In this episode, Jason Hartman interviews Muthiah Nachiappan. They start the episode by talking about property management contracts and how it always favors the person who is drafting them. The discussion then revolves around managing the properties through self-management, a la carte services, and flat-fee property management. Muthiah shares how he got interested in income properties and also explains his Property Management Survey. Jason also discusses the four options for property management that should be available to every property owner.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
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. Real estate investors.
Jason Hartman 1:04
Hey, it’s my pleasure to welcome one of our clients back to the show, we actually recorded another show a while back. We didn’t air it yet, because we kind of thought we could do it better. And he’s just such a great contributor. He’s been to several of our events. He’s got nine properties through our network, and that is Messiah from Los Angeles. mithya. How are you?
Muthiah Nachiappan 1:21
I’m good, Jason. Thank you. How are you?
Jason Hartman 1:23
Well, welcome. Welcome. And thank you so much for the preparation you did for this podcast interview, I think the information that you’re going to share here is going to be very valuable to all of our other clients. So I just want to first say how much we appreciate that. I’ll say that on behalf of my company, but I want to say that on behalf of all of our clients, because I just think what you did here is really, really valuable. I’m looking at the stuff you sent me in preparation for this interview. You may be more than any of our other clients have really delved in to property. Management contracts. And what I believe is this outdated, outmoded, in many ways dysfunctional model of property management. And as I say, you know, the two biggest challenges we have in our business is well right now, and this will change, it always does its dynamic and ebb and flow, but lack of inventory of properties. So we really, inventory is very scarce very tight for the past few years, seems to be getting worse, frankly. And property management. Those are the two biggest challenges we have. If we can, if we can solve those, everything will just be rosy and wonderful. But Matthias what kind of caused you to get so interested in the property management part of the business being an investor with nine properties?
Muthiah Nachiappan 2:54
Jason, I have a habit of reading everything in time.
Jason Hartman 2:57
It’s a good habit.
Muthiah Nachiappan 3:00
To my detriment I did I do read all these property management contracts that come that I have to sign and there are things in there that don’t seem don’t seem like it. So anytime, you know, I’ve seen a lot of leases over my time and a lot of the leases and agreements they always pay with the person who’s drafting it. And in all these agreements were drafted by attorneys for on behalf of property management companies and you know, as a as an investor, you know, always looking at myself, obviously, each investor and so there are things in there that I’m not really comfortable with and you know, half the time you go back and forth and, and the argument often from the property management company is hey, look, you know, this is what everybody signs and, and we can change it just for you. You know, that type of thing. And so, I was I was able to change a few things, you know, here and there that seemed important to me, but you know, certain things I don’t really bother even negotiating because it’s not worth in the long run the big the big pictures of personalities. reactions. Well, you you gotta you gotta As the old saying goes, you got to pick your battles, right? So,
Jason Hartman 4:05
yeah, yeah, absolutely. But what I think ultimately needs to happen is I want to disrupt the property management industry. I want to see self management become more popular. And certainly we have made a dent in that it has become more popular as we’ve been teaching it for the last six or seven years now. And I also want to see all a cart Property Management Services. Why is it that most property managers out there expect you to just sign up with them? And they do the whole kitten caboodle? Why can’t you just buy the service you need? Right? So those are two things that I want to see. And then the third thing is what I proposed maybe four years ago, God I don’t know time goes so fast. Maybe it was five years ago now. At our meet the Masters event, which was this flat fee, property management and you did a beautiful spreadsheet on that, that I am looking at now, and we’re going to talk about that, where the manager just charges a flat fee. And I think this is the way to go. I really like this plan. So where would you like to start with it as we dive into this?
Muthiah Nachiappan 5:14
Well, we can start with, you know, like, like, like in any business right there good property land companies and bad property management companies. And as an investor, you know, going into this, you know, not everybody’s, you know, experienced investor, you know, most of us are just starting out, you know, I think that what what do you look for in a property management company, when you first get started, I think that would be a good place to start and then maybe that, you know, from that it can evolve into other areas.
Jason Hartman 5:43
Absolutely. Okay. Good. Talk about that, you know, in terms of what you look for, you’ve got the, what you call the property management company survey. And I just love this, you know, you’ve you’ve, you’ve gone over, you know, several items like the lease up fee, the re renting fee or the renewal fee. Other fees, if any, you know, monthly management fees, pet fee and deposit, maintenance advertising, late fees, rent do uncredited and you know, statement of accounting of rents. Tell us about that?
Muthiah Nachiappan 6:13
Well, I broke these fees down based on the nine different agreements. And I actually may have seen up to a dozen, you know, I looked at these and pulled out the different fees that these companies charge and, you know, and so I figured that, you know, good to see what were the biggest chunk of your your rent is going, you know, the biggest chunk of your hands, obviously going to the to the to the management company, and the management team, just really, maybe not a whole lot at 10%. But then you start, you know, nickel and diamond with these, you know, other fees and they don’t want to share those fees.
Jason Hartman 6:51
I call I call those garbage fees. There’s a bunch of garbage fees in there. But listen, folks, as I as I say that don’t think of it as too derogatory because everything has been Garbage fees, you know, hotels are now doing resort fees, this fee that fee, you know that these are all garbage fees, you know, they’re all over the world. So, you know, it’s not just managers doing that, but But yeah, you know, they’re not the they’re not the apparent obvious fees, right are these extra things they, they kind of slip in there and a lot of people aren’t really thinking about him. And Mutharika. Before we dive into this, I’m actually Sorry, I didn’t ask you about this before, but it’s always nice to know where someone’s coming from. You’ve got nine properties now. What do you do for a living and you know, give us a little bit of your background first, just so we’ll understand kind of how you how you think maybe?
Muthiah Nachiappan 7:36
Sure. Well, look, you know, I mean, I’m actually a real estate broker. I’ve done some loans and things of that nature but I you know, it kind I started out as a broker. And really what the rates all got started was I became a broker and I went to get my fingerprints and I couldn’t find a place in downtown LA to get my fingerprints. I had to drive 15 miles to get my fingerprint. And I thought, well wait a minute, this this looks like it was a market this was around 2008 that time where mortgage brokers are not doing that well and so I said, Wait a minute looks like this might be something that there might be a need, you know, and always when there’s a need for need to make some money, that’s generally the business concept where people make money. So I slowly got into, you know, setting up this business where we got, I got certified to the FBI, the Department of Justice, what the equivalent went through training, and then you know, just started and then the mortgage brokering business fell off and this picked up. So that’s what happened. So I started doing the run background checks and all 50 states we do Department of Justice, the FBI, criminal background checks for, for immigrants for professional occupants and professional licenses, lawyers, doctors, nurses, children, learning people who are come in contact with children, oh elders, those sorts of things. So there’s a there’s been a market for that. So I’ve been fortunate to make a living at that. And so I did that for a few years. And then I just started you know, slow angling, I listened to your podcast and I looked at other things to do as well and, and your podcast got me interested in investing. And I started very slowly in all in a matter of three months, I bought three properties and then slowly started taking up and I’ve been doing properties, I basically refinanced my primary home, took the money out of that and bought some properties. And then I used this conventional financing and you know, what other property so it was not an easy process because it’s family, Fannie Mae, Freddie Mac guidelines are so strict and the requirements are so so rigorous that it took me a while to, to close on the last four properties that I close on, and I closed for before the end of last year. And so it became more and more difficult. And so but anyway, that’s what I did, and I intend to continue, you know, buying, but I’m looking at maybe doing something unconventional maybe doing seller seller financing, some lease options, that type of thing. And other than just going just with the conventional way of buying properties. Yeah.
Jason Hartman 10:14
Okay, good. So what else happened? First of all on your business? Did you open a fingerprinting business?
Muthiah Nachiappan 10:20
Oh, no. Right? No, no what what I was going to say was, the way it works is and I don’t know all the I don’t know the specifics in terms of how they do the the calculations, but when you when you have a business and you have a show a profit, and I have an S corp, so basically, they take the profits that added to your your income, and then just kind of, you know, escalate your income. But by the same token, if you have a loss, they basically offset the income against the loss. And so when you calculate your debt to income ratio, it really hurts you and you’re very tight in terms of qualifying for a loan. So that’s what happened for me. In 2013, the business that I was running was had a little bit of a loss, you know, and and so that affected my my ability to borrow more money. And so that’s why I kind of stopped at nine you’re starting, but for and then I’m looking at other ways of buying property right? Yeah. Okay. Okay, good.
Jason Hartman 11:21
So on the property management agreement side now that you we got a little background on so that was great. Tell us, you know, what, what your thoughts are about this property manager, survey, property management company survey, you’re using this to really understand what you’re getting into. Right.
Muthiah Nachiappan 11:39
That’s the key to it. Right. And I think it’s also important for property managers to look at this survey because I don’t know if they’ve done an internal analysis on what their fee structure is because they know they’ve been doing this for a number of years. I don’t think they’ve sat down and broke me down and say this is what we’re talking with this dad and the other, I think allows them to look at all the fees they charge And make a make an informed decision on whether or not it would be worth a while to just charge a flat fee. No and everything is transparent. There’s no hidden fees. And other things like the markup fees on on maintenance, you know, the, for example, a lot of them become very common practice, among the other many property management companies if they, if you if they call a maintenance person into your, into your rental to fix something, then they will charge, you know, up to 30% on top of what what the maintenance guy charges you. You know, I don’t know how you know why that’s even necessary, right. And I think
Jason Hartman 12:37
the thing to do is to empower the tenant, you know, the property manager doesn’t even know something is wrong until the tenant reports it. That’s kind of the irony of this situation, is that if you just work with your tenant Now, granted, you know, there are bad tenants out there, we all know that. But if you just kind of work with your tenant, a lot of times They can be your best ally. I mean, I get, you know, I try to get my tenants to, I was gonna say I get but I don’t always get I try to get my tenants to, to, you know, basically get into partnership with me here. And you know, you get some there are some really great most tenants are wonderful people, they’re just people, they want to have a nice place to live. And they are our customers, you get some bad ones for sure now and then but by and large third grade, you know, so, so, okay, go go through this survey a little bit more, you know, lease up fee re rent fees,
Muthiah Nachiappan 13:33
right? These are the cheat that I have. And I think people know, it’s like, it’s like mutual funds, right? But they have all these hidden fees. I’m going to sit down and break it down. You don’t really know how people just think that this thing a flat fee, but there’s all these that Tony Robbins had a book published a book not too long ago where he had like 16 or 17 different fees of mutual fund companies charge all hidden, you know, unless you, you know, you you really know what you’re looking at. They’re all hidden and you just think that Getting this your return. But in that within that region, there’s so many hidden fees. So I’m just saying that look, as an investor, if you’re looking for a return on investment, you want to look at all the fees that you’re charging and see if you’ve been charged and see if there’s a, there’s something you can negotiate before, you know ahead of time, you know, and the point, you know, in addition to the fees, right, let me just go through the future use of fees the fee that they normally charge when they find a new tenant for the property. Now, here’s the thing that can be as much as 100% of the first month’s rent, so basically get nothing the first month’s rent and you get nothing, the whole fee is is gone. When they find a tenant for you and the property is vacant. I’d like to buy a property with a tenant in it. But but that’s the least of that. So basically lost the whole first month’s rent. The other thing that returned for you they find a new tenant for the property in the second year. Then they charge you a fee. Again, that’s another you can go from 60 to 80 from 50 to 100%. Average is a pretty big chunk of money, you lose a whole year’s worth. And then
Jason Hartman 15:00
some but sometimes and here’s here’s the odd thing about it. Sometimes there’s no renewal fee, or sometimes the renewal fee is $150, or $100. So it’s all over the board. And here’s the problem. This, this old fashioned philosophy of property management is out of alignment. Whenever you get into a deal, you want to have a strong alignment of interest, the owners interest is to get as much income out of the property as possible. The property’s managers interest is to make as much money as possible, why can’t we put these two things together? You know, rather than having all these diverse motivations, so let me just tell you about that.
Muthiah Nachiappan 15:45
In also, besides the owner in the management company, the tenant, the tenant is the one that’s being a being the thing. So I think aligning the tenants interests as well. You know, if you make it hard for the tenant to stay there, they’re not going to stay there very long. They’re not going to stay. Yeah,
Jason Hartman 15:59
yep. Exactly. So here’s what I was gonna say about that. Some clients will say, the property manager is not aggressive enough on rent increases, they tell me to just not raise the rent or to raise it a very small amount when I know I can get more and and then they’ll they’ll say, well, the property managers being too lazy on getting me a higher yield. But then others will say, well, in they’ll say that one of the reasons is they’re lazy. They don’t want to have to go replace the tenant if they decide to move when the renewal comes up, right. But then, on the other side of that spectrum, you’ll get a different client that says, Well, you know, these property managers, they always tell you to really jack up the rent, so that the client so that the tenant is incentivized to move because if they move out, they can charge you another lease up fake. You can’t win in this debate, right? Nobody knows really what the real motivation is right? We totally see that you see how it’s the exact same set of circumstances in two completely different belief systems, right? So here’s what has to happen. We have to have a flat fee system where you as the investor, pay a higher percentage, but it’s simple. It’s totally flat. every dollar that comes in, the property manager gets a certain defined percentage of that dollar. And if the dollar doesn’t come in, they don’t get anything. And then I believe there is an alignment of interest. That’s why I proposed this idea about four years ago at meet the masters. And, you know, nobody really took me up on it. I, I didn’t really push it too hard. I have mentioned it on the show over the years. But let’s talk about this spreadsheet a little bit. Okay, so we see from just what you haven’t even gone over All of these 18 items yet we see that there’s a misalignment of interest, right? Let’s see if we can get the interest aligned. Okay. Tell us about your spreadsheet here.
Muthiah Nachiappan 18:08
Well, look, I took the I took the three most common fees that are universal in all property management agreements, they were the the managing fee, the lease fee and the property inspection fee. All the other trees exist to some to some extent or the other, but these three trees seem like they exist in all contracts. And, and I analyzed them from 8%, assuming the management fees are 8% 9% 10%, you know, on a $1,000 per month progress, right? I’ll just make the numbers easy. So $1,000 a month. So having if you do that, you know, the basic the total fees on an 8% or one year it’s all annualized. So one year it’s 1710. For the 8% of the total just in fees are 9% is 1008 30 and 10% 1000. 50 but the annual rent is 12,000. Throughout, because you can throw 1000 bucks a month no matter which way you go. So as a percentage of the rent, you’re paying anywhere between 14 and a quarter percent is 16 and a quarter percent. You know, that’s, that’s what you’re paying, you know, if you look at it, that’s, that’s a sizable amount, right? I mean, you could be whatever. I agree. I agree.
Jason Hartman 19:21
And a lot of times this is this is not this doesn’t happen on the first year because the property will be pre rented or they won’t charge the lease up fee for the first tenant. But then after that, you got to pay it right. And sometimes, and to be fair, sometimes the tenant will stay for two or three years or half, maybe even longer. Okay. And that brings that number as a percentage down quite a bit.
Muthiah Nachiappan 19:46
No, it does bring in vendela five percentage points, it brings it down. So that’s why I’m saying even if they don’t charge the lease fee or you bought you buy a property with a tenant in it, or if you already bought a property the tenant in it, then There’s no reason for nissa t because you buying it as it is. And the second year of the Terran continues to stay there, there’s no lease up fee, you know, maybe the renewal fee of 150 bucks, which is negligible if you break it down over 12 months is nothing. So if you can take the same management fee as a percentage of rent, and you remove the lease fee from this equation, you get, you know, between anywhere between nine to 11, or 12%. And that’s why I think that maybe it would be better these if these, that’s one of the questions I have in my survey is, Hey, you know, you know, would you consider switching to a single flat percent of percent monthly? The property management fee, yes or no? If you answered yes, what is the percentage fee would be, what would be the percentage fee? And if you answer No, provide your reasons. See if they look at this, right. I mean, they basically making it 10% anyway, and they’re getting all these bickering going back and forth between the investor and Marissa things they know this will trust versus gotta trust the management company. I gotta tell you something. There are a few companies in your network that I trust implicitly, I’m, I don’t have to do any work at all, they do a lot of the stuff for me, they find the best insurance for me. I mean, they do everything. So on the other hand, there’s some others that I have to go out and shop for this, that and the other, and I have to call them, you know, spends more, it takes more of my time. So the more value that a property management company can add to this relationship, it will be much better for all parties. I couldn’t agree more. And, you know, this comes down to the old thing is that, you know, it’s the question of thinking long term in business, or thinking for today. It’s instant gratification versus long term thinking. And, you know, just humans think differently about that.
Jason Hartman 21:43
So I say the, the solution to this is number one, you know, there are some options, either self manage your properties and learn how to do that. It’s really a lot of times it’s easier, frankly, if not self manage. You can propose an all a cart Property Management relationship that the blend that I like is having your property manager, do the lease up and handle things between tenants. But the rest of the year, just collect the rent directly, just have them pay you. And then you’ve got that manager there. If you need a local contact, if you need some help, you can just call them up or you know, email them and they can help you and they’re going to be happy to do that because they want to earn your business, right? versus if they have you under contract. It’s more like they’ve got you and they become complacent. You know, it’s it’s just human nature. That’s just the way things are. Okay. That’s the way humans are. So when it’s a transactional relationship rather than a contracted relationship, I say you get better service, which is odd because you pay less to
Muthiah Nachiappan 22:52
it. Well, one of the things I did one I did want to mention before I forget is you know, this thing, I don’t know, maybe you can, you can enlighten me on this. You know, the rent, rent is due on the first becomes late on the set, right? Generally that’s it, that’s the thing. And then you don’t get it till the 20th.
Jason Hartman 23:08
Well, yeah, sometimes Another benefit of your rent sooner, you
Muthiah Nachiappan 23:12
know, sometimes they don’t they don’t credit your account to the following month. There’s no reason for them. That’s wrong. That’s, that’s, that’s ridiculous. Yeah, they float and
Jason Hartman 23:21
I can bring that over 100 properties, you know, you’re collecting month, people’s rent and then holding it, you know, under the pretext of saying, Hey, you know what, there might be expenses. So we want to wait for, for all expenses to be paid. Wait a minute, you already have $500 of minimum reserves that you already holding in a market in a market if there were actual interest rates paid on savings. And you know, this wasn’t a trust account, I would accuse them of making money on the float. I can’t do that now because there’s no money to be made. But yes, in a normal world where we had normal interest rates, not these exceptionally low interest rates, that would be absolutely true. I think right now Just customer laziness, but it’s ridiculous. If you self manage, then you don’t have that you get the rent right away. My mom self manages all her properties all across the country. None. None of them are local to her. She doesn’t own any properties anywhere near where she lives. Okay, you know, some of her properties are 2000 miles away from her, okay, and she self manages everything. Now, I think she does too much. I think she could do a nice hybrid arrangement where she wouldn’t go out and do lease ups. Frankly, she’s retired. I think she just kind of wants something to do. Okay. And I’ve had her on the show talking about that. That’s not very logical. Okay. So, look at the third option. You know, remember, I was telling you three options, you know, there’s really four, you can go into your typical property management relationship. And if you have a good property manager, it’ll be great. Most of them are pretty good or mediocre ish or mediocre to good. You know, they’re on like the, the 70%. They’re like C and above. Right most property managers, but some are like, you know, C and D and some are F’s, they’re terrible, okay? They’re all over the board. So you if you get a good one, a traditional property manager arrangement is not going to be too bad. Okay? It may be fine. Okay, and I have some great ones and I have traditional deals with them and it’s fine. Or the next step is you can have a hybrid arrangement, okay, where you pay all a cart for services. Okay. The next one is you could completely self manage your property. And the one we didn’t mention, which is really what your spreadsheet is about, is you could do a flat fee arrangement with your manager, where you actually pay them a higher percentage, but there’s no garbage. There’s no they don’t get to keep the late fees. They don’t get to charge you renewal fees. They don’t get to do any other fees, except you might pay them say for example, tene percent instead of eight or 9%. And you might be thinking, well, that’s crazy. Not really, okay, you know, that could be a better deal. And even if the deal isn’t better, you can’t hear the dogs that don’t bark. And here’s what you can hear, you can hear that that tenant becomes a happier tenant, because they’re not dealing with a property manager that’s incentivized to be predatory and charge them late fees. Or, you know, they’re, they’re, you’re you as the investor aren’t dealing with a property manager, who’s predatory and wants to ding you for a bunch of little miscellaneous fees, right? Everything is simple and aligned, and it’s just a clean deal. And this is where the industry needs to go. If it wants to survive. You know, one of the old look at your sort of into the technology world I know Messiah, you know, one of the things We’ve really all realized in business the last few years is that successful companies are willing to take the risks of cannibalizing their own business, before a disrupter does it to them. And, you know, look, for example, if the taxis would have done that, if the music industry would have done that, okay, they wouldn’t have suffered so much in the transition. You know, the taxis got killed by Lyft and Uber, the music industry got killed by Casa and what is it Napster? Okay, you know, they wouldn’t have had that if they just were willing to disrupt their own business preemptively. And this is what the property management business has got to do. They need to disrupt and cannibalize their own business and they will win. That’s what I say.
Muthiah Nachiappan 27:47
The group, they’re in the comfort, they’re sitting in the comfort zone. They don’t want to get to get uncomfortable in doing something they’re not used to doing. That’s a problem. But but i’d honestly say if we look seriously at a long term relationship that they have with, with the investor, I think it would be in their best interest to move away from the model that they have right now, because it’s not, it’s not something that’s, I don’t think it’s sustainable given given all the new technology and how you’ve done podcasts on, you know, keys, please and other things where you don’t really need these guys to do stuff for you, you know, I mean, you can, you can like, like to say, maybe do a hybrid, you know, maybe use somebody for just leasing it out and somebody for maintaining it, you know, and then just the checks come to you. And there’s no waiting 45 days to get the check and just just so many different things that that people wanted that get smarter about how to manage these properties. Now, you don’t have to get rid of they’re not i’m not saying get rid of the property management companies, but I think using them in a more in a more efficient manner. And I think once you do that, then the property managers become wise to the fact that maybe they should change their business model. That’s my
Jason Hartman 28:58
Yeah, absolutely. Absolutely, this is the hint. And you know, look at I want to say you mentioned mutual funds or earlier Messiah. And you know, look at even though it sounds like we’re griping and complaining about this stuff, which we are, okay. But you know, we we want to cause some change, okay, we really want to cause some change and disrupt this industry, and be the forward thinking people here. And I’m so glad that we have such intelligent, interesting clients that are so engaged, and we theia Thank you for coming on the show and talking about it. But at the end of the day, this is a zillion times better than any wall street investment, any you know, fund of sorts or any pooled money investment, you know, invest in someone’s private placement memorandum, their LLC, you know, they’re always skimming the profits off the top there, at least here if you read the contract, you know, where the money’s going, right. So, it’s not, you know, it is transparent in that sense, but, and you know, when you gave the mutual fund example, I was thinking Messiah, you didn’t even mention all the skimming that’s going on at the level of the companies in which that mutual fund invests. So the mutual fund has all these hidden fees, right? But then there’s a whole nother layer to the onion. And that’s the graft and corruption of all the executives at the company in which they invest right there. They’re paying themselves the big fat bonuses, they’ve got expense accounts, they’re going on first class trips, they’re going wining dining and people you know spent that’s all your money folks paying for all that.
Muthiah Nachiappan 30:36
All the while while your investment is tanking every day, you’re not learning anything. These guys are living high off the hog. I you know, I’d love the thing is in order for for them to to, to have that kind of, you know, to charge those fees. I mean, they, the problem is is nothing is transparent. Most people are not educated enough to drill to look through their statements and see what the feed was learning open the door. statements. That’s the thing you see. And you know, all you gotta do is open your table you see all this, you know, you got to go through and read your stuff and then you’ll find out all these fees is getting charged and and most people just leave it to someone else to handle it and then they cry afterwards about, Hey, you know, I’m losing money here then. Yeah, they do they do.
Jason Hartman 31:17
And so that’s what I also want to tell people this is not a new thing. You know, I’ve said this many times before, but is it the beginning of the relationship with your property manager? And if you’ve already had the same manager for years, then you know, start today, okay. really pay attention at the beginning and set the tone that you are an aware investor, ask questions about this fee about that fee about that expense, what is that, you know, and and get it all down so they know you are paying attention. They know you are an attentive investor, who is aware and who is not going to be you know, Feed, okay, so just set the tone. And if you haven’t done that, and you’ve had the same property manager for three years, then do it next month when you get your next statement. Okay? And just set the tone for a while, you know, be courteous, don’t be rude, you know, don’t be difficult, but make sure they get the message. You are paying attention.
Muthiah Nachiappan 32:20
Okay, right, absolutely. No, I need to know you’re spending your money. You know what you’re spending nine. There’s certain things I’ve tried to follow your philosophy, okay. $250 per per, per month per property. You know, this, I mean, it’s difficult to enforce that a lot of them want $500 just fine, you know, but don’t you know, I mean, you’re going to spend you know, spend investors money let them know where it’s going, you know, I mean, that’s all I mean, so you can’t argue them for every like you said pick your battles right you know, but if they’re going to charge you all kinds of fees and which you didn’t even agreed to, you know, I mean, I look there were there was a I got my bank. My Account was credited you know, for With a 10% fee, and I said, Wait a second, I just signed an agreement you guys for 8% What are you doing? Oh, I’m sorry, it was a mistake, we’ll credit you the other 2%. So those kinds of things, you got to catch them, right? Otherwise, they just you just think that Oh, they crediting you nobody’s perfect. And that’s all being done by human beings anyway. So you know, somebody will make a mathematical error or somebody may make an error. It’s your money if you if you want to, you know, see, make sure it’s done well, you know, you need to do it or hire a bookkeeper to do it. But you know, I mean, I don’t know. I mean, just paying attention to the details I think is important. Absolutely. Well, I think
Jason Hartman 33:33
we covered it in Messiah. Thank you so much for preparing this information. Really good stuff, you know, on the positive side, what’s next for you with your investments in your portfolio? Are you looking to buy in any more markets? Tell me Yes. No, I am Jason. I am you know, I I like new construction, you know, only because they require less maintenance. You know, I’ve got one in Ohio that I’m buying one in Tennessee. That buying Yeah, you pay a premium for it, but it is more convenient. There’s no question. Yeah. So you’re buying in Ohio and Tennessee right now.
Muthiah Nachiappan 34:06
Right, right, Ohio and Tennessee. We’re both new construction is gonna be done in March or April. And I think there’s something that carries me saying something’s coming up in Dallas, and we’ll look at that, but I don’t want to go too far out, you know, I’ve got four markets and then Tennessee, Ohio, Alabama, Mississippi. So that’s where I’m at. And, you know, I like Tennessee myself. Stop at five. Don’t go Don’t go more than five don’t go more than five just just double down in the same market now. Okay. You know, this is one of the mistakes I made and don’t make the mistake I made that’s,
Jason Hartman 34:42
that’s, that’s why you’re here listening to you know, you can learn I spend the money and I make the mistake and you just get the lesson. Okay? So, don’t over diversify. Definitely do diversify. It’s a you know, it’s a commandment, thou shalt diversify one of my 10 commandments, but don’t own diversify. So three to five markets are enough. That’s enough diversification not more than thought
Muthiah Nachiappan 35:06
okay, I mean I’m still looking at you know, every day and looking at different different things that are coming up and looking at these deals and seeing what would work and you know, some you know, I know the inventory is limited but there’s still some that are good you know, I mean, I’m just a matter of looking and going through stuff and hopefully making the right decisions, you know, it’s not all Gavan golden I’m sure you make mistakes and I’m sure I’ll make them I made mistakes and make them but hopefully at the end of the day, you know, with these rental incomes will allow me to just retire that’s the whole that’s the objective objective of doing this so that no, we don’t have to you can do what you want when you want and drive a Tesla when you want. Yeah.
Muthiah Nachiappan 35:55
Good stuff. Good
Jason Hartman 35:56
stuff. Well, hey, Matthias. Thank you so much and happy investing. And we really appreciate you contributing to the show and sharing with everybody and, and folks insist on some of this stuff we talked about with your property managers. And let’s together, let’s move the needle on this and let’s get some new thinking into this industry. We have thousands of clients out there, and way more listeners than that. We are a powerful group, folks. So let’s move the needle. I have a dream. There you go. Not quite as inspiring as the original guy who said that but you know, there we go. Alright, Matthias, thanks a lot happy investing in thanks for having me on your show. Jason. Thank you.
Announcer 36:41
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 cific 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.
In this episode, Jason Hartman talks about America’s mass migration, real estate excavator, vacancy, and rental rates in San Francisco. He also shares stories from the time he spent with Tony Hsieh in Las Vegas. In the show’s interview segment, he continues his conversation with Andrew Cushman of Vantage Point Acquisitions. They answer questions such as the market to invest in, how to identify growing markets, and where to start building a portfolio.
