Jason Hartman's The Speed of Money Podcast

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Syndication

It is important to first recognize that, when referring to ROI, we’re talking about Return on Inflation. Return on Inflation is not considered in terms of inflation, or what Jason Hartman calls “inflation induced debt destruction.” When you see a return on investment, it is actually higher than that, given inflation.

In the world of income property, return on investment is driven by four major things. Because it is a multidimensional asset class, it isn’t as simple as buy low, sell high. The first pillar driving ROI is appreciation. Appreciation is amplified with leverage, which has made people a fortune in real estate. Debt in real estate is a great thing because you aren’t the one paying your debt—that’s what tenants are for! So, borrowing for the sake of a real estate investment is a great thing.

The second pillar driving ROI is cash flow, specifically positive cash flow.

The next pillar is principle reduction. If you own a property, your tenants pay down your loan for you. Tenants pay your mortgage, and that’s a great thing. But it is perhaps overly simplified. What’s actually happening is a bit more complicated. People think that they’ve created wealth because of appreciation, but real wealth is being created because debts are declining in value—inflation benefiting us. Inflation reduces loan balances.

The final pillar is, of course, tax benefits, as real estate is the most tax-favored asset class in the United States. When looking at past investments returns for comparison, it is clear—investing in Wall Street is little more than gambling. The real way to build wealth is real estate.

If you lose money in the stock market, you can only deduct $3,000. If you sell your stocks and actually make money, you pay capital gains. There isn’t a 1031 Exchange for stocks either.

Income property allows you to defer the gain and keep exchanging. It appreciates by 6.4 percent, and it has for many years.

Sure, income property may lack the appeal of a weekend in Vegas, which is essentially all investing in the stock market is. But it is a different kind of (more reliable) fun. And it works to build long lasting, reliable, tangible wealth.

Direct download: SM201820Blogcast.mp3
Category:Podcast -- posted at: 1:00pm EDT