The Science of Flipping - Trump, Inflation, and the Future of Real Estate | Jason Hartman

Episode Date: February 14, 2025

In this episode, I sit down with economist and real estate expert Jason Hartman to discuss the impact of inflation on real estate investing and why debt can be an asset when leveraged correctly. They explore the Inflation-Induced Debt Destruction concept, explaining how rising prices actually reduce the real cost of debt over time, benefiting homeowners and investors. The conversation also covers the housing shortage, the Federal Reserve’s role in interest rates, and why real estate remains the best long-term wealth-building tool. Jason shares insights on tax benefits, leveraging properties, and why now is still a great time to invest despite market uncertainties.   --   The #1 training and coaching system to launch, grow, and scale your investing business! 𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: http://www.thescienceofflipping.com Turn cold real estate leads into engaged motivated sellers on auto-pilot using the power of A.I! 𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: https://www.rocketly.ai/ Have a question? Ask me anything at https://www.askjustin.ai/ 𝐀𝐛𝐨𝐮𝐭 𝐉𝐮𝐬𝐭𝐢𝐧: After investing in real estate for over 17 years and almost 3000 deals done, Justin has created a business that generates 7 figures in active income through wholesaling and fix and flipping as well as accumulating millions of dollars of rental properties including 5 apartment buildings, 50+ single family homes, and 1 storage facility Justins longevity in real estate is due to his ability to look around the corners, adapt to changing markets, perfecting Raising private capital, and focusing on lead generation which allows him to not just wholesale and fix & flip, but also accumulate wealth through long term holds. His success in real estate led him to start The Entrepreneur DNA podcast and The Science Of Flipping podcast and education company, where he has coached and mentored thousands of aspiring and active investors over the last decade. He is a nationally recognized speaker and is on a mission to educate as many people as possible on becoming a successful dynamic real estate investor. 𝑾𝒉𝒂𝒕 𝒕𝒉𝒆 𝑷𝒓𝒐𝒔 𝑯𝒂𝒗𝒆 𝑻𝒐 𝑺𝒂𝒚 𝑨𝒃𝒐𝒖𝒕 𝑱𝒖𝒔𝒕𝒊𝒏:  “Justin is one of the best trainers in this space. He really gives everything to his tribe.” – Brent Daniels (TTP) “Justin’s ability to connect with people and help them understand what he is teaching, is unparallelled” – Kent Clothier (REWW) “We have been in the trenches flipping homes in Phoenix for over a decade, he is one of the best to do it.” – Sean Terry (Flip2Freedom) Subscribe To Justin Colby: http://youtube.com/justincolby View All My Videos: https://www.youtube.com/c/JustinColby

This year is the hardest year ever to predict the real estate market. Okay. Why? Because there are so many wild cards. Trump is the wild card of wild cards. The average construction worker now is almost 50 years old. In the past, you know, it was guys in their early 20s. Nowadays, these guys have aged. They're all 50.

And there is a giant shortage of construction workers. And that's going to make the supply demand equation out of balance. That's going to push the price of housing up. These tariffs will push the price up. There's a lot of upward pressure on prices and just general inflation. Yeah. What is that the science of flipping? This one is going to be a good one. If you want to know what is in store for the market, because Trump's here.

If you want to be able to see around the corner, if you want to listen to someone who's done well over 10,000 deals in his career, we have economist Jason Hartman here. What is up, dude? Hey, Justin. It's good to be here. So I'm going to come straight at what I think everyone's going to want to understand, or your thoughts on it at least. Trump's in office. Everyone thinks he's our savior, everyone thinks there's a lightning bolt that will come down, the economy is gonna be saved, we're all gonna be rich and we're gonna print money.

Let's hear your perspective of reality. Yeah, that's funny. Well, I think half the people don't think he's the savior. Yes, well, less than half apparently. Little less than half, clearly less than half. And yeah, it's a really interesting time. I think Trump is going to be incredible. I think the second term is going to be phenomenal.

I think he's matured. I think he knows what he's doing. He's an executive. He's a winner, unlike the previous administration that was just a complete disaster. But it's not going to be without some pain. There will be some bumps in the road. These changes that Trump is making, I believe, are very good for the country long term. But if you take millions of illegals out of the market, they rent from somebody, they

work for somebody, not all of them, of course. But they are a cost to the government, and it costs generally about $8,000 per year, per illegal in the country. So that is a weight on the government that's causing more inflation, but that inflation is delayed from the benefit. The benefit is immediate and the cost is delayed. And so that's why the Democrats and really the Republicans too over the years have not controlled the borders because the benefit to their time in office is obvious, but the cost comes later.

So it's benefit now, pay later. And so Trump is, you know, he's gonna make us take a little bit of medicine here with these deportations, but overall, I think that's, you know, it has to happen. Countries can't be lawless. They have to have borders, OK? Every country on Earth has borders.

