Category: Investing
January 7, 2010 ·
The “Barbell” strategy of investing
In the marketplace of ideas, there is no shortage of strategies for investing to produce superior returns. These range from the ‘crackpot’ infomercials schemes that infest early morning television to people that are afraid of the stock market altogether, and also include the research of Nobel laureate economists. The key question for an aspiring investor to ask is what they can learn from each method and strategy.
Let’s start with the Nobel economists. There have been many prominent thinkers who have extolled the virtues of portfolio diversification as it relates to investment in the stock market. The analysis and conclusion of their models are very logical and convincing. When combining securities whose price volatility is not highly correlated, the aggregate effect can be to lower the volatility for the total portfolio, while still preserving average returns. The factor that this analysis misses is the impact of rare, but catastrophic events like a total market collapse. While it is true that portfolio diversification can reduce normal volatility, it is also true that this diversification will not protect against a systemic market disruption.
On the other end of the spectrum, we find people who are afraid of the stock market altogether. Many of the people who express this sentiment were heavily influenced by the stock market crash of 1929 and the great depression. Typically, these people gravitate toward the perceived safety of bonds in lieu of stocks. The implicit problem with this strategy can take one of two flavors. The first is if the bonds are conservative low-interest instruments with guaranteed principal values. There is a significant risk that the value of these bonds will not keep pace with inflation. The other side of risk with bonds is if the investor seeks out high-risk bonds that pay out attractive interest rates, but are issued by companies in dangerous financial condition that may default on their debt obligations.
The final piece of the spectrum is the ‘crackpot’ schemes that are pushed by slick-sounding hucksters. Most of these so-called ‘fool proof’ systems promise fabulous returns by following a few over-simplified steps. Typically, these systems are designed for a particular market environment. When the market shifts, the strategies that once produced tremendous wealth can suddenly generate crippling losses. A prime example is the ‘house flipping’ mania that swept across the country during the real estate bubble. One investor after another reported tremendous gains from buying houses, doing modest rehab work, and then re-selling the house for a significant profit. This system seemed to be working great until the market shifted and the speculative buyers disappeared. At that point, there were suddenly a large number of people holding investment properties that they couldn’t afford to pay the mortgage on, could no longer afford to rehab, and were not able to rent out for a sufficient amount of money to pay the mortgage and taxes.
Each of these strategies carries strengths and weaknesses. The optimal way to blend these factors in an advantageous way is what has been affectionately labeled the “barbell” strategy. The basis for this name is based in the notion of combining relatively stable assets such as income real estate with speculative investments such as stock options. Traditional investment theory recommends channeling funds into the middle of the investment spectrum with a diversified stock portfolio. However, the impact of rare events has shown a need for stability that stocks do not adequately provide. Thus, in order to capture upside growth opportunities it is optimal to speculate with a small portion of the total investment portfolio so that the risk of loss is mitigated by the stable portion of your portfolio.
In the end, this style of investing defies almost all of the advice that is popular in the news media. Traditional advice is tilted toward primary investment in the false sense of security that is offered by a ‘diversified’ portfolio of stocks. Unfortunately, this strategy lacks the ability to withstand rare market disruptions, while possessing a limited upside growth opportunity because of the portfolio’s diversified nature. Prudent investors should seek to build a base of returns from assets like income real estate that are spread around in fragmented markets so that speculative opportunities can be pursued without endangering the base portfolio value.
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December 31, 2009 ·
Packaging your Commodities: Commodity Investing through Residential Real Estate
For most people, it is difficult to read through a financial newspaper or watch late night television without seeing repeated (possibly obnoxious) exhortations to invest in commodities such as gold or silver. The logic of these advertisements is frequently sound, since it is certainly true that government irresponsibility is leading toward a currency collapse and massive inflation. What frequently gets left out of the analysis is the other options available for investment that offer far greater prospects for return than gold or silver.
At the Financial Freedom Report, we are in absolute agreement over the prospect for commodity price inflation in the future. We are in absolute agreement over the massive deficits, crushing debt, and lax monetary policy of the government being a harbinger of runaway inflation over the coming decades. We are also in agreement over the dimming long-term prospects for the stock market, since there does not appear to be a new pool of investment capital to propel the stock market into an upward spiral like the one experienced over the last 25 years.
The strategy that we advocate at the financial freedom report is to use the attributes of rental real estate to invest in the commodities used for home construction. By following this strategy, we gain ownership of valuable commodities such as wood, concrete, petroleum products, and other building materials with the advantage of leverage from the bank and tax advantages from the government. We affectionately refer to this phenomenon as ‘packaged commodity’ investing because the commodity products are packaged into a residential home instead of sitting in a warehouse. The culmination of this strategy lies in the fact that commodities packaged into real estate investments can be rented to tenants. As an investor, this allows you to purchase commodity products while outsourcing the interest payments to a tenant and hedge against inflation with fixed rate debt, while delaying the payment of taxes through a section 1031 exchange.
