Investment counselor Sara joins Jason Hartman in this Flashback Friday episode. They talk about the Memphis market and set expectations for potential investors. Jason and Sara also discuss the price ranges of  A, B, and C class properties, having the right mindset and remembering that every property is an individual case.

Announcer 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy. This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman

Announcer 0:26
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities, this program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 1:08
Hey, welcome to the creating wealth show. This is your host, Jason Hartman. This is Episode 512 512. And I’ve got Sarah here with me. She was in Memphis and Jackson, as you heard on the last show, and she is our top investment counselor, and has been with me many, many years and has lots of insights. And I’m always trying to twist her arm to get her on the show. Sarah, welcome. How are you? I’m great. I have a little bit of a Memphis hangover. What does that mean?

Sara 1:41
Oh, well, you know, we flew in late last night and just a busy busy weekend. Lots of fun, lots of learning. So just playing a little bit of ketchup today.

Jason Hartman 1:52
Good, good stuff. Yeah, you’re really was a good weekend, you know, we did three days in Memphis. And one day in Jackson, Mississippi. As all of our listeners who listen to the last episode, we recorded the Jackson, Mississippi, just as we were going out to look at properties. So now having spent the entire day yesterday looking at properties, we have some impressions to share with listeners. And I’ll start because I don’t know if you want to start. So shall I start on my impressions? You should start. Okay. All right. So my impression is that Jackson is a good, mostly C class market. Now, of course, there are some beautiful areas in Jackson, that can be a and b class markets or property types. But in Jackson, I mean, you know, the stuff we saw with our provider there was, I think a solid C, maybe c plus class neighborhoods. And of course, as is almost always the case, those properties have really good cash flow, at least on paper, but more demands in terms of management, they really require a little bit more attention. So again, it comes down to the concept of my commandment of the 10 commandments for successful investing my commandment about financial planning, which is very important, and that’s commandment number four. But also, part of that is not really financial planning, because financial planning would involve things like what is your risk tolerance as an investor? You know, are you willing to take large risks? Are you very conservative, are you somewhere in the middle where you want to allocate some of your portfolio to higher risk properties that could appreciate more and have more appreciation potential, but the cash flows not as good and, and then another, and then you know, your time horizon, your investment goal, whether it be capital appreciation, cash flow, tax benefits, income, but then another part of that is really your own psychology, your own personality as an investor. And for that, I would really say that, you know, the, the properties we have now in Jackson are good properties for someone who wants to or is willing to, I should say, maybe nobody wants to. But, you know, for someone who number one has experience with investing, and they’ve, you know, they’re they’re not new to the game, and they’re also willing to pay a little bit more attention to their portfolio, because of the type of tenant quality that you will most likely be dealing with. And you know, those C class tenants, or even c plus b minus tenants, not always every case is individual, but they do require a little more attention, and most of the time, and so that’s really the thing I wanted to convey about Jackson. I liked it quite well. But again, these are not brand new. Homes in yuppie neighborhoods, we have homes like that to properties like that, that make good income properties. But you know, again, cash flow not as good at least on paper. Sarah, would you say? That’s a fair assessment?

Sara 5:11
Yeah, that’s a good assessment. I think that Jackson has some potential. I like the provider, I had a great time, you know, we probably looked at, I don’t know, eight to 10 properties. And, you know, my takeaway was that of those eight to 10 properties, there was one that I thought I would buy this, you know, this looks like a, you know, a good clean property, you know, better neighborhood, nice curb appeal. Still not a cookie cutter, you know, neighborhood, but just a good solid rental property. And so, you know, we discussed after me giving that feedback to the provider, you know, we discussed the possibility of being more properties like that. So, again, depending on your risk tolerance, you may be interested in the lower, you know, $50,000 price point properties, but I don’t see Jackson as like a big growth market, I don’t see that you’re gonna get, you know, any big rent increases, they’re very good for cash flow. But I think a little more risky in terms of the amount of maintenance you might have, I mean, you might get lucky and have a good long term tenant. And that’s one thing, you know, he didn’t say it was that these tenants tend to say, a lot of section eight, you know,