Announcer 0:02
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 0:53
Welcome to Episode 1606 1606, otherwise known as Hey, did you see that monolith in the Utah desert? Well, guess what? It disappeared? I guess it disappeared. Remember, hopefully you saw the movie 2001 A Space Odyssey. It is a masterpiece. Stanley Kubrick, brilliant director. Hey, why do the good die so young? Right? He was just a brilliant director. And it started off with that scene of the monolith, and the primates. And wow, that was, you know, everybody’s tried to interpret that ever since he made that movie way back in. What was it 1968? Well, again, you know, this monolith showed up in the Utah desert, and it has disappeared. Wow, this is a big mystery folks. Maybe the aliens came to get it? Who knows? Who knows? Anyway, so we’ve got part two of our interview regarding demographics and rental housing, future and so forth, coming up in a few minutes. But first, we’ve talked a lot about the mass migrations, I predict this will go in multiple phases. Were just in phase one, maybe maybe just starting a little bit of phase two tomorrow. It’ll be like these concentric circles as people migrate out of the cities. And guess what? I’m looking at an article about San Francisco Here we come right back where we started from, or maybe not. It’s entitled, San Francisco renters, regained something, they lost, leverage. Leverage, vacancies are up. So they have more choice, and some negotiating power. The median price of a one bedroom apartment in San Francisco, is 20 $800. And that is encouraging news. According to some, okay, now, we’ve had part apartment list and I think we’ve had zumper on the show before, but certainly apartment list has been on and I think they’re booked again, I think we’ve got another interview with them coming up. So they provided this data and they save the pandemic has caused many residents of the city to depart by by San Francisco. Same is true in LA, New York, Philadelphia, Boston, etc, etc. Yes, it is happening, the mass migration is underway. And this article goes on to say that the year over year rents in San Francisco have decreased. Yes, rents are down. And that sound effect was a bomb being dropped from a plane. Right? That’s what it is. rents are down 20.7% year over year. Wow. And vacancy rates are up. You ready for this one? They are up more than 100% over last year. So the tenants have a lot of power. in a state where you shouldn’t have been investing. I hope none of you are investing in the Socialist Republic of San Francisco, or the Socialist Republic of California to think of it more broadly. Because that is a a jurisdiction on both counts. That is extremely tenant friendly, and unfriendly to evil landlords, your evil landlords you How dare you expect tenants to actually pay your rent? Yeah, so there you go. rents are down in San Francisco in New York and all the others. So it’s, it’s really no big surprise, no big surprise. Okay, so I did an interview today that we will probably air for you next week. And I just wanted to share with you something the guest shared with me off air before we started the interview. Now, he commented on this during the actual interview that we’ll probably have up for you next week. But he said that a friend of his owns an excavating business, right. So they are the ones that get in on a development project of a housing tract. Early on, early on, they’re in there, they’re pushing the dirt around. And after they excavate, what do they do? Well, maybe they bring in streets and streetlights, or maybe they bring in the utilities, right? So this is early on in the game. And this person sees what is happening in the real estate market early, early. And he said that his friend has been in that business for 20 years, not as long as I’ve been in real estate. I’ve been doing it longer. But I’m not an excavator, as you know, hopefully, you know that I’m, I’m on the I’m on the brokerage side and the education side, right. So for 20 years, he said he has never seen the land development business at such a fever pitch, where developers who hire him are buying up every piece of land they can possibly buy. And they are building every house they can possibly get entitled and approved to build. He says it’s absolutely just crazy. Crazy, crazy, crazy. Yep, the market is in fuego on fire. So I don’t know that that necessarily comes as a big surprise to a lot of you. But it is, it is pretty amazing what’s going on out there. And one of our clients, who is in our content group, Marc Anthony, he posted an article and said, q the U haul trucks, nearly half of all Americans 46% are considering moving within the next year. According to a recent lending tree survey, the online financial services marketplace based the report on a survey of more than 2000 participants in September, but certain groups of people are much more likely to consider relocating than others, as they have some pretty compelling reasons to do so. So folks, I think this market is going to be pretty solid for a while. pretty solid for a while. Also, I talked about him on the show before. But many of you know that I had when I lived in Las Vegas. I went to brunch several times at the very interesting homes, two different ones of Zappos founder and the iconic developer of redeveloper of downtown Las Vegas, Tony Shea, and you probably heard by now he passed away at age 46. Sadly, apparently he died of injuries in a house fire in in Connecticut, and I don’t know what he was doing there or what but he was such an interesting CEO. He sold Zappos to Amazon for hundreds of millions of dollars. his net worth was about 800 and $50 million, I believe, and going to those brunches at his very interesting homes. I talked about them on the podcast before but but one of them was a combo hotel that he bought a little sort of old fashioned 50 style Hotel in downtown Las Vegas. And he turned the parking lot into a trailer park and brought in a bunch of Airstream trailers and not big ones, small ones, and tiny houses. And people would rent them from him and live there but he would only you know rent them to really cool people that he thought was doing interesting things and he had to be the most unassuming billionaire or near billionaire that I’ve ever met. And I’ve met several billionaires in my life. And Tony Shea Wow, what an amazing success story. And sadly, he has passed away and you’ve probably heard that in the news but I just thought I should mention that on the show because I talked about going to brunch at his He has places several times over the time I lived in Las Vegas. And you know what he would do is he’d have these Sunday brunches, and he had a couple of llamas. Yes, the animal llamas. I would bring my dog and my dog would actually freak out. She thought she thought, What is this Martian? creature, this llama and, you know, you’d go up and talk to the llamas, and sometimes they’d sort of spit in your face. It’s pretty gross. But yeah, the llamas would be roaming around. And the setting of Tony Shay’s place was like, Burning Man. And I’ve never been to Burning Man. But I’ve certainly seen the pictures, and many of my friends have been to it. And that’s where they they auditioned, the former CEO of Google, who got the job at Burning Man, you know, Sergey Brin and Larry Page, said, you know, for your job interview, we’re gonna invite you to Burning Man and you’ve spent several days with us or a week and we’ll see how you cope at Burning Man. And it’s pretty, pretty funny way to do a job interview, right? But that’s that’s the way the evil Google operated, right. And anyway, Tony Shay’s place was decorated, like Burning Man, sort of, and he had a stage. And sometimes he had some musicians up there performing and you know, there was a fire pit, and then he’d have a brunch. And there was all sorts of different odd food. Sometimes it was like a potluck, or he had some caterers and this and that, and it was it was just interesting. I was glad to have that experience. And, you know, go hang out at Tony Shay’s place, it was pretty cool. And, and he was just the most unassuming guy and by the way, he lived in one of the little Airstream trailers. There’s a, I believe it was CNBC did an interview with him. And they, you know, interviewed him inside his little 200 square foot Airstream trailer that he lived in. And you know, he could afford anything. So, and he said on that interview, he said, You know, I really want to spend my money. Yeah, you know, having experiences more than things and doing things. And boy, he sure did stuff. I mean, he redeveloped downtown Las Vegas and had big, big plans. I remember the first time I met him was actually as part of a mastermind group I was in. But then, you know, I went to his house for brunch several times and, and met him again. And the first time he showed us his plans for redeveloping downtown Las Vegas, and they were just amazing. And he finished a lot of it. But you know, I hope that someone picks up the slack where we were Shay left off and, and finishes Tony Shay’s vision for downtown Las Vegas, because it certainly was pretty creative and pretty unique. And, and pretty awesome. So sad to see Tony Shea go. So I just wanted to mention that. And now let’s get to part 201. more thing I want to mention, yeah, I always do that. I want to thank everybody who joined us last night. For our empowered investor, inner circle, we had such a great call so much participation, I want to especially thank our team members, our internal team, and then our client, moonfire, who shared a little bit and we did that podcast with him a couple of years ago, he has to come on the podcast and talk about property management agreements, you can go find that old episode at Jason hartman.com. And we reviewed them last night, we got on zoom, I shared my screen, we looked at maybe four or five different property management contracts and agreements and pick them apart and said, Hey, this is ridiculous. This is normal. And anyway, it was just a great time, we have these monthly zoom meetings with all our empowered investor inner circle members. And last night was just great. I really enjoyed it. So thanks to all of you who, who came and attended, we were on for about two hours. And it was just great to see everybody you know, we we don’t meet in person anymore. But it’s it’s nice to have the community of our social network and, and our monthly zoom meetings. So it’s really great to see all of you. Anyway, here is part two of Andrew Cushman talking about demographics, the rental housing market, and more. So here we go. nothing extraordinary, should have to happen for you to make a good return on investment, no extraordinary appreciation. Nothing. Just it should make sense from day one. Now, if some great things happen, like a bunch of appreciation, great, you know, but don’t don’t count on it. And by the way, Gen Z. Now the oldest Gen Z IR is 23 years old. And that’s the biggest of all 82 million people
Andrew Cushman 14:52
to they’re about to get out and start renting. So So yeah, so when we when we change this to when we change it over to domestic migration. Again, you know, Florida looks really good. Lots of markets in Texas, Tennessee, Carolinas, Arizona still as that migration, like, as you said, it might might be tougher to get the numbers to work. I don’t invest in Arizona just because I don’t want to be too spread out. So I don’t have as much depth and depth knowledge there. Utah, you can almost see where highway 15 runs up through the center of the state. There’s all kinds of growth there.
Jason Hartman 15:21
We love Utah, but again, too expensive. You know, we, many years ago, we were recommending properties and a lot of our clients purchased in Salt Lake City and around Salt Lake City. It’s awesome. But again, that’s a hybrid market. It’s just too expensive. You know, many years ago, we did a lot of business in Denver, great market. But again, now it’s people are priced out. So a lot of our clients made a lot of money in those markets, though.
Andrew Cushman 15:45
Well, and so and this is this could apply. So let me ask you how you seem to be doing a really good job of getting ahead of these markets, I your agenda, what you’re doing is you’re identifying emerging markets, where you’re you’re getting you know, we’re looking at this data now and everybody knows Oh, wow, Denver has been hot. Nashville has been hot. Memphis is great. You’ve been there for a long time. Well, we
Jason Hartman 16:04
never got into Nashville, we just could never make Nashville work. But I love Nashville. It’s great town. That one never worked for us. But we did do Denver, Salt Lake City, Austin, if you can believe it, you can’t even touch Austin now for the prices you need to as an investor. And even Dallas has gotten too expensive. You know, even most of Atlanta. We do have Atlanta properties today. You know, if you go to Jason hartman.com, you know, one of our investment counselors, they can get your properties in Atlanta, amazingly. But it’s really hard to make Atlanta work.
Andrew Cushman 16:34
Yeah, yeah, a lot, especially a lot of the primary markets have gotten a lot of secondary have gotten much more expensive and difficult to get them to pencil out. Yeah,
Jason Hartman 16:43
yeah. Tell us more.
Andrew Cushman 16:45
Yeah, well, I’ll just say, so how did you know, maybe you just for the listeners, you’ve done a really good job of getting ahead of the curve. Right? If you you know, one of the biggest ways to make money in real estate is to find an emerging market where, you know, population growth, or is about to happen, or income growth is about to happen, jobs are about to move in. So, you know, what, I know what we do, but what of what did you use to identify these markets early so that your investors benefited so much, whereas it might be tough to get in now. But if they were investing with you five years ago, they already have a portfolio? Yeah, or 10 or 15 years ago? You know,
Jason Hartman 17:17
I can’t say there’s any one thing, there’s just a whole bunch of things. You know, we we interview people on the podcast all the time, you know, just constantly reading and research and it’s a bunch of fragmented stuff. There’s, it’s not like, I can give anybody one great website to go. Yeah, you know, and all the answers are there. I was just not that simple. You know, but, you know, over time, you you notice trends and chatter. And now,
Andrew Cushman 17:43
you know, another thing I would say is, you know, if you’re out looking at, okay, you know, do I buy a single family house in this market or a small apartment? Or do I do a syndication here, whatever the same principles apply, whether you’re looking at the whole country, or state or city or region. So like, for example, take a take Atlanta, you know, if you look at these, these charts that we’ve been, we’ve been sharing, most of Atlanta is dark green, right? population growth, incomes have been going up there as well. But there are some markets in Atlanta that I wouldn’t touch with a 5050 foot pole. Right? They’re declining. Yeah, very low income, very high crime, right. And so the same principles of positioning yourself where the right demographics are coming in, incomes are rising, you ideally have a business and landlord friendly environment, right? You want to position yourself in those markets. So you start big picture like, okay, Florida, Texas, Georgia. All right. Well, what markets do I want to maybe Atlanta, maybe Tampa was inside of Atlanta? Am I going to invest in East Point? Or am I going to go out to Duluth, right? Those are very, very different markets. And so you want to apply those principles to every property you’re looking at to help guarantee success, right? So if you’ve got a if you’re going to buy a single family house and Duluth versus East Point, you want to look at the income trends, you want to look at the population growth trends, you know, and if you can get the data on that level, who’s moving there, right. And that might take some digging, but you can find that out. And you’ll be I can tell you between those two, if I had a choice between East Point and Duluth, I’d be in Duluth, hands down. So the same principles apply. That’s a question I get a lot of times as a leader, how do I pick a market? So one of my mentor, you know, one of the questions I get asked a lot is well, Andrew, how do I decide what market to invest in? I live in San Francisco. It’s too expensive. And I want to go out of state. Well, how do I find one right? Well, one way like my when I mentors Tim road says a ski and somebody else’s way. Right? If you ever go waterskiing, you try to smooth behind the boat. So find a guy like Jason, who’s already really good at identifying markets and invest with him. The other way is to look at a map like this and say, Wow, Florida is looking really good. I’m gonna invest in Florida. Then you drill down to Florida and say, Okay, well, Tampa, the panhandle and Orlando look really good. Okay, I want to do those markets. Then you pull up Tampa and you say okay, you do Same analysis rates the same process just narrowing down Okay, well inside of Tampa, I like this market in this sub market, this one has population decline and low incomes, I’m going to stay out of that one, right? And you say, okay, so within these sub markets, that’s where I’m going to invest. So that’s how you determine where you’re going to invest. Number one, you can find a great operator like Jason, or if you’re gonna do it on your own, you get on you get onto a map like this, you understand the overall trends, and then you just start drilling down and apply the same principles that you apply that the larger macro level down to the micro level in the market level.
Jason Hartman 20:33
Yeah, definitely. You know, here’s one thing I do want to say about that. And I agree with everything he said. But every property, not every property, but every property I’ve ever bought, looks like a great deal in the rearview mirror. Okay. And it’s sort of easy to look like a genius in the rearview mirror, you know, because we’ve had this market, you know, so that just goes back to the old saying, don’t wait to buy real estate, buy real estate, and then wait, you know, it, you know, it would be easy to try and take credit for everything you said, and I appreciate it, I’ll take the credit. But you know, look at I mean, the real estate’s just such a solid investment, with so many things going for it, that it’s just hard to lose, if you buy a property that makes sense the day you buy it, you know, if you do that, you’re going to be pretty good.
Andrew Cushman 21:25
It will kick in, can I give an example to illustrate what you just said. So let’s say you buy a house for $100,000. And you put a 15 year mortgage on it, and you rent it out right? In over 15 years, you picked the wrong market, you got you put 20% down, right, you put 20 grand into it $80,000 one, you pick the wrong market, and over 15 years, it does nothing is still worth 100 grand at the end. But guess what? a tenant, somebody else paid off that mortgage for him. Yeah. And you put in 20 grand now you have 100 grand, is that the best investment in the world? Is that a home run? No. But just not bad. You didn’t lose and your risk was minimal, right? So a lot of times even the worst case in
Jason Hartman 22:08
real estate isn’t all that bad. Yeah, it’s not, especially if you know how to do the math. And you really a lot of people in real estate, you know, they think they’re losing when they’re really winning, because they just don’t know how to keep score, you know, learn how to do the math. So that’s, that’s another important thing, because a lot of this return is below the below the surface of the water just like an iceberg.
Andrew Cushman 22:30
You’re absolutely right. You’ve got you know, appreciation, hopefully principle pay down depreciation, cash flow, and there’s all kinds of ways to win with real estate.
Jason Hartman 22:38
Yeah, definitely. All right, good. What else do you want people to know, Andrew? Anything else on the map? Anything else in general?
Andrew Cushman 22:46
You know, I think I think we covered it pretty well, I would just say I know it’s turbulent times I know a lot of folks are scared to invest. This will. This is short term in the in the scheme of real estate. This is short term, right? Even if this is a two or three year deal. If you’re if you’re going to buy and hold for 10 years, we are very likely to get into an In my opinion, very likely to get into an inflationary environment with all the worldwide money printing that is going on. One of the best ways to protect yourself against that are hard assets like real estate, those will appreciate in an inflationary environment. Those are a hedge against inflation. And I and I can’t think of a better way to not only earn a good return, but to protect investment from, like I said, the likely inflationary wave that’s coming in even if we don’t get inflation, we haven’t really even had it for Well, again, depends on how you parse it. But
Jason Hartman 23:43
it depends on whose stats you’re watching. Yeah.
Andrew Cushman 23:46
So we have many people would say we have not had the high general inflation over the last 10 years. And look how well real estate has done right now we have had asset inflation. So don’t be scared about the next 12 months or, you know, we’re if you buy something that makes sense today, again, repeating that and hold it long enough. It’s very difficult for that to not work out to be a good investment. Yeah,
Jason Hartman 24:10
definitely. Andrew, do you want to share a social media page or a website or anywhere where people can find out more about you? Yeah,
Andrew Cushman 24:19
easiest way to connect with me is my company is vantagepoint acquisitions. So the website for that is just the p a c q.com. Or if you just Google vantagepoint acquisitions, it’ll come up. There’s a little couple tabs on there. One, just contact us and reach out that comes to my inbox, email inbox. If you just want to have a conversation. There’s a tab on there for our multifamily accelerator mastermind and some additional information but yeah, that’s the that’s the best way to get in touch. Come on LinkedIn and all that but a real conversation best ways to reach out to the website. Good stuff.
Jason Hartman 24:55
Andrew, thanks for joining us and happy investing.
Andrew Cushman 24:58
Likewise. Take care, Jason, good talking to you.
Jason Hartman 25:05
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.
Jason Hartman starts today’s episode by sharing how real estate is getting cheaper and that we’re looking at record-low interest rates again. Afterward, Investment counselor Adam joins him to continue discussing the possibility of another recession, and understanding IDEAL can help set you up for comfort.
Announcer 0:02
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 multimillionaire 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 0:53
Hello, hello, and welcome to Episode 1608 1608. So It never ceases to amaze any of us does it? Know It probably doesn’t. How, how ignorant some people are of calculating return on investment, understanding investments, understanding market timing, they think they can time the market. Usually they can’t. And listen, I’ve been doing this a long time, I don’t pretend to know how to time the market either. And nobody should really think that they can time the market. You know, if you think about it, look at all of these large institutional investors. Look at also the folks who run the economy, the Federal Reserve, the other central banks, the governments right, all around the world, not just the US government, every government if market timing or possible. Wouldn’t all of the institutional investors? Wouldn’t all of the governments and all of the central banks, just have it all figured out. Would there be any collapses in markets any crashes? wouldn’t they be able to just guarantee fantastic returns on their investment? And I I draw your attention, of course to the one of the most famous references on this. Look it up look it up. If you don’t know the company, I’m about to share with you, the defunct company I’m about to share with you. So you know when I say the company name, long term capital management, okay, ltcm long term capital management now that I got the acronym straight. That’s the company that thought they had it figured out those quants, those mathematical geniuses, they had figured out the market. And they went under, famously, or infamously, I should say, they went under the geniuses who? guaranteed, they told everyone they had the market figured out and guess what, a lot of professionals, a lot of experts believed them. They believed them. And they couldn’t figure it out. zillions of dollars lost lives ruined, etc, etc. Right? So just if you think you can time the market, or if you think your friend is smarter, and they can time the market, you know, that all of the all of the stories of all the people who’ve tried to figure that out, have failed, failed, failed miserably. It’s been disasterous. And that was a bomb dropping. That’s what happened to them. That’s what happened to them. So don’t be one of those people. All right. I’ve talked to you before about how real estate is getting cheaper, cheaper, cheaper, cheaper, yes, everybody thinks it’s getting more expensive, but they don’t know how to do the math. They don’t understand reality. So they think it’s getting more expensive when it’s actually getting cheaper. Interest rates just broke through a another floor on their way down. We had record low interest rates than we had record low interest rates again, and then we had record low interest rates again. And then we had record low interest rates. But guess what? Now we have them. You guessed it again. Again, again? Yes. So the interest rates got even lower. And when I say interest rates, I mean mortgage rates. And what does that mean? That means the houses keep getting cheaper. Remember 1% in interest rate equals approximately 10% in price So when you see the rates drop by a percent, the price has to go up by 10%. To make it up, it’s not exact. Okay? It’s not exact. There’s my disclaimer, do your own math, okay, but it’s close enough for government work As the old saying goes. So that’s the kind of differential we’re dealing with here. And if you look back at 2006, when the median home price, the median home price was $235,600, in the third quarter of 2006. And the interest rate on June 29, of 2006, for a 30 year fixed rate mortgage was 6.78%. That payment was about 1500 and $33 per month. But guess what? In 1984, the house payment was $1,003. I don’t have that in front of me. But yeah, $1,003. So it actually got cheaper to have a mortgage in 2006. And then guess what happened at the peak of the market in 2006, for the Great Recession, where most people consider the peak before that, the median home price in the second quarter. Wait, I already went over that. Good night. I’m on the wrong chart. Jason, look at the right chart. Okay. The right chart is today I’m talking about today. Sorry, not talking about 2006 anymore. We already talked about 2006. Now we’re talking about present day, second quarter of 2020. Okay, not the most recent data, I agree. But second quarter, median home price 313 and $200 313,200. And interest rate on July 30 2.99%. Making your payment on that medium price home. A beautiful, incredibly low, super cheap, actually, it is you know what, you know what that payment is? It is supercalifragilistic expialidocious? Yeah, supercalifragilistic expialidocious. Is that is Did I do that right? Let me know, go to Jason hartman.com slash ask. And let me know if I did that. Right. You know, it’s like trying to say another long word like antidisestablishmentarianism. Remember that really long word you’ve learned in elementary school? I think that’s it. Right? antidisestablishmentarianism. What does that even mean? I don’t know. I gotta look it up. Okay, but you’re whopping 1300 $18 payment on that median house price today. Means means Guess what? It means that that same house today is about $657. Cheaper when adjusted for price, interest rate and inflation. Yeah, but I do want to remind y’all, y’all, I’m sounding Southern now, because in the southeast is where you should be buying houses, mostly right now. And we’ve got lots of them for you go to Jason hartman.com slash properties. It has not adjusted for wages, and the wages are not adjusted for inflation for most people. But, but I’ll Betcha for most of you listening, you dear listeners. They are inflation adjusted your wages, or they are close to being inflation adjusted or they are even better than inflation adjusted. And that means the housing from your perspective, is even cheaper than that. Those numbers I gave you, or for as Amity shlaes who was on the show, Amity shlaes the author, she’s written some great stuff in the great while not in the Great Depression, but she wrote a book about the Great Depression called the Forgotten man, right? You are not that person. You are probably beating the system, especially if you are following the advice of Jason Hartman. Oh, that’s me. Don’t talk about yourself in the third person. That’s just really weird. Yeah, I agree. Don’t do it. I hope I’m entertaining your folks because if I’m not, I’m at least entertaining myself. It’s the end of the day and I’m a little punchy, you know? Boy, sometimes the days are just like a blur. so much stuff coming out. Yeah. Oh boy. Oh boy. You know, I used to say that years ago, when it was just a fax machine just kept humming and humming. And all these faxes and phone calls, and now all faxes just converted to emails and text messages and so on and so forth. And and still some phone calls in there. But Wow, wow, too much stuff coming at us nowadays. Anyway, folks, it is an amazing time to be investing in real estate. Yes, I am pretty bullish right now. Remember, I am the same person? Who in what was it? March? Maybe it was March? Who told at least you first time investors to keep your money? Don’t even think about it. If you try to invest with us. We don’t want it. We don’t want Yeah, go away. That was me. Go back and listen to the old episodes from probably March, I think maybe April, but probably March, where I told you not to invest? Yes. I said, Nope. Don’t do it. Well, right. Now, I’m telling you, you should do it. Now. That doesn’t mean the entire market. That means selected markets, selected properties, pretty linear markets, which by the way, are turning to be hybrid markets pretty quickly. And if you’re new to the show, and you don’t know what I mean, when I talk about linear, hybrid or cyclical? Well, listen to the Quick Start podcast, if you’re new to our content, we have a another podcast, just with some of our core content, the Quickstart podcast, and there are a lot fewer episodes a lot less to sort through. And that’s available for you also, the YouTube channel does a good job of summarizing some of this stuff. And, of course, our team can help you Yes, we are not just a platform where you can buy properties, although we are that we are people and our people are happy to help you just go to Jason hartman.com. And fill out any web form there. And we’ll be we’ll get in touch with you are extremely knowledgeable. And now that I’ve gotten rid of some are superduper, ethical, wonderful people will be happy to help you. Okay, so we have got a talk of the continuation of a talk with one of those people. And that is coming up right now. Again, if you need us, Jason hartman.com reach out to us. If you’re in the United States, you can always pick up the good old telephone and call us at one 800 Hartman. Okay, without further ado, let’s get to part two of today’s episode.
So that really begs the philosophical question of, you know, what is the government the government is just a series of taxpayers that pay into have a government in organization, it’s look at it like a homeowner’s association or a we’re a nonprofit membership organization like the PTA or something right. I don’t have a PTA. I don’t know how that works, that I made a bad example. But whatever, you know, say you have a club that you’ve created, right? Well, the club collects dues from its members to pay for its expenses, right, and the club could go into debt to get it all. And the club has to pay that back, meaning the member that
Adam 13:38
the situation that we’re in, though, we are in a situation where the club can’t create its own things. The government creates the dollar we I don’t owe it back because I can’t create dollars. The federal government spending is the is the receiver saving. So it’s the net Publix or the private sector savings. So the public sector spending is the private sector savings. If you look at the debt clock, which I don’t know how to pull it up on here, about the debt clock, the US national debt is 27.26 4 trillion we had seen that’s
Jason Hartman 14:12
That’s trillion with a T, folks.
Adam 14:15
But if you look at us total national assets, it’s 150 $6 trillion.
Jason Hartman 14:23
You know, I would be very curious to see because what you’re basically showing sharing with us is the concept of the balance sheet. Okay. So I would be interested in seeing what how do they calculate those assets. And I do agree with you, by the way that the US has a ton of assets, both tangible and intangible assets. And I’ve done you know, many podcasts on that topic over the years because I agree that it’s not as bad as the duman bloomers would have you believe. If you’re listening to Peter Schiff, and reading Zero Hedge all the time, you know, and Jim Rickards these guys They’re just always wrong. They’re they’re so interesting to listen to. But they’re just like, when is all of their doom going to come true? You know, they were telling us that in the 70s, the 80s, and 90s, the 2000s, the 2000 teens, and here we are in the 2020. And they’re still saying it. And yet, there’s been like very little consequence, except higher taxes, more government intrusion in our lives, and higher inflation, whether hidden or unhidden.
Adam 15:34
Alright, we need to move on, or else, we’re never gonna get to the actual good part that I have. Okay, but you really got to just address that one thing. All right. So let me Let’s finish with Jerome Powell real quick,
‘Jerome Powell clip’ 15:45
preserving the flow of credit is essential for mitigating damage to the economy and promoting a robust recovery. Many of our programs rely on emergency lending powers that require the support of the Treasury Department, and are available only in very unusual circumstances, such as those we find ourselves in today. These programs serve as a backstop to key credit markets, and have helped to restore the flow of credit from private lenders through normal channels, we have deployed these lending powers to an unprecedented extent. And they hold in large part by financial backing and support from Congress and the Treasury. When the time comes, after the crisis has passed, we will put these emergency tools back in the toolbox.
Adam 16:27
So that was the whole back of the toolbox thing. Again, like we talked about before, they’re not, they’re not going away. And they will be coming back whenever times get times get bad again. So So yeah, so the question is,
Jason Hartman 16:41
That the good part? Is that the aha moment?
Adam 16:45
No, no, that’s just the key part of that. Remember, as we move into the next one,
Jason Hartman 16:51
I was worried that that was the climax MERS, I was like gonna go.
Adam 16:59
So we have to ask ourselves, what if it’s another great recession right now. So I went through, and I said, let’s run this scenario. So I looked at the Dow Jones, because that’s the sexy one that gets all the love from the media. During the Great Recession, the absolute peak of the great recession hit the peak of the market before the great recession hit October 2007. The Dow reached 17,356. So I said, Let’s pretend that Today is October 2007. In the housing market, three years later, October 2010, you’d seen a 24% drop. So if you’d waited three years, it had gone down and come back up. 24%. So I wanted to know, what if I bought a house today? And in three years, I bought a house at about a 20% drop? What would it look like? If
Jason Hartman 17:54
it was good chunks, this might be the good part.
Adam 17:58
This is the good part. So let’s say I bought a $250,000. House today, with 20% down. So I got a $200,000 loan for interest rate of 3.75. Very easily gettable. At 30 year mortgage, I would be paying $926 a month with principal and interest.
Jason Hartman 18:17
That is, folks, that is a gift from your rich uncle Jerome Powell right there. Wow. That is I mean, get your cash register ready. You know, that is phenomenal. I mean, only 900 and something dollars a month for $250,000 house, you can see everybody in the country is trying to buy a house right now. And
Adam 18:38
so then I looked Alright, if in three years from now, and I just went to the beginning of the year to make it easy for myself in the future. If then beginning of if on January 1 2024. I close in that $250,000 house drops 20%. And now I’m trying to buy it for 200,000. My interest rates going to be higher, because obviously if we’ve had a 20% drop, and the economy, interest rates are going to go up because of fears in recession. And it’s I just said let’s just say it’s 6% it could be higher. I you know, I was paying 6% for an investment loans not that long ago. So if it’s 6%, even $160,000 mortgage, it’s $959. So it’s $33 a month higher in three years on a house that’s 20% cheaper, and
Jason Hartman 19:25
if it ever gets 20%
Adam 19:27
she didn’t gets lower. So I’m playing the game of let’s run the numbers the same as the Great Recession. But on January 1 2024. When I have the $200,000 loan, I have also paid down 12,000 In principle, I have had $23,000 in interest that I’ve paid that had been at least partially tax deductible. And assuming the port I found a portfolio for one of our Florida properties that was around 250,000 the cash flow after 8% management 8% vacancy and 3% mainly It was around $250. So I said, assuming $250 a month, I have also got $9,500 in positive cash flow. So I’ve paid down 12,000. In principle, I’ve gotten a potential $23,000 in tax benefits. And I have 9500 in cash flow in my pocket. On January 1 2024, my first payment is due on the other one. That’s it. And I’m going to assume about $225 a month cash flow moving forward. Because my rents probably dropped a little bit on that house, if I have to go down to 200,000. You know, you’ve got a higher monthly payment, and you’ve got no principal pay down no interest, no cash flow. So you’re at zero. So that’s what you’ve missed waiting the three years to try to buy it bottom.
Jason Hartman 20:49
Adam, I think it’s easier to evaluate the missed opportunity by simply just looking at the return on investment directly, right. So so here’s another way to look at it. Okay, so, you know, how much is the downpayment you made on that house?
Adam 21:06
You said it’s Tom, it was 50,000.
Jason Hartman 21:08
So, okay, so $50,000. And if you go to Jason hartman.com, slash properties, and look at the performance there, where they’ve got all of the numbers, and if you want to know how to read that sheet and standardize your data, as a real estate investor, just look at the free video, which by the way, is an updated free video. Hopefully, the update is there now. I think it is, I think it was updated. Just yesterday, there’s a new version of that video at Jason hartman.com on how to analyze a real estate deal. How to Read a performance. I mean, the worst of these performers will show you an overall return on investment of say 25% annually, okay? I mean, that’ll be about the lower end, some will be 30 35%. But whatever it is, okay. Say it’s, you know, 25%, so you take 25% of $50,000. So that would be $12,500. And your time period was two years, right, Adam? There’s three, three years, okay. So I won’t compound it. But the return on investment should be compounded to do it properly. But since I’m just doing it in my head, that’s 12,500 plus 12,500. For year number two, plus 12,500. For year number three. So that’s $37,500 return overall, on a $50,000 investment. Now, disclaimer, okay, you have to understand that, number one, that might sound really phenomenal and ridiculous. Like, I can’t imagine that’s really going to happen, Jason, you’re just making that up? Well, no, you have to understand that income property. The reason it’s the most historically proven asset class in the entire world. And it’s made more people wealthy than any other asset class for generations now, is because it’s a multi dimensional asset class, and you earn return in lots of different ways. A lot of it, it’s like, it’s like the old metaphor of an iceberg, right? You know, only a small part of the iceberg is above the water, the rest is below the water. Okay? As as the captain of the Titanic, okay, so the iceberg, a lot of that return isn’t directly seen. And that’s why you have to know how to do the math. And that’s what that free video, it’s like a 30 minute video got a little longer when I read
Adam 23:29
26 in one long.
Jason Hartman 23:31
Yeah, you can’t imagine me going long, right? That video will explain it to you. Okay, how you earn that return. But I think that’s just a really easy way to look at it. You know, I mean, you could look at it the way Adam presented it to either one, you know, I just
Adam 23:44
wanted to present real numbers here, right?
Jason Hartman 23:47
set of percentages.
Adam 23:48
Yeah. Right. So that’s what you’ve given up the first three years. So now, now, let’s go six years out, if you look six years out, from the peak of our market, in the Great Recession, it was essentially flat. After six years, so you’re back to square one. So you’ve held on to an asset for six years and got nothing in the stock market. So if we look at the $200,000 loan we took out today, and the hundred on the left, and $160,000 loan we took out on January 1 of 2024. If we run it through to where it’s been six years from today, so on January 1 2027, the $200,000 loan, you have now paid down 25,000. In principle, you’ve had $43,500 of interest paid and you’ve made 18,500 in cash flow on your other one your your three years you’ve only made 6000 in principle pay down 28,000 in interest paid in 80 $100 of positive cash flow because you’re making lower cash flow. So the the the opportunity costs of just waiting those three years to try to buy it. The bottom doesn’t really exist. Because if you remember, that’s the three years that you’ve paid on this hundred and $60,000 loan that you’ve gotten over the last three years is worse that 60 228,080 100 is worse than the 12,000, in principle, pay down and 9500 and positive cash flow from the first three years of your $200,000 loan. So did you really gain anything? Waiting those three years for the trough?
Jason Hartman 25:27
Yeah. Now, I think that that this folks, see, you look at you know, when you hear these talks about the value investing philosophy of Warren Buffett, and they talk about that in the stock market, and that is, so they say, you know, you don’t time the market, don’t try and time the market, just buy quality, and let it ride. And I generally agree with that philosophy, the value investing philosophy is sound, you know, Benjamin Graham, was Warren Buffett’s mentor, or inspiration, I’m not sure which way to say that, you know, the market timers almost never win, right? They they win occasionally. And they got a few great stories. But usually people don’t like to talk about their failures as much as their successes. So you don’t hear about all the times they lost money, right? Or you don’t hear about the dogs that don’t bark and how much they would have made, if they just left it in. Okay, so. So that’s, that’s an issue. But with income property, Adam, it’s so much better not timing the market, because you earn your return in so many different ways, right? You started off this presentation with that slide, which maybe we should just go back to for a moment, the ideal acronym, and that’s a really old acronym in the income property world, but it doesn’t even cover it anymore. You know, I be EA L, okay. Income property gives you these ideal characteristics, it gives you income, it gives you depreciation, and that means good depreciation, it’s a, it’s a tax benefit, it’s the best tax benefit ever, because it’s a phantom write off, or a non cash write off. In other words, the property could be appreciating, it could be positive cash flowing, it can be doing great, and you still get a tax benefit, potentially that depreciation, right. And then you have equity growth, meaning your tenants pay your mortgage down, you have appreciation, meaning the property goes up in value, and so you get equity that way. And then to top it all off, you have l in ID EA L, you have leverage, meaning you can do more with less. Okay? So in Adam’s example, you put 20% down, and you have 80%. Paid for by the bank, you’re using OPM, you’re using other people’s money. This is just a partial list. By the way, this is an old thing. It doesn’t have any of my advanced techniques in there, like inflation do step destruction, II d d, inflation induced debt destruction. If you don’t know what I’m talking about, when I say that, go check out my podcast, the creating wealth show, we go into that in detail. If you want to find exact episodes on that. Just go to Jason hartman.com and type in inflation induced debt destruction and you will be wowed and amazed. Most people are by the hidden wealth creator with income property that is in addition to what you see on the screen, income, depreciation, equity, growth, appreciation and leverage. But leverage is OPM. It’s other people’s money. It allows you to be so much more than you are. It allows you to be a five times bigger investor than you are. Okay, it’s just a wonderful thing. Okay, Adam, any comments on that? But
Adam 29:05
no, i i agree. I didn’t put the depreciation in there either. But you’re missing out on three years of roughly $10,000 a year depreciation for your property in the first three years of the $250,000. One,
Jason Hartman 29:20
that’s good. Now understand that depreciation is a bit of a complex issue. We are not tax advisors are numerous talk to your tax advisor. You know, of course, the the terms of service at Jason hartman.com and the privacy policy do so, but yeah, you know, taxes are a complex subject, but income property is the most tax favored asset class in America, the most historically proven asset class in the world. So Adam,
Adam 29:47
I was just looking through to see common Gosling’s nest in New York says I know this is off topic. Did you hear the latest the nanny state in action and are looking to have all of us have masks on in our homes? Why are you guys not masked Oh,
Jason Hartman 30:01
that is so absurd. I can’t read that.
