Creating Wealth With Jason Hartman

5 Ways To Finance Investment Property

Jason Hartman (Platinum Properties Investor Network) — Wed, 09 Nov 2011 19:54:27 -0800

Unless you have an impeccable credit score, it is difficult to purchase an investment property using financing. Getting into real estate investment for the first time can be more than challenging, it can be down right impossible.

In this article, I take a look at 5 ways to finance a real estate investment. Don't forget to click the "continue reading" button to view the final two methods to get financing in today's economy.

1. Traditional Financing

When you hear about people using traditional means to handle the financing, they mean organizations like banks, credit unions, and other financial strongholds. The subprime housing crisis has forced lenders to deny a great many applications for financing and the future of the subprime housing market still looks grim. Without a 680 credit score or higher, you can expect your application to be denied. There are also more stringent terms and conditions in place as far as documentation goes. Now you have to provide legitimate proof of income as well as any debts.

If you are fortunate enough to be approved, you can expect a 10% down payment requirement on any property you are looking to purchase. You may be able to fair even better and find a lower rate. Either way, now is a great time to purchase homes, providing you are financially stable enough.

2. Seller Carry Back Financing

Here is a method of financing that you may not have heard of before. Creative financing, or "on term" financing is one of the alternative and less well known methods of attaining investment purchase financing. In this method of action, the seller agrees to carry the note for the buyer. The seller will always have to own the property 100%, with no debt attached. The seller has no interest in the property any longer, but they would still like to pull a profit from it. The average time frame for payback to the seller, from the buyer, is around 1-5 years. The buyer will have to refinance at some point down the road, but that's a good thing. Attaining a refinancing loan is much easier than a full on purchase loan.

3. Lease Option Financing

This is a great option for people without a lot of financial backing. This is usually a last resort for people without a lot of financial resources. After a few years, usually only two or three, you are given the option to purchase the property. Every month, a portion of your payment can go towards the actual purchase of the home. You'll have to arrange this but it can be done.

>>Continue Reading the final 2 methods

Jason Hartman
www.JasonHartman.com

5 Important Tips For Income Property Investors

Jason Hartman (Platinum Properties Investor Network) — Tue, 01 Nov 2011 14:52:08 -0700

Yes, bad news regarding real estate is all around us. It seems everywhere I turn, radio or TV news, websites, even family gatherings are full of people complaining about the recession and how real estate has taken a HUGE hit. They are right, however it is not ALL bad news.

Now is one of the best times ever to purchase income property. Low home prices, combined with low interest rates and thousands of people looking to rent instead of own, make this a real estate investor's ultimate dream. Let's review: money is cheap to borrow, and investment properties are cheap to buy. But before you jump in to the rental property market, pay attention to these five important tips for first-time income property investors!

1. Know your property options - You might think this goes without saying, but many first-time investors don't fully appreciate all the types of investment property options out there. Are you interested in restoring a run-down property and flipping it for quick cash? Or renting out a family home to a steadily employed couple? Or perhaps you are interested in commercial properties like a small apartment building? While you explore your options, be sure to consult an expert.

2. Seek wise counsel - A funny thing about humans is how often we try to accomplish things by ourselves! So many times, we could have avoided that horrible vacation deal to Hawaii simply by visiting the travel agent down the street! Just like travel agents or tax accountants, there are plenty of qualified experts waiting to advise you while you search out a promising investment property. Instead of hunting down the nearest real estate agent, however, choose an investment company that is keenly experienced with rental property investing. Another option is collaborating with someone experienced in real estate investing - oftentimes active investors are looking for more "partners"... (but we don't recommend this, ask us why!).

3. Location, location, location - The old saying still rings true. The most important element in real estate valuation will always be location! Not only is this true in ALL real estate, but ESPECIALLY for investors looking to rent out the properties they purchase. Why? Because you need to make sure there are people in that market looking to rent! Going after high population areas with growing job markets is key - look for property in safe neighborhoods with good schools in the area, and nearby other amenities like shopping malls and public transportation. There are many other possible tricks - such as finding property nearby a large university in order to attract college students on a time crunch!

for point 4-5 continue reading...

10 Best Cities For Buying Investment Property

Jason Hartman (Platinum Properties Investor Network) — Mon, 17 Oct 2011 15:39:52 -0700

Buying real estate investment property is one of the best ways to invest your money, period. Not only can you borrow the financing required to purchase income property (leveraging debt and inflation), but you can rent it out to tenants in order to pay for your mortgage while ultimately earning the rights to a free and clear ownership title once all is said and done. This has been proven time and again throughout American financial history and is echoed by the philosophies of investment experts such as Robert Kiyosaki, Donald Trump and Warren Buffet. Lucky for you, Jason Hartman now offers you free investment advice and affordable guidance on the real estate deal of your dreams!

1. Atlanta - the only way to describe the Atlanta real estate market is "insatiable." When it comes to American cities, Atlanta is a story for the history books. First founded as a railroad hub of the southern states, it refuses to stop growing at an exponential pace while attracting dozens of corporate headquarters. It's population continues to grow by the millions while the number of transplant professionals looking for rental homes surges by the week. Get your hands on an Atlanta income property today!

2. Dallas - not only home to all kinds of cowboys, Dallas is continuously rated as one of the best cities in America for business and real estate by Forbes and all kinds of business journals. Their market-friendly approach, favorable tax climate, proximity to freeways and high quality of life promise a bright present - and future - for real estate investors.

3. Phoenix - when it comes to return on investment, this market won't quit. Not only does Phoenix continue to attract dozens of Fortune 500 and Fortune 100 companies, but the ratio of affordability to rental income potential is one of the best in the country, and quite consistently. Did we mention it's the 5th largest metro area in the United States, and that it's sunny year-round?!

4. Indianapolis - Combine a low cost of living, a bunch of the top sports franchises, ever-increasing recommendations by Forbes magazine and increasing employer presence... this is the gold mine that is Indianapolis. When a city in the Midwest manages to lead job growth nationwide in the midst of a massive economic recession, you should take notice if you are ready to buy income properties.

5. St. Louis - Home to very proud residents that welcome a surprising amount of tourism and visitors each year, this river city keeps on impressing investors. With a ton of top American corporate headquarters and a wide variety of healthy industries from manufacturing to high-tech, this jewel of Missouri just won't quit. Check out her ambitious sister town listed below...

Tax Consequences of a Short Sale or Foreclosure - In only 30 minutes!

Jason Hartman (Platinum Properties Investor Network) — Tue, 20 Sep 2011 13:35:31 -0700

One of our recommedned CPA/Lawyers will be live at 11am (PST), 2pm (EST) today to reveal some tax consequences of a short sale or foreclosure.

