Announcer: Please note disclaimers at end of show. Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Costa Mesa, California. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman, with the Complete Solution for Real Estate Investors.
Jason Hartman: Good afternoon and welcome to Creating Wealth Show No. 108. This is Jason Hartman, glad you joined us today. You may have noticed we are getting the shows out a lot faster nowadays and we’re probably going to keep them coming at you one to two episodes per week. So keep listening in, we’ve got a lot of great shows coming up for you and a lot of pre-recorded content that we need to get out to you listeners. And by the way, I just wanted to say that I really, really appreciate all of the notes that you all send and you know constantly telling us how much you like the show. And that just makes us know that what we’re doing is a worthwhile endeavor and so keep them coming. We love the fan mail. Thank you very much. It’s very flattering and we’re glad to try and bring you the most current, most interesting look on the financial markets and ways to improve life in general.
By the way, speaking of that, we have published the first episode of The Holistic Survival Show, so be sure to check that out. HolisticSurvival.com and also on iTunes, just type in either Jason Hartman or Holistic Survival and we’ve got several shows there coming out as well. There’s a lot to look forward to, a lot of good content coming your way.
Business has really picked up a lot here at Platinum Properties Investor Network. Sarah, one of our investment counselors you’ve heard from on the show before, has helped seven clients purchase properties so far this week. And it really seems like things are picking up quite a bit, so that’s good news. We’re sure glad to see it and that means that you know in some of these markets I think we may have reached a bottom. I am definitely not thinking we’ve reached a bottom in some of the bubble markets yet. They’re still declining, but they are getting interesting as I mentioned a couple of shows ago. We’re really, really starting to look at California. We now have opportunities on our website at www.JasonHartman.com/properties in Phoenix. And Phoenix is a market that we haven’t recommended for quite a while now, quite a few years because it just got over inflated. But prices have come down quite a bit and I’m not saying every opportunity in the Phoenix metro area is good.
You still have to be pretty selective and we are. You know we’re buying in almost all of these markets we’re talking to you about. We own in them ourselves and so we’re putting our money where our mouth is. But we’ve come back into Phoenix a little bit and checked the latest and greatest opportunities there on our website. And we’re looking at Southern California, we’re looking at Northern California, too, and don’t have anything we can quite recommend yet. But I will say it’s starting to get interesting. I still think the California market is declining, but if you can buy right enough – meaning you’re getting stuff substantially below current market values, which there are some opportunities out there that look like that that we’re investigating for you. There may be some good opportunities there. So, check on the website www.JasonHartman.com and properties – specifically, www.JasonHartman.com/properties.
Our show today, we have Addison Wiggin who is I believe the No. 2 guy at Agora Financial. And they are the largest financial newsletter publisher in the world. So they have a very interesting take. It’s a rather gloomy take usually, or at least lately I should say, on the financial outlook. But, of course, in amongst all that gloom you know, every cloud has a silver lining. And that’s what we’re here to do is find the silver lining or should I be saying platinum lining for you. And we’ll talk about that and also a very interesting opportunity in South Carolina.
You may recall, I mentioned, a few shows back, I was in South Carolina a couple of times on different trips over the last few months, and I found something really interesting in Columbia, South Carolina. And we’ve been negotiating with the developer to get some significant discounts for you. These relate to student housing opportunities and you may have heard me say it before, I think the demographics coming at student housing over the next decade are phenomenal. Generation Y is going to school and they are renting houses while they’re in school.
And this opportunity is kind of a turn-key opportunity where you can get brand new properties, which is very rare that the deals are good enough on brand new properties any more. But these are brand new and they are student housing opportunities and student housing means that the cash flow is very high. And the usual reservations people have about student housing have pretty much been taken care of here. Parents co-sign leases many times, they’re full year leases. They’re not for nine months just for a school year. So you get income year-round. And these properties are very, very appealing to investors. So we’ll talk about that in a minute.
I have just a couple of quick announcements before we get into those two interviews on South Carolina and with Addison Wiggin of Agora Financial. Our Creating Wealth seminar is on August 15th here in Costa Mesa, California. Be sure to go and get yourself a ticket. We have quite a few people registered for that pretty far in advance for this one and we took the month of July off and didn’t do any events in July. So, we want to see you on August 15th. If you have to jump on an airplane to get here, we will comp your admission and admission for people that drive or walk or whatever to get here and you don’t take a plane and we’re not comping you, is only $97. So, obviously, we’re losing money on these educational events. We do them just to attract business and clients because we’re including breakfast, lunch, dessert – ice cream social in the afternoon and that’s $97 for you and a guest. So you can tell that’s a money loser right there, right, by the time we include catering and such?