Adam 30:04
Have you read it? It makes more sense if you read it,
Jason Hartman 30:06
what was Pennsylvania doing that or something?
Adam 30:10
I don’t know what it was. But essentially, it’s only it’s not if you’re just in your house, it’s if you have like a worker over, or if there’s people who you’re not usually around, it’s essentially, if it’s an out, if it’s like you’re at an outdoor event, but it’s in your house,
Jason Hartman 30:24
they just ask that you wear a mask, you know, look, look for my YouTube video on my YouTube channel about where I interviewed the mask, doctor. He’s an expert on mask, and he shows how the mask is actually made. The mask is making people sicker. Those masks are dangerous, folks, it’s not as simple as it seems. There are many reasons, but one is that you’re breathing in your own respiration, which is extremely unhealthy. The point of getting it out of your body is to get it out of your body. But number two, is people spread more germs because they keep touching the things and fiddling with them. Okay, so there’s the mass has a lot of problems. And of course, all the error still comes out. Okay? You know, it’s not like when you exhale, the air goes away, it still goes into the environment. You know, it’s just a way for the government to control us. So
Adam 31:14
Alright, so ultimate bargains, thanks to the taxpayers.
Jason Hartman 31:17
Adam’s wife is a is a nurse. So she wears a
Adam 31:22
95, eight to 12 hours a day. And
Jason Hartman 31:24
I don’t think that it’s happened, I can hardly wear it for 20 minutes at the grocery store. I hate those things.
Adam 31:30
But ultimate bargains says the Fed cannot put the toothpaste back in the tube, it will never increase interest rates. I don’t agree with them never be able to increase interest rates again, it’s going to be a little it’s gonna be a while I will grant you that. But I think we will see higher interest rates. Again, they can’t, it’s eventually the economy will turn around and start going back to where it was, you know, before COVID. And when that happens, they’ll have to start changing things in the economy, or else it’ll run too hot. And inflation will skyrocket.
Jason Hartman 32:04
Yeah, well, the problem is, and what the people who disagree with that statement, Adam, what they say is that, you know, like, like our viewer said, You can’t put the toothpaste back in the tube. They can reel that in, but it’s not nearly as easy as it so I agree. Okay. And the the one great example we have of that is Paul Volcker, who recently passed away. We talked about him many times on the podcast, he was the Federal Reserve Chair in the early 80s. Okay, and he was the one that broke the back of inflation by raising interest rates to astronomical highs, because inflation was just rampant. And it was, it was ugly. I mean, that was really hard to do that. What Paul Volcker did it was hard to number one, have the have the courage to do it, because he was so hated at the time for doing it. It’s like making someone take really bad medicine. And so it’s very damaging to, to raise the rates and manipulate the market that way to stop the inflation. These things have a spiral of life of their own. So it’s not like I mean, Jerome Powell just glibly sort of says the same way. Ben Bernanke. He said, you know, we’ll just put the tool back in the toolbox and everything is gonna be okay. Yeah, well,
Adam 33:28
not quite. But even if the Fed doesn’t end up raising their rates, eventually, you know, the stock, other parts of the economy will get good enough that they’re going to have to raise the rates to get investors to come in and start buying the mortgages. So the rates will have to go up in order to get the spread that they need. Sure. But I mean, the Fed not raising the rates isn’t that big of a deal. So acentric says, Now that Biden may be president, are you guys learning Chinese, as that will soon be the national language of the world? Yeah, I haven’t gotten that far yet. Are you learning any new languages? Jason?
Jason Hartman 34:03
No, definitely not.
Adam 34:05
We got away is censored also says have you seen the news about the California law about foreclosures? people buying homes for personal use will be able to underbid investors? I haven’t seen that.
Jason Hartman 34:16
Yeah, I have seen that. And I thought about it. And of course, it’ll be another failed disaster. Gavin Newsome, stupidity. That won’t work for a million reasons. We’ll talk about another day, because it’ll take too long. Craig says fed raising rates is a huge deal. Raise equals economic collapse.
Adam 34:35
I don’t agree with that. I mean, we were at the I mean, the Fed rate was significantly higher than it is now just two years ago. And we didn’t have an economic collapse.
Jason Hartman 34:46
Well, it depends. You know, it’s all a matter of degree. It’s really just all a matter of degree and in speed at which they do it. So see, Paul Volcker did it. He did it quickly, and he ended the inflation problem, but it was very Very painful, folks. So we’ll see. We’ll see what happens. So folks, we will wrap it up. But join us tomorrow for our Charlotte webinar. You’re going to learn some good stuff. I have a little teaching at the beginning of that webinar. That’s Jason hartman.com. Slash Charlotte. Kim just posted something.
Adam 35:18
She said, Why do you think people buying houses in Seattle? Like a crazy?
Jason Hartman 35:22
Yeah.
Adam 35:25
I don’t know why people are buying in Seattle. Yeah,
Jason Hartman 35:27
they’re, they’re crazy. They’re crazy. They’re crazy. So that is not a good idea. Don’t do it.
Adam 35:34
Correct. And Volker was able to because the country had way less debt than we are not restrained in our spending by the dead. The dead, like I said, is just money that we’re holding, as assets. I mean, the federal government creates the dollars and puts them out there, our taxes don’t actually pay for anything. The only reason they have to tax is to give our currency value, and to potentially remove any try to get us from not using some of the resources that are needed. The danger of inflation comes when there’s competition for resources. And we’re not experiencing that right now.
Jason Hartman 36:12
Yes, there’s a housing market.
Adam 36:14
There are some areas where it’s happening, but the government spending is not what’s causing that, like government’s not going and trying to buy up all the lumber. A big part of our lumber problem right now, is the fact that COVID shut down a lot of the production for a while, even the new for that now.
Jason Hartman 36:31
Now, those but that story, right? But yes, I
Adam 36:36
heard you talking about it, ramp up the production, they still know each other Go ahead. They still have to ramp up the production, we still have tariffs coming in, on all of the lumber that’s coming in from Canada. So it’s not the government purchasing and the government money coming in? That’s the issue with that. It’s the other parts around it, that’s creating the run up in cost.
Jason Hartman 36:58
Okay, that is just too complex of subject to debate today. But, you know, we’ll talk about debt and inflation and, and you know, I’m a little bit in the middle of this. I don’t think it’s as easy as Adam makes it out to be,
Adam 37:09
but I don’t make it out to be easy. This. The theory itself is easy. The implementation is hard.
Jason Hartman 37:15
Well, I also don’t think it’s as bad as the doom and gloom errs, like Jim Rickards and Peter Schiff would say, either, so you know, I’m, I’m a little bit in the middle about it. So good stuff, everybody. Thanks so much for joining us. We really appreciate it. Be sure to like and subscribe if you’re watching on YouTube and do the bell notification. So you’ll catch those impromptu live streams like the one I did on Monday. And also, we will see you tomorrow at our Charlotte investing webinar. This is a totally new one. It’s a it’s a market we haven’t been in for several years, I made some great money in that market. I profiled and exchange I did out of Charlotte into two more properties in Memphis. And this is just a great market. It’s been pretty hard to access. We’ve got brand new construction there, and some teaching we’re going to be doing on that webinar as well tomorrow. So join us Jason hartman.com slash Charlotte. And we will see you there. Thanks everybody, and happy investing.
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.
In the first part of this episode, Jason Hartman talks about the bullish signs for the real estate market and the S&P movement for the last 12 months. In the interview segment, he speaks to Andrew Cushman about the “tricky” economy, with the odd unemployment numbers compared to stock market success. They also discuss rental scarcity, real estate movement, migration in the US, and opportunity zone.
Announcer 0:02
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 multimillionaire 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 0:53
Welcome to Episode 1605 1605, our guest today we’ll be talking about many aspects of real estate, the rental market, multifamily housing, a little bit about commercial real estate, and just how the demographics coming at the rental housing market over the next decade, are nothing short of phenomenal. So I want to say congratulations to all of you, because you’re in the right place. You’re listening to the right show, you are doing the right things, you are buying these good quality rental properties in these excellent linear in maybe some bordering on hybrid, or real estate markets nationwide. And you’re finding them on our platform at Jason Hartman comm slash properties. So congratulations to you. So the size and scope of the changes in the economy and the world in our lives is absolutely staggering. And I just thought I would share with you some numbers that I was recently reading about. And it was just entitled, the numbers of 2020. It’s been an absolutely outlandish year, no one would deny that. And by the way, I interviewed another guest today, a Stanford economist, will probably publish his interview next week. But that interview today, is he talked about the remote working situation, the money printing, it’s absolutely it’s all just it boggles all of our minds, doesn’t it? It really does. The scope of these massive, massive changes cannot be underestimated. So here are some numbers, just to make you kind of get some context of what’s going on. Right? So $4.5 trillion. This, ladies and gentlemen, is the amount of money sitting in money market funds, okay, the amount of money sitting in money market funds. And we should all know, I just give you a reminder that this is not FDIC insured, and it is not any kind of a guaranteed investment. So just a word of caution on money market, that money is at risk. Admittedly, the risk is much lower than being in say stocks, but it is it’s risk capital, you know, people can lose money in money markets, they can also lose money in FDIC insured bank accounts. Because as we’ve talked about in the past, the FDIC if there was around the banks, if there was a banking disaster, there is no way that insurance policy has anywhere near the level of reserves necessary to pay claims. See, it’s just like any other insurance policy folks, FDIC insurance is, well what do they do? They underwrite the risk in various banks, they charge a premium to provide insurance to those member banks. And then if a bank goes belly up, they have a claim the depositors have a claim on that insurance. And that insurance, of course, is $250,000 per vesting. So one of the ways you can increase if if you have a lot of cash and hopefully you don’t have too much cash sitting on the sidelines, because that would not be good. But if you do if you do, you want to spread that around into different entities and different banks. So you’ll want to check out our webinar on that where you can set up different entities. Jason hartman.com, slash protect protect your assets plan your state, reduce your Taxes. And this FDIC insurance goes by vesting. So if you have if your name happens to be Jane Doe, and Jane Doe is a real estate investor, and Jane Doe says that she’s going to have $250,000 in her personal bank account, which I hope that wouldn’t be true, because that would be very much at risk, you would be much better off having a couple of different entities maybe LLCs, or a trust or something, and have the account in those names. So that you spread the risk so that each vested account each entities account could make a separate FDIC insurance claim, if worst comes to worse, okay, so do not go over that $250,000 per vesting, ideally, right? Okay. So that number that I just shared with you in the money market funds, is down slightly from $4.8 trillion in June, but it shows just how much money is on the sidelines, earning less, you’re ready for this, hey, I better give you a drumroll on this one, folks, because you’re gonna need it cuz this is gonna blow your mind. drumroll please. There’s your drum roll. That money sitting on the sidelines, is earning less than point 7%. That’s four and a half trillion dollars, just in money markets, waiting to be invested. Folks, that’s huge. And that is a bullish sign for the real estate market. Because that money will, at some point come off the sidelines and flood into various investments, some of them being commodities. And when we’re real estate investors, we’re really just commodities investors, right? Because we invest in packaged commodities or assembled commodities. Right. So there you go. That’s a staggering number. Let’s get to the next staggering number. 3.6 million. That’s the number of long term unemployed Americans who have been out of work for six months or more. That number is growing. Okay, it is growing still. And it shows just how hard it is to get the economy back to full steam. Now, of course, this is especially pronounced if you live under the terrorist regime of someone like Gavin nuisance, the governor of California, and you know, it’s it’s just an epic disaster in places like that. New York same idea, right. Same idea in any leftist place. Because more lockdowns you know, no one’s no one’s counting the disaster caused by the closures. The lockdowns, the quarantines? No one’s counting the increased suicide rate, the increased drug use the increased alcohol use the skyrocketing addictions, the amount of depression, right, no one’s really counting this stuff, or at least we don’t hear about it if it is being counted at all. You know, it’s it’s not as simple as the COVID issue, right? There’s more to it than that. Okay. 13 million Americans are receiving expanded unemployment benefits as part of the cares act. And those benefits will expire on December 31. Unless there is an extension. And by the way, I have tremendous faith that there will be an extension, the government loves to hand out money to do stimulus programs. The government loves it. So I don’t think we need to worry too terribly much about just a cold exploration without something filling the void. There will be something I’m pretty darn confident about that. There may be a little lag diamond between maybe it won’t happen until the after the next presidential term, whether it be Trump or Biden. So that’ll happen obviously, you know, January What, 21st? Right. 22nd. So we’ll see. We’ll see. Now, the number of jobs that have been added back, right, since May, compared to the 22 million people who were laid off during the pandemic 12 million have been added back. Okay. 12 million. So we’re, we have a 10 million job deficit from the pandemic issue. So there you go. There’s some numbers. I got to More for you. You’re ready, the return on the s&p 500 year to date, guess what it is 12%. That’s after a 34% crash in March. Wow, a 40% recovery through the summer as they pumped in the money, right? And a five or 6%. That’s been added since then a 12%. Gain, year to date. All things considered ups downs, sideways. Not bad. But that doesn’t even come close to the return produced by a multi dimensional income property asset. Real Estate has massively outperformed the s&p and the smps. And doing pretty great all things considered. But the problem is that many people sold, they sold out during the down times. So they sold on a loss. And they’re still underwater, right? It depends exactly when you entered and exited the market. This is the problem with trying to time the market in any market, not just stocks, not just the s&p, housing, pork bellies, coffee, beans, whatever, any commodity any stock, any investment. Market timers, really have a tragically bad history, a tragically bad record of trying to make money. Okay, so here you go. Here’s one more number, the percentage of stocks listed on the nysc, the New York Stock Exchange, trading above their 200 day moving average. See that moving average, by the way is telling based on what I said a moment ago, that last number, because that moving average, of course, it as the name would imply is a moving average of 200 days, right? And it keeps moving through time as we move through time every day, the 200 days changes which Bayes it calculates. So people, even though the s&p is up 12% year to date, many people of course, sold out when there was a huge crash of 34%. Obviously, the reason there is a crash is because people were selling the supply and demand, right. That’s how the stock market works. And so many of those people, even though the broader s&p is up for the people that just didn’t do anything. Many of those people lost fortunes this year. And so they might be negative 10% year to date, rather than 34%. Somewhere negative 34% of faith, good, the worst of all things right. But what’s interesting is that the money printing, thus far knock on wood has worked, because it has puffed up the stock market. And obviously, other assets as well. 82% of stocks listed on the nysc are trading above their 200 day moving average. And that’s the highest since 2013. Right? amazing, incredible big numbers. Really, really just hard to believe the kind of numbers we’re seeing in this world. Okay. Another interesting thing. Well, I’ll talk about that later. But Facebook, remember, Facebook’s Libra currency? You haven’t heard much about that. Right? And I like the name because hey, I’m a Libra. Right? And that’s the best sign in the Zodiac. So, so you haven’t heard much about that lately? Remember, there were huge objections, rightful objections, okay. And I’ll talk about that a little more later. But just remember what I’ve always said, folks, whether it be Libra aetherium, Bitcoin, any cryptocurrency Litecoin Kanye coin, which, I guess that never really made it. There are many coins that have just gone under. They’re in a coin graveyard, right for cryptocurrencies. They all represent competition for the most important product, most important product, the most important economic widget of every government on Earth. What do governments produce? Well, many libertarians and conservatives would say governments don’t produce anything. They simply take in money in the form of taxation, and most would not understand this, but you do because you listen to my show. Also inflation as a way governments take in money and becoming rich. So they take in money through inflation and taxation. And then they take a very large handle fee, they buy a $900 hammer at the Pentagon, or a $2,000. toilet seat for another government agency, or you’ve all heard the stories like that right of massive government waste and corruption. They pay off lobbyists, lobbyists pay off politicians, they exchange favors, quid pro quo. It’s a total scam, right? And then they give back a small amount of that money they take in after their very large handling fee, in the form of government benefits, you know, welfare, highways, whatever, right? Whatever they do police force, fire, etc, etc. And that’s what governments do. But just remember, the governments of every country on Earth, they do really produce one thing. One thing they do produce, so the people who say governments don’t produce anything, they’re just a middleman that takes a very large handling fee. They’re wrong. governments do produce at least one thing. currency. Not to be confused with money, currency, dollars, euros, yen, pesos, Brazilian reality, whatever, whatever rubles, whatever their currency, that is the product of the corresponding government. And let me tell you, like any person in business, they don’t love competition. They would rather have a monopoly, a monopoly is way easier than having a competitive marketplace. So guess what monopolistic powers do? I mean, look at it now in the world of big tech, these big disgusting tech companies, they’re operating semi monopolies or duopoly, whatever, right? And they’re doing everything they can to hang on to their monopoly, because it’s easier for them, and much, much more profitable. Same is true with the criminals on wall street like Goldman Sachs, right? Goldman Sachs doesn’t want any competition. So they tell the government to go create tons of regulations. Zuckerberg at Facebook, right? He’s saying we need to be regulated. And that’ll help them hold on to his monopoly. Right. So governments don’t want any competition for their currency. Of course, they don’t, why would they? That’s their main product, maybe it’s their only product, it’s probably their only product. Why would they want a competitor? They don’t. So just think about that. Just stick that in your pipe and smoke it folks. You know, as the saying goes, put that in your pipe and smoke it. They don’t want competition. Okay. Tonight, empowered investor network members. Tonight, we have our zoom meeting at five o’clock Pacific, eight o’clock eastern time. And wherever you are around the world, please do your adjustments for our zoom call. Because tonight we are dissecting and disassembling property management agreements, we’re going to tell you what you should say no to what you should negotiate. And I think it’s going to be very interesting, one of our clients muthiah is joining us on that call. And then our investment counselor team will as well. And we’re going to really go through some property management agreements and say, This is the good, this is the bad. And this is the ridiculous. So if you are a member, you received an email, of course in the community forum, the social network for the empowered investor network, the inner circle, you got the zoom information in there. So we look forward to seeing you tonight. And if you’re not a member, talk to your investment counselor, and ask about how you can become a member. So you’ll get all of these terrific advantages of being in the empowered investor inner circle. Okay, without any further ado, let’s get to our guests. And we’re gonna play part one today, and we’ll have Part Two tomorrow. And we’re going to talk about a variety of interesting things including rental housing, demographics, here we go.
It’s my pleasure to welcome Andrew Cushman to the show. He is a real estate investor, apartment syndicator and has some interesting thoughts on demographics that we want to look into. You know, as I said, 10 years ago, and I recently renewed my 10 year forecast for another 10 years, I said that the demographics coming out the rental housing market for the next 10 years. I said this 10 years ago are nothing short of phenomenal. And I’m renewing that prediction because the next 10 years look incredible as well. So Andrew, welcome. How are you?
Andrew Cushman 19:58
I’m good. Thanks Strap me on Jason’s good to talk with you. And I would agree with your assessment 100%.
Jason Hartman 20:04
Yeah, you’ve got about 1800 apartment units that you’ve syndicated. You’ve done a lot of home flipping and investing. And we met through a mastermind group that were involved in, I had the pleasure of speaking at that group in January. And you’ve really done some good stuff. So where are you located? By the way, you’re in Orange County where I used to write
Andrew Cushman 20:25
Yeah, I live down down in Southern California not far from Yeah, your old home of Newport Beach. And then we primarily invest in Georgia and Florida. And then we also like the Carolinas, and Tennessee, and we used to be in Texas, good stuff.
Jason Hartman 20:39
Well, talk to us just in general about your macro view of the market, in terms of real estate, the economy in general. And then let’s get into these rental demographics. And by the way, folks, if you’re watching on video, we have some good visual aids, feel free to make comments down below, if you’re watching on video. And then if you’re only listening to the audio, we’ll try and translate the visuals into a way that you can understand them as well. Okay, what’s your macro view?
Andrew Cushman 21:09
So, you know, the economy in general that? That is that’s a tricky one right now, right? We’ve got, you know, we’re hearing we’ve got 1012 15% unemployment, but the stock markets are all new highs, we have stimulus that seems to be benefiting the wealthier folks, and and those who own assets, like real estate, whereas the the lower income folks don’t seem to be getting as much of that and seen and, you know, are kind of struggling. And it’s really, it’s difficult to predict, you know, where How is that going to settle out? Right, you know, what is real unemployment? The what was people’s real incomes, what’s real occupancy going to be? You know, we, you know, we call the appearance of the Coronavirus, you know, Black Swan event? I don’t know what the opposite of that is maybe a white penguin or who knows, but I mean, it’s gonna take just about a miracle to just make this all just go away, right? I mean, there’s gonna be some repercussions. And I, you know, when I study it, and when I talk to people far smarter than me, I get completely opposite conclusions, right? One person can have a great argument for why everything’s me fine in six months. And I listen to somebody else who has a great argument for why this is going to be the next great depression. So I think the reality is probably going to be somewhere in the middle. And what the question I like to ask is, you know, as far as investing goes, What can I do to put a tail end at my back, or, you know, wind in my sails, so that almost no matter what the outcome, I should be in a good position. And that’s when I look, you know, that’s where I look at, okay, you know, what asset class or what investment class has those tailwinds. And to me, rental real estate is probably the best positioned to benefit from not only the long term trends that you alluded to Jason, before this started, but what’s going to be accelerated by the current the current crisis, right? So for example, you know, we’ve already talked about this in much talk about the baby boomers starting to downsize and move into rentals. And, you know, already there was a trend for for them to want to age in place, right, not move to the home, not move to the retirement center, but to stay in a house or an apartment or something like that. They are the second largest generation, there’s 70 million of them. And they are in the process of downsizing and, you know, trying in renting, so they have the flexibility to lower payments, they don’t have to worry about maintenance, all that right. So we’ve had that trend going on. behind them is is Gen X, which is a smaller generation. Right? That’s you and I, and you know, we’re starting to get to the point where, you know, lifetime warranty doesn’t sound like quite as good, a good deal, great deal anymore. But we’re kind of in the middle. And then after that we actually have the biggest generation, and that’s the millennials and they’re from you know, 1981 to 96, depending on who you’re talking to. It gives defined a little bit differently. But that generation is 72 million. They’re even bigger
Jason Hartman 23:56
than it’s interesting, because as you quote these numbers, you know, the demographers disagree on Yeah, how many millions? Because, you know, I’ve always gone with the number that the baby boomers are 76 million, the millennials are 80 million, slightly bigger. Gen X, my generation only 46 million. So folks, just understand the demographers vary depending on the cutoff here. They do they do fudge a little bit on it. Not a big deal. The concept is the same, but go ahead.
Andrew Cushman 24:27
Yeah, you’re exactly right. If you compare, you know, Freddie Mac versus I mean, pew, or they’ll have different numbers, but the research center Yeah, do the overall trend is about the same. And so the millennials are getting to the point now where they’re they’re forming households, but they’re very unlikely to buy because number one, they a lot of them tend to value flexibility, and amenities and they don’t want to take care of a house but even a bigger factor is the is the multi trillion dollar student debt bubble, right. That is preventing many of the millennials from being able to buy houses, they are becoming renters. And not only are they becoming renters, they’re staying renters much longer than previous generations. Right. So we have two huge waves of demand crashing at the rental market. And this applies equally to single family and multifamily, right. I mean, there’s different preferences and you know, you can parse out, but the demand is there regardless. In fact, even right now, single family demand seems to be even slightly higher than multifamily, as as people seek space and move out of cities and
Jason Hartman 25:28
things like that, but again, the multifamily has to be defined in terms of, you know, what type of multifamily as it is that high rise, mid rise, low rise, garden style, you know, it’s just so much different. And this is, this is why folks, you can’t listen to the national news media and and their soundbite analysis, it just isn’t good enough. Go ahead.
Andrew Cushman 25:56
Yeah, there’s
Jason Hartman 25:57
a lady on CNN, he’s been predicting the demise of the housing market for the last 10 years. Right. You know, and Peter Schiff has been predicting the end of the world for 20 years. And, you know, Zero Hedge has been predicting it forever. And it’s just yeah, it’s really annoying, frankly. Yeah. Well,
Andrew Cushman 26:14
and you know, we and we have a mutual friend David Osborne, his is it what he says is don’t wait to buy real estate, buy real estate, and we’re
Jason Hartman 26:22
staying, I operate by two, yeah,
Andrew Cushman 26:24
you got to ignore the noise and buy something that makes sense today. And then you hold on to it. So. So that was that’s the demand side on the supply side. And this, this data is coming from Freddie Mac. So this is kind of the same thing, where, depending on your source, the numbers might add up a little bit differently. But they estimate that demand is 1.6 2 million household units per year. Right. So that, you know, we that’s the demand for housing every year. And we haven’t supplied that level of homes or apartments since 2007. So what that means is every year since 2007, we’ve been running a deficit in increasing the severity of the housing shortage. Now that’s very right in 2009, and 13.
Jason Hartman 27:08
Yeah, note on that, by the way. And in 2011, that was a short, brief anomaly, because of the over construction that occurred, because the the lending was so ridiculously liberal, there really was a housing shortage way before that. Also, there was this brief spot, you know, like a snapshot in time of maybe a couple of years, that there was actually an adequate supply of housing, but still, you know, there was a very significant homeless ness problem even then, or maybe, especially then, because it was recessionary time. But yeah, you know, and of course, that also is a stat, you would have to parse up a zillion different ways in terms of location, product type, price range, etc, etc, etc. but go ahead.
Andrew Cushman 28:00
Yeah, yeah, you’re absolutely right. Um, there’s some markets where there’s, you know, 30% vacancy and, you know, rural, maybe declining towns and then well,
Jason Hartman 28:09
in other words, Detroit, I mean, Detroit, yeah. poster child for disaster. Right. And in Detroit, obviously, we saw them bulldozing homes for a while.
Andrew Cushman 28:18
Yep, they were given away for free or Yeah, all that kind of stuff. So. So we’re running, we’re consistently running a housing shortage. I think in 2017, even if things were strong and recovering, we were still short 370,000 units of housing. This has been going on for a decade. The current projection I’ve heard for 2020 is that we’re up to again, this varies depending on who you get the data from, but we’re up to like 1.49. Right. So getting there but still short. And Fannie, Freddie Mac has a projection of their high, their median and their low. And they’re predicting anywhere from a shortage of between now and 2030 of 900,000 to 4 million housing units shortage, right. So when you have two large waves of demand crashing into the rental market, you have anywhere from one to 4 million units shortage, that really leads to one thing and that is, you know, increasing occupancy, increasing rent levels, and therefore increasing value value on on that rental property. And so when we look at just the macro picture within the United States, those demographic trends, which are, you know, set to play out for at least the next 10 years, especially as that millennial generation is just now starting to move into the rental market. That wave is about a 10 year long wave that’s going to you know, push push rental rates push occupancy, and again, it’s a huge tale and now that’s the the really high level picture, which even becomes really important as an as a real estate investor and Jason, let’s share my screen here. Okay.
Jason Hartman 29:54
Now this what we’re showing here is a data from Harvard University. Okay, you This is the Joint Center for housing studies, we’re looking at a map of the US. And the great thing about this map that Andrew is sharing is that you can highlight an area like say, for example, Memphis, one of the markets we’ve been recommending for many years, along with many others, Memphis is certainly not the only one. And you can you can look at the flow of the population. And it’s it’s pretty encouraging for investors for sure. Go ahead, Andrew, do you want to highlight that one? Yeah. So
Andrew Cushman 30:31
there’s two maps here that I want to highlight. One is just total population change. And effectively, you know, if you’re a rental, and if you’re an investor rental property, you want to position yourself in the counties, and this is done by county that are kind of this green, dark green, or greenish blue color, right? That’s where population growth is the strongest or the highest. And then the red, the red colored counties are ones that are losing population. And then the white is where it’s basically flat. So you look at your areas, of course, you’ve got you know, tech, you’ve got San Antonio, our over blocks it but you’ve got San Antonio, Austin, Texas, Dallas, Fort Worth, Houston, most of Florida is high growth, most of Tennessee. And then like, you know, Jason, you mentioned you’re in Memphis, that’s dark green, that’s looking really good, Carolinas, Arizona, Utah, Idaho, there’s markets all over the country, where you have good growth, and even in some regions or states that are somewhat maligned for, for losing people, you can almost always find at least a county or sub market that is growing for for whatever reasons, right? Because you have different levels of domestic migration. That’s why all real estate is local. But the thing I do have to say, as a caveat there is you have to look at the type of migration it is, you know, is that your target renter, for example? And you also have to consider, can you buy a property there? That makes sense? You know, can
Jason Hartman 31:57
you get a good rent to value ratio, etc. So, you know, in the Great example, is California, you know, my old home and your current home? Yeah, I almost hate to keep mentioning California, but, you know, it’s it’s the biggest state in the country. And, you know, if it were its own country, it’d be like the sixth largest economy. So it’s a pretty significant thing. And it does show an example, a bad one, largely, sadly, it’s just so mismanaged, and it’s really tragic. But California, you know, is finally having some net migration or net net loss of population, right. But over the years, it’s had actually net gains. But the question is, who is the game coming from? Is it coming from illegal immigrants? Or as Hillary Clinton used to call them workers without papers? I mean, you can’t make up this politically correct. You know, these these are such wise, it’s unbelievable work. If you know if they’re all workers without papers, okay? They don’t have the income level that is going to make a good renter right through to rent your typical house. So you know, you’ve got to really parse this stuff up. It’s much more complicated than it might look on the surface. Right. What
Andrew Cushman 33:21
in Jason, I couldn’t have teed this up better. Let me show you highlight exactly what you just said. So if you look at this map, where I have up right now for total population change, California looks great, right? lart lots of dark green color where they’re, you know, the highest rate of population growth. But if I go down to the legends, the bottom and I toggle it from total population change to domestic migration, meaning people moving from within the country, right, California is terrible. The whole thing changes. Wow, California turns red. So what does that tell you? Wait a second. The first map said California is growing like crazy, but the second one says it’s losing people. Okay, well, who is it losing like? It’s losing the people who have the good incomes that can afford to flee the state? Yeah, right. And that that’s key right there. Right. So you’ve got to look at both of these maps it perfectly highlights what you were just explaining to everyone and then you look into Okay, and
Jason Hartman 34:17
one thing we should tell people about this look at the reason this is so important, is because the people leaving are the tax base. Yes, sir. The taxpayers. Okay. And yes, there are some ultra wealthy people in California. Sure. And then there’s a lot of poor people so it’s a banana republic. And I don’t mean the store, you know, look up the definition of banana republic. It’s a country where you’ve got this ultra rich class and this ultra poor class and very little in the middle. What you want for a stable societies, a large middle class, that’s the important demographic in my opinion. I love the middle class, and love them or hate them, but so does Donald Trump. And so this is The thing, you know, the the ultra rich people, they don’t really pay much in tax a lot of times because they have so many sophisticated entities, they do offshore tax planning, they have all kinds of loopholes, they take advantage of, and, you know, these big companies in Silicon Valley and so forth, like apple, Shame on them, and, and all the rest, you know, who are, you know, they set up these companies in Ireland and, and, you know, the Netherlands, and then they got another company, you know, and they, they do this the whole game, to avoid paying taxes, where they’re really located. It’s a complete scam, but you know, they circumvent the law. And, and so, when you lose the tax base, and you lose those property tax revenue, then things start going downhill really quickly. And as we can see, California is desperate. And it’s not the only place there are many other places New York certainly to, and they’re really just attacking the population that’s left, they’re becoming very predatory on them to collect revenue. I mean, New York is, it’s just a huge problem, you know. So when you see that happen, that is a hugely significant trend. This is really, really important. Just click on international migration for a moment, because that’s kind of next. So let’s just look at that one. So what does that one telling us? That’s pretty good in some of the areas, right?
Andrew Cushman 36:27
Well, yeah. And what it doesn’t say is what kind of defining international so if you look at it, Southern California has got a ton of international migration, right. So is that people just coming over the border and staying there? Or is it rich people from China fleeing Chinese oppression, and moving their money to California, which it has
Jason Hartman 36:48
been a lot, right, California benefited from that? So
Andrew Cushman 36:51
yeah, and just just near where I live, I literally about two miles down the road, there was an area that was largely Hispanic 15 years ago, and now it is completely Asian. All the signs like that nothing’s even in English anymore. It’s all high end Asian stuff. Right?
Jason Hartman 37:06
Well, that’s really a form of gentrification, if you will. So yeah,
Andrew Cushman 37:10
so you’re absolutely right, it makes a big difference. If you’re, if you own rental if you own rental property. That’s that’s a really important factor. Right? And then if you look at Florida, you’ve got a ton of international migration as well, my guess is that might be the mid to higher income people, but I don’t know.
