Jason Hartman starts the show looking at homeownership rates. He discusses whether millennials will be entering the market anytime soon. In the show’s interview segment, he hosts Ed Mermelstein, founding partner of Rheem Bell & Mermelstein LLP. They discuss the GOP tax plan. Ed explains how foreign investors are currently invested in the US. He connects that with the tax plan explaining where the flow of money will be. He ends, discussing the impact all of this will have on big cities such as New York and Los Angeles.
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
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 multi millionaire 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 on now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth Show Episode Number 919 919. Thank you so much for joining me today. This is Jason Hartman. And we have got some good stuff to talk about today we’re going to talk about a very important element to the real estate market. Now. I’m gonna say it’s important. And then I’m going to kind of say it’s not well, at least as it relates to tax policy, it’s not as important as you might think. Here’s what I mean by that. What do you mean, Jason? Okay, here’s what you mean. So I believe that foreign direct investment in us real estate or for any country’s economy is very important as it buoys the real estate market. However, I think it creates a lot of market distortion, and it’s very hard to account for this is one of the reasons it’s hard to predict the real estate market or any economy. factor at all. Of course, there are all these actors, all these players out there in the world making decisions every day, based on what they’re based on their own self interest. And there’s nothing wrong with that their own self interest, as long as it aligns and policies align with those interest. Things mostly worked out pretty darn well. So here’s the thing. You know, you may think it’s like a big deal, whether or not we have a tax policy, and other policies that really encourage foreign investment in us real estate, and I think that is true. However, the however I want to say with that, is that the question is compared to what? That’s always the question in life compared to what? So even if we didn’t have this friendly, open tax policy that we pretty much have for foreign investors, even if it was not as desirable As it is now, the question is every foreign investor in the world would ask themselves well, compared to what Where should I put my money? And the United States has always been known as the Brinks truck. I’ve talked about this many times before the Brinks truck the safe Brinks truck is obviously one of those you know, armored trucks right armored cars that they pick up the money with and move it around and, and other expensive assets like that right in the US is considered the Brinks truck because it has very good rule of law. And it has so many other reasons that make it a very desirable place in which to invest. So the question is always compared to what so today our guest Ed Mermelstein will examine with me a little bit about how his law firm deals with very high net worth foreign investors and what they’re thinking might happen, you know, and might affect their decisions in terms of this gap. tax plan that’s on the table. We are very close to some very, very major tax reform, which I can’t say I’m an expert on this. But overall, it’s looking pretty good. If you ask me, I think it’s looking good for investors. It’s looking good for the overall economy. It’s looking good for you, all of you listening, okay. Now, I don’t love everything about it. Of course, and I’m not a huge expert, I have not spent a major amount of time investigating the tax plan. However, I think that a lot of the things that people look at as initial things that would disincentivize this behavior or that behavior, overall, those things are built into the tax code and they are distorting the market, just like foreign investment distorts the market, just like tax policy distorts the market, just like Fannie Mae distorts the housing market and Freddie Mac distorts the housing market and government insurance. Student Loans distort college tuition and that market. If you ask me, I think all of this crap ought to end. Okay. I mean, I think the homeownership rate is too high. I think we ought to get government out of this, that and the other thing and stop distorting the market. The problem is when you have these very powerful factors that have been in the market for so long, they become these entrenched interests. And the tax code incentivizing real estate investment by offering. I mean, it’s the most tax favored asset class in America, income property, bar, none. Nothing beats it, right. So look, what if some of that stuff went away? What if some of these little perks went away? What if you couldn’t deduct and this is on your own home? It doesn’t apply to investment properties the same way but for homeowners, what if you couldn’t deduct property taxes, right? Well, that would make people less incentivized to buy a home. in which to live. So what would they do? Well, they only have a couple of choices. Everything’s constrained by choices in any marketplace. They always