And then we’ve got our Masters Weekend and that’s October 10th and 11th I believe. And that’s only twice a year. We’ve got experts flying in from all around the country. Be sure you register for that at www.JasonHartman.com/events – same with the other event. And on that page, you can also purchase the Do-It-Yourself Loan Modification Kit. Those have been selling rather well lately. And we’ve had some good feedback on them. So check that out and let’s go to the two interviews here. First one, let’s talk about the South Carolina opportunity and then we’ll go to Part I of Addison Wiggin. And we’re going to play Part II of Addison Wiggin on the next show. So let’s listen in.
Interview with Mary Lane & James – Columbia Student Housing Deal
Jason Hartman: I want to share with all of you listeners today a very unique opportunity, which has some fantastic demographics coming at it, and that is student housing. You know it has been said that Generation Y that it is moving into its prime rental years and going to college and doing all that stuff is the largest demographic cohort in American History – even slightly larger than the Baby Boomers. And we think that student housing has a very good future for the next decade. A lot of students now with the economy being the way it is are thinking of staying in school and getting that Masters Degree rather than getting out into the work force, because there just aren’t so many jobs like there used to be. So we think student housing has a very good future here and I’d like to talk to you about that opportunity and joining us today from Columbia, South Carolina, we have Marylane and James. Welcome to the show.
Marylane Hi, thanks.
James: Thank you very much. Happy to be here.
Jason Hartman: Good to have you. Marylane, why don’t you first give us an overview of the Columbia, South Carolina, market and, you know, I’m looking at our website at www.JasonHartman.com at the Power Point presentation that you did. And it looks fantastic. Tell us a little bit about the market and then we’ll go into the specific opportunity and the properties.
Marylane: Okay. Columbia has a really unique market. I really enjoy selling here for several reasons. We’re the state capital so we have local government. We’ve got a strong military presence. We have Fort Jackson, which I believe is the largest military training facility in the country. I mean they train over 50,000 basic recruits each year. But we also have the University of South Carolina, which is a major university. It is the state university, as well as some smaller colleges like Columbia College, Allen University, Benedict, Midlands Tech. We have a wealth of people coming and going. People are always going to need to come, move to Columbia because of the state and local government, the education opportunities, and the military. So you know it’s an exciting little city, lots to do, and we’re very centrally located. People like moving to Columbia because we’re only about two and a half hours from the beach and two and a half hours from the mountains. So, we’re very nicely located in the state and we’ve got all of the makings for a fantastic little market.
Jason Hartman: Excellent, well, you know when I was out to visit you I think it was, Marylane, what – about two months ago maybe?
Jason Hartman: When I was out to visit you, I was very impressed by Columbia. And then I came through Columbia again about a month later, although we didn’t catch each other on that trip, but just a very charming small city. I really enjoyed my time there. The East Coast people will say that’s where the real USC is.
Marylane: That’s right.
Jason Hartman: But us Southern California folks we kind of think the real USC is out here on the West Coast in Los Angeles.
Marylane: I know. I know.
Jason Hartman: We can debate about that. So tell us a little bit more about the economy, the demographics. I know you have a very strong renter pool there. I think over 50 percent of the population is renting. Is that correct?
Marylane: Correct. Yeah, I mean according to the last – well, let’s see, it’s 2009. Yeah, so 2008 study that came out 54 percent of the population is renting. And the highest age group that’s renting is between 19 and 25. So obviously, those are the people that are in school here. But you do have a lot of military families that rent as well because you know they’re here for basic and then they’re shipped out somewhere else. But yeah, we’ve got a huge rental population here in Columbia. You know, most people come here for the law school, the med school, the pharmacy school. They’re going to be here two or three years and then they’ve got to leave. So they don’t really want to buy a house because they’re not going to be here that long. So we do have a very strong rental market here in Columbia, which is one reason actually that we you know, that the housing slump, the mortgage crisis that everybody kind of got into, we didn’t really see it that bad here in Columbia for that very reason because if people couldn’t sell their house, they could rent it. We just have a very strong rental market here in Columbia.
Jason Hartman: So that always gives sort of a safety valve to the market against any major declines.
Jason Hartman: So the University of South Carolina is public. It has about 1,600 faculty members and about 27,000 students, I guess. And then you have Columbia College – 15,000 students, Allen University, Midlands, etc. – another 28, students there, Benedict College – you know really a good renter pool because these people just don’t buy and that makes for good things. What about the major employers? I mean you’ve got some health care there, of course government. We like government – it never goes out of business.
Jason Hartman: Although, maybe it should.
Marylane: That’s right. Yeah, we have SCANA, we have Palmetto Health Hospitals. The med school we have here brings in a lot of residencies. I’ve actually sold several houses to investors to rent to med school students lately because there seems to be a lot of people in med school. But yeah, we’ve got Blue Cross/Blue Shield.
Jason Hartman: Fort Jackson. Let me help you out here.
Marylane: Fort Jackson – there you go.
Jason Hartman: Palmetto GVA, Blue Cross you mentioned. And the Richland School District.