Jason Hartman 37:25
Well, you know, in South Florida, I mean, that’s pretty expensive. And that’s a lot of Latin American, it’s a lot of Brazilians. And, you know, certainly a lot of Europeans, a lot of British people, you know, hang out in Florida, and you’ve got the Canadian snowbirds. And so, like anything, this is so mixed in, at the end of the day, you can parse and do statistics, all you want. But I think for the pros, and this is why the pros are valuable, the people that are really just engaged in this stuff all the time. Hopefully you think that’s like the two of us, right? You just sort of get a feel for it. And some of that is definitely anecdotal. It’s not all empirical stuff. You know, you just have a sense of it. Really. Sorry, I can’t give you more specifics than that. But yeah, anyway, tell us more of the insights you learn from this map and and click on the total population change again. And let’s look at some of these markets. Indianapolis, Memphis, Atlanta, some of the Florida markets we really like you know, whether they be Jacksonville, Ocala, Southwest Florida. That’s a bunch of different cities and areas. But
Andrew Cushman 38:35
yeah, I mean, if you were to pick a if you were to pick a two states where it’s almost hard to go wrong, it’s Florida and Arizona. I mean, whether you’re looking at total population change or domestic, those two states are winning and what I what I mentioned earlier about as a rental investor, investing in an area where the wind is at your back, that’s why these two markets are some of them some of the most popular ones. Same thing with Memphis right, it has both total population change and domestic pagano high a high positive level. Same thing with Atlanta, Dallas.
Jason Hartman 39:06
So comment on Arizona, and you didn’t mention a city there. You just said the state. First of all, again, you still have a lot of illegal migration in Arizona, of course, but I lived there for six years. That was one of my I definitely one of my favorite places to live. I really like Phoenix, Scottsdale, especially great town. And we we’ve recommended Arizona over the years, several times. We’ve moved in and out of that market in terms of a recommendation but it’s just too expensive now. Yeah, it’s not it’s not you know, it’s not California, but it’s still it’s still too expensive to really get the good rent to value ratios. And I gotta ask you to, you can do it in Florida. You can have stuff that makes sense in Florida, many places in Florida by the way. Certainly Memphis you can’t do it in Nashville. Nashville’s too expensive. Indianapolis is great Atlanta. You can still do it a little bit in Atlanta. Little Rock and Many of the Texas cities have become too expensive to, you know, over the years, had tons of clients buy in Dallas, Austin, San Antonio, and a lot of them are just too expensive now. But I gotta ask you this, do you do any business in opportunity zones?
Andrew Cushman 40:18
We we don’t. The reason being, we generally buy existing assets and renovate them and improve them. And to get the opportunity’s own benefits to work out. It is more skewed towards developers, because you have to spend more, you have to spend as least as much building or renovating as use paid to purchase the property. And that’s really difficult to do with a with a, you know, just renovating a 1980 construction apartment complex or something like that.
Jason Hartman 40:48
So I never got into the opportunity’s own thing. I always thought it was highly overrated. And I think Luckily, I’ve turned out to be, I think my decisions pretty good. And here’s why. Number one, COVID a lot of those opportunity zones area areas are the high density areas that people are leaving in number two, civil unrest. And a lot of those are certainly opportunity’s own area, and people are fleeing them now. You know, some of those areas just will not come back, maybe for I don’t know how long maybe a generation, because no business in their right mind is going to open in those areas and, you know, get be vandalized and, you know, not be able to operate because they have riots. And these idiotic, disgusting left leftist mayors will not enforce the law, they ought to be frankly indicted these mayors, because they, you know, they, they have an obligation to protect their citizens, and they’re not protecting them, because they’re just selfishly wanting people to vote for them. And all their voters are rioting in the streets. So it’s like a campaign rally.
Andrew Cushman 41:57
Yeah. Yeah, that’s, that’s, I may borrow that from you. Well, and you’re absolutely right. And then I don’t you know, we mentioned this earlier, but you the best way to guarantee success with a, especially rental real estate is buy something that makes sense today. And what I see with a lot of those opportunity’s own projects is they don’t make sense today. They only make sense, right? Everything comes together perfectly down the road, and you get the tax benefit, right. So a lot of those opportunities on deals are just bad deals. And you know, tax benefit doesn’t necessarily change that.
Jason Hartman 42:30
I always say, you know, don’t let the tail wag the dog, a tax benefit is great, but it should not drive your decision, the decision has to make economic sense. And one of my 10 commandments of successful investing is you you keep repeating it for me. And I don’t even know you know what it is, but commandment number five is Thou shalt not gamble. And the subtext of that is, the property must make sense the day you buy it, or you don’t buy it, period. It’s really quite simple. Thou shalt not gamble. So nothing extraordinary should have to happen for you to make a good return on investment, no extraordinary appreciation. Nothing. Just it should make sense from day one. Now, if some great things happen, like a bunch of appreciation, great, you know, but don’t don’t count on it. This will be continued on the next episode.
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In this episode, Jason Hartman plays a recording of a Q&A session from a Creating Wealth seminar. They talk about the process of finding and vetting a Local Market Specialist and how to find the right balance between property portfolios. They also discuss the different benefits that investment counselors provide to investors and the best ways to utilize them.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
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 1:03
Welcome to the creating wealth show, episode number 803 803. This your host, Jason Hartman, thank you so much for joining me today, as we are going to go into about 20 ish minutes of a clip from a live event that I did, where I’m doing some q&a with the audience. And this is just happening after I explain and talk again about my big discovery, my risk evaluator, which I have covered on prior episodes, so I’m not going to replay that again. So just know that if you’re not familiar with the risk evaluator It is one of my great discoveries that I have never heard any other real estate expert talk about. It is solely my idea and it took me 19 years in the real estate business to discover it. It is based on what I call the LT ratio, the land to improvement ratio. And I had just before you come in on this clip, explain that to our live audience, and then took some of their questions. Also remember, when you need tax, legal or other professional advice, that you seek out the appropriate professional, I will always want to remind you that I am not qualified to advise on tax or legal matters, they are complicated. I will give you basic ideas, I will give you my understanding, I will give you my experience, but tax situations and legal situations and really any situation, of course, is individual. So it requires individualized advice from professionals in those particular fields. So please seek that out. Just use what I talked about on the show and at our live events and what you might talk to our investment counselors about as a guideline as a way to initiate a conversation with The professional who can go deep into your situation and give you their vast experience and wealth of knowledge. So I was want to say that to you, boy this weekend it is now Sunday evening. And I am just coming off a wonderful weekend with our venture Alliance mastermind. We do these quarterly meetings and this one was here in Las Vegas and we just had an awesome, awesome weekend. I must say I’m, I’m very tired. It was a great, great time. We had a we had pre meetings starting Friday morning. And then the actual formal venture Alliance meeting started Friday evening at seven where we we played it, we had some fun and partied and played golf at Top Golf here in Las Vegas. If you have not done Top Golf before, it’s really fun. You know, I’m not like any big golf or anything but this is this is kind of a fun, new fangled form of golf. If you’re not familiar with it. It’s called Top Golf and very seemingly successful company. That is a Got centers all around the country. And then we were at the Wynn and encore hotel just beautiful venue in this gorgeous boardroom. We started Saturday morning with our business meeting did a little masterminding breakfast together. We had the former governor of Nevada, the longest serving governor of the great state of Nevada, speak to us, Bob Miller. And he spoke for about an hour and took q&a from the audience and taught us a lot about the history of the state of Nevada and Las Vegas and how people get business deals done in Nevada and you know about the the mafia and the casinos and then how Wall Street came in and how Steve when of course, we were at Steve Wynn’s hotel, the Wynn hotel and encore hotel and how he financed his first property and became this, you know, mega mega successful hotelier and, and real estate developer and talks about his burn rate in his first big project finance with really high yield well, otherwise Known as junk bonds, and how his burn rate in that property his expenses were get this a million dollars. Nope, not a million dollars a month. Not a million dollars a year. Not a million dollars a week. A million dollars a day. Yes, the million dollars a day. And it was just really interesting having the governor speak to our small group we had about oh, I think we had 22 people in the room. We were in this gorgeous boardroom in the Wynn encore hotel. And then we had Jason Hanson, come in and speak after that. And He is a former CIA operative, that teaches class called spy escape and evasion. He demonstrated on himself how to break out of duct tape, zip ties, handcuffs, all kinds of things and some interesting self defense stuff. You know how to know if you’re being followed how to evade people following you whether by foot or car, whatever. And it was just really fun. Fascinating It was like James Bond came to give us a seminar and and that was super cool. And then we do our skill shares our hot seats, and then we broke for the afternoon we went ziplining and Las Vegas. Oddly, you may not know this has a couple of the world’s best zip lines really. The one we did was where we flew like superheroes. You know, like Superman flies right on our Well, you know, in a hardest, you know, on our stomach like laying down flat and you know, you put your arms out in front and we started it. It’s seven storeys up and flew down this awesome zip line and that was just a lot of fun. We got a lot of great pictures of that and really fun time, had a great lunch before that and then had some drinks afterwards and walked around the crazy Fremont Street experience the FSC in Las Vegas in downtown old Las Vegas. And that was a lot of fun. And then we got together for a beautiful formal Dinner at the top of the world restaurant that literally is at the top of the world. It’s at the top of the stratosphere. And you know a lot of times those kind of places aren’t that great, the food’s not great and they’re kind of touristy but this one is really good it got great reviews on Yelp and and we had a group of 24 people at dinner and just had a wonderful time and had drinks afterwards in the nightclub there and I wasn’t at this part but some of the group have worked. They were having more drinks at the Wynn and encore hotel and, and there’s just so much masterminding and so many great ideas being exchanged, you know, and then this morning, Sunday morning, we met back in the boardroom at at the Wynn and just masterminded, we went around and everybody shared all the great books and newsletters they’re reading and the podcasts they’re listening to and what they learn from them and I just thought I thought what what a stimulating conversation. What a brilliant group of people We did some skill shares and hot seats and one of our local market specialists that was there, he shared, how he uses creative visualization, to increase his productivity and get what he wants in life and for his family and his business and, and he talked about his productivity hacks and his bio hacks that he’s using to hack his biology and hack his productivity and manage about 300 employees and all of his businesses. So that was just phenomenal. And people went around the room shared skills. One of our hard money lenders in the room, Mike, he got up and he talked about some new funds that he’s starting to do hard money lending and invest in properties and you know, how yields are compressing and what’s going on in that market, what’s going on in the lending market and financing properties and deals and Wow, it was just an amazing weekend. People did hot seats they brought to the group challenges they’re having and, you know, opportunities they’re having and you know, what should I do? How should I deal with it and, and you know, for five minutes they explained the problem or the opportunity or the challenge or whatever it was and then the group went around and and gave suggestions and asked questions that drew them out and illuminated the situation and help them better handle that opportunity or that problem. It’s, you know, could be good could be bad. Whatever it is the mastermind group, that’s the power of the mastermind and and we had lunch at a beautiful new Benihana restaurant here and you know, we were all around the, the the grill as they were cooking and you know, if you’ve been to Benihana you probably have and you’ve done the what is it the sash, one grill or the tap on grill or the bachi grill. I don’t know what it’s called Anyway, you know, they throw the knives around and do all kinds of cool things. But, but, you know, I looked at the side of me and there was my friend Pat talking to Jeff And, and you know, they’re they’re part of the venture lions mastermind and they’re talking about, you know, saving money on taxes and making money on deals and, and then I looked at the other side of me and there’s Gary and Fernando and you know, they’re they’re talking about stuff they’re doing along with john and, and his wife and it was such a great stimulating, bright, engaged group of people. I just absolutely love the mastermind concept. So, our next venture Alliance mastermind event will be in Chicago, and it’ll be in about three months. So look for more information about that if you’d like to join us and right now, of course, in just about three weeks, we’ve got another Memphis property tour coming up. I think you’ll really like that we’ve got we’re going to focus this time in Memphis on brand new construction, brand new investment properties. So check that out. That’ll be the the major focus of this property tour. And, of course, I’m doing my creating wealth seminar. They’re where I talk about what I talked to this audience about where you’re going to hear this live clip in a moment. The risk evaluator inflation induced debt destruction, what Trump means to all of us in terms of our investments, and a whole bunch of other things, how to select markets, guys, you know, and by the way, today, I have to tell you, is the anniversary, March 12. By the way, the anniversary of the first time I did the creating wealth seminar, my creating wealth seminar, that and the first one was in Newport Beach, California. And it was in 2004. Today, back in 2004. So what 13 years ago, and I remember that day well, so I’ve got that coming up again, in just about what really, I guess two and a half weeks in Memphis, we’ll be doing it there. So I hope you join us for that. Go to Jason hartman.com. Click on the events section and get your tickets for that event. Check out the properties while you’re on our website as well. And make sure you’re talking to our investment counselors if you’re interested in buying because not all properties are on the website. I hate to say that but the inventory is moving so quickly nowadays, it’s hard to keep up with and you’ve just got to you’ve got to be talking with our investment counselors. Don’t just use the website only work with your investment counselor at my company that will help you get the good deals, you know, game right when they come up, boom, boom, boom, because they’re they’re just gone fast. We are bringing a couple new providers online. So we’ve got more inventory one of those new providers was with us all weekend and, you know, we use that as a as a way also for the venture Alliance group, that mastermind group to bring value to you. Even if you’re not in the group. They are kind of this. Well, I hate to use a Bette Midler phrase put the wind beneath my wings, right. That’s a great song. By the way. The wind beneath my wings and the wind beneath your wings because they were with a couple of our local market specialists this weekend and it prior venture Alliance weekends and, and they were vetting them and learning about their business and you know, kind of vetting it out and, and hanging out with them and, and you know, I mean, for better or worse I’m not a huge drinker. But alcohol is a bit of a truth serum you know, you can kind of tell a lot about people’s character because alcohol it magnifies it right just like money does you know, Earl Nightingale the later on Nightingale one of my early mentors at age 17. He used to say, money is like alcohol, it makes a good person better and bad person worse. So, you know, when you’re hanging out in these casual environments at the venture Alliance weekends and you know, having a couple drinks with people, you know, you you really get a flavor for what they’re liking. their businesses like what their attitudes toward customers is like, and, you know, where is it rather, you know, what, what are they? Are they the, the quick buck? Turn them and burn them type of person? Or are they the person that, you know really has a long term vision for their company, their business, their life, their contribution to society? You know, these are all things that you just learned by hanging out with people in casual environments. And so that’s just so critically important. And that’s, that’s what the venture Alliance did for you this weekend. By the way, dear listeners, of course, we have many, many thousands of listeners. And we only had a couple dozen people here in Las Vegas this weekend, vetting some of our local market specialist for you. So they are the wind beneath their wings. So I thank you to the venture Alliance for helping me do that because I can’t do it myself. You know, it’s only one person’s intuition. It’s only one burst. opinion, it’s only one person’s perspective. But, you know, you get another two dozen people there to help you think things through and that things and just a lot more perceptions. And so that’s super valuable to me, it’s super valuable to you, and will continue to provide that value to you. So hey, without further ado, let’s get to this live clip. But do be sure to go to Jason hartman.com, the Memphis property tour and creating wealth seminar is almost sold out. I don’t have the exact headcount on that lately, but I know we’re we’re only a very small number of tickets away from calling that sold out. So do get your ticket quickly. So you can join us in Memphis, and check out the properties and all the other great stuff at Jason Hartman calm and of course, if you’re not an actual subscriber, be sure you subscribe to the podcast, so you don’t miss any episodes. We also appreciate your reviews and your ratings of the show. So thank you for that.
And let’s go to this little live clip. Okay, so Kerry, I just wanted to ask you a little more about markets and, you know, different local markets specialists and some of the vetting that you do, maybe just to talk about that a little bit. And, you know, you guys might have stuff to add to that. What else do you want to say about that? Maybe?
‘Q&A clip’ 16:21
Well, I could I could talk about the process. So we get you know, we find the market so we’re all we all collaborate. Hey, what about this market? What’s this market looking like? There’s new projects coming in Orlando and Memphis. You know, maybe we should look at this neighborhood or see who’s out there. Or we’re getting referrals from someone so we’ll set up you know, phone interviews screen them ask them all their different questions, get them through their property management, you know, see how legit they are? We Google you guys, don’t worry and make sure we check you out. And then we slowly start them will upload their properties on our site, but we won’t give it to the whole public yet because Cuz we want to work through the kinks and make sure things are gonna run smooth and, and some of those that we’ve put up on our site that you don’t see, but we have on the back end, they haven’t worked out, which is good because we didn’t, you know, open it up to everyone. We wanted to see who could handle who could handle the waters out there with them. So those are some of the back end things that we do that you might not know until we might be working with someone for six months. And now they’re just on the podcast, and now they’re new. And you’re thinking, where’d they come from? Well, we’ve been with them and running the numbers and they got to work with us to you know, not just their system has to work, but they got to know how our structure works. And so those that come on board, we have a good good momentum with them and good relationships.
Jason Hartman 17:45
Yep. So what what she’s pointing out is a lot of times, we don’t put them on the podcast right away because we want to kind of test it first. And some client has got to go first. Okay, always right. And they’ve got to buy in there. First, and we’re really judging a lot their communication skills. And you know, are they responsive, if they can’t even some of them can’t even communicate, it’s mind boggling. And then some don’t like to pay us either for the referral, which isn’t a good sign, because usually, they’re not going to be around to handle warranty items, either if they don’t pay, you know, these are all things that we’ve just learned to deal with over and over throughout the years. It’s kind of amazing how they come and they go, and some come back around. And, you know, later like, Dan in Kansas City, you know, he wants to get in again, but he didn’t do it right the first time six years ago, so I don’t know if he’s gonna be back in right.
‘Q&A clip’ 18:42
So that’s not even getting a friend acceptance from me on LinkedIn.
Jason Hartman 18:48
Oh, not Facebook. That’s a connection on LinkedIn. Right? Yeah. Right. A Twitter follower. Yeah. That’s for Twitter. Okay, cool. So Other questions? Yes. Aaron? And who’s got the mic?
‘Q&A clip’ 19:03
Pretty good. What’s the overall philosophy when building a portfolio with having a blend of the appropriate you know, a properties B, C’s and DS, having that right striking the right balance? I have my sort of philosophy about it. I would love to know yours personal actually, all four of you guys. philosophy on that?
Jason Hartman 19:20
Well, first of all, I think it just that’s sort of your decision. If you want all A’s or B’s or C properties, you know,
‘Q&A clip’ 19:27
yeah, well, you know, what I straight up ask, you know, what’s your goal? What do you want to get out of it? Do you want to get the the cash flow, right now, what are you looking to gain? Because, you know, if you go in the in class A, you’re not going to get, you’re going to barely hit that 1% Rv ratio with that cash flow. And then you have your B’s which is kind of a steadier, you’re going to have some cash flow, but not as much appreciation and then C’s, you’re going to have higher maintenance, but then classy, you have higher maintenance, but more cash flow. So you leverage them out and then it’s like you said it’s all up to you, you know, do you want to go I would say if you’re going to go to right now get two B’s and and then you can up it to two A’s and then two C’s and diversify with the classes, but also in markets, you know, make it a follow all around blend of, of what you can expect to you know, if What if you buy those two bees, but you don’t like them, you know, you don’t want to straight up then do 10 bees right away, you want to kind of gradually see
Jason Hartman 20:30
your feet in the water.
‘Q&A clip’ 20:30
Yeah, what’s gonna work for you and in which management company’s gonna, you know, take you to the next step of, Okay, I see you do have bees, I’m gonna go to your A’s or vice versa, right.
Jason Hartman 20:42
And so, in addition to what Kerry is saying, it’s how much involvement Do you want, you know, ROI means return on investment. But we in the venture Alliance mastermind group, we came up with a new one, we also think it means return on involvement. So if you’re willing to be more involved You can probably get a higher return on those seed properties but your it’s going to take more attention than a property’s generally in these are of course generalizations they’re going to be less than that I say a less yeah less involvement. Okay, see properties who might be in the doghouse? There you go over
‘Q&A clip’ 21:18
anything that maybe you don’t know? I don’t it’s ultimately how easy Do you want it and if you if you’re okay with being more involved and focusing 100% of your time on real estate and your ultimate goal is maximum return on investment and you don’t have a full time job, you know, what not, if that’s what your goal is, and that’s what you’re gonna focus on. I mean, you probably want to maybe go into the stuff that’s going to be higher return on on investment, and if you’re someone that has a full time job that you’re like, Listen, I only have a couple of hours a week to maybe look at this you know, I definitely steer you away towards the the B B plus a properties because those are typically speaking you know, generally the ones that will be a little less headache.
‘Q&A clip’ 21:57
Yeah, keep in mind when when you buy properties in Higher rent range, I think the the rents tend to go up accordingly. They they go up a little bit more when you buy,
‘Q&A clip’ 22:06
tenant quality goes up with higher rent you mean right,
‘Q&A clip’ 22:08
the tenant quality, but over time, I think the rents increase faster. Oh, yeah. Okay. And then sometimes, and again, there’s no guarantee it depends on the market, and we don’t have the crystal ball. But sometimes those nicer properties in nicer areas appreciate better over time. So it’s like all over said, or Carrie or one of them said, you know, do you want your cash flow now? Or, you know, do you want a little cash flow now and maybe a better potential for rent in Greece and appreciation later? And I think, I think the ultimate answer is, you know, one, diversify geographically but also in the types of properties that you get. So maybe you start with, you know, get a few solid, a area properties and, you know, then you add from there, depending on your comfort level. Good, good.
Jason Hartman 22:53
Gosh, I had kind of a question based on that, but go ahead and Matthias, who, by the way, he’s going to be on the podcast soon. We recorded live Cuz that was a rant at that point. I think I was ramping that up. Anyway,
‘Q&A clip’ 23:06
I just wanted to mention to everyone about a different kind of leverage that, that has not been spoken about. And that is, you know, I’ve
‘Q&A clip’ 23:15
had a fair number of exchanges with property managers by email and
‘Q&A clip’ 23:23
and lenders. And I think that it’s important to point out there’s an intangible benefit that comes from letting these people know that you’re working with the Jason Hartman investment team and I always copy carry on all the emails that I sent out and, and I think it gets a little bit more attention because they know that someone is watching from the other side. And I think it’s important to know that you, your questions will be answered, they’ll take a little bit more seriously. And if they screw up often enough, they’re not gonna be on their network anymore. So I just wanted to point that out.
Jason Hartman 23:58
Yeah. carries like the Principle. It’s like taking, you know, copying the principle on the email, right? Yeah. Be careful what you say.
‘Q&A clip’ 24:09
So, I’m really new at this. I really don’t know what I’m doing yet. But as wondering how, like, in 15 years after you purchase the property, if you have like a really major
Jason Hartman 24:22
that microphone keeps going in and out. I don’t know what’s wrong,
‘Q&A clip’ 24:26
changing the roof and stuff like that, how that can affect
Jason Hartman 24:29
your overall. So her question because it kept cutting out is if you own the property 15 years, and then you have to replace a roof, right? How can that affect your ROI? Well, obviously negatively, because it’s a cost, right? And it’s a it’s an expensive one, you know, it’s a cap, that’s a capex a capital improvement cost, rather than a maintenance costs. If you patch the roof that’s maintenance. If you replace it, that’s a capital improvement. So that is definitely negative. You know, you can kind of amortize do some charts on this, you know, typical life of various components of the property and budget for those expenses in advance. This is what, you know, homeowners associations, for example are supposed to do is that they have reserve accounts for capital improve large expenses like that. And so they know that in 20 years, you’re gonna have to repave all the streets in the common areas, right? Or you’re gonna have to redo the pool. And so they have reserve accounts, they just accumulate over time for that purpose. Okay, so, yeah, you do have big expenses like that and be prepared for them. If not financially, mentally know that, hey, how old is that roof getting on my house?
‘Q&A clip’ 25:48
Right? That’s, that’s one of the things I love about new construction. They don’t always pencil out very well on paper. The day you buy them, they don’t look like they’re going to cash flow very well. But You have a lot less maintenance. And hopefully by the time you know the house needs a new roof, you may be able to just maybe appreciate it and you could 1031 exchange, you know, you sell it to a homeowner and maybe the homeowner is willing to overpay come in. And you know, they want to be in that school district and they’ll put the new roof on and you can pass that expense to somebody else.
Jason Hartman 26:20
And and the roofs on new homes will you know, a lot of those are pretty sturdy roofing materials. So they last a long time.
‘Q&A clip’ 26:27
So one of the things to bear in mind with that is, remember, I always tell my clients to remember the initial performance sheet, we had allocated roughly five, maybe six 7% towards maintenance. Well, it depends on the age of the process depends on the use of the property, so it really ranges. But sometimes you may go, you know, four or five years without using that full percentage range. But then 10 years comes down the road, you’re like, oh man, I’ve got to spend two $3,000. Now to replace this. Just bear in mind that essentially if you didn’t have to use it during that time, you essentially saved it up and you will use it at one point. So Not to freak out too much. Yeah.
Jason Hartman 27:01
kind of be ready for that stuff. Hey, by the way, I didn’t say this before, but I should have just say your first name and the city you’re from, if you would. So Aaron from Aaron from Irvine. All right. Yeah. That means now you can ask a question, one bank account for all the properties or a separate bank account for each property. Good question. I wonder what Fernando does. And I don’t know the answer, but I do one bank account for all the properties in that entity. So if I own it in my personal name, that’s just, you know, a bank account in my name, right. If it’s in an LLC, and there are several single families in that LLC, one bank account for all those properties. I don’t think that’s that hard. Some people say one bank account per property. I think that’s your I think it’s overkill. Yeah.
‘Q&A clip’ 27:50
unless those Wells Fargo, they’ll do it for you.
Jason Hartman 27:53
Yeah, if you read that article yesterday or the day before, did you hear about Wells Fargo? Oh yeah Ross I think you’re the one that gave me that link originally, Wells Fargo has basically been found guilty of opening up ghost accounts for people and they fired 5300 employees and paid like 180 $4 million fine to the government so that’s Yeah, you might have accounts you don’t even know you have to so you know, it Wells Fargo. But then for the larger properties like the apartments I own and mobile home park, those have one account for that whole property. Okay, but for single family, one account all the properties for me,
‘Q&A clip’ 28:29
what do you do? I do the same thing as he does. Per LLC. Mainly, yeah. And then one catch all, which is for the personal stuff that I started out with?
Jason Hartman 28:40
Yeah. Okay, good. So question back there, Fernando. Did you guys have anything to add to that, by the way,
‘Q&A clip’ 28:47
if you the only thing to add to that is Emily, I know that this is something that Fernando is where does is if you want to have it per state if you have a bunch of different properties in different states for now, if you want to elaborate on that, but essentially if you have a bunch of properties in Georgia or you know, Tennessee, just have them per state?
‘Q&A clip’ 29:06
Is this an LLC question? Because that was actually my question is how do you with many, many properties like that? How do you structure entity management to reduce your risk?
‘Q&A clip’ 29:15
I do it that Oliver said it’s broken out per state. Now that doesn’t mean that that’s the recommendation that depends on who you ask, they’ll give you a different answer. If you ask a lawyer that makes money off of creating LLCs, he’ll tell you to create one per property and one bank account per property. And, you know, you have to be comfortable with what you do. Obviously, you might not want to go on either extreme where you have one big LLC that contains all properties, but honestly, the answer can vary so widely and depending on who you ask that it becomes hilarious at some point. So in my case, it was more organic, you know, as I was building a portfolio and just turns out that I was, you know, buying properties in this state. It made sense To me to have an LLC for that state. When I was working with a particular bank, when I purchased a set of properties for a particular bank, they wanted a single purpose LLC for those properties. And fine, you know, that’s made sense. And it turns out that that’s what I kept. So, you know, it really it’s up to you on what you’re comfortable with it at the end of the day, there’s many different ways of doing it.
Jason Hartman 30:24
Just to speak to that a little bit. Last week, we had our venture Alliance mastermind that’s like my mastermind mastermind group, right. And I’ve talked about on the podcast, so we had our meeting in Seattle last week. And I gave all of the attendees the Garrett Sutton book loopholes of real estate, which is very good. There’s a couple things I disagree with him on that sort of old school thinking a little bit I think, but Garrett has formed some entities for me, I think he’s, he’s great. And his prices are very reasonable too. But just when you start forming all these entities, life gets complicated quickly. Okay, I’m just going to warn you because the problem Come up when you first of all, if you live in the Socialist Republic of California, you’re pretty much screwed. Okay? because what they do is they essentially want you to domesticate every entity you have in their state, even if the property is in a whole nother state, and literally and Fernando, you and I talked about this, if you have a mailing address in the Socialist Republic of California, like I do, they could try to, they could try to make that your tax Nexus just because you have a peel box there. Even if you don’t live there, it’s insane. Like the property is not in California, the person’s not in California, and you literally just have a mail service in California that receives your mail, boom, you might be in that tax Nexus, where they charge you $800 per year per entity, okay? And you know, a lot like Garrett will say, you know, put your entity your LLC in Wyoming. But then the problem is depending on the state where you own the property, you Got it domesticated in that state? Maybe? Maybe not. It’s complicated. Okay. But his book is great, I’d highly recommend it. There are a few things I disagree with him on. One is, you know, like Fernando said he, you know, to anybody selling something is going to tell you form as many policies as you possibly can, right? Because another way that the attorneys make money off stuff is by being a Registered Agent, and you have to pay annual dues for that, and all of that stuff. Also, he says, just one sec, I just want to finish my thoughts on that Garrett book. He’ll say, Don’t buy properties in your IRA. And Tom wheelwright, who’s like another Rich Dad advisor on tech stuff. I don’t think the IRA thing is that great. I think it’s better than stocks for sure. But they’re really kind of like down on it. And I think they overreact to that. It’s not that bad either. Oh, and then you’ll say don’t buy properties, you know, far away from home. And that’s just old school thinking, you know, because the problem is, it requires you number one to learn Live in the best market in which to invest, which probably you don’t, okay? So if you live anywhere in California, it’s not going to be a good place to invest from a cash flow perspective, if you live there, no matter where you live in the state, or if you live in South Florida, or Northeastern markets that are any expensive market is not gonna make any sense from a cash flow perspective. You’re not an investor, you’re speculate. You’re a speculator, you’re a gambler. And then the other thing is, even if you live in the best market in which to invest, say, you all lived in Memphis, okay, or Orlando. And, you know, we think we’re Indianapolis, and those are all great markets to invest, right? But if you do that, and you want to buy all your properties close to home, you’re still not going to be diversified. And you should diversify into at least three markets. So you know, this is like old school thinking back in the day when you didn’t have any tools. When there weren’t companies like ours that help you do this. Yeah, I agree. I would only buy locally. But nowadays, it’s just a different world. You didn’t have before. Google Earth back then. You didn’t have Zillow, you didn’t have us. You know, you didn’t have these different business models and tools that have been created around that. Did you
‘Q&A clip’ 34:09
agree 100%. It always amazes me. Every so often every week or sometimes two. I see companies popping up that do Pease do a piece of the property management or the real estate, the income property, investment, philosophy. And because you have all of these resources that didn’t exist 20 years ago, it’s easier than ever to be able to manage properties from anywhere. I travel all over the world. And there’s there’s no issue whatsoever. As long as you have internet connection. You need that. Yeah, but that’s about it.
Jason Hartman 34:44
See it really the key turning point was when al gore invented the internet. That’s a joke. Some of you did not laugh. Anyway, Al Gore is a joke. Okay. What were you gonna say?
‘Q&A clip’ 35:00
Just about saving some of you some money. It’s a bit of a, I guess, quote unquote hack. I’ve been able to save a lot of my clients money just by doing this. For those of you that have registered agents, just do a quick search in the area, find the cheapest one and then go back to your registered agent and see if they’ll match it price. Yeah, the clients, my clients have saved hundreds of dollars on this every year. So just do that make note.
Jason Hartman 35:22
Just ask them to match the price. Yeah, one firm that I used to use, and they’ve been on the podcast, I do not use them anymore. Definitely not ever again. They were just I was paying out rageous fees for registered agent and entity maintenance where they’ll do your minutes every year and your filings and stuff and it was just such a ripoff. So I moved a lot of that over to Garrett Sutton’s office much, much better deal.
‘Q&A clip’ 35:46
And you should do the same thing with your property insurance or your homeowners insurance, their property management companies. You just shot them against each other.
Jason Hartman 35:56
That’s the way free market capitalism works. It’s a good thing. Tilburg Sanders. Okay, any other questions? Yes, over here.
‘Q&A clip’ 36:04
As a new investor, why would someone use an investment counselor? I don’t I’m not extremely clear on what it is that you actually provide or why it is that I as a new investor would want to use you.
Jason Hartman 36:16
Yeah, good question. So first of all, it doesn’t cost anything. It’s free. We make our money because we get referral fees from the local market specialist in that market. If you were to find the property yourself directly, you’re still going to have all that in there. Okay, you’re still going to have a broker or an agent in there, probably okay, most of the time. But secondly, and this is really what my vision of getting into this business was back in 2004. is when I was when I was selling my company that I talked about earlier. And I went to these financial services firms, I thought, the great thing about the Wall Street stuff as they make it so easy, they will let you just walk in and give them money. And they can put you into a variety of investments. Well, why Couldn’t there be a real estate company? We have the best asset class, but a really in this industry a really bad sales force. Because it’s all local realtors, they don’t think like investors. They’re not area agnostic. They’re totally attached to their one market. And we’re not attached anyone market. We’re area agnostic. So is if you buy in any of our markets, from any of our local market specialists, we’re going to make money. Okay, we’re area agnostic. So any of the markets you buy in, we’re still gonna make money, right? So they’ll be impartial with you in terms of what market you should invest in. When you talk to our local market specialists, they’re going to be motivated to sell you their market only. Okay, so the difference?
