On this Flash Back Friday, originally published in October 2016 as episode 734 Jason hosts client and guest Brian. Brian discusses his journey into real estate investing and complements Sara, his investment counselor who walked him through the buying process. He has properties in Atlanta and Memphis and is at the point where he can refinance. Jason and Brian discuss his option of refinancing or doing a 1031 exchange. Jason gives him tips on how to use his IRA to save on taxes and gives his recommendations on real estate investing.
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 has hand picked to help you today in the present, and propel you into the future. Enjoy.
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
Hey, I want to welcome one of our clients to the show. He’s got a great case study if not as a real estate investor than as a podcast listener because he’s been very loyal. And I’m very grateful for that. He discovered my podcast back at Episode 50, of the creating wealth show. So he’s been with us a long time. He has some investing ideas and questions and started his own website around it because he likes the asset class so much. And I want to just welcome Brian How are you?
Excellent. Thanks for having me on.
Jason Hartman 1:33
Good. It’s good to have you on and you’re located in Palo Alto, California. Is that correct?
Actually just moved up to San Francisco a couple years ago.
Jason Hartman 1:40
So you really like low priced real estate than I take it right?
I like paying high rent. How about that? Yeah.
Jason Hartman 1:49
Me ask how much is your rent? And do you know the value of the property you live in now or are comparable value for it? Because I bet you’re getting a pretty darn good deal. Believe it or not?
You Yeah, yeah. Well my rent is 2500 for a nice two bedroom here in San Francisco, which is actually a pretty good deal.
But it’s it’s a two unit building I think last it might be like 1.4 million somewhere around there for your side or both sides for both for homebuilding.
Jason Hartman 2:20
Yeah. Okay. All right. Well, that’s that’s still a good deal. So if yours is worth 750 then you have a point three RV ratio approximately about point three, three. So that’s a great deal. Congratulations. Like it’s not that great a deal. Yeah, good stuff. Well, hey, you discovered am I creating wealth podcast back at Episode 50. Thank you for listening all these years. What got you interested in real estate investing,
tracing it all the way back? I actually think it was a book I was assigned in high school to read which Rich Dad Poor Dad, and I don’t, you know, didn’t think much about it at the time, but I feel like those ideas really sink in and out. coming out of college and finding my first first job, I was, you know, wondering what I should do with my money and kind of revisiting a lot of a lot of what I picked up way back in high school.
Jason Hartman 3:11
I have to say, Brian, it’s kind of amazing that they actually assigned that book his high school reading, or are you somewhat amazed by that?
Yeah, absolutely. It was a one semester econ class that everyone had to take. And we weren’t we there were, I think, three books we got to decide between and that’s the one I chose. And I gotta say, it was a good decision. Not sure if I knew it at the time, though.
Jason Hartman 3:35
Yeah, the other two were probably like, you know, the Communist Manifesto and socialism for dummies and,
and you pick the right one.
Jason Hartman 3:44
I’m just, I’m just making a jab at our school system in our educational system, but never mind. Okay, so so Rich Dad, Poor Dad. You know, that’s been the inspiration for a lot of real estate investors for many years now. So that’s fantastic, and tell about your journey, you know, yeah, you bought a couple of properties. And when did you start? And just wherever you want to take it? Absolutely. So yeah, I started
listening to the podcast did that, you know, for probably a couple years before I connected with your investment counselor, Sarah. And yeah, really, she did a great job of kind of holding my hand through the process. I probably one of the more needy clients she worked with, but ended up buying my first property in 2011 in Atlanta, and then waited a couple a few more years until my next one, but 2014 purchased in Memphis. And so that’s kind of where I am at this point.
Jason Hartman 4:45
Yeah, fantastic. And tell us about your experience with with picking the properties and dealing with renting them managing your managers. Good, bad, indifferent. Share it with us if you would.
Absolutely. It’s it’s a little bit all over the map.
