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Conclusion: Nothing Lasts ForeverThe continued economic downturn has left many with a feeling that the doldrums of depressed real estate prices and low interest rates will last indefi nitely. However, it is most certainly true that nothing lasts indefi nitely. Growth phases do not last forever, and neither do downturns. There are many indicators pointing toward a slow and elongated economic recovery, but there are just as many indicators pointing toward a rapid escalation of interest rates when the enormity of the U.S. government’s fi nancial irresponsibility is fully internalized by the marketplace.

At some point, investors will cease to accept low rates of return on U.S. treasuries that are being de-valued by government policy. When this happens, it will vault interest rates upward and be amplifi ed by the additional borrowing necessary to fi nance the continuing government defi cits. The window to act where both prices and interest rates are at historic lows is open right now. There is no way to know when this window will close, but when it does, it will close fast. Make sure that you take action before the opportunity of a lifetime passes you by.

In This Issue:

• The origins of bubbles.

• Groupon - it’s hip, it’s popular, it’s everywhere. But is it a good investment?

• Why you can’t have economic recovery without more jobs.

• Why Washington can’t buy a recovery.

• The good, the bad, and the ugly (and it sure can be ugly) about HOAs.

Volume 11, Issue 7 $197 annually e-mail, $297 print

www.JasonHartman.com

The Province of Fools - The Bubble Machine Page 1

Reasons For the Home Price Collapse Page 6

Groupon vs. Income Property Page 1

Who Gets the “Big Kid”Returns? Page 4

No Jobs, No Recovery Page 5

Property Performance Projections Pages 8-9

2011 Income Property Forecast Page 10

Groupon - Boon or Fail for Small Business? Page 13

New Ways to Market Your Home Business Page 12

Strategic Default: Now Banks are Doing It Page 14

Nothing Lasts Forever Page 16

Federal Money Can’t Buy a Recovery Page 7

HOA Fees - The Good, The Bad, and The Ugly Page 10

PP Product Listing Page 15Contact an Investment Counselor today! 714-820-4200 or www.JasonHartman.com

Groupon vs. Income PropertyThe recent fi ling an S-1 document by Groupon for the purpose of an Initial Public Offering has led to many people speculating about the value of the company, especially in the wake of Google’s $6 billion dollar acquisition offer that Groupon refused. When their stock lands on the exchanges, many expect it to be an extremely hot item since many people are anxious to own a share of the rapidly growing company. This fi ling has come on the heels of IPOs and IPO rumors from companies such as Facebook, Twitter, and LinkedIn that has led many to believe that a second wave of the technology bubble may be emerging.

The key characteristic of the technology bubble in the late 1990s was excitement over proliferation of the Internet, and its potential to change business models. The predominant paradigm at play during this market frenzy was a belief in growth at all costs. Companies were formed and investments were made based on the belief that whoever was fi rst to create a viable Internet marketplace would reap the lion’s share of the fi nancial rewards. Since this growth paradigm generated tremendous losses for companies participating in the frenzy, many new measurements were concocted to cover up the fact that loads of investor capital was being burned by these new companies.

(continued on page 3)

The Province of Fools – Anatomy of the Bubble Machine Part Two of a Three-Part Series

When examining market bubbles, it is critical to understand exactly what they represent. Fundamentally speaking, a market bubble emerges when expectations about the future growth for a certain asset grow so high that people sacrifi ce future production and consumption for the sake of investing in that asset. This was the case for tulip bulbs in Holland, technology stocks in the 1990s, real estate during the early 21st century, and possibly gold today.

The importance of this insight comes from a deeper understanding of what free markets naturally do, and how bubbles distort this necessary function. The most critical role of a free market is to allocate capital to its highest and best use through investors seeking the best (risk-adjusted) rate of return on their capital. Thus, in a normal market situation, businesses and investments with the best fundamentals and highest prospects for real growth will be the ones that attract the most capital.

However, there are many situations where public policy either directly or indirectly creates market bubbles. When the tax or regulatory status of a certain investment class is artifi cially altered by the government, it can create a bubble (tax credits for politically favored companies and industries, for example). When government policy makes fi nancing artifi cially easier to obtain than would have been possible in a free market, it creates a bubble in assets that are purchased with fi nancing due to a fresh infl ux of buyers (this is literally what created the real estate bubble).


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Welcome to the Platinum Properties Investor Network, THE source for innovative, forward-thinking investment property strategies and advice. Founder Jason Hartman spent two decades developing The Complete Solution for Real Estate Investors™. Jason appears regularly on television and radio, at speaking engagements, seminars, and with his ultra-hot Creating Wealth podcast. The United States is made up of over 380 unique market areas. This makes it perhaps the most diverse property market on the planet. Yet the news media continues to refer to the U.S. real estate market as a single entity that moves through stronger or weaker cycles. We realize that this phenomenon is the result of thirty-second T.V. time slots that generate systemic oversimplifi cation. However, real estate cannot be described that simply. There is NO such thing as a United States real estate market. Every single local market presents unique risks and opportunities.

FinancialSelf-Defensein Uncertain Times

“Your future is created by what you do today, not tomorrow.” - Robert Kiyosaki

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In the case of the technology bubble, it represented the intersection of the Internet moving into the technological mainstream, and an infl ux of venture capital that perpetuated valuations upward as multiple online entities all attempted to dominate their respective market niche by incurring substantial losses for the sake of growth. Each player in the marketplace spent signifi cant investor resources, signed leases, bought equipment, and made other expenditures in anticipation of future profi ts. Unfortunately, ten companies cannot dominate the same market niche. This means that the (many) entities who failed to meet their growth and profi tability projections went out of business. This phenomenon resulted in a sudden halt for technology demand that rippled out to the broader economy.

Analysis of the NASDAQ 100, Case-Schiller 20 index (with leverage) and gold prices over time tell a very distinctive story. From Q3’95 through Q1’00, the NASDAQ 100 increased by 450%, but by Q4’02 all of those gains had been lost. From Q3’03 through Q1’06, leveraged real estate returns increased at an even faster pace, but began to downslide in 2007 and were accelerated by the fi nancial crisis of 2008. When gold is added to this chart, it tells a very similar story. Starting in Q1’01 through the end of 2010, gold has risen by over 500%. The course of past bubbles has been one of rapid escalation followed by an equally rapid collapse. Gold has been increasing in price considerably over the past few years, and some are even beginning to proclaim the emergence of a new paradigm where gold perpetually escalates in value. Coincidentally, this is almost the exact same rhetoric used during the technology and real estate bubbles that subsequently burst and defl ated. Only time will tell the future of gold, but it is showing many features that are similar to past bubbles.

As we can clearly see, the incidence of bubbles principally occur when something artifi cially skews incentives for market players and investors. In this situation, people perceive future profi ts based on artifi cial market movements. This shifts resources from other uses with greater rates of real productivity toward things like building more housing. This artifi cial shift escalates prices as people bid-up values for resources and end products. To the bubble market players, this appears to be evidence that a new paradigm is emerging, since prices are moving up and people are making lots of money. Of course, the point ultimately comes where new buyers cannot be found who will pay higher prices – and the value collapse ensues. The people who are in at the beginning of a bubble make money like bandits. However, the folks who enter too late end up paying the price for those profi ts captured by the early movers. No value is created…all of the profi ts from early movers come at the expense of late entrants.

At the end of this cycle, we end up with many entities going bankrupt and a large amount of de-valued product from the bubble collapse. In addition to the direct losses that bubbles create, there is an even more dangerous effect. This effect is the lost productivity from capital that was taken away from more productive uses and spent in pursuit of a market bubble. Every person who chases quick money instead of fundamental value plays a small part in suppressing the nation’s long-term economic growth. Every bubble that rises and crashes destroys future growth by siphoning capital away from more productive use.

As individuals, we are in the unfortunate situation where our actions cannot directly stop bubbles or change the course of public policy. However, we can ensure that our own activities are engaged in the pursuit of fundamental value instead of market bubbles. As businesspeople, this means avoiding fads or get-rich-quick schemes. As investors, this means focusing on providing real products and services that provide real value to real people. It means focusing on activities that generate real cash fl ows, instead of staking all of our returns on future value appreciation. When value appreciation is the only driver of your profi ts, you will be subject to sudden and unpredictable shifts in market sentiment that have the potential to destroy your investments.

Action Item: Avoid the allure of bubbles and pursue fundamental value in all that you do. This will allow you to side-step the “quick buck” mentality that dominates fi nancial media and leaves many people devastated by collapsing bubbles.

The Province of Fools – Anatomy of the Bubble Machine (continued from page 1)

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Subscriptions: E-mail $197, Print $297 AnnuallyProduced by: The Hartman Media Company, © Copyright 2011.

Reprint rights and interviews available with permission, please e-mail [email protected] publication is designed to provide general advice and education concerning real estate for investment purposes. Nothing contained in this publication should be considered personalized investment, legal or tax advice. Every investor’s strategy and goals are unique; you should consult with a licensed real estate broker/agent or other licensed investment, tax and/or legal advisor before relying on any information contained in this publication. Please call (714) 820-4200 and visit www.JasonHartman.com for additional disclaimers, disclosures and questions.

Banks Are Choosing Strategic Default AlsoWe 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. Say what? 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.”

There you have it. The article goes on to say that 1,896 properties have been abandoned by Chicago-area banks using this method. Furthermore, 57% of these vacant properties have not even been registered with the city. So much for being good neighbors. The interesting twist to the scenario is that, since the foreclosure was never consummated, the borrower still owns the home and is responsible for maintaining the property, and paying the debt and taxes. Neighborhoods are not being notifi ed either, so are delayed in taking action to do something to prevent the property from becoming an eyesore.

Something else that caught our eye in the You Walk Away blog was that CEO and blog author, John Maddux, went out of his way to suggest that, for the fi rst time in modern history perhaps, homeowners walking away from an underwater mortgage were doing the right thing. It’s interesting what we have come to view as “right” in this country. Last time we checked, a mortgage was a legal contract, signed of the borrower’s own free will. So now, in the view of Maddux, it is right to walk away from a legal obligation. His reasoning is that the big, bad fi nancial industry caused the problem, so all bets are off.