Marylane: Oh yeah, we’ve got two school districts that would be considered – Well, Richland One would be considered the downtown, but yeah, lots of schools and teachers; we’re always needing teachers.
Jason Hartman: What’s been going on there? I mean just sort of the anecdotal look of the market. I mean what have you experienced and noticed personally as a real estate agent in the area the last few years? You say it didn’t really have the downturn that some other markets went through, of course, and this is what we really like, is we like these linear markets that don’t have the big cycles up and down, where you can buy a property and just sit tight and wait and let time and inflation be on your side. What have been some of your observations?
Marylane: Yeah, we never really saw the highly inflated prices that I guess some other big cities saw, or that even they saw on the coast here in South Carolina. Columbia is kind of been the little engine that could. It kind of stayed its course. So when things started to crash, since we didn’t see the highly inflated prices, overall, we didn’t see the crashes either. We have seen a steady increase. In the past two years, it’s been a 3 percent increase and this year it was a 2 percent increase. But hey, it was still an increase, so I’ll take it. But it’s a steady little market.
I mean we have seen a rise in foreclosure. I’m not going to lie to you there. We have seen our fair share of rise in that, but not nearly the amount when you start looking at national levels that other major cities have seen. So, again, I’m going to come back to the rental market. I mean you just have a safe – people tend to feel like they’ve got a safe investment – especially buying downtown, close to the university, or out in the Northeast close to the military because they’re like well if I can’t sell it, I can always rent it. And that’s true. There is just a strong rental presence here.
So, people if they get in a pinch and can’t sell, they can usually rent and definitely rent enough to cover their mortgage payment. And we’ve seen, especially with this new tax credit coming out, a lot of first-time buyers snapping things up right now. And with FHA financing with only 3.5 percent down, a lot of people are buying under $300,000. Those things are flying off the shelves. The big boys are sitting a little bit longer than they used to. Anything over $400,000 is sitting probably on average 91 days on the market, where it used to be like 52 days on the market.
Jason Hartman: Over $400,000 in price?
Marylane: Over $400,000, yeah. But anything under $300,000 has held its own and been easy to sell and easy to move.
Jason Hartman: Moving really well. Let me just rattle off a couple things since you mentioned some statistics there. The total metro population of Columbia is about 716,000 people it looks like.
Jason Hartman: Median home price is about $157,000. Of course, it’s the state capital, as you mentioned, home to Fort Jackson, large college population, very steady housing market. It’s been called one of America’s most livable communities and the top mid-sized market for relocating families in the nation. And it was one of the first planned cities in the United States, boasting a gross domestic product or a gross metro product I guess you’d say of over $26 billion annually. Anything you’d like to say on any of those comments? I mean some real highlights of the area there.
Marylane: Yeah. I mean Columbia you know is a little hidden treasure. Like you said, nationally, a lot of people probably don’t know a lot about it. But within the past five years, it is starting to get some attention because it is a great little market. I think it was the Washington Post, that’s right, their Smart Money magazine, just a few months ago, rated Columbia in their top 20 best cities to invest in. So, we’re starting to pick it up. People are starting to notice our little city and starting to see that we’ve got three things going for us that make a strong real estate market. And that’s state and local government, a strong military presence, and education. And we have all three of those. And so we’re starting to get more of a national presence and I think it’s just going to continue to go up from here.
Jason Hartman: One of the big trends that I’m noticing around America as I travel and we research other markets is that there seems to be a big interest in these mid-sized kind of mid-tier towns or cities. I almost don’t want to call it a city, it feels more like a town, which is great because some people are talking about things getting really bad and who knows what’s going to happen. There’s a lot more safety in sort of these mid-sized areas where you don’t have to worry about the threat of terrorism. You don’t have to worry about the threat of civil unrest. That’s where the real doom and gloom type people because I have heard that stuff. And I notice there’s a move towards that. And even in Harry Dent’s latest book, he talked about that. He talked about how this sized city or town is becoming very attractive to people.
But drill down a little bit on the Fort Jackson, training about 50,000 basic recruits every year. That’s a 52,000 acre facility. What goes on there? I mean there’s a lot of – it employs over 5,000 civilians. Tell us more.
Marylane: Right. Yeah, the Fort brings a ton of people to Columbia. And the good thing for Columbia is some of those people when they get their orders they’re going to be here for two or three years. So they’ll go ahead and buy something. There’s not enough room on the Fort for them to house all the people that come there. But the other good news for Columbia is that some of the people get their orders and they’re there for basic training, which is you know six months to 18 months, and then they don’t know where they’re going. So they have to rent, they have no choice but to rent. And they take care of – the military tends to be good renters. They tend to pay.
Jason Hartman: Well, I want to comment on that. I have had military tenants, Marylane and I have been so pleased. I mean, just exceptionally good citizens, you know?
Jason Hartman: They pay the rent on time. They’re neat and clean. And just so polite and respectful and I have to say, I’ve been very pleased with my military tenants that I’ve had over the years.