*Theoretical example created through www.building-cost.net
The way that this strategy ultimately plays out is that the packaged commodities produce rental income through your property while inflation pushes up the cost of materials and the cost of labor. Over time, these increases in construction costs will generate a ‘rising tide’ that drives up market values. The cost of construction for new homes is split between materials and labor roughly even, with a contractor profit margin right around eleven percent of the construction cost. As the cost of materials and the cost of labor rises, it is likely to drive increases in replacement cost since the contractors do not have the ability to absorb large cost increases into their profit margins over an extended period of time. In practice, this will result in cost increases being passed along to the consumer in the form of higher prices.
Furthermore, it is important to consider the fact that many people need to be paid from the contractor profit margin on new construction. This makes home building an inherently volatile industry, since profit margins can expand or contract very dramatically, depending on the market cycle. Because of this, we advocate a strategy of purchasing attractive rental properties from somebody else instead of moving into the homebuilding business ourselves. This strategy allows us to ‘outsource’ the risks of new construction and focus on finding attractive deals.
*Theoretical example created through www.building-cost.net
An example of how this dynamic plays out is illustrated in the theoretical graph comparing market values against replacement costs. In an environment where the market value exceeds the replacement cost for new construction, it will trigger new housing starts by builders that recognize the opportunity for profits in excess of normal market conditions. In the case of a speculative bubble like the one that recently collapsed, huge amounts of resources pour into the home building industry to pursue the large profits. As this shift continues, the market will eventually become over-built with inventory, resulting in downward pricing pressure as bulders attempt to sell off their inventory at discounted prices.
Once the market value falls below the replacement cost in a given market, it will create a sharp decrease in new housing starts. The reason for this phenomenon is because people will be able to purchase existing homes for much less than the cost of construction from individuals that need to sell or from banks that are attempting to liquidate foreclosures. During this time, builders will find themselves in a terrible financial bind since the market prices will not be high enough to profitably build new houses. In many cases, bulders will have to operate at a loss for an extended period of time while they build out on permits and lots that have already been purchased in an attempt to recourp some of the costs. Over time, if the market values inflate back above the replacement cost, it will trigger another wave of building.
*Theoretical example of market prices and replacement costs
As this boom-bust cycle plays out, astute investors will have tremendous opportunities to profit. The most pronounced of these opportunities is to buy when prices are depressed and sell when prices are inflated. On the surface, this sounds very simple to do but it is an extremely difficult strategy to execute, because it requires prospective investors to move contrary to the prevailing market forces. During speculative booms or value rallies, the pressure on everybody is to buy and buy fast. When values are going up, up, up, there is no shortage of people who are willing to pay silly prices on the belief that they can always sell for a profit. Conversely, when values are depressed it can be very difficult to get the necessary investment capital for financing purchases. There will be more sellers than can possibly be imagined, but buyers will be extremely scarce.
At The Financial Freedom Report, we advocate a strategy of counter-cyclical buying for long term cash flow and appreciation. We prefer to target properties at prices below the replacement cost that generate attractive levels of cash flow. This produces a two-headed benefit of residual cash flows from rental income that can be used to pay for the mortgage, and a naturally low purchase price that is likely to become very attractive when market values eventually regress back toward the replacement cost. The key to this strategy lies in being able to ‘wait out’ the market gyrations with strong cash flow. By avoiding large amounts of negative cash flow, investors will remain solvent so that when inflation pushes up the replacement cost for their property and market values regress back to equilibrium, creating attractive gains in value.
It is unfortunate to think about the way in which the government has created speculative bubbles and inflation. We would all prefer to live with a responsible government, but that does not appear to be a realistic possibility at any point in the near or distant future. Because of this, prudent investors should position themselves to take advantage of government irresponsibility. The best way to accomplish this goal is by capturing attractive purchase prices from deflated bubbles, and by riding the wave of inflation as the cost of materials and the cost of labor push up the replacement costs for properties. By engaging in this strategy for wealth creation, it will place astute investors in control of real assets that produce real value for real people. Over time, this will allow you to side-step market manipulations and speculative bubbles while providing for the needs of yourself and the people you care about.
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December 28, 2009 ·
Income Property Investment Myths
Why aren’t more people investing in income properties when it’s the most lucrative, safest choice in history? Good question. Probably because people would rather watch television than improve their financial condition. Sure, everybody says they want to get rich but what are they actually doing about it besides flapping their gums?
Talking wistfully about something you have taken no action to achieve is called whining. Don’t go into the Green Parrot Bar in Key West with that attitude. It’s an official ‘no sniveling’ zone.
So let’s take a quick peek a some of the more common excuses people use to not get wealthy in real estate.
Reason #1 – “I don’t have enough cash.”
