m kind of drawing this out to keep you interested It Okay, there’s a sequel. The sequel to this is to adjust, not the mortgage amount for inflation, but the monthly amount for inflation and to take a deeper dive into the shadow stats calculations. Now I want to talk to you about a property that I sold in Irvine, California. This was not a property I own. I’m talking to you about this because I sold it for a client. It was the first listing that I took at a young age, in my what’s called now a farm area. And if some of you in real estate know what a farm area is, I don’t know realtors still do this. I hope they do. It’s a really good marketing method. It’s a neighborhood where you specialize and you try to get as many customers in that neighborhood as possible as many clients and so I sold this property back in 1980 And I was a kid, and I took the listing on this property for my clients, Barry and Andrea, by the way, Barry is friends with me on facebook today. Isn’t that cool that you can connect with all these old, old people? So Barry and Andrea were my first clients and they own a house at 305 Deerfield. They were not my first clients in real estate. They were my first listing clients in my new farm area that I was super excited about and later went on to make a fortune in that area and became the number one realtor in the wynwood townhomes and garden homes in Irvine. So this property and you can look it up on Zillow, 305 Deerfield Irvine, California and the tax records on Zillow only go back to 2002. But thankfully, you have the Jason Hartman record and it goes back to 1986 when he sold it for $125,000 and I double ended it Because I actually was the selling agent also. And I was, I sold it to these wonderful Armenian clients. I had the asik family and Ira bought that property for himself and his new wife. And then that family went on become great clients. For me. I sold them a whole bunch of properties and sold properties for them over the years. It’s so funny how different cultures are. It’s really pretty awesome. Frankly, you know, before we could do any business, I’d come over to their house and, and they’d make me drink some of this Armenian coffee. And I wasn’t even a coffee drinker back then. But this coffee was so thick. It was like a it was like a chocolate milkshake, but it was hot. And it was just super, super thick coffee. I’m sure it had like a ton of caffeine in it. I don’t know. Maybe it didn’t. Sometimes it’s deceiving. Do you know that the light roast coffee has more caffeine than the dark roast. You would think it’d be the other way around. But it’s not more caffeine and light roast. So anyway, I digress. So are in his family bought and sold. several properties from me over the years, but this was the property they bought. Okay, the first one, and how I met them. And so they bought this property for $125,000. Now, if you look it up on Zillow today, Zillow will tell you that it’s worth according to their assessment $587,000. Now, the question is because by the way back in 2002, it was 255. Okay, that was after the.com crash, so probably went down quite a bit there. So $587,000 versus $125,000. So the question is, has that property, beat inflation? Or has it underperformed vasavi inflation, or outperformed inflation? Well, depends on what inflation number you’re looking at. According to the BLS, they would say that that property has beat inflation actually rather substantially. Now the other thing we’ve got to take into account is the property hasn’t sold since 2017. So the zestimate could be wrong, and many times it is, but let’s just assume it’s right. So they say, according to the BLS, the official inflation index, and this is why you probably shouldn’t believe the official index, because they say that indexed for inflation, it would be $294,000. Remember, the BLS has a very much vested interest in understating inflation. How do they understate it? Waiting substitution in hypnotics. Now, the consumer price index does not include real estate prices per se. They have what’s called and we should probably do an entire episode on this. They have what’s called owners equivalent rent, which is their overly complex equation to basically try and fool us and understate inflation one Again, but in the owners equivalent rent, I don’t know what they’d say. But they say that the property should be 294,000. Now, here’s, here’s where I’d really and why it’s hard for me to deal with shadow stats. I know the inflation rate is higher than the government tells us, that’s easy. Okay, that’s easy. In fact, it’s probably 50% to double what the official rate says. But shadow stats would tell you that index for inflation, this house has massively underperformed inflation by a huge margin, because shadow stats tells you that the inflation rate since 1986 for 125,000 today would cost you $1,892,000. And the property is not that expensive. So, you know, folks, I think the truth lies somewhere in between By the way, let me give you the shadow stats number for that hundred thousand dollar mortgage in 2006 that we were talking about earlier. So here we’ve got this hundred thousand dollars 2006. Today, it’s $127,000, according to the BLS, and by the way, I doubt any of you