‘Q&A clip’ 37:47
Yeah, and, you know, we’re working with several investors at any given time, so we’re getting constant client feedback on property management, lenders, you know, the market specialists You know, who communicates well, who goes the extra mile to repair a refrigerator that was broken 30 days after close versus one that, you know, Fred over here had an experience with.
‘Q&A clip’ 38:14
One of our market specialists that we fired, and this was the straw that broke the camel’s back is Oh, hey, she got the same, right,
Jason Hartman 38:22
the straw that broke the camel’s back.
‘Q&A clip’ 38:26
So, you know, we had, you know, a few complaints over the year and this was on the property management side, and this was one of our Birmingham providers. And, you know, Fred came to me and said, geez, you know, I just closed it had been, I don’t know, 30 days or within 30 days, and there was like, a little hole in his door, maybe the back door. And there was one other thing with the property. What was the other thing? The hot and cold? Yeah, the toilet was producing hot water. And so I I said to Fred well, Those are two really easy fixes. I’m sure we can call this provider and you know, get those fixed. And they didn’t do it. I mean, that’s like the only provider that I’ve ever heard of that I can think of in nine years that would not you know what he said? He said, Well a squirrel probably chewed through the corner of that door. And I just about last night, you know, you know what I was upset, marbles. marbles. I was gonna say something.
Jason Hartman 39:30
I don’t know if everybody knows the inside joke. So I was tea Sarah cuz she always gets the saying a little bit different than, you know.
‘Q&A clip’ 39:38
Things are better.
Jason Hartman 39:39
Yeah. shoot yourself in the foot or shoot yourself in the shoe.
‘Q&A clip’ 39:44
In the summertime, shoot yourself in the sandal. Okay, so anyways, we did go to bat for Fred. And we were not successful. And so we stopped working with that provider, although we removed the properties from our website,
Jason Hartman 39:59
and we got in a big hurry. with him,
‘Q&A clip’ 40:00
he got in a big argument with them and on boxer and I think you were on that thread. Yeah, it was. I mean, it was just it was kind of embarrassing. You know, I felt that you should play
Jason Hartman 40:10
the boxer thread on the podcast. Another lawsuit? Oh, great. So what I need,
‘Q&A clip’ 40:17
and that doesn’t mean that Fred has a property that’s not going to perform, you know, he may switch to another property manager. And in fact, he did. And, you know, we helped him we gave him some contacts in the marketplace. And so sometimes you fire the local market specialist, or you fire a property manager
Jason Hartman 40:33
and occasionally fire the client.
‘Q&A clip’ 40:35
We have fire clients.
‘Q&A clip’ 40:38
You might be looking at a property all this is going on, and you might have been looking at those properties. So that provider in fact, we did have clients that were you know, inquiring, and you you may have already, maybe we took them off the website and you didn’t notice but maybe you were already communicating with them, or maybe you purchased two years ago and you went back to them directly to buy another one, which this just happened with that provider and you happen to call them Say, Hey, can I just want to get an extra set of eyes and ears on, you know, how is this provider doing? And I might say, Wait, you know, this is what’s going on, maybe you should look at another market or another seller in that market. So that’s we leave provide value as a network, I think I mean, you help us as much as we help you guys because we’re getting that feedback. And we can make decisions based upon your valuable feedback.
Jason Hartman 41:25
And hopefully, we can exert, exert some real leverage over them. And that’s what Messiah was mentioning earlier. You know, we hopefully that local market specialist views it as Look, there’s a carrot out here, and there’s a lot of business coming. So I really care about this relationship. Okay, some of our local market specialists, they’re probably making a million dollars or more a year off of our referrals. Well, they definitely are making over a million bucks a year. And so they’re not going to screw that up. I mean, they’re just, they’d be crazy to mess that up. Right. versus doing a one off deal. That’s why when I tried to do this myself back in 2004 I had no leverage. I couldn’t get anybody to do anything even returning a phone call seemed like a chore sometimes, right? Because I go to this mark, and I’m like, hey, I want to buy two houses, or like, I don’t care.
‘Q&A clip’ 42:11
Just, Lindsay, just to elaborate on that we’re ultimately here to really help you help all of you, the investors. And really without you guys, this would really be happening. The other thing too, is there are other companies out there that will charge 510 50 I’ve also even seen up to $100,000 to coach you for maybe six months or a year on how to do exactly what we’re doing. And then when they find out about us, we’re like, what you guys actually helped me and for free, yeah, free. Like, yes, there Josh sort of drop and, you know, they’re very happy because now they can use that money to buy more properties.
Jason Hartman 42:45
Yeah. Education nowadays is almost free. Okay. Someone had asked about coming to one of our events and, you know, said, Well, why do I have to pay to come to your event, what you’re paying to come to our events. It’s like nothing We lose money on these events, okay? Where we make the money is because we’re a real estate company, right? That’s just a huge difference because we’re tied to the actual property, right? In the sense that what we say at the seminar has to come true in real life. Well, you know, at least has to come true at the time you buy, right? admittedly things have bumps in the road, or you’re not gonna buy properties and we’re not gonna stay in business. And that’s, that’s the key distinction. I have had so many people and you remember that, like many of these over the years, that have come, they’ve been in one of our seminars and, you know, buy lunch, they they walk up and they say, you know, I just spent $43,000 on this guy’s guru coaching program, and I just finished it and I felt like I got nothing. I learned more before lunch from you for free, or for cheap, you know, 200 bucks, or whatever it was, you know, it’s just you just don’t have to pay a lot for education. Use your money to buy actual properties, you know, for 40 years. thousand dollars, you can buy two properties. And you
‘Q&A clip’ 44:02
should thank Jason for charging for his events because otherwise anybody could come and all those people that are next door selling juices. they’d all be here.
Jason Hartman 44:12
Armando montelongo people would be here. Yeah.
‘Q&A clip’ 44:16
Yeah. So.
Jason Hartman 44:17
Okay, any other questions? Maybe one more. Okay. Or two more. We got two more and then we’ll wrap this up this panel
‘Q&A clip’ 44:25
from Carrie from Irvine. So I’m just curious between among Sara, Carrie and Oliver, what is the difference between working with any of you? Do you specialize in specific type of markets? Are you a specialist? Or do you specialize in certain types of
‘Q&A clip’ 44:43
investors?
‘Q&A clip’ 44:44
Where are your areas of expertise and,
‘Q&A clip’ 44:47
you know, who is the best person to go to?
Jason Hartman 44:50
That’s a tough one. That’s a tough one. Okay. And and Fernando, by the way, do you have to include him in that? I mean, I can answer that one. They all Do all the markets, there’s not enough markets that you need to specialize. Our specialist is the local market specialist at the back of the room, right in that various in those various markets. And we have many more of them besides the the few that are here. But they all handle all of the markets, okay. And they all handle a variety of different types of clients in different situations. So it would be sort of impossible to say you only work with certain type of client and you work with another type and you work with another type, because the clients grow and change over the years. So,
‘Q&A clip’ 45:34
yeah, and the way it works, I mean, to be honest, you guys go on a round robin through our system when you put your name and number in and it just gets automatically assigned. But the one thing you should know is that we all bring something different to the table, and we collaborate. I mean, we do a team call every single month. We do our venture Alliance meetings. We had a team meeting yesterday. You know, so if you ever need access to a Anybody, I mean, we all work together. So, all the way up to Jason I mean, on that issue, usually I can handle property management issues on my own. But on that issue, I was just so upset for the client that I mean, you can ask for it at the break. I got Luke Jason and and I did what he asked me to do, I started a boxer thread, and got everybody involved. And so in our Birmingham guy hates Fox.
Jason Hartman 46:24
He says, I don’t want to talk on here because guess what it’s recorded. And everybody can hear it. I love it. He always wanted to just talk to me, you know, like, I’m gonna fall into the conspiracy of let’s just make money. You know, I you know, I want a business that last right you know, so,
‘Q&A clip’ 46:41
but I mean, if there’s a there’s a question that I can’t answer all of our can answer. And we know Jason has the answer. We’ll go get the answer for you and refer you to the to the right person.
Jason Hartman 46:50
But a lot of times you guys have the answer. You teach us a lot of stuff. And part of our job is to assimilate the knowledge we learn from you that you know, when you have a question problem in a certain market with a certain provider, they’re all talking about this on our voxer thread every day, you know, Carrie will say, Oh, you know, guess what I’m having a problem with so and so they’re not returning our call. And by the way, on our last deal, they didn’t pay us yet either. And then we start to get worried about, you know, their financial condition and so forth. And so yeah, this stuff is officers
‘Q&A clip’ 47:20
really helped actually, you know, all say, hey, Sarah, who did you use in this market for an IRA or Hey, Oliver, how did it work out with your client in that situation? You know, because I’m kind of going through the same thing. So we we work together, and it’s really nice, because I think she left the building here, but yeah, and why to use an investment counselor? Well, because we’re working there to support you guys. I mean, we’re supporting each other. But we’re supporting you guys. And and there’s things that we can help you with that you wouldn’t know. You can’t Google that situation. You know, we’ve gone through it or someone’s gone through it up here already, so we know where we can help guide you to the right steps to take stuff. Okay, we have one more question.
‘Q&A clip’ 48:02
Joe from Idaho. Idaho is not a city. Well, you just won’t know. 500 people that live
Jason Hartman 48:11
you don’t really I know by the way, Joe from Idaho Canadian say that. I’ll meet him at conferences where you from Canada? Oh, really? There’s a banner? That narrows it down. And
‘Q&A clip’ 48:23
I it’s really that a lot of people in America have no idea where the majority of the cities they
Jason Hartman 48:28
don’t know the difference between Vancouver and Toronto.
‘Q&A clip’ 48:30
They have no idea. I’m not kidding. I mean, how many how many people here can tell me their capital Canada? Ottawa, lift your hand? Alright, 780 of
Jason Hartman 48:42
us here. Okay, Americans aren’t that smart.
‘Q&A clip’ 48:45
Damn Canadian snob. So So when we say Canada like okay, cool Canada. That means you’re probably friendly. Say I live in a poll or something.
Jason Hartman 48:55
What do people buy from us they buy that they live in houses now. Who says
‘Q&A clip’ 49:01
that’s maybe a Jason Hartman thing?
Jason Hartman 49:04
A boot house whose Canadian girlfriend she called it? I remember one time we’re eating dinner. And she says, Pastor I never heard anybody say that before. It’s pasta Sherry. Anyway, yeah.
‘Q&A clip’ 49:20
Okay, Joe from Idaho.
Jason Hartman 49:24
Do you like it? Do you like pasto or just Idaho potatoes?
‘Q&A clip’ 49:31
So I just being new, I just could you maybe walk us through the steps of how to utilize you guys the best and what that process would entail to, you know, pull the trigger and buy that first property there. Sure. I’ll go ahead and tackle that one. Essentially, we’ll have our intro call. Start out, see where you’re at financially, what your goals are, what your expectations are, and from there, we will then identify other a certain market. But alongside of that tangent to that, I want you to use you to one of our preferred lenders get your pre qualified and then move forward from that point. See what that range is that you qualify for, you know, if it’s usually 80 to 130 or so that’s where the majority of the houses tend to fall and, and almost everybody qualifies these days for for that. So, you know from that point we’ll then identify that home and then put you under contract. And then usually expectation is 30 to 45 days. From there, we’ll close you’ll get a fully rehabbed house and fingers crossed, majority of time, it’ll be tentative by the time that we close or if not shortly thereafter. And we sort of help you along the whole process. That’s essentially like a six step breakdown, but there’s a lot that happens during all of those different steps. And then repeat that over and over and over again. Anybody else on that one?
Jason Hartman 50:50
We’ll wrap it up. Okay. Thank you all give them a big hand.
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This episode of the Creating Wealth podcast is about a case study with client Vernon Grant. Jason Hartman gives investment guidance on how to handle Vernon’s parents’ properties. Jason looks into both properties, their rent-to-value-ratio (RTV), and their existing debt structures. Jason also talks about the New York market, depreciation offsets, refi-til-ya-die option, and renting.Â
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
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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 1:03
Welcome to the creating wealth show, episode number 809 809. This is Jason Hartman, thank you so much for joining me today as we do a another case study. Yes, we have one of our clients on with us today. And we love it when our clients come on the show and share their experience, the good, the bad, and the ugly, ask questions and get them answered. So if you would like to be on the show, just reach out to us and let us know. If you’re working with one of our investment counselors. Now you can just reach out through them. Or you can just reach out through Jason hartman.com. And we’d love to put you on the show and answer your questions, hear your experience, etc. Of course, you can always reach me on voxer as well. My voxer name is Jay Hart 88 Jay Hart 88. If you just have a quick question there, which we may play on the show, we don’t always play those on the show, but sometimes we do sometimes they’re a little hard to organize and Too many of them come in, and I can’t keep track of them all. But I went when applicable, I tried, I gotta get back on that and start playing those on the show. Anyway, yeah, let’s get to our guest today and do this little client case study. I hope you enjoy it. And one of the things I want to remind you of, and we, we talked about it here on this interview with our client, is that the ideal thing in terms of properties where you don’t have good rent to value ratios, the ideal thing, if they’re really far off is always to sell them, do a 1031 exchange if necessary. So you have tax deferral, and then buy less expensive properties with better rental value ratios. That would be the first choice. The second choice is to refinance them, because at least if you refinance them, you get control of that equity. you’ve engaged in the practice that I call equity stripping, which is a very good practice. So that your equity is no longer lazy money, it’s not tied up in the property, you can use it, you can do some good with it, and you actually lower your risk. I know this is counterintuitive for many people, and we’ve talked about it many times on the past 808 episodes. Just keep that in mind, selling, doing if necessary at 1031 tax deferred exchange, which by the way, a word of caution here and remember that I am not a tax advisor. I’m not a lawyer, always seek competent and it’s not easy to find competent, by the way, always advice when it comes to this stuff because taxes and legal questions are particularly complicated. And one of the things that people are sometimes surprised by is that they can have a property that they are selling for the same price they bought it but they’ve taken a big tax write off for many years, and that tax write off is the the best tax benefit because Income property is the most tax favored asset class in America. And that is called depreciation. It’s a non cash write off, it’s a phantom write off. It’s a wonderful, wonderful tax benefit. But remember, if you’ve taken that tax benefit for the last five years, and you sell the property for the same price you bought it for, then hey, you gotta pay that back. And that’s called depreciation recapture. So even if you’re, if you think from a very elementary understanding that you’re just breaking even, you’re really not, you’re really making money. And this is the thing with real estate investing because it’s this wonderful multi dimensional asset class, income property, the most historically proven asset class in the world, a multi dimensional asset class where we’re where we earn our profits, we earn our returns from many dimensions. With that in mind, a lot of people, they just, they’re making money, they’re winning the game. And sometimes they think they’re losing, because they don’t know how to keep score. And that’s what we teach you to do is keep score on the show key and know how to keep score. And of course, go to real estate tools.com for some excellent tools that can help you keep score, and help you be a better investor, go to Jason hartman.com. Listen to or really watch that free 27 minute video that we’ve got on how to analyze a real estate investment, that can be very, very helpful in learning how to keep score. And so part of keeping score is knowing that you’ve received this tax benefit for in that example, I just mentioned the last five years. And if you sell the property for the same price you bought it for, hey, you’re gonna have some depreciation recapture potentially right? And so you still might want to do a 10th 31 tax deferred exchange. So that is something very important to keep in mind. Okay, so in either case, we let’s get to our guest interview today. And if you’re out there, you’re one of our clients, we’d love to have you on the show as well just reach out to your investment counselor, or contact us through Jason hartman.com. Or contact me through voxer at Jay Hart 88. And we’d always love to have you on the show. Anyway, here we go with our client case study.
Hey, it’s my pleasure to welcome one of our clients back to the show. Well, first time for this one, but we’ve had many clients on the show over the years. And we always like to share these talks with you as sort of case studies and also have them ask some questions and so forth. And all of those questions apply to many of you listeners as well because many people have the same questions and are thinking along the same Lions about stuff. And I just want to welcome Vernon grant. Vernon How are you?
Vernon Grant 7:05
I’m well thanks and yourself.
Jason Hartman 7:07
Good. Good to have you on the show and you’re coming to us from New York City area. And it’s great to have you and you have really been helping your your parents out with their real estate investing it sounds like and, and doing some of your own. Give us a little background if you would, yes, well, I’m an engineer by trade, but
Vernon Grant 7:29
I went into business for myself in 2001. And I’ve been continuing that until today. And now I have a little bit more time that I can help my parents out with their investing that they started in the 90s I would say and I like a lot of your ideas and I would like to put what they have to good use to because what they have already is growing But I think you can do a lot better based on
Jason Hartman 8:04
your stuff. Yeah. Well, that’s that’s a great topic. When did you discover my podcast?
Vernon Grant 8:09
Actually, I was listening to Ryan Moran’s podcast.
Vernon Grant 8:16
Freedom Fastlane I’m not sure if you remember it.
Jason Hartman 8:18
Yeah. I’ve been on a few of Ryan’s shows. So yeah,
Vernon Grant 8:21
yes. And so it was quite a while ago that I heard about your podcast, but I just was so busy. I didn’t have the time to listen. And within the last, I would say two months I have been so many episodes of it’s so great. You have so much good knowledge. You know, so many people, they will pick and choose information that they wish to share. But it’s not the big picture and you give such a clear, big picture. You tie in so many things to the market. And what if and what if and What you should do in those situations? And you’re you’re quite conservative with how you invest. And so I mean, it just makes so much sense.
Jason Hartman 9:12
Well, I appreciate it. Vernon Thank you. And I’m glad you like the show. So you’ve you’ve been bingeing on the episodes. Any idea how many episodes you listen to?
Vernon Grant 9:21
Oh, man, at least a couple hundred.
Jason Hartman 9:25
Yeah, good, good stuff. Well, I hope you don’t get sick of me anytime soon. But you’re probably sick of me already. And you went to college for computer and electrical engineering. And then, and you were also in the Marine Corps for eight years as well.
Vernon Grant 9:41
Yeah. Yeah.
Jason Hartman 9:43
So and then you said you started your own business. So in 2001, what kind of business is that?
Vernon Grant 9:49
Well, it was a automotive accessories. So you know, people hooking up their cars to go faster and look different and all of that stuff and I was really into that scene, I still love cars. However, I wanted to try to shift gears because you know, as the economy changed, things changed with the industry, and although I love cars, it’s just not that great have a business and more. And, and you know, we’ve made a lot of money and in the crisis, we’ve lost money. And so again, you know, with your strategies, even in those different markets, I could have been making money. So I don’t want to lose any more, so to speak,
Jason Hartman 10:39
let’s not miss any more opportunities if we can help it. So your father was a property manager. In fact, he was managing director of a property management company in the 80s and 90s. So you’ve got that background in real estate in that interest. It sounds like
Vernon Grant 10:54
yeah, I mean, I’ve been around it so much. You know, there have been times where He had to go back to Manhattan at like 3am because some commercial property that he’s met in managing some crisis happens. And so I’ve been in it and even his father was a realtor as well. So I like it. I just hadn’t had time to wrap my myself around it and and digest all the information because there’s a lot of information, but thank goodness in this day and age, you know, it’s so readily available.
Jason Hartman 11:33
Yeah, good, good stuff. Mo sounds great. Well, tell me about some of the questions you have. And you know, what, what you’re thinking of doing and let’s outline some strategy here because you’ve got a couple of different moving parts, and I think we could, you know, align those really well
Vernon Grant 11:50
for you. Okay, so, we’ve already identified a few properties that we’re getting but my main question is My parents have a particular house that they want to retire in. And when they bought it in 96 it was they purchased it at approximately $195,000. And now it’s worth about 424,000. So they’ve got quite a bit of equity in there. And
Vernon Grant 12:24
I’m not sure which
Vernon Grant 12:27
direction will benefit us best keeping in mind that you know, they still want somewhere to go to vacation and have fun and or live for several months out of the year. So I want to take that equity out and do something with it or do a 1031 exchange, but I need your advice as to which one might be best.
Jason Hartman 12:51
Okay, so the $424,000 property I believe that’s in the Tampa Florida area. Is that correct? Yes. Okay, and we Your parents are living in that area. Are they living in New York or kind of both or what?
Vernon Grant 13:05
They’re still living in New York? Okay.
Jason Hartman 13:07
So they live in New York and they want to retire in the potentially in the Tampa property. Right?
Vernon Grant 13:13
Correct. Okay, good.
Jason Hartman 13:15
So do they own a home in New York?
Vernon Grant 13:17
Yes, they do. And how much
Jason Hartman 13:18
is that worth?
Vernon Grant 13:20
That is about the same. About the same
Jason Hartman 13:25
125,000. Same price. Exactly. Okay. And what what’s their target date for retirement?
Vernon Grant 13:34
Maybe
Vernon Grant 13:36
my mom will definitely retire within the next year. So they want to move not maybe right away, I would say within the next four or so four or five years.
Jason Hartman 13:48
So is the property in Tampa rented out now? Yes, it is. Okay, and how much rent are they getting? Well, I actually I can tell you, okay, without without knowing. I’m gonna go Guess that they’re getting somewhere in the ballpark of maybe 20 $100 a month. Wow, that’s really really good is 20 222 you know, I was gonna say 2200 and I just didn’t want to be too aggressive but you know, they paid 195 for it so they’re basically getting about a point five rent to value ratio. And Vernon Isn’t it amazing? You know, I have tried this little parlor trick all over the world. And it doesn’t matter what city what language what currency. You know, it can be Paris, France, it can be Hong Kong. It can be you know, Tokyo, it doesn’t matter where it is. It could be LA, you know, it can be Tampa, Florida, or Miami or anywhere Boston, it doesn’t matter numbers and numbers, right? The the ratios are always about the same. It’s incredible. You know, if you’ve got a property that’s worth 420 For thousand dollars, you can convert that any into any currency on earth. And that rent to value ratio not not withstanding, you know, rent control or communism or you know, something like that, right. But if it’s in the free market, it’ll generally be just about the same ratio. So it’s, it’s truly amazing to me, it really is. I remember I was in Belize once looking at properties down there. And this has nothing to do with those properties because I wasn’t interested in them. But I was talking to a wealthy insurance guy, about his business and so forth. And he, I talked about this on a former episode, and I don’t even remember where he moved from now. But, you know, he, he and his family had moved, and they were renting a place in I think, Miami if I’m not mistaken. And they said it was worth I think they said it was worth 1.3 million. And I said, Oh, so you’re paying about 4000 in rent, and he said, How do you know and I you know, I just know Amazing how well that works. So listeners that let that be less than that it’s all about ratios. And those ratios hold hold true. And in every language, every currency, every geography, it doesn’t matter where so it’s really amazing. Okay, so they’re getting 2200 for their, their Tampa property, and it’s worth 400 and let’s just call it 425,000. And they’re renting it now. So is do they have some attachment to that property? You know, like, when did they buy it at night? 96 I guess did they ever live there? Or was did they just turn it into a rental and say, Hey, you know, in 20 years we’ll retire here was that they’re thinking or
Vernon Grant 16:41
that’s exactly what it was in 20 years. We’ll retire here. Okay.
Jason Hartman 16:45
All right. So, I mean, from a pure numbers perspective, I would definitely be selling that property. And you know, when they retire, they can buy another property and that retirement thing is is a moving target, you know, they might not retire on the timeframe, they’re thinking they might find a better property, they might pick a different area, you know, I don’t know, I mean, all of this stuff is such a moving target. And there’s so many opportunities and the world is changing so quickly nowadays that, you know, from a purely investment standpoint, that property definitely does not make sense, right? Because, as you well know, I would like to see them get 1% per month. So again, for 425,000 invested capital, I’d like them to get, you know, $4,250 per month, not 2200 per month. That’s just a pure numbers angle. It doesn’t include psychology. It doesn’t include sentimentality and emotions and various things like that. Of course, you can’t quantify those things very well. But then the other thing they’ve got to think about is the property in New York. Of course, when I probably wouldn’t do anything without because it would be too upsetting to their life, you know, unless they want to move and they don’t like it if they if they want to move, then I would sell that one and, and pay 20 $200 to somebody else to have the equivalent home, you know and live in New York until they retire. There’s also a question of kind of timing the real estate market because that New York market is such a frothy, cyclical market. Right. And it’s, as I always say, it’s very difficult Vernon to time any market. I would certainly say it’s, you know, it’s on the verge of being overvalued. Okay. But again, who knows, you know, that could that could, you know, if if the Trump economy really does boom, and the money loosens up, I mean, that that frothy market could go on for years more. I’m just saying that today. From a fundamentals perspective, it’s out of whack and we all we all know that Okay, did you have a deeper question here, like,
Vernon Grant 19:04
so they are also old school mentality. So it takes a bit of convincing to to let them know that, you know, it’s not about we get the property and you pay and you pay till you pay it off. Which is what they still, you know, especially my mom, she has that that mentality. She’s a nurse, by the way. So you know, she’s, she’s been working at the same job for like 40 plus years, and that they just want to pay it off. So if I introduced to them an idea that they’re going to have to pay for where they live again, it has to be, I have to offer them something more than Hey, you you have to pay your monthly mortgage on this place on this new place. So whatever it is
Jason Hartman 19:57
yet the hardest thing in life Especially for old school, people that are thinking like old school way, which, by the way, they’re not wrong. They’re just out of sequence with the time’s right? Their plan worked great. when it all started to not work was post 1971. When we went off the gold standard, then the game really changed because the lending standards changed. Money got easier and inflation reared its ugly head, and the game just totally changed. That was really the the inflection point when it all happened. The hard part, as you’ve heard me talk about on the show, Vernon, to get people to understand in any area of life, not just investing is that you can’t hear the dogs that don’t bark. They never look at what what might have happened, or what didn’t happen because they did or didn’t take another path. They only see what they did. They didn’t see what they didn’t do or what they could have done. That’s hard for the human mind to think that way. And it’s it’s that old thing. You can’t hear the dogs that don’t bark.
Vernon Grant 21:11
I’ve heard a quote sorry to cut you. I’ve heard a quote that that reflects that same thought that you can’t see past the choices you don’t make.
Jason Hartman 21:21
Oh, that’s a good quote. Who said that one? I like that.
Vernon Grant 21:24
Yeah. Oh, remember?
Jason Hartman 21:26
I like that. Let’s let’s find that I got I’m gonna I’m gonna search that. That’s a good quote. You can’t see past the choices you don’t make. Mm hmm. Oh, really? Good. Thank you for sharing that one. I like that one. I almost like that one better. It’s it’s more understandable than you can’t hear the dogs that don’t bark. But anyway, yeah, you can’t see past the choices you don’t make. So it begs the question, what choices are your parents or many other there are 10s of millions of people in this very similar situation right? When choices aren’t they making? Well, they’re choosing not to sell $850,000 worth of two properties and do 1031 exchanges where they could buy eight single family detached homes and diversified markets. That would net them around. While not net I want to say it’s really gross, but it’s net. Also, I’m kind of thinking of it differently than myopically people would think of it from accounting perspective, but it would just get them 800 or $8,000 per month in income, right. And then they could turn around and rent the place they live in and pay 2200 for that one. Right? Because in New York, or or Florida, it’s the same deal. You know, it doesn’t matter. Right, right. Right. They could rent that equivalent property. They’re living in now for about 2200 a month in New York. And then when they moved to Tampa, they could also do the same thing. But most people’s minds say, Well, hey, if I’m renting, I’m throwing money away. That’s how everybody thinks of it. Now, I used to think of it too, but when they the choice they didn’t make is they chose not to get $8,000 a month for that same value of real estate.
Vernon Grant 23:14
Right? I mean, it’s, it’s also the tools that they have for you, you can’t really understand a thing if you don’t have the tools to understand it with, right.
Jason Hartman 23:27
Yeah, you know, what that reminds me of? It’s, it’s kind of like the concept of vocabulary. Now, we’re going on a little tangent here, but when you know certain languages have, you know, fewer words from which to choose. So it literally limits the populations ability to think and, you know, on educated people or children, for example, you know, they have a smaller vocabulary, right? So they that that’s their vocabulary is literally the A tool with which you can think. And if you have a big vocabulary, you can think more thoughts. You literally can’t think a thought that you can’t express usually. Right? And so if there’s not a word for it, then, you know, it’s very hard to think about it. Right? So,
Vernon Grant 24:17
yeah, yeah. How do you express it? That’s why we come up with labels for things and containers to put things in, classify things. So we can understand. Yep,
Jason Hartman 24:27
yep, no question about it. And, you know, props to the English language that most widely spoken language on Earth. It’s also the largest language with about six 700,000 words, I believe, where if you look at like French, Spanish, Italian, I think they’ve all got around 150,000 words. So a lot fewer tools. And the reason English is that way, is you know, not because English is so great or anything, it’s just a language that happens to adopt and sort of suck up a lot of words from a lot of other languages. You know, we have also sorts of foreign words woven into the English language, right? And I guess other languages don’t do that as much as English does. So it’s just kind of interesting. Tangent alert. Alert here. Yeah. But okay, so the other thing they could do, if they don’t want to sell those properties, because I know that, you know that, that mindset that you know, your parents have, my mother has that same mindset is, when you sell something, it’s like you lost it, right? You You gave it up, right? And that mindset is very hard to, to, you know, kind of argue with, right. So the other thing they could do is they could do refi till you die, right. And that is another option because at least they could get that equity out and make it work for them. Do you know what kind of debt they have on the properties if any, or has they paid them off or
Vernon Grant 25:55
I’m not sure about the Florida property. I I know that still paying for it, but very minimal amount. And I know the one in New York, I did recently convinced them to refinance it. So refi cash out. So that’s how we’re getting those extra few properties that I was just mentioning to you. And I’ll be at the Memphis store by the way.
Jason Hartman 26:21
Oh, good. Hey, I look forward to seeing you at the Memphis property tour with that. Boy, I’ll be at Memphis in six days, I haven’t even it’s right around the corner. So we look forward to seeing you there. And by the time people listen to this, that will have probably already happened.
Vernon Grant 26:37
So we’re going to buy about three properties with that with the equity.
Jason Hartman 26:43
Okay, how much are you pulling out to buy the three properties?
Vernon Grant 26:46
Ah, I think so far total it came out to about 68,000 that we have to put down
Jason Hartman 26:56
that’s not bad. Not so basically for 68 thousand dollars, you can buy three properties, you’ll gain or they are you or, you know, both of your guests gain diversification because you’ll be in a totally different market, right, which will be good. And those three properties should produce somewhere in the neighborhood of, you know, 2700 to $3,000 per month in income, right?
Vernon Grant 27:20
Yeah. Okay, good cash flow, actually,
Jason Hartman 27:22
yeah, fantastic. And once once your parents see, you know, sometimes you got to do it to really internalize it or understand it, you know, in your inner gut. Once they see that, and they actually do that deal. And they see that look, here, we’re getting $1,000 per month for each of these properties, for example, and I’m just pulling out around number I don’t know the exact properties you’re looking at, then, you know, they’ll think well, these three properties with only $68,000 down, we generated a gross of $3,000 per month. They’re gonna be thinking, Well, here, we’ve got $425,000 in this property in Tampa, and all we get is 2200 a month.
Vernon Grant 28:08
And it’s only breakeven sometimes.
Jason Hartman 28:11
So that will probably go a long way in getting them to see the light, if you will, you know, and I know it’s it’s hard, you know, I mean, I take my own mother’s example, the countless conversations, had, you know, slash arguments that I’ve had with her about this stuff. You know, it’s funny. This is the funny thing. Another funny thing about the way the human mind works, and I don’t know why it’s this way, it just is. But we will trust a stranger, a total stranger, more than we will trust our own friends and family, the people we know well, and I don’t know why that is, you know, there’s an old saying familiarity breeds contempt. And even if we love these people, or you know like them really well There’s a familiarity, we just don’t respect that as much as we respect someone, you know, at a
Vernon Grant 29:06
distance, it happens all the time, even like, let’s say, my dad, if he’s having some medical issues like with eating and stuff like that, because I’ve taught myself so much about health and so on. I tell him, okay, this is what you should eat. And this is why you’re having this problem because you’re doing this and he is not listening to me at all. And then one day, he goes to the doctor, the doctor tells him, that’s when he changes. I said to him, what is it because I don’t have a PhD or an MD, and that’s why you don’t listen to me. Come on. I’ve been telling you this for years.
Jason Hartman 29:45
Yeah, no, you’re right. But even if you did have a PhD and an MD, you still would be family and he would not listen to you. That’s so true. It’s just it’s just the way I don’t know why that is. It’s just there’s all kinds of these funny quirks about the way the human mind works, but it just is just an odd, odd thing the way it works. So I think with your folks that that refi plan is really going to help when they see those three properties performing. Now, are those going to be all three in Memphis? Or are those? Have you purchased those properties yet? Or don’t tell me about that
Vernon Grant 30:20
we’re under contract. So we’re just getting our approval stuff. We’re already pre approved, and we just need all the paperwork and so they can run by the underwriters.