Sorry. Not a legitimate reason. Find a great deal and cash will find you. Negotiate the purchase price! Take equity out of your home – it’s losing value by the day in there anyway! Have you looked into the sweet $5,000 down deal Platinum Properties Investor Network has arranged in Atlanta? Next!
Reason #2 – “I don’t have any time.”
Sorry. Everybody’s got time. You need to prioritize. We’re talking about your financial future here. Surely, it’s more important than three hours of slumming in front of the television or computer. Toss the kids and spouse in the car on a Saturday afternoon and cruise the neighborhoods looking for ugly houses for sale.
Reason #3 – “Everyone says this stuff doesn’t work.”
Everyone? Ask Donald Trump, Jason Hartman, or Steve Wynn. True, you’re probably getting a skewed perception of reality if your primary source of information is late night tv. This stuff does work when you do it right.
To learn how to do real estate the right way, check out www.JasonHartman.com for The Complete Solution For Real Estate Investors™
Reason #4 – “Realtors are a difficult bunch.”
This is very NOT true when you work with Platinum Properties Investor Network. Our local area managers are real estate agents who LOVE to work with you. If they don’t, we quit sending them business and, believe us, they want our business.
Reason #5 – “I might lose money.”
Real estate is way safer than the stock market. It’s funny. The pattern we’ve noticed over more than two decades in this business is, the more you education you get, the less risky real estate is. It’s a calculated risk, one you can control much better than Wall Street.
Reason #6 – “I don’t know what to do.”
You don’t need to know it all. You just need to know who to ask. Don’t let analysis paralysis get in the way of the rest of your life. It’s that important! Come to a Platinum Properties Investor Network seminar, then set up an appointment with one of our expert investment counselors and then do it. Pull the trigger. Buy your first property. We’ll hold your hand if needed and advise you every step of the way.
Had enough myth-busting for one day?
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December 15, 2009 ·
In this video, discover the properties investment opportunities available in San Antonio, TX. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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December 14, 2009 ·
In this video, discover the properties investment opportunities available in Orlando, FL. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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December 11, 2009 ·
In this video, discover the properties investment opportunities available in Kansas City, MO. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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December 10, 2009 ·
In this video, discover the properties investment opportunities available in Houston, TX. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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December 9, 2009 ·
In this video, discover the properties investment opportunities available in Denver, CO. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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December 8, 2009 ·
In this video, discover the properties investment opportunities available in Charlotte, NC. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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December 7, 2009 ·
In this video, discover the properties investment opportunities available in Biloxi, MS. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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December 6, 2009 ·
In this video, discover the properties investment opportunities available in Austin, TX. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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October 8, 2009 ·
At the end of 2008, Sara informed me about an REO property in Indianapolis that was built in 2004, and available from the bank for a very attractive price. The only hitch was that the property needed some rehab and repairs. (Go figure – owners who get foreclosed on don’t always take the best care of their houses.)
In this case, the agreed-upon price from the bank was $57,000. To finance this deal, I worked with a mortgage broker from Wells Fargo that was referred to me by Sara. Since this was a low dollar loan, 20% down plus closing costs only came to $12,000 that I needed to bring to the table at closing. The bank sent the documents via overnight express and I signed them in the presence of a notary public, then returned them with the cashier’s check.
At this point, the area specialist became my best friend and greatest asset in closing the deal. (Her name is Angela, and if you do business in Indianapolis, I highly recommend that you talk with her . . . she regularly goes above and beyond the call of duty to get the job done.) Not only did the she help me to line up a property inspection and homeowner insurance, but she also put me in contact with contractors to do the rehab work, and stopped by the property during the rehab to keep tabs on the progress. My experience with Angela and all of the other people involved was so positive that I have subsequently decided to pursue another deal in the Indianapolis area. (Repeat business for all of the parties involved!)
Once the rehabs were completed, it was time to contract with a property management firm and rent the property to tenants. This is yet another way that the Platinum network created value for me . . . The property management company offered a rate discount to customers from Platinum, because of all the referrals that have come in from Jason’s organization.
The net result of all this work is a 3 bedroom, 2 bathroom house that rented out for $1,050 per month on a 12-month lease. The total cost including rehab and repairs was $69,000, and my monthly mortgage payment (including tax & insurance) is a whopping $460.57 per month. This results in a 1.5% rent to value ratio, and quite a bit of monthly cash flow. (In keeping with Jason’s “Refi Till Ya Die” strategy, this cash flow can be used to refinance the property and pull out cash for investing in more properties.)