Marylane: Yeah, absolutely. I personally have not had the privilege of renting to the military, but several of my investors have and they’ve had the same experience. They’re like, “I’ll rent to military any time! They’re great tenants.”
Jason Hartman: Yeah, they really are and if they don’t pay the rent, you can always call their commanding officer. Yeah.
Marylane: You can call their captain. That’s right.
Jason Hartman: You’ll have the rent the next day, no problem.
Marylane: That’s right, you know it’s just they train 50,000 basic recruits each year and I think I saw that it was like 14,000 family members come with them. So you’ve just got a flux of people coming every year to our little city who need a place to live and not all of them can afford to buy something, or even if they can, won’t be here long enough to make it worthwhile to buy anything. And so we’ve got a constant supply of folks coming in and out of our city that are needing a place to live.
Jason Hartman: Fifty-four percent rental population. Well, James, let’s talk to you a little bit about student housing because I am very bullish on student housing, as I mentioned at the opening here, for the next decade or so. I think student housing has a real good future and I think actually college is going to become less expensive as it should be, especially in the private world. I think they’ve been riding on a credit bubble there, too, and I think you’re going to see tuition rates get a little bit more reasonable, as they should, over the coming years. But tell us about the opportunity you have. When I visited, when I met you and I visited your community, I was first of all, very impressed with the charm. It was very charming. And for student housing, I thought, gosh, when I was in college I would have loved to have lived like this. But what is the real opportunity? What makes it so attractive?
James: Well, part of our concept and we like to think of it as the next evolution of student housing. All during the ‘80’s and ‘90’s developers built your traditional garden style apartments and we did a great deal of market surveys. We started at the University of Georgia in Athens, Georgia, and we did focus groups consisting of 50 students. We did four focus groups where we asked a whole litany of questions. And really what we found out is that about 70, 75 percent of the time students preferred to live in a house versus that apartment. There are a lot of reasons behind that – just more a sense of individuality. You know most apartment complexes you’re not allowed to grill or cook out because it’s a fire safety issue. You burn one you burn the whole complex. There was a whole litany of reasons – the green space that you get when you live in a house versus apartments.
So, we designed a community, which is a neighborhood. We’ve got 196 units here in Columbia and what we did is we took that neighborhood feel and we paired the amenities that you historically got only living in an apartment. You’ve got a clubhouse with computer lab, tanning beds, fitness center, theaters. We’ve got two pools, full court basketball, beach volleyball, putting green. We just have a whole list of amenities that are very attractive to students, to the young people, and they get the best of both worlds. They get a quaint neighborhood of cottages with all the amenities that one used to only get with the traditional apartment.
Jason Hartman: Yeah, fantastic and how do you rent to them because your company provides the property management as well for our investors? You know our slogan is “the Complete Solution for Real Estate Investors”. Well, you know, yours could also be “the Complete Solution for Student Housing Investors”.
Jason Hartman: Tell us how you rent to them and why student housing is attractive? I mean the cash flow is a lot better. Why is that? And I’ll let you tell the story.
James: Certainly – our aim is to create a passive investment for a real estate investment; people that want to own rental property, but don’t want to go through the headaches of actually managing because management can be intensive and that’s where we come in. We have a facility on site based out of the clubhouse, where we actually market, secure tenants, and then manage these tenants for the investor. So at the end of the day, it’s very easy. The investor gets their monthly management statement sent to them via email or traditional mail, and then they get their check sent via mail or where we’ve seen most people go is they prefer our direct deposit route. So, it’s just very easy for them.
You mentioned, I guess with Marylane, a number of issues earlier pertaining to student housing and why that is an attractive sector. In tough times history shows us that enrolment at these state-funded universities tends to increase. Like you said, students don’t want to get out of school and face a tough market, so instead they go for the Masters degree or the second major. And it pushes enrollment up. So student housing is just a sector that it is very stable. From a 30,000 foot vantage point, that demographic is a growing population and there are a greater percentage of people in that population that are now going to college.
Jason Hartman: So, you know the fear a lot of people have, I’m sure some people listening are thinking, “Oh, students; they’re going to be so hard on my property. They’re going to be having parties all the time and they’re going to beat it up.” What do you say to that investor? I mean, for example, I own student housing in South Carolina in the Bluffton area and I also own in Athens, Georgia, which is another area that you mentioned – University of Georgia. But you know, what do you say about the possibility of more wear and tear on a property with students?
James: Well, I guess just to begin with the leasing side. We have crafted a lease that is very owner/landlord friendly. It is designed in such a way that we can use it to enforce our rules and protect the investment of the property owner. We also have parental guarantees. We found that a good many of these students have their parents that are paying for their housing. So as a result, we actually have every parent whose child lives in the retreat, also signs a parental guarantee where that parent guarantees the amount of the lease and as well any damages that may arise.
