Jason gives us a Flack Back Friday show originally published in February 2018 as episode 962. He starts the show discuss inventory shortages. The supply of housing is dropping across the US. Later on, he finishes a client case study with Scott. They discuss 1031 exchanges. They end the discussions talking about property management experiences and how to deal with property managers.
Jason Hartman 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason is hand picked to help you today in the present, and propel you into the future. Enjoy.
Announcer 0:15
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. Here’s your host Jason Hartman with the complete solution for real estate investors,
Jason Hartman 1:06
welcome listeners from around the world. Thank you so much for joining me on a windy day from the Windy City. Do you know what the Windy City is? Well most people think it’s Chicago. I disagree. I think it’s Las Vegas. It is windy today. Beautiful clear. Not too cold or cool. It’s a little bit cool just ever so slightly cool. I should say it’s in the 60s and it’s gorgeous out but it is windy. Las Vegas is the Windy City I’m telling you. We are going to have 30 mile an hour winds today. So I Love it. Love it. Love it. Love weather phenomena. I think it’s super interesting when when the weather changes. I love it when God puts on a show. And he does that with whether he or she sorry, I don’t want to offend any anybody. So there we go. We have got part two of our interview with Scott and Kelly today hearing about their Client case study, going from shopping centers to single family homes, lots and lots of them using the 1031 tax deferred exchange. Income property is the most tax favored asset class in America, and the most historically proven asset class in the entire world. But before we do that, you know, I’ve talked a lot about the inventory shortage, the lack of supply in the marketplace, we’ve talked about absorption rates, we’ve talked about, hey, why aren’t there enough properties in which to invest? You know, why was the supply so limited? Well, that may seem obvious. And I’ve talked about many factors that are influencing that. But one of them was given a name by none other than one of our meet the masters of income property speakers, and one of our multi time guests on the show, and that is a real estate market researcher john burns. He calls it the barbell barbell that is crushing the supply of affordable homes. And so a barbell is the name would imply has weights on either end, right waiting the bar. And of course, you’re going to bench press this barbell or whatever and the weight is on both sides of the barbell. Otherwise, it would just be a dumbbell. Well, no, it’s actually on two sides of dumbbell two, but you get the idea. I’m not gonna go into trying to explain this anymore. The barbell of housing demand, and I’ve talked about this a little bit before, but this article with some statistics, I think will help you really see how formidable This is. And then I will attempt to provide a solution for you before we get to part two of our case study today. So first off, we’ve got the millennials. Now the millennials, we talk a lot about these millennials, this generation, I tell you, they were the most coddled waited on cater to generation in world history, right? We all know about the millennials, Gen Y. We’ve talked about them a million times, you’re probably sick of hearing about them. I’m getting a little sick of it too. But anyway, they are finally moving in to the housing market. Yes, they are. The oldest millennial today is what that would make them about 35 years older. So this is the generation right after yours truly a Gen X or myself. And then I followed my generation followed the baby boomer generation, and before them was the mature generation, okay, what’s sometimes known as the greatest generation, right? And so, here we have these millennials. Now they are not moving into the housing market in any great compared to what percentage right, because you’ve got the entire demographic cohort, about 80 million strong, slightly bigger than the baby boomers. About 76 million. I know these numbers vary because they’re kind of guesses, you know, demographers will fudge around the edges. They’ll say that, well, you know, if you’re a Gen X, or you’re really this year to that year, in terms of birth date, if you’re a millennial, you’re really this year to that year. And there’s a little bit of disagreement here, this little bit of disagreement as to the size. And hey, we’ve got all this on documented workers, or is Hillary Clinton calls them workers without papers. And you know, we don’t exactly know how many people we have in the country, right, or how many areas in each demographic cohort, but we do have a decent idea. So that’s the number we’re going with. We’re going with 76 million baby boomers, we’ve got about 40 million give or take Gen Xers and we got about 80 million millennials or Gen wires and then we’ve got Generation Z. Hey, in a few years, we’re going to be talking about Generation Z. And then you’re going to be sick of hearing about them too. But by then you’ll be so rich from all your real estate investing that pay, you won’t even care.
Jason Hartman 6:09
Okay, so we’ve caught the millennials now, compared to what is always the question to ask, see, they are moving into the housing market, but not in a big way as a compared to what percentage of their overall cohort, but their demographic cohort is so large, its massive, it’s 80 million people that even if a fairly small percentage moves into the house buying market, now, most of them are renters, or a lot of them are representing the shadow inventory. They are the live at home or they’re living in mom’s house living at dad’s house. Hey, hopefully mom and dad are actually married if anybody actually does that anymore. I know it’s not so popular as it used to be on and I say that’s unfortunate, by the way, but Whatever, let’s not go into that rabbit hole, and talk about how the birth rate has been destroyed. And the traditional nuclear family has been destroyed and the culture war goes on. Right. But that’s another subject. So they are moving into the market a little bit, but their numbers are so large that it matters, right? So they’re finally doing family formation. They’re buying houses to live in. Okay. But then at the other end of the spectrum, you’ve got the baby boomers. They’re the other side of the barbell, and they’re moving down. And interestingly, and this is a new trend, and it’s one that I’ve talked about, and I believe john actually talked about it at meet the Masters during his speech. It is that these baby boomers, oddly, are renting, a lot of them are renting, but some are renting and they’re just taking advantage of the appreciation built up in their homes after the last several years and their cash Hang out, and they’re moving to their empty nest home. So with the two sides of this barbell, the millennials at one end, the move down baby boomers at the other end, or even the mature years moving down, right? They are creating a huge demand on an already small supply of entry level housing, or lower price tier housing. Now, an interesting chart here. This is a chart that burns company put out. And this is database on 31 markets. Interestingly, and I’m not sure why he did this. But there’s always these interesting ways to slice and dice statistics. And this is why you got to be careful. You can’t just look at data you’ve got to you’ve got to use some some reasoning with the data. All right. That’s what the brilliant human mind was built to do is reason and isn’t it scary, that we have so few people that are willing to do it. anymore. If you’ve had a debate about virtually anything on social media, you know, that critical thinking is all but extinct, right? Isn’t that scary? Well, another rabbit hole, we could go down, but we won’t. So you’re over your change. This chart I’m looking at shows the rapid,
Jason Hartman 9:21
insane decrease in low price tier listings on the market. Okay. Now, he doesn’t define low price tier. So I’m going to make the assumption that he’s doing this based on the market, but you know, in relationship to that market. So the first stat is the Bay Area of California, you know, that Silicon Valley and by the way, we’re having an event in Silicon Valley coming up San Jose, March 3, Jason Hartman University com. We look forward to seeing you there tickets have been selling briskly for that have March 3, Jason Hartman university.com in San Jose Silicon Valley event that’s a full day it’s a full all day Saturday event. So come to that join us Jason Hartman University calm for details and tickets. So in the Bay Area, low price tier listings are down year over year by 48%. Wow, that is scary bad in terms of lack of inventory in Denver, a market we used to recommend until it got too expensive. But hey, a lot of you listening bought properties from us in Denver years ago, and you made a fortune. Congratulations. I appreciate you. I don’t know if you can hear that. But you were just patting me on the back for helping you do it. Well, thank you very much. So Denver, they are down 44% Raleigh Durham hate another market. We use recommend don’t have inventory there now but many of you purchased from us in the Raleigh Durham area, the tech triangle at the other end of the country 35% decline. Seattle 34% decline. We’ve never recommended Seattle it’s always been too expensive. Orlando many of you were at our Orlando property tour a few years ago. You bought tons of properties from us in Orlando or the greater Orlando area and low price listings in Orlando. by many considered to be one of the ground zero locations for foreclosure activity by the way, down 32% from one year ago, Minneapolis down 31% los angeles down 29% san diego down 24% Orange County, my former hometown along with Los Angeles and San Diego. I’ve lived in all three of those places down 24% Jacksonville, a market we’re currently active in and recommending, but are suffering from an external Dream lack of inventory down 24% low price to your listings from one year ago. Phoenix 23%. Down Charlotte down. We’ve had hundreds of you have purchased from us in Charlotte. Down 23% Tampa. Down 22% Portland down 20% Riverside San Bernardino, down 18%. Atlanta. Hundreds of you have purchased from us in Atlanta. Down 16%. Philadelphia down 15% Chicago land area down 10%. Washington DC down 9% New York.
Jason Hartman 12:37
Really? Is there such a thing as a low price to your listing in New York, down 9% and Boston down 7% Miami down six, Dallas down 2%. Hey, you know the only market out of this survey that actually has a slight increase in low price tier listings. Wonder if you can guess I couldn’t have guessed. It’s Sacramento, California, where my and Joan, who was one of our speakers and who’s been on the show, one of our meet the Masters speakers, where she owns about 100 properties give or take in Sacramento area. So actually a very slight increase in low price tier listings in that market. So I just thought that’s interesting. Now, what is the prescription from yours truly your ROI director, Jason Hartman, what would he recommend you do? What would his solution to this be? Well, he doesn’t have a solution. Sorry about that, hey, I can’t solve all your problems. I try. I really try to solve all your problems, but I can’t solve them all. My solution is don’t wait to buy real estate, buy real estate and then wait, get what you can get. Get while the getting is good. Inventory will probably increase a little bit As we see interest rates go up, or at least, that’s my hope. I really do hope the market calms down a little bit. And I also hope I don’t regret saying that business has been fantabulous the last several years. I mean, really? Well, I don’t know, really the last eight years, it’s been fantastic. But I gotta tell you, it’s hard to operate in a low inventory market. So we would like to see inventory increase a little bit so that you would not be so disappointed when you can’t buy enough properties because we know you want to buy more. And look what will happen when inventory increases, prices will probably soften that upward trajectory and price will probably calm down. Hey, that would be fine with me, because I’m not a capital gains investor anyway, if it comes, I can spend it just as well as the next guy. But really, we invest for yield and at the same time We see prices either stop increasing so much, or even soften a little bit, it would be a welcome change in my opinion, we will see upward pressure on rents. And that’s really what we’re in the game for yield increasing rents, cash flow fine with me fine with me. So, that is my thought that is my prescription for you get as much as you can lock in these low rates while they last they are going away. That ship is pulling out of port. So catch it while you can as the ship is pulling out a port as the train is leaving the station. Whatever metaphor you want to use, okay? Just buy your properties, buy good properties, that makes sense the day you buy them, go and find those properties at Jason Hartman calm, click on the properties section, and we’ve got properties for you there and our investment counselors will diligently help you find good properties. So join us March 3 in San Jose, come and meet some of our clients. We’re going to have one of our lenders there to talk to you about financing. We’re going to have at least one, maybe two of our local market specialists there to talk to you about properties and their management processes and team and you can meet them in person. So it’s a great opportunity. Coming out to San Jose March 3, Jason Hartman University com, of course, we’ve got our Ice Hotel trip coming up. If you want a bucket list experience. Talk to us about that, as well. You can reach us through any of our websites, including Jason Hartman, calm and let’s get to part two and hear more about Scott and Kelly from Washington DC and their case study on why they moved from commercial properties to residential properties for their investing portfolio. Here you go.
Jason Hartman 17:03
That’s why I created this business is because I tried to do it myself also told the story you may have heard it, but I’ll just recap it really quickly. In 2004, I was in negotiations to sell my traditional real estate company in Irvine, California to Coldwell Banker, I knew I was going to have a big check from the sale, I was thinking, Well, you know, I’ll just retire and do rental properties and not have another business, you know, at least not for a while, just take a few years off or something. You know, I’m not the kind of person that is very interested in taking time off, but I figured I’d find something right. You know, certainly didn’t need to work but I wanted to buy more properties and build my portfolio. And I wanted to do it nationwide because I’d been through a couple cycles in California. They were pretty severe. I thought, you know, now I’m older, wiser, more conservative, I don’t want to do that. Again. I want to invest in diversify nationwide, and I was researching These markets Scott and I was like reading like the best places to live in America books and you know, the places rated Almanac. And then I would go online and I would just spend hours I was, you know, like trying to digest the data on the US Census website, which is nearly impossible. By the way. There’s just too much there. You know, I was just trying to figure this out, you know, what are the hot places to invest? And I’d seen it before, you know, I remember when there was a big downturn in Southern California in the 90s. I saw my clients just like abandon their houses. It was amazing. And I remember I had all these vacant properties listed when I was a traditional real estate agent for for REMAX. You know, I saw them go to Arizona, Texas, Colorado, Georgia, you know, like places, it seemed like there was a commonality of like these few sort of states and cities, they were all moving to right because that’s where the opportunities work. And I thought, you know, when one market is Down, another market is up because all those people are leaving it and bringing their money there, right? And that’s where the jobs are going, the employers do it, and so forth.
Scott 19:09
And I thought this is
Jason Hartman 19:10
this is why you got to diversify. You know, you got to invest nationwide. And then I tried to actually do it myself. I just flew, you know, after doing all this research, I flew to these different markets. And I mean, it was terrible. Honestly, I couldn’t find anyone to help me anyone that knew what they were doing, you know, these real estate agents I was talking to, they just, they didn’t know anything and much less. They didn’t know anything about investing, right? Like, you know, it’s like when I was in Austin recently, and this agent was trying to tell me about the cap rates on these multi million dollar houses. I was looking at one for rent, it was 7500 a month. And, you know, I asked her what the value of the house was, and she said, Well, this one’s worth about $4 million. And I thought that’s pretty good deal to rent that for 7500. Which you can do you know, and I was thinking of renting this house, myself when I when I was there. couple months ago, and she started explaining to me about the cap rates. She had no idea Scott how to calculate a cap rate. I mean, it was just it’s just mind boggling. It really is. And then I thought, well, I’m going to be relegated to just putting my big check from the sale of the company into, you know, the stock market. And so I went and met with all like, concurrently I went and met with all the, you know, financial advisors in the private client group, you know, for the people that have a few bucks at Merrill Lynch, Ameriprise, Charles Schwab, etc. They didn’t know anything, either. I mean, they just said the same thing. It was like the same speech. It was the same pie charts. And none of them were wealthy. You know, like, they were just talking to wealthy people all day, but they weren’t, you know, they weren’t wealthy. And I thought this isn’t the way to go. I love real estate, why am I even here, you know, and so, you know, I just thought there’s got to be other people that want to do what I want to do. And sure enough, there you are. There’s a lot of people like you.
Scott 21:01
Yeah, yeah. And it creates great value for people like me. I’m very appreciative that I even have the opportunity to do this. Yeah, my father was invested in real estate starting back in the 80s. And he never was really able to make it work and residential, just a hard way to earn income.
Jason Hartman 21:19
He was in commercial real estate then right?
Scott 21:21
He went into commercial, he went into warehouses and other stuff,
Jason Hartman 21:24
okay, like industrial type properties. But he tried it in residential, and he said he was never able to make it work, right? No, he was never able to make it work. Tell us what do you what do you mean by that
Scott 21:34
he had a hard time identifying properties to begin with. This was before the internet, he had a hard time of knowing what to charge for rent. It cost him in a lot of fees just to get a standard lease together. And then he didn’t have a good way to check people’s credit. And so he ended up leasing the people who didn’t have very good credit. And they were actually pretty good at using the court system. So when he tried to get them evicted, they knew that they couldn’t be evicted. At least in the State of Maryland. They couldn’t be there during the winter months, right? They could just quit paying the rent in October. And by the time you get them into court, it’s already December. Yeah. And the judge will say, Well, I’m not gonna throw a family out in the cold. Right. Let’s
Scott 22:14
talk again in April right around Christmas. Oh, my God.
Scott 22:20
guys just got October, November, just seven months of free rent. Yeah. Yeah. And guess what, the next year they can do it, too.
Jason Hartman 22:26
Yeah, yeah. They know how to play the game. In any of these liberal, you know, jurisdictions. You don’t want to be a landlord, folks. They’re just not landlord friendly. We have a client years ago, I remember he used to get up at our meetings. He did it a few times. And he talked about how he owned a property in Washington DC, you know, had rented it out, and then the people wouldn’t pay and he tried to victim and there was this rule, this law that you can’t evict someone whenever there’s more than like a certain percentage chance of rain or snow. And that is like, every day practically, you know, you’d, and you’d have to pay and schedule the sheriff each time to go and do the eviction. And it just got, you know, postponed and postponed and they just kept living there for free. It was unbelievable. You know? Yeah, yeah. Wow. Yeah, that’s how it is out here. That doesn’t work you it doesn’t work.