We don’t deny that it makes fi nancial sense, in many cases, to abandon a mortgage but to do so proudly while blaming someone else for your own poor judgment is sort of incredible. What happened to personal responsibility? It’s one thing if the contract was illegal in some way, but something else entirely if you’re just bailing out. Go ahead and leave if you want – but it’s nothing to be proud of, Mr. Maddux.

Groupon vs. Income Property (continued from page 1)

To wit, Groupon has made sure to place emphasis on metrics such as Free Cash Flow, and something they call Adjusted Consolidated Segment Operating Income, or Adjusted CSOI. Neither of these metrics are part of Generally Accepted Accounting Principles (or GAAP). Their “Free Cash Flow” measurement looks at operating cash fl ow with purchases and acquisitions removed. Many of these purchases are necessary parts of operating a business. The “CSOI” metric examines profi tability from existing subscribers/customers, but ignores the cost of acquiring customers, equity compensation, and taxes.

As we can see, the measurements Groupon uses to evaluate itself leave out many signifi cant costs that the management wishes to gloss over when selling a growth story to investors. Groupon’s value proposition comes from being a large-scale player … however, that large scale comes with large losses. In contrast to this are the small-scale profi ts that come from otherwise boring investments such as income properties.

Large-Scale Losses

• High growth and high spending that produces large losses to purchase large revenues. • Requires regular infusions of investor capital to keep the spending binge going. • Lots of media attention will attract wide-eyed investors who expect that the stock will remain “hot” forever. • Eventually, investors will tire of continuing to fund a money furnace. • The early movers and insiders will cash out long before the bubble bursts.

Charting out some data from the Groupon SEC fi lings shows a very interesting trend. Groupon’s gross profi t per Groupon sold is very important. This represents the amount of money they actually see after paying the vendor their share. This amount has been very fl at over time. However, the total spending of Groupon divided by the total number of new customers shows a startling trend. Groupon must spend an ever increasing amount of money for each new customer that it acquires. This does not bode particularly well for its long-term profi tability. Astute investors should be wary of what this trend means for the future of their equity stake.

In contrast to the large-scale losses from a “sexy” enterprise like Groupon, you have the small-scale profi ts of an “un-sexy” investment such as income property. These two classes of investment differ in almost every fundamentally important way.

Small-Scale Profi ts

• Very little media attention – the fragmented market means that there is no money for people like Goldman Sachs to securitize things like income properties and market them to the general public. • “Day one” profi tability combined with stable cash fl ow and low to modest growth makes things like income property less appealing to the general public who prefer “dynamic” investments. • The power of time works in your favor, instead of against you. Instead of timing the market just right to avoid a bursting bubble, you can ride out market cycles on the back of strong cash fl ows and sell when values are optimal.

The contrast is clear…Groupon and all of the other associated “hot technology” stocks showcase lots of media attention, a sexy story, and large losses that grow with each passing year. Income properties offer small-scale, fragmented profi ts that keep them away from investment banks such as Goldman Sachs. For investors who are disciplined and astute, they offer a unique opportunity to grow personal wealth in an optimal manner.

Action Item: Resist the temptation to chase after “hot” stocks with high rates of growth that burden investors with large losses. Discipline your mind, and stick to fundamentals when other people are chasing bubbles. This will place you in a position to take advantage of opportunities that emerge when the bubble inevitably pop. Focus on consistent, sustainable profi ts that will allow you to build long-term wealth.

The Good

We’re not here to claim that every single HOA sits at Satan’s right hand. In theory - and in reality in some places - the fees are a fairly innocuous presence that do contribute to the overall upkeep of the neighborhood. From QuickenLoans.com, we have a list of costs that are traditionally covered by your HOA payments:

• City services – including services such as trash removal, water and sewage. • Insurance - this only includes insurance for damage of the outside of the building and the property around it. You will still need an individual insurance policy to cover everything inside of the condo. • Lawn care - this includes snow removal, gardening, and general lawn maintenance. • Pest control - most HOAs schedule a monthly inspection from a pest control company in order to avoid pest infestation. • Maintenance and repairs to the outside of the building - this includes things such as roof leaks, exterior painting, driveway pavement repairs, etc. It also covers the costs of gym or pool maintenance, if applicable.

Doesn’t sound terribly onerous, does it? Actually, kind of nice to not have to worry about these types of things that degrade the overall home value in the subdivision when left unattended. Sometimes fees go to build and maintain common facilities like swimming pools, basketball courts, or golf courses.

The Bad

The bad is when a homeowners’ association goes power-mad and becomes a band of little despots who live for nothing more than the opportunity to fi ne old man Jones because he waited until the grass in his front yard was three inches high before cutting it. After all, HOA rules dictate grass must never be higher than 2.5 inches. See where the potential for trouble comes in? HOAs legally can and do levy fi nes as proscribed in the bylaws that are every bit as enforceable as if you received a speeding citation from a member of the local police department.

The Ugly

What happens if you decide the infraction you’ve been fi ned for is silly and you don’t want to pay it? Be careful. Be very, very careful. There have been cases where fi nes were allowed to mount into the thousands and tens of thousands of dollars until a vengeful HOA board placed a lien on the property and eventually foreclosed on the basis of unpaid fi nes. Don’t laugh. It can happen. It HAS happened. The message here is to take the prospect of joining a homeowners’ association quite seriously and be absolutely sure you can live with the rules. If not, keep on searching – and don’t even think about buying in that neighborhood.

HOA Fees - The Good, The Bad, and The Ugly (continued from page 10)

“Invest in places that make sense so you can afford to live in places that don’t make sense.” - Jason Hartman


When most people think about investments, their minds immediately drift to vehicles such as mutual funds, hedge funds, bond funds, REITs, and other methods of pooled investments that are either managed or pegged against an index. Many noted academics such as Burton Malkiel have rightly observed that most active managers fail to beat the market portfolio, and that it is optimal to simply purchase the market portfolio at the lowest cost possible.

However, there is another aspect to consider in regard to pooled investment and investment funds. This factor is that large pools of capital can only pursue large investments. Upon deeper analysis, this reveals that anything which cannot be scaled into a large-scale portfolio will necessarily be overlooked by any aggregated funds or indexes.

In many cases, there are small, fragmented opportunities where investors can capture very high rates of return, but are not scalable into pooled investment funds. Examples of this phenomenon are single-family income properties, and small privately-held companies. These investments are too small to be captured in indexed portfolios, so the high rates of return that they can produce accrue only to those who invest in them directly.

Thus, it becomes true that “Big Kid” rates of return only go to direct investors. Anybody who trusts a fund manager to select investments on their behalf places themselves at the mercy of that manager’s decisions. In addition to this, consider that most fund managers are compensated by receiving a percentage of the fund asset base. Because of this, their incentive is to attract new investors, which grows the capital base, and makes it impossible for them pursue anything outside of large-scale opportunities that typically produce only average rates of return.

When constructing your personal investment portfolio, there is probably a place for pooled investments such as the market portfolio. For the portion of your investments where you are satisfi ed with the “average” market rate of return and don’t want to babysit the capital, the market portfolio can be optimal. However, if you are seeking to achieve rates of return that the “Big Kids” like Donald Trump and Robert Kiyosaki talk about, it isn’t going to happen in a mutual fund or REIT. Only direct investors can achieve these levels of returns.

The rub is that being a direct investor requires much more research, courage, and discipline than purchasing a pooled investment. By taking the effort to become educated, developing the discipline to follow fundamentals, and fostering the courage to act, these returns can be yours. It all comes down to what efforts you are willing to make for the sake of your fi nancial future.

Action Item: Develop the knowledge, discipline, and courage to become a successful direct investor so that you are able to capture the rates of return that are out of reach for “average” investors.

“Big Kid” Returns go to Direct Investors Groupon - Boon for Business or Epic Fail?Most people who have not been taking up residence in a cave are aware of Groupon, the Web’s #1 group buying site and fastest-growing company ever. The notoriety of the company grew even greater when it turned down a $6B takeover bid by Google. Many consumers are aware of the extremely low prices that are available through Groupon daily deals, but there is a basic problem implicit in its business model that may sow the seeds of disaster for the small businesses that Groupon depends on for its revenue stream.

The Groupon business model is relatively simple, but quite powerful for generating revenue. The company sends out daily deals to its massive list of subscribers. Those deals are from local businesses offering discounts that are typically in the range of 50% or more off of the

retail price for their product or service. The way that Groupon earns revenue from this is by collecting a share of the revenue that small businesses receive from their group advertisement. Typically this fee is on the order of 50%.

The way that Groupon sells its services is by positioning a win-win proposition where local businesses get to attract a large wave of customers, and Groupon earns half of the discounted revenue stream. This basic concept has vaulted Groupon to the heights of media stardom. However, there is a secondary effect of the Groupon business model that could spell disaster for local businesses and potentially for Groupon itself. These dangers fall into two principal categories: the fi rst is dead weight advertising, and the second is small business commoditization:

Dead Weight Advertising

Doing the math concerning Groupon’s business model shows a startling fact for business owners namely that offering a 50% discount on your services and then paying half of that discounted amount to Groupon means that you will only be left with 25% of your normal retail price. In many businesses such as restaurants or other competitive business segments, this is not enough to cover variable costs, and each Groupon customer results in a loss. Thus, discounts through Groupon end up acting like advertising with a super-low sale price. Typically, the desire on the part of business owners is to attract customers who will come back for a string of repeat business.

Unfortunately, what frequently happens is that the people attracted by Groupon are aggressive deal-seekers who will simply move on to the next low-priced promotion when yours is fi nished. In this way, Groupon can become “dead weight” advertising, because it accomplishes nothing but attracting people who would not otherwise pay full price for your products or services. In this case, the business would have been much better served with traditional advertising that emphasized the value of their offerings so that the people attracted to your business are those who will pay a higher price than what Groupon shoppers have come to expect (and in some cases demand).

Small Business Commoditization

The extended impact of the group buying phenomenon exemplifi ed by Groupon is the fact that small business services have become commoditized. With a consistent volley of deep discounts in people’s inboxes from Groupon and all of the other group-buying services, customers have become trained to expect substantial price reductions from small business vendors. Thus, the “repeat customer” who previously came back regularly is now asking if you can meet the price of a competitor who is advertising a special deal through Groupon. In this way, the extremely low prices funneled through Groupon have lowered the perceived value of small business services for customers.