Jason Hartman: Do you find any problems with that, though? Do some of them say, “Well, I can’t get my parents to guarantee it?” Or the parents won’t guarantee it? Do you lose some renters requiring a parental guarantee?
James: We have seen very little resistance to that. I’ll tell you most student housing communities have gone this direction. So on occasion, we get a student who says that they’re paying their way through and they have a little objection. If that is the case, they have to bring in proof that they make three times what their portion of the rent would be. But fundamentally, I’ll tell you that most student communities here in Columbia and really in all the markets where we’ve worked have gone to this parental guarantee system. So it’s something that they’re accustomed to hearing about.
Marylane: And I’ll tell you, I mean I own a small house over in Rosewood that I rent to students and I’m not in one of these complexes, one of these developments and I still make the parents sign the lease too. And I don’t have a problem getting it.
Jason Hartman: Okay.
Marylane: So, it’s just something that I think they just know they’re going to have to do it.
Jason Hartman: Sure. Okay, good. What about the other objection people might be thinking is year-round rental? I mean are they just renting for nine months of the year or ten months of the year? Or are they renting all 12 months? Do people have vacancies in the summer?
James: Again, that is something in the student housing industry that has become the norm is that we go – we’re at a 12-month lease. And most complexes have gone to that as well. We can’t call the bank and ask them to hold the mortgage for the summer. And occasionally, you’ll get a student that comes in and requests the ability, “Hey, I’m only going to be here during the school year. I’m studying abroad for the summer. Can I just sign a nine-month lease?” And that’s what I tell them. I say, “The bank is not going to hold my mortgage for three months so absolutely not.” And again, it has become the industry norm that student housing, people sign up and anticipate a 12-month lease. So that is a year-round lease.
Jason Hartman: Just out of curiosity, what happens in the summer? Even though they’re paying the rent, which is great, are a lot of the properties vacant? But you know you’re still receiving rental income as the investor? Or are people sort of hanging out there a little bit? Does the population decline? What happens?
James: Well, I’ll tell you; this is true both at the University of Georgia and the University of South Carolina markets we’ve worked in. Summer school is becoming more and more prevalent. What you see is the students, rather than taking full 15 hour loads in the fall and winter semesters, they prefer to ease up a bit. Take 10 or 12 hours each semester and then take summer school. So, we’re seeing about 65 percent occupancy, 65 to 75 percent occupancy during the summer. Again, I have to note that the investor gets the full 12 months, but in terms of just the population being at the complex, we’re seeing anywhere from 65 to 75 percent continued occupancy.
Jason Hartman: And what is the time where all the rentals are starting? Like is there a sort of more opportune time than others to actually buy the property in your development?
James: Sure, the way we’ve always structured it is the students tend to fall into cycles. They move in the beginning of the fall semester which is usually on or about August 1st and they stay throughout the year and move out at the end of July presumably, unless they’re choosing to stay in the community. If they’re graduating, they move on. But what we see is we have our investors close the end of July and then that sets them up perfectly for the students moving in at the very beginning of August.
Jason Hartman: Let’s talk about the way you structure your leases. You rent to individual students room by room, is that correct?
James: That is correct. We actually have done both. In cases where four friends come in and they’re very excited about the opportunity to be with us, as we often see, we give them the option of all signing on the lease together. And in situations like that, we like that because it gives a greater sense of security to the investors. What we do is we offer individual leases as well, but in all cases the parental guarantee backs the lease – so just to create a situation where we’ve got more opportunities for the students, we do both scenarios.
Jason Hartman: Okay, so when you do individual room rentals and let’s get to the specifics of this deal. Like, I’m looking at one on our website at www.JasonHartman.com/properties and you can really increase the cash flow renting room by room, can’t you?
James: You can and really what we’ve seen in five years of working through our concept, we’ve not seen a vacancy, which is kind of a ground-breaking expression. We deal in student housing and we’ve talked with developers across the nation, people in the finance industry across the nation – both on a large scale – Fanny Mae, Freddy Mac, full project financing, and individually with people that handle mortgages on individual units, and they’re all surprised by that system to have been in business for five years with 200 cottages in Athens, and nearly 200 cottages in Columbia and still having no vacancies. Again, it goes back to just the quality and nature of the product. It’s very unique to find a community of cottages – of houses that boast the type of amenities.
Jason Hartman: Yeah, and I would have to say that I really agree with you on the amenities. It’s a great concept you have. So this property is 1,836 square feet, $250,000, and here’s the really unique thing – $2,350 per month projected income with a positive cash flow of $60 per month. And that is so good because you’re renting room by room in a lot of these cases, right?
James: That’s correct.
Jason Hartman: What else do you want people to know about this?
James: I hate to continue to harp on the idea of this as a stand-alone home/cottage, but that’s really kind of what defines us. You know across the country and in college communities, there are condo complexes, apartment complexes and really not a whole lot differentiates one from the next – age perhaps, or who’s got the better rent deal, but there are no communities like ours out there. So the unique nature of this concept, being a community of homes, stand-alone, offering the kinds of amenities that we do, just creates a unique value.