ask themselves what question compared to what? Well, if I rent compared to buying or compared to owning, then what will that mean to me? Well, maybe fewer people will buy if they can’t deduct their property taxes, when they own a property in which to live. Okay, then that’ll believe the rental market, it’ll put upward pressure on rental prices. Well, hey, good for us as investors, right? So you’ve always got to understand everything passes through, everything passes through, as every actor in the economy always ask themselves the question, they wake up every morning, and they think about their life. And they think about what economic action should I take today or tomorrow or the next day or next year? What should I plan for? Well, when they do this, they always ask themselves compared to what how will This thing worked out versus how well that thing worked out. And hey, I say, if fewer people want to own homes, that would be better for the economy. And it would be better for us as investors. I’m fine. Seeing the homeownership rate decline. Now, it’s fairly low now, but you are seeing certainly some millennials come into the housing market and, and starting to buy. Now the question would be compared to what? You know, because you’ll hear this news report tomorrow, right? Or, you know, just as an example, you’ll hear a news report sometime, and it’ll say, well, Millennials are moving into the housing market. They’re buying, buying buying. Well, yeah, compared to what, what percentage on a per capita basis with 80 million Gen Y millennials, between the ages of what 18 and 35 or so right? Well, yeah. Sure, with a demographic cohort that is the largest demographic cohort in American history, bigger than the baby boomers by a small margin, but 4 million people, hey, that’s nothing to scoff at. They move into the housing market. And yeah, just because their numbers are so big, it has a bit of an impact. But overall as a demographic cohort, they’re not buying folks. They’re not buying in any significant numbers as a percentage of their own size and population. So that’s something to understand. So anyway, we’ll examine some of these issues today in terms of the tax plan and foreign direct investment, okay. FDI. That’s one thing. Now the other thing is, I want to compliment you folks out there. Thank you for entering our five year plan contest. The creativity is awesome. I love it. Some of these videos, I look at them and I’m just cracking up. I mean, they’re so memorable and so fun, and some are just sort of Matter of fact and basic and listen, I don’t care. It doesn’t have to be any particular way. Don’t agonize over this, right? What’s the saying I’m looking for perfection is the enemy of done. Maybe Maybe I should modify that, quote, perfection is the enemy of completion. Okay, so don’t be a perfectionist. In fact, when these videos are a little gritty and sort of more real, you know, they don’t have to be highly produced. But hey, look, if you’re a video editor, and you can do something real slick and snazzy, go for it, whatever you want. You know, you can be in the video facing the camera. Oh, but the one thing I would say, folks, here’s one piece of advice I want to give you. Well, two pieces of advice number one, get it done sooner rather than later. Because not only are we judging for the contest at Jason hartman.com slash contest, based on the quality of the video, okay, now, I don’t mean Quality, like production quality, per se, I mean, just content and so forth. But we’re also judging based on the number of views. So the sooner you get your video posted to YouTube, the sooner you will get more views and the sooner you can share it on social media, and tell all your friends to like it, and give it the thumbs up there on YouTube and make comments and the more engagement you get, the longer it’s out there, the more views it will get. And if it gets more views that will help you and winning. Now remember, go to Jason hartman.com slash contest. And look at the prizes the phenomenal prizes, you have a very high chance of winning by the way, the odds are very good. It’s not like it’s not like 1000 people enter the contest. Okay, your chances are very good of winning one of these prizes, so go check out the prizes but also check out the rules of the contest. Test. Okay, what you need to do, and sooner rather than later but here’s my other piece of advice. This is the one I was thinking about when I said that you’ve got turn the camera sideways, okay? Yes, I know you’re using your Android phone or your iPhone, and you’re holding it vertically. Why do people do this I do not understand. turn it sideways. So it has the same aspect ratio of your TV set. Now, for those of you who entered already and didn’t turn it sideways, hey, that’s fine. Because you know what we’re probably going to do. I’m going to have my video editor go in and fix that up for you. You’ll see you’ll probably see this at meet the Masters how we fix it up, it’ll be good. You’ll like it, you’ll like it. But any new entries, turn the phone sideways landscape mode, same aspect ratio is your television set. Hopefully you don’t have your television set on the wall vertical. You’d have to turn your head be very