Ultimately, this has become a textbook example of classical pricing theory…namely the dangers of deep price discounting to increase volume and grow market share. When you establish a precedent of discounted prices, it lowers the customer’s perception of your product’s value. You can most certainly gain more volume from discounts, but that additional volume results in lower profi ts. Furthermore, most businesses fi nd that if they attempt to start walking their customers up to previous price levels, they will begin to leave for competitors.In the end, success as a small business is (and has always been) about providing a product or service that your customer values more than the price you charge. This creates a perpetual win-win, where the customer receives a product or service of value at a reasonable price and the business owner receives revenue that generates profi ts after the operating costs have been paid. Attempting to short-cut this process through business fads like group buying at deep discounts can spell disaster for small businesses.

As time goes by, there is a risk that this small business disaster could become a Groupon disaster if enough businesses decide to stop offering their services through Groupon and the quality of their deals deteriorates. As the deal quality declines, there will be less transaction volume and lower profi ts. If the trend continues too long, we could end up with a future Harvard Business Review case study for MBA students, warning them of the dangers implicit in trying to short-cut the ladder to success.

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Four Marketing Strategies Your Home-Based Business Should Implement Immediately

Sales and marketing tactics in business have drastically changed from high-touch, personal relationships to content creation and other educational methods to deliver a business’ value proposition. Those who aren’t adapting to the new methods will undoubtedly be left behind in what has become a digital media business environment.

Anymore, it is a challenge to cold call a decision maker. Gatekeepers are impossible to get through, and the fact is, through technology, it is incredibly easy to screen calls. Cold calling is no different than walking into a building to get a face-to-face with a decision-maker; low probability and a poor use of time.

Technology reduces cost of marketing in most cases; in fact, for a home-based business, technology enables a person to begin selling a product or service almost immediately with little cost.

We have defi ned four marketing methods that any home-based business can use to build a brand following and sell its product or service:

Search Engine Optimization

Almost always, those seeking a product or service will do some web-based research to fi nd a business delivering what they need. People who go through this research process head to the search engines, type in a set of keywords and fi nd a business that sells the product or service they seek. As a business, the goal is to show up on the fi rst page, if not the top three spots. This is done through a practice called search engine optimization, or SEO. In simple terms, it is a process of content creation, writing Meta data, friendly URLs and back-linking to a website all while using specifi c keywords to describe what is on a particular page. Websites who use on and off-page SEO best practices almost always see higher traffi c and a lower bounce rate within a few months of implementing.

Podcasting

Providing educational content for free to your target market is the ultimate no-pressure way to gain interest in your topic and services. Podcasting is typically formatted in a few different ways to reel in followers, often times in the format of an interview or discussion about a particular topic for each episode. Podcasters fi nd that after creating multiple episodes with high-value content, they have developed a following for their brand, and they will also increase their web presence.

Question & Answer Boards

Surprisingly, a lot of people still use discussion forums to ask questions and talk about topics they are interested in. A great marketing strategy is to fi nd discussion forums around a topic that aligns with your expertise and answer questions people have. Make sure that every time you submit a question or response you include a signature containing a link to your business website. This is a great back-linking strategy for SEO, but more importantly, it allows the people in the conversation to fi nd more resources at the website, which can lead to more customers.

Speaking Engagements

This is not technically an online marketing strategy, but you can sure leverage it into one! Get started by scheduling free speaking engagements at a local chamber of commerce, schools, and other places where your target customers typically hang out. Speaking for free on certain topics can lead to more followers of your brand and will give you the opportunity to spin it into a web-marketing strategy through webinars, press releases, video clips, and other forms of content creation.

No Jobs, No RecoveryThe recurrent news stories about the current economic “recovery” have begun to wear on many people. What the population at large is beginning to wonder about is jobs. Specifi cally, why the employment situation is still so diffi cult in a “growing” and “recovering” economy. Each month, jobs reports are released by the government that articulate estimates about how many net jobs were gained or lost. Naturally, the political authorities overseeing the current anemic economy quickly jump on any increases in employment as evidence of success for their policies. However, it turns out that simply analyzing raw numbers does not paint a full picture of the economic situation.

What the government press releases fail to articulate is the growth in jobs relative to the growth of the population. This is the real barometer of whether the economy is moving toward or away from prosperity. For

the purpose of our analysis, the population of people aged 16 and above is the most relevant comparison for the total job growth, since these are the people who are eligible to work. When analyzing this trend over time, it becomes quickly apparent that the current recession represents a level of job destruction not seen since the Great Depression. Past recessions have resulted in net annual job growth that failed to keep pace with population growth and occasionally dipped negative for a single year. However, the past few years have seen massive net job destruction that has yet to show signs of reversal.

When analyzing the net difference between job growth and population growth, it shows a long-term trend of relative expansions and contractions where jobs have grown either faster or slower than the population of people aged 16 and above. What this chart shows very clearly is the extent to which people currently entering the job market are trapped behind a rock where massive job destruction has displaced millions of workers who are both skilled and experienced. Since most people entering the work force possess minimal skills or experience, and depend on their fi rst jobs to build both of these attributes, there is a tremendous risk being run of creating an entire generation of terminally unemployed citizens.

Further evidence of the problems we are presented with are demonstrated by comparing the total number of employed people against the total population of people aged 16 and above. This removes the ambiguity of government unemployment calculations and simply compares total jobs against total people. What this analysis shows I that labor force participation has dipped down to a level not seen since the Nixon-Carter Stagfl ation Recession of the 1970s and early 1980s. It is certainly true that some people stay out of the labor force because they are retired, or they choose to raise a family. However, with labor force participation this low, it is impossible to ignore how few people are now supporting the entire government complex. Consider that taxes cannot be collected from people who have no income…as the employment base shrinks relative to the total population, the burden placed on those who produce will increase as more people become dependent on the Government-Entitlement Complex™.


“Invest in places that make sense so you can afford to live in places that don’t make sense.”

- Jason Hartman


Despite the current administration’s constant hyperactive dog-and-pony show, we at the Financial Freedom Report think the gyrations are a bit excessive. If the economy is turning around, why are home prices still fl at 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 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 fi nancial 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. Eventually, the bad mortgages 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 fi gure 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 fi nances 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 fi nancially 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 fi ve 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 fi nancial 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 overfl owing 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 fi nancial future for yourself and family. Property investing is one such way; in fact, it is 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 at www.JasonHartman.com/radioshows.

Four Reasons Behind the Continuing Home Price Collapse

Reasons Behind the Continuing Home Price Collapse (continued from page 6)

In response to this information, some would argue that the fi gures do not accurately refl ect the “good news” that has come about in the second half of 2010 and 2011. To address this concern, we have constructed a monthly breakdown of the job growth relative to population growth of people 16 and older over the last 12 months. What the facts show is that over the last year, the population of employable people has grown nearly 0.5% faster than the number of jobs.

The bottom line is that there has been no real recovery to date. The horrifi c levels of job losses in 2009 and 2010 have not even begun to be addressed, since the job gains over the last 12 months have not even kept pace with the rate at which new people are entering the labor pool. For all of the ruminating that pundits do over the future of the housing or stock market, the job climate is a critical variable that is not being fully appreciated.

The housing market will not recover until more people can pay their mortgages. This will not happen unless more people become gainfully employed. The stock market cannot continue its current rally unless more people invest. As unemployment continues to linger, more people will be selling their investments, which will suppress value growth in the fi nancial markets. The simple facts are that this recession will be with us until policies and incentives are tilted toward real growth. There is no reason to believe that this will happen until or unless government policy moves in a different direction than it has over the past few years.

Action Item: Use the investment opportunities created by this extended downturn to place yourself in an advantageous position when the economy resumes a growth trajectory. The recent trend of destructive public policy has created a hotbed of opportunities for investors. Capitalize on these opportunities before they disappear.

No Jobs, No Recovery (continued from page 5)

“Successful people make decisions quickly (as soon as all the facts are available) and change them very slowly (if ever). Unsuccessful people make decisions very slowly,

and change them often and quickly.” - Napoleon Hill


Despite our best efforts to bring you the fi rst and last words on what you need to know about income property investing and how it is affected by current fi scal policy from the ne’er-do-wells in Washington D.C., sometimes someone else says what we wanted to say just perfectly.

Such is the case with a recent report written by Mike Larson and titled “The Great American Apocalypse of 2011-2012.” While he deals with many topics over the course of 60-some pages, one particularly caught our eye - the difference between a healthy economic recovery and one bought and paid for by the government.

If you ever wanted to know exactly how to distinguish the two - take it away, Mike...

“Despite the greatest government rescue operations of all time, America continues to suffer through the toughest of times. And the pattern is now clear: First a great speculative bubble ... then a greater bust ... followed by massive government stimulus, bailouts and money printing ... and then ... still another, even greater bubble and bust.

When all is said and done, some people make fortunes. But millions of average hard-working people lose their jobs, get evicted from their homes, sink deeper into debt, and even risk abject poverty. What our government has failed to understand is that the most recent bust could have been used as an opportunity to end this cycle — once and for all.

Yes, we could have seen the collapse of the likes of AIG, Fannie Mae and other “too-big-to-fail” institutions. And yes, we could have experienced a very painful decline in asset prices. But that, in turn, could have allowed the patient and conservative, cash-rich investors waiting on the sidelines to swoop in and scoop up the bargains of the century, helping to rebuild America from the ground up. That climactic end to the crisis could have laid the groundwork for a healthy, sustainable economic recovery — one built on solid bedrock rather than quicksand.

But Washington policymakers and politicians blinked! Offi cials at the Federal Reserve and Treasury panicked. They took the wrong lesson from the Lehman Brothers collapse — namely that anything and everything had to be done to prevent large fi nancial implosions and cleansing recessions. That’s when they went to work with our money, ultimately lending, investing, spending, or committing at least $8 trillion to...

1. Bail out Bear Stearns, Fannie Mae, Freddie Mac, AIG, and General Motors...2. Shore up banks around the country via the $700 billion Troubled Asset Relief Program (TARP) program...3. Expand FDIC coverage to even wealthier individuals by raising the deposit insurance cap to $250,000 from $100,000...