One of the most important aspects to the “Complete Solution” offered by Platinum Properties is the properties that you do not see. The reason the properties you don’t see are so important is because Jason’s team frequently fields requests for low-quality deals that are rejected before their clients ever see them. The diligence and steadfast dedication exhibited by the team at Platinum Properties allows investors like myself to view an assortment of high-quality deals, without enduring the hassle of sifting through all of the “dogs” in hopes that somewhere in the pile of average and unremarkable deals there lives a diamond in the rough. By filtering the deals before they are presented to clients and investors, the team at Platinum provides a valuable service that saves an untold amount of time in research for potential investors. The best part about this process is that I am now free to spend my research time focusing on a few good deals, instead of sifting through pages and pages of marginal deals, resulting in a higher quality for all of my transactions.
The bottom line is that this entire deal would not have been possible without the network of contacts and local experts from Platinum Properties. Jason’s team has done the legwork to find high-quality people and properties in the targeted markets. Furthermore, they have pre-screened management companies to streamline the process of getting the properties occupied by tenants. Thus, the team truly creates a “Complete Solution” for real estate investors.
For more information on implementing this strategy, visit www.JasonHartman.com.
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October 5, 2009 ·
We don’t mean to scare you – well, actually we do. The words above were spoken by President Obama at a recent press conference. Ouch. Does that mean the U.S. economy is a car with a bone-dry gasoline tank still rolling slightly from 233 years of inertia?
Maybe?
A better analogy might be the economy is a car with a bone-dry gasoline tank still rolling slightly from 233 years of inertia heading off a cliff! What can we, as law-abiding citizens, expect when our government continues to bankrupt itself and devalue our currency? Seriously. The federal government is a Ponzi scheme that makes Bernie Madoff look like a piker.
Here’s a glimpse into the future after the dollar collapses:
1. An explosion in prices as Americans scramble to buy basic necessities.
2. Sparse grocery shelves and long gas lines.
3. Failed businesses and a breakdown in commerce as long-term transactions vanish due to worthless currency.
4. Rampant crime and unemployment.
5. Disappearing government services.
Sound like fun? What can you do to protect your wealth? The simple answer is to own income- producing property. It’s the only investment liable to have any value when the fiat currency collapses.
The time to act is now. There may still be time before the greenback dies as the major player on the global currency market. But there may be less time than you think. Wall Street is already coming apart at the seams from greed and incompetence. Make it a point to explore history’s best bet when it comes to investing. Platinum Properties Investor Network offers free educational services for any investor interested in weathering the coming storm. Check us out at www.JasonHartman.com.
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September 28, 2009 ·
A recent article published by Matt Tiabbi in Rolling Stone magazine articulated the role that Goldman Sachs is believed to have played in market manipulations since the Great Depression. The thesis of this article is that Goldman Sachs places itself in the middle of speculative bubbles by selling financial instruments that it knows are of low quality, and then re-purchasing them at depressed prices after the market bubble collapses. In the midst of the populist political rhetoric and conspiracy theories peppered throughout the article, there are some important points that can be taken away by those who are astute enough to see them.
The most important point is that investment banks and financial institutions have an incentive to drive up asset bubbles, and then pick up the pieces after a collapse and repeat the process. The reason why such nefarious activities perpetually persist is because financial companies tend to have very strong lobbying influence with both political parties. As an aside, it is important to divorce ourselves from the foolish notion that “Wall Street” is for or against Republicans or Democrats. Wall Street is in favor of whoever is in power, and politicians are typically in favor of whoever gives them the most money.
Regardless of the inherent morality (or lack thereof) in the actions of financial institutions, it is important to understand that simply complaining about their despised actions will do absolutely nothing to remedy the situation. The only way that corrupt brokerage houses will be held to task is when a market movement away from their financial products dries up their river of capital. The reason for this is because political restrictions will always be laced with loopholes, and even extreme financial malfeasance will be bailed out by the reigning political powers under the notion that said institutions are “too big to fail.”
Thus, it becomes clear that the only way to side step the ”Bubble Machine” of Wall Street is to develop a portfolio of direct investments that you personally control. The reason for this strategy is because direct control allows you to determine when assets are bought, sold, refinanced, etc. For example, if you own a portfolio of rental properties, you can personally make the call when to raise rents, refinance the properties, buy new investments, and sell to trade up to larger deals.
Whenever your investment assets are outsourced to Wall Street, fund managers get placed in control of all these decisions. Thus, it should not come as much of a surprise when these same fund managers funnel your resources into a speculative bubble in the hopes of capturing large bonuses on the returns generated while the bubble is inflating, and then take those returns to the bank after the bubble pops and your investment assets experience a sharp reduction in value. Direct investment allows an individual to select investment areas that are less susceptible to the effect of speculative bubbles through prudent analysis and due diligence.
Over the coming decades, it is likely that many more bubbles will expand and pop as the government attempts to use monetary expansion and market manipulation to mask the fact that it is unable to meet its entitlement promises that have been used by politicians to secure elected office. Unfortunately, many people will be taken along for the ride, and have their wealth systematically destroyed by the bubble machine. As prudent investors, each of us needs to be aware of this market reality and actively step around the manipulations of government and Wall Street so that the bubble machine passes us by while unleashing its path of destruction on the financial world.
