Archive for August, 2009
August 31, 2009 ·
In this video from http://JasonHartman.com, we will look at the “calm before the financial storm”. Times are coming when interest rates will go up, and getting mortgages will become harder. Invest now. http://CreatingWealthPodcast.com
To those who have learned how to read the economic trends, it has been painfully obvious for quite some time that significant inflation is on the horizon. Platinum Properties Investor Network has long supported a strategy of fighting inflation through rental real estate that is financed with fixed-rate debt. The advantage of this strategy is that the debt payments will stay the same throughout the inflationary period as prices are pushed higher. While this is happening, the rents paid by the tenants will be consistently increasing as the scourge of inflation is eroding the value of the dollars that are being used to repay the mortgage.
All of the people who have read Jason’s blogs or listened to his Creating Wealth show for a significant period of time are well acquainted with this phenomenon. The piece that is now important to internalize is the fact that this ‘door of opportunity’ will close at some point in the near future. The reason for this is because of the chain reaction that the inevitable inflation will unleash.
Once the impact of inflation begins to unfold, it will result in more investors selling bonds to avoid seeing their wealth destroyed. This will place upward pressure on bond yields as investors will no longer be willing to accept rock-bottom interest rates for government treasuries. As the treasury yields are pushed up higher and higher, there will be a ripple effect to mortgages that are indexed to these treasury notes. This increase in mortgage interest will increase the ‘effective’ price of real estate since the same monthly payment will not buy as much house as in previous years. As this stall in purchasing power ripples through the market, it will place downward pressure on prices and appreciation. At this point, buying in to the real estate market will become a much more tenuous matter since interest rates will be higher, creating increased mortgage payments and lower cash flow to owners. During this time, the investors who locked down low fixed rate mortgages will be watching their profits expand while their costs stay flat.
The bottom line is that this tremendous opportunity will not persist forever. Once the rocks begin to fall, it is likely that the avalanche will quickly follow. Prudent investors should seek to be ahead of the masses, and lock down their investments while rates are still low, prices are still depressed, and opportunities are still plentiful.
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August 28, 2009 ·
In this video from http://www.JasonHartman.com, test your fiscal IQ and learn what it means to be Fiscally Fit. Learn more at http://www.CreatingWealthPodcast.com
1) When is debt good?
a. When I feel like spending money
b. When I am buying something that I can see and touch
c. When I am buying something like a house or car
d. When I am buying an asset that produces income
2) When is debt bad?
a. When it causes you to be highly leveraged on an investment
b. When it is used to finance consumption
c. When you use your credit card
d. Debt is always bad
3) What causes inflation?
a. Evil businesses raising prices on the little guy
b. The federal reserve increasing the supply of available money
c. OPEC constricting output to push up prices
d. A tri-lateral conspiracy between George Bush, the Illuminati, and the Vanderbilt Family
4) What is the result of inflation?
a. It destroys the value of savings, equity, and debt
b. It creates jobs by increasing the amount of money in people’s pockets
c. It makes me more wealthy by increasing the value of my house
d. It makes me more wealthy by increasing the value of my 401k
5) What happens when the government increases spending?
a. It means that I get free money in my mailbox
b. It means that those rich people will finally have to pay their fair share
c. It means that the government must extract more resources from the private economy through taxes, borrowing, and inflation
d. It means that the country starts to run better, because the government always does things more efficiently than the private market
1) When is debt good?
The way that debt can work to your benefit is if it is used to finance an income-producing asset that pays your interest costs. The most typical example of this is rental real estate. As the owner, you take out a fixed-rate loan on the house, the tenant pays you rent, and you pay the applicable tax, insurance, and mortgage expenses.
Over time, inflation will increase the value of the house and the rents paid by your tenant. However, the amount you owe on the house will stay flat because of the fixed-rate debt. This will result in your profits increasing.
2) When is debt bad?
Generally speaking, debt will work against you when it is used to purchase anything that doesn’t produce income. The reason for this is because the interest for debt that is used to make these purchases must be paid out of your income. Furthermore, as the amount of debt goes up, it consumes more and more of your income. By concentrating debt in assets that produce income, you can escape this ‘debt spiral’ trap that keep many people confined in financial prison.