If you, a friend, family member, or business partner has had to settle a credit card debt, modify a loan, complete a short-sale transaction, or go through a foreclosure on a property you own, this IS A MUST LISTEN SHOW! Mark breaks down the 1099-C and HOW to get out of the Debt Forgiveness Income. You would be suprised to learn there are several ways to get out of claiming this income and it can change your entire 'plan' or perspective on the situation. You don't want to miss!

Listen Here: http://bit.ly/ncAWYK

If you want more information on me or my company which provides free advice and help for those wanting to invest in income property nationwide, please visit www.JasonHartman.com or give us a call at 714-820-4200.

Avoid These 3 Mistakes When Seeking Cash Partners for Real Estate

Jason Hartman (Platinum Properties Investor Network) — Tue, 30 Aug 2011 11:26:01 -0700

Think about it... It costs more to buy a single family residential home than it does to plunk down the cash to buy a share of stock or an ounce of gold. This reality of investing leaves many beginner investors wondering whether or not they should find cash partners for real estate when they're ready to buy. After almost a quarter century in the property business, we can say the answer is an unqualified "yes." Except when it's "no." Or perhaps we should say "yes" but with a few caveats. Nobody wants to be left holding the bag when a real estate deal goes bad, so here are three mistakes to avoid.

1. House by House Only: You might think you've found the greatest partner since Batman took in circus performer turned Boy Wonder (AKA Dick Grayson) but don't, under any circumstances, add their name to your Limited Liability Company. In other words, don't make them a 50% partner in your entire business venture. Want to partner on a specific house? Fine. Do it with our blessing but keep the arrangement on a house-by-house basis only. The problem with making a cash partner an equal on your LLC is that it becomes hard to get rid of them if something goes wrong and you find out they're actually sort of slimy. Partnering on a house-by-house basis allows you to isolate and contain the financial damage generated by choosing a bad partner.

2. Get it Writing: While they didn't invent writing just so real estate investors could outline their agreements with business partners, it makes a lot of sense to take advantage of a written contract. For all practical purposes, if it's not in writing, it might as well not exist. Even though the law recognizes a handshake as a binding agreement, it can get tricky to prove in a court of law. Doesn't matter if it's your brother, mother, or dear old grandmother, write down such particulars as how the profits are to be split and who contributes what to the deal. Don't say we didn't warn you!

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Don't Fall for These 8 Scare Tactics Used On Property Investors

Jason Hartman (Platinum Properties Investor Network) — Tue, 09 Aug 2011 13:48:38 -0700

We could make this article really short and simply say, "In real estate, there are no guarantees." That's all, folks. Over and out. Laid bare to the essentials, that's what property investors should keep in mind while out combing the hinterlands for the next great deal. But for the marketing companies that are trying to get you to buy their property, no wild-eyed guarantee is too crazy to lay claim to. Without a working time machine, no one can tell the future, least of all those sketchy marketers looking to sneak a curve ball through the strike zone a new land investor.

Over twenty-something years in the business, we've come up with a list of eight guarantees, call them scare tactics if you like, used to pressure the rookie income property investor to sign on the dotted line - quickly. Here they are one at a time.

1. “This is only available today because I have other buyers that want the house.”
Maybe there are other buyers lined up to buy the thing, but that should have absolutely no impact on your decision. This isn't a contest to see who can sign the contract the fastest. Take your time and make sure that the deal makes financial sense the day you close on it. Who really cares how many other people want the thing? If the agent is using this monkey business too hard, tell him the deal moves at your pace or not at all.

2. “There is a lease option tenant in the house for twice the amount you are paying.”
Lease options mean less than nothing. More often than not, lease and purchase options are not exercised. The promoter is trying to lure you into the deal with the vision of selling the house for twice what you paid when the option is exercises. IF the option is exercised. Don't place any faith in a lease option.

3. “Your rent is guaranteed by Section 8.”
While a section eight tenant does receive financial help from the government and might constitute a lower risk of losing rent, there's no guarantee how long they will stay there. Half your section tenants could walk out the door and never come back the day after you buy an apartment building. Where's the guarantee against that? There isn't one! When a marketer tells you something is guaranteed, you can rely on the fact that it's not. Pretty simple business model, eh?

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2 Huge Legal Mistakes Property Investors MUST Avoid

Jason Hartman (Platinum Properties Investor Network) — Wed, 27 Jul 2011 20:16:11 -0700

Dear Investment Property Investors,

Is it your goal to become engulfed in a nasty lawsuit that threatens to destroy the lucrative real estate portfolio you've diligently creating for years? I doubt it! Funny, it's often the small things that investors trip on, and these two items lead the list of "easy things to fix that could wipe you out if you're not paying attention."

1. One Size Fits All Forms
Come on, you know you've been tempted by the cut rate prices for basic legal services provided by online companies like Legal Zoom. Reassured by the fact that it was founded by an actual lawyer who participated in an obscenely public trial a while back, you take the bait. The main problem we see is that these types of legal services are sometimes lax in making sure that the VERY latest version of the form is the one they're selling to property investors.

2. Continue Reading >>

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This Real Estate Investing Strategy Doesn't Require Picking Bottoms

Jason Hartman (Platinum Properties Investor Network) — Tue, 26 Jul 2011 14:41:17 -0700

While executing your investment property strategy, picking an exact market bottom isn't as critical as you might think. It only has to do with your property making financial sense at the moment you pull the trigger (the day you buy them). While I would never suggest you ignore the reality of local property prices, the strategy I discuss on the Creating Wealth Show doesn't mean you have to pick an absolute bottom to make a profit.

For example: Consider the Orlando market, a city whose property prices have been beaten up pretty badly in recent years. We can look at the numbers and see that property prices have declined 43% since 2006. That's a bunch, but is it the bottom? Maybe. Maybe not. What we're more concerned with is that we're seeing more and more deals that appeal to us. One thing you can count on is that the city's molecular bonding with tourism assures that the economic picture will turn around at some point...

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10 Reasons Why the Economic Recovery is Still Out of Sight

Jason Hartman (Platinum Properties Investor Network) — Fri, 22 Jul 2011 17:31:55 -0700

I believe the very survival of our American way of life is at stake. I recently noted a post at EndTimeInfo.com elucidating 10 coherent reasons that the "recovery" trumpeted in our faces over the past year and a half has been the very definition of a fraud.

Take it away Endtimers. We couldn't have said it better ourselves...

1) In 2009, when the media claimed the economic “recovery” had begun, oil prices averaged $54 dollars a barrel. In the 24 months since, the cost has doubled. Americans are paying more and more to fill up at the pump with Goldman Sachs predicting that gas will hit $5 dollars a gallon by summer. This figure was already reached in Washington DC two months ago. Far from representing a “recovery” this is in fact another crippling expense that many Americans people simply cannot afford.