Scott 23:21
And you get through your company, I’m able to go out and purchase, you know, 12 homes in Memphis, over just a few days or every few months. And most of them I’ve never even seen and they’re able to cash flow. Well, the checks just arrive and I speak to the property managers if I want to, but most of the time, I don’t. Right. It just works out. It’s amazing. I’m glad you’re amazed and happy with your experience.
Jason Hartman 23:44
Tell us about the property management. You know, the experiences with property managers are most certainly mixed. Okay. You know, some are good, some are bad. It depends on the manager that also depends on the circumstances. luck, I think plays a part of everything in life. What are your actions Is with our property managers and, you know, do you have any tips for the listeners?
Scott 24:05
I’ve had a lot of experience. in Memphis alone, I’ve worked with four different property management companies. I will say that some providers are better providing homes and some providers have about better property management. When you’re considering a purchase, you want to look at the home itself and make sure it’s a wise decision. And you can always change management down the line. We have found the property manager that we’d prefer in Memphis, mainly because they keep in touch with us a lot and let us know what’s going on. Other ones just didn’t respond much by the phone or the checks, rent checks would arrive late. In some cases, you know, the rent checks were missed for an entire month and we had to go back and forth for months to find out what happened. So good. We have a property manager were you given the perspectives on the property when we purchased it, there was a high rent and a low rent and after purchase, they wound up renting it out at the Little rent, which was a little bit disappointing, but they also leased it out for two years. Well, when that lease was over, we asked them to please raise the rent. And that’s not what happened. Instead, they leased it out for another two years still at that low rent,
Jason Hartman 25:14
so they just ignored your instructions. They completely ignored our instructions. Yeah. lievable. Unbelievable. Yeah,
Scott 25:21
yeah, that particular property is coming up in September for renewal. And so we’re trying to get on top of it. We’re seven months early here, notifying them and saying, Hey, we really need to bring this up on rent. You know, according to the websites, it should be rented for about 1550 a month, but it’s being rented out for 1295. So that’s about $250 a month that we’re missing out on. We’d like it the rent to be raised quite significantly. And we were just sent back a reply. It’s just a form reply that we’ve seen many times. Now, unfortunately, that said that they’ll try to get the rent raised by 75 bucks, but they might only be able to get 50 If the tenant refuses, maybe they won’t be able to get that at all. Well, I don’t know. Jason, do you think I should change to another property manager?
Jason Hartman 26:07
Yeah, I think so that sounds like the interesting thing is though, you know, and I complain a lot about property managers, and local market specialists when they’re not doing their job. I mean, Scott, you’ve heard me on the show, and boy, I got an episode coming up for you to that we’ve recorded with what’s interesting, you know, that you always have to keep in perspective, and I think you’re pretty good at doing this. Even though you may have a bunch of complaints, and you have things go wrong, the investment can actually still be a pretty darn good deal at the end of the day, Canna.
Scott 26:43
Absolutely. Yeah. You know, there’ll be some good surprises and there’ll be some bad surprises. But once you have a few investments, they tend to even out they tend to do pretty good. On average. Yeah. If you see chronic problems like repairs are just recurring and at high expense. It might be time to switch property management. But if one isolated incident happens, you know, I would try to work it out before I’d switch it up.
Jason Hartman 27:08
Yeah, make sense. Make sense. Tell us about like your overall portfolio and how that’s working out. You know, do you have any metrics you want to share or anything like that?
Scott 27:16
Well, we really set out to get an 8% cap return on our
Jason Hartman 27:22
portfolio Spoken like a true commercial real estate guy.
Scott 27:28
We’re trying to replace a certain investment with another investment, impossible cap rate or better cap rate. Our target was 8%. And it’s been performing at almost precisely 8%. But once you take financing into account, it does a little better than 9%. So we get very good returns on our investments ends very regular. And we don’t really worry about how much money we’re going to make this month. We know that it’s going to be pretty good.
Jason Hartman 27:54
Yeah, good stuff. Good stuff. Have you considered self management
Scott 28:00
That’s what I’m trying to get away from. Right, right.
Jason Hartman 28:03
Well, no, that’s, that’s why I asked you that because you self manage the shopping centers. But, you know, I tell you, I have rented, I think, seven commercial properties as a tenant, you know, for my real estate offices in Orange County. And, man, you know, that is just a high maintenance deal in terms of the management. In many of my properties, I would see or communicate with a management every business day. I mean, that’s far different than, like now, for example, I mean, I’ve you know, I own lots of investment properties, but I rent the high rise condo in which I live, and I hardly ever communicate with my landlord. He self manages it. I’ll send him an email every three months, maybe. I mean, there’s almost no communication between us. So self management in residential is a lot different than with a shopping center.
Scott 28:54
Don’t you agree? You know, I don’t know with office space. It tends to be very management intensive. Yeah. I agree with retail shopping center not so much. A shop owner just wants to be able to be open and be in business and they don’t want to see you. Their toilets, their interior is all owned by them. They manage the maintenance of the windows and doors and they pay their own utilities. So it’s really not that bad. The problems can be, you know, on the outside the building, if someone comes and dumps a pile of debris in the parking lot, that can be an issue. I personally have security issues at the shopping center. And so I actually go there personally to deal with it at all hours of the night.
Jason Hartman 29:33
Wow, I can see why you don’t manage it. That’s your background.
Scott 29:39
Well, part of what I’m trying to do here is get away from Yeah, right. A work life situation where I have to answer the phone when it rings. Okay. I would rather detach fairness, I totally understand. So any tips on managing your managers that you want to share with listeners basically, you have to remain active and remain interested. You don’t have to be going crazy over it all the time, you don’t have to worry about it. But do read the emails, do read the reports when they come in, if you have questions, call it ask and get answers, you might want to keep track of where repairs are happening a lot, because often, you will find that the same thing will get repaired over and over. And that’s something that as an owner, you can identify and make sure the property manager becomes aware of. So that next time the repair happens, it’s you know, final, or maybe you can get reimbursed for some of those repairs, if they weren’t, in fact, successful repairs, right? And just pay attention. There’s some signs of bad management. If your rent check doesn’t show up in the reports don’t show up. I would be concerned and I would take action on that. Call them up and find out what’s going on, you know, reacted. Yeah, but you don’t have to sweat it. Right. You don’t have to be fearful as long as things are going well, you know, do something else with your time.
Jason Hartman 30:54
Yeah, right. I agree. I agree. What are you doing with your time other than other than your properties or Yeah, I mean, you’ve still in the shopping center business, obviously. So you’re you’ve got to do that very active. And then you know, you’ve got to do some management of your managers on your single family home portfolio. But just out of curiosity, what else are you doing? enjoying life?
Scott 31:16
I am enjoying life. Yeah, just so happens that Valentine’s Day is tomorrow and my wife and I are gonna fly to Cancun and take some time off.
Jason Hartman 31:24
Yeah, awesome.
Scott 31:26
But other than that, you know, I’m on a quest for the best real estate investment I can find right now. I’m just looking at all different opportunities, all different style of investing. And the worst thing about is I keep finding great investments.
Jason Hartman 31:41
So good right now. It keeps you tempted when you keep finding these great deals. You can’t refuse. Yeah, good stuff. Good
Scott 31:50
stuff. I want to try to find the best opportunity but you know, there’s so many good ones that come up. I just
Jason Hartman 31:56
I want to get them all. Yeah. It’s like being a kid in the candy store. Did it I totally did it. I feel the same way I totally understand. Well, good stuff. Scott, thank you so much for sharing your story. And really just appreciate this. And you know, just anything you want to say in closing, before we wrap it up, I just want to say, Jason, I said this to you in Phoenix, I really mean it, I really appreciate that you created Platinum properties. It’s improved my life, the life of my family. And as far as I expect, you know, it will continue to do so for years to come. I’m just really appreciative of the impact that this has had and will continue to have on my life. And so I just want to thank you for what you do. Well, thank you, Scott. That’s so nice of you to say that and thank you, we should be thanking you for being our customer. So we we appreciate you being a client and you know, of course appreciate your business and will always help you any way we can. So and then also thank you so much for sharing your experience on the show really, really great. Every listener always says they love to hear with a client case studies. So listeners, if you’re out there, and you’re listening to this, and you’re a client of ours, Hey, come on the show, we’d love to hear from you. And Scott, thank you so much and say hi to Kelly for me. I sure will. Thank you, Jason. Hey, I hope you’ll join me in San Jose on March 3, as we host, our Jason Hartman University event. Now, this event is for the real practical, hands on interactive education on income property investing, where you will learn how to actually do the math, how to evaluate the deals, we will go in depth into this subject of how to analyze a real estate deal. And once we do that, we’ll talk about how to build a portfolio, how to properly structure a portfolio, how to diversify it, how to sequence your mortgage financing, and it is a fun event. We do some gamification. You’ll meet a lot of people because you’ll be working with the people in the class, and it’s a one day event. You can check it out at Jason Hartman University. dot com. Jason Hartman University com. We’ve been doing this event for about three or four years and people absolutely love it. We’ve done it in San Diego and Salt Lake City. Now we’re doing it in San Jose. We’ve done it other places as well. I just can’t remember where offhand but it’s a great event and we try to do it about once a year. I asked her we did it in Oklahoma City. This time we will be in San Jose Silicon Valley on March 3. Jason Hartman University calm Jason Hartman University com. Get your tickets today. And we’ll look forward to seeing you in Silicon Valley on March 3.
Jason Hartman 34:43
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On this Flash Back Friday show originally published in June 2017 as episode 848, Jason is joined by Investment Counselor Carrie. They talk about the impact of rising interest rates on the US economy. Jason explains that the Fed doesn’t directly impact mortgage rates but does directly impact short-term rates leading to affect on all rates. He reminds us that having income properties during a high-interest rate environment will put upward pressure on rents.
Jason Hartman 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason is hand picked to help you today in the present and propel you into the future. Enjoy. This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com.
Announcer 0:27
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:17
Welcome to another edition of the creating wealth Show episode number 848 848. This is your host, Jason Hartman, thank you so much for joining me today. As we talked to listeners from 164 countries worldwide. We so appreciate you listening and telling your friends and family and co workers and your enemies about the show because even your enemies need some help. In fact, there’s a great quote that just reminded me of by Winston Churchill, and I don’t remember the actual quote, isn’t that terrible? I come on with this quote that I just reminded myself of, and then I don’t remember the quote, but anyway, it’s about the importance Believe it or not, the importance of having enemies and it basically says something to the effect of, if you don’t have any enemies, you probably haven’t done anything in life. So you can always sort of keep score by how many people You’re upsetting and how many enemies you have. That is one metric. You don’t want to have too many of them, obviously. But a few are good. You know, it means you’re doing something. You’re making some waves creating some dust in the world. Hey, maybe that’s what we’ll do today. I don’t know. We’ve got a pretty likable person here on the show with me today. That is one of our investment counselors. It’s Carrie Welcome back. Carrie, how are you?
Carrie 2:33
Hey, thanks, Jason. Thanks for having me on.
Jason Hartman 2:35
It’s good to have you. Do you have any enemies?
Carrie 2:37
I’m sure.
Carrie 2:41
I keep them close.
Jason Hartman 2:43
Yeah, you do you? Well, you know, that’s another quote Abraham Lincoln, I think said keep your friends close and your enemies closer, right? Yeah. Yeah. Very interesting. You know, they say you can always judge a person by the company they keep well maybe you can judge them by the enemies. They have to either We’re off on a tangent already. And we haven’t even talked about real estate yet. We’re just talking about enemies. But yes, I think it’s good to have a few enemies kind of healthy long as they’re not severe enemies carry, what is going on in the marketplace, you are out there talking to clients every day. But you have an interesting role in our company that other investment counselors do not have kind of a dual role. And that is where you bring on our local market specialist. You onboard them, you screen them, and you are talking with tons of them out there. And you know, you got a difficult job, you’ve got a vet, not only the person or I should say the people in the company, but also the properties and all of this has to fall in line, really with with the marketplace too. So it’s really kind of three tiers that you have to vet. You have to vet the people the team we’re working with, you vet the market. Then you also vet the actual property inventory they have and can provide. So we are on the verge of announcing a couple of new markets, one of them that we did business in before and you know, we are area agnostic. So we move in and out of these markets over time. So look for those announcements soon. Oklahoma City is a pretty new market for us. And Carrie, you’ve been instrumental in helping us plan that Jay Chou Jason Hartman University live and property Tour event there. Are you excited about that one? How’s it coming together?
Carrie 4:31
Yeah, yeah, it should be. It’s really good one. It’s a we’re we have a lot of inventory there. We have their property management and their operations. They’re really on point. So it’ll be exciting to see their neighborhoods and the final touches to what they have out there.
Jason Hartman 4:47
And our local market specialist there is actually a member of the venture Alliance. He’s in the venture Alliance. And you actually heard him talking on a prior podcast listeners where we played a Homemade recording. Maybe like the recordings Donald Trump is keeping secretly in the White House? I don’t know. It’s kind of like Richard Nixon, you know. And so you heard that from our venture Alliance meeting in Las Vegas, where he was talking about HR and how he manages his team and all that kind of stuff. That guy really is a good entrepreneur. He runs a good business. I’m pretty impressed. But you know, we’ll see it firsthand when we go out there. And we’ve got a lot of people registered. And Carrie, you said the magic words. I couldn’t believe you just said this. You said we have a lot of inventory. Are you kidding me? We actually have a lot of inventory somewhere. I like hearing that.
Carrie 5:37
Yeah, yes. Oklahoma City. They have a lot going on there right now as far as mostly new construction. But we do have some rehabbed turnkey properties as well. So it’ll be exciting to see and talk with other investors to see what they think of these properties and hear their stories comparing to other markets they’ve been in as well.
Jason Hartman 5:58
Yeah, absolutely. And you know, remember Number folks, if you’re the new construction inventory, of course, the overall return on investment, the crap rate, I mean cap rate, sorry, Freudian slip, non Freudian slip, slip, I call it the crap rate, because it’s really not a great metric. And, you know, but people in commercial real estate, they always want to talk about cap rates, but the the cap rate or the cap rate is lower on new construction properties, and so is the overall return on investment. But, you know, the idea is you’re buying a premium property or buying a property that’s just going to have fewer households, fewer maintenance issues, obviously, because it’s new, better tenant quality in general, you know, ideally, better appreciation as well. So all of that is a prediction. I can’t say for sure that it’s any of that will come true, but generally it does, okay. So, you you know, it depends what kind of investor you are, you know, if you like those C class type properties, then you know, they get the higher returns, but you tend to have a few more hassles and lower quality tenants versus the better quality tenants and the brand new home. So it just kind of depends, you know, it’s based on the investors temperament. But yeah, that that events coming together nicely and I’m really looking forward to it. Carrie we’re doing Jason Hartman University live at that one Jay Chou live. And that’s where we really go into the numbers and how to analyze a property. We’re going to do some panel discussions on this one, I volunteered some people they didn’t volunteer themselves, I volunteered them to be on the panel, some clients and some venture Alliance members and we’re going to take kind of a deep dive into some panel discussions there, which I think will be very enlightening and educational for the attendees. And so join us for that go to Jason Hartman, calm click on events and sign up for the Oklahoma City change you live and property tour. And that is in early July, and I’m looking forward to seeing all of you there. Well, not all of you because we wouldn’t have enough space for all of you. But many of you there and if you haven’t been to one of our events, I think this is especially important. Come like Kerry said coming meet our clients and meet our team, our providers and our team. That is just so important. You know, we are not a high tech company. And we are a high touch company. We are not a DIY, you know, do it yourself, real estate investor company, we are a done with you company. We do it with you and we really get involved and get in the trenches with our clients and help them make their real estate career real estate investment career real estate portfolio work for them and all of our clients. You’ve heard so many of them on the show over the years will attest to that. You know, this is really a done with you thing. So we want you to meet us, we want you to meet our clients. We want you to meet our team. I’m sure we’ll have many clients there that have purchased dozens of properties through us. You know, you can just hear first And in these casual conversations, the good, the bad and the ugly, you know, it’s it’s not all good. But it’s it’s just better than everything else. That’s all it is. Real estate investing. It’s, it’s not perfect by any means. So come to Oklahoma City will look forward to seeing you there. And Carrie, thank you for your help on that. I want to talk to you more carry about other markets and kind of what’s going on in the world of vetting properties and vetting local market specialist and so forth. But before we do that, you had some questions about interest rates, and, you know, kind of what that means for investors and, you know, to the economy in general. So, do you want to go into that first?