3) What causes inflation?
As tempting as conspiracy theories can be, the money supply is the principal factor that drives inflation for the overall economy. Supply and demand can create price spikes and drops in specific products like oil or corn, but the only way to make everything more expensive at the same time is to increase the amount of money in circulation while the amounts of goods and services stays flat or decreases. This phenomenon is known as ‘more money chasing less goods.’
4) What is the result of inflation?
Inflation erodes the purchasing power of all things that are denominated in dollars. When the prices of everything you buy go up, but your savings account only grows at 0.2% per year, it results in a negative ‘real’ rate of return since the savings will now buy less than it did before. In practical terms, this means that dollar-denominated assets, like home equity, savings, and CDs, along with liabilities like debt, will all have their value destroyed by inflation. Because of this, the optimal strategy is to have your assets denominated in physical things and your liabilities denominated in dollar-based debt.
5) What happens when the government increases spending?
The government does not have the capacity to produce anything. The only way that it can spend anything is to first take it from somebody else. Sometimes this is done directly through taxes, and other times it is done indirectly through borrowing or inflation. The way that borrowing takes money is by displacing private debt with government borrowing, effectively reducing the amount of capital available. The way that inflation takes money is by eroding the purchasing power of people’s salary, savings, and home equity to finance government spending.
Because of this phenomenon, it logically follows that any time the government decides to do something that the private sector could do more effectively, it drags down the overall economy by displacing private economic activity. (Granted, the government frequently enacts arbitrary laws & regulations that artificially hamper the efficiency of private industry, thereby creating a perception that the private market is broken, when the problems are all a direct result of government fiat.) The adverse incentives implicit in this balance is that politicians derive their power from the amount of money that government spends. Because of this, politicians have an incentive to make government bigger, regardless of how much it erodes the economy, because it will result in them becoming more powerful and important.
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August 27, 2009 ·
Enjoy a FREE sample of Jason Hartman’s Financial Freedom report in audio format. To subscribe, please visit: http://www.jasonhartman.com/events/
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August 27, 2009 ·
The current economy offers both danger and opportunity, as the Chinese word for “crisis” explains. This video from http://www.JasonHartman.com explains the effect of inflation on investment prospects. http://CreatingWealthPodcast.com
The market is currently in a period of great uncertainty and volatility. Some believe that there is a budding stock market rally developing, while others believe that the recent economic problems are merely the first of many disruptions that will shake the foundations of America over the coming years and possibly for decades. Our belief is that there are many forces pushing against a return to the rapid economic expansion that many have come to expect over the past 25 years.
The first force is the dramatic government spending obligations that are being financed by inflating the US Dollar. This will indirectly ‘tax’ economic output by eroding the purchasing power of the currency. The second major force is the inevitable increase of interest rates and tightening of credit standards. This will increase the cost of capital for business activities in the midst of rapid price inflation. The most likely result of these two forces will be a dramatic slowdown in the growth rate for the US Economy.
This will create tremendous opportunities for investors that position themselves to take advantage of the upcoming demographic shift of people out of the homeowner pool, moving into the rental pool. As millions of Americans adjust their expectations for the standard of living that they can reasonably afford, they will be paying rent while this transition takes place. Prudent investors should place themselves in a situation to take advantage of this shift.
Direct investment in rental real estate continues to represent the best way to take advantage of this trend by allowing investors to collect regular cash flow and ‘outsource’ their fixed-rate debt to the renters. Over time, inflation will push up the rents and values of properties while the mortgage payments stay flat. This will generate tremendous wealth for astute investors who place themselves in a position to realize gains from the coming shifts and disruptions.