Jason Hartman: Let me just read the comments here on this pro forma that I’m looking at on our website: five bedrooms, five bathrooms, the very best in student living, a private, gated community of craftsman style cottages, outstanding amenities and security features, first year leases guaranteed. Builder will pay $5,000 in closing costs and $2,000 in home-owners association dues, that’s the first 13 months. Anything else you’d like people to know about the characteristics of the deal? I mean this is 20 percent down, positive cash flow, and very high income for the price, and charming pictures, too.
James: I’ll say that the first stage of the development, which is 136 cottages, is 100% occupied. The second phase we’re fully leased. So again, we guarantee these rents for the first year, but historically, in a five-year term, we have not had any vacancies. And that’s just such a staggering statistic when you’re talking about rental property. You get outside of the student sector and that’s difficult. But being in the student sector, which is a very stable rental market, then being a concept as unique as ours, it just – the stability of the asset I think is the most profound expression of what we do.
Jason Hartman: Right. And in our pro forma by the way, we show an 8 percent vacancy rate. And you’re saying with history as our guide that will be a zero percent vacancy rate, right?
James: Yeah, that is absolutely what we’ve seen.
Jason Hartman: Yeah, so we’re being more conservative then?
James: You know we retain ownership of some cottages as well. I own a portfolio of my own and it’s just a great cash-flowing asset.
Jason Hartman: Good stuff. Well, this is an excellent product. I’d really encourage investors to call one of our investment counselors here at Platinum Properties Investor Network and discuss it more. It’s on our website at www.JasonHartman.com. Anything either of you would like to just say to kind of wrap up today?
Marylane: Well, I would think any investor if they took a look at the properties that you have on your website or just Google Columbia I think you’d be very surprised at what a niche market we have here for student rentals, for military rentals, and just for investors period. It’s a great place to invest and it’s a great time to invest. Money is cheap right now, so it’s a great time to swoop in and snatch up some good investments right now.
Jason Hartman: James, anything on your part?
James: If you’re going to invest, I think student housing is certainly the place to do it. You get all the indicators and our economy and our large picture from where our nation is going and growing, it’s growing towards these college communities. So it’s a great asset spot.
Jason Hartman: Excellent, well, thank you so much for joining us today and we appreciate the insight on the Columbia market.
Marylane: Great, thanks Jason.
James: Thank’s very much Jason.
Interview – Part I with Addison Wiggin of Agora
Jason Hartman: It’s my pleasure to welcome Addison Wiggin to the show. He is the executive producer of a movie that I recommended to all of you a while back, entitled I-O-USA, which is a feature length documentary and just has some great messages about what we face as a country and what we can do about it. And he’s also very involved as the editorial director and publisher of the Daily Reckoning, one of my favorite newsletters. And Addison, it’s great to have you on the show. Your biography is so long, I don’t know where to go with it.
Addison: Actually with the biography, I usually like when I’m going out to speak, after hearing it, I always think, “Who is that guy?”
Jason Hartman: He’s a pretty cool guy.
Addison: And then I realize I have to kind of live up to it and that’s kind of challenging.
Jason Hartman: Big responsibility.
Addison: You know it’s been interesting times, so there’s a lot to write about.
Jason Hartman: Yeah, no question about it, in the financial world, there is a lot to write and talk about nowadays. Give us your sort of overview and then we’ll kind of take it from there. And I want to explore what we can do about it to protect ourselves and all of the aspects. What’s going on right now?
Addison: Well, I’m glad you asked that question. Right now, at Agora, we’re getting ready for our tenth anniversary of our Vancouver conference, which is being held this year on July 21st through the 24th, and in connection with that we’re publishing a Tenth Anniversary edition of Financial Reckoning Day, which was a book that Bill Bonner, my writing partner and editor of the Daily Reckoning, wrote about – well, it’s about six years old, but it’s based on all the ideas that kicked off the Daily Reckoning in the first place. And I’m right in the process of updating that book right now and currently, even this morning, I was working on updating our Trade of the Decade. About ten years ago, we suggested that if you just made one investment decision every ten years, you could have increased your wealth dramatically.
In the ‘70’s, if you had bought commodities and sold at the end of the inflationary period in the early ‘80’s, and then bought Japanese equities and then sold those ten years later, and then bought U.S. equities and sold those when the market peaked in 2000, and then bought commodities and gold again in 2000, each one of those trades would have gone up about tenfold. And you know, you could make one decision every ten years and you’d do okay.
In the process of updating that Trade of the Decade right now, one of the forecasts that we made at the time is we weren’t sure how much the government’s response to the tech wreck in terms of lowering interest rates and cutting taxes as they said they were going to do – how much that was going to re-inflate the economy and sort of postpone the day of reckoning. And it looks like, in retrospect, they pushed off the inevitable for about seven years, until last year, when we had what we call at the Daily Reckoning, a world-wide crack-up boom.