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September 23, 2009 ·
Whatever happened to personal responsibility? The lack of personal accountability is a problem that has resulted in an outbreak of procrastination, complaining, and blame. An individual or organization cannot achieve goals, compete in the workforce or continue growth and develop without personal accountability. Organizational development expert, John Miller, believes that one of the hallmarks of today’s business culture is this lack of personal accountability. Miller prescribes the cure in his book, The Question Behind the Questions (QBQ!) with a series of short stories and personal observations drawn from his years of experience running his development firm. Visit http://www.jasonhartman.com/radioshows/. The main point of QBQ! is that positive change begins with individuals changing themselves: “Instead of asking, ‘When will others walk their talk?’ Let’s walk our talk first.” Tune in to this episode of The Creating Wealth Show and discover the prosperous lifestyle found when people turn questions around and ask The Question Behind the Question. Upcoming shows will feature: Dan Sullivan, founder of Strategic Coach® and the lucrative Phoenix investment market.
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September 17, 2009 ·
In this video, discover the properties investment opportunities available in Indianapolis, IN. Jason Hartman’s Platinum Properties Investor Network provides analysis of the demographics, real estate market and business climate. http://JasonHartman.com http://CreatingWealthPodcast.com
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September 16, 2009 ·
How could the best and brightest in finance crash the global economy and then get us to bail them out as well? Hmm…This is a great question answered by Les Leopold in this episode of The Creating Wealth Show with your host, Jason Hartman. Visit http://www.jasonhartman.com/radioshows/. Les Leopold co-founded and currently directs two nonprofit organizations, the Labor Institute and the Public Health Institute, and is the author of the award-winning The Man Who Hated Work and Loved Labor: The Life and Times of Tony Mazzocchi. Leopold designs research and educational programs on occupational safety and health, the environment, and economics and helped form an alliance between the United Steel Workers Union and the Sierra Club. Listen in to this entertaining episode as Jason and Les discuss the market that supported the housing bubble during the last decade and the useful recommendations for avoiding the next possible economic bubble and bust. Upcoming shows will feature: Dan Sullivan, founder of Strategic Coach® and the lucrative Phoenix investment market.
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September 14, 2009 ·
In today’s video from http://JasonHartman.com, we discuss how Platinum Properties Investor Network works, and why we give away so much properties investment information. http://CreatingWealthPodcast.com
What we do at Platinum Properties is not brain surgery. There’s nothing in here that the average investor with an average head on his or her shoulders can’t comprehend. The real trick, and the part where most people fail miserably, is to recognize what an amazing opportunity real estate ownership offers, especially in these tough economic times.
To be honest, we can’t stand the thieves on Wall Street, but there is one thing we learned – the real estate industry needs a good brokerage firm. That’s where we come in. We aren’t self-anointed ‘gurus’ on an eternal mission to upsell you to the next product. We sell education. We don’t have a series of ever-more expensive seminars. There’s only one and, while you might want to attend more than once to truly internalize the material, it’s not necessary.
We’re going to take you by the brain and show you step-by-step our Complete Solution For Real Estate Investors™. This is our comprehensive guide to income property investing. We’re going to show you a tried and true method to purchase property from the best builders in thriving local markets around the country. How do we know it works? We know because our own portfolios are built using this method. It’s how company founder and CEO, Jason Hartman, made himself a millionaire while still in his twenties.
What’s the best way to become a millionaire? A couple possibilities are to start with a billion dollars and start an airline, or start with two million dollars and buy stocks. Another option is to use real estate to take advantage of leverage, cash flow, and appreciation as tools for steadily building wealth. Let us teach you the investing secret that isn’t a secret – real estate. It really works.
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September 11, 2009 ·
In today’s video from http://JasonHartman.com, we will compare Madoff’s ponzi scheme with the ultimate pyramid scheme we are experiencing with the government’s spending and the treasury de-valuing our currency. http://CreatingWealthPodcast.com
In the wake of the recent $50B Madoff ponzi-scandal that has left many affluent people absorbing massive investment losses, there has been a lot of attention paid to fraudulent pyramid schemes by the media. However, this focus has been in exclusion of an astronomically larger pyramid scheme that is hurtling toward a dramatic collapse.
There are two very large forces that are pushing this ‘pyramid scheme’ toward collapse. The first force to reckon with is the perpetually increasing amount of debt-financed consumption. The second looming specter is the dramatic liability from government entitlement programs that will be revealed in the coming decades.
