YW 89 – Do Not Invest In Bitcoin with Jason Hartman

YW 89 – Do Not Invest In Bitcoin with Jason Hartman

Jason Hartman sits down one on one with his Youth Wealth audience today to talk about the possibility of moving back to California, the benefits of being a renter, and why Bitcoin is a bad investment. He also shares his expertise on what’s currently happening in the Houston, North Dakota, and San Diego real estate market.

Key Takeaways:

5:15 – Jason is considering moving back to California for tax purposes.
7:00 – Jason lists a couple of upcoming shows he’ll be airing in the future.
10:35 – Bitcoin’s price is plummeting. Jason’s predictions were right.
14:10 – How do you calculate rent-to-value ratios? Jason breaks it down.
21:20 – The rental marketing will be moving in Houston due to layoffs.
25:35 – Income property often out performs the stock market.
28:50 – Bitcoin’s rapid decline is seriously affecting the Bitcoin miners.
32:00 – Remember, Jason has other podcasts you can listen to!
24:50 – Don’t forget to go to JasonHartman.com and check out some of the property listings on there.


“The people who flip properties have spending money, and the people who buy and hold are the ones who create real long-term wealth.”

“The place you live is almost always going to be an expense, but you’ve got to live somewhere. “

“Income property on its worst day out-performs the stock market on its best day.”

Mentioned In This Episode:


Thank you so much for joining me today. I am coming to you from beautiful La Jolla, California. I’m down here in the San Diego area. Why am I here? Well, so we had our Meet the Masters event, and it was fantastic. Thank you all for coming, all of those who attended, I really enjoyed seeing you. We didn’t really debrief on that yet, which I’m not going to do now. I thought I’d spend a couple more days in Southern California and come down to San Diego, and I have an actual reason for being here; it’s not vacation.

You’re not going to belief this, and you know, there’s a song – who was that by? Alanis Morissette,  Isn’t it Ironic, Don’t You Think? Why am I here? I’ve actually been looking for places to live! [Gasp] Oh my God! Did you hear that right? Yes. Yes, the guy who famously moved out of the Socialist Republic of California three and a half years ago, to move to an environment with lower taxes and less government intrusion may well be the first person on planet Earth – I don’t know, it’s possible that I may well be the first person on planet Earth to actually be considering moving back to the Socialist Republic of California to…Get this! Are you ready? I’m letting you in on this big secret – to actually save on taxes.

And how would I possibly be able to do that, you ask? California is probably the least business-friendly and highest tax state in the Union, rivaled only by New York, which is pretty bad, Illinois is pretty bad. Well, guess what? You know, I’m not usually early on filing my tax returns, so this year – or actually, I should say ‘last year’, as usual, it’s October 15th and the last day you can file and I’m talking to my CPA on the phone, and he says to me “Did you know, Jason, that I found a big tax deduction for you, but in order to get it, you have to re-establish residency in, yes, the Socialist Republic of California?”

I couldn’t believe it. I couldn’t believe it, I couldn’t believe it. I’ve been in serious denial for, what, two and a half or three months now about this thing, and I kind of want to get my tax deduction so I’m actually thinking of moving back to California for a year. I don’t like the idea too much but, you know, the past few days, it’s been pretty beautiful looking around here. It’s cold in California! I tell you, Arizona, the temperature maybe is cold, but you add the humidity to it and it just gets into your bones here.

I know, all of you back East and in Northern climates are thinking I’m absolutely psychotic for saying that, but I’m a wimp when it comes to cold. I’ve been in warm places the vast, vast, vast majority of my life so it does feel kind of cold here. I mean, during the day it’s nice, it’s 72 degrees, but at night it’s chilly out there! Anyway, whatever, so I am toying with the idea of actually moving back to California for a year because I could live here for about a year to a year a half, for free! I mean the State of California would essentially pay me to come and live here, due to my tax deduction that I cannot take – at least that I know of, unless there’s some loophole I don’t know about and my accountant doesn’t know about – unless I become a California resident.