As far as the property management side but the you know, 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 and happy with with the price and the rehab job and the tenants have gone well, the property management still still learning because you know, I don’t have too many years of experience and don’t have too many data points to look at but in Atlanta, I’m working with a very small property management team and update to people who do everything.
Jason Hartman 5:39
Yeah. And and some that can be good or bad. You know, the bad part of small is they don’t have as many resources the good part is small is hopefully you’re getting some really good personalized service and ambitious person who really wants to grow their business. So, you know, that can that can kind of be one way or the other, right? Yes,
yes, I know who to talk to, which is really the the that makes it The flip side is the Memphis properties through more of a large, more institutional manager. Yeah, exactly. And they have, you know, I don’t know how many 50 people on their team who do everything and it gets moved from division to division and you know, you’re not sure exactly who to talk to when it’s, you know, they’re doing the walkthrough and then they’re doing the rehab and then someone else is, is showing it to tenants. And there’s not, you know, there’s not that one person who, you know, has the whole vision of it. So, right, right.
Jason Hartman 6:33
Got that sort of delegation of labor type concept. Yeah, the bigger company idea. Yeah,
yeah. So so still learning the pros and cons of each and which I prefer and definitely early in the in the journey, but it’s good to get get these two viewpoints. Yeah,
Jason Hartman 6:49
yeah, definitely. So did you have some questions about refi or 1031 exchange, or did you just want to kind of share some of those experiences with our listeners?
Yes. I want to ask, I have, you know, that property that I purchased in 2011 in Atlanta, and quite a bit of equity has built up, which is a good thing. And congratulations, yeah. And looking to put that to use. So, you know, sometime maybe in the next six months thinking about either doing a refi pulling some money out and, you know, putting it back into another property, or maybe a 1031 exchange where, you know, again, sell, sell that property and purchase two more, and
Jason Hartman 7:33
that that gets to be Yeah, this. This is one area, Brian, and I’m really glad you brought this up for our listeners, because I have mentioned it on a few of the more recent episodes of the show. And you know, I’ve always promoted the idea of refi till you die. It does have a minor flaw to it, though. And the minor flaw is that when you have the good news of a highly appreciated property, like your property in Atlanta, where equity has really built up, usually The rents Of course, don’t keep pace. That’s the typical way that it works in real estate, and your rent to value ratio gets out of whack. So the question is, do you do the refi to die plan? Which is still a good plan? Or does it make sense to do what I’m calling the 241 plan, and that’s where you sell that property on a 1031 tax deferred exchange, and buy two more. Now, we had a guest on the show recently, who works with us who bought three more, I’ve done the two more several times. Recently, I sold a big apartment complex and bought another big apartment complex, a bigger one and mobile home park. And that was last year I did that with one of our clients, who’s my partner in that deal. I did another property own single family home and purchase two more and then I’m doing that again right now. So that’s the two for one plan, but you know, you might even make a three for one who knows. Tell us about your Atlanta property. What do you pay for it and what’s it worth now
I paid up about 82,004 85 and it’s haven’t run you know, comps or anything like that, but I’d say it’s probably in the range of 100. Hundred and 5000. Maybe maybe higher, you know, but Zillow, certainly higher but I don’t think it’s much beyond that.
Jason Hartman 9:14
I bet in the next six months, you’re going to capture some more appreciation because I don’t think that the screams you need to do anything yet. I think that’s still just hang tight and, and don’t do anything quite yet. You said 105,000. Right. Right. We’ll make sure I heard that correct. What’s it running for? Is it running for about 850 900? It’s at 950. Okay, nine, you know. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday. That’s pretty good. I i and did you put a lot down on that or do you have a lot of equity? What’s your loan balance? loan balance is 60,000. Yeah, okay. So if you do refi you could buy one, maybe two more properties without refinance, I think you need to let it go a little bit longer. And I know you said you were going to do another six months or so in it. Maybe longer than that, before you do anything I unless you have a, an adjustable rate loan that you want to get rid of, or a high interest rate loan on that, that is not screaming that you need to do something yet. But I think it’s good that you’re thinking about it for sure. Is there a Is there a reason that you’re really thinking you want to do something? Or are you just kind of thinking about it?