Let’s begin by discussing the trend of debt-financed consumption. In and of itself, debt is not inherently good or bad . . . it is all a matter of what the debt is used to finance. When money is borrowed at a fixed rate of interest for investment in long-term projects with a higher rate of return, it produces very good results. When long-term money is borrowed to finance short-term consumption, it requires that future production be sacrificed to repay the obligation. The intense problems come when the amount owed to finance short-term consumption grows so large that the interest cannot be paid from current income. (This is true for both individuals and governments.)
The second large force in this pyramid scheme is the government entitlement liabilities from programs such as Social Security, Medicare, Medicaid, and subsidizing financial institutions. The Department of the Treasury currently estimates the aggregate net entitlement liability at approximately $57 trillion dollars. (This amount grows to $61T when state and local government liabilities are added-in, which represents over $500k per household.)
The most likely result of this pyramid scheme is that the treasury will ‘print money’ or de-value the currency by increasing the amount of dollars in circulation to finance the nominal obligations. (Politicians have a noted tendency to terminally avoid decisions that involve dramatically raising taxes or dramatically cutting benefits.) This will have a net effect of destroying the purchasing power for income and savings, while diminishing the net impact of outstanding debt obligations.
Best Wishes,
Doug
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September 9, 2009 ·
In today’s video from http://JasonHartman.com, learn how to continually make NON-TAXABLE money from properties investment. http://CreatingWealthPodcast.com
Platinum Properties Investor Network has a series of core concepts that we communicate to our investors. One of these is to ‘Refi ‘Til Ya Die’ with your rental property portfolio. While this description may sound a bit snarky, it is a very powerful strategy for multiplying your wealth over the long term.
The most unique part of this strategy is that it stands in stark contrast to the popular strategy of ‘flipping’ properties by buying and quickly re-selling them for quick profits. The strategy that we recommend is the exact opposite of this. At Platinum Properties, we advocate buying and holding prudent rental properties over a long period of time. This enables investors to build real wealth, instead of constantly churning properties (and creating taxable gains).
There is another very powerful force behind our strategy of buy and hold investing. That power comes when the rents and value of your property increase over time. Typically, an investment property will start with low cash flow, and will grow in profitability as tenant rents are increased. This increase in revenues carries with it a tremendous tool for growing your wealth.
The way that you employ this tool is to refinance your property for more than your original purchase price, based on the increased cash flow. This will allow you to re-invest the amount of your loan that exceeds the original purchase price. And here comes the kicker . . . these net proceeds are not taxed!!!
The reason that you will not owe taxes on the re-financing of your properties is because loans are not taxed. Since you are taking out a loan instead of selling the property, no taxable transaction is triggered. Granted, capital gains can be deferred via 1031 exchange, but you will still lose 5% to 6% of the property value off the top from realtor fees. Thus, investors can ‘Refi ‘Til Ya Die’ and legally avoid paying taxes on the increased loan amount of their properties. (In addition to this, the increased interest payments from your new loan will reduce the tax burden of your regular cash flow.)
These strategies can super-charge wealth creation by allowing investors to capture their equity growth for re-investment. These perpetual re-investments accelerate the natural compounding of your investment portfolio. It also carries the benefit of consistently increasing your use of fixed-rate debt as a shield against inflation. Prudent investors realize the incredible power of this strategy, and should seek to capitalize on it to build their wealth during these increasingly difficult times.
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September 8, 2009 ·
In this article by Mark MacVay for http://JasonHartman.com, you will see exactly how inflation acts like a termite on your investments, and how to use the power of inflation to create wealth instead. http://CreatingWealthPodcast.com
Do your investments have termites? It may sound like an odd question. But if you’re like many Americans with the typical savings accounts and mutual fund/stock portfolios, then you are subjecting yourself to the ravages of a specific type of termite which is slowly, and clandestinely devouring away at your financial portfolio, taking away the prospects of a secure retirement with it.
What type of termite could do such a dastardly thing, you ask? This termite is called inflation and it is both the scourge of financial security and the product of our current monetary system.
Allow me to explain. Most of us have been brought up to believe that saving and investing are good and getting into debt is bad. While I certainly agree with this general sentiment, it contains one important fallacy – it presumes that the money supply in our economy is static. The reality could not be further from the truth; the money supply is increasing at an ever-faster pace. You see, every dollar added into the economy cheapens those already in existence, and the Federal Reserve in conjunction with the government are increasing the supply of dollars and credit at an alarming rate. This means that your savings and portfolio accounts are being reduced in value as the dollars they convert into buy progressively less and less. Sadly, this termite assault on your wealth is ongoing and relentless.
But, you ask, I heard on the radio that inflation was under control, that the CPI (Consumer Price Index) was relatively low… what gives? Suffice it to say that the CPI is sufficiently manipulated by the government to give the public a much more benign view of inflation than actually exists. To see just how ravaging this inflation termite is, simply look around you – oil, commodities, health care, education, housing, food and now even postage have been going up substantially in the last few years. These increases far eclipse the relatively modest gains in the stock market over the same time period.