Carrie 9:36
Yeah, sure. So, one of the articles we recently came across was on the spike of interest rates, what do you see, as investors coming to me, you know, should they be worried about these interest rates? Should they hold off on buying or is it still a good time to go forward with financing their property?
Jason Hartman 9:54
Okay, so to answer that question, Carrie, first of all, I have to in the interest of full disclosure, I have disclose that I have been very right about very, very many predictions, but one that I have been fabulously wrong about is interest rates. You know, if you came to my seminar in 2004, okay 13 years ago, and then if you came in 2007. And then if you came in 2009. And then if you came again in 2011, I would have told you, interest rates are going up. And I have been fabulously wrong about this. Okay, so that’s the first thing I want to say. I admit when I’m wrong, okay. Interest rates, very hard to predict probably one of the best places to get interest rate predictions, and I want to get them on the show. And that is someone from grants, interest rate observer grants, interest rate observer, a high end newsletter that talks a lot about interest rates and so forth. But it’s clear to me and it should be to everybody that the Federal Reserve Far central bank believes that the economy is strong in it is in well into recovery. And they are raising rates. And you know, for the first time since 2008, we’ve really seen a real rate increase and we see an upward trend and interest rates. There’s no question about that right now. That that is the track that the track the Fed is on is to raise rates. At least one more time this year. They just did it once. Recently. And that was just what a week? I don’t know. I can’t keep track of time anymore. Just a week ago. Yeah, just like, well, 10 felt like five days. Yeah, it was last week. So clearly, they think the economy is strong, and they’re raising rates, they still have a target inflation rate that they want to get to have around 2%. You know, what does this mean for investors? Well, Carrie, as you know, we’ve talked a lot about the multiple dimensional nature of real estate investing. And we’ve talked a lot about the three dimensions of real estate. And so when rates go up, it means housing affordability declines, it means fewer people can buy fewer people can qualify. And so when that happens, there are millions and millions of people who are now renters. And the vast majority of them think I want to buy a home. I want to get that house with a, you know, metaphorical white picket fence. You know, have the American dream of homeownership, the vast majority of renters think that way? Yeah, I’m not like passing judgment on that. For most of them, it would be a good decision to buy a home. They are then priced out of the market. Of course, there’s been a lot of appreciation prices have gone up quite a bit in the last six, seven years, obviously. And, and then with interest rates going up. The Fed is kind of signaling that look, you know, the economy’s recovering. We’ve got to raise rates, and one of the reasons they have to do this Because the Fed has certain weapons that it can use to fix the economy when it gets into a recessionary time or a discretionary time. And one of those tools, one of those, you know, very powerful bullets in the gun, if you will, our interest rates, they can lower rates to stimulate the economy, and the problem they’ve been facing for many years. And the reason so many people thought, and you heard Harry dent talk about this years ago on my show, and many others, Peter Schiff, etc. These are the people that are almost always wrong, but they’re darn interesting to listen to.
Jason Hartman 13:42
If they, you know, they have said, you know, maybe it will be like Japan, of a last what was originally the last decade and became the last two decades and now is moving into the last three decades in Japan, where, basically, there is no weapon to combat a battle. economy. And so if the economy tanks again, for whatever reason, the Fed needs to have rates be a little higher, so it can then lower them, you know, it’s all relative, right? And if the rates are it basically zero, there’s no you know, the Fed is shooting blanks, they have no weapon, they have no tool to stimulate the economy. So they’ve got to get rates back up, it is imperative that the Fed increase rates, and that we see those rates then play through the market. Now, it’s important also to understand that the Fed does not directly impact mortgage interest rates. They only do it indirectly, okay, but they definitely influence it. There’s no question, but they do directly impact short term interest rates. The Fed needs to raise rates, we need to see higher rates. It’s totally unfair to senior citizens that have saved money that just want to put their money in the bank and have a CD a certificate of deposit and last Those certificate of deposit. So they expire different times and, you know, retire off off their money, why should they have to be investing in risky stuff in, you know, stocks and they should be able to just coast at retirement age, but they can’t do it because the rates are so low, there’s no yield for them. So it’s very unfair to those people to have very low rates. And so there are many aspects. It is unhealthy to have really, really low interest rates rates need to go up, and the Fed realizes this, and so does the rest of the government. And if you ask me, that’s where we’re going. Okay, so what will that do to the market? Well, it’s, it’s going to make rents go up. It’s going to put upward pressure on rents. And it’s going to reduce the frothy bubble market that we’re in in the cyclical markets carry because in the cyclical markets, and you know, all of Canada fornia, the Pacific Northwest, South Florida, the expensive Northeastern markets, those markets are crazy, the prices are way too high. You know, clearly, they need to dampen that. and higher interest rates should do the trick. So it makes the market more healthy when interest rates are at a normal level. They’re way too low. It’s unhealthy to have really low rates for so many reasons. So, you know, you got to take away the punch bowl at some you know that the economy is getting too drunk off low interest rates. And he Carrie, there’s one more aspect that’s kind of interesting to you know, you’ve heard a lot and certainly you and I have talked about this about how the middle class is just being destroyed in America we used you know, what made America so great for so long as this big middle class and the middle class is is declining in numbers. It’s It’s a sad thing. I really don’t want to see it lower. Interest rates make the rich get a lot richer, they concentrate wealth, the rich get much richer in the low interest rate environment, because they take advantage of inflation induced debt destruction. And you know, the middle class might get a little bit of a benefit of this, but it’s nothing compared to the wealthy classes. So that’s another thing that higher interest rates will do is it will lessen the concentration of wealth now, people can argue that all day long, but that’s what I believe Anyway, you know, so. So Does that kind of make sense, though, on the interest rate thing? I mean, it’s, it’s good for rents, we’re gonna see higher rents higher interest rates mean higher rents?
Carrie 17:41
Yeah, no, that makes sense. That’s good. That’ll answer a lot of questions out there. So thank you. Yeah,
Jason Hartman 17:46
yeah. There’s another thing that’s important to know and it’s not directly about interest rates, but it’s about what the Federal Reserve did during the the Great Recession. They purchased bonds. like crazy, they were buying up bonds because they ran out of tools. They the interest rate tool was exploited, you know, they shot all the bullets, they lowered rates so much to stimulate the economy that the next thing they had to do is buy up bonds. And so when they bought up all these bonds and mortgage backed securities that are essentially act like a bond, okay? Basically what they what they did then is they increase the amount of lending, because every loan essentially converts to a bond. And so if there’s no investor to buy the bond, then the lenders ran out of money to loan right. So the Fed bought tons of bonds. And Janet Yellen made an interesting remark last week, she said, Now the Fed is trying to sell off the bonds, okay, and roll back this program. And she said, watching the Fed reduce their balance sheet of all these bonds would be as excited is watching paint dry? So that was that was kind of a funny remark. And she’s right. You know, it’s interesting. Yeah. So that that’ll be an interesting thing to see too. But the the weird thing is that you combine this with the stuff the Trump administration is doing, rolling back Dodd Frank and making lending easier and borrowing easier. You know, it’s, it’s pretty good time for real estate investors. I mean, I don’t know, you know, without trying to sound too much like some kind of Trump fan, which I’m not, at least not that much, although I think it’ll be good for the economy. You know, I think the glory days are here for a little while longer. I don’t I don’t see any big, big disaster happening unless there’s just something we don’t know that behind the scenes. So yeah. So Carrie, what else is going on in the marketplace, kind of share with our listeners a little bit the vibe of what local market specialists are saying to you, you know, the difficulty of getting inventory from them, etc, etc.
Carrie 20:08
Yeah. So as you mentioned, you know, I’m always working with new providers and our current ones, a local market specialist who bring on these properties for us. So the majority of it is, like you said, just finding the homes, finding what’s out there and making sure that it’s, you know, quality property for our investors. You know, I did have one of my investors went to one of our local market specialist the other week, and, you know, he asked him for properties and trying to work with him. And the local market specialist actually said, No, this property isn’t good enough to Jason’s standard, so I’m not even going to refer it to you, it’ll go to someone else. So that’s the kind of local market specialist we bring on to they know the standards. They know what’s out there and what you guys are looking for you And that’s kind of reassuring to that they have our backs as well as your backs in what they provided. So that said these properties, they’re just gone, you know, right. And when it gets listed, I mean, they’re almost gone within 24 hours if it’s a quality home. So that’s been a challenge is just to keep the properties on our site long enough for everyone to see them.
Jason Hartman 21:23
You know, Gary, just to comment on that. I remember when I was in traditional real estate, and the market was on fire, and houses were selling, you know, in a half an hour, basically, you know, you could sell a house in Irvine or newport beach where I, I worked, you know, million dollar house sold in 20 minutes, you know, it’s unbelievable, you know, ridiculous, basically a wading pool of buyers. And one of the things that people had to do back then is they would do all kinds of things they would like write a letter to the seller, including a picture of their cute family. And say, you know, basically begging them to sell the home to them, because they had multiple offers. And it was just, you know, I’ve been through that cycle like three times now. Okay, you know, in the traditional market and you know, now I’ve seen it a couple times in the investment side of the market that I’ve been doing for the past 14 years. And it’s one of the things people have to understand. And this is another important reason to come to Oklahoma City, to our property tour and Jay Chou event is that you need to form and I’m talking to you investors, you need to form a relationship with the people on our team. And I know this may sound ridiculous, you may think, hey, Jason Carey, I’ve got money, okay. I’m the customer sell me the house. Okay. Not so easy in this market. It’s not quite that way. Now, it’s almost to some extent, a privilege to get to buy the house. To get to spend your money, right? And I know that goes against a lot of people’s thinking they think, are you kidding me? No, I’m not kidding. Okay. Now you can buy crap houses all day long, and not have to do any of this stuff. But I’m telling you, it behooves you to get these local market specialist to know like and trust you, okay? They want to, you know, look at everything in life. We all know this is all about relationships. Okay? And this is one of the softer elements of investing. You’ve got it, obviously have a team and that, you know, come to the property tour and meet the team right in one of our markets and get them to know like and trust you get them to put a face to you see, it used to be we’d say, you know, we’d say this to our providers in 2009. Okay. There were all No buyers and lots of sellers, right? That was the opposite side of the equation, we would say, Come to our meet the Masters event so the clients can meet you. So they can know like and trust you. Now I’m saying this to the investors listening, I’m saying, Come to our event, so the seller can know like and trust you. It’s it’s flip flop, hasn’t it?
Carrie 24:23
It has, it has. It’s it’s amazing how much building a relationship will do and work can take you these days. Yeah,
Jason Hartman 24:31
yeah, absolutely. Very, very important. Okay, Carrie, go go ahead with what you were saying. I interrupted you with that comment, though. But
Carrie 24:38
that’s all right. What was I saying?
Jason Hartman 24:40
Well, you were just talking about, you know, getting the properties and then I went into the, you know, the traditional real estate that people that wrote a letter to the seller and put back for their family and all that stuff.
Carrie 24:51
So yeah, so I mean, we do have, you know, some of the hot markets right now with a lot of inventory and we’re still trying to reach out to those markets like Jason said, we have some new ones coming up. So, you know, when I go through these and I vet them out, I probably go through five different local market specialists a week that and they don’t come on board. And it’ll take them six months just to make sure their property management, their properties and their operations all work side by side with what we preach out there, too. So it takes a lot of effort. And that’s why, you know, there might not be as many properties available right now, too, because, you know, we’re picky in that area. But when they do come, they’re good properties, and it’s a solid team to back it up.
Jason Hartman 25:36
Yep, yep, absolutely. You know, you might think we’re just giving lip service to this folks, but we’re not, okay. We’re picky. If we wanted to sell junk, we could do that all day long. And, you know, everything in life boils down to weighing out the short term gain or the long term gain. And you know, it’s all it’s always this way, like, do you want to be instant gratification Do you want to sell a bunch of properties this month or this year? Or do you want to be able to keep selling properties for the next 10 or 20 years? And, you know, do you want to make some cash some quick cash? Or do you want to make a fortune? Well, you know, I believe in long term thinking, and I’m willing to delay gratification and, you know, have that long term foresight in the way I run the business and all of our people carry Sarah Oliver, Fernando, they’re all like that. Okay. And, you know, that’s why we have such a fantastic team because we’re just not going to lower our standards too much. Admittedly, we we have lowered them a little bit and I’ll tell you how we’ve lowered them. Okay. years ago, for example, we sold many, many properties. And Carrie, this was even before you were with us, your years and years ago, we sold many, many properties in places like Austin, Texas, Phoenix, and Denver. Okay. Listen those markets I will not deny for a moment that those markets are better than Memphis and Indianapolis and Toledo. Okay. But the fact is those markets have all become way too expensive. And everybody’s priced out of those markets. And here’s another way we’ve lowered our standards, right? You know, can’t be with the one you love, love the one you’re with the old song, right? Is that, you know, we used to have rent to value ratios back in 2010, for example, of 1.6%. regularly, that was a common occurrence. Now, you know, if you can get 1%, which is fine, that’s a great deal. Okay. That’s fantastic. If you can get 1% so the standards have declined, but, you know, we can’t fix that. That’s just the whole marketplace, but we’re not gonna Do D quality properties, we’re not going to do D quality providers that don’t offer any degree of service or follow up and basically scam people. And we’re not going to offer D quality markets that just start crappy markets that are just way too blighted. And we’re not going to, you know, do some of this crazy offshore stuff either. Okay, that, you know, I’m not saying we never will, if something makes sense, hey, we’ll do it just like the next person. But we’re just going to have some standards, and we’re going to be picky. And you know, the company, the most successful company on earth is extremely picky this way. And that is Apple, the most almost a trillion dollar company now, most valuable company, the human race has ever known. incredibly high standards. Everybody loves their products, and they’re willing to pay triple to quadruple the price. I love it when all these people say, Well, I couldn’t get an Android phone for $99 Why would I pay $700 for an iPhone? Try an iPhone. You won’t want to go back. I can get a little PC laptop for, you know, 400 bucks. You know, I know you have to pay 1600 for a Mac, but it’s so much better. Really? It’s so yeah, that’s the that’s the philosophy. carry any other thoughts on this? I know, I tend to go off on tangents here.
Carrie 29:23
No, no. As far as the markets, you know, it’ll come back the they’re working hard these providers and inventory will be there. But some things to keep in mind is you know, when you are ready. As an investor, of course, first educate yourself, get out to these events, like Jason said, and get the hands on experience. And listen to the podcast and form
Jason Hartman 29:47
the relationship
Carrie 29:48
relationship. Then once you’re ready to go, you know, get yourself through lundeen Get yourself through financing. And once you have your pre approval read letter, you know, make sure you’re ready to jump on a property and Know the market know what you’re looking for. So you’re not going to miss out on that deal when it does come up. Yeah,
Jason Hartman 30:05
yeah, you got to be ready in today’s market because in today’s market, you need to convince the seller that you are the buyer that can complete the deal and can complete it quickly. You know, it’s it’s not just being willing to buy a property anymore. It’s being you know, ready and willing and very able and the way you and having a relationship that’s going to help you to big time, big time, so you know, can’t quantify it exactly, but it’s important and so like Kerry said, Get pre approved for your financing, our investment counselors, you know, Carrie, and the rest can refer you to the right lenders that specialize in investment property financing, you know, will help you buy the properties and, and, you know, one of your dear clients and our dear clients recently, Carrie, he’s been on the show he’s such a great guy comes to a lot of our events. And you know, he got kind of burned recently on a couple of properties. That he was buying. And, you know, the seller sort of changed their mind, basically, I think because they figured they could sell the property for more and this kind of stuff happens. But if you try and do it on your own, it’s going to happen to you all the time, there’s going to be no recourse. Whereas if you have our leverage, you know, we get these local market specialists to keep viewing things from a long term perspective, they know that the market will not always be this way, and it will become imbalanced in the other direction eventually, and they will need us they view that relationship is very important. So you’re going to get the power of our relationship, okay, with the local market specialists that’s going to help you make your portfolio your investments more successful and, you know, get you properties in the first place, good quality properties, but then also, we want to help you form your own relationships. And again, that’s why you gotta come to our events. We’ll see you in Oklahoma City for Okay, be there. Jason hartman.com. Click on events, get your tickets for the Oklahoma City Tour and meet our team there. You’ll really like them. They they’re a good team. Carrie, are we ready to wrap it up?