This, again, is one of the reasons, as much as I love being a landlord and as much as I love renting properties to other people and as much as I have made a small fortune doing so, I love being a renter myself. It’s actually really darn convenient. You know, my lease was up last month, I can just move. Just move! I don’t need to show the house, I don’t need to hire a realtor, I don’t need to clean up, I don’t need to take all my private things and all my valuables and stick them into a storage unit, I don’t need to do anything with the dog, like boarding the dog or something like that, I don’t need to do a thing, I don’t need to do any fix-up work. It is so convenient to just be able to move.

You can live somewhere for a couple of years, and if you get sick of it or if you discover you have a big fat tax write-off in the Socialist Republic of California, you can take advantage of it, so it’s a pretty great deal. And I have been amazed at how expensive things are out here! Yes, I know, I used to live here just three and a half years ago, but wow! The rental market is booming. Well, why wouldn’t it be booming in San Diego?

I mean, the rent to value ratios are terrible! Let me give you a couple of examples, and you know, I’ve got several things to talk to you about today. Time permitting, but you know how I am, I usually ramble on and on, so maybe we won’t even run the guest on this episode and we’ll run the guest on the next episode.

By the way, we’ve got some great stuff coming up for you. You know who’s coming up in either one or two episodes? Paul Craig Roberts. You may have heard of him. He’s the Nationally Syndicated Columnist who was the Assistant Secretary of Treasury for Ronald Reagan and he is considered to be the co-founder of Reaganomics. Yeah, pretty famous guy. He doesn’t have a lot of great stuff to say, though, I’ll tell you that. When I interviewed him, he was kind of gloomy about things, but you can judge for yourself. And then we have Bill Tatro, a  really interesting talk show host. I don’t know if he’s syndicated or not, but I would listen to him all the time on the radio in Phoenix and he’s out with a book called  44th: A Presidential Conspiracy. Some pretty interesting insights into the economy and politics and some interesting stuff.

And then Harvey Silverglate is coming up. He’s the lawyer who is the author  of  Three Felonies A Day, an incredibly important subject for all people around the world to be concerned with. It really shows you how governments can target people and they’ve got something on all of us because they’ve got so many laws, and that is their weapon. The point where they suddenly decide they don’t like you for whatever reason, down with you! Scary stuff. So  Three Felonies A Day, basically illustrating how we’re all committing three felonies a day. Felonies! I mean, I consider myself to be a law-abiding citizen! Maybe he’s being a little dramatic, but I don’t know! Listen to some of his examples and it’s pretty compelling stuff – I did the interview with him, so…

And then Peter Sage, the youngest coaching client of Anthony Robbins, Tony Robbins, and that’s a really interesting and innovative guy in his own right. He’s coming up too and yeah, there’s a bunch of other stuff coming up.

San Diego, back to that. And if we get to our guest today, it’ll be Robert Kahre. With him I talked about payments and how Apple Pay and different payment systems will have a big impact on the economy. He also runs a foundation that’s really interesting, that’s sending kids to College. There’s some really cool stuff that he’s doing there.

Speaking of payments, bitcoin, that we have talked much about over the last year and a half, well, let me just check because Coinbase is one of the big bitcoin companies, right? As the price of bitcoin was plummeting, and I think it’s still plummeting, and you know why I think that? Because I just hit the Coinbase.com websites that used to write on the front page and publish the price of a bitcoin, and they took it down just about a week and a half ago. I think that’s kind of lame that when your deal doesn’t go right, you take the price off and it was there. Let’s see if I can find it here. Nope, I can’t find it. Well, let me click on the ‘Buy and Sell Bitcoin’ button, it’s gotta have the price there, right? Doesn’t look like it! You’ve got to sign up and then you get to see the price. It’s like Nancy Pelosi – we’ve got to pass the bill to see what’s in it!