believe that, because think about it. Just look at a car, for example, look at a nice hundred thousand dollar, Porsche or Mercedes or something like that. Well, that car today is going to cost you more than $127,000. Okay, in 14 years, now, the car today is better than the old car. But that’s where they would fool us with hedonic indexing, which by the way, on its face is not a lie. Because hedonic indexing means how much pleasure do we get from the product or service so it’s a pleasure index, meaning if the Car advanced a lot. And it’s so much better today. If it’s twice as good as the car from 14 years ago, then the inflation index will only counted as though you paid half as much, even though you really paid the full price. You didn’t get to go to the car dealership and say, Hey, this car is hedonic Li index. So, you know, don’t charge me so much. They don’t do that. Here’s the problem with hedonic indexing. And I’ve said it before, I’ll say it again. hedonic indexing basically says that we, as consumers, are not entitled to progress, that we don’t have the right to progress. Because if you had dynamically indexed, how much better life has gotten in terms of convenience and quality, since the invention of the electric light bulb, or indoor plumbing and running Hot and cold water or the invention of the wheel, you can do that. You could have dynamically index everything. And it would make inflation look so insanely low that you would think everything is free. But we are entitled to progress. We just expect that technology will keep improving and it does so far, you know, it always has right. But the way the inflation calculator would work through hedonic indexing is they would want to take away our right to progress and imputed into an index that makes it look as though everything we buy today is so incredibly cheap, and it’s not. Remember, you might have more gadgets and goodies and more stuff in your house like I do. I got too much stuff in my house, but you don’t have very much land you’re living in a crowded place most of the time with your neighbors right on top of you. And you have to walk two blocks to go eat your mail when your mail used to be delivered to your door, and the postage stamp back then cost a nickel. And now it’s 48 cents or whatever it costs forever for a forever stamp, which is never forever because people lose them. They don’t redeem the stamps, like that gift card you didn’t redeem, right? It’s of no value if you don’t redeem it. So this is the kind of Monkey Business that goes on folks. And that’s what we have to understand. But there is one thing that is without question, and it is the fact that uncle Jerome pal, Federal Reserve Chairman has given us all a giant gift, a gift that increases the spending power we have when it comes to real estate. I 70% just in the interest rate count. calculation alone. And if you add the inflation calculation to that, then it’s not just 70%. Well, what would it be? It would be, it would go to $216,000. So basically, you’ve got an extra, an extra hundred and $16,000. And pardon me, I’m thinking because I’m trying to make sure I express this the right way. You’ve got an extra hundred and $16,000 in buying power, more than double what you had in 2006. Because we have to adjust for the lower interest rate and for the amount of inflation that has taken place since then, so you can buy a more expensive property for the same amount of money. It’s absolutely phenomenal. And this is how we look at things properly. Now, let me share one more thing with you. One of our clients forgive me I don’t know who sent this. I don’t have it in front of me right now, but sent me this fantastic newsletter called the lumber market report published by random lengths, these trade associations for the lumber business random lengths of lumber, I guess. It’s funny name right? This newsletter is truly phenomenal. So thank you for sending this out. I gotta find out who sent it and get the name of the person here. But it says that framing lumber prices climbed further into record territory, as acute supply scarcities remained in effect, frustrations mounted for many buyers in other words, buyers of lumber, who continued to struggle to cover immediate needs. Recent lumber production statistics put the imbalance between supplies and demand in clearer focus through May Canadian production was running 15.9% behind the same period One year ago, and British Columbia production was down 25.2% year over here, folks. Remember, I’ve taught you about the theory of packaged commodities investing, or assembled commodities investing. And these are the ingredients of a house, lumber, copper wire, petroleum products. Now, petroleum products are cheap right now, because, you know, people aren’t driving or flying, right. But, you know, what’s the likelihood that we’ll have some downward pressure for a while, but it’s not going to last forever. But other prices like lumber are in an acute shortage. This newsletter says, acute supply scarcities. So this is hugely significant. Remember when this happens, that means the value of the houses you already bought through our network at Jason hartman.com slash properties, the properties you already bought and own or