The other thing is the tariffs. And so when you look at the cost of housing and the cost of construction, think of the ingredients of a house, an apartment building, or any kind of building for that matter. You know, concrete, lumber, sheetrock, copper wire in the walls, petroleum products lumber, sheetrock, copper wire in the walls, petroleum products all over the place, glass,

steel. And then think of the products that are assembled, but the small products in a house that are massively imported, doorknobs, hinges, cabinet doors, all these things, the faucets, all of these things, if we see tariffs happen, the price of those will skyrocket. And ultimately, that's good for the country too though, because it'll bring manufacturing back to the US

and make more high paying American jobs. But initially, there's gonna be a little pain. I think, I also think there's a lot of, and by the way, I think I paid little to no attention to politics. My grandfather would blame me for that and say, you got to be educated on it. Right. And in my world, it also is a stress reliever. I'm not all caught up in it. It's not something that, you know, fills my day to day life. And so for me, it's easier this way right but I'm aware enough right it's very hard not to be aware of some things I think there's

a lot of people out there that literally think he's gonna come in here and interest rates are gonna fall down to three and a half percent. It's not gonna happen. I agree and tell me why not like I have my perspective but I want what would happen or why won't it happen why or is Why won't he just force it to happen? Because people want this, right? They want inflation to go down, they want interest rates to be 3.5%. Why would that not make sense for us right now?

Well, it would, I mean, it's a double-sided coin, right? You know, you lower interest rates, you ease the supply of money. There's more money coming into, flowing into the economy, chasing a limited supply of goods and services, and you're gonna have inflation. It's simple supply and demand. So the Fed is a private organization.

It's the Federal Reserve, our central bank, is about as federal as Federal Express. Okay, it's a company, okay, although it's a special company, and I am very much against having a Fed I don't think we should have one but back in 1913 they created it We have what we have so what I think doesn't really matter Trump does not control the Fed and you saw probably you caught on the news or some people did his little war spat with Jerome Powell that and he had that his first term to

Saying you know if and a reporter asked Jerome Powell the Federal Reserve chair you know if if Trump were to ask you to step down would you do it and he said no right and he doesn't have to yeah he doesn't have to it's not a government body right you're right so Trump does not control the Fed however Trump could potentially run around the Fed. And there is an interesting way to do that that is a little bit above my pay grade. But I had a guest on my show, Richard Duncan,

talking about it. You can look at that episode on my YouTube or podcast for more on that. We talked for about an hour and a half. And basically, there is a way to end run around the Fed that the president could do. So we'll see if that happens. But regardless, the price of money,

which is an interest rate, is set now by the Federal Reserve. The Federal Reserve does not directly control mortgage rates, but it controls rates and it influences mortgage rates. So even if we didn't have a Fed, we'd still have a free market for money. I think that's the way we should have it, but it would still be subject to market pressures and supply and demand. It doesn't mean rates will drop if the Fed goes away, because everybody will just be acting as market participants. So here's

a naive question. If the Fed doesn't create the interest rates for home loans and mortgages, who does? Well, the Fed indirectly does. Then who directly does? The market. So it's super complicated. Of course. And I mean, this is a rabbit hole that I used to go down a lot about 22 years ago when I got really into this stuff and got really into, you know, sound money and gold and, and then, you know, the cryptocurrency trend came along and that's been a really good trend, regardless of whether you invest in it or not. And, you know, certainly I own some Bitcoin

and a few others, you know, but it has taught people about money. Back in 2005, when I was talking about some of this stuff, nobody was aware of the Fed. I mean, that was a very small group of people or fiat money and fiat just means by authority, by decree, right? The dollar has value because the government says it has value.

That's right. People weren't aware of the way that worked and now they are. And Bitcoin brought that to the forefront. People get it now and that's a really good- That's important. Oh, very important. And again, everybody essentially who weren't super in the know and did a deep dive like

you did, they didn't realize that the only reason a dollar has value is because the government says it has value. Right. And other people, because we say it has value, they perceive the value and then there's exchange and things of that nature. Right. One comment on that though, one mistake that a lot of people make, you know, where they're bashing the dollar and they're bashing, you know, fiat money, right, government money,

is they say, well, the government's not backed by anything. And that's not true. Nixon cut the last tie with gold standard on August 15th of 1971. And so it's not backed by gold, but it is backed by aircraft carriers, missiles, standing armies, okay? And interestingly, the American brand backs the dollar.

Think of the biggest brands in the world, Coca-Cola, McDonald's, whatever, right? You know, America is the world's biggest brand. And I think a lot of people don't understand that that brand has incredible value. Now, it's been diminished and it's on the decline. Hopefully now it'll turn around, but it's still the world's biggest brand. Yeah, it's interesting. I've never really thought about that. And I talk a lot about branding. And I never really thought about that. But absolutely. So how does this play into, you've done north of 10,000 deals. I thought I did a lot, a pale in comparison.