Jason Hartman 30:30
Okay, good stuff, and where are those properties?
Vernon Grant 30:33
Those are all in Memphis. Okay.
Jason Hartman 30:35
So after you do those three in Memphis, if they’re, you know, if they decide to sell one of the two properties, and by the way, I didn’t ask you Do they own any other properties? Yes, they do. They own a couple pieces of land. And one other property but that property,
Vernon Grant 30:55
you know, they lost some money on it. So they’re just, it’s rented and the prices re appreciating again. So we’re just waiting it out.
Jason Hartman 31:04
Tell us a little bit about that one.
Vernon Grant 31:06
That one is actually also in,
Vernon Grant 31:10
in South Florida that is near Tampa.
Vernon Grant 31:16
And I forgot exactly
Jason Hartman 31:18
how much is it worth? Do you know that the metrics on it, what it’s worth and what it rents for,
Vernon Grant 31:22
not what it rents for, but I do know they purchased it at 105. And the current value is 89.
Jason Hartman 31:31
Okay, so it’s gone down in value, and that one is probably got a pretty good rent to value ratio. So oddly, that one that they lost the money on is probably the one that they maybe most likely should keep. However, I have a feeling and I don’t know this but I have a feeling that that’s a condo isn’t it?
Vernon Grant 31:52
It absolutely is.
Jason Hartman 31:55
And I don’t like condos unless they’re very good deals. I just don’t like condos. And there have been a lot of condo problems in various areas around the country. And, and look listeners, I don’t want you to hear me say that I’ll never do a condo, I will do a condo. It’s just got to be a much better deal. Okay, there’s got to be something to offset the fact that it’s a condo. Okay. I just, I just don’t like condos, they have a whole new set of potential problems with them. Okay, so that one, you know, that probably rents for around 900,000 a month? I
Vernon Grant 32:28
bet right? Yeah, I’m thinking it because I remember seeing the numbers. It was like anywhere from eight to nine.
Jason Hartman 32:34
Yeah, so so that’s, that’s fine in terms of rent to value ratio. Now, the one thing we didn’t explore on any of these properties, by the way, is the debt structure on them, you know, what is the is they say the capital stack, right? You know, if you have a high interest rate loan on one, or an adjustable rate loan on one, and you know, maybe you have a low interest rate on another, these things could also influence your thinking. on selling or refinancing or, you know, when you refinance, if you’ve got a very low interest rate first loan on the property, occasionally, it’ll make sense to put a second loan on it, sometimes not. So there are there are numerous factors here, right? We, you know, I just want to make sure everybody knows that. Maybe the age of the property, the location, you know, properties. Some areas in Florida, for example, have really high insurance cost properties in New York have really high property taxes, right. So, you know, there are multiple things to think about. And in New York, you might be in a rent controlled area, and that’s really bad as an owner, but it could be really good as a tenant. So there are all kinds of other dimensions, but what were you going to say?
Vernon Grant 33:48
I was gonna ask what so I am assuming that the advice would be the most optimal thing would be a 1031 exchange, correct?
Jason Hartman 33:58
Oh, yeah. The 1031 exchange Is is the way to go for sure. Because it allows you to basically trade properties all your life and defer defer defer the gain. And, you know, listeners also need to be very mindful. I was looking at one of my properties I’ve been over the past several years, I’ve been reworking my portfolio and selling some properties and trading them for others. And so I’ve got this one property in an old market. We used to do Mobile, Alabama, and it’s been very good to me, I bought it when there was something called the go zone going on. And you hear me talk about that on the old episodes. Yeah. And that was a tremendous tax benefit. Like so many government policies that eventually turned into a mess because the you know, so many investors got attracted there that the properties became overvalued and we stopped recommending it but our, our clients who got into the zone early enough, did very well and including me, you know, this particular property is only worth about the same as well. I purchased it for, but because I had such tremendous goes on tax benefits, I would I would potentially sell it and break even. But I would really need to do a 1031 tax deferred exchange on that property because, and I asked my accountant, I said, Hey, dude, what’s my depreciation recapture on this property? And guess what he said. So then by the way, this property’s worth about $170,000 give or take. But if I sold that outright, and just broke even on paper, by the time the tax consequences came up, I would get at $98,000 in depreciation recapture on which I would have to pay taxes. Wow. So, you know, in a way you can get kind of trapped into this real estate game, which isn’t all bad. Okay. It’s actually quite good. But you’ve got to really think of it and, you know, people make mistakes sometimes and they’ll sell a property thinking, Hey, you know, I’m just breaking even or I’m making 20 grand, it’s no big deal, I’ll just pay the tax on the 20 grand. No, you’ve already taken a bunch of tax benefits over the years here that you got as a deduction. And now, if you don’t do a 1031 exchange, you got to recapture those and pay them. Okay. So things aren’t always as simple as they look. So be careful. Always consult a tax advisor, and make sure you have one that knows about real estate.
Vernon Grant 36:34
Yeah, certainly.
Jason Hartman 36:36
Very, very important. So any other thoughts or questions you want to share with the audience?
Vernon Grant 36:41
At what point do you know if it should be a refi till you die versus 1031 exchange?
Jason Hartman 36:50
Well, really what tells you that is the rent to value ratio? And on both of those properties, ideally, if there was no The sort of life hassle factor or emotional factor involved from just a cold pure number standpoint, I would definitely be selling those properties. Okay, and doing 1031 exchanges, but I do, of course understand there are other considerations. So, you know, those those are there are other factors to weigh in there. And, you know, if your folks are going to retire in two years, it’s looking like the markets going to continue booming pretty well. I mean, that’s what most people think i think that you know, the money money supply is flowing into real estate. For all the Trump reasons I’ve mentioned on prior episodes of, you know, our for him being our first real estate president, you know, eliminating or softening, Dodd Frank, etc, etc. If they’re going to retire in two years, just stay put make life easy and keep that in New York property. You know, it’s only two years not a big deal. Right. And, and but, but I would really consider selling the Tampa Bay Florida property.
Vernon Grant 38:01
Okay, and I guess purchasing another one that they like somewhere to live down there.
Jason Hartman 38:07
Yeah, or three or four more and, and then they can buy back into that market or they might really decide they just want to rent. Because maybe that’s, you know, that’s not their final perfect location. Maybe it’s not their dream home, maybe they want to have some flexibility, you know, maybe they want to go on a cruise for a year or travel. I mean, renting is just so, so, so much easier, you know,
Vernon Grant 38:31
and that’s true. You don’t have all those costs that you have to worry about. Yeah, yeah,
Jason Hartman 38:37
no question about it. It’s it’s really quite easy to be a renter, you know, and you don’t have to unload a property. You know, you can just give 30 days notice and move out. You don’t have to show it and have people invading your privacy and it’s just much easier. There’s a lot of hidden costs in homeowner homeownership to
Vernon Grant 38:55
upkeep and all that stuff.
Jason Hartman 38:58
You know, a lot of times They’re spending working on their house and going to the hardware store and when you’re a renter, you just you just live there. No, it’s much easier. So, all good stuff to think about. But Vernon Hey, thanks for coming on the show and sharing your story and your parents story with us. And, you know, hopefully they will listen to this podcast if you can get them to do that. And I hope it helps them and we will look forward to seeing you at our upcoming creating wealth seminar in Memphis property tour next weekend.
Vernon Grant 39:28
No problem. Thank you so much for your help and time.
Jason Hartman 39:31
My pleasure, happy investing.
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Jason Hartman starts the show by sharing why you should immerse yourself in the most historically proven asset class, income property. He breaks down the multiple dimensions and the various factors that prove that income property is the best investment class. In the client case study segment, Jason Hartman interviews Ani Wee. She starts by talking about how she came upon the Creating Wealth Show. She also tells her story of monetary and portfolio growth from her income property investments.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
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 company leet solution for real estate investors.
Jason Hartman 1:04
Welcome to the creating wealth show listeners from 164 countries worldwide. Welcome to episode number 824 824. This is your intrepid what exactly does that mean? intrepid? Yeah, well, I don’t know. Am I intrepid? This is your host, Jason Hartman. And thank you so much for joining me here today. I just got back from another brunch over at Tony Shay’s house. Yeah, Tony Shea, the founder and CEO of Zappos. He has these interesting Sunday brunches at his very unassuming trailer park here in Las Vegas. And he does them every Sunday. Really a very generous guy to host everybody there. And you know, it’s an interesting crowd to say the least. Tony Shea is definitely a hipster. So, going to his brunches. It’s probably not what you would expect from a billionaire. And he is likely the most popular man in Las Vegas. He’s redeveloping the whole downtown and really doing some phenomenal stuff. So I just love it and you, you may have read his book Delivering Happiness or, you know heard about all the corporate folklore about Zappos and amazing customer service they have and so forth. And, and then he sold the company to Amazon, you know, did incredibly well. And then he’s using his money to do all kinds of cool things in the city and, and other stuff as well. So that’s the one thing I want to say. I just want to remind you of that, you know, when I was in Peru a couple years ago, I remember I did a show from there, or at least an intro from there, and maybe you’ll catch this on a flashback Friday episode, or you’ve already caught it. And you remember what I said there? Because the group I was with in Peru, one of the hotels they put us up in was, it was so beautiful. I mean, it was just, it was spectacular. And a couple of us were just so impressed and we went down to the front desk and count out that like you know, and of course hotel room prices are all over the board. I know y’all know that never pay the rack rate for a hotel. You can always negotiate a hotel price. But you know that that hotels was so gorgeous and and like in the closet, you know, they had four bathrobes, two women’s bathrooms, two men’s bathrooms, you know, so you could take your pick of different styles. And I mean, it was just it was phenomenal. It was a phenomenal hotel. And I have stayed in some gorgeous hotels over the years. But this one was phenomenal. And it just came to mind. And what I said when I was recording the show that day, is take care of this money thing. Take care of this money thing. It’s a thing, right? It’s a thing in all of our lives. And we’ve just got to take care of it. And look, I grew up poor. I did not have money at all. And you know, money isn’t everything. As the old saying goes we’ve all heard it but it is something is definitely something and you would have to be completely in love. Sure, and jealous and green with envy as the saying goes, to deny that money isn’t something it is something it matters. It matters in our world. It matters to capitalism to freedom to being able to do good in the world. And I just kind of thought of that again today because I was looking at all this stuff Tony Shay’s doing and it’s just really phenomenal. And also, I am going to be talking to you in the upcoming weeks from Europe. Yeah, I’m going on another trip to Europe. And, you know, speaking of that money thing again, it is I mean, look, I like getting a good value better than anybody. Okay. And, you know, I got a very good deal on my airfare. I can’t believe how cheap it was really. And then I upgraded You know, my class a little bit there. But I don’t like to waste money either. Right. But you know what I’m thinking about my first trip to Europe as an adult, right when I rented a car drove around with friend and You know how a couple of different trips to Europe just really, or anywhere in the world for that matter, I’ve been to 80 countries now how I just always try to economize and stuff like that. And you know, I’m thinking Isn’t it just so freeing not to have to think too terribly much about money right hey, look at even billionaires and I know a few billionaires and many many deca millionaires and, and sent them millionaires couple of those to deca means more than 10 million and sent them means, you know, like 100, right? More than 100 million. So, you know, even they like getting a good value. They don’t like just wasting their money, especially if they didn’t come from money, you know, then they appreciate it more because they remember how their life used to be usually and that’s one of the one of the good things, but it’s really just a it’s much more efficient for you to live in such a way where you don’t stress about money. So take care of this money thing. That’s the First thing I want to say on this episode today, and we’re going to talk to a client of ours, a client case study on IE we, who will be with us in a moment here. You know, her story’s interesting, a single mom really did some phenomenal things in real estate. You know, she talked to me the other day, and just went on and on about how, you know, listening to this one specific podcast episode of mine, changed her entire life, changed her entire life, listening to that one episode. Now, what could change your entire life? You know, what do you want to do in your life that could completely change it? I would urge you just get to that breakthrough point. I mean, for example, if you’re listening to the show, and you’re thinking, Well, you know, I’m on the periphery, right? You know, I bought a couple of properties, but I’m not like really doing it, right. I’m not really building a big portfolio. And maybe that’s what you want to do. Hopefully it is because income property is the most historically proven asset class in the world, right? It is. And that’s what we, we teach you about here a little bit of business and life success stuff as well on the creating wealth show, but it’s mostly about income property investing, of course, it’s the most historically proven asset class in the entire world. So what do you need to do to get more immersed in that whole thing immersion get immersed in it? Well, one of the things you could certainly do, as a shameless self promoter, I will say is join the venture lions mastermind that will get you more immersed because you’ll be hanging out with some friends that are really going after it. They’re going after life in general. But certainly after building good real estate portfolios, come to our live events, when we have live events, come to them come to all of them. And by the way, if you’re a venture Alliance member, those are included with your membership. But that’s a really important thing. You know, get yourself more immersed. That is a key thing in life in immersion be immersed in, in the thing you want to do more and more very, very important. Now, I want to talk to you about crap rate. I mean cap rate. Now, for this episode for the first time, I’m going to call it crap rate. And it’s not the rate of how much crap you’re willing to tolerate or anything like that. I’m calling it crap rate, because I see some clients making a big mistake, focusing on the crap rate for a property, the capitalization rate, cap rate, capitalization rate, obviously, you know, I’m kidding, right? I’m making that word up crap rate. But why shouldn’t you focus on the cap rate? Why is it you know, look at we have never promoted this metric that is commonly used in commercial real estate, where they are used to making lower return on investment for many reasons we’ve discussed on many prior episodes. In commercial real estate, they’re used to using cap rates. Why is it the thing in commercial real estate? Well, in commercial real estate, it’s much harder if you’re buying a big building a big office building or you know, hopefully not a big retail center as the retail apocalypse is in full swing as I predicted it would be 20 years ago, more than 20 years ago. I remember going to a presentation at the Pacific club, a swanky private club in Newport Beach, California, used to be a junior member there. I remember hearing a presentation from some retail brokers who were talking about commercial real estate and I said, Hey, you know, this internet thing, I think it’s gonna turn into something. You know, I said this 20 years ago, before anybody really knew what the extent of that would be, obviously, right? But I said, Don’t you see this putting downward pressure on shopping in the physical world? And they said, Well, no one guy got him to kind of come around, you know, he was an old time. Made a ton of money in, you know, in retail properties. And I got them to kind of come around and see my point of view on that. And I’ll bet you nowadays, he really sees my point of views 20 years later, because the retail apocalypse is upon us. And we’re going to talk a little more about that and what it means to our tenants, our tenants need to have jobs to rent our properties. Well, actually, they don’t really need to have jobs, because they could be on the dole and have section eight government handouts. But that’s another type of investing. So not necessarily good or bad. By the way, you know, a lot of people will do very well in section eight, and some people hate it, I find that there’s not much middle ground there, as I’ve talked about before, but back to the crap rate, because that is where we were going, the risk of being on a tangent here before we get to our client case study interview. The crap rate is not that meaningful. Why you know what I’m gonna say, right? You know what I’m gonna say, because it doesn’t include a couple of very important things. It doesn’t consider appreciation, and it doesn’t consider leverage. And see in commercial real estate. Typically, of course there are every By the way, I wanted to make a disclaimer, everything I ever say on this show ever, there is an exception. There’s always an exception. No rules or laws apply universally, including this one, including this one does not apply universally, even the universal law is not universal. And so typically, commercial real estate does not appreciate as well as the good old humble single family home, talked about that analyzed it, many other episodes not going to go into it here. So that’s one thing. The other thing is, the financing is not as good on commercial real estate as it is on residential real estate investments. So if you’re using crap rate, and you’re comparing it to say, buying a Walgreens on a triple net lease buying the property a Walgreens leases from you or an office building or something like that that would not be an accurate comparison. Crap rate is not a very good metric for the residential real estate investor, what you should look at is the overall return on investment. So when you go to Jason Hartman comm slash properties, and you look in our properties section, and you look at the overall return on investment, that is the key metric, that is the proper number to look at. Now, if you want to look at something close to crap rate, okay? Look at the cash on cash return if you want, okay, but, you know, I’m telling you, again, you can’t compare that to other investments, because it doesn’t give you enough information. It’s not multi dimensional enough now, even the overall return on investment does not include a couple of things. It doesn’t include money. A trademark mouthful phrase that you can’t say 10 times fast, even if you try really hard. In fact, maybe we should have a contest who can say this 10 times fast, and you’ll win a prize, inflation induced death, destruction, inflation induced debt destruction, inflation induced debt destruction, blah, blah, blah. Okay, so that’s the metric that of course cap rate doesn’t include, but even the overall return on investment doesn’t include inflation induced debt destruction, the hidden wealth creator in real estate investments. Additionally, what else doesn’t include well, none of the returns on any of our performers, look at the overall lifetime value of your property portfolio. When you get the advantage the huge advantage by the way of the 1031 tax deferred exchange, when you rebalance your portfolios when you do the 241, or the 341 rebalancing of your portfolio, and you take advantage of the 1031 tax deferred exchange So you get to reinvest all of that capital without paying tax. You sell your business, you sell stocks, you sell bonds, you sell that mutual fund, you’re gonna pay tax, you got to pay the government, before you get to reinvest the money. With income property, under the 1031 tax deferred exchange, you can reinvest the whole thing that is beautiful, not your post tax dollars, you get to reinvest your pre tax dollars. phenomenal, phenomenal deal. None of it includes that. So if you’re going around and you’re comparing even the overall return on investment, which looking at Jason Hartman calm in the Properties page, you know, typically you’re going to see overall return on investments and of course, this is a performance of course, it’s a projection Look, just assume it’s not going to work out as well as projected, okay, it might be better. I mean, it happens better many times. In fact, the client he studied with Coming up, you’re going to hear a story that’s way better than what’s on our Performa. Okay. When you hear Ani we’re talking a few minutes here, okay, but just assume it’s not gonna be as good as that cut it in half if you want and take that projected 35% return and cut it in half 17.5% but just know that even the 17.5% which is phenomenal it’s truly amazing and those of you new listeners who don’t believe anything I say and think I have no credibility and think I’m crazy and I’m, you know, the hokey broker that’s about to go to jail, right because you don’t know how to calculate return on investment yet because you haven’t listened to me teach you that. And by the way, you should go to Jason Hartman calm and on the front page. Watch that free video we have because that really leads you through reading the Performa and understanding the numbers in 27 minutes for free. You can learn to be a great deal analyzer. Okay. Rate deal analyzer and that’s a critical component. But yeah, even the overall return on investment does not include the benefit of inflation into step destruction which is huge. You know that from those of you who’ve been to my creating wealth seminar or my jQ Jason Hartman University live seminar, or have listened to the show and heard me talk about that, you know, that’s very significant. It also does not include the tax benefit of the 1031 tax deferred exchange, which plays out over time, even internal rate of return IRR the holy grail of metrics does not include that either of those things. Okay, so there you go. All right.
Hey, without further ado, because I risk the already this intro is getting very long and I have a whole another part of the show for you. Our interview a client case study with Ani, we so let’s listen to Ani and hear her story. It’s a great story. And she is one of our clients from Alaska. how unique is that? So here is Ani Hey, it’s my pleasure to welcome another client back to the show and this will be a client case study with a listener and now client from Anchorage, Alaska of all places we don’t have that many listeners in Alaska, but it’s always great to have one and I have been to Anchorage and Fairbanks before and through the Yukon Territory as well up in Alaska and Canada A long time ago. It’s very beautiful up there. And our client is Ani we and Ani. Welcome. How are you?
Ani Wee 17:32
I’m doing very well. Thank you, Jason.
Jason Hartman 17:35
Yeah, well, it’s good to have you on and I just loved it when one of our investment counselors introduced me to you the other day. It was so great to hear your story and I I just always love to hear someone tell me I changed their life. And that’s always great, hopefully for the better. I think so in your case, it sounds like but give us a little bit of your background. First of all, what do you do for a living?
Ani Wee 17:58
Yeah, I work with Federal government as an auditor, and that’s, you know, most people with it’s basically accounting work pretty much all the reconciliation of schedules and, and doing audit. So I think we’ve done for close to 10 years now and I’m I’m pretty happy there.
Jason Hartman 18:19
Good stuff. Did you grow up in Alaska?
Ani Wee 18:21
No, no, I grew up actually is I am from Taiwan, the Republic of China. I relocated to America when I was 16. I went to a boarding school in Michigan and then I just settled down and went to college in a different state and then I moved to Alaska, actually for the job.
Jason Hartman 18:45
Okay, so that’s I was gonna ask you, how did you end up in Anchorage, Alaska, you know, that’s sort of an out of the way place. Give us a little insight before we talk about your real estate investing story, because I think a lot of the listeners will be interested you know, not a lot of people go to Alaska. I have been and I feel very fortunate to have been there and you know I did an Inside Passage cruise from Vancouver I’m on the way there and then on the way back I did some back country stuff and I remember going to was it Denali Park I think and, and, and seeing all of that and you know, just gorgeous up there, obviously. But hey, I was there. Actually, I gotta tell you something funny. I have a picture. I gotta find this picture. It would be great for a Facebook flashback Friday or Throwback Thursday of me standing on the Alaskan pipeline at midnight, and it’s his Brightest Day. Because I was there on the longest day of the year, the summer solstice June 21. And you know, it really messes up the sleeping patterns. I remember we were in that famous fish restaurant you have there Simon and Seaford I believe it’s called. That’s when I really loved Alaskan halibut and discovered it and I thought it was about six o’clock and I looked at my To watch it it was 10pm
Ani Wee 20:04
for me, because a lot of times I have to, I really have to have a military clock here otherwise, I have a hard time remembering whether that’s two o’clock in the morning or two o’clock in the afternoon. And because the light is you know, summertime is all 24 hours available, much more so in Barrow, Alaska, which is the northernmost northernmost town here in America, rather than anchorage anchorage is a little south and it’s a little easier in terms that they like to recognize what I did when I lived for many years in Barrow Alaska and and and that was a challenge for me to try to figure out what exactly what time is exactly the time am or pm. And so you so you,
Jason Hartman 20:52
you lived way up there. Wow, that’s just amazing. And so do a lot of people use the military clock the 24 hour clock up there.
Ani Wee 20:58
A lot of people Do because it’s easier to know, you know, like two o’clock in the military time will be 14 hours. So it just easy to recognize because you can, you know, get him can trust your sense of time from that. Our darkness a lot of places. Yeah. And so yeah, it’s a lot easier. Yeah, absolutely you cut out for just a moment but I think people got the message. It’s very hard to recognize time with that. So I mean, you you you work for the government, you’re an auditor. Tell us a little bit about your real estate story, I guess. How did you happen to come across my podcasts a few years back in a into a I was going through a personal divorce at the same time, the market crashed. So I had a lot of questions about the economy at large. And so I was looking for answers in with the alternative media has led me to share Just website, website and website and podcast. I started to listen to him. And pretty soon I remember he did an interview with you. And, and I, I, it resonated with me. And because I am I was listening to a lot of messages given to me by people who are more of a golden silver invest investment. And, and, and a lot of people were telling me that, you know, in terms of the global economic crash, real estate will be a liability more than an asset. So a lot of people were advising me to purchase heavy metals, such as gold and silver versus metals.
Jason Hartman 22:50
And the interesting thing about all those precious metals people on E, they have the right premise, and their arguments are correct. They just don’t have the right Conclusion I’ve been very as you know, from listening to the show, I’ve always been very fascinated with them, but they just they just don’t get they don’t get the whole picture.
Ani Wee 23:10
Yeah, I definitely resonated with your idea that about, about precious precious metals, I use precious metal more as an insurance policy versus an investment strategy. And so, and before I think before I ran into your podcasts, I was just finding real estate I was I started the real estate investing actually because of the book Rich Dad Poor Dad by Mr. Kiyosaki. But then I didn’t really know what I was doing so I would buy it I suppose I would, you know, like, say for my neighbor died of breast cancer. I bought her her condo which is just right next to mine. I live in a multiplex. And I just went and pay cash for it, you know, I just didn’t really think about levering June or anything because in my world where I came from, people tend to pay for things in cash and they don’t have the money they just don’t buy. So so it was very strange to think to hear you talk about leverage, because it was the antithesis is what how I was brought up you know, and then I keep listening I just I said well, you know, having the sale please keep an open mind because it is true using leverage you can buy more so I made some fairly investment just you know, buying condos and one I hearing Anchorage Alaska, but they’re not as lucrative and investment now looking back after having heard your podcast for several years, I look at my old investment, real estate investment I realized there really not generating very good, you know, income for me. But today in the meantime, fortunately, during that period of time, I just happened to live in the area where we have a lot of military personnel wanting to move out of base. So despite the fact, condo investing wasn’t the greatest investment I can think of, but it wasn’t the worst investment either, such as no putting your money in a CD account. So, so I ended up breaking even I later sold a condo and then move the investment to Florida instead. So I first started purchasing property from you. I think after hearing your podcast for several years, into a one, three, that’s when I decided to purchase a property from your network.
Jason Hartman 25:57
Yeah. And so the first property you bought through us had was a duplex, right?
Ani Wee 26:01
Yeah, it was, um, you interview this gentleman named jack and, and I mean, I heard many, many interview before and I don’t really know why I just really liked the interview. And so I went to your website and then I noticed there’s a duplex I say, oh, multifamily, because most of the properties on your property when you know on your website is single family. Yeah. So there was the first time I saw a duplex and there was two Oh, a, he looks you know, kind of new and so I started doing some research around the area and I discovered an issue with Chinese drywall. So I called up Sarah and then she gave me the name of jack so I contacted him I discussed about this duplex, so I purchased it from jack Lee for some da thousand dollars. At the time. I didn’t really have the money because my money were all tied into it. condos I bought a couple investment condo plus I live in the condo myself and most Alaskan You know, a lot of a lot of Alaskan like condos just because it’s really hard to do maintenance.
Jason Hartman 27:18
Alaskan winter it’s very difficult. Yes.
Ani Wee 27:21
Yeah and on top of that there’s you know and then the problem with a condo is always the condo view and it’s which is pretty hefty, maybe about three $400 a month. So but at the time, you know, I that’s what I did. So I, I talked to jack I said them, you know, he I think originally was listed for 80,000. And I said if I pay cash, you know, he agreed to take some TA. So I just went to the bank and for the first time they’ll put a cut in line with equity equity was what I call a line of equity loan against my condos as I didn’t have a mortgage because I was paid for cash. So Got a low interest loan and pay jack and bought the duplex from him.
Jason Hartman 28:05
Now that one, that one just about doubled in value, right. Did you did a cashout refi. I believe on that.
Ani Wee 28:10
Yeah. Well, I continue listening to your podcast afterwards and then you know, jack secretary, Laurie manages to manage the condo until jack decided to retire So, so I bought it in somewhere in April 213. I just recently maybe around like January of this year, I did a cashout refi or it was appraised at $150,000.
Jason Hartman 28:38
And you are How much did you say 89,000 70,000 78,000? Well, so yeah, that’s fantastic. Congratulations that doubled in value. And and you bought a bunch more of them, right. Didn’t you buy?
Ani Wee 28:51
Yes, I did. I and the reason why I only did I did a cash out refinance because the rent has also gone up. I would have Soda if the rents stayed as $100 per side each month, but the rent had gone even, you know, a 50 per sign each month from from 500. So it was not really a good idea to sell, even though I was getting getting a lot of offers. People write me postcards or letters for wanting to buy.
Jason Hartman 29:25
By that by the way, folks, if you don’t have investment properties, yet, if you haven’t started your investment career yet, you’re gonna start getting and it’s such a great feeling, isn’t it to every month on all of my properties, I get constant postcards and letters from people saying they want to buy my property. And I just know that I am controlling the world’s most valuable commodity income property, you know, in the whole world pizza path to your door, you know, there’s such a limited supply of it. It’s just a wonderful position to be and to be that the seller you know, you in the driver’s seat when you’re the seller, and or the owner, I should say, you know, hopefully you’re not selling them, but you know, occasionally we do sell and when we rebalance our portfolios, but yeah, isn’t that a great feeling though?
Ani Wee 30:11
Yeah, it was. I know I never gotten any postcards. Well, my Alaskan condos, even you know, but but I was starting getting postcards for this particular duplex many postcards. And I decided not to sell and then I just continue to rent them, you know, just rent it out. And I used the proceeds of the money to purchase I think one more property, a single family home for $10,000 in Fort Myers. This time, the duplex that was sold to me by jack back into a one three was located in a server for Myers, Florida, although Lehigh acres, so and so I bought a I know I didn’t really leverage Either I just I just put to put them, you know, cash down, just make the transaction faster. And but I, I was very, I was very surprised by the appraisal record of 100 $150,000. And then later on I attribute to the fact the fact that for my or area has the number one job growth or number two is one of the top at least top 10 in the nation for job growth and population influx. So, if you tell you though, if you talk to any of our clients that bought properties back in, and I love how you say the numbers, you always go to Oh, two, row eight and so 2008
Jason Hartman 31:44
you know, but any of our clients that bought, you know, anywhere in the last seven years, I mean, they have just cleaned up, you know, it’s incredible the kind of appreciation they’ve had. And that leads to the next issue. You know, generally as you know, from To the podcast, and as all our listeners know, we believe in buy and hold investing, you know, why would you sell an asset that produces 2025 30 35%? Or even, you know, 40 45% return on investment every year, right? That’d be crazy, you know, when you look at the overall return, because it’s a multi dimensional asset class. And, you know, if you want to look at those, go to Jason hartman.com, click on Properties and look at the actual performance if you’re not familiar with how we calculate all that, but, you know, we generally believe in buy and hold, but occasionally the properties appreciate so much and, you know, that’s a great problem to have, okay, it’s a great problem to have. You really do need to rebalance your portfolio because the the rents the income never keeps up with the appreciation. You know, it’s always out of sync a little bit. And, and so I would ask you, and this is an interesting part of our case study for the listeners. Today, your property you bought it for the first one that you were talking about here, the first one you bought through us, you bought it for 79,000. And it appreciated to 150,000. Now, what is the rent on that? And do you remember what the rent was when you bought it and what it is now, for example, like it was a comparison there.
Ani Wee 33:18
Yes. When I bought it into a one, three front jack, it was $500 on each side, so it will be $1,000 1000 total.
Jason Hartman 33:27
Okay, so a little better than 1% rent to value ratio, and you acquired it at acquisition.
Ani Wee 33:32
Okay. And now it’s a city, so I’m getting 1700 dollars a month.
Jason Hartman 33:38
Wow, that’s fantastic. Those rents have gone up very, very nicely. And you know what, you don’t need to sell that property. Don’t don’t don’t feel you need to do that at all because you’re still getting better than 1% rent to value. I would even almost question I wonder if it’s worth more than the appraisal you got. You know, maybe it’s we’re really worth 161 71
Ani Wee 34:00
According to the appraisal report because they use different methods to come up with their figure, according to the appraisal report, so you say use the rent method, it would be appraised at maybe around 168,200 70,000 but then but then the appraiser decided to use a more conservative cost approach or some other approach and then he came up with 150,000 but yes if you look at the it’s on a quarter acre lot he has a septic and a well probably not exactly If I had known he has a septic and well and and sometimes he does involve more work when you are
Jason Hartman 34:43
Yeah, those aren’t that’s not ideal, by the way.
Ani Wee 34:45
Not ideal, but it was better than a lot of properties have it so
Ani Wee 34:50
yeah, so I bought it and I have a little repair, you know, with the wells and the septic tank, but it’s not nothing big. Nothing major happens. I think I had to change your oil pump one time but it but I think that the area has a lot of potential and I got a lot of yellow postcards
Ani Wee 35:13
you know that
Jason Hartman 35:15
yellow postcards a famous yellow postcard please sell your host to us.
Ani Wee 35:19
Yes and interest and I think that the people who who are truly investors knew the intrinsic value of the duplex because of economic development in that area. And and demographic studies like Mr. dent has done also indicated that a lot of really really dense area they like to move to a warmer climate and Florida is considered a very desirable area. And I think for Meyer Cape Coral the hikers happen to be without any major industry in essence pollute, you know, pollution control. There’s really no pollution. There’s no heavy industry. The area is, you know, enjoy some sunny weather, which is almost like the opposite of Alaska.
Ani Wee 36:10
You know, a lot of stuff. It’s the
Jason Hartman 36:12
it’s the polar opposite of Alaska almost. Pardon the pun. Yeah.
Ani Wee 36:18
So I just attract that baby boomer population, you know that, like, yes, 10,000 people reach their 65th birthday, every day now and just more and more people moving in isn’t?
Jason Hartman 36:32
Yeah, it’s amazing for sure. Okay. So I want to make sure I mentioned a couple things. So the listeners get some more education out of this. You talked about the appraisal. And you know, I’ve talked about this in the past, but just for everybody. There’s three basic methods of appraisal. There’s the comparison approach, which applies to condos and single family homes, mostly, there is the income approach, and you talked about how the appraiser did the income approach and wanted to appraise it, basically. For more money, but then he got more conservative on you. And he did the cost approach. So three basic approaches comparison, income approach and replacement cost approach. Okay, just so the listeners know that because I didn’t want to gloss over that it was an important point.