And rescue foreign investors and banks by swapping hundreds of billions of dollars with central banks in Canada, the U.K., Japan, Australia, and continental Europe. That’s also when the Federal Reserve embarked on its epic run of money-printing that we mentioned earlier. What about Congress? The Obama administration? More of the same! They showered the economy with money as part of the $787 billion economic stimulus package in early 2009. They helped concoct the bogus “stress test” exercise for the banking sector, which made it easy for banks to raise $75 billion in capital to shore up their balance sheets. And they passed targeted bailout packages for certain industries, such as the $8,000 home buyer tax credit. The government takeover of U.S. credit markets has gotten so extensive, in fact, that Uncle Sam has been standing behind just about every home mortgage issued in this country: Fannie Mae, Freddie Mac, the FHA, and the VA are backing as much as 97 percent of the home loans originated these days. That, in turn, effectively brings trillions of dollars worth of additional, contingent liabilities onto Uncle Sam’s balance sheet.

All told, federal government debt outstanding exploded by 24.2 percent in 2008 and another 22.7 percent in 2009, the biggest annual increases since 1975, according to the Fed. Total public debt outstanding is now running at $13.2 trillion, per the Bureau of the Public Debt. That’s a whopping 132 percent rise in the past decade! The budget defi cit isnow running at close to 10 percent of GDP year after year, a level never seen before in American history except temporarily — during the Civil War and the two massive world wars.

The result of all this money being thrown out of Washington helicopters? A bought-and-paid-for economic recovery. In other words, a recovery based on smoke, mirrors, trillions in funny money, and abundant hot air.

Private companies didn’t abruptly decide to start building scores of new factories or hire millions of new workers. They were still swimming in excess production capacity and labor from the bubble days. Consumers didn’t all of a sudden decide to go on a renewed debt binge. They were still reeling from the housing market implosion and looking to repair their personal fi nances by paying down their loans — or walking away from them!

But with the Treasury and Fed vomiting so much free money, some was invariably spent. That gave us a few quarters of GDP growth, prevented the loss of some jobs, and helped levitate asset prices, driving the Dow up by more than 4,500 points.

Yet even so, the recovery was extremely anemic — nothing like what we’ve seen in past, healthy rebounds driven by private sector resurgence. And that’s not all. The government-led, bought-and-paid-for economic recovery always had a dangerous Achilles heel: It relied on the willingness of bond investors the world over to fi nance it!


It’s become an increasingly common scenario that the American homeowner will be expected to pay Home Owner Association (HOA) fees ranging from ten or twenty bucks a month up to several hundred or more. In some cases, especially in certain ritzy neighborhoods, you could fi nd yourself ponying up the equivalent of a new car payment each month for the privilege of living within a particular community. (Jason Hartman says that HOA fees should be simple, understandable, and priced no more than $40 monthly.) At Platinum Properties Investor Network, we’re not against HOA fees entirely, but do advise that you know exactly what you’re getting into (and what you’re getting in return for your dues) when you sign on the dotted line.

How It Works

In the beginning, a developer decides he wants to build a subdivision, so he creates a legal entity (usually a corporation) which is known as a homeowners’ association. He devises an initial set of rules and regulations that anyone must follow if they decide to buy a property in the neighborhood. Normally there is a president, vice-president, and assorted other offi cers who hold regular meetings and insure that the rules are being followed. Usually after a certain number of homes have been sold, the developer eases himself out of the association, transferring ownership completely to the subdivision’s home owners.

The thing to keep in mind about an HOA is that if you want to buy a house within such a community, you MUST join the HOA. There are no exceptions. Furthermore, you must obey the particular rules set out for the community or risk being fi ned, or even having your property foreclosed upon by the HOA in extreme circumstances. If you think this sounds like something less than the full property rights guaranteed us in the United States Constitution, you’re not alone. The best practice is to read the HOA contract thoroughly and make sure you understand and agree with exactly what is required of you before going forward with the home purchase.

HOA rules are famous for their insistence on conformity and keeping their community in nice, neat little homogenous rows. Are you a big fan of a certain NFL football team? Take heed. If your pigskin heroes make it to the Super Bowl and you want to show a little team spirit by sticking a temporary fl ag in your front yard, there’s a good chance HOA rules could prevent it.

(continued from page 14)

A “Recovery” Bought and Paid For by Washington is Not a Recovery

HOA Fees - The Good, The Bad, and The Ugly

Behold the Future . . . The 2011 Income Property ForecastThe new 2011 Income Property Forecast, published in partnership with The American Monetary Association and Platinum Properties Investor Network, Inc., has all of the critical information that you need to succeed. The Financial Freedom Report has negotiated an exclusive price for our clients that allows them to acquire this research at a fantastic price. In this report, you will learn:

• Key economic trends impacting income property investment.• The relationship between infl ation, gold, and income property.• The current outlook of value and appreciation for 30 major markets.• Full income property ROI forecast for 30 major markets. This is a full ROI forecast that goes beyond appreciation to show the impact of leverage

and cash fl ow to paint a full picture of investment prospects in each market. • Key recommendations for investment in 2011.

Make sure to secure your copy of the 2011 Income Property Forecast by the American Monetary Association today at www.AmericanMonetaryAssociation.org.

You see, it’s not like we had a bunch of money lying around to pay for all the bailouts, handouts and stimulus packages. We had to borrow it from the capital markets. The same was true for other nations, some of which embarked on the same kind of wild spending that we did.That worked for a while. Bond investors went along with it like lambs to the slaughter. But that is coming to an end ...”

Mr. Larson is a researcher/writer at the Weiss Institute. If you want to get the rest of his fi ne report, Google it and download it. We get nothing in the way of compensation from suggesting this, but are merely concerned that the average American doesn’t realize how near the precipice our government is taking us with these foolish attempts to spend our way to prosperity. The current economic path we are on in America is an exceedingly dangerous one. Inoculating ourselves with endless nights of television, movies, and eating out will not make it go away.

If parents want their children to grow up in an America that resembles in any way, shape, or form her past economic glories, and not a destitute Third World borrower - better sit up and pay attention now!

Not a Recovery (continued from page 7)


Performance Projection

Property Highlights:

- Phoenix, AZ 85020- Four-plex of 1 bedroom, 1 bath units- Vintage 1964 building


- Dallas, TX 75253- 3 bedrooms, 2 baths

- Built in 2004

1 Year Performance Projection July 11, 2011

Under $100kDallas, TX 752533 Bd - 2 Ba Built in 2004

Square Feet 1,302

Initial Market Value $ 98,000

Purchase Price $ 98,000

Downpayment $ 19,600

Loan Origination Fees $ 3,136

Depreciable Closing Costs $ 1,960

Other Closing Costs and Fixup $ 0

Initial Cash Invested $ 24,696

Cost per Square Foot $ 75

Monthly Rent per Square Foot $ 0.88

Income Monthly Annual

Gross Rent $ 1,150 $ 13,800

Vacancy Losses $ -92 $ -1,104

Operating Income $ 1,058 $ 12,696

Expenses Monthly Annual

Property Taxes $ -204 $ -2,450

Insurance $ -65 $ -784

Management Fees $ -105 $ -1,269

Leasing/Advertising Fees $ -31 $ -375

Association Fees $ 0 $ 0

Maintenance $ -34 $ -414

Other $ 0 $ 0

Operating Expenses $ -441 $ -5,292

Net Performance Monthly Annual

Net Operating Income $ 616 $ 7,403

- Mortgage Payments $ -420 $ -5,050

= Cash Flow $ 196 $ 2,352

+ Principal Reduction $ 96 $ 1,156

+ First-Year Appreciation $ 326 $ 3,920

= Gross Equity Income $ 619 $ 7,429

+ Tax Savings $ 0 $ 0

= GEI w/Tax Savings $ 619 $ 7,429

Mortgage Info First Second

Loan-to-Value Ratio 80% 0%

Loan Amount $ 78,400 $ 0

Monthly Payment $ 420.87 $ 0.00

Loan Type Amortizing Fixed

Term 30 Years

Interest Rate 5.000% 0.000%

Monthly PMI $ 0

Financial Indicators

Debt Coverage Ratio 1.47

Annual Gross Rent Multiplier 7

Monthly Gross Rent Multiplier 85

Capitalization Rate 7.6%

Cash on Cash Return 10%

Total Return on Investment 30%

Total ROI with Tax Savings 30%

Assumptions

Real Estate Appreciation Rate 4%

Vacancy Rate 8%

Management Fee 10%

Maintenance Percentage 3%

CommentsFully Rehabbed - Better than new! Tenant placement, 6months property management and one year home warrantyincluded. Photo is pre construction. CC

*Information is not guaranteed and investors should do their ownresearch, get professional advice and conduct due diligenceprior to investing.


First Look! Fourplex at a 13% CAP RatePhoenix, AZ 85020Lock this Fourplex down before it's gone!

Square Feet 1,776




Loan Origination Fees $ 900







Gross Rent $ 2,060 $ 24,720










Other $ -100 $ -1,200



Net Operating Income $ 1,377 $ 16,534


= Cash Flow $ 866 $ 10,402



= Gross Equity Income $ 1,367 $ 16,414


= GEI w/Tax Savings $ 1,367 $ 16,414






Term 30 Years


Monthly PMI $ 0









Assumptions


Vacancy Rate 8%

Management Fee 8%


CommentsPROPERTY STILL UNDER REMODEL. FINAL PRICE ISSUBJECT TO REMODEL COSTS BUT NOT EXPECTED TOCHANGE. All units are 1 Br / 1 Ba. Built in 1964.


Cash Flow$10,402

Projected ROI46%

Cash Flow$2,352

Projected ROI30%


- Phoenix, AZ 85043- 3 bedrooms, 2 baths plus loft- Built in 2002


- Decatur, GA 30034- 3 bedrooms, 2.5 baths

- Built in 2000


BEING REHABBED - Incredible Phoenix Investment!Phoenix, AZ 850433 bed / 2 bath PLUS LOFT; Built in 2002.