That's, you know, through my different companies over the years. Yeah, that's fine. I mean, the fact is you have that level of experience and in business acumen. How does this play and what do we see a forecast? Let's just say a four year forecast, right? What do we, and I have my own opinion, vocalized it here on the episodes. What do you see kind of going over the four years, the first year, second year, third year, fourth year years of Trump? Well, you know, a big part of it is inflation.

And how much inflation will we have? We're not going to have deflation in any significant way. There's just nothing to support that idea. You know, there may be little bouts of it or declining inflation. But overall, the macro trend is inflation. And with inflation, real estate benefits huge. I mean, bigly, as Trump would say.

Yeah, yeah, yeah. Benefits bigly. And inflation is the hidden wealth crater for real estate investors. And we can talk about that more, but in terms of the forecast, you know, the last 21 years I've been forecasting the market and my predictions have pretty much all come true

except one major prediction interest rates I have been wrong about interest rates. Those are very hard to forecast. Of course, I'm not gonna try and do it anymore Okay, fair enough, but in terms of the market This year is the hardest year ever to predict the real estate market Okay, why because there are so many wild cards. Trump is the wild card of cards. You know, the tariff issue, uh, the construction workers, your prior guest was talking about that. That's right.

The average construction worker now is a almost 50 years old. Wow. In the past, you know, it was guys in their early twenties, you know, framing houses. Nowadays, these guys have aged. They're all 50. And there is a giant shortage of construction workers.

And that's gonna make the supply demand equation out of balance. That's gonna push the price of housing up. These tariffs will push the price up. There's a lot of upward pressure on prices and just general inflation and housing shortage. Right now, we have less than 700,000 homes on the market in the United States.

That is such a small number. It's terrible. There is a massive housing shortage. We should have about double to be just normal. Yeah, I was going to say 3 and 1 half million. Well, what you're going at is, it depends what survey you're looking at. Let me just dice that a half million. Yeah. Yeah. Well, you know, what you're going at is, uh, it depends what survey you're looking at. So, I mean, let me just dice that a little bit. Uh, so national association of realtors is probably what you're looking at.

And their survey of inventory includes pending home sales and contingent home sales and actively listed homes. Okay. So I don't like their survey, although they have been doing it the longest. What I like is the Altos data and what that does is only active. They don't count pending or contingent sales. So when they count them it's you could really buy that house today. So that's why I follow that one. Okay. So it depends what you follow, but it doesn't really matter which survey

you follow as long as you just compare it To the same survey five years ago ten years ago. That's right. Then then, you know, yeah, okay apples apples It's the same percentage. Yeah, okay. So yeah, that's well And so I think the thing you hit on and by the way, I definitely want to talk about Inflation and how that's gonna change, how that really increases values of real estate. Because that's actually part of your expertise and why I'm so excited about this episode, right? Yeah. You call this something by the way, right? Yeah, yeah, it's a mouthful.

It's inflation induced debt destruction. When you first said that, I get it. I don't know if I can say it, but I get it. Inflation induced house debt destruction. Okay. So first of all, I do want everyone to destroy debt, right? So let's talk about this because I think it's really brilliant. I've heard you speak from stage on it Excited to have you here and share with it Give me the concept. Yeah So the the concept is and let's just circle back to that inventory thing for a minute

Okay, because I kind of wanted to say one more thing. We have about 140 million housing units in the US. Less than half a percent are for sale. Right. That's insane. No, it's insane. I mean, there's a massive housing. Well, that's why when you said 750,000, I was like, we should be at like 3% or the half

of percent. And so it's just like, I'm like, we should have three, you know, three and a half million. For NAR data, for Altos data, it's about a million five. That's right. So yeah, depends what you're looking at. We agree and it's just, in what you're about to talk about, unfortunately,

there's no saving this right now. I don't see any next five to 10 years, some big amount of construction happening. We're only producing more people. We're only getting older. Everyone's needing housing. They need a place to rent. They need a place to buy. I don't see construction. COVID to me was the impetus of this harm, right? I think we weren't in a great place to start and COVID crushed it. Oh yeah, made it worse. There's no builders out there that can build that volume. In fact, some of the builders now have

changed their entire model model build to rent, right? Which yes, people will rent them but there's not going to be this map. In my opinion, you know, infinitely more because you study it hard but we don't have a savior in the next five to 10 years of this infinite market, you know, there's there's not going to come to market, you know, 10 million homes. Yeah. Right. So she's not going to come to market 10 million homes. So it's just not going to happen, which means what? You're going to have higher prices for the next five to 10 years.

You're absolutely right. There is this really silly idea that a lot of humans have that because something was more affordable before, it has to revert to that trend line. That's just not fucking true. In fact, it's actually in real estate specifically, the exact opposite. It does not have to become affordable again.