Ani Wee 37:17
Yeah, that was it. And I think because of the vendor wants the most conservative approach, so that’s, that’s why he chose and so basically how it works is that one side of the duplex, one tenant pays the mortgage, the property tax, and the insurance. And the other side is pretty much pure cash flow unless I have a shoe repair related issue such as replacing washer dryer or issues with the garbage disposal. But but it’s, I’m not self managing it I have a property manager and my property managers name is Kevin and and I find him extremely reasonable Because, because I learned from your podcasts, you know, to scrutinize the property management agreement. What I have found is that seven is also a real thing. bester he’s not just a property manager. He’s not just a realtor. He’s also an investor. So he has experience in all three area. So he immediately agree with me that the lacing should be split 5050. So, so that, you know, a lot of time when you look at a property
Jason Hartman 38:30
of the agreement, they want to keep the late fees. We’ve talked about that before, and I don’t I don’t like that. Yeah, yeah. Yes, folks. You know, one of the things I want to tell you is that don’t be afraid to push back a little bit on property management issues. You know, you can negotiate, read that contract, don’t give them too much latitude on discretionary repair items, because there’s just a funny thing about life, that when you give them a lot of latitude, they tend to take it. So and we’ve talked about that many times in past episodes, you got to be in control of your property management experience. Okay, so very important,
Ani Wee 39:06
very important. And the second thing I like about him is that he doesn’t charge me the markup fee for repair. So those are the two things and interchange for for that I agree to make payments on all the repair directly to the vendor. So save him a little bit of paperwork and that also give me some level of control if I you know, and I can contact the vendors directly. So I it’s
Jason Hartman 39:30
an expensive repair, ask for more quotes and call them a quote, not an estimate, you know, in your emails and your discussions. Granted, it may not come out exactly that way but calling it a quote will help you in case you need to argue with them later. But only you know, I want to ask you how many units do you have now total in your portfolio?
Ani Wee 39:52
Well, because I was so happy with my my duplex investment in Lehigh acre. I Later on purchase for more. So I have a total five duplexes. I also so that’s 10 yeah 10 and then I also own two single family homes in the area where Kevin Manik 1212 properties and then you own your own condo and the one next door to you, right? I sold the one next to me but I, what I did is I bought another one from your network in Jackson, Mississippi from a gentleman named Brad and I, you know, again, I heard your interview with Brad fall I decided that’s interesting opposite strategy because he’s a, I consider him more of a specialist for section eight housing at a time so. So it was a $50,000 investment in a single family home in Jackson, Mississippi, and it produces a $725 a month on rent, and I know that When I purchased that property I knew the appreciation of, you know, in Jackson, Mississippi would not be as high as in Lehigh acre or four miles is pretty much just a cash flow.
Jason Hartman 41:15
Yeah, that’s a much more linear cash oriented market. I agree. Yeah, absolutely. Absolutely. Good stuff. Well, what are your plans? Next on E? You’ve got I guess what that sounds like it’s about 15 units now total. Right.
Ani Wee 41:29
Right. Yeah, I have. I have one. I have two more single family home in Arizona, that that I purchased prior to becoming a podcast listener. And, and those were purchased in tool kit, tool 11. And tool 12. Oh, you You did good. On those two. We were back in the Arizona
Jason Hartman 41:52
market a little while it got too expensive. So we stopped recommending it but in Phoenix, you know, that’s a sort of a hybrid model. it, so it gets a little expensive at times, and then we’ll stop recommending it. And, you know, throughout the cycles, we’ll go back in and recommend it for a time and, you know, if you’re, if you’re there and you have properties, just keep them. I mean, you’re stabilized, you know, you’ve got, hopefully a good tenant so forth.
Ani Wee 42:15
Yeah. tenants and different property manager. And then on top of that, you know, I had really cheap debt at a time, because when I was in Toy 11 and 2012, the interest rate were 375 for 30 year mortgage 3.3 point
Jason Hartman 42:34
seven sighs
Ani Wee 42:35
Yeah. And, and then now the ones that I purchased in the high and the rest of the youth house, Southwest Florida, there was a 4.75. So so the debt in Arizona at the time was considerable, considerably cheaper. So I think talking to Sarah about at some point, I would need to do it again. 31 exchange because the rents in the area didn’t keep up like Florida. The rents in this little Arizona town that I purchased real estate pretty gone up but they didn’t go up as high as the rent situation in Florida but this Florida situation is kind of abnormal because that’s the for Meyer has a number one ranking increase in I think in 2014 to a one five out of the whole entire nation. So for a while my already don’t Iran also increased all the time when I purchased it. I think at a time when I purchased it into a lab and I was only getting maybe about seven 750 but now I’m getting 1150 currently, so it has gone up but then the property South has even gone higher
Jason Hartman 43:53
is the rents the rents will never keep up with with a with a hybrid or definitely not a cyclical appreciation market, you’re always behind on the rent and rents they lag because they’re one year leases because the comps aren’t good for rental values. You know, it just it just doesn’t it’s a much more fragmented market you know, there’s just not a an exchange of data. When it comes to sales prices. There is a true exchange of data in the multiple listing service and at the county recorders office, but that’s not true on rents, and that can work for and against you as an investor. And you know, we’ve talked about that on past episodes. Ani we’ve got to wrap up though, but you know, I just wanted to ask you kind of In conclusion, you know, any thoughts you have for investors, anything you want to share with them before we wrap it up?
Ani Wee 44:42
I think it’s important to make up your mind, buy real estate for and wait, don’t wait to buy real estate. I think it’s important and then also to I would consider duplex investing side by side duplex. Because even if you change, you lose a renter, you still have another renter paying the mortgages and property tax, and insurance that will make it a lot easier for you to hold the property. And another thing I realized was my single family.
Jason Hartman 45:23
Let me let me just comment on that for a moment on if I can, and I don’t mean to, like totally disagree with you there or anything. I think the plexes are okay. But I’ll tell you something, you always get a better quality tenant in a single family home in the single family homes. Generally, although listen to your story, which is a great story. They generally appreciate better than the plexes and you know, we’ve sold lots of duplexes, triplexes, and for plexes, and then some big apartment complexes from time to time to, you know, you can do that same diversification with two single family homes, right? So I just don’t want people like totally go overboard on that idea. I’ve heard that argument a lot. There’s a lot of people out there that sell for plexes and develop them and say well, you know, one’s vacant you only have 25% vacancy. If you have a single family home and it’s vacant you have 100% vacancy yes you’re right I get that but you know, you can have for single family homes okay. So
Ani Wee 46:20
yes, you know, and what I have found is that with my single family home, even though I may have four or $500 a month on cash flow, but when a tenant move out, pretty much all the cash flow will put into updating the paint the carpet, a lot of state so and I think you should and the multiplex I think you should be very selective Personally, I don’t like triplex or four Plex because I think too many renters can gang up on the property manager. They do ganging up
Jason Hartman 46:55
on Yeah, that’s the other thing I meant to say even in duplexes they’ll do that they do when those people get together. Talk settings can become difficult for you.
Ani Wee 47:03
And so you have to be very selective. I don’t like the up and down kind of duplex. I only buy side by side, because it gives a little more sense of independence. And, and so I think you need both. I think we do need you know, duplexes, single family homes once you have a pretty good mixture. But you know, you got to start somewhere, right.
Jason Hartman 47:32
We’re all about diversification. So yeah, totally, totally hear you there. Yeah, it’s
Ani Wee 47:37
a family home and just kind of, you know, use that as an example, to learn, you know, as a starting point because, truthfully, I don’t think I would have learned as much about real estate investing, if I didn’t buy it, and then start making mistakes. But I would say pretty much all the silly mistakes. I have made my tenant basically paid for them. Oh,
Jason Hartman 48:05
isn’t that great? I love that comment on he that’s a great comment. All the all the silly mistakes you made your tenants basically paid for them for you. Isn’t that beautiful? we outsource our mistakes and our debt to other people called tenants
Ani Wee 48:20
Love it Yeah. And then you learn and then and then you’ve been making a decision you know, by the time when I moved to, to a one three out but I know when I start purchasing real estate outside Alaska, I already made a lot of mistakes that I can and pay for. So when I look at something I will be able to see why that’s a better investment than the one I made before. But if you don’t have any investment, real estate investment, you will not have the opportunity to learn to make mistakes and learn from it. And then you will not be able to tell which one is a better investment. I think you just have to get get it started somewhere and with the help of your investment counselor And then move forward.
Jason Hartman 49:01
Very good advice, Ani Wee from Anchorage, Alaska.
Thank you so much for joining us today and sharing your your client case study with our listeners. And I’m sure everybody learned a lot from you. So thank you listeners out there. If you’re a client of ours and you want to come on the show, reach out to us and let us know we always love to hear these case studies stories. So, Ani, thank you very much for sharing. Thank you. Bye bye. 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.
In this Flashback Friday episode, Jason Hartman talks to Patrick about the benefits of investing in real estate. Patrick also shares what’s it like working with Jason and the Platinum Properties Investor Network’s investment counselors.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com.
Announcer 0:09
Welcome to the flashback Friday edition of the creating wealth show with Jason Hartman. As he rapidly approaches 1000 episodes of this podcast, he has hand picked individual episodes that he feels is going to be good review for you to prepare you for the future by listening to the past. Let’s dive in.
Announcer 0:29
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 Get 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 1:19
So I tell you, folks, you sure don’t have to convince anybody to buy good income properties anymore nowadays, do you? It is unbelievable how people are just gobbling up rental housing inventory right now. And I mean, from an investment perspective, but when you don’t when I say rental housing inventory that could easily mean rental housing inventory as a tenant, and I guess both are true, really. And that’s one of the reasons the opportunity is so good for investors. I recently interviewed Dan Ammerman on the show and we’ll we’ll have that show published fairly soon. Here. Today, we’re going to do a case study, or we have a client of ours on the show. Any of you listeners that want to come forward and be On the show, just touch base with us, contact us through Jason Hartman calm and go to the Contact Us section and say that you’re interested in being on the show and telling your story. And Heck, we may just put you on and we may even record an interview and hack if it’s terrible. How about this? We won’t publish it. Just kidding. Well, only half kidding. I guess my ex girlfriend Melanie used to say there’s a little bit of truth in every joke, right? And she only used to say that because her mom used to say to her, I guess that’s how old things like that get started. But you know, I interviewed Dan Ammerman on the show. And he talked about this really interesting article that he did about arbitrage and fed policies with rental housing, cash flows. And that’s mainly what we talked to him about in that upcoming show. But you know, I was just kind of looking at this article of his again, is kind of a prelude to this show. And I just wanted to point out a couple of things that are just so telling and make this opportunity so incredibly, incredibly robust right now, in terms of the opportunity for us as investors and there’s one chart that He has here a 20 year history of financing costs. And he looks at the 30 year fixed rate mortgage from 1992 to 2012. Okay, so for that 20 years, and he looks at the Freddie Mac, primary mortgage market survey, and you see that back in 92, rates were about eight and a half percent. And they have just totally, totally plummeted to where they are now, just above three and a half percent. But what does this really mean for us as investors? Well, of course, it has a huge impact on our investment. Because when you combine that with what he talks about, on the next chart, the average price of US single family home, that is inflation adjusted from 1992 to 2011. And this is in $2,011. You can’t go to 2012. Because the years not close yet, obviously, and this is the Freddie Mac house price index, which by the way, I want to make a point, much more accurate to look at that index, which people rarely do, then the I’m gonna just say it from This stupid Case Shiller index. I’m really getting upset with the Case Shiller index nowadays, and, and, you know, we should get someone from Case Shiller on the show, so that they can defend their index, which only represents about 5% of the market. Only 20 out of 400 markets, 14 of those 20 markets, I wouldn’t touch with a 10 foot pole. I mean, isn’t that crazy that people just revere that and that’s like the most, I think, I mean, at least anecdotally, that’s my impression. That’s the most commonly used index. Everywhere I look people look at Case Shiller Case Shiller this Case Shiller that why the heck are they doing that? It’s so it’s so irresponsible. So in this chart, what he looks at here is 1992. And this of course, is inflation adjusted. Okay, the average home price and by the way, there’s a really good debate on what is a more accurate study is average or medium. Remember, you’re listening to flashback Friday. Our new episodes are published every year. Monday and Wednesday. Well, median. Remember, median is just the middle number. A lot of times when you see these statistics, they’re looking at the median price. Okay, I think it’s almost more important to look at the average price. Now, probably the most accurate would be look at a weighted average. But I don’t even know how you could do that on a national scale, certainly, because so many markets and the prices differ so dramatically. You look at overpriced coastal real estate and in the Socialist Republic of California or overpriced real estate in the socialist city of Manhattan, Manhattan, New York. I just don’t know how you can even do that. But this is amazing. 170,000 or so 1992 down 2011, about the same price. And he’s got a line right through the middle of that. That shows it hovering just above $190,000 for the average price for that time period, right the average graph uses single family home prices in the US over the last 20 years as reported by Freddie Mac and is adjusted for inflation with a CPI, you index, the urban CPI, the consumer price index, you for urban, okay. The two most striking features are the surge in prices. That was the real estate bubble and the plunge in prices since that time. Now get this. We go to one more thing here to talk about, and that is this inflation adjusted mortgage payments. And when you look at what has happened to Americans, and what has happened to people in this economy, even non Americans illegal immigrant Oh, I’m sorry, I don’t mean to say that. undocumented workers or as Hillary Clinton called it during the last election against Obama people without papers. I know that’s a little bit snarky, of course, but it’s just so as the ridiculous of our political discourse in this country sometimes. Okay. But anyway, you look at that, and I was thinking, you know, gosh, I had this wonderful, wonderful housekeeper in Southern California for many years. I mean, her name was gourmet. She was just a doll. And she must have been my housekeeper for, I don’t know, 1214 years, probably for a long time. And she was she was great. And I just couldn’t believe it. I was thinking back to that. And I was thinking here in Arizona, what I pay, I pay $65 a week to have my house cleaned. And then I pay an another different party to come through and clean the floors, because it places so big, I pay them 20 bucks. So I pay $85, I guess you should say per week, right? But in California, I was paying $65 a week. No, I think it was actually paying 60 and I was thinking back to the olden days. I only paid goomy like 50 or $60. And I was thinking my gosh, isn’t that ridiculous? Isn’t that ridiculously unfair, that the market price for house cleaning, has probably not increased in enlightened Two decades. That’s insanity folks. I mean, America, when you look at Americans, and you look at all these salary surveys, Americans haven’t hadn’t had a real wage increase in over 20 years now, folks, yet their cost of living has shot up dramatically. And a lot of it I say is deceiving again. And I remember when I was taking back at UCI University of California, Irvine, I used to take these classes on what they called light construction development, which is, you know, all the classes in this iram or Maroon they had like two series of Forgive me, I don’t remember what the acronyms were. But these were basically all the classes you took if you wanted to be a real estate developer. And I remember I took these classes years ago when I first got into the real estate business because I always wanted to be a developer. And after taking those classes, I realized what an insanely risky proposition that is and how totally complicated that is. I would much rather be in the business of what I do now or rehabbing properties Or something like that than developing them from the ground up from scratch. So when I was taking these classes at UCI to learn how to become a developer, What amazed me, is the way that they would look at the statistics, and especially as they related to inflation, cost of living and lifestyle. And I remember in the classes, they were always talking about how the average American Home the square footage has increased so dramatically. I’m just giving you the concept here, because I don’t have the exact numbers, but just conceptually, this is the idea. You know, they would say something to the effect of Well, after World War Two, when the baby boomers started their family formation years, the average American home was like 900 square feet. Well, you know, that’s true. And I think of a place like Lakewood, California as a great example. But there are many other places around the country. That of course became these suburban locations for these small homes. But what they didn’t tell you and what they never tell you is that the the density they were on a quarter acre lot, okay, at that time nowadays, though, or you know, maybe a 8000 square foot lot, but still a nice size lot, by the way, an acre is about 42,000 square feet, I believe. And what they don’t tell you is nowadays, yes, the house is bigger, which means the building materials, it consumes more building materials, of course, but the density is so much higher. I mean, people are packed into much smaller spaces nowadays. So, when you adjust home prices for inflation, you’ve got to really consider what are you really getting? I mean, in the early 70s, when this beautiful area in Newport Beach, California was built called harbor view homes. Okay, maybe mid 70s. Don’t quote me on the year Exactly. I think those homes when they were originally sold, sold for like $45,000 or something like that. Okay, and in the 70s, and nowadays, they’re easily upwards of a million dollars and much more. Most of them have been remodeled and dramatically improved or knocked down but the neighborhood is like a million plus neighborhood Okay, and so back then that was sort of your upper middle class home. And it was on a big lot in a neighborhood with green belts and a school right in the center of it and so forth. Whereas nowadays, you have a little row home, yes, the house itself, the structure is larger, but the density is much higher. And so people are much more on top of each other nowadays. So, in looking at this chart, this is interesting they had now this this effect didn’t happen very much over the past 20 years. It happened before that, that the density dramatically increased. And builders got much better at it building for higher density too. So the quality of density improved, but I’m just pointing out that all things are not equal and they are not as they seem on the surface. So inflation has had huge impact on our lives. And some people haven’t even had a raise. I mean, have you had a massage lately? Okay, spa services. There’s an example luxury item, right? So the price of a massage has not really gone up in many, many, many years. And I’m thinking, Why don’t these people get a raise? Don’t they get a cost of living raise? Doesn’t my housekeeper get a cost of living raise? Actually no. And if you look at typical corporate jobs, the same is also true. So this has been a huge problem for people. And we on this show, we learn how to fix this problem and how to solve this problem, how to actually make it benefit us as proven income property investors. So this last chart that I’ll talk to you about is inflation adjusted mortgage payments. And this one is particularly telling. It goes from 1992 to 2012. And it’s in $2,011 $2,011. So what it shows is back in 1992, your mortgage your typical mortgage payment in America was about $900. And then it went up and it went down. And during the boom times, you know, when things were crazy, 2006 era it went up to 11 over 1100 dollars now That same payment in 2012 get this This is amazing. I mean, think about what this does for your cash flow what I’m about to tell you 20 years ago, that typical mortgage payment $900 boom times typical mortgage payment. I’m going to say on this chart just kind of guessing it’s about 1100 and $20. Now, it is $570 $570 if you are not jumping out of your chair to buy good prudent income property right now, you are completely missing the boat. Okay, you are totally missing the boat, and incredible opportunity we have now and of course you can learn a lot more about this by joining us for the meet the masters of income property event and that is March 24. And fifth in beautiful Irvine, California. It’s at the Hyatt Regency in Irvine, by the way, many of you have registered already. So thank you. We look forward to having you join us. Let me give you the airport code you don’t need to run a car. The hotel is literally five minutes if that from the airport but it’s gorgeous hotel and the airport code is sn a for Santa Ana sn a Orange County Airport, john Wayne Airport, Santa Ana airport. It has about three names to it. And it’s beautiful Airport. The transportation is super simple. There’s a shuttle from the Hyatt Regency. You could take a taxi to cost you nothing. Basically. Just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday, every Wednesday. So join us for that and there’s still early bird pricing. It’s now $597 and that will cover you and the guests Be sure to join us for that I increase the size of the room block and we were able to extend that $99 rate. But I can’t say when the hotel will cut us off. It’s sort of illogical how these hotels act they extend the rate but then when the roadblock sells out They still have rooms, they won’t sell them for $99 anymore, which is a quite a bargain price. So the early bird gets the room. early bird gets the worm too. And so join us for that 597 and $99 room rate, well the room lock and the early bird pricing last, and that price will escalate again pretty soon. So register at Jason Hartman calm two days it will be filled with all kinds of great info. So join us for that. Now one of our vendors, and this kind of irks me a bit here, one of our local market specialists or LMS, as we call them, they have set up a fund, a realty fund, a distress realty fund, and they’ve been sending out solicitations to our clients who have purchased from them in this market to join this fund. Now look, folks, you know me I don’t like pooled assets. I have a quote that I say pools are for fools. I think we should all be direct investors and we should not relinquish Our financial future to anybody else in my 10 commandments of successful investing. What is commandment number three, you’ve heard me talk about it before it is, thou shalt maintain control. Because when you relinquish control to somebody else in a pooled asset, mutual fund, this distressed asset fund that they’re setting up, stocks, bonds, whatever anything else that someone else has control of besides you, where you are not a direct investor, you leave yourself susceptible to those three major problems. And look, folks, you can make a lot of mistakes in your investing career. But if you just don’t make this mistake, you’ll you’ll stay out of a lot of hot water be a direct investor, that is the commandment number three is probably the most important commandment, but the others are important too. So three problems you might be investing with a crook and you’ll lose your money because they’ll just rip you off because they’re graft and corruption. Number two problem you might be investing with an idiot and you’ll lose money because of their sheer incompetence and stupidity. But assuming they’re honest, assume they’re competent. They take a huge management fee off the top for managing the deal. So why would you leave yourself susceptible to that be a direct investor in speaking of direct investment, boy businesses booming, we got a good case study coming up not only in this show, but on another show. I rarely take on clients of my own. But you know, we have investment counselors to do that. But a larger client was referred to me a couple of months ago, and I’ve been working with them on this 1031 exchange. And let me tell you something, they are going to profit so handsomely from this. And we’re going to do a case study a show about this because it’s a it’s a great case of highest and best use of any asset you have. And basically this particular client had a beach home in the family and expensive beach home and was worth about, I think $2.7 million, produce very little rental income. And they’ve turned it around and they’ve been buying property through us all over the country. They just bought 10 properties today in Atlanta, Georgia. Last week, they signed up for 20 in Dallas, although I don’t think they’re going to do all of them. Dallas deals, they purchase some in Phoenix and in St. Louis as well. And it is really amazing. I mean, folks, the the cashflow will be improved for these people more more than tenfold easily from what they had to what they will get when this exchange is finished. And people all over are coming out of the woodwork buying dozens and dozens and dozens of income properties. Because this opportunity is so impressive right now. So take advantage of that. But here’s what I don’t want you to take advantage of. And this is from a competitor. And you know, I actually like this competitor, some of my competitors I really like and I really do respect but I can’t say I agree with them on everything. And this one I definitely do not agree with and they’re offering properties in Nicaragua and they’re saying Oh, it’s the next Costa Rica and folks, we have so many people pitching us on this believes Costa Rica, Nicaragua, all of this stuff, and I don’t know the details of this deal. I suppose I could be wrong, but I bet I’m not. I’m a world traveler. I’ve been to 64 countries. I have not been to Nicaragua. Although I have read a lot about it. I subscribe to international living. I’ve met with real estate brokers and numerous countries around the world in Eastern Europe and Central America, in South America. And I look at real estate pretty much everywhere I go, even if I don’t meet with a real estate broker, I’m still checking out the real estate market because it’s just fascinating to me, in Ukraine. I mean, made Russia I’ve done it everywhere. Okay. I am not a novice at this stuff. And I have not found one international investment anywhere on planet earth in 64 countries. And some of those countries I’ve been to numerous times, that makes anywhere near the kind of sense American real estate makes, and I’ve got friends that have purchased properties in Costa Rica. I’ve got friends that have purchased properties in all different places around the world. And clients. I hear about their experience. And let me tell you something, folks, This doesn’t make sense, in my opinion, you want to purchase property that produces income. Now on this sheet from my lovely competitor here, it talks about how you can get oceanfront condos and non recourse zero percent financing for 20 years. Well, why are they offering zero percent financing? Because they’re building it into the price? The new Costa Rica Prices start at 70,000 bucks basically. Okay? And who is your renter here? Are they American tourists or European tourists? Are they Vacation Rentals? I mean, these places don’t have much of an economy at all. And if they have any, and I tell you something, when I was in Belize, I was gonna just jump over to Nicaragua. I was with one of my investment counselors down there, and we were looking at property and we were looking at banking and thinking of, you know, I had actually opened up a Belize bank account, and I didn’t find it yet though. I just opened the account before I left, actually several months before the trip and then went down there and I went to the bank and going around the country. I was so completely unimpressed. I couldn’t believe it. It was the sum of these places, folks. These are totally third world countries. Well, I read the Lonely Planet Guide, which is one of my favorite travel guides, by the way, about Nicaragua. And we were going to go over there. Instead, we went to Guatemala from Belize, but Nicaragua was right there. We were going to go over to Nicaragua. And they talked about the crime, the crime, the crime. I don’t know last time I was in Costa Rica, there were bars on every window. I mean, granted, there’s a couple of nice beaches. So what what are people thinking when they do these investment? These are not even called investments. Yes, they can own properties. They’re sure if you want to check out a society and check out a civilization and go lay on the beach somewhere fine and dandy. That’s one thing but to consider these investment properties, or you have employment and rule of law, and good infrastructure, I just think you got to be out of your mind, American real estate is a steal right now. People from all over the world are lining up to buy it. I talked to one of our vendors. He said he’s got a group in Egypt that buys properties from him. 30 at a time 30 single family homes at a time just in one shot. Every several months, they come back and they buy another 30. Unbelievable. Shouldn’t you be doing that? Yeah, yeah. So So stay away from these distractions, Belize, Costa Rica, Nicaragua. And listen, if I find one of these deals, that makes any sense. I’ll be the first to tell you about it. But I haven’t. And I’d say the closest thing that makes any sense in my opinion in Central America is Panama. I did go to Panama. I looked with a broker there. And that was sort of interesting. I’d say it was it was the closest but it did not beat anything we have in the United States that we recommend through my network and on the website at Jason Hartman, calm Okay, join us for meet the masters.
Let’s get to our case study here and We will be back with an actual client, talking to you about life and retirement and college and investing and all of that good stuff here in just a moment.
Announcer 23:10
Have you listened to the creating wealth series? I mean from the beginning. If not, you can go ahead and get booked one that shows one through 20 in digital download, these are advanced strategies for wealth creation. For more information go to Jason hartman.com.
Jason Hartman 23:31
My pleasure welcome Patrick to the show. He is one of our clients and he has been to many of our events, meet the Masters creating wealth etc. And he wanted to talk today a little bit about his experience with investing and planning for your own future. None of us is going to retire with a gold watch anymore unless we’re a wall street insider that’s basically ripping off the middle class, which is what Wall Street seems to be so good at and you know, they’re we’re just living in a great state of insecurity Nowadays, but insecurity breeds opportunity at the same time. So as long as we plan and act correctly and view the situation correctly, the opportunities really in many ways have never been greater. But for those living by the old rules, you’re going to be sadly sadly surprised at how things do not work out. So that’s what we’re going to talk about today. And Pat, welcome. How are you? Alright, not too bad. How you doing today? Good. Hey, thanks for joining us on the show here. And first of all, let’s just get a little background. Tell people you don’t have to be very specific, but just maybe what industry you’re in what you do for a living.
Patrick 24:33
I’m in the aerospace industry in an engineering field and currently manage people and work on various military type programs.
Jason Hartman 24:42
Fantastic one. Sure. You can give us all the details about those military programs, right? Yeah, that’s a top secret. So how long ago did you I guess you first found out about us through the podcast. Right?
Patrick 24:53
Right. Yeah, first, I guess I have to thank apple and then I have thank you for doing the podcast. I’ve learned You know, a lot of I’m sure I’ve listened to all your shows, and that was probably back in 2008. And the one thing I was thinking of I kind of maybe listen to them in the wrong order because I was in the middle of purchasing a house locally and in the end, after I closed escrow and then a few weeks later finishing the podcast, I you know, wish I would have not bought that property here locally.
Jason Hartman 25:19
Well, there, sorry about that. They’re not in any order. But and speaking of locally, you’re in Southern California, right? Yeah,
Patrick 25:25
I bought the house in Lancaster, California, which is probably 80 miles north of like, LA x. And you know, at the time, I thought it was a good deal. But you know, since then it’s probably declined some and you know, I had to come in with a lot of money and could have really used that money to have better cash flow in other areas, but I look at it as a learning process and I want to keep pushing through and learning more and sometimes it costs you money. Sometimes it doesn’t.
Jason Hartman 25:51
Well, yeah, that’s true. You know, we all live and learn and I gotta tell you, I it was interesting, because just when I was driving on my way to do this, this interview with you I was listening to a real estate show on the Phoenix radio here. And they were talking about doing short sales. And there were two guys hosting the show. And one guy says, Call us today because your house is your greatest asset. And then the other guy says, Ah, your house is your greatest liability. And, you know, for a long time, I didn’t look at it that way either. And, you know, Robert Kiyosaki says that he says, your houses is your usually your biggest liability. And I think we’ve got to just change our mindset, slightly, not completely here. And and of course you have and I have to, you know, in the past several years, whereas when I moved out of my house, living at home with mom, okay, when I moved out, I moved into a brand new condo that I bought, and I remember that was a condo in Irvine, California. And that was not my first property, but it was it was my first residence that I actually lived in and I bought that for $102,000 and 11 months later, I sold it to a buddy who was Wasn’t a friend at the time, but now has become a very good long term friend. And he bought it from me for $160,000 in 11 months later and I thought, yeah, and then Patrick it gets even better than this because I borrowed the money for the down payment from my grandmother. So my I wanted to calculate my return and being at about 600% in 11 months, but it was really infinite because it was someone else’s money I used for the downpayment and that is the beauty of income property, and I have made some money on the houses I’ve lived in over the years. And I’ve rarely ever been a renter all my adult life only a couple of times one time when I was building a house in Newport coast and had to wait for the construction to finish and I rented them and, and I’m a renter now, as I mentioned on a few few shows ago, and it’s great to own property income property is far and away. The greatest asset class it’s the best wealth creator there is, but owning our own home, not necessarily So your home doesn’t produce income for you, it just costs you money. And if you’re going to live in an upscale area, you can usually rent for so much less as a percentage of value than owning. And so when you get into more upscale property, the rent to value ratio has become so in favor of the tenant. And that’s, that’s a reason really, why as an investor, you shouldn’t invest in these expensive or even medium price areas of say, Southern California or New York City or you know, any high price market you want to you want to serve the masses and dine with the classes As the old saying goes by low and low end and medium low rental properties. And you can rent your house.
Patrick 28:44
Yeah, you know, where I live now. I mean, our house you know, right before it all blew up. It went to as high as about 600,000. And I, you know, talked to my wife and said, hey, let’s we should maybe sell it and it’s, I think there’s an emotional attachment sometimes. And now I think my house I’d be lucky if I could sell For 250 so it’s it’s really been depressed. And, you know, in my industry now we’re going through some downturn with the the government, you know, not being able to spend the money it used to. And what I’ve seen is the people that can’t move, and part of it is they’re upside down on their house, so they can’t move and the ones that are getting the jobs are the ones that are actually mobile and able to go move 50 miles or move 200 miles and they can get the job the people, some of them are locked in or they have these houses that they’ve bought that now they’re upside down, they can’t, you know, short sell them or get rid of them without you know, a credit issue. So I think being a renter gives you that mobility that you’ve talked about before, and I have talked to several people and they you know, there’s some people that just like owning a house, but I agree with you like in a South Bay down in Redondo Beach or Manhattan Beach in Southern California, you could rent a house for 3000 a month and that same one to buy it, you’d have to come in with a couple hundred thousand dollars and then, you know, end up having a payment of about 5000 a month, right?
Jason Hartman 29:59
Yeah, no, you You’re absolutely right. And you know, what we’re going to do on our discussion today is really challenge some of these old ideas that people have. And we’re going to talk about college and retirement planning. And we’re starting out with his homeownership thing. And you know, I have said that on the show, the best thing anybody can have on a resume nowadays is mobility. And being able to move to where the jobs are, where they were they the business climate, or the jobs climate, it’s friendly to those who want to work. And so that’s a very important factor that you just mentioned, houses tie people down. The United States is the most mobile society in the world. You go to Europe, and you go to South America, these people, they live in their houses forever, they don’t move. And I say that that really cost their economy a lot of money because it reduces efficiency and velocity in the economy, when people can’t move to where jobs are. And being mobile is a stimulating factor to the economy. And as investors. That’s what we’re here to do is to provide that mobility to our renters to our tenants. And in turn they’re gonna make us wealthy by doing it so it’s just a it’s really a win win deal for everybody concerned. Okay so you found the show the creating wealth show back in 2008 and then what happened?
Patrick 31:17
Well then I Sarah you know work with me you know over probably six months I was in the middle of an escrow on the house that I bought here locally. And then I kind of decided to go purchase house in Indy just because at the time to be honest, it was the cheapest one and had the least amount of risk if I lost my money, it would have been you know, less than maybe buying a Dallas property and that one in the end you know, your team really helped out because about two weeks for us supposed to close the the original lender I went with decided he wasn’t going to make enough money on the loan and didn’t want to do it and Sarah scrambled and worked with you know, her team to help get me the the mortgage. That one you know, it’s been a good house. I’ve had a turn at one time and that cost me about 16 hundred dollars you know, the people had been there about two years but it’s uh, the numbers you said it would hit they’ve hit and I always put my own, you know, little margin in there in case it doesn’t but
Jason Hartman 32:09
that’s a good point assume it’s not going to go as well as, as the performance or the projections say because life happens if it goes that Well, great, but you know, assume it won’t assume it’ll go worse.