Let me just type this in. I predicted bitcoin would go to $250, all my friends told me I was nuts and let’s see if it’s getting close. Ooh, wow, Jason! Just like oil, here we go. Just like the FDIC, just like the FHA, just like Fannie Mae, Freddie Mack, just like the end of the last bull market in real estate in 2005 – you were right about bitcoin. It’s only $212.59 now. Gosh, I’m glad I only bought one of those puppies – for like $800, mind you! Unbelieveable.

You know, I would love nothing more than to be wrong about bitcoin, but I don’t think I am. It is amazing the believers, the cult members – kind of the way I’m sort of cultish about Apple products. I like Apple products, if you can’t tell. I’ve said it before, but the way these gold bugs and these bitcoin people.. it’s like they’re hypnotized, they’re brain-washed. It’s unbelievable! I mean, gold at least is real. Bitcoin is just a construct. It’s a great one, mind you, don’t get me wrong. Again, I would love nothing more than to be wrong about bitcoin. We’ve done shows on it, I don’t need to go into it here. $212.59 per bitcoin – down from what? What was that? That was like $1100, was that the peak? Something like that. Amazing. Amazing. Amazing stuff.

You know, that was the hope for the great payment system that would be frictionless and people could transfer money around the world and it had all sorts of cool features. It still does, of course, but what is the value of it? That’s the question. So interesting stuff there.

Yeah, San Diego, incredibly bad rent to value ratios – that’s why I want to be a renter. I looked at this high-rise condo today with an agent, I asked the agent ‘How much is that property worth?’ He goes ‘Eh, it’s probably worth about $800,000, it has a gorgeous view of the sunset over the water, the Coronado Bay Bridge, the baseball field, Petco Park – not that I care, but it’s what a lot of people what to see – and the city lights. It was nice, okay. Not very big, mind you, just a 2-bedroom, 2-bath place, maybe, I don’t know, how big was that one? 1300 square feet, something like that?
$800,000 value.  I could rent it for $4,000/month, that would be a 0.5 RV ratio, but wait! When you consider condos, you have to add another $90,000 to the value calculation. What do I mean by that? Here’s what I mean. The association fees for that particular condo I previewed today, that you don’t have to pay when you’re the renter, are a very meager  and nominal and reasonable $900 a month. Of course, I’m being completely sarcastic when I say that, because that’s a rip off! It’s outrageous. $900 a month! That means in our model, when you can get 1% of the value per month, you could by a $90,000 house in Memphis, in Little Rock, in Indianapolis, it’d be hard to do in Atlanta, but it’s certainly possible, in Dallas – even hard to do there, but it can be done, and you would get $900 a month for that. That’s just the price of your association fee on this stupid condo you would never want to buy. And in doing that, that basically makes it essentially an $890,000 condo, the way I’m doing the valuation kind of roundabout and backwards here. So the $890,000 condo (because that $900/month is a $90,000 house, you see how I’m doing that? I know it’s kind of backwards, but you get it) only rents for $4000 a month, and that’s less than 1% RV ratio, or Rent to Value ratio. That stinks!

I mean, if I’m going to invest $890,000, I want to get $8,900 per month, not $4,000 per month. It’s better to rent than buy, many times, and as you go up higher in price; I really looked at a swanky one too. Well, I didn’t actually look at it but I looked at the listing with the agent, because it’s leased right now so I couldn’t look inside. It’s at the top of the Omni Hotel here in downtown San Diego, and that place was gorgeous. I could rent that one for $6,000 a month. Most people would think ‘Well, why would you want to throw away $6,000 per month, are you crazy? You’re just throwing money away!’

But you’re not. Not at all. Because guess what? Owning that property would probably be upwards of a million 5, 1 million 6, and if I’m going to invest 1 million 5 or 1 million 6 and then I’m going to put on the association fee tax, the Homeowners’ Association Fee Tax, we’ll call it, ontop of that, that’s going to make it about 1 million 8 because I’ll bet you the association fees are $1500, maybe even $2000 a month for that. I don’t even know what they were, but believe me, they’re enormously high. If I’m going to do that, then I want to get $18,000 per month, and if I can live in that and get the use out of the property without any of the maintenance responsibilities for only $6,000 a month, I’m basically only paying one third of retail! It’s like a two thirds off sale! 66% discount!