Now, at this point, I presume you’re scratching your head and asking… well, how do I eliminate this termite? How can I secure my financial house from this destructive insect? The truth is that there is no Orkin man, no Terminix for this type of pest – that would require a major overhaul of our monetary system. Alas, we are stuck with this troublesome termite for the foreseeable future.
However – and this is where it gets interesting – while you can’t eliminate this pestilence, you can use it to your own advantage to maintain and grow your wealth rather than have your wealth eaten away. How, you say? By properly turning the tables on our financial system and becoming a debtor.
Heretical, no? If you recoiled in disgust, I understand as it runs counter to the way many of us have been brought up. But allow me to elaborate. By debt, of course, I don’t mean going out and indulging yourself on fancy meals, cars and vacations. There is no long-term benefit of purchasing those items using debt. In contrast, by selectively purchasing tangible assets which throw off cash flow, and by buying these assets with the bank’s dollars in the form of a mortgage/loan, you achieve the financial equivalent of a double play. Long term, your asset most likely increases in price as more and more dollars flood the economy, and, just as importantly, you are paying for that asset year after year in progressively worthless dollars thanks to the inflation termite eating away at the dollars you’re now repaying to the bank. Not only is this a shining example of leverage, it can also be thought of as a form of financial martial arts – you are harnessing the energy of your opponent (inflation) and using it against him.
Of course, one of the best asset classes with which to follow this path is investment real estate, a proven path to wealth for many and a good hedge against inflation. In the interim, your tenant helps pay your debt obligations while you allow the aforementioned economic forces to work their magic. Of course, you have to do your due diligence and choose your properties and loans carefully. Nevertheless, this is a powerful technique to build long-term financial wealth.
How ironic that the best defense against the termite of inflation is an investment property with a big mortgage!
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September 7, 2009 ·
In today’s video from http://JasonHartman.com, we will look at the different types of investor personalities. Some people are better suited for riskier investments, while others need slow and sure investments. http://CreatingWealthPodcast.com
When engaged in the business of living our lives, it is critically important to ‘know yourself’ in all things that you do. In the context of personal relationships, we must learn about ourselves to develop healthy relationships with others. Harmony requires that we be up-front and honest. In an ideal situation, the strengths of one person in a relationship will compensate for the weaknesses of the other.
In the world of investing, knowledge of yourself is no less important. The most important thing that investors can know about themselves is the degree of risk and volatility that they are willing to accept. Similarly, they must be honest about their willingness to take action and close a deal. This principle is doubly important since most investment ‘systems’ focus exclusively on the academic side of deal analysis. It is certainly important to find good deals, and analyze them quickly, but all of this can be for naught if the investor lacks the willingness to take action at the critical moment. Things can also fall apart if the investor does not follow through sufficiently to see the deals through closure and into implementation.
The truth is that there are two types of investor. One type is suited for assembling ‘deals’ that can generate tremendous returns. The other is either uncomfortable with the risk and uncertainty implicit in assembling deals or is unwilling to take action at the critical moment. This type of investor is typically better suited to steady compounding of investment returns over a long period of time to create wealth. It is important to note that both investors can be very successful. The path of the deal maker tends to achieve wealth more quickly than the ‘slow and steady’ investor, but either of them can realize tremendous amounts of success with the proper balance of analysis, discipline, and the willingness to act.
In the end, it is much more important that you know yourself than that you know how to execute a particular system or strategy. Systems come and go . . . strategies constantly change with the business environment. But knowledge of yourself is a priceless asset that will serve faithfully throughout the tenure of your life.
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September 4, 2009 ·
In this video from http://JasonHartman.com, you’ll find out why the illiquidity of real estate makes properties investment an excellent investment choice, and how some “great deals” can turn into fiscal nightmares. http://CreatingWealthPodcast.com
At times you hear people talk about the volatility of the real estate market. If you want volatility, try the Wall Street conspiracy. They’ve got volatility. Why? Because they also have liquidity. . . instant liquidity. Anyone can log onto their account and buy or sell a stock with the click of a mouse.
Real estate is a cat of a different color.
It is an illiquid asset. Even if you woke up one morning determined to sell a piece of property and there was a buyer equally set on the purchase, chances are it would still take two weeks or, more likely, a month before the deal could be closed. It’s a much more complicated process. An offer must be made and accepted, financing arranged, third party inspections made, title search, etc., before an official transaction can ever be made.
This lack of liquidity is a good thing when it comes to investing. It’s what makes real estate such a stable, appreciating asset. It’s also why, if you’re living paycheck to paycheck, you shouldn’t use your lunch money to buy income property. If the time comes that you need to get out of it quick, you might not be able to. Investing in real estate should be done for the long term with money you don’t need for day-to-day survival. Then you can leave it alone and watch it grow.