Jason Hartman 6:21
let’s talk about that for a moment. Okay. So the reason the tenants tend to stay is because a lot of them are on some sort of government assisted housing program like a section eight, okay, when you’re on the dole, what real motivation Do you have to change anything? And you know, when you’re when you’re the type of renter who’s paying $700 a month rent, and living in a property that our investor can buy for 45, or $50,000. Moving is a pretty expensive affair, you know, of course, you’re going to do it yourself, of course, you’re going to have to rent a truck, but you’re going to have to change your utilities over you’re going to have to put down new deposits. You know, these these are not in that class of property. They’re not commonly, I mean, it’s pretty rare, actually, that they’re upwardly mobile type of tenants. So they do stick around. And that’s the one nice benefit. And, and, you know, again, on this tour that we went on, on Monday, yesterday, it was you, Fernando, and my mother, and I, you know, my mom has lots of experience with section eight government assisted tenants, and I joked when we were in Memphis at the creating wealth seminar, I joked and in front of the whole audience, I said, Yeah, my mom complained about her section eight tenants all the way to the bank. Because as I was growing up and hearing her bitch and gripe about section eight, you know, she was she was creating a lot of wealth for herself. I mean, a single mom who, you know, basically started with just one property and without another and got another and, and, you know, she would complain about the section eight stuff, but, gosh, it’s dependable, you know, it’s dependable. And the interesting thing is, is that you didn’t, I’m just gonna say you did not love what we saw at all. You said one out of eight, I think that you liked my mom didn’t like it that much, either. And my mom is pretty scruffy. You know, she’s the extreme do it yourselfer. Oddly, she has, I guess, as much of a dichotomy and her her personality as I do, probably because, well, I’ll get my hands dirty, and dive into something and do it myself too. And I don’t mean fixing our properties, because I don’t do that anymore. Although I used to do that a little bit. And she’ll do that. But then, you know, she lives in this beautiful mansion, you know, really likes really, you really nice things and buys designer clothes. So it’s just kind of a contradiction. It’s a funny thing. But Fernando, though, was the was the one who was different as I and I was just kind of trying to be quiet and get the feedback from all of you and throw in my opinion later. Can you imagine that? That I didn’t insert my opinion, but Fernando really liked it. I mean, you know, he was like, Oh, yeah, I like this, you know, because government rent, very dependable, and you know, great cash flow. But again, now he’s got four years of investment experience under his belt with a big portfolio. And it’s diverse, you know, he’s got some class A stuff, he’s got some class B and some class C. And his tolerance is willing to accept those more attention sucking tenants, you know, that just need more attention, because there are people that aren’t upwardly mobile usually. And it’s just a different type of manager.

Sara 9:39
Yeah. And I think that initially, these properties will outperform some of the nicer areas because they are higher cash flow. But I don’t know I would be curious what the, you know, five year picture looks like generally

Jason Hartman 9:55
speaking, and you’re right, because generally speaking, you I mean, at least historically, and we don’t know if this will hold that way. But historically, the nicer properties tend to have better appreciation. There was an old rule. I remember many years ago, listening to one of the many real estate gurus I followed for many, many years in my in my 20s. Okay. And one of them said, if you’re in a neighborhood, and you’re driving around looking at properties, and you see someone jogging, get out, you don’t want to invest there. Because that in other words, his point was, it was a yuppie type neighborhood. And by the way, I’m hope everybody knows when I say yuppie, that means young urban professional, right? That’s an acronym from from like the 80s. And so, you know, he would say, don’t invest there, because he liked that C class stuff. Fernando liked it. My mom used to like it, I think, now she isn’t in favor of it, because he just doesn’t want to deal with the government. It depends, right?

Sara 10:57
Yeah, I mean, I think at some point, you want to have a good healthy mix of ADC properties. So I think the key is to be a seasoned investor before you, you know, like you said, have experienced before you go into, you know, a C type, property or properties. And I would definitely encourage you to go visit the market.

Jason Hartman 11:21
So what Sarah saying, I think, is very good advice. There are three basic types of properties that we talked about a, b, and c. And the A properties right now. Now, of course, this is subject to change, because everything’s dynamic and fluid. But right now, if we’re taking a snapshot in time in the markets that we recommend, Sarah, would you kind of agree that we could define some of this by price range? And I’m going to throw out some numbers. Let’s see, if you agree with them, you know, we don’t rehearse anything or talk about anything much in advance. So it’s all it’s all raw in here it is. Okay, I’m gonna say that in a property in the markets that we recommend, is anywhere from 120,000 to $170,000. For a single family detached home, would you agree with that?

Sara 12:12
It depends on the market, I don’t think you can compare all of our markets to each other, like, like tech, that would be a good, like a Texas property. Indianapolis maybe, but like, in Memphis, for example, we saw a lot of Memphis properties, right. So they’ll define sometimes a $90,000 property, you know, which is significantly less as a property. And then you know, some people will distinguish, distinguish in a property versus in a area, you know, so keep in mind, it’s a matter of opinion.