I’m really just thinking about it, how to get into more properties and put that put that money best to use? It’s? Yeah, I mean, as far as the equity is probably over over 40%, you know, getting to 50% and that’s probably right around the time I would want to think about there doesn’t need to be that much accurate equity in this let’s, let’s put that better to use. Right, exactly. And here’s one of the other things to consider when when people are either considering the refi till you die Or the two for one deal. And that two for one is, you know, obviously just an expression, right?
Jason Hartman 11:06
It could be three for one could be one for one, you know, I’m just giving an example when I say that, but on the two for one deal, when you sell the property, you really will have all of that equity available to you to buy more properties. On the refi, you’re going to be limited to the refinance, cash out refi loan to value ratio, which is probably going to be around 75% LTV, so you’re not going to get much money out of it on the refi till you die. But on the on the sale, you’ll free up all the equity except the transaction cost, obviously. And you probably need to bank on somewhere around 8% for that on the sales side. And then your transaction costs on the purchase, depending on the type of financing and the area in which you buy the property is somewhere in the neighborhood of three, three and a half percent, about there probably. And so that’s what you lose on the transaction cost but it’s less than you then what Don’t get on the loan to value ratio limits on the reef on the cashout refi. And I’m sure you’ve, you’ve thought of that. Right,
right. And another I mean, another benefit of doing the reef eyes to get a lower interest rate. So, you know, maybe it wouldn’t pull, you know, maybe I’d get 15,000 or 20,000 tops back, you know, spending cash out, but would also have a locked in lower interest rate, which is appealing to me as well.
Jason Hartman 12:30
Right. Right. Okay. So that’s a, I’m glad you brought that up. That’s a very good point. So what is your interest rate? Now? Do you know it offhand? And you know, have you looked at rates for new financing because getting a lower rate? You know, when you when you do this, the two for one, you automatically get to refinance? Right? And
so I believe that one’s at 5.5%. So you should be able to get under five right should be able to do better.
Jason Hartman 12:54
Yeah, right. Yeah, absolutely. Good. Good stuff. Yeah. Yeah, you know, I think it’s good that you’re Thinking about it and what are you leaning toward? Do you have a preference?
For simplicity sake, I’m leaning towards the refi. But the 1030 ones appealing to especially, you know, if I were going to purchase right now, I probably wouldn’t be looking in this Atlanta area. I feel like, you know, it has had some pretty good appreciation and might be looking at slightly more. I know, it’s not a cyclical market, but maybe more linear types. So, you know, that that would be another advantage there.
Jason Hartman 13:31
Yeah. And I would classify, and I’m sure you’ve heard me say this, I would classify Atlanta as a hybrid. Now, I wouldn’t have before I would have said it was linear, but it obviously had some pretty good appreciation and you would enjoy that along with many others. So I would currently say it’s, it’s really kind of a hybrid market. So you’d get into a more linear you’d improve your cash flow. And like looking at the announces of that, if you bought two more, so you’ve got 950. Now, in income, I’m just saying gross, obviously. There’s expenses, mortgages, debt service, etc. But just if you look at it from a very simplistic point of view, $950 per month now, what do you say paid for it again? 82,500 82,500. You could buy two more on the refi. And I bet you could bring that that gross income up to about 1800 dollars per month, you’re probably you’re probably looking at properties on our site and thinking the same thing I bet. Right, right. Yeah. Yeah. Good, good stuff. Okay. Well, any other thoughts or questions about that particular scenario?
No, it’s really a win win. I’m just trying to figure out which, which way is best.
Jason Hartman 14:36
Tell us a little bit about your website and what you’re doing with that.