Square Feet 1,934











Gross Rent $ 1,000 $ 12,000

Vacancy Losses $ -80 $ -960

Operating Income $ 920 $ 11,040


Property Taxes $ -79 $ -959


Management Fees $ -73 $ -883

Leasing/Advertising Fees $ 0 $ 0



Other $ 0 $ 0





= Cash Flow $ 269 $ 3,233











Term 30 Years


Monthly PMI $ 0









Assumptions


Vacancy Rate 8%

Management Fee 8%


CommentsBeing rehabbed now. Large lot: 6,567 sq. ft.; RV parking;spacious kitchen with island; large tile flooring throughoutbottom floor; loft on 2nd story opens up over living room &formal dining area.



Decatur Home Built in 2000Decatur, GA 300343 Bedroom 2.5 Bath Home Built 2000

Square Feet 1,480











Gross Rent $ 895 $ 10,740










Other $ 0 $ 0





= Cash Flow $ 180 $ 2,168

+ Principal Reduction $ 65 $ 791










Term 30 Years


Monthly PMI $ 0









Assumptions


Vacancy Rate 8%

Management Fee 8%


CommentsSplit level home built in 2000! Sold in 2000 for $113,700 andforeclosed in 2010 for $119,702! Home has dining room/livingroom combo, master on main and a breakfast area. Home istraditional style with vinyl siding.



Cash Flow$3,233

Projected ROI28%

Cash Flow$2,168

Projected ROI31%




- Phoenix, AZ 85020- Four-plex of 1 bedroom, 1 bath units- Vintage 1964 building


- Dallas, TX 75253- 3 bedrooms, 2 baths

- Built in 2004


Under $100kDallas, TX 752533 Bd - 2 Ba Built in 2004

Square Feet 1,302




Loan Origination Fees $ 3,136







Gross Rent $ 1,150 $ 13,800










Other $ 0 $ 0





= Cash Flow $ 196 $ 2,352











Term 30 Years


Monthly PMI $ 0









Assumptions


Vacancy Rate 8%

Management Fee 10%


CommentsFully Rehabbed - Better than new! Tenant placement, 6months property management and one year home warrantyincluded. Photo is pre construction. CC



First Look! Fourplex at a 13% CAP RatePhoenix, AZ 85020Lock this Fourplex down before it's gone!

Square Feet 1,776











Gross Rent $ 2,060 $ 24,720










Other $ -100 $ -1,200



Net Operating Income $ 1,377 $ 16,534


= Cash Flow $ 866 $ 10,402



= Gross Equity Income $ 1,367 $ 16,414


= GEI w/Tax Savings $ 1,367 $ 16,414






Term 30 Years


Monthly PMI $ 0









Assumptions


Vacancy Rate 8%

Management Fee 8%


CommentsPROPERTY STILL UNDER REMODEL. FINAL PRICE ISSUBJECT TO REMODEL COSTS BUT NOT EXPECTED TOCHANGE. All units are 1 Br / 1 Ba. Built in 1964.


Cash Flow$10,402

Projected ROI46%

Cash Flow$2,352

Projected ROI30%


- Phoenix, AZ 85043- 3 bedrooms, 2 baths plus loft- Built in 2002


- Decatur, GA 30034- 3 bedrooms, 2.5 baths

- Built in 2000


BEING REHABBED - Incredible Phoenix Investment!Phoenix, AZ 850433 bed / 2 bath PLUS LOFT; Built in 2002.

Square Feet 1,934











Gross Rent $ 1,000 $ 12,000




Property Taxes $ -79 $ -959






Other $ 0 $ 0





= Cash Flow $ 269 $ 3,233











Term 30 Years


Monthly PMI $ 0









Assumptions


Vacancy Rate 8%

Management Fee 8%


CommentsBeing rehabbed now. Large lot: 6,567 sq. ft.; RV parking;spacious kitchen with island; large tile flooring throughoutbottom floor; loft on 2nd story opens up over living room &formal dining area.



Decatur Home Built in 2000Decatur, GA 300343 Bedroom 2.5 Bath Home Built 2000

Square Feet 1,480











Gross Rent $ 895 $ 10,740










Other $ 0 $ 0





= Cash Flow $ 180 $ 2,168

+ Principal Reduction $ 65 $ 791










Term 30 Years


Monthly PMI $ 0









Assumptions


Vacancy Rate 8%

Management Fee 8%


CommentsSplit level home built in 2000! Sold in 2000 for $113,700 andforeclosed in 2010 for $119,702! Home has dining room/livingroom combo, master on main and a breakfast area. Home istraditional style with vinyl siding.



Cash Flow$3,233

Projected ROI28%

Cash Flow$2,168

Projected ROI31%


Despite our best efforts to bring you the fi rst and last words on what you need to know about income property investing and how it is affected by current fi scal policy from the ne’er-do-wells in Washington D.C., sometimes someone else says what we wanted to say just perfectly.

Such is the case with a recent report written by Mike Larson and titled “The Great American Apocalypse of 2011-2012.” While he deals with many topics over the course of 60-some pages, one particularly caught our eye - the difference between a healthy economic recovery and one bought and paid for by the government.

If you ever wanted to know exactly how to distinguish the two - take it away, Mike...

“Despite the greatest government rescue operations of all time, America continues to suffer through the toughest of times. And the pattern is now clear: First a great speculative bubble ... then a greater bust ... followed by massive government stimulus, bailouts and money printing ... and then ... still another, even greater bubble and bust.

When all is said and done, some people make fortunes. But millions of average hard-working people lose their jobs, get evicted from their homes, sink deeper into debt, and even risk abject poverty. What our government has failed to understand is that the most recent bust could have been used as an opportunity to end this cycle — once and for all.

Yes, we could have seen the collapse of the likes of AIG, Fannie Mae and other “too-big-to-fail” institutions. And yes, we could have experienced a very painful decline in asset prices. But that, in turn, could have allowed the patient and conservative, cash-rich investors waiting on the sidelines to swoop in and scoop up the bargains of the century, helping to rebuild America from the ground up. That climactic end to the crisis could have laid the groundwork for a healthy, sustainable economic recovery — one built on solid bedrock rather than quicksand.

But Washington policymakers and politicians blinked! Offi cials at the Federal Reserve and Treasury panicked. They took the wrong lesson from the Lehman Brothers collapse — namely that anything and everything had to be done to prevent large fi nancial implosions and cleansing recessions. That’s when they went to work with our money, ultimately lending, investing, spending, or committing at least $8 trillion to...

1. Bail out Bear Stearns, Fannie Mae, Freddie Mac, AIG, and General Motors...2. Shore up banks around the country via the $700 billion Troubled Asset Relief Program (TARP) program...3. Expand FDIC coverage to even wealthier individuals by raising the deposit insurance cap to $250,000 from $100,000...

And rescue foreign investors and banks by swapping hundreds of billions of dollars with central banks in Canada, the U.K., Japan, Australia, and continental Europe. That’s also when the Federal Reserve embarked on its epic run of money-printing that we mentioned earlier. What about Congress? The Obama administration? More of the same! They showered the economy with money as part of the $787 billion economic stimulus package in early 2009. They helped concoct the bogus “stress test” exercise for the banking sector, which made it easy for banks to raise $75 billion in capital to shore up their balance sheets. And they passed targeted bailout packages for certain industries, such as the $8,000 home buyer tax credit. The government takeover of U.S. credit markets has gotten so extensive, in fact, that Uncle Sam has been standing behind just about every home mortgage issued in this country: Fannie Mae, Freddie Mac, the FHA, and the VA are backing as much as 97 percent of the home loans originated these days. That, in turn, effectively brings trillions of dollars worth of additional, contingent liabilities onto Uncle Sam’s balance sheet.

All told, federal government debt outstanding exploded by 24.2 percent in 2008 and another 22.7 percent in 2009, the biggest annual increases since 1975, according to the Fed. Total public debt outstanding is now running at $13.2 trillion, per the Bureau of the Public Debt. That’s a whopping 132 percent rise in the past decade! The budget defi cit isnow running at close to 10 percent of GDP year after year, a level never seen before in American history except temporarily — during the Civil War and the two massive world wars.

The result of all this money being thrown out of Washington helicopters? A bought-and-paid-for economic recovery. In other words, a recovery based on smoke, mirrors, trillions in funny money, and abundant hot air.

Private companies didn’t abruptly decide to start building scores of new factories or hire millions of new workers. They were still swimming in excess production capacity and labor from the bubble days. Consumers didn’t all of a sudden decide to go on a renewed debt binge. They were still reeling from the housing market implosion and looking to repair their personal fi nances by paying down their loans — or walking away from them!

But with the Treasury and Fed vomiting so much free money, some was invariably spent. That gave us a few quarters of GDP growth, prevented the loss of some jobs, and helped levitate asset prices, driving the Dow up by more than 4,500 points.

Yet even so, the recovery was extremely anemic — nothing like what we’ve seen in past, healthy rebounds driven by private sector resurgence. And that’s not all. The government-led, bought-and-paid-for economic recovery always had a dangerous Achilles heel: It relied on the willingness of bond investors the world over to fi nance it!


It’s become an increasingly common scenario that the American homeowner will be expected to pay Home Owner Association (HOA) fees ranging from ten or twenty bucks a month up to several hundred or more. In some cases, especially in certain ritzy neighborhoods, you could fi nd yourself ponying up the equivalent of a new car payment each month for the privilege of living within a particular community. (Jason Hartman says that HOA fees should be simple, understandable, and priced no more than $40 monthly.) At Platinum Properties Investor Network, we’re not against HOA fees entirely, but do advise that you know exactly what you’re getting into (and what you’re getting in return for your dues) when you sign on the dotted line.

How It Works

In the beginning, a developer decides he wants to build a subdivision, so he creates a legal entity (usually a corporation) which is known as a homeowners’ association. He devises an initial set of rules and regulations that anyone must follow if they decide to buy a property in the neighborhood. Normally there is a president, vice-president, and assorted other offi cers who hold regular meetings and insure that the rules are being followed. Usually after a certain number of homes have been sold, the developer eases himself out of the association, transferring ownership completely to the subdivision’s home owners.

The thing to keep in mind about an HOA is that if you want to buy a house within such a community, you MUST join the HOA. There are no exceptions. Furthermore, you must obey the particular rules set out for the community or risk being fi ned, or even having your property foreclosed upon by the HOA in extreme circumstances. If you think this sounds like something less than the full property rights guaranteed us in the United States Constitution, you’re not alone. The best practice is to read the HOA contract thoroughly and make sure you understand and agree with exactly what is required of you before going forward with the home purchase.