It could be expensive forever. I mean, this is not technology. Technology is easy to disrupt, okay? Well, and it can be mass produced. Yeah, and it can be scaled infinitely. A new software can come out and change the world. Look at what OpenAI did with ChatGPT. That's just changed the world, has disrupted everything.

And then DeepSync, if you believe that's a real thing that just came out, the Chinese AI, might have disrupted them. Okay, great. Houses are simple, low-tech items. They're made from commodities that everybody on Earth needs. All those ingredients we mentioned earlier, every human on earth needs those things Because they need shelter and you just can't disrupt it. Yeah your prior guest you you kind of alluded to it But he didn't really expand on it too much

3d printed houses. Yeah, so a few years ago I was gonna start a 3d printed house construction company of my own, because I thought that was an opportunity. I hired a consultant, he's been on my show a few times, really interesting guy, it's all he does is study that. It's not the solution, okay? There's a lot of false advertising around 3D printed housing, at least today. Sure.

Because they'll say, well, we built these houses in Austin, Texas for 10 grand a piece. Well, they didn't include the land cost. They didn't include plumbing, electrical, HVAC. They didn't include cabinets, interior finishes of any kind. That went around and wrapped up. It's stupid. It's just false advertising.

Remember, a 3D printed house, even though the construction is more efficient, it's still made of material. That's right. And those materials are low tech items that have to be produced, and they cannot be disrupted easily. You're not going to invent some new type of concrete that solves. It's still material.

That's right. And if it's digitized, it can be demonetized. If it's just a simple commodity, it's very hard to demonetize that. Okay. So anyway, back to, I don't know what, inflation now? Yeah, well, and because I think we're all going to the same place, which is you being able to create equity in your home is going to be a really good asset for you. I say it one way, and I'm curious to hear your perspective perspective but I do want to use your term and have people dive into it yeah right is to be able to reduce your debt right I really believe people need to understand how to I've been talking

a lot about something which might play into this okay I've been talking about there's four reasons why real estate is the only in the best it is the only play anyone who really gives a shit about making real money and creating real wealth and here's why It can create you a seven-year Seven-figure your income true income active income. You can absolutely create a seven-figure your income It can create a you know DECA seven-figure wealth accumulation. Oh, sure They can allow you to keep more because you don't have to pay the IRS anymore

Yeah, and the fourth is what I really believe because I've been around long enough and so have you. It's a downside risk vehicle. Yeah. And what I mean by that is if you do this right and you actually buy these homes to have or apartments or whatever. Right. When going gets tough, we all know it gets tough. You have assets and those assets can save your ass with the equity you have in them.

It could be pulled out as income in case you lose your job and you have no income, by the way, tax-free. It could be used to lean against other debtors, right? You can go to a bank and ask for a bigger lien and then you lien your equity. I call that refi till you die, those last two things. That's right. It could be used for private liens where you say,

hey buddy, I need 50 grand. I'll get it back to you in 30 days. But just because I wanna make you feel safe, I'll lean, it is a downside risk net that I don't think enough people talk about the value of real estate this way. And I'm really trying to bring this to light to say hey if you want to grow most businesses need points of leverage if you are going through a hard time these are applicable

scenarios that you can quite literally say great you lost your job well you have ten rentals you have four hundred thousand dollars in these rentals a bank will lend you 125 150 against your equity and it's tax free. Yeah. Restart, borrow the money. The rents are going to coverage the extra debt, borrow the money, put yourself on solid ground. Don't start living on credit cards. Don't start putting yourself in a more debt.

Put yourself on solid ground and reframe, rebuild your life. And I don't mean to take the episode, but it leans into what you're talking about and why I'm such a big believer like just get going in real estate Yeah, no, you got you got it. Look income property is the most historically proven asset class in the entire world There simply isn't an asset class like it because it has special multi-dimensional Characteristics you alluded to a few of them. You're absolutely right about that You know, there's and the other thing is it's the most tax-favorite asset class in America. And taxes, you were talking about that, are the largest expense in most people's lives.

You know, it's, it's, it's funny and silly the way we are as humans. We will shop around for, uh, the best price on a vacation, the best price on a piece of clothing, the best price on a car or a TV set or a computer or whatever. But the single largest expense we have is taxes. Yet we won't learn about the taxes. We go, all right, whatever, I'm just going to cut the check. No negotiating. By the way, the people that pay taxes outright, my accountant agrees with me, but I think

they're nuts. I've owed in my history of being an entrepreneur a lot of money to IRS. I no longer do that. You can get out of it with legalities. Because of the fast outs right and it's legal and it's literally I'm just playing by the rules. Sure. It's a game. My previous guest talk I'm playing by the rules. But I say that because even if you have a tax debt, negotiate it. They will take payments. Right that's true too. Why would you ever just cut a check? Well, there's an interest rate associated with their payment program. Yeah, but who cares? Why do you want to cut a hundred thousand dollar check, for example?