Yeah, so I started website rental mindset calm just to share my experience, what I’m learning and, you know, share my story. Hopefully, can can show it’s not. It’s not too hard to become a real estate investor and that more, more young people get into it because I feel like it’s really the best place where Someone with a 15 2030 year timeline can can really benefit.
Jason Hartman 15:05
And it’s a lot better than the other options out there, isn’t it? Absolutely. It’s, it’s really scary. You know, I’ve been listening to on Audible, some of the rich dad books recently. And I’ve had Garrett Sutton on the show several times. Tom wheelwrights book, tax free wealth is pretty good, too. I really have been enjoying that one lately, although taxes are never, you know, like my favorite subject, but we’ve all got to pay attention to it. And it’s amazing how anti retirement plan those guys are. They’re just not into any sort of qualified plans. Really. Tom’s a little bit more into the Roth plan. But I think overall, at least my take from it is that they don’t like the plans at all. They would just say go out and buy investment properties and, you know, keep it at that. I’m not quite as down on on the qualified plans as they are, but I do see their reasoning for it and it makes sense. One of the things I’ve always said is that with real estate In a self directed IRA, you basically have a tax efficient vehicle inside a another tax efficient vehicle. And of course, he can’t, you can’t get really desirable financing inside your plan like you can outside of it. But, you know, it’s not bad. And I don’t know, I just I don’t know that I would go so far. Say I had $100,000 in a self directed IRA, right. I don’t know if I would go so far as is cashing it out, paying the penalty, paying the tax and then investing with that money. They’re pretty against it. I was kind of surprised at how anti qualified plan they are. You know, if you read any of the other books,
no, I really haven’t and
Jason Hartman 16:41
get let me make a recommendation to you and the listeners. Garrett Sutton’s book loopholes of real estate is excellent. At our last venture Alliance meeting. I gave that book to everybody, all our venture lions, mastermind members, were all kind of reading it together. We have sort of a book club where we sort of examine different books, and that’s been enlightening to get other Investors take on it. But
yeah, I’d recommend it. I’ll have to read that one. Yeah. I’m hoping to do some some of the book reviews on my website as well. So
Jason Hartman 17:07
yeah. Oh, that’s a that’s a great idea. Great idea for content. And the one thing I would say is that some of the ideas Garrett has in there I don’t agree with I think they’re a little no fan skerritt. I think they’re a little old fashioned. But you know, by and large, I think it’s a great book. It’s really, really interesting. And I love the way he writes and tells stories and gives funny examples of different people in situations. And he always kind of gets his little, little jab at the government in there. It’s really funny. It just sort of noticed that so yeah, good stuff. Any other thoughts or questions you want to share, Brian? That’s it. Thanks for having me on. Okay, good. Well, hey, thank you for being on and thank you for being a client and a listener since episode number 50. Way back there. This episode will air in the 700 range on that show, and we might hear it on some of our other shows as well. You also attended meet the Masters back in 2010. It looks And did you attend our Atlanta property tour in Memphis property tours? Or are those just the properties you bought?
Those are the ones I bought? I’ve still still never seen them actually.
Jason Hartman 18:09
Oh, okay. Yeah. How do you feel about that, by the way? And how did you feel about that? Initially, when you bought it was that scary to buy sight unseen, that first check is definitely scary. I’m not
gonna I’m not gonna say it wasn’t, but be I, you know, I can can rationalize it. And I’m not a real estate expert. And so I don’t have to do the property inspection. And I hope that I am hiring people who are experts. And double checking that so. So yeah, I think it’s, it’s worked out great. And I’m gonna continue to do it.
Jason Hartman 18:43
Yeah, good stuff. Good stuff. Well, Brian, thank you so much for joining us today. Good luck with your investing journey and your website. And it’s great that you’re an evangelist spreading the word about the gospel of real estate investing. So we all appreciate that because it’s it’s a great thing and thanks for joining us. Thanks. 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 Hartman. 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.