2) The housing market has shown no “recovery” whatsoever. The collapse in US house prices “is now greater than that suffered during the Great Depression.” Prices have plunged by 33 per cent since 2007. Home ownership is at its lowest level for 20 years.

3) The collapse in home ownership has flooded the rental market, leading to massive inflation “pushing up the cost of leases across the nation’s 38 million rented residences,” reports Bloomberg. Far from enjoying a “recovery,” US citizens lucky enough not to be stuck in underwater mortgages are instead paying through the nose for rental inflation that represents a huge chunk of the overall consumer price index.

Click here to view reasons 4-10

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Banks Planning Strategic Default As Well? What's This Nation Coming To?

Jason Hartman (Platinum Properties Investor Network) — Thu, 21 Jul 2011 13:21:01 -0700

I noticed a recent entry at the You Walk Away blog describing the rising incidence of banks walking away from properties prior to completing the entire foreclosure process. Banks are defaulting as well? Should I be surprised. I can't say that I didn't see this coming. We know that more and more individual borrowers with massive negative equity in their home are choosing to do this, but banks? What's the deal? According to an article quoted from the Chicago Tribune, the deal is this:

"Abandoned foreclosures are increasing as mortgage investors determine that, at sale, they can’t recoup the costs of foreclosing, securing, maintaining and marketing a home, and they sometimes aren’t completing foreclosure actions. The property, by then usually vacant, becomes another eyesore in limbo along blocks where faded signs still announce block clubs.”....

To read the remaining portion of this article click here

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Foreclosure Reversal - Sweet Justice?

Jason Hartman (Platinum Properties Investor Network) — Thu, 07 Jul 2011 13:17:23 -0700

As I sit here in my office reading all these great stories/articles, I can't help but share some with my loyal Active Rain family... such as the recent case in Naples, Florida, where a couple who were wrongfully foreclosed upon managed to legally turn the tables on a Bank of America branch and foreclose on them instead. As an eternal symbol of the stunning level of incompetence and criminal behavior to which corporate America can stoop, Bank of America found itself splashed across websites and newspapers from coast to coast for all the wrong reasons - again.

I have written more and included a short video for you on my website, here.

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[Investment Property] Fully Occupied Phoenix Duplex for only $75,000

Jason Hartman (Platinum Properties Investor Network) — Thu, 16 Jun 2011 13:57:56 -0700

This investment property is availble in the Phoenix, AZ market for only $75,000. It has a conservative projected cash flow of $310/month and 33% return on investment.

View full proforma

4 Reasons Triggering Continuation of the Home Price Collapse

Jason Hartman (Platinum Properties Investor Network) — Thu, 09 Jun 2011 15:30:55 -0700

Despite the current administration's constant hyperactive dog and pony show, we at The Creating Wealth Show think they protesteth just a bit too much. If the economy is turning around, why are home prices still flat on the ground and getting kicked in the teeth? If you listen only to President Obama, one might draw the conclusion that the Great Recession of the past few years is a distant memory and we now have a chicken in every pot and a car in every garage, to quote the great political acumen of Herbert Hoover.

But do we? If so, soaring unemployment and dropping home prices must be a mirage? Not to go out out on a limb here but maybe it's because the president knows exactly what he's saying and it's all lies. Just off the top of our collective head, we can think of four very real factors that are keeping home prices down, thus contributing to the limp-along economy. And now experts believe the global economy is moving into recession as well. The straight story is that nothing will change until the housing market recovers in large sections of the country.

1. Foreclosures
Every bubble is followed by a precipitous drop in price when it pops. Such was the case in 2006 as the housing market began a steep decline in many regions around the United States. Though everyone anticipated that the bubble would burst at some point, few expected it to be on the pinpoint of the American Dream, and carried out via the mechanism of millions of home foreclosures; home foreclosures caused by a double-dose of bad government policy and irresponsible buyers.

When you buy too much house for your income, the eventual result is personal financial implosion, and that's exactly what happened to far too many of your fellow Americans. Maybe you're one of them. Did they make bad choices? Some did, and are suffering now for it. But also intrinsic to the foreclosure explosion was a national government that encouraged banks to make loans to people who would not normally qualify. Good old Aunt Fannie and Uncle Freddie were standing by to pay the bill until the problem of delinquent mortgages got so big that it threatened to topple the entire economy. DID topple the entire economy, and it's not done yet. Too many foreclosures are still for sale. Too many people afraid or unable to buy. Too many American Dreams yet to be ground underfoot.

2. Unsold Homes
What do contractors do when nobody is buying houses? They stop building them, which brings the housing market to a grinding halt. As a major component of the overall United States economy, no real recovery can take place until housing gets headed in the right direction. That means builders building and buyers buying. Right now, no construction company with a brain is going to put resources and money at risk by cranking out a bunch of new homes that no one stands ready to buy. They've adopted a bunker mentality, hunkering down and waiting for the worst to pass, hoping their business can remain solvent until the American public overcomes an unwillingness and inability to buy.

The current refugees from the foreclosure mess are headed for the rental market, which seems to be doing quite well for the moment, with rental rates expected to increase as much as 25% in the next three years, due to increased demand. But for now, home buying is at a standstill, with builders and buyers faced off against one another on Main Street at high noon. Someone has to blink. Eventually.

3. Reluctance to Buy
Even with home prices sagging back to 2002 levels, Joe Q. Public is afraid to buy a house right now, and who can blame him? Maybe he still has a job, but how long will it last? Maybe he's one of the reported nine plus percent of Americans actively looking for work. That number swells to almost 20% if you look at the reality of the situation and toss out the manufactured government numbers. When the administration admits to nine percent unemployment, you know the actual number is higher. Much higher. As an example, the government figure does not include those who have given up and stopped looking for work. And it does include temporary workers like census takers who will be let go soon.

The point is that buyers are nowhere near feeling secure enough in their personal finances to begin seriously considering buying a house. Like the construction industry, they're are hunkered in a bunker of their own, too focused on having a job tomorrow, paying bills, and keeping food on the table to worry about luxuries like owning a home.

4. Inability to Buy
Along with a reluctance to extend themselves financially in order to buy a house, the cold truth is that many Americans simply cannot meet the new lending industry guidelines required of new buyers. It wasn't so long ago you could become the proud owner of a new house with only five percent down payment. And all you had to do was say you had a good enough job to cover the monthly payment. Since lenders were being prodded by the government to loan money practically to anyone and everyone, if you had a pulse and could sign your name, congratulations, you just bought a house,

Thankfully, much has changed in a short time, at least for the long term health of the financial industry. Today's buyer can expect to be required to put down 20% to 25% of a new house purchase. Interest rates are still great but a chunk of change that size is out of the range of most people right now. House prices are incredibly low but few can qualify for loans. So they rent. And wait. And hope something will change soon.