As long as you can earn more than you're paying in interest, then you're arbitraging that. And if you buy another rental with that hundred thousand dollars and the rental has a bigger payday to create a difference between the 1% they're charging you. Guys, again, I don't want to take the episode, I want you to talk about it, but I'm just like, there's just so many upsides to this. Yeah, there are. You know, there's one more upside that you didn't mention and I'm sure everybody watching

or listening has friends like this or maybe you are this type of person and you do too. You know, the other thing about your real estate portfolio is it's not easy to spend it. So if you have a spending problem or a gambling problem or something, it's not that easy to access the money. That's right. Which is a good thing, because it sort of works in the background, and it's just kind of chugging away

24-7, 365, and you know, you kind of don't think about it being there But when there's an emergency like you were saying you can tap it, right the downside risk I'm gonna really now that I'm talking about again even with you and your levels smarter than I am, right? I just people need to know that yeah, like there's gonna be hard times you talked about Trump's gonna create some hard times for people Oh, there's gonna be some all of us right where we're gonna have to make decisions like damn I didn't see us having to make that decision When you have assets, it helps that downside. Oh, no question. Yeah. No, you got it. You gotta own properties You got to have assets. I mean every wealthy person is a real estate investor, right?

I mean, I start that just yeah, it may not be their thing I mean, you know, it may be you know, Mark Zuckerberg, for example, he owns all sorts of real estate. He's an investor too, right? But that's not the way he really made his money. It's just, you've got to put money into real estate because of the tax benefit, if for nothing else. Let's go into your subject.

Say, he is brilliant, you're an expert at it, I've seen you speak on stage and keynote over it. Let's talk about it. Okay, so inflation-induced debt destruction. This is, I know it's a couple. I actually trademarked that term about, I don't know, 12, 15 years ago. Inflation induced debt destruction. Right. It's a mouthful. Say it ten times fast. I can't. So basically what this is, Justin, is it's the hidden wealth creator with real estate. Because most people think they're getting rich

in real estate because the property appreciates. I bought it for this, I sold it for that, or now it's worth that. Even if I haven't sold it, I refinanced it, pulled money out. And, but what's happening in the background is really important. Inflation, well, let's just back up a minute.

You know, to understand what's going on in terms of money and the value, we need to distinguish between price and value and real and nominal. So the real value of something, that's what you can trade it for, right? The nominal value of something is the name of it. So if I held up a hundred dollar bill and said, Justin, what's that? You'd say a hundred dollar bill. Well, you'd say that today.

But would you have said that in 1990? Right? Yes, it had the same name, but the value was different, right? It was worth much more back then. A lot more. And so inflation, that is the ever-present thing, destroys the value of our savings, our stocks, our bonds,

these investments that we own, even our equity and real estate, but it thankfully also destroys the value of debt. Dive into that for me. So debt is my favorite four-letter word for this reason, because if you have a mortgage on a property and hopefully you're leveraging your properties always, LARGE-US. Because that mortgage is an asset. because if you have a mortgage on a property and hopefully you're leveraging your properties always. Mortgages.

Because that mortgage is an asset. And now with what we've got going on where so many people have these cheap mortgages that they got during the COVID era, and now everybody realizes the mortgage is an asset. In fact, before COVID, I couldn't convince people of this very easily. They really had to buy into what I was saying. But now, people have these, I mean,

25% of the country has a mortgage adder below 3%. 25% of the country? Yeah. Who own homes? 25% of homeowners? Or investment properties. Who own any property has a mortgage adder below 3%. 65% of the country has a mortgage at or below 4%.

It's insane. That's insane. So you know what they realized? They realized their mortgage is not a liability. It's an asset. Okay. Okay. Mostly, the traditional idea is, okay, the house is the asset and the mortgage is the

liability. If you had a balance sheet, that's the way you draw that. That's right. Okay. But a cheap mortgage is a mega huge asset. And now we have proof because we have what's called the lock-in effect. No doubt. Where people will not relinquish their houses.

That's why the inventory is so low. Nobody wants to sell because they have these cheap mortgages. I have a 4% mortgage on my home. You're never selling that house. I want to buy a new house. I literally tell my, and wife is more of the put she's like let's go get this new and I'm like yeah yeah but honey yeah my interest rate is gonna be six and a half now. We can't we can't duplicate that cheap mortgage. Yeah and so now you know obviously me I start thinking Airbnb you know I have other creative but most

people don't. Right actually that's a really good point you made, too. The lock-in effect has created a lot more real estate investors, because they'll keep their old house, turn it into a rental, because they've got such a good asset, that cheap mortgage. OK? And this is why we're unlikely to have any major increase in housing inventory anytime soon. And I know we keep jumping off the topic. Okay. No, because this lock-in effect is so serious. The only way

you cure the lock-in effect is with much lower interest rates. That's right. And the way you get much lower interest rates is a crisis without a crisis. We're not going to see those rates again. That's right. Okay. It's just not. So it just, I know it's a one-off question. How far down do you think, I have my gut saying we're going to land somewhere mid-fours is probably the lowest it'll ever go. Well, more than a second. You're right.