All this money that they had been pumping into the system finally kind of cracked and markets, emerging markets, the commodities market, equities markets in the U.S. and of course, housing and real estate – they all crashed at the same time. That sort of pushed off – that was the first opening salvo of the Day of Reckoning, but now we’ve got another whole wave of deficit spending where they’re trying to re-inflate the exact same kind of consumer economy that caused all those problems in the first place.
So what we’re looking at, what we’re expecting is that in this war of deflation versus inflation, deflation is going to win for a little bit until the policy-makers get the right formula of stimulus to re-inflate the economy and then the inflation trade is going to take hold. The bet that they’re making here is, at the Fed and at the Treasury, is that once it does take hold, they will be able to reign it back in in time and be able to control it and harness it and allow a certain amount of inflation to let debtors pay off their debts. But at that point, we think it’s probably a bad bet to believe that they can rein it in. And we’re probably going to see a period of pretty aggressive inflation following this period of deflationary.
Jason Hartman: Some would say, Addison that the period of deflation has already ended. That the stock market has been propped up a bit, it seems to be somewhat more stable, and of course, that’s subject to inflation and deflation. And a lot of people are really – I’m seeing the inflation discussion all over the news media. And many people say that once you start to see it in such a pervasive way like that, it’s already here. And by definition, inflation is here. You know, printing money and creating it out of thin air of course. But in terms of the mind of the consumer, some would say we’re already into the stable period, the deflation has ended. What are your thoughts?
Addison: That’s an interesting argument, and we’ve been looking at it, too, but I think what we might be looking at and what we’ve been suggesting in the Daily Reckoning is that we’re in a classic “suckers’ rally” on the stock market. In the ‘30’s, for example, as they were putting together a similar type of policy mix, trying to combat the stock market crash from ’29 and the rising unemployment of the ’30 to ’33 period, the stock market rallied a number of times more than 30% on occasion and a few times above 50%. And that gets people re-excited about the economy. They think the worst is over and they kind of pile back into the stock market, and even consumer spending picks up a little bit.
But a lot of the deflationary trends that caused the crash in the first place are still prevalent in the market, like we’ve got a big crash in the Case Schiller Index of house prices around the country that doesn’t show any sign of slowing down. I mean there are a lot of influences on the economy that haven’t worked themselves out yet. So once this “suckers’ rally” or this period of re-excitement about the economy is over, we expect the stock market to find its way back to new lows and another wave of pessimism in the economy, which is going to bring about another wave of government stimulus. There’s a pattern at play right now that we expect to keep coming back for a number of years.
Jason Hartman: Yeah, I agree with you about this being a suckers’ rally and my number on the DOW has been 6,000 for quite a while now and I agree with you there. But in overall, towards the sort of consumer prices, it seems like all the stores have put everything on sale and everyone’s sort of used to that now, so it doesn’t seem to be getting any more significant. But regardless of whether the deflation period is over or not, I guess it depends on what you are looking at, when do you think we’re going to see inflation? I mean, are we a year away? Are we 18 months, two years away? What is your sort of view of that?
Addison: Well, I don’t obviously have a specific time period because there are so many things at play. It’s hard to tell when inflation is going to kick in in earnest. You look at the gold prices – we’re up at around $965 right now. And oil’s back above $60. It was at $66 this morning. Those are certainly indicators that inflation could be taking hold. But again, I think that we’re going to see those crack and fall again as another wave of pessimism circles the globe once again. It’ll be interesting to see when inflation really does kick in.
We’ve been watching closely the bond market because a lot of the government’s ability to print and try to spend their way out of the crisis right now is dependent on borrowing from foreign governments. And we suspect – Like this week in fact, there was a bond offering that caused interest rates to go up by a half a percent in two days. There was a dramatic amount of pressure from bond-buyers around the world who are now beginning to question whether the government will ever be able to pay any of this money back to get a higher return. And that pressure alone I think is going to cause an increased amount of pressure on policymakers to get the mix right. And it’s really hard to pinpoint when all of this stimulus and spending is going to really find its way in a defined inflationary period. But I still think that we are a little bit away from that.
I think that we’re going to see deflation for a number of years exerting itself on the markets. And the inflationists aren’t going to win. I think they will win ultimately, but they’re not going to win hands down for a couple of years – probably 2012 or so. And I will point out that in the book we’ve forecast back in 2002, we forecast that the DOW would be around 4,000 in 2012. And I think that that forecast is still relatively accurate-
Jason Hartman: Ouch. Wow.
Addison: -based on just almost anecdotal evidence that the DOW was at 3,900 at the beginning of the rally that lead to Alan Greenspan uttering the famous phrase, “irrational exuberance” back in 1995. And if you look at the charts, that’s roughly the trend line – somewhere around 3,900 or 4,000 – before the bubble phase begins in ’95 through 2000. And then you have a postponement of the bull market, as we had a short recession in the tech wreck. But then we don’t see a peek in the DOW until 2007. So if it returns to trend line, I think 6,000 is optimistic.