Carrie 32:13
I think we’re good.
Jason Hartman 32:15
All right. Hey, everybody. Thank you so much for listening. Carrie, thank you so much for joining me and letting me ramble on Carrie, do I ever go on a tangent?
Carrie 32:24
Thank you, Jason.
Jason Hartman 32:28
Just right there.
Carrie 32:30
Just occasionally,
Jason Hartman 32:31
only occasionally. This might be a reason that I’m single. It’s a thought it’s a possibility. Anyway, okay. So anyway, happy investing to all of you. And we’ll look forward to seeing you in Oklahoma City. Those of you who joined us in Chicago. Thank you for so much for joining us in Chicago for venture Alliance mastermind. Hey, Carrie, actually one more thing, But wait, there’s more. You’re working on Some good stuff for the venture Alliance coming up. Our next one, which will be tentatively slated for September. We do these quarterly meetings. Tell us what you’re working on.
Carrie 33:09
Yeah, we have a few options here. some exciting things. We could be going to Cuba, we could be going to Hawaii or Sweden into an Ice Hotel. So that one might be more in the winter. But there’s some exciting things and you should all get out there for one of them.
Jason Hartman 33:29
So folks, did you see the James Bond movie with the Ice Hotel? I think that was when Pierce Brosnan was James Bond, I believe. And he had that Aston Martin. That was the, you know, cloaking Aston Martin that was invisible, basically. And they were in the Ice Hotel in Sweden. And that’s what was on our on our bucket list for the venture Alliance mastermind we want to do, Cuba, Hawaii, which is you know, the island in Hawaii, obviously. So it’s hard for me to say kawhi quite quite carry any help on them
Carrie 34:05
and believe it’s quite, quite like Hawaii, Hawaii.
Jason Hartman 34:09
Yeah, I know. It’s hard to say that one. Please for me, the Ice Hotel in Cuba we want to do Cuba. I think that’d be super interesting trip. I have actually been to Cuba. I was there about 12 years ago. And folks, it’s like going back in time. It’s everything stopped in 1959 when Castro took over and and communism took over. So I want to get back there again before it becomes too westernized and modern and uninteresting. You know, as soon as there’s Coca Cola signs everywhere. It’s boring. It’s interesting when it’s like this. Yeah. So Carrie is working on some good venture Alliance scouting. So Carrie, thank you for doing that. And check out the venture alliance in more detail at venture Alliance mastermind calm. I just finished that great book outwitting the devil by Napoleon Hill, and he just over and over talks about the importance of a mastermind group. It’s so so important. So Anyway, before we get on another tangent, Carrie, let’s say goodbye.
Carrie 35:04
Goodbye.
Jason Hartman 35:05
Happy investing everyone. We’ll talk to you on the next episode. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out this shows specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice of any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
Jason Hartman and Thomas the Economist take today to discuss a different view on Inflation Induced Debt Destruction. Jason and Thomas dig in to some stats from Shadow Stats that show what is, potentially, the real rate of inflation, and its VASTLY different from the numbers the government puts out for public consumption.
Investor 0:00
I always have had an interest in investing in general and educating myself about different types of investing. And I’ve always kind of come back to real estate in general because of all the things that we we discuss on your podcasts all the time. I read you know, a lot of real estate books and I think a lot of people probably talk about that Rich Dad Poor Dad book which opened up some some new thoughts in my head, especially the actually the 1031 exchange they mentioned in that book. And my medical partner is the one that actually turned me on to your network because he he had invested with you. And that’s how I came specifically to to your podcast. I spent a lot of time educating myself before diving in. The method that I hadn’t started my investing with you was was through this 1031 exchange.
Announcer 0:50
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s Most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:40
Welcome to Episode 1293 1293. Thanks for joining me today. So today we’re going to look at a very real life case study because it happened to yours truly, yes, a property that I purchased. We’re going to look at it how performed after I sold it over the course of decades, sometimes, you know, you’ll regret selling those properties, right? You go and you look online. And you check out Zillow and you see those estimates and you think to yourself, if only I would have kept that one. But that’s not really telling the whole story by any means. It’s really not telling the whole story, because of course, those handy dandy inaccurate zestimates that you see, and yes, a lot of times they are very inaccurate, but hey, like I say, they’re better than what we had before. They’re better than nothing. You know, you see those but they don’t adjust for inflation. They don’t adjust for the amount of cash flow you would have gained or lost over the years. They don’t do any of that stuff. They just show you a non inflation adjusted in other words, nominal dollars. Price, versus the price that you remember that you paid for it, and then the price that you remember when you sold it. And of course, that price today will probably be a lot higher. But it’s not all it’s cracked up to be. It doesn’t tell the whole picture. Anyway, I’m your guide. I’m here to help you with this learn from my experience. And what a vast amount of experience it is, I must say, you know, there’s that old quote, and I can’t remember it exactly. that talks about how experience is the best teacher. The problem is, you have to learn the lesson to get the experience and most of the time, hey, that lesson can be pretty darn expensive. So I’m here to guide you and help you learn from my lessons, both the profitable and most of them have been very profitable, but some of them have been unprofitable. So learn either way. And we’re also here of course to share the experiences of Literally thousands of the clients I’ve had over the years, who have invested who have purchased properties, sold properties, and all the stuff they’ve done. And thank you all for sharing those so much. We’ve got another guest interview that I’m recording today not to be played today with one of our clients, who’s going to talk about his challenges and how he overcame them. And the J curve. Yes, the J curve as it applies to real estate investing. If you’re not familiar with the J curve, look it up on Bing. Don’t use Google because they’re evil. Okay, anyway, do whatever you like. But more tracking or less tracking,
Jason Hartman 4:42
more invasion of privacy or less invasion of privacy actually use DuckDuckGo or some other better search engine. But yeah, we’ll guide you through that stuff I just wanted to make before we get to our in house economist, Thomas, who’s here with me today to talk about this property. First off, I want to mention Sorry for the sound quality and one of our segments of yesterday’s show. We’ve been having some technical sound problems over here. do apologize for that. Hopefully it won’t happen again. Well, actually, it will happen again. Because, hey, that’s life. But we’ll try to minimize the amount of time we have sound quality problems. Yeah, I’m interviewing one of our great clients today. And I really can’t wait to share that interview with you probably next week, sometime, as he talks about how he and his wife had been investing and had challenges overcame them. And the J curve as it applies to investing in in what Seth Godin calls the dip. We’re going to talk about the dip if you’ve read that book, but I wanted to make a nother book recommendation to you today. Now, I realize you’re hearing this and you’re going to hear this recommendation. You’re going to think, Jason, you’re way late to the game late to the game. Where were you years ago when this author was hot. Well, I admit I am late to the game. But lately, I have been geeking out as one of our venture Alliance members said at the last venture Alliance mastermind meeting in Savannah, Georgia. He said, I’ve been geeking out to George Gilder after seeing George Gilder speak at our meet the Masters event. And he says, you’ve been reading all his books and really getting into it, and I appreciated that term. So what have I been doing? Well, when I was in New York City last week, I was geeking out to a brilliant, brilliant author, and I want to recommend, I finished one of his books on audio, and it’s called skin in the game. You probably heard about this cemetery’s in daily life. It’s Nassim Nicholas Taleb, of course, he became very famous. I think his most famous book was the black swan. And I am familiar with the black swan theory, but I have not read the book. And we have not had Nassim Nicholas Taleb on the show, but I’m going to go get him on the show because I’m just amazed by his brilliance really, really good skin in the game, get that book today. It’s fantastic, really helps you understand a lot of things. And now I am digging into one of his other books called anti fragile, anti fragile, which is fascinating to I’m not finished with it yet, but I recommend that one also, so far, so good. And there’s a couple book recommendations for you and aseem Nicholas lab, really interesting author fantastic books. Okay, without further ado, let’s talk to our in house economist, Thomas, you’ve heard him on the show before I asked him to do an analysis of this property that I bought and sold and how it has performed over the years and whether or not I should regret selling it or if I should be happy I sold it, or maybe somewhere in the middle, let’s go ahead and dive in. But before we do that, be sure to get your tickets for upcoming profits and paradise event. At the end of the month in Orlando. One of the things I’m going to talk about at that event is the concept, which is really great in real estate investing. And that is the concept that we may not realize we’re benefiting from all the time, the concept of optionality and I was thinking about this, as I’m diving into Nassim Nicholas celebs work in anti fragile, he talks about optionality and he doesn’t talk about it in terms of income property or real estate investing. He talks about it in terms of many other things. But I keep thinking, Wow, it’s one of the huge benefits we get, as real estate investors the optionality benefit. So we’re going to talk a lot more about that at the upcoming profits in paradise event. So be sure to join us for that. And without further ado, here is Is my interview with Thomas, as we analyze this deal on a historical basis, I think it’ll be very enlightening to you and your thoughts about buying and selling properties.
Jason Hartman 9:14
Hey, it’s my pleasure to have our in house economist Thomas young back on this episode today, we want to talk to you and take a deeper dive into a realistic example. Not a comprehensive example Mind you, because, frankly, we’re still working on this modeling a little bit of inflation induced death destruction. But we’re going to give you some parts of the example today, and more will come on a future show. And then we want to talk about a guest that we’ve had on the show before and that is john Williams, the founder of shadow stats calm and look at the way he calculates real inflation versus the misleading And misaligned official or government numbers in the consumer price index. Thomas, welcome back.
Thomas 10:07
Good to be with you.
Jason Hartman 10:08
So Thomas, looking at a real world example, I’ve asked you to look at this property. And the reason I asked you to look at this property, and we’ve talked about it on the show before, is because I used to own it. In fact, it was my first house. When I moved out of mom’s house. I moved in to this house. I was never a renter for a long, long time. I always was a homeowner and I used to think that was just quite great. Now I’ve changed my view of that, for reasons discussed on many episodes before, although I do happen to be a homeowner again at the moment. I believe in owning lots of investment properties, not necessarily the one in which you live. But suffice it to say, I moved out I moved into this brand new place in Irvine, California. When I moved out of mom’s home. I bought it for 102 thousand dollars. I was very happy because I made a great return on it. I borrowed most of the downpayment from my grandmother, bless her soul, and I did pay her back when I sold the house. It was a great deal. And when I moved into this property, I already own one rental property. So the first property I bought was a rental, not a home to live in. The second one was a place to live. It’s interesting to look back at the history of what this property has done over the years. It’s particularly interesting, because I sold this property exactly 30 years ago, this year, I don’t know what month exactly, but 30 years ago, and I sold it to a couple of friends of mine. Their names are Mike and Colleen, and they bought it for $158,000. Now, it’s interesting to analyze what this property is worth today. In nominal dollars, which means in name only. That’s the definition of nominal. It’s just what something is called. So $1 is still called $1. But then you got to look at what’s called real dollars. And you economists know this all too well, Thomas. And that’s the real value or the buying power of that dollar today. So take us through a little bit of this, if you would tell us how much is the property worth today, according to our friends at Zillow?
Thomas 12:30
Yeah, the home is worth 635,000 Oh my god. 30 years it’s gone from what would the 102,635 so Thomas,
Jason Hartman 12:43
the typical reaction would be, Oh, I’m so mad at myself. Why did I sell that property? I’m such a fool. I could have owned a $635,000 place that I only paid $102,000 for And you know what? I probably would have just paid off the mortgage, it’d be free and clear. I’m such an idiot. I have sellers remorse. I’m not I don’t know about that. I’m not so sure I have sellers remorse. When we look at the real numbers, it’s not what it seems, is it?
Thomas 13:21
Yeah, if you convert that 635,000 into 19 $89, then it’s worth 307,000 according to
Jason Hartman 13:31
the official rate of inflation, which would be the consumer price index. And by the way, listeners, we won’t dive into this one today. But there are multiple CPI highs or consumer price indexes. We’re just using the common one is that the CPI you Thomas,
Thomas 13:48
yeah, CPI you for the urban consumer. Okay, good. across the US now.
Jason Hartman 13:52
I started off introducing you back today by talking a little bit about a prior guest on the show. JOHN Williams, the founder of shadow stats calm, which is a great website. And what he does is he analyzes behind and beyond the government economic reporting. So, at least in theory, if you believe shadow stats and john Williams and they’re credible and I think he is quite credible, then these numbers are pretty dramatically different. Okay. Now, according to shadow stats, the $635,000 house in today’s nominal dollars, if you take that back to 1989, what would john Williams and shadow stats say it’s worth today, Thomas?
Thomas 14:47
And Felicia has been much higher according to shadow stats, so 635,000 is worth 143,000 today.
Thomas 14:56
Okay,
Jason Hartman 14:57
so are you really telling them billion real dollars, the property has gone slightly down in value in three decades.
Thomas 15:09
So if you get 5.4% annual inflation, which is what real shadow stats has, then yeah, it’s gone down in value a little bit.
Jason Hartman 15:18
Okay. Now what is the consumer price index say the inflation rate has been during all that time?
Thomas 15:23
It’s been between three and 4%.
Jason Hartman 15:25
Yeah. But we need to look at the cumulative inflation rate, and we may not have those numbers. Maybe you have them on the other page of your site. Yeah. Yeah. So give the cumulative inflation numbers, just the the average. I don’t maybe I’m saying it wrong, not cumulative. But
Thomas 15:41
the average inflation rate over the three decades. Yeah. From 99 to 2019. Inflation grew by 107%. That’s a good deal less than what shadow stats as
Jason Hartman 15:52
Yeah, if you divide that by 30, there’s your average Okay, by the way, that is pretty incredible. Now you know what’s interesting thing to look at is the interest rates and the mortgage payments. Remember, listeners, I have stated this for you many, many times. And this is what is so misleading in well, among many things in all of the stats that you read and hear out there in the lame stream media, aka mainstream media. They tell you the price of houses, as if to say that we’re in a bubble, or houses are cheap, and you should buy as many as you can. They’re saying one or the other thing, because back it, x year in time, houses $400,000 and now they’re $200,000. So they’re overpriced. There’s a bubble, the markets going to crash. But wait, there’s more. That’s so misleading to look at the price of the house because no one buys The house on the price of the house, except for a relatively small number of cash buyers. And even I would submit to you that even if they’re cash buyers, they always know that real estate is the most debt friendly asset, and it can be refinanced very easily. So most people buy with a mortgage, they buy based on a payment, not a price. And therein lies a very important distinction. So let me give you an example. When I bought the property, my nominal mortgage payment was $735 a month when I sold the property at a higher price. The mortgage payment for my friends Mike and Colleen was 1100 and $39. So they were paying a higher payment. Now if you bought that property today, remember the property has quadrupled. Approximately in nominal value, but the mortgage payment in nominal dollars has only doubled approximately 220 $443. But guess what? In 1989, the interest rate on that mortgage was 10.32%. And today, it’s only 4.06%. So, in real dollars, what is the payment? Today? Everybody thinks I’m going to walk in and pay $635,000 for this 944 square foot, two bedroom, two bath condo in Irvine. Wow, that’s a lot of money. How Thomas? But is it? What’s the monthly payment? I don’t care how much the sticker price is. I just want to know how much I’m paying every month.
Thomas 18:55
Yeah, so the nominal payments 2004 43 you know, I I looked What that 1989 payment, the 1839 bucks would be in today’s dollars. And if the real shadow stats numbers are correct, then you’re basically paying nothing today the payment went from 1939 to 236 bucks.