You’ve got to live somewhere. The place you live is an expense. We all have that expense, unless we’re homeless, or unless we live with our parents. We all have that expense; we’ve got to pay to live somewhere. So the only question is do you want to pay too much or do you want to pay less? It’s counter-intuitive, I know. The real estate guy, your real estate guru that you are listening to and hopefully following his advice, yours truly thank you, is telling you that if you’re going to live in a high-end property, it’s almost always going to be a much better deal to rent it and to buy a lot of less expensive properties you can rent to somebody else.

So that’s that. I’ll let you know if I decide to actually do this move, but I would sure like to live here for free for a year, which is what the state of California is willing to do to pay me back. I think I should accept their gift, but it’s kind of contingent on what I find. More to follow on that, but isn’t it ironic, don’t you think? Yes it is.

Okay, falling mortgage rates. Wow. There is a revival going on in the mortgage market because mortgage rates are getting lower. Mortgage applications rose by seasonally adjusted 49% in the week ending January 9th from the previous week, and 30% from a year ago. All of those mortgage brokers out there, those mortgage originators, they’ve got to be happy about that because they’re probably making a bunch of money on loans. I remember when I owned mortgage companies; when we saw those rates go down, it was like you could re-fi the whole country again, it was ridiculous.

One of the warnings I gave you, dear listeners, is I told you we were going to stop recommending Houston. Now again, don’t panic. I own property in Houston, I’m not selling. If you’ve got stabilized property in a market, usually the best thing to do is just keep it and just sit tight and don’t panic. But if you’ve got a lease coming up for renewal in Houston, I would not be aggressive on any rent increases. In fact, I might not increase it at all. Because as I told you, there would be a round of lay-offs, and here we go right out of today’s Wall Street Journal – it says “Oil producer, Apache, to shed 5% of workers. Apache Corp. is laying off as many as 250 employees this week in one of the first major workforce cuts at an American oil producer since crude prices began to plunge last Summer.” And by the way, who predicted that? Yup, me. When everybody else was saying oil would go higher; well, not everybody else, obviously. Some people were probably predicting it also, but I thought it would go lower, and just like the bitcoin, it went a lot lower than I even predicted. It moved right through my prediction and went down even lower.

It says “The Houston-based energy company, one of the biggest in the US, pumps oil and gas in places from Texas to Egypt and employs about 5,000 workers around the globe. The workforce reduction amounts to roughly 5% of its staff, a company spokeswoman said on Wednesday evening.” So keep in mind that is something to look out for if you are in an oil-affected market, and boy! Am I glad that I’m not too impulsive and I did not recommend – even though so many of you kept asking me, and I know we could have made a lot of money recommending it!

North Dakota. Yup, didn’t do it. Competitors did it, and I have a feeling – because that really is a one-horse town – I have a feeling they’re going to be hurting bad, so hopefully not too many.. Well, hopefully nothing, but I know tons of investors went into those markets and paid a lot of money, way above the cost of construction, so regression to replacement cost isn’t even in the ballpark for them. Of course, if you don’t know what that is, we’ve talked about it many times on prior shows, that’s not even in the ballpark for those people because they paid two, maybe three times the cost of construction in that North Dakota market. We didn’t do that, we sat tight when everybody around us was throwing dollars in our face saying ‘Hey, you can make a lot of money doing this’. Eh, we sort of didn’t get around to it so I’m glad for that.

The interview with Aunt Joan; remember that one several episodes ago? Well, I asked our producer to go back and see if he could improve the sound quality because it was not up to par. Of course, it was an impromptu interview, Thanksgiving Day I got Aunt Joan to do it. I didn’t have my proper microphone set up and so forth, but you know, who was it? Abraham Lincoln who said ‘I’d rather see a crooked furrow than a field unploughed’. I always have said I’d rather do something imperfectly than nothing flawlessly. Well, you know, I had Aunt Joan there, I finally got her to agree to go on the podcast, I had my recorder without my microphones and I just used the internal recorder and it didn’t come out so great, but the content was good and the producer went back and he was able to get a new plug-in, a new little feature, a new little app and re-publish that show to where it sounds a lot better. Check that out, that interview with Aunt Joan, and you can see how my Aunt and Uncle got so rich buying and holding rental property for the long term.