The Good News
The good news is that if you are in the position to lay your hands on the cash necessary to make the down payment, prices have rolled back almost a decade in price, making it a premium time for real estate investors to jump in and land some really great deals. And we mean REALLY great deals. Markets like Phoenix, Atlanta, Orlando, Indianapolis, and Dallas, are literally overflowing with incredible property buys for residential property income investors.

If you never considered becoming a landlord before, now is a good time to start pondering the possibility. With the stock market approximating the course of the average ping pong ball, fueled by the alternating panic and euphoria of speculator frenzy, there are precious few opportunities to create a comfortable financial future for yourself and family. Property investing is one such way; the best we have found.

If you're unsure of how to get started and the whole thing seems too complicated, we'd like to offer a single suggestion. Visit Jason Hartman's website and begin listening to The Creating Wealth Show. This series of free podcasts now numbers over 200 and is packed full of the kind of information you need to become a savvy land investor in a short period of time. Listen online or download to play on the MP3 player of your choice at a later time.

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Investment Properties Best Bought Without Emotion

Jason Hartman (Platinum Properties Investor Network) — Wed, 20 Apr 2011 11:40:52 -0700

According to a recent study on investor timing when it comes to buying and selling assets, we suggest you open a can of Mr. Spock on your strategy. Remember Mr. Spock? The half-human, half-vulcan first officer aboard the original Star Trek television series starring that guy in the Priceline ads before he became a caricature and national treasure? According to the New York Times, Philip Z. Maymin, of the Polytechnic Institute of New York University, studied call records at an investment boutique over the course of 17 years.

His finding was that, left to their own devices, most investors can pinpoint with almost uncanny accuracy the precisely worst time to buy or sell their assets. This study was concerned with the stock market, so what does that have to do with investment properties? The truth is that a human being is a human buying and, whether buying stocks or investment properties, the emotions that drive us into hasty action are the same.

The interesting conclusion reached by Maymin was that the greatest value provided by the boutique firm in the study was in talking investors out of their planned course of action. In other words, stopping them from rushing in with an emotionally charged decision.

What does this have to do with a portfolio loaded with investment properties? It's simple. Take the emotion out of the equation, no matter how difficult that might be, and make all buy and sell decisions based on a careful analysis of the performance data, NOT on the disaster-of-the-minute news cycle churned out by cable television news stations desperate to one up the competition. You know what? Here's a better idea. Turn the television news off completely. You really don't need all that crap going into brain. You're in this for the long haul, right? Then sit down, shut up, forget the "catastrophic" event taking place in East Outer Mongolia which is sure to drive the market to dizzying heights or unplumbed depths, and stick with the darn plan, Stan.

The only time to buy or sell investment properties is if the numbers back it up. Stop being so emotional about your portfolio. And one more thing - live long and prosper.

For more free cutting-edge income property investing and eBusiness news and advice from expert Jason Hartman (yours truly), subscribe to the Creating Wealth Podcast in iTunes or listen online for free!

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Wall Street vs. Real Estate Investing - Quit Playing An Insider's Game From The Outside

Jason Hartman (Platinum Properties Investor Network) — Fri, 15 Apr 2011 13:29:29 -0700

Over the years we've provided what we feel is a pretty clear cut case, based on an overwhelming preponderance of evidence, that Wall Street is an ineffective place to invest your money. To sum up exactly what's wrong with it - buying stock is like playing an insider's game from the outside. Are you an insider? If so, congratulations on making a very nice living screwing your fellow man out of his retirement. Enjoy your money quickly because you never know when the SEC or FBI will come a'knocking with a long list of questions.

There are two main reasons we suggest real estate investing. The first is that it is difficult, if not impossible, to "fix" the game. There is no insider trading in real estate. No middlemen to fear. This is direct investing at it's finest. You decide what you want to buy and then pull the trigger. There are precious few areas in the transaction or the day-to-day business of being a landlord that lend themselves so readily to being cheated. Notice we didn't say it's as pure as the wind-driven snow. You still should check up on your property manager, if you have one, now and then to make sure he's toeing the line and not padding any maintenance claims but that's small potatoes compared to what Wall Street can do to you.

The second reason real estate investing comes so highly recommended from the Creating Wealth Show is simple. It's profitable. Highly profitable. In fact, if you implement a conservative leverage strategy taught through Jason Hartman and the Platinum Properties Investor Network, you should not be surprised to bank annual returns of 20 percent or more. What exactly is it that makes real estate investing so profitable? In a nutshell, unlike Wall Street, property can return profit from several different directions at once: appreciation, tax benefits, and cash flow are a few of the more obvious factors.

How do you profit from Wall Street? Let's count the ways. Hmm, we can only think of two, neither of which boasts any sort of longevity. Either be very, very lucky and then smart enough to get out when the getting's good, or - you guessed it - become an insider. How do you become an insider? Trust us. You don't want to go down that road. It's much better to put those awful "trusting in the stock market" days behind you and turn to what has been proven to work much better., real estate investing.

Or you can sign up for my free educational CD at www.JasonHartman.com/freecd

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Don't "Charlie Sheen" Your Real Estate Investment Portfolio

Jason Hartman (Platinum Properties Investor Network) — Fri, 01 Apr 2011 17:13:45 -0700

You know you've made an indelible mark on the American culture when your name can be used as a verb and everyone understands the meaning perfectly. Has anyone besides us noticed that Mr. Sheen has gone a bit off his rocker lately? To be perfectly honest, his manic, incoherent behavior leads us to believe he might have been the victim of an unfortunate self-administered lobotomy performed with a pencil under the effect of cocaine. We're just saying, "Dude, we'd have to think long and hard to come up with a better example of a public implosion." Actually, maybe not that long and hard. Lindsey Lohan.

But what does Charlie Sheen have to do with your investment portfolio? Hopefully nothing. We would suggest you never ask him to be your financial adviser, but his self-destructive behavior does bring to mind a certain type of "stealth" destruction you might be inadvertently perpetrating on your own investments.

Our first bit of advice is don't invest in the show "Two and a Half Men." That bird has flow the coop and jumped the shark all at once. But here's the real question. Are you banking on Wall Street assets like stocks, bonds, and mutual funds to provide income for your golden years? If so, our best advice is to begin preparing an exit strategy immediately. Wall Street is even more of an insider's game than it used to be. With the Creating Wealth show, we've chronicled the decline and fall of the American Dream for those still banking on the stock market.