Yeah. You think higher. Yeah. I would say five and a half. Okay. And then five and a half, you know, think of the rationale between all these millions of homeowners. If their mortgage, if they can get a new mortgage at five and a half and they're currently paying maybe four and a half, they can rationalize that

decision and they'll put their house on the market. When that Delta gets smaller, they'll sell. Yep. But when the Delta is, you know, from four and a half to seven, they're just not willing to sell. I mean, we don't have enough runway yet, unfortunately, for people. It's unfortunate in my world because you still just have so many sellers unrealistic and they don't get the real life situation that buyers are in. Right. That they don't have

cheap loans anymore. Yeah, no. Right. So they can't afford it. The affordability is too high. So let's keep going on. This is so unique and it's a unique perspective to look at debt now as an asset not a liability. Right, absolutely. Okay, so here's what happened, just so I can tell you this is not a theory, it's a fact, because it happened historically and it keeps happening every day. So in 1972, a typical house was $18,000. In 1972, if you bought that house,

you would typically put 20% down and you'd get a mortgage that was 7.3%. That was the rate. So it's not that high now historically, okay? And that was 1972. That's a year after Nixon took us off the gold standard. Okay? So then if you got a 30 year mortgage,

basically you would have paid $101 a month for three decades. But just fast forward 12 years, and let's go to, it's a famous year and that's why I use it. George Orwell wrote this great book called 1984, okay. Which everyone needs to read because it's come true. Okay. Sadly, government surveillance, et cetera. So in 1984, that $1972 is now only worth 40 cents. And every month-

Because of inflation. Because of inflation, right? There was a lot of inflation in the 70s. And every month for that 12 year period, that homeowner kept writing a check for $101 every single month. But guess what? That $101 felt really burdensome in 1972 but by 1984 it only felt like 40 bucks because inflation. Because inflation so their income went up. Right, their income went up and the value of the dollar

declined and when the dollar's value declines the value of the dollar declined and when the dollars value declines the value of the debt That's denominated in dollars also declines That is my favorite for this Number when you go acquire that debt at today's rate. Yep, and it inflation hits for 12 straight years, right? This debt is not more expensive is cheap less exist the value of that debt has just gone down by 60%. Absolutely. That's exactly what happens. That is inflation-induced debt destruction. So inflation... I love that. Now, just to lean into this a little bit, for those... Jason and I talked the type of stuff that are masterminds, like we're a part of all these masterminds,

so it's a little bit more common. For those that need a setback because I think if I were to just have heard this right now right okay but how the fuck does that if someone's still cutting the hundred dollar check is still a hundred dollar check but most likely in that 12 year span their income has also increased because of you shouldn't because everything around them is more expensive so they need to go make more money to afford life. But this is stuck in a time warp that it doesn't move. Literally, there is a wealth... We hear the word a lot lately, this phrase, wealth transfer, okay? Which means the wealth is being transferred from the little people to the global elites, right? And that's certainly true, sadly.

But there's also this wealth transfer going on all the time, transferring wealth from lenders to borrowers. See, if you listen to someone like Dave Ramsey, you're not getting this advantage. And listen, I don't wanna bash Dave Ramsey too much because he's good for the market he serves. Absolutely. There's a lot of people that have stupid credit card debt

and they got to stop overspending. And that's great. But Dave Ramsey will take you to sixth grade. Once you're going into seventh grade and eighth grade and ninth grade, you got to graduate from Dave Ramsey. OK? He's good for his market. I agree 100%.

There's too many Dave Ramsey haters. I don't love them for us. I don't love them for the world. He can't teach you how to invest. That's right. He can teach you how to get out of debt. That's right. And that's good. People need to do that. And that means consumer debt, not mortgage debt, which is an asset.

I love this perspective. Yeah. So this wealth transfer is happening from lenders to borrowers all the time. Because think about it, just like you said, you know, if you take out this loan, you pay it back in cheaper and cheaper and cheaper dollars. And that benefits you as the borrower. It also there's this wealth transfer going on from old people to young people all the time. I mean, look, you're probably a millennial, I'm guessing, right? I'm a Gen Xer.

Okay. I'm a little older. And so millennials like to complain. And they have some legitimate complaints. But not all of them are totally legit. And one reason, by the way, let's take a little tangent. One reason the millennials maybe have a less room to complain is this. Millennials are on the slow life plan.