Like I always say, I’ve been doing this many years, I’ve helped lots and lots of investors, I’ve seen the ones who tend to create the real wealth and the ones who are the flash in the pan. As I always say, the people who flip properties have spending money, and the people who buy and hold are the ones who create real long-term wealth. Which one do you want to be? That’s why I like the buy and hold; create the real long-term wealth.

The stock market has been nuts lately and you know, you adjust these numbers for inflation but still even with these peaks that the stock market has experienced recently – although it’s not lately. It’s been diving terribly! But it’s always an up and down, and who the heck knows what it’s going to do next, which is ridiculous. But even with that, when you adjust them for inflation, the stock market doesn’t even come close to income property. I mean, it’s not even a contest. That’s why I like to say that income property on its worst day, because it’s multi-dimensional, because it’s a multi-dimensional asset class, out-performs the stock market on its best day. I know that may sound like a leap, but if you really do the math and you look at the multi-dimensional aspects of the income property, I’ll bet you you’d agree with me.

So this roller coaster ride. You know, one of the things I think you’ve got to put into the cost of stock market investing is number 1: Most stock market investors have a guru. They pay a lot of money to the guru, they subscribe to a bunch of financial newsletters, they spend a lot of time reading about the market, reading the Wall Street Journal, Investors Business Daily, all those expensive financial newsletters and stock market newsletters they subscribe to, and I think it’s fair to say that one of the expenses – other than the ones I’ve already mentioned – of being a stock market investor are the expenses of the stress it causes you. They’re the expenses of the antacid you need to buy for your stomach, because these ups and downs, these emotional roller coasters. It’s really like a form of psychosis. It’s the total gambler’s mentality.

USA Today, on the cover of the money section today, it talks about these incredible crazy changes. I don’t need to read all this to you – volatility way up, stocks down. Of course, oil is down, ten year treasury note is down, etc etc etc. I don’t know why.. Even if the investment was just as good as income property, and it’s not even close, I don’t know why someone would.. Can you imagine someone who’s like a total stock market investor, if they’re married? The kind of marital discord they must have because of the stress it causes them. One day they’re in a good mood, the next day they’re in a terrible mood.

“Honey, what’s wrong?” “Ugh, the market’s down, this is terrible blah blah blah”. That’s no way to live! That is no way to live! Just go ahead and get yourself some simple little houses, rent them out. Yeah, you’ll have a few problems, you’ll have some ups and downs, certainly, but it’s nothing like the  stock market – the modern version of organized crime.

Another thing on bitcoin, by the way. There’s an article here in the Wall Street Journal. See, when I travel I read the newspaper; I actually read paper newspapers, I never do at home. But you know, the hotels always put them out in front of your door so you can’t help but look at them. So bitcoin’s rapid plunge is biting the miners. The bitcoin miners, those are the people that invested a bunch of money in buying servers and setting up the software to mine the bitcoin off the Internet. It’s the funniest idea ever. Bitcoin really is a brilliant construct; it is in so many ways. The fact that you can do virtual mining, and that’s how you create more money, instead of the way governments and Central Banks create money. Poof! They do it out of thin air. Bitcoin’s kind of poof! too, but it’s a little less poofy because you’ve got to run a software program and spend a lot of electricity running servers and a lot of Internet bandwidth that you’ve got to suck up to mine that.