Enron and Bernie Madoff are just a few scoundrels that have been caught. You can bet that there are thousands out there skimming profits out of your investment portfolio that will never feel the heat of a federal investigation. Too much crime. Not enough crime fighters. The odds are in their favor. Jason Hartman, founder of Platinum Properties Investor Network has been a long time proponent of loading your investment portfolio with income property. It's proven to be history's best performing asset and allows you to cut the middleman broker out of the loop.

The secret to success and avoiding opening a can of Charlie Sheen on your investments is to maintain direct control at all times. Good luck out there.

Or you can sign up for my free educational CD at www.JasonHartman.com/freecd

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Unemployment Predictions for 2011 and What They Mean for Real Estate Investors

Jason Hartman (Platinum Properties Investor Network) — Tue, 08 Mar 2011 16:35:08 -0800

Employment is one of the fundamental factors of economic growth that represent the most frequently used yardstick for measuring recoveries. In discussion of employment, there are two distinctly different categories of unemployment that must be understood. The first is the ‘narrow’ definition that compares the people who are unemployed and looking for work against the total labor force who is employed or looking. The alternative or ‘broad’ definition includes discouraged workers who have stopped looking for work and incorporates the number of people who are working part time, but would like to be employed full time.

Some strange nuances can influence the reported unemployment rate that must be comprehended. When large groups of people stop looking for work, it can result in a net loss of jobs that rolls through as a lower rate of unemployment because the number of people who stopped looking exceeds the number of people who lost their job. Given the statistical machinations that are inherent within reported rates of unemployment, it is critical to understand the factors that will need to be present in a return of unemployment to historically healthy levels between 4% and 6%.

One of the most important factors to consider is the dynamics of “Job Gains” and “Job Losses.” The reported numbers are frequently the ‘net’ of all gains and losses in a given month or quarter. Focusing on the net number has the unfortunate effect of blinding many people to the ‘churn’ of jobs within the economy. Each US fiscal quarter results in the ‘destruction’ of somewhere between seven and nine million jobs that is offset by the ‘creation’ of seven to nine million jobs. The net change at the margin is what influences the reported rate of unemployment.

The current economic situation has resulted in the net loss of many jobs with many more people dropping down from full-time to part-time employment. Facilitating a return to healthy rates of employment will require many consecutive months of net job growth to absorb the currently unemployed work force. In the 2010 forecast book, we forecasted a narrow unemployment rate of 9.2% by the end of the year, and a broad rate of 16.1% by the end of the year. As of November, narrow unemployment stands at 9.6% with broad unemployment at 17.1%. Our 2010 model assumed an anemic economic recovery, but predicted a faster return to net job growth than actually occurred. The principal reason for this is because of uncertainty that surrounded the health care legislation that was pushed through Congress during 2010. As employers grappled with the expected impacts of these new laws, they held off on hiring new employees until their view of the future business landscape became more clear.

As we move into 2011, we are anticipating continued economic sluggishness that offers dim prospects for major net changes in employment. Over the past few quarters, economic growth has barely held pace with the entry of new workers into the labor force. This has resulted in narrow unemployment persistently holding above 9% with broad unemployment staying above 16%. In order for a major reduction in unemployment to occur, the economy will need to expand faster than the rate at which new entrants come into the work force. Since the economic fundamentals are not currently oriented toward the accomplishment of these goals in 2011, we anticipate that unemployment will continue to be relatively high throughout the year.

Our models predict that we will exit 2011 with narrow unemployment of 9.3% and broad unemployment of 16.8%. On the surface, this reduction in unemployment appears very anemic, but it is reflective of the fact that employment is a lagging indicator of economic recovery. During uncertain times, businesses become very cautious in hiring new employees. This generally results in new hiring only when it can be justified by tangible revenue generation. The wild card in growing employment is the impact of small business and entrepreneurial ventures. Job growth at the margin frequently stems from small business. Current uncertainty over the future of health care legislation, government policy, and taxation has suppressed growth and expansion for many small business entities. We do not currently believe that the regulatory environment will stabilize quickly enough to generate a tangible impact in 2011. However, if the mid-term elections and subsequent strengthening of the Republican Party in congress suppresses the tide of government intervention, there is the potential for an economic recovery to begin unfolding before 2011 concludes.

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Double-Dip Recession - What this means for real estate investors

Jason Hartman (Platinum Properties Investor Network) — Tue, 15 Feb 2011 18:43:09 -0800

The recent financial news has been abuzz with exhortations over the anticipation of an end to the recent financial calamity. The stock market has already discounted this optimism into its valuation, as current market values represent a multiple of forecasted earnings per share well in excess of historical trends. The conventional wisdom is that the economy will get “back on track” in the next few months and resume its previous trajectory of long term growth. The factor that nobody seems to be considering is the fact that the previous ‘track’ the economy had been traveling down is the express route to collapse that generated this whole financial meltdown in the first place.

It is not a secret that the explosive economic growth experienced during recent years was largely caused by debt financed consumption artificially increasing demand for goods and services. Unfortunately, this debt bubble inflated beyond the capacity of many people and financial institutions to carry. When the bubble eventually burst, it created a cascading devaluation of financial instruments, which triggered forced deleveraging, which further depressed values, which triggered more forced deleveraging.

Now that the government is throwing money away at an unprecedented, breakneck speed there is additional stress on the system since the overspending is being financed with the undertaking of additional debt and monetary expansion by the Federal Reserve. These irresponsible actions will eventually have the impact of raising interest rates, and may push the economy back into recession.

The most likely way that this scenario will unfold is that the Federal Reserve will either contract the money supply in response to inflationary pressure or allow the currency to inflate until investors refuse to purchase bonds at face value and demand higher coupon rates. Thus, the ‘front door’ for interest rate increases is controlled by the Federal Reserve since they can contract the money supply, which will force up short-term interest rates and incentivize long-term bondholders to sell and buy short-term notes with higher yields. The “back door” for interest rate increases occurs when investors lose confidence in the ability of the government to meet its debt obligations without devaluing the currency and refuse to purchase bonds unless they are discounted by the treasury.

These interest rate increases will have two significant impacts on the economy. The first is in relation to long-term interest rates, which serve as the basis for fixed rate mortgages. When mortgage rates are forced up in conjunction with long-term bonds, it will immediately slow whatever housing recovery may be under way as it increases the cost of borrowing to purchasers. This will have the net effect of decreasing the amount of house that can be purchased per dollar of monthly payment. The impact of this phenomenon will be a downward shift in the range of home prices that people can afford, which will ultimately stall the housing recovery.

When these effects eventually spill over to short term rate increases when the Federal Reserve eventually begins a campaign to fight inflation, the impact will travel further downstream in the economy. The reason for this downstream impact is the fact that short term interest rates influenced by the Federal Reserve are the basis for revolving credit account and lines of credit that many consumers have been using to finance their consumption spending. When the short term interest rates increase, it will initiate an upward shift in the amount of interest owed on consumer debt and will also increase the required payments. This will have the net effect of reducing the amount of income available for consumption spending.