And so what they do is they make these comparisons and they say, well, when my parents were 30 years old, they could afford a house and it was a nice house, right? And I can't afford anything and I'm 30. But that's not an accurate comparison because the millennials are doing everything about six years later than their parents. That's true.

So you gotta compare a 36-year-old millennial to a 30-year-old baby boomer parent. And then it'll be more accurate. But then the millennials will say, well, you know, my baby boomer parents didn't have all this college debt. And they're right. The college debt is a scam. It's a complete scam. Okay? You know, I call it the student loan debt enslavement industrial complex. It's terrible.

But guess what your baby boomer parents did have in terms of an obligation? They had children and they were expensive too. No doubt. I know that race a little weird. Right. Yeah, you got kids. And so, it's complicated, right? But there's this transfer going on from old people to young people every day. Why?

Because old people hopefully have assets. They have savings accounts, they have stocks and bonds. Those are their major assets. Now, of course they have real estate too. They probably have equity in real estate. Guess what that's all denominated in? Dollars. So if the value of the dollar goes down, the value of those things goes down.

So your stocks are worth less, your bonds are worth less, your equity and your real estate is worth less, your savings account is worth less. But young people tend to have debt. And even if it's bad debt, it still is getting debased all the time through inflation. So the parents don't have to die to transfer wealth in an inheritance to their children. It's just happening all the time because of inflation. So this happens between borrowers and lenders and between old people and young people. And it's just an incredible, incredible thing.

So let's finish the story. We talked about what happened 12 years later in our example. Yeah. We went from 1972 to 1984 dollars only worth 40 cents. The $101 a month mortgage payment is now only 40 bucks. Okay. Great. What happened by the end of that 30 years after 1972, when the person made the last payment on that mortgage that

payment was now the dollar was worth 24 cents. Ouch. Yeah. Well, maybe not ouch if you have debt. Oh true. Yeah. Ouch to the lender. Yeah. Yeah. Not to the borrower. That's right. And so now that hundred and one dollar a month mortgage is only $24. So what happened there? Like if we'd really do the math on this, here's what happened. They got their loan, their mortgage, it's 7.3%. They thought they were paying 7.3% and probably had several conversations over the years. Can you hear it now? The husband and the wife are saying, well, you know, hey, honey, do you think we should pay off this mortgage?

Because we're paying 7.3%. Like, why should we be paying all this interest to the bank? The bank is getting rich. No, you're getting rich because the inflation is making your debt cheaper. So hopefully they didn't pay the mortgage off, OK? But then if you analyze it after inflation debased the value of the loan balance

and the monthly payment on the loan, both of them, right? They really were only paying 1.06%. Over the 30 years. Yes. On average. That's all they paid in interest, yes. That was their true interest rate. Based around the value of the home 30 years? Yes. On average? That's all they paid in interest, yes. That was their true interest rate. Based around the value of the home 30 years later?

Nope. Not the value, just the mortgage being debased by inflation. Inflation. That's it. Uh-huh. Right? Assume the value just kept up with inflation. And by the way, you know, if you think real estate appreciation is going to make you rich,

that's not as true as most people think. Because historically, real estate only outperforms the consumer price index, the major determinant of inflation, which is bullshit, by the way. I call it the CPI. It's a made up number. Yeah, I call it the CPI. Okay. And we can talk about how the government manipulates that if you want. but the real inflation rates probably double the consumer price index or at least 50% more at any point. But if we just go, by the way, my example is just based on the CPI, which is understated.

Okay. So, what was I saying there? So their payment and their balance got debased by inflation. The appreciation does not really make you rich because it only outperforms inflation by a little bit historically over time. Inflation being what? What would you average? What's your average nationally for appreciation?

Well, about 6%. Okay, so I target even a little less. I target like a 5. Yeah. Some people are like, how much is going to appreciate? gonna appreciate I said to just use five percent a year. Yeah, that's a good That's that's a good conservative number, right? And there will be times where it does way better But those are the stories everybody remembers most the time if you just average it out Yeah, it's gonna be above, you know, six percent is what we use you use five

Okay So six percent would go with, so that million dollars in portfolio value of your real estate is worth a million 60,000 after the first year, and then it compounds on that. But that beats inflation only by a little bit. It's not gonna make you rich. What makes you rich is leveraging the real estate

because then you have a multiplier effect. So now, let's assume you break even, right? And if you put 10% down, the 6% is now 60%, okay? Because of leverage, but also there's that inflation-induced debt destruction nobody's calculating behind the scenes. Back to the example to finish it. So you're just paying over 1% interest

when you thought you're paying 7.37 in the example. But guess what? But wait, there's more, as they say on the late night infomercial. The mortgage interest is tax deductible. So the government is actually paying part of it for us. So after inflation debases the interest rate, and after tax benefits debase the interest rate, you're actually getting paid 1.16% to borrow the money. Plus, the people got to live in the house for free for three decades. That's why people who own real estate are so much richer than people who don't. Because they can just run so much faster in the financial

race. You literally get paid to borrow money. It's incredible. I want you to say what you just did in a short amount of time because people need to rehear that whole picture again. Okay. Yeah, we'll rehash it, sure. And let's just do it in a much shorter amount of time to make it clear because it is so brilliant. Yeah. So, go again.