Crazy interesting stuff. Alright, so I’ve been asking you for a while, and by the way, as typical as is usual, I’ve gone a little long with my intro portion, so this will be the show. On the next show, we’ll have our guest, Robert Carr. But I have decided that we need to scale to two shows per week. I’ve already gotten several complaints about this, including one from another listener, another Jason, and Jason, thank you for sending me this note, I do appreciate it. I have a solution for you. I know you don’t want me to go to two days a week, and several other people have told me that, but it takes a lot of time to come up with the content. Maybe you think my content’s terrible, I don’t know, but it takes a lot of time still to come up with the content, to record the shows, to publish them. Three episodes per week is weighing on us, it really is. But don’t worry! Do not fret because I have so many other shows out there.

Not only do I have 465 episodes of the Creating Wealth Show, but I’ve got all these other shows, not the least of which is my new Longevity and Biohacking Show that I have a feeling is going to be of tremendous interest to our listeners of the Creating Wealth Show because we’ve talked about longevity and its big, big implications on the economy, on the problem that we’re all facing which is too much life at the end of the money, okay.    We’ve got to learn how to invest for that and we’ve got to make sure we plan and we carefully execute our plan, but there are many things. You know, the Holistic Survival Show has some fantastic content. For quite a while, I haven’t checked the stats lately, but that was my number 2 show, the Holistic Survival Show. The tagline for that one is “Protecting the people, places and profits you care about in uncertain times”. Yeah, it’s more of the negative side, the doom-and-gloom side, but not completely. There’s a lot of great stuff there, we’ve got well over 200 episodes of that one you can listen to, we’ve got the Jet Setter Show where we talk about off-shore and overseas investing and asset protection structures. I haven’t been able to find anything that works better than what we’re already doing, otherwise we would recommend all of that, but anyway, still interesting and you’ll learn a lot listening to that show. I interview a lot of great people on that show!

If you’re interested in information marketing and entrepreneurship and publishing, maybe you’ve always thought you wanted to write a book, maybe produce a documentary, you’ve got the great American novel inside of you, my Speaking of Wealth Show, my American Monetary Association Show, my Young Wealth Show – there’s a whole bunch of other great content out there from the Hartman Media Company, so check it all out. If you like listening to me, you’ve got no shortage of my content. We’ve got well over 1600 episodes out there, so I’ll just share the note I got from Jason.
He said: “I wanted to let you know that I do not want you to reduce the number of podcasts that you put out per week. When you said that  on your podcast last week, I got a sick feeling in my stomach and I knew I needed to give you my opinion. If anything, I would like to see you add more episodes per week. Your Creating Wealth podcast is amazing. Please don’t change the way you conduct yourself on the show [so my bad behavior can continue! Thank you for allowing that, I appreciate it! – my little commentary there] – you have a great way of putting things and your variety of guests are second to none.”

Anyway, we’re going to go to two episodes per week, at least for now. It’s just taking so much time to publish three per week, it’s really hard to do, believe me. But we’re publishing a lot of episodes. The average episode frequency for all of the other shows, and I didn’t even mention all of them because we have 19 other shows that we do, is 1 episode per week. You’ve got loads of content out there, and just check it out. If you’re in iTunes, just go to the iTunes store and type ‘Jason Hartman’ and all the shows will come up. Stitcher Radio, SoundCloud, you can do it there too, so check it all out.

With that, I will say go to  www.JasonHartman.com, check out the properties; we’ve got some phenomenal properties up there for you. Oh, and many of you have been asking about the paper investments, land contract investing and so forth, which we of course presented for the first time at Meet the Masters last weekend. We found a few kinks in that system that we’re working out, and they’re not major because I think they’re pretty easy to work out, so more on that. There’s some Dodd Frank complaints and issues that need to be worked out; we’re working on that with the provider and we’ll get back to you with more, but I think that represents a great opportunity. Again, not as good as the real estate because the real estate, owning the physical property, has all of those multi-dimensional benefits, not the least of which is tax benefits.

Paper, investing in notes, trust deeds, land contracts, that scales pretty well, so more to come on that. Stay tuned and in the meantime, check out the properties at  www.JasonHartman.com. Of course, our blog and our free resources are there and all the great stuff, and we will see you on the next episode.