Jason Hartman: Okay. So, the first thing I want to ask you is why is China cooperating in this complete illusion that the U.S. can just create money out of thin air forever and letting us buy its products cheaply and sort of taking on these bonds that they probably think will be worthless? I mean, why would they do that?
Addison: Well, you know historically, since the end of World War II, U.S. Treasuries have been the flight-to-safety investment. They’ve been a place for foreign governments, foreign central banks, investors, individual investors, institutional investors to park their money, to store their wealth. And especially since about 1992, the Chinese have been buying US debt as this nice symbiotic industrial consumption relationship between the Chinese and the American consumers has been going on. They’ve needed somewhere to put their money.
Last year, during the credit crisis, they slowed their buying of U.S. debt and it scared the bejesus out of everyone. That was the “nuclear option” if they either decided to dump their U.S. dollar holdings, or even slowed their purchasing of U.S. debt, that it could dramatically impact interest rates in the U.S. But it’s not really in their interest because if they were to help increase the level of concern over U.S. debt right now, they’d be destroying their own store of wealth. There are a lot of rumors out there right now that the Chinese are secretly buying up gold and they’re buying up – They’re now the world’s largest gold producer and the government itself is investing heavily in mining in their own country. And they’ve made some public announcements about that same thing. But right now, there’s nothing that they can trade; there’s no wide-spread trade that they can execute in order to get their store of value away from U.S. debt and the U.S. dollar.
Jason Hartman: Okay, so Addison, I’d just like you to explain for the listeners that may not be exactly aware of that relationship. Basically, when other countries lose faith in our currency in whatever form it’s denominated, if they lose faith in the dollar and they lose faith in the thought that America will actually repay this debt, they stop buying it. The U.S. needs to pay higher rates to attract investment and then that means rates here become a lot higher. So mortgages get more expensive, auto loans get more expensive, etc. right?
Addison: That’s absolutely – that’s what happens. And in fact, we saw that dramatic event this week. Basically, the U.S. offers its Treasuries, its bonds on the market at auction. So they have to raise the money that they need to keep up bail-out plans and just the day to day operations of the government. We’re running a trillion dollar deficit now. They need to raise that money somehow. And they get it through auction. If no-one’s buying it, they have to increase the interest rates in order to attract buyers. And we haven’t seen anything really truly dramatic. This week, as I said before, interest rates rose by half a percent in two days, which is – it’s a big move in the bond market. But the threat out there is that it could – you know, we’re not really in charge of our financial destiny any more. If people really do get scared that the government won’t be able to pay off those bonds, the interest rates in this country could go up dramatically. And for a country that’s addicted to credit, addicted to debt the way we are, that’s just a really precarious situation to be in.
Jason Hartman: See? That’s what I say is the big opportunity here. There are a couple of big opportunities in this crisis. But one is to acquire debt assets, cheap long mortgages for three decades at these low rates because I just can’t imagine that they can possibly keep rates this low. It is a game of smoke and mirrors. There is no way they can stay low like this.
Jason Hartman: I remember in the ‘70’s when we saw mortgage rates at 19, 20 percent in the late ‘70&8217;s, early ‘80’s I guess it was really. It was crazy. People on their money market accounts were making 19 percent.
Addison: Well, I think those days are coming back. And you know that has been the one dividend that favors people who are prudent with their money over the past decade or so. That’s been the one dividend is that you can lock in at low, low interest, historically low interest rates. Most people say when the government tries to inflate the currency, that savers are the ones who get punished the most. Well, the policymakers attempt to battle deflation and get interest rates low has given a window of opportunity for people who have cash and can refinance at long rates, or want to invest and lock in low rates for 30 years or so, a real opportunity, as long as you’re not dependent on those loans to keep your livelihood up, which many Americans are. But for people who are in a pretty sound financial situation, locking in at low rates is a good opportunity right now.
Jason Hartman: Yeah. No question about it. And what do you say for commodity prices? You probably think that precious metals are going to increase in price quite a bit. What do you think about oil, construction materials, that kind of stuff?
Addison: Well, even in this spring, in this very small re-inflation attempt that the government has been engaged in, just this past month of May, we’ve seen the highest increase in the CRB, the commodities index, since 1974. So, if, in fact, they’re successful at re-inflating the economy over the long term, I think the direct beneficiary of that will be commodities, construction materials, many of the things that were in an inflationary trend last year. I think we’ll see the return of that. But again, I don’t think that that – like the May’s rise in the CRB index is something that’s going to hold right now. It’s going to come back stronger later. But I think we’ll see a short blip here and then a little bit down the road, we’ll get the real inflation that will benefit commodities and resources.
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Duration: 53 minutes