It's 1972. We borrow just over $14,000 to buy the median price house for $18,000. Okay. Put 20% down. Yeah. We pay 7.37% interest when we sign the loan docs. In 1972, we take that all the way to the end of the loan, and we thought we were paying 7.37%, but after inflation, we were only paying just over 1%.

And after tax benefits, meaning the interest on the mortgage being deductible, we actually got paid to borrow money, just over 1% getting paid negative interest rate. And we got a free house for 30 years. And you don't feel like it's free in the middle of it. No. Maybe not even the first 10 years is where you feel for sure it's not free. But mathematically speaking. It's free. You're getting paid. It's not free. It's getting paid.

By a spreadsheet. Yeah. You are getting paid if you attribute everything Jason Hartman, follow Jason Hartman right now. Everything you just said, you put that into a spreadsheet and you will statistically, mathematically prove that is the genius of real estate. Now... Well, there's so many other things too. It's multi-dimensional. Right. But that's one, that's that most hidden thing that people don't see in My challenge and your challenge. I'm sure and we could scream this from the mountaintops is because if you don't think as an investor

That's where you're not even taking the full Advantage of this whole cycle, right? So if you buy your home and you just say Jason told me I'm gonna get paid to own it, so I'm gonna own it for 30 years and do nothing else. Yeah. Okay, good for you, fine. You're gonna be better off than most people. But if you can think like Jason,

if you can think like me and think about the value of other assets and what you can do with those other assets. Oh yeah, you multiply it, it's incredible. And it's incredible. Yeah. And people don't think, and we don't have time to go on tangents

about your retirement plan and why you would even have one, let the money sit there because you can go get assets that pay you plus the inflation concept of the debt destruction. Like it is just everything Jason. Like I get that people have become decamillionaires on Bitcoin or more right on crypto. I get that.

And you listen, I love Bitcoin. I think I hope Bitcoin takes over the world, but I'm not sure it will. It might go to zero. I mean, I own a bunch of them. It will have the four or five things we just talked about. It's very speculative. It's just super speculative. You don't have a downside risk net. You don't have the opportunity to leverage. I guess you do have some leverage against it. Like you just, it just doesn't do what real estate can. Right, no. Real estate's a very unique asset class. I think it's just the, it's only the best asset class that anyone could be in. Yeah, no question. I just, and I know you support that, so dude, you and I- You know what, here's a

comparison. You know, all these corporate raiders, right, that we've all heard about T. Boone Pickens, Carl Icahn, all these billionaires, okay? They have a strategy, Justin. And their main strategy that became really popular in the late 80s is called the LBO, the Leveraged Buyout. As real estate investors, we're doing LBOs. That's exactly what we're doing. The LBO strategy is this. They identify a company and hopefully this company, the sum of its parts are worth more than it's trading for. Okay. Okay. They go in and they try to buy the company and they just pile debt on the company.

And then they make the company, once they acquire it, pay the debt back with its own earnings. That's exactly what we do with rental properties. We pile debt on it, and then we make the tenant pay the debt. Yeah. Okay. And then we get inflation-induced debt destruction and all these other things.

It's, you just, there's just no other asset except doing LBOs. Yeah. If you're in that game, which would probably be better because I'd be bigger. It has the same characteristics as a leveraged buyout, the LBO. We could do this and go 20 different angles. What I want you to do is start following Jason right now. Where do you want them to find you? I know you have your own podcast. They need to be listening to that. Let everyone know where to go follow you. Yeah, thanks. So, the Creating We know you have your own podcast. They need to be listening to that. Let everyone know where to go follow you. Yeah, thanks. So the Creating Wealth Show is my main podcast. I've been podcasting for

21 years now and we've got over 2,000 episodes on the Creating Wealth Show. So just look up Jason Hartman on any podcast platform. YouTube, look up Jason Hartman and you'll find my channel there. We've got I think think, over a thousand videos on YouTube now. And my main website is just my name, jasonhartman.com. And we've got an event coming up, by the way, which we might see you at. Yeah. And I don't know if you're gonna make the trip,

but it's in Southern California in April. And it's called Empowered Investor Live. My main company is called Empowered Investor. So, it's where you can find me. Well, I appreciate the invite. And guys, make sure you follow him. Listen to his podcast. This guy is a wealth of knowledge as you guys can all tell.

So thank you for coming. If this episode helped you in any way or just made your mind think a little bit deeper about real estate, make sure you share this with two of your friends. We'll see you on the next episode of Another Guest.