As these two effects compound on top of one another, they create a very real possibility of a ‘double dip’ recession that continues downward after a brief period of stabilization. The ultimate reason for this phenomenon is a continued campaign of market manipulation by the government to ‘stimulate’ the economy in absence of market fundamentals that are supportive of sustained long term growth. Unfortunately, this boom-bust cycle will continue indefinitely until the focus eventually returns to creating the necessary market fundamental for long term growth instead of sponsoring government programs to stimulate demand with borrowed money, but make no changes in the incentives that guide investment decisions.

As astute investors, it is important to be wary of market sentiment that amounts to ‘wishful thinking’ for an economic recovery in the absence of supporting fundamentals. Recognizing these boom-bust trends and the propensity for government entities to manipulate the financial markets is a key tool for investors that are looking to protect their wealth and prosperity. At the Financial Freedom Report, we advocate investment in real assets that are secured by fixed-rate debt and rented out to tenants as the optimal strategy for fighting this campaign of market manipulation by the government.

Financial independence is closer than you think. Buy your Early Bird ticket to the Meet the Masters of Income Property Investing educational event before February 14 to qualify for a steep discount on tickets.

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3 Self Storage Investing Myths Revealed

Jason Hartman (Platinum Properties Investor Network) — Wed, 09 Feb 2011 12:47:25 -0800

Have you heard of the dangers involved in self storage investing? Too much competition. You have to build a new facility to make money. Financing is difficult to find. While one should never enter a serious investment on a whim, we suspect that much of this type of propaganda is circulated by people already making nice money in the industry, and who would say anything to keep others from taking a slice of the quite lucrative pie. We know real estate investing is history’s best bet. The numbers prove that fact. Self storage investing, though, might be the best of the best, so don’t pay attention when the naysayers drop one of the following lines on you.

Too much competition: It’s true that, over the past two decades, the self storage industry has grown from a lazy little pastime into a billion dollar industry. With over 45,000 facilities nationwide, there is six feet of storage space for every citizen in the United States. That’s a bunch. Overbuilt? Maybe. Too much competition? Not even close. The truth is that a large number of facilities are ineffectively run and poorly marketed. Even a little effort to create a better business can be rewarded exponentially by increased occupancy. The ones claiming too much competition are those afraid to really work their business. Don’t listen to this myth!

You need a new facility to make money: Even though building a new self storage investing facility could be considered cheaper than a traditional commercial undertaking, it’s still not inexpensive or quick. Far better, and likely more profitable, it would be to find a facility that has been poorly managed and perhaps is in need of minor repairs. Owners like this are usually itching unload what has been an under-performing asset, in their eyes.

Financing is hard to find: The truth is that self storage financing has the lowest default rate of any commercial loan type. Lenders are fighting to loan this kind of money, with many offering 90% financing. That’s right, you put up only 10% of the total purchase cost. While you’re going to have to pay more than if you bought a rental house, self storage facilities are not as expensive as you might think. A 30,000 square foot complex, twenty years old, can be had for less than it would cost to buy a single family home in California.

Before we go, let’s consider some quite feasible numbers associated with self storage investing. Assume you own 300 units, 90% occupancy, each renting for $50 monthly. You’re grossing $13,500 every 30 days. Take out loan service and minimal maintenance. No wonder other self storage investors want to keep you out.

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Tracking Inflation in the Coming Year - Important for Real Estate Investors

Jason Hartman (Platinum Properties Investor Network) — Wed, 09 Feb 2011 12:22:23 -0800

The general price level in 2010 relative to 2009 shows average price levels that are nearly flat. The reason for this trend is significant commodity price increases in 2007 and 2008 that collapsed after the global financial crisis. Much of the reason for the price volatility in commodities is leveraged buying and selling through hedge funds that drove prices up during the bubble and precipitated a price crash after the bubble collapsed as many entities were simultaneously deleveraging their positions. To demonstrate this phenomenon, we have graphed the Consumer Price Index for Urban residents (CPI-U), Producer Price Index for Finished Goods (PPI-FG) and Producer Price Index for All Commodities (PPI-AC) from 1995 up to the present time.

One of the complexities implicit within consumer prices is the duality that exists between commodity products that naturally inflate with increases in the supply of money from the Federal Reserve and technology products that naturally deflate in price as new innovations displace current products with higher quality and lower prices. When we published the 2010 inflation predictions, our models assumed that the quantitative easing being undertaken by the Federal Reserve would ripple through the economy and drive up consumer prices. Our 2010 forecasted rate of inflation was 3.9% for core inflation and 7.2% for all items. The reported inflation through the month of October is 0.8% for core inflation and 1.1% for all items. It is quite apparent that the experienced inflation through October is quite lower than our prediction. The reason for this is that our prediction was based on an assumption that a dramatic increase in bank reserves after the financial collapse of 2008 would eventually spill out into the broader economy. However, the Federal Reserve successfully kept these reserves out of circulation by lowering the “Fed Funds” rate for bank borrowing from the Federal Reserve down to nearly zero. This made it more profitable for banks to borrow from the Fed and use those borrowed funds to purchase Treasury notes than to loan their reserves out. This technique has resulted in steadily printing more money to fund the bank arbitrage of Treasuries, but has also been able to keep the excess reserves from inflating the supply of money in the marketplace.

As 2011 unfolds, we expect to see commodities inflated by the “quantitative easing” on the part of the Federal Reserve. This is expected to result in an inflation rate of 2.4% for all items excluding food and energy and a 6.6% rate of inflation for all items in the index. These predictions are based on the assumption that techniques used by the Fed to constrain monetary inflation will see their effectiveness diminish in 2011. The spillover effect from quantitative easing are already being felt in prices for food and energy. We view this as an indicator that recent increases in the money supply are finding their way into the broad economy and influencing prices. In the event that large amounts of new money are unleashed into circulation over a short period of time, there is a considerable risk of price spikes. However, it is extremely difficult to know exactly when such an event will occur, because of the existence of large excess reserves that have been sitting on bank balance sheets for an extended period of time.

The future of consumer prices will be largely dependent on the extent to which government policy accommodates or constrains new innovation that will deflate prices for technology and manufactured goods when the currently deployed capital becomes obsolete. Our current view is that the divided legislature resulting from gains by the Republican Party in mid-cycle elections will moderate government activity and hold the potential for stabilizing the economy as it moves out beyond 2011.