you’re going By soon, because you’re going to go visit our site right now, Hint, hint. They’ve gone up in value, they’ve gone up in value. And that’s what it’s all about is this packaged commodities investing. So very important principle. Last thing for today, and then we’ll wrap it up. One of our most popular webinars was the asset protection webinar. And we are running that again. So you can go check that out this week at Jason Hartman comm slash asset. And I just want to tell you, I got this phenomenal chart from our asset protection attorney who does that webinar and a lot of you were on the meet the Masters extension class last Saturday, and you saw his new presentation, where he’s got a more advanced Asset Protection Program. This chart though, is very, very enlightening. And what he does, which I think is just phenomenal, is he takes all 50 states Or if you’re Obama, there’s 57 states. He takes all 50 states. And he categorizes them from one to five stars in terms of their estate planning, and asset defense possibilities. And this was pretty surprising to me. Because the desirable states on this chart, the most desirable states, they’ve got five star ratings. Plus, not only do they have the five star rating, but they have an additional star sometimes for some really special features. And there are several of them that are really, really desirable, not just the ones you might think of. And what we’re going to do is we’re going to make this chart available to anybody who attends the webinar. So if you go to Jason hartman.com slash asset, you can register for the webinar, and we’ve got that running this week and this weekend. So check that out, you know, even if you’ve already attended it. mean some people are attending that multiple times, because it’s just really, really educational. So check that out Jason hartman.com slash asset, you’ll want to take advantage of that. And by the way, I went and found because I mentioned this on Saturday to our attendees of the more advanced asset, defense and estate planning session that we did for meet the masters. So I went back and I found an email, because I had told them about how an attorney was pitching me on doing business with him. And it’s a Florida based attorney. And he basically said that, you know, what he would do is he would offer and by the way, this guy was referred by a good friend of mine. So, you know, I really listen to the referral. And, you know, he called me up and pitch me and he said, what I’ll do is I will do a evaluation of your situation. I’ll look at the properties you own, the businesses you own. And, you know, I’ll look at your different entities and all this kind of stuff. And I’ll just evaluate all this. And it’ll take me about a week. Now, listen, I’ve been around the block enough. I’m old. I know what’s going on. What that really means in real life is probably that he’ll intake my information. I have a secretary intake, my information, and then he’ll look at it for 20 minutes, and then come back to me have a phone call and recommend the strategy. Get this, get this. This is commonplace folks, this kind of thing. It’s absolutely outrageous, but it’s commonplace. He said, it’ll be $15,000 for the consultation fee. And I said, Wow, that’s expensive. And then I said, Well, okay, so that doesn’t actually, you know, get me any entities or any estate planning, right? And he says, No, it’s just a consultation. You know, I’ll evaluate it. I’ll talk with some of my associates about your scenario and in consideration thing to do. And I told him, you know, my, my trust needs to be updated for. Because if I happen to kick the bucket, you know, where’s the money gonna go? Right? You gotta get that all figured out in advance, right? So he says that and I said, Okay, well say I want to move forward with you and have you form an LLC for me? And he said, Well, each LLC is 20 $500. And I thought, oh my god, that’s so expensive. It’s outrageous. And believe me, if you want to have a reasonable approach to this stuff to this estate planning, and getting your assets managed properly, you know, we’ve had a few attorneys over the years. We like Garrett Sutton, his prices, very reasonable. He kind of specializes in one particular area though, and you know, this, this other attorney, who’s on the webinar really looks at a pretty broad spectrum of stuff. And his prices are so reasonable. Really, you should check this webinar out. Okay, Jason hartman.com slash asset and take advantage of that and learn about this stuff because it’s the one area of life where you really got to do stuff in advance. Okay, so my homework is to do some more inflation calculations, and go down this rabbit hole a little bit further, and we’ll talk about it more on a future episode, maybe even tomorrow, and we will be back tomorrow with another episode. So until then, happy investing, if you need us reach out one 800 Hartman or Jason Hartman calm and we will talk to you tomorrow. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website Hartman. Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice or advice and any other specialized area, please consult an appropriate professional. 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