HOA rules are famous for their insistence on conformity and keeping their community in nice, neat little homogenous rows. Are you a big fan of a certain NFL football team? Take heed. If your pigskin heroes make it to the Super Bowl and you want to show a little team spirit by sticking a temporary fl ag in your front yard, there’s a good chance HOA rules could prevent it.


A “Recovery” Bought and Paid For by Washington is Not a Recovery

HOA Fees - The Good, The Bad, and The Ugly

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You see, it’s not like we had a bunch of money lying around to pay for all the bailouts, handouts and stimulus packages. We had to borrow it from the capital markets. The same was true for other nations, some of which embarked on the same kind of wild spending that we did.That worked for a while. Bond investors went along with it like lambs to the slaughter. But that is coming to an end ...”

Mr. Larson is a researcher/writer at the Weiss Institute. If you want to get the rest of his fi ne report, Google it and download it. We get nothing in the way of compensation from suggesting this, but are merely concerned that the average American doesn’t realize how near the precipice our government is taking us with these foolish attempts to spend our way to prosperity. The current economic path we are on in America is an exceedingly dangerous one. Inoculating ourselves with endless nights of television, movies, and eating out will not make it go away.

If parents want their children to grow up in an America that resembles in any way, shape, or form her past economic glories, and not a destitute Third World borrower - better sit up and pay attention now!

Not a Recovery (continued from page 7)


Despite the current administration’s constant hyperactive dog-and-pony show, we at the Financial Freedom Report think the gyrations are a bit excessive. If the economy is turning around, why are home prices still fl at 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 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 fi nancial 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. Eventually, the bad mortgages 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 fi gure 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 fi nances 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 fi nancially 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 fi ve 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 fi nancial 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 overfl owing 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 fi nancial future for yourself and family. Property investing is one such way; in fact, it is 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 at www.JasonHartman.com/radioshows.

Four Reasons Behind the Continuing Home Price Collapse

Reasons Behind the Continuing Home Price Collapse (continued from page 6)

In response to this information, some would argue that the fi gures do not accurately refl ect the “good news” that has come about in the second half of 2010 and 2011. To address this concern, we have constructed a monthly breakdown of the job growth relative to population growth of people 16 and older over the last 12 months. What the facts show is that over the last year, the population of employable people has grown nearly 0.5% faster than the number of jobs.

The bottom line is that there has been no real recovery to date. The horrifi c levels of job losses in 2009 and 2010 have not even begun to be addressed, since the job gains over the last 12 months have not even kept pace with the rate at which new people are entering the labor pool. For all of the ruminating that pundits do over the future of the housing or stock market, the job climate is a critical variable that is not being fully appreciated.

The housing market will not recover until more people can pay their mortgages. This will not happen unless more people become gainfully employed. The stock market cannot continue its current rally unless more people invest. As unemployment continues to linger, more people will be selling their investments, which will suppress value growth in the fi nancial markets. The simple facts are that this recession will be with us until policies and incentives are tilted toward real growth. There is no reason to believe that this will happen until or unless government policy moves in a different direction than it has over the past few years.

Action Item: Use the investment opportunities created by this extended downturn to place yourself in an advantageous position when the economy resumes a growth trajectory. The recent trend of destructive public policy has created a hotbed of opportunities for investors. Capitalize on these opportunities before they disappear.

No Jobs, No Recovery (continued from page 5)

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Four Marketing Strategies Your Home-Based Business Should Implement Immediately

Sales and marketing tactics in business have drastically changed from high-touch, personal relationships to content creation and other educational methods to deliver a business’ value proposition. Those who aren’t adapting to the new methods will undoubtedly be left behind in what has become a digital media business environment.

Anymore, it is a challenge to cold call a decision maker. Gatekeepers are impossible to get through, and the fact is, through technology, it is incredibly easy to screen calls. Cold calling is no different than walking into a building to get a face-to-face with a decision-maker; low probability and a poor use of time.

Technology reduces cost of marketing in most cases; in fact, for a home-based business, technology enables a person to begin selling a product or service almost immediately with little cost.

We have defi ned four marketing methods that any home-based business can use to build a brand following and sell its product or service:

Search Engine Optimization

Almost always, those seeking a product or service will do some web-based research to fi nd a business delivering what they need. People who go through this research process head to the search engines, type in a set of keywords and fi nd a business that sells the product or service they seek. As a business, the goal is to show up on the fi rst page, if not the top three spots. This is done through a practice called search engine optimization, or SEO. In simple terms, it is a process of content creation, writing Meta data, friendly URLs and back-linking to a website all while using specifi c keywords to describe what is on a particular page. Websites who use on and off-page SEO best practices almost always see higher traffi c and a lower bounce rate within a few months of implementing.

Podcasting

Providing educational content for free to your target market is the ultimate no-pressure way to gain interest in your topic and services. Podcasting is typically formatted in a few different ways to reel in followers, often times in the format of an interview or discussion about a particular topic for each episode. Podcasters fi nd that after creating multiple episodes with high-value content, they have developed a following for their brand, and they will also increase their web presence.

Question & Answer Boards

Surprisingly, a lot of people still use discussion forums to ask questions and talk about topics they are interested in. A great marketing strategy is to fi nd discussion forums around a topic that aligns with your expertise and answer questions people have. Make sure that every time you submit a question or response you include a signature containing a link to your business website. This is a great back-linking strategy for SEO, but more importantly, it allows the people in the conversation to fi nd more resources at the website, which can lead to more customers.

Speaking Engagements

This is not technically an online marketing strategy, but you can sure leverage it into one! Get started by scheduling free speaking engagements at a local chamber of commerce, schools, and other places where your target customers typically hang out. Speaking for free on certain topics can lead to more followers of your brand and will give you the opportunity to spin it into a web-marketing strategy through webinars, press releases, video clips, and other forms of content creation.

No Jobs, No RecoveryThe recurrent news stories about the current economic “recovery” have begun to wear on many people. What the population at large is beginning to wonder about is jobs. Specifi cally, why the employment situation is still so diffi cult in a “growing” and “recovering” economy. Each month, jobs reports are released by the government that articulate estimates about how many net jobs were gained or lost. Naturally, the political authorities overseeing the current anemic economy quickly jump on any increases in employment as evidence of success for their policies. However, it turns out that simply analyzing raw numbers does not paint a full picture of the economic situation.

What the government press releases fail to articulate is the growth in jobs relative to the growth of the population. This is the real barometer of whether the economy is moving toward or away from prosperity. For

the purpose of our analysis, the population of people aged 16 and above is the most relevant comparison for the total job growth, since these are the people who are eligible to work. When analyzing this trend over time, it becomes quickly apparent that the current recession represents a level of job destruction not seen since the Great Depression. Past recessions have resulted in net annual job growth that failed to keep pace with population growth and occasionally dipped negative for a single year. However, the past few years have seen massive net job destruction that has yet to show signs of reversal.

When analyzing the net difference between job growth and population growth, it shows a long-term trend of relative expansions and contractions where jobs have grown either faster or slower than the population of people aged 16 and above. What this chart shows very clearly is the extent to which people currently entering the job market are trapped behind a rock where massive job destruction has displaced millions of workers who are both skilled and experienced. Since most people entering the work force possess minimal skills or experience, and depend on their fi rst jobs to build both of these attributes, there is a tremendous risk being run of creating an entire generation of terminally unemployed citizens.

Further evidence of the problems we are presented with are demonstrated by comparing the total number of employed people against the total population of people aged 16 and above. This removes the ambiguity of government unemployment calculations and simply compares total jobs against total people. What this analysis shows I that labor force participation has dipped down to a level not seen since the Nixon-Carter Stagfl ation Recession of the 1970s and early 1980s. It is certainly true that some people stay out of the labor force because they are retired, or they choose to raise a family. However, with labor force participation this low, it is impossible to ignore how few people are now supporting the entire government complex. Consider that taxes cannot be collected from people who have no income…as the employment base shrinks relative to the total population, the burden placed on those who produce will increase as more people become dependent on the Government-Entitlement Complex™.


“Invest in places that make sense so you can afford to live in places that don’t make sense.”

- Jason Hartman


When most people think about investments, their minds immediately drift to vehicles such as mutual funds, hedge funds, bond funds, REITs, and other methods of pooled investments that are either managed or pegged against an index. Many noted academics such as Burton Malkiel have rightly observed that most active managers fail to beat the market portfolio, and that it is optimal to simply purchase the market portfolio at the lowest cost possible.

However, there is another aspect to consider in regard to pooled investment and investment funds. This factor is that large pools of capital can only pursue large investments. Upon deeper analysis, this reveals that anything which cannot be scaled into a large-scale portfolio will necessarily be overlooked by any aggregated funds or indexes.

In many cases, there are small, fragmented opportunities where investors can capture very high rates of return, but are not scalable into pooled investment funds. Examples of this phenomenon are single-family income properties, and small privately-held companies. These investments are too small to be captured in indexed portfolios, so the high rates of return that they can produce accrue only to those who invest in them directly.

Thus, it becomes true that “Big Kid” rates of return only go to direct investors. Anybody who trusts a fund manager to select investments on their behalf places themselves at the mercy of that manager’s decisions. In addition to this, consider that most fund managers are compensated by receiving a percentage of the fund asset base. Because of this, their incentive is to attract new investors, which grows the capital base, and makes it impossible for them pursue anything outside of large-scale opportunities that typically produce only average rates of return.

When constructing your personal investment portfolio, there is probably a place for pooled investments such as the market portfolio. For the portion of your investments where you are satisfi ed with the “average” market rate of return and don’t want to babysit the capital, the market portfolio can be optimal. However, if you are seeking to achieve rates of return that the “Big Kids” like Donald Trump and Robert Kiyosaki talk about, it isn’t going to happen in a mutual fund or REIT. Only direct investors can achieve these levels of returns.

The rub is that being a direct investor requires much more research, courage, and discipline than purchasing a pooled investment. By taking the effort to become educated, developing the discipline to follow fundamentals, and fostering the courage to act, these returns can be yours. It all comes down to what efforts you are willing to make for the sake of your fi nancial future.