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Phoenix, AZ - 19.4% Return On Investment Property for 2011

Jason Hartman (Platinum Properties Investor Network) — Mon, 07 Feb 2011 14:34:01 -0800

Market values in Phoenix are currently at approximately the same level as in the year 2000. The market area experienced a tremendous run-up during the real estate bubble and a spectacular during the financial crisis. During 2010, the regression back to fundamentals continued in Phoenix. For people who bought at the wrong time, this value contraction leverages out to a rather substantial loss. However, the current low interest rates allow buyers to generate cash flows that will help them to sustain the investment through value fluctuations until a path of growth is resumed.

By focusing on investment in deals that produce reasonable cash flow, investors can achieve favorable rates of return from leveraged value appreciation and cash flow in the Phoenix area. Currently, approximately 54% of listings in Phoenix are foreclosures1.

Phoenix is a unique market, since it has been historically linear but was escalated to very high levels of valuation during the recent real estate bubble. We expect to see a return to historical levels of value appreciation that are a combination of modest fundamental growth and a regression upward from an artificial bottom that resulted from foreclosures after the financial crisis. To long-term investors, a steady growth rate with attractive cash flow represents a much more attractive opportunity than a cyclical market that depends on steep value appreciation and quick re-selling of properties to compensate for negative cash flow from rents.

As we move into 2011, there are two significant forces acting on the Phoenix market. The first is a regression to replacement cost after market values reach their fundamental bottom. The second is an expected increase in interest rates from historic lows that will suppress cash flow relative to prior levels. Our analysis concludes that now is the optimal time to pursue income property deals due to the intersection of historically low interest rates and market values that have been suppressed to their year 2000 levels.

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What Killed the Commercial Real Estate Goose?

Jason Hartman (Platinum Properties Investor Network) — Tue, 01 Feb 2011 19:15:19 -0800

At the Commercial Investing Center, we keep an eye on the possibilities inherent in commercial real estate though, outside of mobile home parks and self storage properties, we’re not too excited about the industry’s current state. Not so long ago, commercial investments were flying high on golden wings but present circumstances have brought the goose crashing to the ground. During the free and easy credit time of the 2000′s, traditional lenders commonly offered a 65% loan to value ratio, which means that if you owned a $100 million property, you could get a $65 million loan on it.

But then private equity firms and hedge funds wanted in on the action and began offering an 80% loan to value ration. Many commercial real estate owners decided to take advantage of this new development, especially in light of the extra $15 million that would find its way into their pockets. The problem was that the loans needed to be refinanced in five years, a requirement that didn’t seem onerous in the least in those heady days.

Fast forward to 2008 and the economic Armageddon that makes it seem like we’re not even on the same planet any more. Many of the hedge funds and private equity firms no longer exist but the loans still need to be refinanced. Problem number one is that many properties have lost value, some as much as 20% or more, which means your property that your property formerly valued at $100 million might only be worth $80 million today. Add to that the fact that you’re going to have to go with a traditional lender (because the others are dust in the wind), who will likely only offer the standard 65% loan to property value ratio, and you’ve got some cash flow troubles – maybe even a pending bankruptcy.

This is not to say that the fundamentals of commercial real estate are bad. Everything else – good tenants, cash flow, great building – might be in place but the present economic circumstances could ruin you financially and that’s why we’re still leery about recommending a return to buying commercial real estate just yet.

But stay tuned. Lending circumstances can and will eventually change.

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Why the News Media is Dead Wrong About Inflation and the Economy

Jason Hartman (Platinum Properties Investor Network) — Wed, 26 Jan 2011 19:01:47 -0800

Recent news cycles have been peppered with reports of looming inflation from economists and business leaders, along with the expected denials and excuses from politicians and their propaganda outlets in the news media. Chief among the distortions being advanced is the notion that inflation cannot persist in a down economy.

The basis for this fallacious claim is a relic of Keynsian economics known as the “Phillips Curve.” This diagram represents a perceived trade-off between inflation and unemployment within a market economy, which was based on experiential observation during the mid-twentieth century. The narrative that is used to sell this line of reasoning is that inflation results from increased economic activity increasing demand and pushing up prices. Conversely, the theory holds that when inflation is not present, the economy must be slowing and that unemployment will result.

The Phillips Curve theorizes an inverse relationship between inflation and unemployment.

Since the current political regime in charge of the United States contains legions of avowed Keynsian supporters, it is not surprising that this mantra is
being used to describe the current economic situation. The fundamental fallacy of this argument lies in the fact that it ignores the impact of monetary expansion on prices and output
The impact of monetary expansion is articulated quite succinctly in the quantity theory of money. Fundamentally, this theory states that the nominal price level is a product of the amount of money in circulation times the velocity with which that money circulates through the economy. When the money supply increases sharply, prices will do the same. When the velocity of circulation decreases sharply, prices will move similarly. The hitch comes in the current situation where the velocity of circulation has gone down significantly, but the money supply has gone up very significantly. The net result of this situation has been for asset values to deflate from the reduced circulation since much of the monetary expansion is being held by banks to satisfy reserve requirements and to hedge against future uncertainty.

M x V = P x Q

M represents the nominal money supply
V represents the velocity of currency circulation through the econom
P represents the nominal price level
Q represents the real value of final transactions

The problem that is implicit within the propaganda that is being peddled by the political establishment and their unquestioning followers in the media is that there will be a ‘whipsaw’ effect when credit markets normalize and monetary circulations return to historic levels. This whipsaw will be for the massive amount of new money printed by the Federal Reserve to cause rampant, runaway inflation that most of the population is not prepared for.

Likely responses to this inevitable inflation run in one of two directions. The first is to tighten the money supply, which will result in sharply increasing interest rates. This will have the net effect of increasing the cost of capital for business ventures at the exact time when the economy is on the cusp of a recovery. It is quite likely that this type of a disruption will push the economy back into recession. The second option is for the government to simply allow the inflation to rampage through the economy, and attempt to blame the rising prices on corporate greed or some other equally vacuous scapegoat. This second option is far more likely, given the current political leadership’s propensity to avoid difficult decisions, castigate blame, and sacrifice the wellbeing of the economy for the sake of perpetuating government power.

As prudent investors, it is incumbent on each of us to understand the events that are likely to transpire and arrange our affairs accordingly. In this case, the power hungry regime in charge of the country will use the crisis to extract power from the pockets of Middle America by foisting massive inflation on the populace. Those of us who have prepared ourselves by acquiring multiple income-producing assets financed with fixed-rate debt will be inadvertently enriched by the reckless irresponsibility of government. Unfortunately, the rest of the country will sold down the river by a power-obsessed administration that is only interested in expanding the scope and reach of government.

The mainstream media perpetuates a distorted view of inflation
This is based on a Keynsian economic fallacy
This fallacy is rooted in a perceived tradeoff between inflation and unemployment in the “Phillips Curve”
This narrative ignores the impact of monetary expansion on prices
Market prices are established based on the level of currency outstanding and the velocity of its circulation relative to the amount of goods and services produced
Increasing the supply of money when output stays flat or contracts must push market prices
The current direction of government policy is highly inflationary
What will you do to prevent your wealth from being destroyed by inflation?