awkward, but maybe if you’re laying on the couch, you know, you could watch it that way. Okay. Enough of that. Now, some, but thank you for entering the contest. It’s really great. I love what you guys are doing. So keep up the good work. And remember, this is not really about the contest. It’s about your five year plan. It’s about declaring publicly where you are going, and also making it real in your own mind, by us, forcing you to do this little quick video, and it could be two minutes long, it can be five minutes long, you know, just don’t worry about it. Okay. It’s no big format requirements here. But by us giving you the impetus, the motivation to make your five year plan video of where you will be in five years, and where your real estate portfolio will be where you’re going. We are helping you put this right into programming your subconscious mind. And that is going to make your goal achievement far more likely you It is truly truly amazing. Hey, last night, I had the pleasure of taking one of our venture Alliance members Keith to see David Copperfield and his magic show, of course, I saw that many years ago, but I think like 20 years ago, I saw him when I lived in Orange County, California, and he was at the Orange County Performing Arts Center. And it was amazing then and it was amazing yesterday. Keith is one of our clients and venture Alliance members who I think I’m going to talk into finally coming on the podcast. He’s been reluctant Keith, are you listening? You got to get on the podcast because you have some great knowledge and, and great information to share. Anyway, we went and saw David Copperfield, we saw the show, then we went backstage and took photos with them and and got to meet him and you know, David Copperfield. I mean, this amazed me I didn’t know this before the show. I looked it up this morning. He was ranked by Forbes as the most commercially successful magician. I was gonna say illusionists. They kind of call themselves Both in all history, and then I looked up his net worth. Wow. Whoa, I was amazed. You ready for this? He makes about 60 million bucks here. And his net worth is 930 million dollars.
Jason Hartman 14:21
Whoa, he’s almost a billionaire. That is truly amazing. You know, I took my mom to see Jerry Seinfeld show and we got to meet him and go backstage and take photos with him. Last Christmas, Jerry Seinfeld’s net worth is about $900 million, as well. Just goes to show you the power of the media, and the power of scalability. These two, a comedian and a magician are right on the cusp of being billionaires. That’s pretty darn incredible if you ask me. Now the other end of the spectrum and since we’re talking Our guest today is talking about foreign investment, mostly in real estate. I want to share with you something here, the rankings of GNI G and I, okay, that is the gross national income. And this is on a per capita basis. So per person basis, okay, gross national income of the poorest countries on earth, and then some of the richest. Now I’ve got two things open here. One is a news article, where I saw the ranking of the poorest, and it doesn’t exactly match up with Wikipedia, because I wanted to get you also the richest. I’m using both sources and they’re very close, but they’re not an exact match. I think I think they’re doing maybe one is 2015 ranking and the others 2016. But hey, As the old saying goes, it’s close enough for government work. But you know, we just had Thanksgiving. And of course, our new producer and client, Adam Schroeder was on the show on that. Thanks. given day episode that we did, and you know, whenever you are feeling that your life isn’t going well, you should always ask yourself, Jason Hartman the best question to ask compared to what? Right compared to what? Well, if you lived in Brunei, your income in US dollars would be the equivalent of $280 per year. Yeah, not per hour, not per day, not per week, not per month, per year. That means you would be living on less than $2 per day. Okay. in Malawi $320 Central African Republic $370, Liberia $370, Niger 370 Madagascar 400 bucks a year Democratic Republic of Congo. I love how they call these places democratic Republic’s $420, Gambia $440. per year, Mozambique $480 per year, and Guinea $490 per year in income. Okay, so if you ever think you have problems, ask yourself compared to what? Well, if you want to make yourself feel bad, here’s your comparison. The number one country with the highest gi, okay? The gross national income on a per capita basis, the number one country in the world. I’m gonna stop I’m not even gonna tell you. I’m gonna go up from the bottom the way David Letterman would do it. We’ll do the top 10 up from the bottom number 10 drumroll please. United States of America number 10 $55,980 per year. Okay, now I’m gonna just round these off. Okay, Sweden 58 thousand dollars per year. Australia 60,000 per year Denmark 60,000 per year. I’m kind of surprised Australia beat us by the way. Hey, you folks down under I guess you can afford a few more shrimp on the barbie. You know I should really not try to be funny because I suck at trying to be funny. Okay, apologize. No more trying to be funny. Denmark $60,000 Channel Islands $65,000 Macau $67,000 