Jason Hartman 19:18
Yeah. And remember at our live conferences, I have many times told the story of how when I was 11 years old, mom saved for her first house in West Los Angeles still owns that house today. I remember overhearing her conversations as a kid and hearing her talk about how she just didn’t know how she was possibly going to make the mortgage payment. Because the mortgage payment was a whopping $416 a month for 16 a month. But over time, even over just a few years because the inflation rate was pretty high back then. That’s $416 payment felt like nothing, just, you know, four or five years later, it felt like nothing felt very, very cheap. So the 1989 buyer, if they kept that mortgage, which of course they would have refinanced it probably many times. But if they kept it, and they were still paying a note rate of 10.32%, just after inflation, debasing the monthly payment, they pay how much to 56 a month in today’s dollars, as they’re making the last payment. paying it off. Wow, incredible. Okay, but the question I actually was asking you was a different question. The buyer comes along today. They pay 635,000 for that property. And they think, Oh my gosh, I’m gonna have to pay 20 $443 per month 2443, four month almost 2500 bucks a month. Today to buy it at a 4.06% interest rate. But compared to what compared to, if that was the interest rate and the price in 19 $89. Thomas, how much would they really be paying today according to the official rate of inflation,
Thomas 21:17
and they’d be paying 1182.
Jason Hartman 21:19
So they think they’re paying 2443, which they are, because it’s today. But what I want to illustrate to the listeners is that in 1989, three decades ago, the buyer was paying a 1139 when my friends bought that property from me, they were paying 1139, Mike and Colleen, and today, a buyer buys that property and thinks, oh my god, it’s quadrupled in value. Real estate is so overpriced, there must be a bubble. Everything’s going to crash. This is the common thing here. Yet, they’re only paying 1182 in 19 $89. So the question is always compared to what? This is the thing that the morons in the mainstream media never analyze or explain is that the house today is barely any more expensive than it was in 1989. Like, there’s almost no difference in monthly payment. Isn’t that amazing? It’s amazing, folks. You should all be amazing. Now’s the time you’re clapping. Okay.
Thomas 22:40
Yay.
Jason Hartman 22:42
Thank you, Thomas and Jason, for telling us the truth, the reality of things. Okay, let’s talk a little bit about shadow stats. And on a bit of a rant. I’m very passionate about this stuff. Thomas, the three major ways that the government and manipulates the inflation index and it’s very important Know how and why they’re manipulating the index, they have a very vested interest, they’re very much at stake for manipulating the index. They do it in three major ways waiting substitution, and hedonic x. These are the three ways. So waiting, is you take this basket of goods, which is the consumer price index. And they will say, well, this item in the index shouldn’t get as much weight as this item. And we’re going to change the weight. We give each of those items in the basket of goods, so that we can manipulate the index to look like there’s less inflation, and there really is, or substitution. So if the price of beef goes up, then they’ll say, Well, everybody will just switch to chicken. But maybe you don’t like chicken. Maybe you think chickens a dirty bird, and you’d rather eat beef. Okay, so substitution, that’s another way and then Dominic’s where the index, how much pleasure the consumer gets from a certain item in the basket of goods. And technological items have massive hedonic indexing, because technology advances so quickly through you know, Moore’s law and other things, you know that the network effect of the other network, the power of the network, and, you know, all the all these different technological things, but Moore’s law would be the most prominent. Gordon Moore, the founder of Intel said the speed of the processor doubles every 18 months. Right. So, Thomas, tell us more about john Williams and his analysis of these things, and why he doesn’t believe the official numbers.
Thomas 24:44
Yeah, basically, you go back 30 years, john Williams was part of the debate among politicians and economists about how inflation should be measured. And for 300 years, going back even further, but at least the lab past 300 You years economists have considered innovation just
Jason Hartman 25:02
300 years, we want to give you a decent sample. Go ahead.
Thomas 25:08
Inflation was considered as the change in prices for a fixed basket of goods. So the idea was, people were going to buy eggs at, say, 4% of their income. And we’re going to go out and sample the price of eggs every month and see how that changes. The debate changed from that fixed basket of goods to being what are they going to spend their money on to keep a constant standard of living? So that’s when it onyx and you know, substitution effect came into play. What he does is he says, well, let’s keep the way to these different prices the same and see what happens to the overall inflation figure over time. And, you know, he gets a higher number obviously,
Jason Hartman 25:57
yeah, much higher number it’s, it’s In fact, it’s generally more than double the official or CPI government rate of inflation, right?
Thomas 26:05
Yeah, from 99 to 2019. Shadow stats has inflation about 345%. And the CPI EU is up 107%. Wow,
Jason Hartman 26:16
that’s pretty significant isn’t it?
Thomas 26:18
makes a difference these tiny changes, actually I say tiny but that depends on the reviewer, right what tiny is, but you know, you change the weight on housing from 19% to 24%. And you change the weight on say, purchase of meat from 6% to 4%. In over 30 years, that makes a giant difference.
Jason Hartman 26:40
Yeah, I want to just play devil’s advocate here for a moment Thomas and argue on the side of the the powers that be okay. And that would be the folks at the government who compile these stats that Bureau of Labor Statistics, etc, etc, right? The same is true with unemployment. You know, it’s all just totally misleading. Basically, you’re being lied to. Okay? But here’s the thing, there is a case to be made for substitution. Sometimes, for example, like, it’s kind of like the old Henry Ford, saying, you know, when he was asked about, you know, wanting to listen to your customer hold a focus group, etc. Well, if I listened to my customer, they would have just told me they wanted a faster horse. They rather than a car. So, there are some things in reality that people don’t buy or need anymore that they used to buy a need. Right? Is that a fair statement?
Thomas 27:39
Yeah, I mean, I don’t have a giant TV that weighs 400 pounds and my friend knew in my front room, and I never had one but
Jason Hartman 27:48
right, but a lot of me, ya know. And the thing is that we come to expect as normal in modern life, like one of the things that totally puzzles and amazes me is how every tenant Seems to just expect air conditioning is a totally normal thing. Like there’s no, you know, I remember when I started selling real estate, a lot of houses didn’t have air conditioning that was completely normal. I mean, when I went to school as a kid, I don’t think I was in any classroom ever that was air conditioned. You know, now, oh my god, their conditioning doesn’t work in a school, but kids are gonna die. You know? You know, we just have different expectations nowadays, right? Yeah, it’s true. So there’s a case to be made for substitution. But the reality is the substitution that they’re generally making is not a failed case. They’re doing it just to truly manipulate the numbers. Now, there’s another case to be made for hit onyx, isn’t there? I mean, look, if your computer keeps getting faster and better, is it really deflating and price you know, I use the example of every year so I’ll buy a new Apple laptop. And it seems like The cost is always about 20 $800. But the computer itself keeps getting so much better, and so much faster. And the features are better, and it’s just always better. But the price is about the same. So the inflation index wouldn’t look at that as though I’m actually paying the 20 $800 every time would they?
Thomas 29:23
Now in that case, the inflation index would say, because your computer became more useful, or more powerful, you actually had deflation. So instead of paying 2800 bucks, you’re maybe paying 2500 bucks.
Jason Hartman 29:38
Oh, even more than that, if it doubled in speed. Yeah, the processor doubled in speed when they say I’m paying 1400 dollars. If speed was the only factor in determining the hedonic Lee adjusted price for the computer, then yeah, 1400 bucks, right. By the way, just a side comment on that. You know what the big fallacy of that is, the software always keeps becoming more robust. The process or even though it’s getting faster, the actual user experience doesn’t seem like it changes much because you know the software is just hogging more processing power. So it doesn’t feel like your computer actually faster
Thomas 30:15
go ahead that’s the thing I mean, do I really believe that computer got cheaper over the years? Obviously my pocket book does not say that I you know, computers any cheaper, but hedonic adjustments say yeah, computers cheaper. Same thing with like the iPhone, right? iPhone came out thousand bucks last year, right.
Jason Hartman 30:39
I think it’s cheap. I think it’s totally cheap. My first cell phone cost 30 $200 and wait 14 pounds. So I think all these phones are totally cheap and everybody needs to totally stop complaining. No, okay, so anything else on the waiting substitution
Thomas 30:56
had onyx and shadow stats? It matters right? That’s my open Is that how you measure prices and inflation matters across a broad range of industries and obviously in the mortgage payment matters a lot.
Jason Hartman 31:10
It sure does. It sure does. Okay, one final thought I want to leave you with and Thomas here. I’m looking at the spreadsheet we are we’ve been working on. I’m looking at the interest rates. You know, this is something I’ve said over the years, but understand that these interest rates are so incredibly cheap. Okay. So if you apply and Thomas on and I’ll just bring it right to you on our row 46 be okay, so cell 46 bait. I think what you did there is you took the shadow stats number and subtracted it right from the interest rate to get that effectively demonstrate. Okay, so what Thomas did here, folks, is he took the shadow stats The inflation rate and deducted it from the interest rate at the time in 1987 1989 in 2019, and guess what? The real interest rate based on this calculation of nominal interest rate, meaning that’s what you think you’re paying versus what shadow stats says inflation really is, you simply subtract that amount from the interest rate and then you get what I call your effective rate after inflation. So your effective rate in 1987 was 3.66%. In 1989, it was 4.83%. And today, your effective rate is 1.74%. Less than 2%. Now the tax benefits are more Complex on rental properties and they’re better on rental properties. But for purposes of simplicity, let’s just assume it’s at home in which he lived, okay? Because then the tax benefits are, while they’re lesser, but they’re also simpler to calculate. So what I’m just saying is that if you deduct your interest rate, then if you’re in a combined tax bracket, I’ll just throw out an estimated number. It depends what state you live in. Of course, it depends on what your income is, etc, etc. Okay. But say your tax rate is 40%. Now, if you live it on no income tax state, like I do in Florida, or if you live in Texas, or one of the other great no income tax states, it’ll probably be lower depending on what your income is. Okay? But let’s just say it’s 40%. So all you do is you take 60% of that real or effective action Straight that I just quoted, and then you get your after inflation and after tax effective interest rate. And I want you to see how incredibly cheap it is to borrow money cheaper than it was in 1987. Cheaper than it was in 1989. So the answer is in 1987, you’re effective after tax and inflation interest rate was 2.2%. On a mortgage in 1989, it was 2.9% went up a little bit. And today, it’s right about 1% 1%. So if you’re listening to this, and you’re thinking, should I put more money down on the property, should I pay cash for the property? And you look at the opportunity cost of tying the cash up in the property. Now I have said before and I’ve got a video on my YouTube channel, about Were there, you know, a few instances where you want to put more money down or pay cash, but they’re relatively infrequent. Mostly, you want to borrow the money when you can. If you can make more than 1% on your money elsewhere by like, buying more properties without money, for example, which you surely can make dramatically more than 1%, maybe 20 times the 1%, then you should conserve your cash and use the leverage. So that’s just an example for you. All right, Thomas. We got to wrap it up. As usual, we went much longer than expected. Any final thoughts before we go?
Thomas 35:44
That number you just mentioned after tax interest rate and after inflation, we may never see these type of conditions again, based on interest rates that I’ve been looking at at rates are the lowest they’ve been in perhaps five years. In years,
Jason Hartman 36:00
well, if you look at the macro, maybe you’re right. But there have been little dips where they’ve been lower than this. But they’re very low in the macro sense. You’re absolutely right. incredibly low. Hey, but there is some talk, maybe they’ll even go lower negative interest rates. So, you know, you can always renegotiate the deal and refinance. Okay? You’re not stuck with the interest rate in which he borrowed. That’s one of the beautiful, beautiful things about income property, you can refinance it, you can change the deal along the way. So very good. Thomas, thanks for helping us kind of sort through these numbers and, and see the reality that the mainstream media just won’t tell anybody. So it’s good to have you on again, talk to you later. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
Jason Hartman starts today’s episode discussing the recent World Economic Forum with economist Thomas Young. Specifically, they look a bit at the Happiness Index that they were discussing at the forum and whether that should hold any muster for us. Then Jason has a client case study with Eric Payne. Eric started investing in single-family housing around 2010 and has steadily added to his collection. Today he has 18 units and is looking to substantially add more when he finishes the sale of his current business. Jason and Eric go over Eric’s journey, why he chose to use real estate to achieve the financial freedom he desired and the beauty of the 30-year fixed-rate mortgage.
Investor 0:00
Working with the local market specialist went really well. I feel like I was able to get the type of property that I wanted and happy with with the price and the rehab job and the
Investor 0:13
tenants have gone well.
Announcer 0:17
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it and now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:07
Welcome to Episode 1117 1117. This is Jason Hartman, your host and thank you so much for joining me today. I have our in house economist Thomas young with us today. He was a economics professor. And now he has his own company econometrics and we are discussing Davos. Yes. Davos, the World Economic Forum. I have to confess to you listeners, this is one of my bucket list items. How nerdy is that? That my bucket list item is to go to the World Economic Forum in Davos, Switzerland, and hang out with the elitist the globalist economist that’s on my bucket list. Yes, I know it’s a little bit nerdy. It’s a little bit odd. But I want to go to Davos so if any of you can help me do that, I would pay very good. dearly to check that item off my bucket list. I’ve checked quite a few off already 81 countries and counting, I will get to 100 here eventually. So there’s a bucket list item for you. Okay, we’ve got meet the masters of income property coming up in March, be sure to register for that at Jason hartman.com slash masters. It is going to be an awesome event. We’ve got a couple of guest speakers, we’re going to be announcing soon. But this time, we are trying to include a little bit more of our own content. We get great evaluations on our events, people love our events, hardly ever Is there a negative evaluation, and if there is, it’s always because of a political difference, because we do have a few people that come that just don’t know what’s going on. Anyway, one of the suggestions we had from a few people from last year our last big event where we had ron paul as a keynote speaker and we had many other big name speakers, as many of you know who attended his thing. Want a little more Jason time? So hey, we’re going to give it to you a little more, Jason time coming up. Not Not as many speakers, but we will have some great, very well known guest speakers that we will be announcing very shortly. We’re just waiting for some contracts back. And then we can make them official. Hey, Thomas, let’s talk about Davos, Switzerland. What happened at the World Economic Forum this time, besides all of these wealthy hypocrites, flying more private jets than ever, and then talking about the dangers of global warming and high carbon footprints. I guess that doesn’t apply to them, right?
Thomas Young 3:37
Yeah, apparently not. Let’s say the the big three that made Davos a big hit last year were missing. Trump who and Gee,
Jason Hartman 3:47
that’s kind of amazing that those three big big names didn’t show up. I mean, wow. Speaking of Trump is Trump kind of just dissing the global establishment to some extent, I mean, this person It is so different, you know, he doesn’t go to like, press What does that annual Press Club event they have the White House Press Club dinner, you know, he doesn’t go to that he doesn’t eat. He really is an outsider, isn’t he?
Thomas Young 4:11
He’s definitely not a globalist. Or, you know, it doesn’t appear in it that way. No, not at all.
Jason Hartman 4:16
Not at all. And he just the Koch brothers to these the republican Koch brothers that you know, have the billions of dollars to support the party. He just said a, their brand of republicanism is out of style.
Thomas Young 4:28
It’s kind of amazing. I didn’t hear that one.
Jason Hartman 4:31
Yeah, yeah. That was a few months ago in the news. But anyway, Davos, the government’s back open for business again, I don’t know if that’s good or bad, but I guess it’s good. What about Davos?
Thomas Young 4:41
Yes. So they went over some relevant topics. And the one that I found most interesting was the basically a happiness quotient for GDP. We had a report more frequently, what happiness is the night? I don’t find it that much useful, but
Jason Hartman 4:56
I’ve always found those indexes interesting. Happy quotient, you know, and they’ve tried to measure the happiest places, the happiest countries on earth and so forth. And I think that is a really, really tough one. But what did they say at Davos about it?
Thomas Young 5:13
So on the happiness quotient related to quarterly GDP figures, and the thought came to me GDP is coming out this week for the fourth quarter. And you know, the third quarter was quite good at 4.2%. And the second quarter was above 3%. The general consensus is that GDP will come in a little softer, the stock market perform poorly in the fourth quarter and business investment might have been weak, but retail spending was real strong. So there’s a chance that could still come in fairly strong.
Jason Hartman 5:48
Yeah, well, we’ll see. But back to specifically Davos, so that’s the US GDP. The happiness index does not connect GDP to happiness. Right, is that the basic premise? You know, you can be a wealthy country, you can have great productivity. But that doesn’t make you happier, right? That doesn’t make the population happier. Is that kind of the point of the happiness index?