"This unchecked spending is growing faster than our economy, faster than inflation, and far beyond our means to sustain it." - Jim Nussle

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Why the Stock Market Can Be Dangerous in the Current Environment

Jason Hartman (Platinum Properties Investor Network) — Thu, 13 Jan 2011 14:02:15 -0800

Conventional wisdom has long held that the way to become wealthy over the long-term is by compounded investment in the stock market. The reason for this was quite clear when one looked at the chart of historical returns. By making very modest investments at regular intervals over a long period of time, small investors could create very large amounts of wealth. This line of thinking is what has prompted most employers to source their 401k retirement plans with mutual funds that invest in the stock market.

Unfortunately, the movement of stock market investment into the ‘main stream’ of America has caused it to become less of an investment vehicle and more of a gambling casino. The primary purpose of the stock market is to provide companies with a means to raise capital for business investment by selling a partial ownership stake. (Also known as a ‘share’ of ownership) Typically, investors were rewarded for their investment in the by the payment of dividends from the company profits. Thus, stock market investing was originally based on the notion of finding a company that was likely to make sufficient profits to pay healthy dividends.

This sentiment changed as the secondary market for trading stocks became more popular. A ‘primary’ issue of stock happens when a company issues more ownership shares. A ‘secondary’ stock transaction happens when one investor exchanges an existing ownership share with another investor. This is where the stock market turns into a casino. When the focus of investment shifts away from the ability of the company to viably pay dividends on a consistent basis toward the probability that the secondary market will pay more for the company stock at a future date, stock investment becomes much more akin to gambling. When returns are primarily based on price appreciation, continued growth in market value requires a perpetual stream of new buyers. This phenomenon is true for both stocks and real estate, and explains the recent booms/busts very thoroughly.

The only factor that can push-up the entire stock market is if there is an aggregate increase in investment capital. (Similar to how increases in the money supply from the Federal Reserve drive price inflation) When corporate profits grow, it is natural to assume that more capital will be attracted to the market. However, when market values rise faster than corporate profits, the only cause can be a net-influx of investment capital.

In the United States, there were two “Sledge Hammer” events that sparked a colossal 25-year bull market for stocks. The first was the passage of ERISA in 1974, which created standards and stability for company-sponsored stock market investment plans that dramatically increased the supply of equity capital. The second was the pairing of tax cuts in the 1980’s and a significant reduction in the cost of debt capital that spurred a rapid growth in corporate profitability. These two events combined to generate a massive increase in stock market investment that pushed values sky high.

However, these massive gains came with a bit of a shadow. This problem has been created as investors stopped directly buying stocks of individual companies and started investing in funds where a manager buys and sells the stocks. Now these brokers and managers have control over incredible amounts of other people’s capital. This control gives them the power to create or destroy tremendous amounts of value based on the decisions that they make. It also channels market activity more and more toward ‘gambling’ as managers seek to maximize value appreciation. (This set of incentives is very adverse to investor interests, as managers have incentives to take insane risks, since big gains mean tremendous bonuses and losses only mean that they get fired) Furthermore, most managers charge very hefty fees for their services, which cut into the net investor returns. (Thus far, we have assumed that the fund managers are honest . . . when the ‘crook’ dynamic is factored-in, the risks increase significantly)

Fundamentally, there are four principal risks implicit in this kind of stock market investing:

1)Your broker may be a crook

2)Your broker may be incompetent

3)Even if your broker is honest and competent, he will take a big slice of your profits in the form of fees and commissions.

4)These problems are not limited to your brokers . . . all of the middlemen like stock promoters, CEO’s, bankers, and all other flavors of hucksters or salesmen.

On top of all these risks, there is a bigger dynamic to consider. Currently, corporate profits are taking a very steep tumble relative to their prior levels. In addition to this, most of the working population is already invested in the stock market, so there is no large pool of capital to attract so that valuation can continue to inflate. Finally, the current market Price/Earnings ratio is well above its historical average. This means that the market is discounting-in a future increase in corporate earnings. If that increase does not come, or takes longer than expected it will most likely result in market values decreasing.

Finally, there is a longer-term risk of very average performance. Even if the anticipated recovery happens as expected, there is no looming influx of capital to push the market up at explosive growth rates. This means that future market appreciation will look very average by historical standards. (Granted, nominal values will be pushed-up by inflation but real returns will still be very much in the ‘average’ category.

Ultimately, the stock market is in the midst of a ‘return to reality’ from the large rates of return in prior years. The fundamentals are pointing toward difficulty in maintaining prior growth rates out into the future, including the risk of more near-term price compression if the forecasted economic recovery does not materialize as expected. Granted, there is a probability that the stock market will recover better than expected and produce favorable returns. However, prudent investors should seek to diversify their investment activities into other emerging areas of opportunity to limit exposure to the stock market.

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Why Cash Real Estate Investing Makes No Financial Sense

Jason Hartman (Platinum Properties Investor Network) — Tue, 04 Jan 2011 13:04:12 -0800

In our book, paying cash for a real estate transaction is not the best move. If you have over four financed properties, sure, go for it. The returns are not comparible. The reason is leverage and if you're not taking advantage of this tool, you're missing out on one of the amazing benefits of real estate investing. Let's take a look at a very simple, specific example to give you an idea of the enormity of your miscalculation if you opt to buy your next property with cash.

Let's say, n 1980, you decided to buy a rental property for $64,000 in cash. By 2010, the property is worth a $173,000, which seems like a nice little profit, but isn't really. Once you adjust the 1980 price for inflation and compare what a dollar would buy then next to what a dollar would buy now, you figure that it's as if you paid $167,000 for the house, expressed in real terms. That's a paltry 3.4% increase over 30 years! Ouch. So how could you turn those numbers around and make that same investment shine like a happy star?

Leverage. The secret is leverage. What if, instead of paying cash for the house in 1980, you put down 20% of the purchase price ($12,800) and took out a long term loan for the rest? Run the numbers on a cash investment of thirteen grand versus sixty-four grand and you come out with a 480% profit instead.

That's how people get rich with real estate investing. Consider that you've kept the place rented for most of the thirty years and the monthly rent covered the mortgage payment; the end result is that you never actually had to pay off the 80% you borrowed – the tenants did it for you. In case you haven't realized it yet, this example shows why cash transactions kill you in a monetary system ripe with inflation, which ours is and will continue to be for the foreseeable future. A conservative system of borrowing is the way to create wealth in inflationary times. Anything else is simply putting your head on the chopping block and asking the executioner to be gentle.

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