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August 27, 2009 ·
Come see why people are talking about Texas. Visit http://www.jasonhartman.com/properties/
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August 26, 2009 ·
In this video from http://www.JasonHartman.com’s Financial Freedom Report, learn about the state of the US Economy. http://www.CreatingWealthPodcast.com
One of the most dramatic pieces of news in recent months has been the sharp increase in unemployment. May ’09 figures showed the national unemployment rate at 9.4%. This represents a 3.9% increase over 12 months, which ultimately means that unemployment is 71% higher than it was in May of 2008. During this period of time, the consumer price index fell quite considerably due to dramatic reductions in energy prices from the demand disruption that was caused by the global credit crisis.
We believe that energy prices will regress back to their long-term equilibrium as credit markets normalize. This is likely to contribute to a ‘double whammy’ with the monetary inflation that is expected to result from the Federal Reserve policy to expand the money supply as a tool for fighting deflation. In addition to this, it is unclear how much more employment will contract as the economy grapples with the new realities of tighter credit and increased government intervention.
The recent month has been a very volatile time in the credit markets. The most noted phenomenon is the resurgence of the ‘bond vigilantes’ who are liquidating positions in US Treasuries to diversify into other debt holdings. This phenomenon has begun to push up treasury yields relative to prior months because of concerns by funds and governments holding major positions of US bonds that the loose monetary and tremendous government spending obligations will compromise the fiscal stability of the United States.
As the recent monetary expansion by the Federal Reserve plays out, we are expecting to see one of two scenarios transpire. The first scenario is that when credit markets normalize, the Federal Reserve will contract the money supply to keep inflation in check. This will have the result of pushing up short term rates, and will likely trigger a sell-off of long-term securities by investors that are looking to capture higher yields by re-buying shorter-term products at higher interest rates. The second scenario is where the Federal Reserve simply leaves the monetary system expanded, and inflation rolls through the economy. In this case, we expect to see many bondholders liquidate their positions as the returns are eroded by inflation. This will also have the effect of pushing up yields.
In the end, there is an extremely high likelihood that future events will be pushing up interest rates. Because of this, prudent investors should seek to lock down as much fixed-rate debt as possible while the rates are in a temporary trough from the global financial crisis. It is impossible to determine how much longer the current low rates will persist, but it is very probable that they will climb rapidly once they begin moving up and will be elevated for a considerable length of time before coming back down.
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August 24, 2009 ·
In this video recap of http://www.CreatingWealthPodcast.com Show #102, learn about new technology for tracking your real estate investments on your iPhone and ways to screen your tenants to avoid evictions and unprofitable renters. http://www.JasonHartman.com.
Jason recently published his one hundred and second Creating Wealth show, and is still providing new and useful insights with each new installment. This week, Jason met with Joel to discuss the ‘property tracker’ software application moving to the iPhone, in addition to its current home on the Internet. The unique nature of the property tracker software is its specialization for small to medium investors. It allows users to quickly analyze the profitability of their potential deals, and keep track of their property portfolio in a user-friendly format. The big advantage that this software provides is that it helps investors to act more confidently when making deals; it helps to keep information organized for working with your property managers, and also keeps everything straight for taxes. Jason is a strong proponent of using technology to drive profitability opportunities, and the property tracker software helps to achieve this goal by enabling investors to make smart business decisions very quickly.
During this show, Jason also announced that he has scheduled an interview with the famous author of the ‘Rich Dad’ book series, Robert Kiyosaki. This marks another key milestone in Jason’s recent string of interviews with notable authors and thinkers. Over the last few months, Jason has greatly expanded the scope of his Creating Wealth show through interviews with market experts. This has given his listeners the benefit of hearing different viewpoints from a very wide variety of expertise. In the future, Jason has scheduled interviews with James West and Addisson Wiggin. Additionally, he is working to book interviews with Ron Paul, Mike Huckabee, and Chuck Norris.
In the second half of the podcast, Jason talked with Jeff Cronrod from the American Apartment Owners Association (AAOA) board of directors. Jeff also has a lot of experience with tenant collections that he shared with Jason’s listeners. Current economics and demographics are shifting in favor of multi-family investing with the significant shift of homeowners to the rental pool, and the emergence of Generation Y as future renters. This will create tremendous opportunities for apartment owners and multi-family property investors.