Luxembourg. I was just there in Luxembourg. $77,000. The Isle of Man that’s part of the UK. That’s where a lot of people go to hide money. It’s like the Cayman Islands. If you take trips to places like that, you’ll probably get an audit from the IRS. Yes, that’s what I hear. Anyway, I’ve never been to the Isle of Man but I’m fascinated by those kinds of places. I’ve never been to the Cayman Islands either. I gotta go. But probably get audited after I after my trip. It just shows to go you doesn’t it how the NSA is watching everything right? Okay so the Isle of Man $84,000 per year, Qatar or Qatar however you say that you know, oil rich nation $84,000 per years Switzerland, the neutral Switzerland $85,000 per year, Norway I was just in Oslo, Norway very recently $94,000 per year, Bermuda $106,000 per year that’s big, big lots of insurance place and that’s another offshore haven. And here’s a European haven I’ve been there before Liechtenstein $115,000 per year and can you guess yet country in the world with a highest gross national income, the highest G and I Monaco, beautiful Monaco $187,000 per year, per capita. These are all in US dollars. Comparing that again. To the poorest in the world. Wow, that is just truly amazing. Now, let me tell you the way Wikipedia does it. Brunei is the poorest with $260 per year. Now, wow. $260 per year versus $187,000 per year. By the way. Another interesting thing on here I will just tell you, North Korea is actually on the list. I’m quite fascinated by the morbid or the morbid fascination with communism. So North Korea guess what that is? Guess what the G and I I mean, it’s super hard to estimate in a place like North Korea, the hermit regime the most secretive country on earth is North Korea $500 per year. Well, they’re not the poorest but they’re almost there. Good job North Korea. Okay, anyway, let’s get on to our guest today but but two reminders number one, Jason Hartman comm slash contest Make your five year plan video, make this real and win some great prizes. The sooner you get your video posted, the better. And remember, you’ve got to share your video with people so you can get more views and more likes. That’s one of the criteria on which we will judge the contest winners. And then also Jason hartman.com. Slash masters for our upcoming meet the Masters event with Ron Paul, and all of the other great speakers that we have. And by the way, we are working on booking something, this is something we’ve never done. I’ve been learning a lot about it in the past two weeks because I’ve been working on it. We are going to book a musical performance, at least hopefully, we have not booked one yet. But we’ve been talking to different bands and musicians, a musical performance for Saturday evening. So that’ll be a lot of fun. We’ve never done anything like that at our events before. So we are working on that. And I will just tell you that one of the first request I made as I said to one of these talent agents I said How much is it to hire journey?
Jason Hartman 22:05
Yeah, journey. Hey, why not? We should have journey play at meet the Masters shouldn’t wait. Well, maybe not.
Jason Hartman 22:13
I don’t think we’ll have journey because the price was you ready $350,000 of journey come and play. So that would take two years of income living in Monaco to pay for journey to come and perform for one night at meet the Masters But hey, maybe someday when we’re in the big leagues, we will have journey come and flight. But anyway more to come on that but it’s going to be a great event. mid January La Jolla, California. Meet the Masters Jason Hartman calm slash masters here is our guest. Let’s dive in to some of the details about the GOP tax plan and foreign investors.
It’s my pleasure to welcome Ed Mermelstein to the show. He is founding real estate partner at Rheem, bell and Mermelstein. They are a law firm that primarily deals with high net worth foreign investors. They’re based in New York City and have some very interesting insights into the proposed tax plan, what it means to us investors, what it means to foreign investors, what it means to the economy overall. And we’re just going to kind of dive into some of these topics and welcome How are you?
Ed Mermelstein 23:30
Very well. Thank you for having me on your show.
Jason Hartman 23:33
Yep. It’s good to have you on
Ed Mermelstein 23:34
tell us what is going on and how the proposed tax plan will affect foreign investors. You know, the US has always been such an attractive real estate market after visiting 81 countries myself, I think the US has a very special very unique real estate market. Will the proposed tax plan change that will it become more or less attractive to foreign investors? From what it appears to be now, it definitely is going to be more attractive for foreign investors. And that’s primarily, at least from my point of view based on the fact that corporate rates are coming down. Being that most foreigners are not subject to us taxation on a personal level, they typically are affected from any investments on the corporate level. So anytime you have reduction on corporate rates, you get very happy foreigners that are more interested in increasing your investments in the United States.