Thomas Young 6:13
Yeah, that’s the point. So for I guess, when I try to apply it to say, the United States versus say Kenya, you know, Kenyans may say they’re happy. And then maybe Americans may say they’re not as happy. Although Americans typically report higher happiness. It is generally connected with GDP growth. So when GDP growth or GDP per capita is higher, countries typically report higher happiness.
Jason Hartman 6:42
Yeah, interesting. And you know, these Scandinavian countries always seem to perform pretty well in this happiness index. You know, this is a long topic. Maybe I’ll do a 10th episode show on it. And I believe two things and they sound contradictory about this. But Dennis Prager on his show. He would do something called the happiness hour when you know, on his radio show, at least in the old days, I don’t know if he still does it. His premise is that happy people make the world a better place. And I agree with that. But the contradictory concept is that I don’t think happiness is the meaning of life. I think that happiness is a byproduct of being a productive member who is serving society serving mankind, and it has a mission, the sort of the New Age mentality of, Oh, you know, don’t do it unless it brings you joy. And this gotta be happy, happy, happy. That just to me, just reeks of selfishness. Just don’t like it. You know, like these people that will, you know, will avoid a confrontation because they don’t want to get upset and ruffle their feathers. I mean, imagine if Gandhi was like that. Imagine if my Martin Luther King was like that. Imagine if Winston Churchill was like that, imagine how the world would be if just those three figures, you know, I could list 100 more, of course, had that attitude, you know, if they were selfishly looking out for their own happiness, you know, history would have been terrible, it would have been completely different. So I don’t know this happiness and backside and I don’t know how much stock to put in that you think I’m crazy argue with me?
Thomas Young 8:30
It looks to me when I look at the happiness next numbers that are out there now that the easiest way to improve happiness would be to make the world colder,
Jason Hartman 8:37
colder. Tell us about that.
Thomas Young 8:40
So the the countries that are colder, like you said, the Scandinavian countries or Canada, they’re cold, they require higher happiness. So you know, there’s this idea that the key to happiness is just to have low expectations. Well, I guess two things to make the world happier, make the world colder and have low expectations.
Jason Hartman 8:59
Okay, well This is a causation. That’s, you know, obviously I know you’re I know you’re joking, okay? Because I mean in cold climates that tend to be these cold, dark climates, they have high suicide rates, they have high depression rates. Sad, which is an acronym for seasonal affective disorder, talks about how people in these gray dark, dreary climates become depressive, which, you know, I think that’s a legitimate thing. You know, sunshine places, are kind of a happier environment, but let me make a different connection for you. And that’s the evolutionary connection. And this is an old theory, it’s not my theory. I’m simply the messenger here. So I don’t need to get a bunch of hate mail on this. Okay. If you disagree, it’s not my idea. I’m just repeating an idea, okay, is that the equatorial type countries that are the sunniest and the warmest, you know, it’s sort of easy to survive in those places. So, throughout history, you didn’t have to be as productive if you will, in terms of hunting, he didn’t have to work with members of a community to survive as much and and so there’s an argument and I’ve heard it, you know before that, that’s why you see the colder countries or the colder regions on earth being more productive. Another theory that I sort of add on to about that I remember when I was in ninth grade, I was shipped from Los Angeles where I was in junior high school to go live with my grandparents in upstate New York on a dirt road for three months. And Thomas, I could not believe how much more difficult it was academically to keep up with those kids in New York. Okay, now, this was not New York City. Okay, a bastion of intellectual realism. Okay, this was upstate New York, in the middle of nowhere, it Letchworth Central School. Okay, look it up, folks. You know, where one of the big majors people had was agriculture and was in school with a bunch of farmers. But my theory there is that in warm climates, you know, people are outside, they’re enjoying life a little more they’re on the beach in cold climates, you know, you tend to be more inward thinking, and you might sit inside and read a book, right? Get a little smarter. So I don’t know, is that is that theory legit? What do you think
Thomas Young 11:23
that makes sense to me? There’s, I don’t know this, this debate about what causes happiness and what do you make of it?
Jason Hartman 11:31
Well, money plays a part in it. Okay. And there are some, I think, very good studies about that. Showing that, you know, money does make us happier to a point it definitely it has a bearing on happiness. And in the US, and of course, you have to adjust this for where you live and for inflation. Now, this was, gosh, I want to say 20 years ago, I remember reading this article. That was a very big study with lots of people. about money and happiness. And at the time, you know, you’d have to adjust it for location where you live, because the real estate prices and the price of everything varies so much. So you have to adjust the net worth for that and for inflation, but at the time, they said, People get, they definitely get happier, up until their net worth 20 years ago and adjusted for location was about 1,000,005 over 1,000,005. no correlation between, you know, if you had 100 million dollars, you weren’t necessarily happier than if you had 1,000,005. Right? But 1,000,005 now adjust that for inflation from 20 years ago. And adjusted for where you live. If you live in a low cost place. 1,000,005 will be up to you fairly well adjusted for inflation. But if you live in New York City, you got to have way more than 1,000,005 adjusted for inflation, okay. So if you live in Los Angeles or Seattle or San Francisco or any of these hyper San Diego any of those, you got to have way more money than that adjusted for inflation but I think there is a point to that right? What do you what do you think?
Thomas Young 13:08
Yeah, I think this is the exact debate will have in during the 2020 presidential campaign. Cortez the New Jersey representative
Jason Hartman 13:17
that you mean that’s the communist Yes.
Thomas Young 13:19
Yeah, that is the executor point a wealth tax and she says it doesn’t make them happy doesn’t make wealthy individuals happier. So let’s tax it.
Jason Hartman 13:28
Yeah, well, that’s gonna make them unhappier. I can tell you that much. The money may not make them happier, but the tax will make them unhappier. That is no question about it. She’s out of her mind. boy, boy. Well, Thomas, um, we’re gonna do another episode this week on Davos and talk about it in more detail. What else are we going to cover when we talk about that?
Thomas Young 13:52
Oh, yeah. So artificial intelligence and the impact on jobs, climate change. There are good amount of discussions on What some advocates think need to be done on climate change? You know, the geopolitical situation is? I don’t know. Are we entering a new Cold War? That’s
Jason Hartman 14:12
yeah, that’s pretty that’s pretty scary. You know, I want to think that we have a peaceful Russia and a peaceful China due to Russia’s change, obviously back in 1989 1990. But, you know, with China, I mean, trading partners, even if there is reduced trade through trade war and tariffs and such, I mean, trading partners, you know, they can’t be in a Cold War together. Can they? Is that even possible? Yeah, there’s the
Thomas Young 14:43
hell am I drawing a blank it’s a flat world a flat world
Jason Hartman 14:46
though it Thomas Friedman argued. Yeah.
Thomas Young 14:48
Thomas Friedman. countries tend to get along real well, when they when they both have McDonald’s in
Jason Hartman 14:54
Yep, yep. there there’s a metric Yeah, Thomas Friedman has some definitely good points in the World is Flat. But he’s also way off on some things, hey, I did the inflation adjustment while we were talking. And I took 1,000,005 in 1995 is basically 2.5 million today, or 2017. So if your net worth is $2.5 million, and you live in a reasonably low cost, linear or hybrid real estate market, not the expensive markets in the northeast South Florida, or along the west coast of the US, then you should be very happy if your net worth is 2.5 million or higher. Okay, if you live in one of those expensive markets, you gotta adjust up and have more money than that to be, quote unquote happy according to this article, and that big study that I read many years about 20 years ago, so there you go. Interesting stuff, China, we’re going to talk about their slow down their terrible 5% growth. We’re going to talk about, you know, current expansion corporate defaults. and few other things here coming up on the next episode, right, Thomas? Yeah. All right. Hey, thanks for joining me for the central portion. Today we got to get to a case study here that I think you’ll find interesting guy who’s doing a great job with his real estate portfolio. And here you go. Join us March 23, and 2014 for the 2019 meet the masters of income property. Let’s break this down and look at some of the strengths of income property. As an asset class, I found that this event is really helpful because I am totally
Eric Payne 16:31
a newbie to real estate investment. And so I picked up so much information. One of
Jason Hartman 16:36
the great things about it is that it’s so fragmented, right? embrace the fragmentation. actually been learning a lot about the tax benefits to real estate and a lot of I’ve been investing actually well over 10 years now, and I learned a lot of new things today.
Eric Payne 16:56
The other advantage of this weekend is networking. meeting new friends. property managers meeting new
Eric Payne 17:01
area specialists and seeing
Eric Payne 17:03
the product they have to offer that changes here by you. Register now with Jason hartman.com slash masters.
Jason Hartman 17:10
Hey, I wanted to talk to you quickly about another case study. And this is a good one. I met Eric pain just a few days ago here at the capitalism conference, and we started talking about his interest in real estate and we were having a little breakfast. Eric, how are you? doing? Good. How are you? Jason? Good. Good. Where do you live? I live in Lexington, Kentucky. Fantastic. And what got you interested in real estate and what’s your background? Do you have an e commerce business? right? Correct. Yeah, you sell Office products, I believe.
Eric Payne 17:38
Yes, that’s right. Okay, fantastic. And so what got you interested in real estate and when did that all start? Honestly, I always wanted to be one of these guys that flips houses like you see on TV and it was really sexy back then. Right. And so once I started doing my research, once I got out of college, got the job and engineering and had a little money were actually could start doing that I started researching it and realized that there’s this huge taxes to pay with capital gains when you flip, right? And so, flipping is overrated. Right. And so I started listening to some content at the time and realizing that rental real estate is really the way to go. Fortunately, the timing worked out very well for me because I started working full time as an engineer at the beginning of oh eight. And then what kind of engineer civil engineer. Fantastic.
Jason Hartman 18:31
And by the way, listeners, I want to mention we are at a conference here we’re at the capitalism conference cap con, as it’s known in Dallas, Texas. So sorry about the background noise, but it’s a little noisy here, but go ahead.
Eric Payne 18:41
Yeah, so the timing was just really in my favor, because the first one that I bought was in 2010. And I bought what would probably be a $95,000 house if it wasn’t for the crash for $58,000. And I was able to get a second mortgage on top of you know, These foreclosures that I was buying cheap, and kind of domino effect the next properties that I got and collect them fairly quickly.
Jason Hartman 19:08
You know, I was amazed we were selling so many foreclosure properties during the Great Recession, and one amazed me maybe more than any other. I remember this property very specifically. And I am still totally disappointed. I didn’t buy it myself. It wasn’t like that big a deal or anything, but it just was sort of emblematic of what was going on during that time. It was in Charlotte, North Carolina. This house was never lived in. It was essentially a brand new house, but it had gone into foreclosure. Right after the person purchased it. And I guess they never rented it or did anything or never moved in or whatever. They just lost it. And it was for sale. And it was like I don’t know, you know, you’re talking about buying under market. I think this was like $35 a square foot. It was a brand new house. Yeah. But it was a year old but it was never lived in right. So yeah, it was just amazing. And, and, you know, we sold that property to a client. I’m not Perfect client is listening right now. But I wish I bought that house. Right? You got Yeah.
Eric Payne 20:04
Yeah, I mean it, it was an amazing time and right now, so since I Live in Lexington, Kentucky, there still a few deals to be had. But you have to really find them or be networked with the wholesalers and
Jason Hartman 20:19
right and it’s not like before, you know, right. But you know, the thing is look at everybody uses that as a reason to invest, right? We all do this as humans, you know, we all want to buy at the bottom of course, and you can never really time it. I mean, during the time you were buying, well, when did you find my podcast? And when did you learn about my work?
Eric Payne 20:39
Sure. I found that not long after my engineering job, it started and I was just, you know, really enamored with the whole real estate and and being able to create a passive income for myself, right. And so I just found you by searching you know, rental properties, real estate, whatnot, and you You are, you know, an early adapter there. I was early in the podcasting world, right. So there wasn’t a ton of people. So of course, you showed up pretty quick and I just started listening and, and you’ve always put out a ton of content. So it was just more fuel to the fire back then, you know, good, good stuff. But back to
Jason Hartman 21:18
that other thing we were talking about, you know, back then when you were starting to buy, you know, you’re recently out of college, you started young, that’s fantastic, by the way really, really impressed with that. You know, you had your job as a civil engineer, and you thought, I don’t want to be a slave probably anymore. I’m guessing that’s what you thought, right?
Eric Payne 21:36
Yeah. What’s funny is you hear a lot of people talk about like hating their job climbing the corporate ladder. They’re not passionate about politics, you know, people backstabbing. Yeah, so for me, I actually liked my job. I enjoyed it. I liked the people that I work for. I just, I realized pretty quickly that $1 an hour raise is not going to get you very far. You know? Yeah, I just realized that if I’m going to create wealth for me, then it’s up to me, not my employer. Yeah,
Jason Hartman 22:06
very good attitude. Very good attitude. So when you started investing, and this is the fundamental thing, because people I think, really sabotage themselves by trying to time the market. Okay. So when you did it, we were in a huge recession, the Great Recession, right? The second worst economic time in the US in the past hundred years, right, you know, maybe more than 100 years, really. So we had the great depression that started in 1929. Then we had the great recession that started, I say, in 2007, most people say 2008 Were you scared? Like, were you worried that hey, you know, you’re gonna buy this property and it’s gonna go down in value even more. How do you know
Eric Payne 22:47
that you’re at the bottom?
Eric Payne 22:49
I wasn’t worried about that at all. I realized how good of a deal that these houses were. And I wasn’t comparing is this house that I’m buying for 60,000 dollars going to go to 30. I didn’t care because I knew I could rent it for $700 a month and it cost 350. So I mean, I thought that it would go up, but if it went down, it didn’t matter. And that’s probably the biggest reason that I’m such a fan of real estate. My brother, he’s done very well for himself. Also, he’s a, he sold a startup, he’s a multimillionaire, all his money is in the stock market. And I was texting him a couple weeks ago, you know that dow had the big downturn, and I was like, are all of your stocks down proportionately, and he sent back to mad face? And so stock market, right, and I said, you know, my real estate’s been the exact same dividends it did last month.
Jason Hartman 23:44
Right, right. So I love your philosophy about it. And I don’t know if you got that from my podcast or not. I want to take credit for it if I can, you know, yeah, you didn’t care about the value of the property going up or down, right. It did. matter, but somehow you had this thought that cash flow or rental income was pretty reliable. And you were renting those houses you were starting to buy for just over a 1%. rent to value ratio. Yeah.
Eric Payne 24:12
Why didn’t you think, though that the rent might
Eric Payne 24:14
go down? I’ll tell you this when, when I was closing on my first property, it was a scariest thing ever, because I had never, you know, I’m just into my career. I’ve just got a little bit of money after paying my student loans off, and I’m willing to throw this in on this first property. And I was like, you know, what, if I’m wrong, what if it doesn’t rent for 700? What if it only rents for like, 500? You know, and my thought was, well, your bills are 350. And you might have made a bad investment. You might be breakeven for a few years, but there’s no way it rent for less than 500. So there was really a factor of safety there. I tell people that I invest in opportunities have minimal risk and a huge upset. And that was right in line with that. And it turned out great. That was my first house. And it was the worst house I bought, just because there were issues that I didn’t really know to look for. And it cost money over time. But I ended up selling that house and came out on top by a few thousand bucks on the worst investment that I had ever made.
Jason Hartman 25:24
That’s the worst. That’s fantastic. And I love that philosophy about, you know, look at every investment has risk, everything. And when I was on stage on Monday, you know, I was saying to the audience here that look at you know, if you have your money in the bank, you are for sure losing money through taxes and inflation.
Eric Payne 25:42
Yeah. And I have to also comment and back then there wasn’t a lot of people talking about it. Like there’s tons of podcasts. There’s tons of youtubers today but and I didn’t have a mentor. I didn’t have anyone to kind of like guide me. So I was questioning myself. Am I doing the right thing with this and I was so Scared on that first property, but now, I know exactly what market ran is I know exactly how easy it is to rent things out and my geography right. And I barely have to look at a deal. Yeah,
Jason Hartman 26:12
yeah. You just know now, right? And and you know, that’s another good lesson, Eric, you learn it by doing it right. You know, you can go to all the seminars you want, you can listen to all the podcasts you want. But ultimately, you’re never going to really know until you just dive in and do it and take a little bit of risk. Right.