Action Item: Develop the knowledge, discipline, and courage to become a successful direct investor so that you are able to capture the rates of return that are out of reach for “average” investors.

We spend a lot of time at the Financial Freedom Report extolling the very real virtues of investing in income properties rather than the stock market. That’s all well and good – but what about the people who don’t want to tackle property investing and only want to be able to buy a home at some point in the future? Will it ever be feasible to pursue the American Dream in earnest once again? The Platinum Properties Investor Network’s answer to that is – of course. It’s not here just yet, but the time is coming.

Short-Term

We’ll be honest: the short-term prospects for home ownership look positively grim. Though interest rates are still low, so are job prospects, and the foreclosure crisis is another shoe that hasn’t fully hit the fl oor yet. Add to that increased standards for borrowing instituted by lenders who were burned badly during the past few years, and you’ve got the makings of a good rental market for a while longer, but keep in mind that the foundations that made home ownership appealing before the recession will still hold true afterward.


“Big Kid” Returns go to Direct Investors

The Future of Home Ownership

Groupon - Boon for Business or Epic Fail?Most people who have not been taking up residence in a cave are aware of Groupon, the Web’s #1 group buying site and fastest-growing company ever. The notoriety of the company grew even greater when it turned down a $6B takeover bid by Google. Many consumers are aware of the extremely low prices that are available through Groupon daily deals, but there is a basic problem implicit in its business model that may sow the seeds of disaster for the small businesses that Groupon depends on for its revenue stream.

The Groupon business model is relatively simple, but quite powerful for generating revenue. The company sends out daily deals to its massive list of subscribers. Those deals are from local businesses offering discounts that are typically in the range of 50% or more off of the

retail price for their product or service. The way that Groupon earns revenue from this is by collecting a share of the revenue that small businesses receive from their group advertisement. Typically this fee is on the order of 50%.

The way that Groupon sells its services is by positioning a win-win proposition where local businesses get to attract a large wave of customers, and Groupon earns half of the discounted revenue stream. This basic concept has vaulted Groupon to the heights of media stardom. However, there is a secondary effect of the Groupon business model that could spell disaster for local businesses and potentially for Groupon itself. These dangers fall into two principal categories: the fi rst is dead weight advertising, and the second is small business commoditization:

Dead Weight Advertising

Doing the math concerning Groupon’s business model shows a startling fact for business owners namely that offering a 50% discount on your services and then paying half of that discounted amount to Groupon means that you will only be left with 25% of your normal retail price. In many businesses such as restaurants or other competitive business segments, this is not enough to cover variable costs, and each Groupon customer results in a loss. Thus, discounts through Groupon end up acting like advertising with a super-low sale price. Typically, the desire on the part of business owners is to attract customers who will come back for a string of repeat business.

Unfortunately, what frequently happens is that the people attracted by Groupon are aggressive deal-seekers who will simply move on to the next low-priced promotion when yours is fi nished. In this way, Groupon can become “dead weight” advertising, because it accomplishes nothing but attracting people who would not otherwise pay full price for your products or services. In this case, the business would have been much better served with traditional advertising that emphasized the value of their offerings so that the people attracted to your business are those who will pay a higher price than what Groupon shoppers have come to expect (and in some cases demand).

Small Business Commoditization

The extended impact of the group buying phenomenon exemplifi ed by Groupon is the fact that small business services have become commoditized. With a consistent volley of deep discounts in people’s inboxes from Groupon and all of the other group-buying services, customers have become trained to expect substantial price reductions from small business vendors. Thus, the “repeat customer” who previously came back regularly is now asking if you can meet the price of a competitor who is advertising a special deal through Groupon. In this way, the extremely low prices funneled through Groupon have lowered the perceived value of small business services for customers.

Ultimately, this has become a textbook example of classical pricing theory…namely the dangers of deep price discounting to increase volume and grow market share. When you establish a precedent of discounted prices, it lowers the customer’s perception of your product’s value. You can most certainly gain more volume from discounts, but that additional volume results in lower profi ts. Furthermore, most businesses fi nd that if they attempt to start walking their customers up to previous price levels, they will begin to leave for competitors.In the end, success as a small business is (and has always been) about providing a product or service that your customer values more than the price you charge. This creates a perpetual win-win, where the customer receives a product or service of value at a reasonable price and the business owner receives revenue that generates profi ts after the operating costs have been paid. Attempting to short-cut this process through business fads like group buying at deep discounts can spell disaster for small businesses.

As time goes by, there is a risk that this small business disaster could become a Groupon disaster if enough businesses decide to stop offering their services through Groupon and the quality of their deals deteriorates. As the deal quality declines, there will be less transaction volume and lower profi ts. If the trend continues too long, we could end up with a future Harvard Business Review case study for MBA students, warning them of the dangers implicit in trying to short-cut the ladder to success.

Jason Hartman’s Creating Wealth

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“Experience [has] taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you’re generally better off sticking with what you know. And the

third is that sometimes your best investments are the ones you don’t make.” - Donald Trump

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Reprint rights and interviews available with permission, please e-mail [email protected] publication is designed to provide general advice and education concerning real estate for investment purposes. Nothing contained in this publication should be considered personalized investment, legal or tax advice. Every investor’s strategy and goals are unique; you should consult with a licensed real estate broker/agent or other licensed investment, tax and/or legal advisor before relying on any information contained in this publication. Please call (714) 820-4200 and visit www.JasonHartman.com for additional disclaimers, disclosures and questions.

Banks Are Choosing Strategic Default AlsoWe 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. Say what? 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.”

There you have it. The article goes on to say that 1,896 properties have been abandoned by Chicago-area banks using this method. Furthermore, 57% of these vacant properties have not even been registered with the city. So much for being good neighbors. The interesting twist to the scenario is that, since the foreclosure was never consummated, the borrower still owns the home and is responsible for maintaining the property, and paying the debt and taxes. Neighborhoods are not being notifi ed either, so are delayed in taking action to do something to prevent the property from becoming an eyesore.

Something else that caught our eye in the You Walk Away blog was that CEO and blog author, John Maddux, went out of his way to suggest that, for the fi rst time in modern history perhaps, homeowners walking away from an underwater mortgage were doing the right thing. It’s interesting what we have come to view as “right” in this country. Last time we checked, a mortgage was a legal contract, signed of the borrower’s own free will. So now, in the view of Maddux, it is right to walk away from a legal obligation. His reasoning is that the big, bad fi nancial industry caused the problem, so all bets are off.

We don’t deny that it makes fi nancial sense, in many cases, to abandon a mortgage but to do so proudly while blaming someone else for your own poor judgment is sort of incredible. What happened to personal responsibility? It’s one thing if the contract was illegal in some way, but something else entirely if you’re just bailing out. Go ahead and leave if you want – but it’s nothing to be proud of, Mr. Maddux.

Groupon vs. Income Property (continued from page 1)

To wit, Groupon has made sure to place emphasis on metrics such as Free Cash Flow, and something they call Adjusted Consolidated Segment Operating Income, or Adjusted CSOI. Neither of these metrics are part of Generally Accepted Accounting Principles (or GAAP). Their “Free Cash Flow” measurement looks at operating cash fl ow with purchases and acquisitions removed. Many of these purchases are necessary parts of operating a business. The “CSOI” metric examines profi tability from existing subscribers/customers, but ignores the cost of acquiring customers, equity compensation, and taxes.

As we can see, the measurements Groupon uses to evaluate itself leave out many signifi cant costs that the management wishes to gloss over when selling a growth story to investors. Groupon’s value proposition comes from being a large-scale player … however, that large scale comes with large losses. In contrast to this are the small-scale profi ts that come from otherwise boring investments such as income properties.

Large-Scale Losses

• High growth and high spending that produces large losses to purchase large revenues. • Requires regular infusions of investor capital to keep the spending binge going. • Lots of media attention will attract wide-eyed investors who expect that the stock will remain “hot” forever. • Eventually, investors will tire of continuing to fund a money furnace. • The early movers and insiders will cash out long before the bubble bursts.

Charting out some data from the Groupon SEC fi lings shows a very interesting trend. Groupon’s gross profi t per Groupon sold is very important. This represents the amount of money they actually see after paying the vendor their share. This amount has been very fl at over time. However, the total spending of Groupon divided by the total number of new customers shows a startling trend. Groupon must spend an ever increasing amount of money for each new customer that it acquires. This does not bode particularly well for its long-term profi tability. Astute investors should be wary of what this trend means for the future of their equity stake.

In contrast to the large-scale losses from a “sexy” enterprise like Groupon, you have the small-scale profi ts of an “un-sexy” investment such as income property. These two classes of investment differ in almost every fundamentally important way.

Small-Scale Profi ts

• Very little media attention – the fragmented market means that there is no money for people like Goldman Sachs to securitize things like income properties and market them to the general public. • “Day one” profi tability combined with stable cash fl ow and low to modest growth makes things like income property less appealing to the general public who prefer “dynamic” investments. • The power of time works in your favor, instead of against you. Instead of timing the market just right to avoid a bursting bubble, you can ride out market cycles on the back of strong cash fl ows and sell when values are optimal.

The contrast is clear…Groupon and all of the other associated “hot technology” stocks showcase lots of media attention, a sexy story, and large losses that grow with each passing year. Income properties offer small-scale, fragmented profi ts that keep them away from investment banks such as Goldman Sachs. For investors who are disciplined and astute, they offer a unique opportunity to grow personal wealth in an optimal manner.

Action Item: Resist the temptation to chase after “hot” stocks with high rates of growth that burden investors with large losses. Discipline your mind, and stick to fundamentals when other people are chasing bubbles. This will place you in a position to take advantage of opportunities that emerge when the bubble inevitably pop. Focus on consistent, sustainable profi ts that will allow you to build long-term wealth.

The Good

We’re not here to claim that every single HOA sits at Satan’s right hand. In theory - and in reality in some places - the fees are a fairly innocuous presence that do contribute to the overall upkeep of the neighborhood. From QuickenLoans.com, we have a list of costs that are traditionally covered by your HOA payments:

• City services – including services such as trash removal, water and sewage. • Insurance - this only includes insurance for damage of the outside of the building and the property around it. You will still need an individual insurance policy to cover everything inside of the condo. • Lawn care - this includes snow removal, gardening, and general lawn maintenance. • Pest control - most HOAs schedule a monthly inspection from a pest control company in order to avoid pest infestation. • Maintenance and repairs to the outside of the building - this includes things such as roof leaks, exterior painting, driveway pavement repairs, etc. It also covers the costs of gym or pool maintenance, if applicable.