Why the Best Deal Isn’t Always (From the JasonHartman.com blog)
I came across an article recently that illuminated exactly why we believe our strategy of having local property managers in various areas around the country saves Platinum Properties Investor Network clients from similar tales of woe. It’s all about micro-targeting location before you EVER pull the trigger on a real estate deal. Is micro-targeting important? Only if you want to avoid having a great $1,000 positive cash flow deal turn into a $30,000 legal hassle.
Gather ‘round the campfire kids, and learn why you have to look further into the ‘great’ deal before you buy it. In this example, the buyers were in the early days of their income property career and got starry-eyed over the prospect of a no-money-down deal. Who wouldn’t want terms like that? Talk about leverage! Problem was, in their haste to not miss out on this ‘deal of the year’, they didn’t check out the local area thoroughly.
What sorts of problems? To start out, the entire block was occupied by an army of drug users and dealers, plus a host of other nefarious characters. No matter how nicely that property was fixed up, think a stable renter is going to want to move his or her family into that war zone? With crumbling ruins flanking it? Next, our intrepid investors were enmeshed in court with fire code violations and a property manager up for manslaughter. Gulp.
Bet they wish they had been getting their real estate recommendations from Platinum Properties! That’s why we have local managers with feet on the ground and an intimate knowledge of the neighborhood.
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September 3, 2009 ·
Economic collapse is a real possibility in this financial climate. Are you prepared for the worst should society implode from the financial stress? This video from http://JasonHartman.com introduces you to viable survival strategies in today’s economy.
In the midst of financial collapse, massive government deficits, high unemployment, bailouts, and inflationary spending, there is a rising tide of people who are becoming skeptical about the prospects for continued economic growth in the near future. There are many people who are sounding the alarms of doom, but there are precious few who are offering viable strategies for individuals to prosper in such an environment. One of the places where these strategies live is Holistic Survival.
Holistic Survival is an initiative created by Jason Hartman to address the needs of people to protect their wealth, family, and property from the economic turmoil that is expected to come. As the castle of debt created by the government through fiat currency and runaway spending begins to collapse, there will be tremendous disruptions to the lifestyle that people have come to expect. This ‘prosperity collapse’ is expected to have many repercussions throughout the economy.
As inflation comes about from the massive monetary expansion of world governments, sharp price increases are expected to hit the poor dramatically. Some people expect that these price spikes will spur riots and looting, which in turn could result in martial law and government price controls or rationing. In this case, people will need to know how to survive in a world where the supermarket is not always open for business. Extended periods of time with no food available may become normal.
As the currency continues to collapse, it is also likely that barter and trade will begin to replace traditional monetary commerce. It is also likely that many of the products that are currently purchased at the grocery store may need to be acquired through the ‘black market’ in goods that are price-controlled or rationed. This will require people to adapt very quickly in order to avoid very dire circumstances. These are not pleasant thoughts to have, but there is a chance that they will become a part of normal life for many millions of people throughout the world.
There is a famous saying that luck favors the prepared. At Holistic Survival, we couldn’t agree more. We desperately hope that the expected economic catastrophe does not transpire. We remain hopeful that the free market will eventually prevail and return the country back to a path of growth. Nonetheless, it is prudent to be aware of the possibilities and prepared to exist in the world that may exist after the prosperity collapse. Find out more at www.HolisticSurvival.com.
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September 2, 2009 ·
In this video from http://JasonHartman.com, you will learn how properties investment can actually help you get paid to borrow money. http://CreatingWealthPodcast.com
The cacophony of advice about where to put your money coming at you from all sides can sometimes be deafening. We know that. That’s why we try to be the Joe Friday of investing. Remember the character from Dragnet? ‘Just the facts, ma’am.’
At Platinum Properties, we’re big on facts and when it comes to investing, the facts tell us there is no better place to be than real estate. One of the multitude of reasons we believe this relates to the title of this entry. When you buy a piece of income property, taking out a mortgage in the process, you actually DO get paid to borrow money. At least, that has been the case historically and there seems to be no reason for it to change.
The reason we say you get paid to borrow rests in the reality of inflation, pure and simple. In inflationary times, your best shield against the declining value of the dollar is high-quality, long-term, investment-grade, fixed-rate debt tied to a piece of rental property.
If you muddled your way through that last convoluted, hyphenated sentence, the payoff is this simple statement – the right kind of debt is good. Here’s why and how it works. Let’s assume a dollar was worth a dollar and you bought a house in 1972. Over the next 30 years, continuing inflation driven by near-imbecilic government economic policy drove the value of a dollar down to $0.24 when compared to the 1972 version. It’s all about purchasing power. By taking out a loan that doesn’t come due for those 30 years, you have effectively saved yourself money by paying off the note in cheaper dollars than what you borrowed with.
You just got paid to borrow money, bubs.
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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 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 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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