Eric Payne 26:29
Right. And you know, it’s great. I’ve referred several several people to your website, because like, I was just talking to one yesterday, because I have an Amazon business and many people here do, and they’ve been very successful. And people are always wanting to put whether they’re sailing or just have large amounts of cash flow. They’re wanting to invest that right. And, you know, the guy that I was talking to yesterday lives in California, and it’s hard, in some cases to get
Jason Hartman 26:58
lots of cash flow right? It’s impossible in California, right.
Eric Payne 27:01
And there’s there’s tons of geographies around the US where that’s also the case. It just isn’t great cash flow. But what you’ve done is allowed people in California to invest in markets where you can reach the 1% rule. Right? Yeah. And 7% rent to value ratio. Yeah. So since you’ve got these rental property set up in local markets and establish relationships with property management, etc. I mean, that makes it possible for for guys or gals that live in California or New York to right to invest in in or Japan or, you know, wherever, yeah, sure, Europe or whatever. Yeah. And I can understand for a new investor, that that’s scary to invest elsewhere. But it does also take away any excuse you have that I can’t do real estate, look where I live, you know,
Jason Hartman 27:51
right, right, exactly. That’s a great point. How many units are you up to now
Eric Payne 27:55
currently have 18 units I just closed on one and these are all just Single Family duplex type property. Good, good. So you’re up to 18 units now, but you are on the verge of selling your business, your office products business. Right, right. And you’re going to be are you going all in on real estate or pretty much? For the most part, there are some other things that I would like to I’ll have some play money, call it just to dip my toe in the water with other businesses. But as far as an investment said, I’ll probably put at least 70 to 80% in real estate.
Jason Hartman 28:34
Yeah, so you’re gonna have a big check from your business and put about 70 to 80% of added back into more income properties that you’re buying. So if you’re at what do you say 18 units now?
Eric Payne 28:43
Right. And I mean, it just depends on what kind of deals come up. I would love to find a 24 unit apartment complex. That made sense. If I can’t find that I’ll be looking for me multifamily duplexes for plexes that I can get Yeah,
Jason Hartman 28:58
Good stuff, good stuff. So What would you say to, you know, investors who maybe have a couple of units and want to grow their portfolio bigger, they got, you know, three or five units or whatever or, you know, I think we kind of address the person who’s just starting out is afraid to take the first step. But what would you say to the the others who’ve, you know, they got their foot in the water, and they’re, they’re moving along, but, you know, maybe they’re not up to 18 units yet.
Eric Payne 29:20
The first thing that I’ll say is, and you preach this all the time, is that the best product that I’ve ever seen is a 30 year fixed government back loan at the smallest interest rate we’ve ever seen. I mean, if there’s any even now the rates have gone up, it’s still cheap. It’s still a great deal. We’re just so spoiled. We think it’s old. The rates are too high now, but they’re really quite good, right? Historically, I noticed this concept A long time ago, because my parents, they’re older, they’re 78 now, and it was about 15 years ago that they paid off their house because it was the end of their 30 year mortgage. I had just bought my first house not long after that starter home is about 650 a month right? Ask them how much so wait a sec, I just want to make a distinction.
Jason Hartman 30:11
You just bought your first house and you were buying investment properties long before that
Eric Payne 30:15
isn’t what you’re saying. No, my the first house I purchase was my own.
Jason Hartman 30:19
And oh, back then when they paid off their mortgage. Got it?
Eric Payne 30:21
Yeah. And so I asked them what was your mortgage payment? Because I know y’all got this a long time ago. The answer with tax and insurance was $118 a month.
Jason Hartman 30:31
Oh my God, that’s gonna be crazy to have $118 a month mortgage payment they must have been shaking in their boots. right but
Eric Payne 30:39
but it what that did for me is it made me realize Fast Forward 30 years with inflation and what you call an inflation induced debt destruction. Your 30 year mortgage now, if you didn’t pay it off early, fast forward 30 years to the end of it. It’s like a dinner. It’s gonna feel like pennies. Yes.
Jason Hartman 30:58
It’s not even a good dinner right?
Eric Payne 31:01
Right. So that kind of really caught my attention for what happens over time. That’s the leverage you have on inflation because rent goes up, but your payments don’t. Yeah,
Jason Hartman 31:10
right. Right. Isn’t that great, you know, the payments go down in value with inflation over time, but also the mortgage balance, overall balance on that loan goes down in value and
Eric Payne 31:20
those rents keep going up. Right, I got on a tangent about that. But your original question asking, what I would tell people is, since you have that vehicle available, I would absolutely take advantage of it. You get, if you’re interested in this, you should overtime, get at minimum, your 1030 year fixed mortgages. And then, you know, there’s other options for lending after that, which beyond the 10 Yes, yeah. And
Jason Hartman 31:46
if you’re married, you can get 20 you know, if you got a working spouse, right,
Eric Payne 31:49
right. And so, to me, of course, I’ve been in this I understand all the ins and outs. It’s a no brainer, right? So that’s, that’s what I would definitely advise on one Advice. That’s very good advice.
Jason Hartman 32:01
So Eric Payne, thank you so much for sharing your story. It’s very inspirational. And, man, I think you’re gonna have a big real estate Empire after you hit the sale of your business through raesha hit it.
Eric Payne 32:11
Yeah. And you are How old are you now? Yeah, I’m 37 now. And it was nine years ago that I know it was 2010. Yeah, it was nine years ago that I bought the first unit actually collected seven last year. Even though there weren’t great deals, I found a package deal of three duplexes, and I bought another single unit. So I went from 11 to 18 units just in this past year.
Jason Hartman 32:38
Fantastic. Good for you. That’s awesome. I mean, listen, this is not like an incredible story. Like you bought 100 units now. But I mean, you got 18 units, you’re 37 years old. And you know, when the sale of your business goes through, you’re going to have
Eric Payne 32:52
you know, a couple dozen more. Right, right and probably the cash flow, you know, say in a year once I get some more money in invested, the cash flow will be somewhere between 120 and 150 K a year. That’s an excellent retirement income for the cost of living in Kentucky. But I don’t want to touch that. I’ll just use that for more investments. And I’ve got my time free to do fun things, business things that I want to do to with my time during the day, and obviously that’ll create an income. So I think I can create a pretty, pretty good snowball here.
Jason Hartman 33:28
I think you can do well listen, congratulations do, folks. That’s Eric pain and what a great story. Happy investing. We appreciate you sharing your story on the show. Thanks, Jason. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own and if you require specific legal or tax advice or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
Jason Hartman has does a client case study, with 26-year-old Jaden Zubal, an associate wealth strategist at Paradigm Life. Jaden started attending events when he was 22 and recently purchased properties in Jacksonville, FL, and Memphis, TN. He discusses why we purchased new construction as opposed to renovated properties.
Investor 0:00
I have to say that meet the Masters is what really sold me on your group and just the turnkey world in general.
Announcer 0:09
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:59
Welcome to Episode 1333 1333 and thanks for joining me today. So we are on the eve Well, not the eve I shouldn’t say that we’re on the verge because the Eve is actually tomorrow of that American holiday called Thanksgiving, a time of year when we try to get some perspective on life. Of course we should be doing this every day, right? But at least there’s a a dedicated place for it. perspective on the things we can be thankful for. There are many of them for all of us if you are in one of the 188 countries listening to our show that is outside of the US. I know you don’t celebrate this holiday but I was mentioned it because it you know, it’s just something we should be conscious of. And always remember as humans regardless of what flag we live under, right? So today we are going to have a client Case Study our client, Jayden will be on the show. And the great thing about Jaden is, he is just 26 years old. And he is building a great investment property portfolio with us. And you’ll hear his story in a moment. He comes to a lot of our events. You know, many of you have met Jayden before at maybe our meet the masters of income property event, creating wealth events, or the most recent profits in paradise event, and Jaden was there at that event as well. So before we get to that, just a mention on two quick things, and I know they will actually be quick, I promise. What do you think of that? Number one, it looks like there’s some good news for Texas property owners. You know, Texas has had incredibly good news number one. But the one thing about Texas that real estate investors do not like among all the other things, they do Is the taxes are high? You know, this basically passes through the to the tenants. Okay. Remember, income properties, corporations, LLC companies entities, they’re all really passed through entities at the end of the day. But, you know, the question is can they pass the increased costs? Can they pass them through quickly? Right, as the costs are rising on one side of the ledger? Can they pass that cost through to their tenants or customers? That’s always the question and there’s, you know, always some gap and that always some lag in that, but it looks like there is some new legislation in Texas that we will be talking about on a future episode in a little more detail, offering some relief to the property tax bills. I know I’ve got several properties in Texas, and I’ve had many others I have sold and exchanged a few on the 1031 exchanges. I’ve done. It’s good and bad. I mean, Texas is just Been a booming booming market and one of our listeners reached out to me and, and said, I hope you’re wrong about Florida becoming the new Texas. And you know, Florida seems to be the really hot market right now. Of course, there are many other great markets around the country too. And you can find those all at Jason Hartman calm, click on the property section and you’ll see them there. But the property taxes in Florida are very, very low. And of course, there’s no state income taxes. So got some good combinations there for you. Okay, so, housing inventory. I don’t have to tell you because you are all very well informed listeners because you are listening to this show. And you know what’s going on out there, but it’s even worse than we thought looking at an article, housing wire article about inventory. big cities, see big dips in housing inventory, with no new homes on the horizon. Just basically looking A National Association of Realtors studies saying that inventory of housing has plummeted to a 3.9 months supply at the end of October. And they’re saying that a six month supply is generally considered to meet a market at a healthy level. Of course, that’s a matter of opinion. You know, some would say more, some would say less. So in other words, that’s what we call the market absorption rate. Homes are being absorbed, in other words, purchased by buyers, right, that’s the absorption. And there’s a certain number of properties for sale at any given time. So if you took a snapshot in time, and not one more seller added any more properties any more homes to the market, how long would it take at the existing rate of absorption for all of that inventory to be gobbled up to be purchased to be sold, how long would it take? And now according to this NAR study, it’s 3.9 months and they’re saying that’s very low. That’s very low inventory because really, it should take six months to gobble up the inventory. Now, Zillow is out with some interesting stats to they say the biggest drop in inventory was in Seattle, which lost 28% of its inventory. Now, you know, this can be a variety of factors. It can be people staying in place, aging in place, we’ve talked about that. We’ve talked about why you should really, you know, we kind of debunked the assisted living category, if you will, and talked about that. Cincinnati, one of our markets, by the way at Jason hartman.com. You can find out from our investment counselors talk about Cincinnati, lost 18% washington dc down 17% Austin, Texas, formerly one of our markets now too expensive, down 14% k City one of our markets down 16% Las Vegas, formerly one of our markets down 14%. Orlando, currently one of our markets down 10% Phoenix down 15%. That used to be one of our markets. But again, Phoenix got too expensive. So we stopped recommending it to new investors. And then Pittsburgh, another one of our markets, well, generally down 16% in terms of supply of properties. So that’s what you can look at and realtor.com said that the average American Home listing price in October climbed 4.3% year over year reaching a high Have you ready for this? Now, before I give you the number, go to Jason Hartman calm click on the property section and look at the properties there. And you’ll see that the you know, this is just anecdotal. I’m not giving you the actual science here. But you’ll see that the average property that we are recommending to you is maybe around $130,000. Well guess what the average home listing prices in America. It’s, drumroll please.
Jason Hartman 8:18
$312,000. So we have lots of great properties for you at less than half the median home list price. So check it out Jason hartman.com. Okay, without further ado, let’s go to our client case study. young guy doing great things. Let’s talk to Jaden and learn something from what he’s doing. And by the way, if you have young people in your life, kids, other people’s kids, strangers on the street, people on Facebook or social media wherever that you are connected with, recommend this interview to them because They can learn something, and you can help them get ahead in life. Okay, here is our client case study with JD. It’s my great pleasure to bring Jaden zoobel on the show, he reached out and volunteered to come on and just share some of his experiences. He is a wealth strategist, and loves income property as an investment category kind of integrates that on what he does with his clients and such. But the great thing about Jaden is he’s attended many of our events. And he is only 26 years old. And so he’s getting an awesome head start on life and really internalizing some of the principles. He’s located in Salt Lake City. And Jaden, welcome on the show. Thanks for coming on.
Jaden 9:49
Jason, thank you so much for having me.
Jason Hartman 9:50
Yeah, it’s my pleasure. Tell us a little bit about your background real quick. And let’s dive into your investment strategies. Excellent. Yeah.
Jaden 9:57
So as you mentioned, you know, I’m 26 years old, I got my start in the investment world through your your platform, actually, I am located in Salt Lake City, you know, I’m part of a group called paradigm life. And in my experience with that group, I came across your group where I attended meet the Masters, honestly, the first one was 2016, maybe 2017, one of those two, so you were only
Jason Hartman 10:23
22 or 23, then I guess, right? Yeah, exactly. So very, very young when I came across your group. And at the time, I was just getting started and what I wanted to do in the investment world as far as real estate was concerned, I have listened to your podcast a fair amount up to that point, right. And I knew that it was a really interesting pathway for me, but I have to say that meet the Masters is what really sold me on your group and just the turnkey world in general. And by the way, for those who might be listening and don’t know what that is, that’s an annual conference that we hold Usually two days, sometimes two and a half or three days. And we have a lot of different speakers come in and talk at that conference. And it’s always been, at least so far in Southern California. Now we have another annual event called profits in paradise. And I just saw you there last weekend. That was in Orlando, Florida this year, the year before it was in, in Hawaii. Now, I think you also went to our Jay Chou event in Salt Lake City, I believe, right. A few years back.
Jaden 11:26
I actually haven’t been to the GHQ yet. If you end up doing another one of those. I’m sure I’ll be there. But up to this point, I have not. Now I have to say though with profits in paradise in Orlando this last weekend. Something that stood out to me there that I actually wanted to mention was James melon. Check what he spoke about. Absolutely incredible guy. Just the idea behind how you speak to people and how you present yourself was really an incredible presentation.
Jason Hartman 11:54
Yeah, we try to have some stuff that’s not just directly on real estate investing or income. Property per se, but some things of general interest. So, you know, we have various speakers over the years we’ve had Ron Paul, talking about Liberty G. Edward Griffin talking about the Federal Reserve and the monetary system. And in James balin shack talked, he did two talks for us. One that was kind of a, I’ll say, a more general success talk. But one, it was a persuasion talk as well. So that was great. I’m glad you enjoyed it. And also, when I interviewed him from the stage, he talked about how he suffered some online trolling with a, you know, person that wanted to get even with him after he wouldn’t let him speak at his events anymore. That’s what I’ve been saying. Jaden. I don’t know if you heard about that. But any success, you know, people get attacked, and it’s a lot harder to keep it together that it looks from the outside, you know, is when we look at successful people in the world, we kind of think, Oh my gosh, they’re just so lucky or fortunate or they just haven’t made but you always encounter these forces from the outside which I’ll try And keep you from your goal, right? Oh, absolutely. I completely agree with that. In fact, there was I’m trying to think of the quote, as you were speaking, but there’s a quote that I, I really, really love that ties right in line with that. I can’t remember off the top of my head. But I’ll have to come back to that if I think of it. And I might think of it too, and I’ll bring it up if we do. But anyway, you talked before offline with me about some of the different 10 commandments and in my teaching about investing, in which ones were most helpful and meaningful to you.
Jaden 13:32
Yes, absolutely. So as I mentioned a few minutes ago, you know, listening to your podcast really got me involved in this and got me thinking about it. You know, the education that’s involved there, and particularly the 10 commandments just seem to resonate really well with my own philosophies and my own thinking. So the ones that I really wanted to mention here are the first right so becoming educated.
Jason Hartman 13:56
Yeah, thou shalt become educated. commandment number one. Exactly
Jaden 14:01
I can’t express enough how important that is to success and the success that I’ve achieved over the last couple of years. Right? Because as we said, I’m fairly young. So within the my stated real estate goal, I bought the first property that I’ve ever purchased last year. So I had actually been to, I think I’d been to two of your conferences and was about to come to the third, right, I had registered and set up everything for the third conference when I bought that first property. From that point forward, my stated goal has been three properties a year. And that all came about because of the education side of things, right. My Drive is to educate myself and everything involved in the process before I get involved in actually investing. And so that the educated drove me to the very first thing I remember doing in that process of educating was watching your pro forma video on your website homepage.