Patrick 32:20
Yeah. And one of the things that I think when I’ve researched these other markets and I like kind of look in and dive in a little deeper than maybe most people is, we make some assumptions here in like California, when I buy a house I pay taxes based on the price I paid for it. Well, an indie you buy a house based on the value that I think it’s worth, not what you paid for it. So you have to kind of factor that in or the taxes may be a little higher. The other big thing I think is that I’ve learned from you is you know, keeping that reserve you know, I have money set aside to handle that I could pay payments on all my mortgages for about six months. And I was really tested earlier this year. We were going on a cruise to Alaska, spending a lot of money My daughter is getting ready to go to college. And then all of a sudden, I had four, four of my houses going rented all at the same time. I didn’t think it would happen, but it was literally with all within about a month and a half. And the initial reaction is maybe to go sell everything, but I really just kind of said, Hey, I put this money aside, I saved this For this reason, and, you know, started dipping into that money and, you know, eventually we got everything, you know, taken care of and rented. But what I’ve learned, you know, listening to you is I got to do my planning and then stick to my plan and not change it just when something bad happens. So
Jason Hartman 33:30
yeah, well, a couple comments. I want to just say before we go on, first of all, you said India and I want to make sure listeners know that means Indianapolis and then you also refer to turning the house or turning what you meant is turning the tenants the tenant turned over. So in between that cost about 1600 dollars to do that turn and then the new tenants have been there for two straight years with no vacancy right now. Why did it cost you 1600 dollars?
Patrick 33:55
Well, in I guess I gotta correct that. I did get some of that deposit back.
Jason Hartman 34:00
Basically out there security deposit you mean yeah
Patrick 34:02
I mean so it probably total cost me maybe 600 out of my pocket I’m just thinking of what I had to pay the contractor but it was carpet paint you know people some some tenants are dirtier than others but you know and once again to you know all honesty I’ve never been there never seen the house I’ve I do have a house in Phoenix that I got on my own not through your network, but I’ve never actually been to my house. Well, yeah. We’ve just given you a hard time ship with a realtor. So you know, I’ve never been at Annapolis. So you’re really relying on your team and their property management, they’ve done a really good job. You know, they communicate well with us and and you are paying a little bit more every time I talk to somebody about this. They always say well, I could fix that faucet for this much money or, you know, save $50 here but I really don’t have the time. So I think when I look at it when I have my house here locally in Lancaster, when I have to go change a tenant out or do something it costs Ask me a lot of my personal time. You don’t have to go over there to get bids. And when I do this one in Indianapolis or Atlanta, you know, you’re paying a little bit more money, but you’re really not doing any work. You know, what I’d like to say about that is if you’ve got a good, honest property manager, they’re great. They’re really not making much money. But if you’ve got a dishonest property manager, and you got to watch out for them, they can cost you some money, but not nearly as much as something in a pooled or traded Wall Street Style investment, where you don’t notice all the costs. They’re just skimming all the profits off the top and you don’t even know they’re doing it. So right. Yeah, I mean, I am doing self management on the place I have in Phoenix and actually, I bought that I partnered up with another guy, and we’ve purchased we’re in escrow on one right now in Indianapolis. And we have a total of three and then the one in Phoenix, we’re self managing. And so I’m trying that And what’s nice about it, you know, it’s it saves me about $100 a month. The real challenge is getting to know all the different contractors. And we’ve had a few little issues that we’re able to resolve, but we’re trying to maximize our return on investment on that. Plus, you know, like you said, when you have a really great property manager, to me, it’s worth the money when they don’t do a good job. It makes it more complicated and more work for you anyway. So you might as well just do the work yourself if you can.
Jason Hartman 36:20
Yeah, that’s a good point. One of the things I wanted to mention about that you alluded to earlier, was about sticking to the plan. And it just reminds me of a great quote that I’ve always, really tried to live by at times when I’m indecisive. I’ll try and remember this quote, and here it is. Successful people make decisions quickly, as soon as all the facts are available, and change them very slowly, if ever unsuccessful people make decisions slowly and change them often. So you see the difference in the in that when a successful person they look at all the They make a decision, they don’t agonize about it. And then they stick with the decision and they stick with their plan. Now, that doesn’t mean being so unaware that the whole environment has changed around you, which is actually one of the things we’re going to talk about today, when we talk about the business world and college and so forth. And you just keep following the old plan. I mean, but when it comes to doing these, these properties, I think that quote really applies well, because you’re gonna feel the bumps in the road here and there. And it’s just important, you know, real estate is a game of staying power, it seems that people that stay in the game, always make very, very nice profits, but the people that are jerky about it and indecisive and get hung up on little issues that when you look at them in the rearview mirror, they’re really very minor. Those are the people that really, they just don’t do well. They don’t do well with business or real estate, or relationships, for that matter. They don’t do well with much of anything in life that I can think of.
Patrick 37:54
Yeah, the people around me too. You know, it’s there. There are people that are going to support you and there’s people, they’re going to have Want you to fail? And the funny thing is, when I lost some of my tenants this last summer, you know, there were several people that said, Oh, you should sell and they were almost happy that it wasn’t working out.
Jason Hartman 38:11
Yeah, right. And some of those people can be your best friends. Ironically, it’s just sort of an ugly part of human nature.
Patrick 38:18
Right. And like, I’ve been to many of the Masters events you’ve had, and, you know, I think there should be maybe a frequent flyer program for that. But I’ve been to so many of them. Really what I enjoy going back is that networking because you’re around people that are passionate about doing this and wanting you to succeed where even the people in your own life, they’re just too negative, and they don’t understand it. I mean, I’ve invested. I mean, I’ve listened to every one of your podcasts. That’s a lot of investment in you and not just you’re creating wealth one but the Solomon success stories and other things. So there’s a huge investment and I gained a lot of knowledge and just by me talking to somebody I really can’t convey that and when you when you tell people Hey, go Go check this out and they don’t do it. And then they wonder why things don’t work out for them. And they don’t understand how to do something, it’s it’s not real hard to understand why they’re not being successful. But I agree this is about staying power. And I it’s important, I think, for anybody to make sure they have their reserves and have a basic plan. And, and I hear a lot of people saying they’re going to go out buy 10 houses in a year. And I’ve partnered up with another, you know, one of your clients that I introduced Sarah to, and we’ve had our LLC form now for a year and we’re on our third house, and it you know, it’s, it’s hard when you’re working, and you got to get the funds together. But to me, if I could buy one house a year, I always tell these younger people that are 25 or 30, you know, if you could have 10 houses by the time you’re 30 you’d be set. You know, when you’re 60 Oh,
Jason Hartman 39:46
yeah, you know, and so when you’re
Patrick 39:49
60 and also where to buy I mean, like Like I said, I’ve bought here locally. And I think the the thing that I wanted to say about that is that with California, we have earthquakes and I know if For a fact my house is, you know, Indianapolis is covered for a tornado, but yet my rental house here is not covered for a earthquake.
Jason Hartman 40:07
Yeah, and you know, one of the things about earthquake insurance is that a lot of people think that when the big earthquake comes in, it will inevitably come it has to, nobody knows exactly when, but it will come. And when it comes, they just think the earthquake insurance, it won’t be able to pay, there just won’t be enough money to pay the claims. Because it’s, you know, earthquakes are so devastating to a whole area, just a huge, huge area and the claim will be so major that they just don’t think the money will be there. And that’s why I say is is counterintuitive as the sounds and as maybe sounds a little ugly, but the best insurance is a high loan balance.
Patrick 40:44
Yeah. And I’ve with folks at work everybody, you know, they keep saying they want to pay their mortgage off and to me, money’s not that important. It’s, you know, what can you get for the money you have? So to me, it’s about the cash flow. And I think I my first house that I bought here when I was kind of Listen to your podcasts, I don’t lose money on that I kind of break even. But I really bought it for a speculation that in the future would go up. But now looking at the economy and where we’re at, you can’t fix the housing market to fix the job market. And I think we’re five to 10 years away from having recovery, at least where I live. And I bought that house based on the fact that one day I could sell it for maybe twice of what it’s worth, but I you got a lot of inventory, jobs are moving out of California. So you know, to get into that one house, you know, it’s a beautiful house, and it was really big, but I probably spent 64,000 get in that and I could have bought a couple houses and other markets that have maybe give me you know, $300 a month each. And it’s really just using that cash flow to maintain your lifestyle. And I still argue with a lot of people on this when they say hey, I’m gonna go out and buy a car, and I go, why don’t you go buy two houses in Indianapolis or Atlanta and then use that money to pay for your car payment. Get a good point. Now they don’t get it.
Jason Hartman 41:57
They don’t get it unsuccessful people they spend money On the appearances of wealth, successful people spend money on the things that create wealth and there is a big big difference so if you want to buy a liability and you want to enjoy those things in life those material things those little perks like that like a new car or whatever, just buy some assets to counteract that pay for it and have have the liabilities paid for by the assets and then you’re out of the rat race and that’s the way you want to be so in what cities do you own properties now you’ve got Phoenix Indianapolis, Southern California where else
Patrick 42:31
so I have a let’s see, I have two houses in Indianapolis one I bought with my 401k rollover I did a self directed IRA I bought a house in Atlanta that was a $7,000 down deal. And you know, if I look on the return on investment on that, it’s been you know, really great. I mean, I still make about you know, 150 bucks a month on that house and
Jason Hartman 42:52
with only 7000 down that’s an awesome cash on cash return. Yeah.
Patrick 42:56
And you know, so far there the market you know, the, you know, the rental market it’s hard to predict. I’m glad I’m a little diversified because I know if I, you know, stick in one area, other areas may do better. And I have a condo in Long Beach that I bought from my brothers and my father passed away. And that one is kind of a break even. And then I have the house in Phoenix, I partnered up with a friend of mine and we have an LLC. We bought that one. And we have two more in Indy that we bought together.
Jason Hartman 43:26
Good, good. Well, so what do you think when you when you look out at the landscape and you talk to the people with up work and you’ve got a daughter that’s going to college? What do you think about retirement planning? What do you think about college and really this it’s, it’s not even new, but I want to say the new economy and of course the rules have been changing, but I’d say that in for purposes of this discussion, a few major shifts that were just huge, huge. mega shifts in our world is number one back in 1971. We came off the gold standard Number two, we really became a globalized economy, all these free trade agreements, China, etc outsourcing to India, China, other countries, and then to really, really even magnify that trend. It was NAFTA when Clinton signed NAFTA. So a lots been going on. I mean, and and you know, I guess the other big mega trend I’d mentioned would be automation in the internet. And it’s it’s really causing a lot of job insecurity nowadays, and things are changing quickly. You know, they say we live in our in alchemic economy alchemy, where things change really quickly. We’ve got to be very nimble. We can’t depend on any company or any job, or even any line of work or profession. Because sometimes whole professions are just imagine Think about it. Imagine if you were a successful travel agent in 1998. Where would you be now wouldn’t have a career. I mean, yeah, there’s virtually no travel agents. It’s a very small industry, compared to It used to be so things they are changing as Bob Dylan said, Yeah,
Patrick 45:04
well I just was I almost took a picture of it and send it to you. I was in Denver last week and I walked by this big you know, shopping center and there’s this big blockbuster video it’s all boarded up and it you know, look like it was pretty fresh. But I mean, if we think back maybe five, six years ago, everybody went to Blockbuster Video and you would have invested money then and thought it was a great deal. And now with with technology, it’s put blockbuster least a segment of it, where you actually go pick up the movies kind of out of business. So with with industry, I think it’s changing so fast. And then also, all the companies are lining up where they’re not giving the great pension programs they’ve, to me, that’s a disservice. I mean, I’m no financial planner. I’m not a big stock market person. I don’t you know, could give anybody advice on that. But the, the issue I have is that companies have shifted people from pensions to 401 K’s and they tell them to go manage their own money, and it’s gonna end up hurting people in the long run because they don’t really know how to do it.
Jason Hartman 46:03
Yeah. And now tell you something, we’re gonna do a 401 K’s show on it was inspired by a client that I spoke with just the other day in Atlanta Mario, I asked him to look up on Google. The video I just said type in 401 k jL and you’ll see a video we produced about that these 401 Ks and IRAs that aren’t self directed, the ones that are in very liquid, very mobile, things like stocks and Wall Street Style investments. I think there’s a big fear of them being nationalized. And you know, I’ve talked about that on the show, especially the interview with Doug Casey a few shows ago. And I tell you, Patrick, I think that’s what’s coming next. That’s going to be a big big shift is the nationalization of retirement plans. And if you’re, if you’re if you either don’t have a retirement plan, in the sense of a 401k, or an IRA, or if you’ve got a plan that’s self directed, where the assets are immobile, it’s going to be very difficult for the Government to, to nationalize those assets in that way. And that’s that’s your protection, there are two ways you can protect yourself against that possibility.
Patrick 47:07
Yeah. And unfortunately, like, you know, I’ll be 47 here in a couple months. And, you know, I’d like to retire when I’m 55. I mean, look what’s changed in the previous 10 years? What’s going to change in the next 10 years? And you really, you know, you kind of make your financial plan for what’s going to be what’s going to happen, you know, 10 years from now, but I don’t know that you can really count on it. So that’s why I’ve chosen to take some money and put it to these investment properties. And the thing I look at Sometimes I wish I would have done it sooner or understand it better, but I don’t think there’s ever been a better time I keep hearing people say well, everything’s bad don’t do it. But it’s, you know, interest rates are low. Housing is below construction costs. If I if I look back in the past 20 years, I don’t think there’s been a better time than right now to actually go do it. I I don’t know if there is either given the combination of all things now I I hate to say it again because I’m always saying it but the the housing market on a national basis if you’re looking at Case Shiller is probably still in decline as far as a price issue, but again, Real Estate’s a multi income property is a multi dimensional asset class. So you have the cash flow from it, you have the tax benefits from an etc. And just from a cash flow basis in the markets that we recommend. Who cares if the property goes to zero? I doubt it ever could or would, because you’re already buying way below the cost of replacement or construction, but you’re very protected. But the problem is, you look at the stupid Case Shiller index, and it’s only got 5% of the nation’s market, only 20 cities, and 14 or 15 of those cities, I wouldn’t touch them. Those are overvalued cities that are still going to decline. So I you know, I just can’t stand it. When people talk about housing as though it’s one monolithic thing instead of a bunch of little diverse markets. All real estate is local. Of course, we know that I could ask Actually in the market where I live right now, it’s kind of unique where the you know, we can get a single family home for probably anywhere from 100 to 150 and make a return on investment. So it’s it’s different everywhere. And then what I what I’ve seen is how people the news media sometimes I just want to turn it off because it’s just so negative. But you know, there’s so many different areas out there and and a lot of people say, well, who would want to live in your rental house and let I know you’ve talked about it before. It’s the people that almost every one of our rentals that i’ve you know, aware of who’s in it, you know, some of the ones I have no idea who the tenant is because the property manager does it but people have experienced a loss of their own home. And they sometimes they get to move in the same size house they moved from their 3000 square foot house they owned at one time with a 30 $500 house payment. Now they’re down to another 3000 square foot house. It only has a $2,000 rental payment. So people just kind of shift down to a different class of house and You know, I’m providing a service. I’ve argued with a few of my more liberal friends. I’m upset that I don’t get more of a tax break because I’m actually putting people to work when I buy a house in Indianapolis. And I go put out you know, $15,000 in rehab costs, I’m putting people to work. And if you would give me more of my money to play with, I would put more people to work I’m creating jobs doing what I’m doing, and and a lot of people have thought I’m an evil person, because I’ve taken advantage of somebody but every one of my houses I have somebody living in that needs a house. Yeah, right. Exactly. There’s no construction going on right now. So you’re gonna have a housing shortage. And I know on a you know, several episodes ago, the the gentleman mentioned that a 1% reduction in the homeownership rate is like a million renters. You know, my son who graduated from college, you know, who’s still at home is looking for a job. And he’s here eventually he’ll go out and you’re going to have more renters that come online, especially as the economy picks Except slowly, I think you’re going to have people that are sharing a house or living with their parents, they’ll move out and it creates more demand. But the thing is these markets that you’ve recommended, and I will say, working with you, since 2008, I’ve seen you do what you say where once a market doesn’t work, or vendor doesn’t work, you’ll switch to another market. And I don’t think you have any favorites. If the market doesn’t work, you switch to another market. That does make sense. Yeah,
Jason Hartman 51:26
that it’s not that’s not exactly great for my business relationships. But I think my customers love me for it. And I’m in business for the customer. I you know, I’m really like, I have a libertarian viewpoint about things and I really think, yeah, I don’t know, I’ve just always been in favor of kind of the underdog or the little guy and rather than support these other businesses, our affiliates, our vendors, or our property management affiliates, I want to support my customers. That’s who pays us we can find another vendor customers are hard to find customers are the most valuable thing Customers number one. So the fact that we have no physical presence, or we haven’t really spent any real money, of any significance in any one market, unlike national real estate firms or even other real estate clubs, you know, like, there’s one competing podcast, I won’t mention their name. But I know some of you guys listen to it, because I hear you tell me that sometimes. And they have groups in three different cities. And you know, it makes them beholden to those those markets. And we’re just in and out of things. When they make sense. We try to be there and when they don’t make sense, heck, we get out and we still have a contract or an agreement with that local market specialist in that market. We’re just not referring business to them. Because we just don’t think that it makes sense at that given time. You know, we want to go where customers are going to have good experiences, and it’s going to be easy for them to invest and do business and the numbers are going to be good and all of that type of stuff.
Patrick 52:53
Yeah. And in the markets, I think there’s, you know, maybe two types of investors when you do an Indianapolis home and you have to be there. rehab yourself, it’s a little, you know, there’s more risk, that maybe the rewards are a little better. But I know you have a lot of markets where you could go in and buy like the one I did. In Atlanta, it was fully rehabbed, it was very simple. And it didn’t take a lot of work. So the thing I think that that people need to understand is, when it doesn’t work, you’re going to move out but you still are supportive. I know when I have an issue, I can call Sarah and she’ll do whatever she can. And and the nice thing about working with you, which at first I you know, there’s different real estate clubs, like you mentioned, I’m buying the house directly from the person in that area, and I’m not relying on you’re not taking part of my profit, or I’m not giving you a fee to do this. So to me, I know it’s on my own. And, you know, if I just take the numbers you’ve given me and I do a little research, I can validate those numbers. And I would say I’m a repeat customer. I mean, we’re in the process of buying a house or an escrow right now. We’re hoping to close here in the next week or so. But if the numbers Didn’t work, I wouldn’t come back. Yeah,
Jason Hartman 54:02
yeah. Well, one of the things is we’re attached to the outcome. Unlike someone who’s on an infomercial or selling an expensive coaching program or something, we actually supply the goods, we supply the inventory, not directly through our affiliations, as, as you mentioned, through our local market specialists that we contract with, but what we say on the show, it’s gonna happen in real life, or we’re not gonna stay in business for very long.
Patrick 54:27
Yeah, and it’s not always perfect either. I mean, I the one thing I do say is a, with all this technology, you know, we have caller ID now. So anytime I see one of my property managers come up on my phone, they’re not usually calling to tell me ask you, if I’m having a great day, there’s usually something wrong and you just got to deal with it. That’s why you have those reserves. But I’ve had bought a house that we do inspections, and then two weeks later, the heater goes out and it’s you know, 1000 or 1500 dollars, and you just got to account for that and deal with it. And most of my properties fortunately, we We’ve had him rented, you know, within a few weeks, you know, so it’s, but that’s when it’s everything works great. But sometimes you just got to plan for, hey, it could take a month or six weeks to get it rented.
Jason Hartman 55:09
Yeah. So you know, that’s why you have at least 4% of the value of each property in cash reserves. That’s very important because you never want to be forced to do anything rash. You always want to be able to stay in the game, and that’s why you have cash reserves. Let’s talk a little bit about what the original idea of this show was. I appreciate you sharing those experiences. But you have a daughter going off to college, and I know that you kind of perked up and were interested in some of the remarks I made several episodes ago about college and about student loan debt, not being dischargeable in bankruptcy, which is something I didn’t know till recently. And the world has changed so much around us and planning for retirement planning for the future planning for financial success, financial independence. What are your thoughts on some of this stuff?
Patrick 55:55
Well, yeah, I originally had talked to Sarah and why because I had I had kind of Live some similar experiences where I in 1986 I finished, like an associate’s degree in electronics. And then when I went into the industry, I got married, I had a job, I was making good money and working overtime and didn’t really want to go back to school. I kind of did, but it was expensive and time consuming. And then I got promoted within my organization and to the point where we’ll be back in just
Jason Hartman 56:23
a minute.
Patrick 56:26
Did you know that we offer one on one coaching? This includes six months of one on one coaching For more information go to Jason hartman.com
Patrick 56:39
I should have it and you know, starting to be judged and I didn’t have it. So a few years back I
Jason Hartman 56:43
have it You mean your degree right by
Patrick 56:45
my bachelor’s? Okay. And a few years back, I mean, and while I was really struggling with this on a you know, it’s more of a you know, maybe you don’t feel good enough for you, you should have tried harder. But you know, everybody around me would say, hey, you’re doing a great job. Don’t worry. about it, but unfortunately, sometimes it does matter. So I went back to school, it was really tough. I mean, I gave up probably two years of weekends or spend time with my family or watching their sporting events because I was doing schoolwork every weekend. But in the end, I think you have to ask the question is, you know, why are you going to school? What do you want to do if you want to be a doctor, obviously you need to go to school. If you wanted to be an engineer, or you’re designing something, they’re gonna want you to have certain you know, education, but I think if you’re in business for yourself, there’s other ways where you could you know, learn and I think what happens what I’ve seen even with people that I know that have graduated, they get out of school thinking that everything is just gonna be handed to them and really, what’s what I think is the day I graduated from school back in 1986, I really just didn’t know anything. And that’s the day you start learning is when you graduate, you know, school just give you some basic fundamentals. But, you know, we should look at life as a continuous process of learning and I’ve invested a lot of time learning about the real estate market. And I’m currently took all the tests for my broker’s license that I’m going to eventually study and take that, but it’s a, you know, a continuous learning to understand. But with, nowadays, people just go to school for maybe some of the wrong reasons, or they get a degree that’s not going to do anything for them. And then they’re, they’re left with 100,000 in debt, I mean, essentially, to go to any, you know, average school these days with the roof aboard. It’s about 20,000 a year plus, you know, ancillary, you know, money that you have to spend for them to go out and do things. So, you know, my daughter’s going and I want her to have that experience. But I want her to also look at fields where she’s gonna be able to, to get a job, hopefully. And I think the one thing that that we don’t teach in high school or maybe even colleges, how do you become an entrepreneur or how do you how do you take somebody that’s not motivated and make them motivated? So there’s a what i what i see lately with people that are graduating is they feel everything just will be given to them. And that’s not the way life works. And also what I’ve seen also, which, to me this not paying your mortgage to me, there’s kind of a moral hazard. And I’ve seen a lot of people. It’s almost like a business model where they’re just gonna not pay. And it seems to be okay. We’re
Jason Hartman 59:17
like the business people that he talked about a lot of these real estate gurus, they file bankruptcy every seven years. It’s just part of the business plan.
Patrick 59:25
Right? Yeah. So yeah, but it’s to me. What I’ve discovered, though, is I know a lot of people that are, you know, have higher degrees and stuff. And I think my passion for like the real estate or listening to what you’re doing, you know, runs deeper. And I don’t know how, why it is, but the how do we get people excited about taking care of themselves. What I think we’ve done is we’ve created a society of homeless where people feel you know, we’ve trained him to be factory workers where they can just go in, and if you get this job, you’ll get this retirement. You’ll get medical The whole like school union mentality where you don’t really have to perform, you just have to be there the longest. And that’s an old fashioned mentality. It doesn’t. It doesn’t play anymore in today’s world doesn’t, right. But what I, you know, to me when I go to work every day, I really try to over deliver, do the best job I can because I feel I’m not guaranteed my job. If I don’t do a good job, somebody else could do it for me. And I think I think a lot of the younger people, we, you know, they’ve lived, my kids included, have lived in a world where nothing really Bad’s ever happened. You know, when you look at other countries, people don’t have enough to eat here. We have, you know, too much of everything, you know. So nowadays, the new phone comes out, everybody wants a new phone, even though their phone works just fine. But
Jason Hartman 1:00:41
well, that’s an interesting point that you just bring up because I was talking to one of our clients about this just a few days ago. Everybody’s talking about how we’re in such bad economic times and everybody’s suffering so much and I know that there are people out there genuinely suffering I understand that for sure. However, by and large, you look around and a lot of the people People that have been unemployed for a while they’re still buying the newest iPhone. They’ve got a house full of gadgets and they live in a decent area and they’ve got a car that’s newer than 10 years old. That family, they’ve got two, maybe three cars, folks, we got to just keep this in perspective. I mean, you look at the people lining up for soup or selling pencils on the street corner in the Great Depression, things are better nowadays. There’s no question about it. They’re a lot better. But just keeping it in perspective, being grateful for what we have, and never deciding that we’ve done enough always wanting to earn our keep every single day. That’s a recipe for success. And never feeling complacent. You know, Napoleon said the most dangerous moment comes with victory. So if you have a victory, stop for a short celebration and get right back to it and get your nose to the grindstone. That’s what you should be doing. It’s good character. It’s character building. It’s good for you.
Patrick 1:01:53
Right. And I think a lot of people they they, they enter a job or something and they feel that that something’s owed to them. And they there’s this mentality that, well, I want a brand new car right now and I don’t want to pay for it. I want all these great things. And it’s, if you really think about it, we kind of set ourselves up for failure, even sometimes with our own kids, where we give them everything. And when they get out of school, what else could they have ever wanted? You know, they had nice cars, a nice place to live plasma TVs. And this goes back to where I know people are always like beating up on Walmart, for example. But Walmart offers cheap products to a lot of people. And I think it’s improved. People that don’t have a lot of money. It’s improved their life. And everybody complains about Walmart. But I always every time I go there, I would see a lot of people in Walmart, so I know what’s up. Must be doing.
Jason Hartman 1:02:39
Right. Exactly. I know. I know. I mean, look, I’m not a parent. I would love to be a parent. I’ve thought I would have had kids by now definitely. But just have it hasn’t happened for me yet. Maybe I’m working too much. That’s probably part of it. But let your kids have a little hardship, let them work and suffer a little bit. It’s good for him. It’ll make them stronger people you know, when I look back at all the hardships I’ve had in my life at the time, they seemed so difficult. But looking back on them, they seem like nothing. And it’s like, the world throws something at me now and it’s like, you can hardly faze me because I’ve been through it. You know,
Patrick 1:03:15
my daughter I bought her a used car that wasn’t really great. It was like, you know, $4,000 and she she was upset at me that I she knows I can afford it. And I think at the time I was choosing to buy another house versus buying her a better car.
Jason Hartman 1:03:27
Well, my first car my first car, I paid for all by myself cash it was $700. And it was a piece of junk
Patrick 1:03:34
that I had a $400 station wagon I brought from my brother and we use the pull up of MC brake because the brakes didn’t work, you know. So
Jason Hartman 1:03:42
and and, you know, Patrick, I walked to school, and it was uphill both ways.
Patrick 1:03:48
Yeah. But yeah, but my daughter and I like I’m not going to be on this planet forever. And if I could leave my kids 10 or 15 houses, and when they’re older when they’re 40 or 50 years. Old they see what what they have that that’s what it really benefit of if I would have bought her one car that you know, she’ll get scratched up or you know, it gets wrecked in the parking lot. What good is that do them when they’re older
Jason Hartman 1:04:12
now you’re absolutely right, you’re giving them something strong, something that’s powerful, something that’s an asset that will help them for many, many years to come. So very good point. Well, on the college note, just so people know where I’m coming from on that. I think college is great. I just think it’s just massively overpriced. And it’s the government’s fault, largely because the government has promoted student loans and financial aid programs. And the universities in turn, just raise the price because the money is there to pay for it. The universities don’t have to compete in a free market, where if there were no student loans, college would be priced. reasonably it would have to be the universities would figure it out. They would just somehow figure out how to offer college for one half the cost Or one quarter of the cost. And when my mom went to school, you know, she went to Berkeley, okay, a great renowned school, one of the best colleges in the country really. And, and she worked her way through college, no one paid for it. She didn’t get student loans. She just paid for it as she went by having jobs. And kids can’t do that anymore. It’s so
Patrick 1:05:18
expensive. The funny thing is, all the schools are protesting that the kids shouldn’t have to pay their student loans. But yeah, they could just lower their rates. You know, they could just say, Hey, we’re not going to charge you $50,000 a year to go to school, and then that’ll help the actual students, but they won’t do that. But these these universities are a bloated bureaucracy. They’re just like, they’re just hugely bloated with all sorts of pensions and all kinds of people that they really don’t need to have there. And it’s just a bloated system. It’s totally inefficient. It’s Yeah, I went to it was dry. It’s to technology now. It’s called the right University when you know, back in the 80s, and it was like, basically You know, in a industrial area, because if they didn’t have the money, it was they’re there to teach you and it was their business. So they have to be efficient. You know, they have to compete with, you know, the universities to get a lot of government subsidies. And I will say like, but they get it, they get it, they get into grants and loans and everything too. But the funny thing is, like these junior colleges and stuff, they just suck the money from the community, but they don’t even really produce anything because there’s they don’t have to, you know, they could just choose what classes they want to offer without really having any structure. I mean, how many people really graduate from junior colleges that actually go in there? I mean, the numbers are pretty low,
Jason Hartman 1:06:39
folks, if you’re if your kids are going to college, do not let them get a useless liberal arts degree. Let them get a degree they can actually use in the real world, okay. Something that will that will pay them that the world needs, not these sort of airy fairy things that just you there’s no employment for half of these degrees that are out there. It’s It’s ridiculous.
Patrick 1:07:00
Yeah, I think if you’re gonna work in a corporate setting, you have to go to school and get your degree, because that’s the, that’s the gatekeeper that determines, you know, what you’re going to get paid and how much advancement you get. And I’ve seen in several different industries, that they say, hey, if you don’t have your bachelor’s degree, you’re gonna be capped at this much salary. But you know, if you’re going to go into business for yourself, you could get your education, other ways, and you’d probably be more successful. You know, I do work with people that have master’s degrees and PhD that they’re, they’re just not I don’t want to say, Well, I guess I will say that there’s sometimes they’re lazy and they think it’s owed to them. They don’t produce anything. They say that, hey, I went to school and I have this degree so I don’t have to perform. And that’s not the way society is going to work in the future. I think it kind of works that way now, but I think that’s changing. It is changing. It’s changing quickly. Well, folks, everybody needs housing, stock up on some rental properties, stock up on some very long low fixed rate mortgages, and you’ll Be a happy camper. What else do you want to just conclude with about, you know, investments and planning for the future Pap, I just think it’s never too late to start. I mean, I’ve been talking to a few people that are 50 years old or 55. And they really don’t have a financial plan and they’re getting ready to retire and I go, it’s not really planning. It’s more like triage at that stage. I think it’s never too late to get started. And I think the real thing is a call to action is even you know, myself, I do a lot of things productive. I think that I also waste a lot of time watching TV. But if people would just take an hour today to kind of learn some of this stuff and spend time and develop their investment portfolio. It’s it’s not it’s not a big investment, but it’s gonna pay off in the future. And I think the real thing is taking action. I mean, I mean, too many people out there complain and say what’s wrong with the world but don’t take action in their own personal lives. To make it better. I mean, the the, to me, the only thing I can do, I can’t control politics and what’s going on I can only control my myself right now. And and I’m trying to use the things that government does with a tax strategies to use for my benefit in the future. And right now, if interest I don’t agree with what Freddie, Freddie and Fannie are doing with these ridiculously low interest rate loans, but if they’re going to do it, I’ll try to use them to my benefit, because I am providing a house for somebody to live in. So
Jason Hartman 1:09:20
yeah, well, it’s not a time to be an optimist. It’s a time to be an opportunity to exploit the opportunities out there. And there are a lot of them. They are great, good stuff. Well, Pat, thank you so much for joining us today. Appreciate it. And I guess I will see you at meet the Masters in March, right.
Patrick 1:09:35
Yeah, I’ve already signed up and set my money or my credit card and I’m ready to go. And once again, I enjoy going by meeting the people and also I think it’s just a good refresher. You know, when you’re listen to it again, and I will say the first few times I didn’t always get it, but now, you know, you’ve been going for this many times I’ve been I keep learning more and more each time because it sinks in a little different or you see it from a different perspective and you I’ve used Mark Kohler to set up an LLC and use some of the other folks that you have. And you know, I think it’s just a great how you get all these people together. And then the cost to me is insignificant for all the knowledge you get considering what some of these other real estate investment companies will charge to send you to a similar type education.
Jason Hartman 1:10:18
Yeah, that’s for sure. Well, thanks again for supporting us. I’m so glad that you’re involved with us and we appreciate your business. And appreciate having you on the show today. Thanks so much. All right. Thank you.
Announcer 1:10:32
This show is produced by the Hartman media company All rights reserved for distribution or publication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for any individualized advice. opinions of guests are their own, and the host is acting on behalf of Platinum properties investor network, Inc. exclusively.
Jason Hartman 1:11:10
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.