Doesn’t sound terribly onerous, does it? Actually, kind of nice to not have to worry about these types of things that degrade the overall home value in the subdivision when left unattended. Sometimes fees go to build and maintain common facilities like swimming pools, basketball courts, or golf courses.

The Bad

The bad is when a homeowners’ association goes power-mad and becomes a band of little despots who live for nothing more than the opportunity to fi ne old man Jones because he waited until the grass in his front yard was three inches high before cutting it. After all, HOA rules dictate grass must never be higher than 2.5 inches. See where the potential for trouble comes in? HOAs legally can and do levy fi nes as proscribed in the bylaws that are every bit as enforceable as if you received a speeding citation from a member of the local police department.

The Ugly

What happens if you decide the infraction you’ve been fi ned for is silly and you don’t want to pay it? Be careful. Be very, very careful. There have been cases where fi nes were allowed to mount into the thousands and tens of thousands of dollars until a vengeful HOA board placed a lien on the property and eventually foreclosed on the basis of unpaid fi nes. Don’t laugh. It can happen. It HAS happened. The message here is to take the prospect of joining a homeowners’ association quite seriously and be absolutely sure you can live with the rules. If not, keep on searching – and don’t even think about buying in that neighborhood.

HOA Fees - The Good, The Bad, and The Ugly (continued from page 10)


In the case of the technology bubble, it represented the intersection of the Internet moving into the technological mainstream, and an infl ux of venture capital that perpetuated valuations upward as multiple online entities all attempted to dominate their respective market niche by incurring substantial losses for the sake of growth. Each player in the marketplace spent signifi cant investor resources, signed leases, bought equipment, and made other expenditures in anticipation of future profi ts. Unfortunately, ten companies cannot dominate the same market niche. This means that the (many) entities who failed to meet their growth and profi tability projections went out of business. This phenomenon resulted in a sudden halt for technology demand that rippled out to the broader economy.

Analysis of the NASDAQ 100, Case-Schiller 20 index (with leverage) and gold prices over time tell a very distinctive story. From Q3’95 through Q1’00, the NASDAQ 100 increased by 450%, but by Q4’02 all of those gains had been lost. From Q3’03 through Q1’06, leveraged real estate returns increased at an even faster pace, but began to downslide in 2007 and were accelerated by the fi nancial crisis of 2008. When gold is added to this chart, it tells a very similar story. Starting in Q1’01 through the end of 2010, gold has risen by over 500%. The course of past bubbles has been one of rapid escalation followed by an equally rapid collapse. Gold has been increasing in price considerably over the past few years, and some are even beginning to proclaim the emergence of a new paradigm where gold perpetually escalates in value. Coincidentally, this is almost the exact same rhetoric used during the technology and real estate bubbles that subsequently burst and defl ated. Only time will tell the future of gold, but it is showing many features that are similar to past bubbles.

As we can clearly see, the incidence of bubbles principally occur when something artifi cially skews incentives for market players and investors. In this situation, people perceive future profi ts based on artifi cial market movements. This shifts resources from other uses with greater rates of real productivity toward things like building more housing. This artifi cial shift escalates prices as people bid-up values for resources and end products. To the bubble market players, this appears to be evidence that a new paradigm is emerging, since prices are moving up and people are making lots of money. Of course, the point ultimately comes where new buyers cannot be found who will pay higher prices – and the value collapse ensues. The people who are in at the beginning of a bubble make money like bandits. However, the folks who enter too late end up paying the price for those profi ts captured by the early movers. No value is created…all of the profi ts from early movers come at the expense of late entrants.

At the end of this cycle, we end up with many entities going bankrupt and a large amount of de-valued product from the bubble collapse. In addition to the direct losses that bubbles create, there is an even more dangerous effect. This effect is the lost productivity from capital that was taken away from more productive uses and spent in pursuit of a market bubble. Every person who chases quick money instead of fundamental value plays a small part in suppressing the nation’s long-term economic growth. Every bubble that rises and crashes destroys future growth by siphoning capital away from more productive use.

As individuals, we are in the unfortunate situation where our actions cannot directly stop bubbles or change the course of public policy. However, we can ensure that our own activities are engaged in the pursuit of fundamental value instead of market bubbles. As businesspeople, this means avoiding fads or get-rich-quick schemes. As investors, this means focusing on providing real products and services that provide real value to real people. It means focusing on activities that generate real cash fl ows, instead of staking all of our returns on future value appreciation. When value appreciation is the only driver of your profi ts, you will be subject to sudden and unpredictable shifts in market sentiment that have the potential to destroy your investments.

Action Item: Avoid the allure of bubbles and pursue fundamental value in all that you do. This will allow you to side-step the “quick buck” mentality that dominates fi nancial media and leaves many people devastated by collapsing bubbles.

The Province of Fools – Anatomy of the Bubble Machine (continued from page 1)

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Conclusion: Nothing Lasts ForeverThe continued economic downturn has left many with a feeling that the doldrums of depressed real estate prices and low interest rates will last indefi nitely. However, it is most certainly true that nothing lasts indefi nitely. Growth phases do not last forever, and neither do downturns. There are many indicators pointing toward a slow and elongated economic recovery, but there are just as many indicators pointing toward a rapid escalation of interest rates when the enormity of the U.S. government’s fi nancial irresponsibility is fully internalized by the marketplace.

At some point, investors will cease to accept low rates of return on U.S. treasuries that are being de-valued by government policy. When this happens, it will vault interest rates upward and be amplifi ed by the additional borrowing necessary to fi nance the continuing government defi cits. The window to act where both prices and interest rates are at historic lows is open right now. There is no way to know when this window will close, but when it does, it will close fast. Make sure that you take action before the opportunity of a lifetime passes you by.

In This Issue:

• The origins of bubbles.

• Groupon - it’s hip, it’s popular, it’s everywhere. But is it a good investment?

• Why you can’t have economic recovery without more jobs.

• Why Washington can’t buy a recovery.

• The good, the bad, and the ugly (and it sure can be ugly) about HOAs.

Volume 11, Issue 7 $197 annually e-mail, $297 print

www.JasonHartman.com Page 1

The Province of Fools - The Bubble Machine Page 1

Reasons For the Home Price Collapse Page 6

Groupon vs. Income Property Page 1

Who Gets the “Big Kid”Returns? Page 4

No Jobs, No Recovery Page 5

Property Performance Projections Pages 8-9

2011 Income Property Forecast Page 10

Groupon - Boon or Fail for Small Business? Page 13

New Ways to Market Your Home Business Page 12

Strategic Default: Now Banks are Doing It Page 14

Nothing Lasts Forever

Federal Money Can’t Buy a Recovery Page 7

HOA Fees - The Good, The Bad, and The Ugly Page 10

PP Product Listing Page 15


Contact an Investment Counselor today! 714-820-4200 or www.JasonHartman.com

Groupon vs. Income PropertyThe recent fi ling an S-1 document by Groupon for the purpose of an Initial Public Offering has led to many people speculating about the value of the company, especially in the wake of Google’s $6 billion dollar acquisition offer that Groupon refused. When their stock lands on the exchanges, many expect it to be an extremely hot item since many people are anxious to own a share of the rapidly growing company. This fi ling has come on the heels of IPOs and IPO rumors from companies such as Facebook, Twitter, and LinkedIn that has led many to believe that a second wave of the technology bubble may be emerging.

The key characteristic of the technology bubble in the late 1990s was excitement over proliferation of the Internet, and its potential to change business models. The predominant paradigm at play during this market frenzy was a belief in growth at all costs. Companies were formed and investments were made based on the belief that whoever was fi rst to create a viable Internet marketplace would reap the lion’s share of the fi nancial rewards. Since this growth paradigm generated tremendous losses for companies participating in the frenzy, many new measurements were concocted to cover up the fact that loads of investor capital was being burned by these new companies.


The Province of Fools – Anatomy of the Bubble Machine Part Two of a Three-Part Series

When examining market bubbles, it is critical to understand exactly what they represent. Fundamentally speaking, a market bubble emerges when expectations about the future growth for a certain asset grow so high that people sacrifi ce future production and consumption for the sake of investing in that asset. This was the case for tulip bulbs in Holland, technology stocks in the 1990s, real estate during the early 21st century, and possibly gold today.

The importance of this insight comes from a deeper understanding of what free markets naturally do, and how bubbles distort this necessary function. The most critical role of a free market is to allocate capital to its highest and best use through investors seeking the best (risk-adjusted) rate of return on their capital. Thus, in a normal market situation, businesses and investments with the best fundamentals and highest prospects for real growth will be the ones that attract the most capital.

However, there are many situations where public policy either directly or indirectly creates market bubbles. When the tax or regulatory status of a certain investment class is artifi cially altered by the government, it can create a bubble (tax credits for politically favored companies and industries, for example). When government policy makes fi nancing artifi cially easier to obtain than would have been possible in a free market, it creates a bubble in assets that are purchased with fi nancing due to a fresh infl ux of buyers (this is literally what created the real estate bubble).


KathyAri BryceKaren Randy JoeMary Brandon

Terri DaveJason Sara Brittney AngelaCharles Eric Doug

Tim

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Welcome to the Platinum Properties Investor Network, THE source for innovative, forward-thinking investment property strategies and advice. Founder Jason Hartman spent two decades developing The Complete Solution for Real Estate Investors™. Jason appears regularly on television and radio, at speaking engagements, seminars, and with his ultra-hot Creating Wealth podcast. The United States is made up of over 380 unique market areas. This makes it perhaps the most diverse property market on the planet. Yet the news media continues to refer to the U.S. real estate market as a single entity that moves through stronger or weaker cycles. We realize that this phenomenon is the result of thirty-second T.V. time slots that generate systemic oversimplifi cation. However, real estate cannot be described that simply. There is NO such thing as a United States real estate market. Every single local market presents unique risks and opportunities.

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