Jason Hartman 14:56
Right and that’s just so everybody knows that’s it. Jason Hartman calm it’s right on the Front Page, and it’s how to analyze real estate investment, which really is how to analyze a performer and how to, you know, understand the numbers. So I would highly recommend that free video for anybody. You know, it’s 27 minutes long. And if there’s one thing that sort of sums it up, that would be it. So yeah, I’m glad you liked it. That’s great.
Jaden 15:20
Yeah, yeah. So that was amazing. And then I’m going to skip here to commandment number three, I believe it is. And it’s the stay in control. Right. So maintaining control, being a direct investor, and what revealing part of what I teach is a wealth strategist is something we refer to as the hierarchy of wealth. And that hierarchy of wealth is Jason Have you ever heard of the hierarchy of needs Maslow’s? Yeah,
Jason Hartman 15:42
I in fact, I think Maslow left two of them out on the Hierarchy of Needs I’ve ever since my college psychology class I thought about that and do you want to know which ones I think he left out? Jd? Of course, yeah. Maslow on his hierarchy. Now granted, of course, You know, one of the things on there is your basic needs is is shelter. Okay? So that’s what we provide as investors, but getting more esoteric than just talking about shelter, his highest level at the top of the pyramid of self actualization from asthma. Sorry that is it self actualization, right? But I think there are two other things he left out one that I’d say is higher than self actualization, and I think it should be the top of the pyramid. And I think that’s spiritual actualization. You know, throughout human history, there has been some form of organized religion and even before that, there have been spiritual pursuits. And I think that goes above self actualization. Certainly, self actualization. It’s important, I agree. But I think spiritual actualization is actually above that. And then the other one he left out and I don’t know where it should go on the pyramid is human beings have always been been interested and fascinated by and had, I think an actual need to change their state. And certainly, you know, many people will think well they do that with substances and drugs and that’s true, but they also do it with rollercoasters and skateboarding and movement. People do it with alcohol. I’m not saying every way they change their status positive. I’m just saying they do it. You know, they do it through physical activity. You know, we’ve all heard of runners running these long, long distances, getting what they call runner’s high. That’s the reason many people are addicted and you could argue that a good addiction is to fitness and working out because of that high we get from the endorphins that are released. So we need to change one state. I think it belongs on the hierarchy. Maslow is out of business he missed two things. What do you think
Jaden 17:51
I agree with that? I think really the spiritual actualization Yeah, man. You know, I had never thought about it in that way. But it Definitely is an important part of life. Right. It’s something that we all have some sort of attachment to. Absolutely and would have a major impact on us. Yeah.
Jason Hartman 18:07
Couldn’t agree more. So you were talking about the investor hierarchy. And this I believe you said is in Patrick Donahoe his book,
Jaden 18:15
yeah. Patrick Donahoe his book heads, I win tails, you lose talks a little bit about this, and then I often will talk about it in meetings with clients as well. But the idea behind it is taking what Maslow created and turning it into a financial picture. So we’re taking the bottom of the pyramid, which in Maslow’s case, is things like food and shelter, right, the basic necessities of life. And we’re turning that into what do you need to safely grow your money and keep your money protected so that as you’re climbing the pyramid, so the way we usually have it set up is in four tiers. Tier One would be things like a savings account, money that needs to be well protected. tier two would be, I always say turnkey, real estate investments fit very well in tier two. Because what you can do is you take the money that you protect and grow into your one, and you shift it up into tier two, then if it goes wrong in tier two, which often does when you’re making investments, you don’t fall off the pyramid and go back down to square one, right? You have something protecting you so that you can slowly work your way up that pyramid.
Jason Hartman 19:23
Okay, good. Good. So having a safeguard is basically what you’re talking about. Right? Exactly.
Jaden 19:29
Yeah.
Jason Hartman 19:30
Plan B, if you will. And that’s why I just like the conservative investment strategy that, you know, we talked about all the time, because, you know, it’s just likely to work. Well, all these speculators and people with all their big talk, I don’t know. I see very few of them ever getting rich. You know?
Jaden 19:52
Exactly.
Jason Hartman 19:53
It may sound good, but, you know, in practice, it doesn’t seem to translate.
Jaden 19:58
That is so true, Jason. I’ve seen That numerous times, right? We work with thousands of people across the country, and a lot of the advice that’s given is just very, very poor. Yeah, yeah. Isn’t it amazing? Why is that? Do you think Jaden that so much of our culture believes these crazy investment mythology that’s out there? When you say that I think of, you know, for one case, right, the stock market, you know, it’s not necessarily that it’s bad to put your money there. But I don’t think it’s where people should start. And I believe people go for that, because it’s the only thing that’s taught, you know, if you look at mainstream what people see today and what they learn about, Everywhere you look, it’s, you know, where are you putting your money in the market? What are you doing with your money over here? You know, how are you investing your money in your 401k? That kind of talk? There’s never any talk of, you know, what are you doing with your real estate investments, and what are you doing with the money that you need to protect? Right?
Jason Hartman 20:54
Yeah, I think that wall street just does a great job of marketing. And they’re just great at it, but they have the mediocre investment. Whereas the real estate industry does a lousy job of marketing, yet they have the best investment. It’s true. Yeah, it’s sad that it’s that way, you know, more people should know, but they seem to be figuring it out. So that’s good news.
Jaden 21:19
Yeah, no, Wall Street’s the best marketers in the world, right? I listen to a podcast episode just a couple days ago. And you were talking about when you go down to the boat Harbor, right. And you’re talking about your yachts, right. And this wall street gentleman’s standing there telling the his client, you know, here’s my friend at this brokerage firms. Yeah. And this brokerage firms. Yeah, right. But then the question is, where are your clients? Yeah,
Jason Hartman 21:42
right. The clients don’t have any yachts. The insiders do.
Jaden 21:46
Exactly. It’s always the insiders. Yeah.
Jason Hartman 21:49
Yeah. It’s really it’s really absolutely crazy. Okay, so anything more on investment hierarchy, or commandment number three, or do you want to jump back because I want to ask you specific Basically about your generation, the millennial generation. In fact, you’re so young, you’re almost Gen Z. Not quite, but almost. And, you know, and kind of how they view investing and kind of the future of that that demographic cohort. I’d like to get into that too. So let me know when you’re ready.
Jaden 22:19
Now, let’s go ahead and jump into that. Okay, great.
Jason Hartman 22:22
So it seems like I mean, like any demographic cohort, right, Millennials are a mixed bag. Some of them seem very conscientious and prudent and frugal. And it seems like others have just kind of given up and they don’t want to play the game at all right? They’re just, I don’t know what they’re waiting for. Maybe they just don’t have the foresight to see that, you know, they’ve got to invest. They’ve got to take care of themselves and take care of their financial future. But you know, firsthand because you have friends and peers in that group, obviously. What do you think? What do you read on this?
Jaden 22:56
That’s a really good point. I’ve recently been reading the book called Big shifts ahead from john Byrne. Yeah, in fact, I actually got that book from one of your conferences. But the reason I bring that up is you mentioned, like millennials getting down on their luck, right? The idea that they, they just feel so encumbered in student loan debt, and all of these other weighing factors, that they don’t take any action, they don’t do anything to better their situation. I personally have noticed that very commonly, you know, in the workplace. And as an example, if I look back at people that I went to college with and went to high school with, there’s a good portion of those those individuals who still struggled to get their life monthly. I’d say the biggest factor is student loan debt. That’s really a weighing weighing piece on people. What’s going to come of that generation then? I mean, are they waiting for an inheritance, or? No, I mean, the student loan debt is a huge problem. We’ve talked about it extensively and as a public service, by the way, I’m going to be talking about an article I read recently. How to get out of student loan debt. And it is not easy. But there are a few possibilities. So we’ll talk about that on a future show. It’s hard to say what would come of this generation, you know, I, I spoke with somebody not too long ago who was attempting to shift around their investments a little bit and put themselves in a better situation. And he had just finished school and his student loan debts were just coming due. So we had to start making payments on this. He had set aside a couple thousand dollars a month that was specifically for investments, right? This was going to be his real estate dollars, that kind of thing. And the student loan debts came due and I think it was, if I remember, right, it was about 1700 dollars a month that he had to start paying and that
Jason Hartman 24:42
just wiped out that’s just makes it impossible. That’s like a mortgage payment on quite a nice house. Actually.
Jaden 24:48
Yeah, it completely shifted his his goals for you know, the next 10 years. So it makes it a huge impact. And it’s hard to say where that’s going to take our generation But the way I try to look at this too, is there’s a quote by Zig Ziglar that says you can have everything in life you want, if you will just help enough other people get what they want. Yeah, I love that quote to me that says, Take action, right? Do something with your life to help other people to add value for other people. And right, there are some major weighing factors. But it’s, it’s what our generation has to deal with. It’s the thing that we have to work around.
Jason Hartman 25:24
Yeah, absolutely. We do. We do. No question about it. So talk to us about the real estate you’ve purchased. I think you’ve got a few properties now. Right? I do.
Jaden 25:33
Yeah. So I bought two properties in the last year. And we are looking at buying the third one before 2019 ends. You know, here the next month, month and a half, we’ll be getting that nailed down. So right now I own I own a property in Jacksonville, Florida. And then another one in Memphis, Tennessee.
Jason Hartman 25:52
Okay, so you’ve got Jacksonville and Memphis and you bought one of those through our network and one outside I believe, right?
Jaden 25:58
Correct. Yeah. So One of them through the network. And then like you said, the one out and the one, you know, the distinction I would make between that is there was a considerable amount of value added in buying through your network when it came to the investment counselor. I think that’s actually one of your commandments, but it right, it says, the idea of seeking guidance getting somebody to help you and guide you as you go through that process. Well, there’s not a lot of companies out there that do that. Most of them will simply say, Okay, here you go, right. Here’s the property. Now figure out how to how to deal with it. Right? They’re just basically referring you to the property rather than providing a support system. Right. Exactly. Yeah. And there’s been a lot of value in working through your network with an investment counselor. So in particular, with Jacksonville when I purchased that property, it’s an older one. And I had a fair amount of maintenance that came up right out of the gate, but dealing with your network meant that I had Sarah on my side to kind of walk me through That, right? And she was able to help me go back and forth with the group that I purchased it through until everything was solved. And it was a very, very simple process, right? That could have been something that cost me five or $10,000. And rather, it didn’t, you know, I saved a considerable amount of money just by having the right people on my team,
Jason Hartman 27:18
we really approach this as a service business, like, in a sense, a traditional real estate company, you know, that has a person, that counselor to help you all the way through the entire process and for life afterwards. I mean, as long as we’re around, we’re going to be here to help our clients. So, you know, you purchase property through our network 510 years ago, we’re here for you. And of course, you know, more immediately as well, but definitely afterwards as well.
Jaden 27:46
Yeah, I can absolutely see that. You know, anytime I’ve had any questions, concerns, anything like that it’s a simple email or phone call, and we’re taking care of
Jason Hartman 27:54
good to hear. So what are your plans for the future in terms of additional property? us or anything else you want to share
Jaden 28:01
plans for the future look like I’ve really enjoyed the Florida market. And I’ve listened a lot lately to the idea of where, you know, in the past episodes, we’re talking four or 500 episodes ago, you used to mention that you had properties in 11 states and 17 cities. Yeah, that was a mistake.
Jason Hartman 28:21
Too many, too many too much diversification.
Jaden 28:24
Yeah, I’ve definitely internalized that lesson. Yeah. And what I’m trying to do now is stay in Florida and Tennessee for a while. But with the provider in particular, in Florida, he operates a lot with new build properties now. So I’m very interested in picking up probably two of those and 2020. So short term goals are continue on the three, you know, three properties a year, probably two of those will be new builds. And then as time goes on, I’ll probably just continue to lean towards the new build approach.
Jason Hartman 28:58
Yeah. Okay. So you want to go for The the higher end properties of the rental market, right? You want to buy the new properties kind of the class eight properties, right?
Jaden 29:08
Yeah, yeah. And the my reasoning for that has been, you know, like we’ve talked about, I’m 26 years old, I’m going to be in this game for a while. And I can only imagine how much maintenance will come up. So I feel like the new build approach will give me a little bit more time
Jaden 29:25
on the maintenance side of things,
Jason Hartman 29:27
right. That’ll be better in the long run. But, you know, when you go and you look on our website at Jason Hartman calm and you look at the properties, you see some stuff, some of the rehab properties that they do look better, they look like a better deal than the new properties, right? How do you balance that out?
Jaden 29:45
They do. Yeah, in fact, that was originally when I started buying properties. That was my thought process, right? It was okay, if I look at these properties, and I see, I don’t know $200 a month in cash flow on a new build and then 300 on an older property, that is probably the purchase price is probably 50% of what the new build is. But I was thinking to myself, why that why would it ever make sense to, to buy these new properties, but what changed my mindset there is actually dealing with the older properties, right? When you start buying them and start dealing with maintenance that comes up, you realize that it’s just part of the game, if it’s a 5060 year old house, there’s bound to be things that happen that you didn’t expect.
Jason Hartman 30:30
It always always comes up and tenants in the lower end properties, you might get lucky, you might get a good one. But by and large in the law of averages, you’re just going to get better quality tenants in better quality properties, and you’re just gonna have a better experience. But hey, you know, we have many clients who are kind of more of the bargain hunter type, and they want those classy properties and they usually after a few years of doing those Usually decided, you know, I want to get some nice Class A new stuff. It’s a funny thing.
Jaden 31:06
No, I can understand that mentality 100% it was a shift for me. And I do think that there’s a lot of value in the class C properties still. It just depends on your willingness to deal with them. Right, right. Part of what you’ve talked about quite a bit lately has been self management. And that’s another big key for me is, you know, right now, I’m using property managers for everything. But at some point as I get more experienced and better with the real estate investments, I’d love to try out the self management. And I think that new builds are will be a lot easier to self manage.
Jason Hartman 31:41
Absolutely. I agree with you. Now, I do think though, you’re in two markets, I do think that you can diversify into three markets, you should at least have three markets in your portfolio, and not more than five. That’s what we’ve always said based on the mistake I made of going into too many markets. I don’t think you can own too many houses, but you can be in too many markets. So do you have an idea as to your next market to add and get three? I do.
Jaden 32:09
So part of this came from the last two conferences, the last meet the Masters in the spring, and then profits here just last week. And then part of it came from just looking at properties on the website. But I think that York, Pennsylvania, really interests me, they’re kind of the townhome style. That’s what it looks like most of their properties are. I don’t believe they’re sold as townhomes. I think they’re sold as a single family. But I like the idea of you know, the rehab on those looks incredible. It seems like they do an amazing job in that in that area. They always have really good rent to value ratios. And that’s been a big factor for me, I always kind of look at and determine things based on that rent to value. And then the provider there seems like a really good provider.
Jason Hartman 32:54
Good stuff. Good stuff. Jaden. Anything else you want to say to wrap it up?
Jaden 32:58
I would just say that You know, I would reiterate that for me, a big deal has been making sure that I’m taking control of my life where I can take control of it. And again, I go back to the exhilarates. Quote, if you want something in life, make sure you’re helping other people get what they want, right, add value for others do do what you can to help others out in life. That’s the way the key to success in whatever field you’re, or whatever endeavor you’re going after. So I would just add that and that’s great.
Jason Hartman 33:27
Yeah, good stuff. Yeah. So, you know, as a real estate investor, you’re providing one of people’s primary needs, housing, shelter. You know, they say the three basic human needs are food, clothing, and shelter. And we’re right at the bottom of Maslow’s Hierarchy there. We haven’t even gone up the ladder, and you got to get those taken care of. So that’s what we do as real estate investors. We provide shelter a very important need for people. So that’s excellent. Jaden, do you want to share any contact information or website or anything?
Jaden 33:59
Yeah, I’d like too, so if anybody’s interested in talking about you know what I do, and how I got involved in working with you specifically, please feel free to shoot me an email you can reach me at Jay Z ball that spelled ZUB al at paradigm life.net or you can just get on our website paradigm life.net and click the About Us link. And you’ll see a picture of me right there. It’ll say Jaden zoobel. Go to that and you’ll be able to get a hold of me.
Jason Hartman 34:25
Good stuff trading. Thanks for joining us.
Jaden 34:27
All right. Thanks so much, Jason.
Jason Hartman 34:30
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