Jason Hartman 24:38
Wow. You know, is if we didn’t already have more than enough money from foreign buyers flowing into us real estate, it looks like that tidal wave might even get bigger, right?
Ed Mermelstein 24:50
Well, not for us. It may appear to be a tidal wave but in comparison to other countries around the world, percentage wise, worse. quite small in terms of foreign investment in the United States real estate, and especially in major cities like New York City or San Francisco. If you look at places like London, for example, the percentage of foreign investment in real estate is substantially higher. I would say that if we’re comparing ourselves to anyone, we’re still not necessarily bigger than other major cities around the world.
Jason Hartman 25:29
Fair enough. I mean, you look at very international cities, you know, like London, you mentioned, of course, London, Hong Kong, Dubai, etc. And I’m sure the dynamics there are quite different, but it sure feels like and this is just very anecdotal, over my, you know, several decades in the real estate business, that foreign buyers just love us real estate. Now. I guess you could argue that, you know, you look at Vancouver, Canada, for example, and it’s just Chinese buyers everywhere you look. It’s amazing. But when you Speak of the corporate tax rate. And you know, we’ve heard a lot about this in the media that includes s corpse and LLCs. Right, or an LLC is being treated as s corpse, but it also includes c corpse. I mean, what is the typical vehicle that foreigners use when they’re buying American real estate? Are they using LLC is treated as s corpse with an S election?
Ed Mermelstein 26:22
That is very much the typical scenario, exactly as you described, the LLC is treated as s corpse. And that has been the preferred vehicle for purchase investment in us real estate. And also one of the reasons why we’re having this conversation in terms of the new proposed tax rate favorable and, obviously is based on what is being proposed right now in Congress. And can you kind
Jason Hartman 26:50
of give us an outline of the way this flow happens. For example, if you have an American investor and they have an LLC, that owns real estate in the US. And they’ve taken the S election, the Subchapter S election to treat the LLC like an S corp, you know, the money just flows through to their personal return. Right. So that’s really sort of a, you know, the only thing that would make a difference as if it was a C Corp, you know, where the money would be retained and double, you know, they get a double dip on the taxation there with a foreign buyer, what happens to them? And is there any distinction between what happens to regular income from the property versus capital gains when the property is sold? So how are we getting into the intricacies of tax law which I you’re not a tax expert and
Ed Mermelstein 27:44
definitely not a tax attorney, but what I can tell you is that the rates that are being proposed are very much affecting the foreign investor in a similar fashion to a A local investor in the United States. There are advantages for tax treaty countries where you’re getting benefits of having paid taxes in the United States. But at the end of the day, we’re treating the scenario in a very similar fashion where if the rate is going down for an investor in New York, the treatment as far as we’re looking at it from the legal perspective is going to affect our clients. very similarly, if they were foreign investor, as well as if they’re a local investor.
Jason Hartman 28:37
Yeah. Okay. Interesting. Well, what else do you want us to know about the tax plan or the way it’s going to affect the real estate market or the broader economy in general?
Ed Mermelstein 28:49
Well, what we’re seeing right now, in places like New York City, for example, some of the proposals that are being Considered are not necessarily favorable from the perspective that, for example, we’re not able to deduct local and state taxes, whereas previously, we would be able to do that is potentially a fairly large differential, in certain cases more than 10%. So that is definitely going to affect major cities like New York, San Francisco, Los Angeles, and benefit cities like Miami, where you have the benefit of not having local taxes on the same level, or in certain cases, no taxes at all on the same level as you would in New York City.
Jason Hartman 29:40
Yeah, right. And so really, we could talk about that in terms of state taxes. So taxes, states with high income tax rates are going to suffer and states with zero income tax, I believe there are 11 of them will benefit or, you know, at least states with low income taxes. Now does this just Apply to the property ownership perspective, or is that a general comment?