However, when investing in multi-family properties, tenant screening is a critical piece of generating a favorable return. The reason for this is because bad tenants can be an extremely large liability if they have payment issues or damage the property. Taking extra effort up front can have a very significant effect over the long term by avoiding evictions, lost rent, and building repairs. Common tools for tenant screening are the employment history, tenant history, and criminal background reports. It is also very important for property managers to be a bit of a ‘detective’ and double-check for fake or borrowed social security numbers. Another common practice is to ask for the prior month’s rent receipt, bank statements, W-2 records, etc. The purpose of this analysis is to cross-check documents to ensure that the applicants are representing themselves accurately. While it is not possible to completely eliminate the possibility of accepting bad tenants, doing a little bit of legwork before accepting new applicants can prove to be extremely valuable down the road.
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August 21, 2009 ·
Many people are stuck in stock market based investments because of their 401k. Jason Hartman shares how investors can break out of 401k Jail and build long term wealth with properties investments. http://www.JasonHartman.com & http://www.CreatingWealthPodcast.com
There are many investors who have heeded the advice of Jason Hartman, and are looking to diversify their investment positions out of the stock market. However, many of these people have a large percentage of their investment assets tied up in a company 401k that has limited investment choices. What can a person do who is being held captive to a limited menu of investment options in the current environment?
In this situation, the optimal strategy is to capture market returns, while minimizing the costs associated with acquiring those returns. Fund managers have a tendency to charge hefty fees for their services, and frequently under-perform their comparable market indexes. The reason for this is not difficult to reason out.
When the gains and losses of all the market players are added together, they average out to the market rate of return. This simple arithmetic dictates that if one manager over-performs the market, that he must be offset by another that under-performs the market. Furthermore, fund managers must overcome the hefty fees that they charge in order to beat the market return. The net result is a zero-sum game created by everybody chasing the same market returns that turns into a negative-sum game when costs are factored in. So how does a 401k investor get out of this fund manager prison of high costs and disappointing returns?
The answer to this dilemma is achieved through the use of index funds in a stock portfolio. By capturing the average market returns at a minimal cost, index funds allow investors to ignore the ‘noise’ of daily stock market volatility and focus on the fundamentals. For investors who are looking for further diversification without losing the advantages of indexing, they can choose market indexes for small or medium sized companies that tend to be more volatile and produce higher returns. Similarly, index fund investors can choose international indexes that produce favorable returns and reduce portfolio volatility.
In addition to this, there is another option available to ‘jailbreak’ some of your money out of the 401k, and that option is to take a loan against your retirement plan. This strategy is typically advised against, because most people use the loan from their 401k to purchase items like cars or boats that decline in value. However, if you are astute and aggressive, there may be an opportunity to use your 401k as a vehicle to acquire capital for investment in other assets like rental real estate.
It is no secret that prudent investors should seek to limit their exposure to the stock market. However, for investors that are in ‘401k Jail’ with their employers, there is a viable way to structure your stock market investments in such a way that the major pitfalls of traditional stock investing are mitigated. And for those who are more adventurous, most 401k plans allow the owners to take a loan against the plan balance for outside investment. By thinking creatively, prudent investors can mitigate the impact of ‘401k Jail’ and use this tool to help build long-term wealth.
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August 20, 2009 ·
Join this live seminar as Jason Hartman explains the Commandments 6 through 10 for Successful Investing.
6. Thou shalt diversify.
7. Thou shalt be Area Agnostic™.
8. Thou shalt borrow to maximize leverage and accelerate wealth creation.
9. Thou shalt only invest where there is universal need.
10. Thou shalt invest only in tax-favored assets.
http://www.JasonHartman.com & http://www.CreatingWealthPodcast.com
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August 19, 2009 ·
Join this live seminar as Jason Hartman explains the first 5 of his 10 Commandments for Successful Investing.
1. Thou shalt become educated.
2. Thou shalt have a professional Investment Counselor.
3. Thou shalt maintain control.
4. Thou shalt use prudent financial planning techniques.
5. Thou shalt not gamble.
Find out more at http://www.JasonHartman.com & http://www.CreatingWealthPodcast.com
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