Ed Mermelstein 30:04
It’s general. But when you’re talking about property ownership being that most investors own their property in LLC s, that are pass throughs, you’re talking about a very similar tax treatment for the individual investor. We’re seeing this as a negative in places like New York based off what it is currently, under the proposals that Congress is presenting. It’s definitely a significant number for places like New York City. Yeah, yeah, definitely.
Jason Hartman 30:41
You know, it has been really it still amazes me. How many foreign buyers will just buy properties. I mean, they seem to be really fond of what I think are very overpriced, high rise condos, and they’ll just literally leave them vacant or, you know, call them second homes, but Hardly ever used them. They don’t even rent them a lot of times. And it’s almost like they’re just using it as a bank. Not even considering it really an investment. I mean, it’s speculative. Yeah, maybe the price will go up, there will be some capital gain, but they’re not even producing income. And if they do use them as rentals, and turn them in to income properties, they’re usually buying them in these markets that are so high priced. You know, a lot of the cities you mentioned New York, San Francisco, Vancouver, Seattle, you know, what LA, I mean, you know, these markets that are just they just have lousy rent to value ratios, because they’re just very, very expensive real estate markets. Any thoughts or comments on that? And then I’d also like to ask you, you know, we’ve talked about foreign investment in general, but maybe tied into fi you know, where most of that’s coming from, is it Chinese money? Is it Middle Eastern money, you know, maybe talk about that a little bit too, in terms of your client base, or
Ed Mermelstein 31:53
what you’re describing is a very tiny, tiny portion of almost any The markets that you just mentioned, whether it’s New York, LA, San Francisco, Seattle, there are individuals that purchase properties all over the world, many of them may stay in for only a few weeks of the year, or in certain cases more than a few weeks. But these are people that have homes and properties that they invest in all over the world. places like New York that are very popular, or Los Angeles or San Francisco, that are very popular, will have individuals buying in those cities. So San Francisco, for example, is extremely popular with Chinese high net worth investors. We’ve seen them as well in New York and New York will tend to have more Europeans and Asian purchasers. Again, the description of someone who never visits their apartment or keeps them as a piggy bank. While it may happen every once In a while one thing I can tell you is the purchasers that we represent. And we represent a significant number of high net worth purchasers from all over the world. They tend to either occupy and live in their second homes on a fairly consistent basis. Many of them actually live in the cities, whether it’s in New York or San Francisco, or Los Angeles, and the ones that don’t live there full time, occupy the apartments fairly regularly. Many of them have very large families. So you will have the parents stay for a few weeks, and then the children will come and visit for a few weeks. So it’s rare that you will see units that are not occupied at all, and are not rented out at all. That’s not the typical purchaser that I’ve seen or have represented.
Jason Hartman 33:50
And again, I’m not making a comment like it’s the typical norm. It’s just that it happens much more so than it does with American buyers. And it shocks me. That’s why it stands out.
Ed Mermelstein 34:02
And it’s, and it’s a fair statement. And yes, there are people on this planet that for, I guess, whatever reasons have made or inherited tremendous amounts of money, and invest in properties all over the world and some of those properties they may never visit, right? Yeah. Yeah. Can’t say that. It doesn’t happen. It definitely does happen. But it’s extremely rare. Yeah, yeah.
Jason Hartman 34:26
And hopefully, people will make these properties work for them and not just keep them vacant like that more often than not. So you know, your, your points are one sided. I mean, for sure.
Ed Mermelstein 34:38
Yeah. One item that I guess, is neglected when this conversation does come up is that the same people pay a tremendous amount of property taxes yet, they don’t use the services of the city where they pay those property taxes both on acquisition as well as the yearly taxes or so that are associated With the properties and upon sale, if that ever happens, and I tend to believe that that is a boon to the city where they do make those investments now, if those investments are made in any significant manner, and I don’t believe that that is likelihood in any of the cities that we’ve discussed, and you tend to have cities that become untenable for people that are not super wealthy, so there are some pros and some cons in this conversation, but the pros typically don’t get discussed. Sure. Let’s talk about that. dive into that question about, you know, which foreigners like which segments of the market at all, you know, when you look around the world, you know, where’s most of the money coming from? Is it more advantageous to one group of foreigners versus another? And then is there a government component in here? What about foreign governments? are they buying up any us properties, there is definitely an ebb and flow In terms of what has been happening in the United States over the last 30 plus years, and a lot of it has to do with what happens in the individual countries that are investing into the United States, whether it’s through their individual investors or governments, that obviously depends on the wealth of those countries. So, back in the 80s, we saw significant investment coming from Japan, that drove up prices in places like New York and Los Angeles and Iraq, Rockefeller
Jason Hartman 36:33
Center and other real estate.
Ed Mermelstein 36:35
Exactly. Real estate markets collapsed. And then local buyers, were purchasing those same properties back from the Japanese investors a substantial discount, those same investors made quite a bit of money. And just
Jason Hartman 36:50
just a comment on that if I made before you go on. That was interesting how, you know, in the late 80s, there was there was a fair amount of xenophobia, I’d say Especially, you know, with Japan, buying up not just trophy properties in the US, but also companies. And it’s interesting, like you said, you know, they would buy the property, they would pay the taxes on that property for, you know, several years, and then sell it back to an American buyer, you know, for a lot less money. So it actually worked out to be a pretty good deal, not for the Japanese, but for everybody else, right.
Ed Mermelstein 37:24
And we do see quite a bit of that every five to 10 years where a new investment pool comes into our country drives up some degree, the prices and then the very savvy us, check out these foreign investors at significant discounts. I think the foreign investment tends to sometime make the news in a very negative manner. And there’s a place for that, but we should also consider the benefits of foreign investments in the United States when our local economies are not supporting prices and foreign investment helps the bottoms of those price points stay at a certain level and not get dragged down by the local investors or owners to a place where they may all of a sudden see themselves underwater. So yeah,
Jason Hartman 38:17
no, you’re absolutely right. We got a we got to be very happy that so many foreign buyers want to buy up our real estate. I mean, you know, you can argue various components of that. But, you know, overall, it’s an impressive statement for our market and our economy and our rule of law.
Ed Mermelstein 38:33
Well, the wonderful thing is exactly that. We’re perceived by foreigners as very stable country economically and politically, and we’re therefore extremely popular yet. We’re far enough from Europe and Asia where we are sometimes less popular as a result of the time difference and the mileage that it takes to come to the United States. So I We’ve achieved quite a good balance in this case, as a result where a lot of money comes into the United States, but if we were closer to Europe or closer to Asia, potentially there would be a very negative impact because of the size of investment that may be significantly different. Well, this is a fun conversation to have. And it’s interesting to have the conversation when there is a significant flow of foreign funds within the United States. But when that flow all of a sudden stops, the question starts, when do they come back? Or are they not coming back and we’re seeing quite a bit of that right now from a Chinese investment where we have significant amount of Chinese investment both in commercial and residential real estate only two years ago and all of a sudden within the last year, year and a half. It started been reduced significantly because of the economy and monetary controls in China. We’re happy when it’s happening, and certain cases very unhappy when it’s happening. But we’re very much more happy when it stops. And we see quite a bit of that in New York as well, where there were lots of complaints about Russian investment in the high end residential market. But when that investment all of a sudden stopped, I can assure you that many developers in New York
Jason Hartman 40:39
I can understand that for sure. Well, hey, we’ve got to wrap it up. But please, give out your website, tell people where they can find you. And then also, you know, just maybe wrap it up with a thought on you know, where the markets going, where the economy’s going, etc. You know, any anything you want to say just to tie everything up?
Ed Mermelstein 40:55
Certainly. Well, our website is RBM LLP Calm and one and only realty.com. But in terms of the tax situation as it applies to investment in general, we see it overall as something that’s positive, especially for small businesses as well as large businesses, and depends on which side of the equation you’re on, whether it’s trickle down or trickle up. So there are going to be a lot of happy people, a lot of unhappy people. But ultimately, what we’ve seen over the last 50 years is there’s going to be a balance that develops in the situation and both sides of Congress will come to an agreement that hopefully will be balanced both for the lower income bracket as well as the higher income bracket, but the ultimately the goal is to get our economy going, and we’re hoping that the tax cuts achieve what they’re proposing.
Jason Hartman 41:54
Well, Adam, thank you for joining us. It’s my pleasure. Thank you.
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