Jason Hartman 12:45
It is it is, and it’s in, it’s going to change. You know, if you’re listening to this episode, two years from now, which I know people love to do, they go back and listen to the old episodes. And of course, we do flashback Fridays to at least currently. So I’m just trying to give the listener some sort of idea as to what that means and in different providers to find them differently to, and it depends where it varies, but right, if so you say so let’s

Sara 13:13
separate it, let’s separate it by the linear markets and the hybrid market. So the linear markets, I think the price point could be like 90 to 120 130,000 would be your area,

Jason Hartman 13:25
but let me explain that for us. Okay, so three types of markets, linear, cyclical, and hybrid. We don’t recommend cyclical markets. So we’re not even going to talk about that. We do have mostly linear markets, the markets that just chug along and appreciate slowly. And then we have some hybrid markets who have a little bit on the edge, they get more toward the cyclical, but not much. They still make sense from a numbers perspective, and you can still get decent cash flow. So okay, Sarah, that’s a good way to look at it. So the let’s What are right now? Yeah, in your eyes, the strict linear markets, they would be what Memphis, Jackson,

Sara 14:04
Memphis, Birmingham, Indianapolis. Those are the top markets that I would say are linear and

Jason Hartman 14:12
hybrid markets that we have right now. And we’re not really doing much business in these markets because they don’t really work that great. Okay. But at times we kind of move in and out of them. But I’d say a hybrid would be Austin, Texas, Denver, Colorado, Phoenix, Arizona. Atlanta, is becoming a bit of a hybrid market because it’s Atlanta has appreciated 10% in the past year and maybe even Dallas. Yeah, Dallas is becoming a bit of a hybrid to you know, now you don’t think Houston is moved there at all or has any hybrid ish nature to it. Do you

Sara 14:47
a little bit. You know, we talked about that market this weekend. There’s definitely a buzz about Houston still, you know, and I know we talked about the oil prices, but I talked to a lot of people People that still think Houston is hot. So it’s,

Jason Hartman 15:03
it is hot in the summer and it’s humid too.

Sara 15:07
Well, I mean, it seems to have appreciated quite a bit over the last year, which is good for our clients that bought there a year ago. Right. You know,

Jason Hartman 15:14
I’ve been very happy with my Houston properties for over many, many years now. And so, you know, Houston, I did kind of issue a yellow light warning when oil prices were really, really crashing, they seems to they seem to have, you know, found a maybe a floor will remain to be seen. So this is not a matter of you can say this is linear. That’s hybrid always for sure. Okay. It’s a 50 Shades of Grey issue. Okay. Boy, see that. Just saying that on my show is going to increase my shows transcripts, SEO value. 50 Shades of Grey, okay. Yeah, see there, there were key. That’s folks, that’s known as keyword stuffing. Okay. And then if I say other keywords like Harvard University, and Enron and you know, then I put a stock symbol next to it. That’s all the search engines will love us. Right? Okay. So, linear hybrid. Okay. So linear, I would say, oh, they’re linear markets. Let’s talk about Mario’s St. Louis, Kansas City. What else? I think we sent we sent them all. We said all the ones that were recommending at the moment, okay, sure. There’s some others, Columbus, Columbus would be a good, good. So anyway, that’s the idea. And what Sarah is saying, and I think this is excellent advice that you’re giving the listeners is that get your first experiences in a and b property types. And then once you’re comfortable as an investor, so if you’re new, we want you to start with a and b. And once you’re comfortable, and you’ve got, you’ve built up some mental muscle, okay, in this whole investing game, then dip into more of the C type properties because the C’s can be great, but you know, they are a different a bit of a different animal. Okay, so now and

Sara 17:10
keep in mind, once you have a big portfolio of properties, your portfolio, you know, will cover your vacancies and your maintenance items, and you don’t feel it as much, you know, when you when you’re just getting started. And maybe you have, you know, five properties, you’re still kind of building the momentum. And so those vacancies and maintenance items that come up hurt a little bit more. And again, it goes back to the psychology of investing. So

Jason Hartman 17:37
so if you have a portfolio and you have 10 properties, and two are vacant, or to our a Now remember, there’s a difference between economic vacancy and physical vacancy, say, two are economically vacant, which means the tenant is in them, but they’re not paying. Okay, so you only have a 20% vacancy loss in that situation. Whereas if you only have two properties, and one is vacant, you have a 50% vacancy. And if you feel a lot more, and you know, we’ve had lots and lots of clients on the show over the years, in fact, we got some great client interviews coming up, who have been on the show recently, and I love it when they share their real world experiences, you know, we call it the good and the bad and the ugly, okay, the good, the bad, the ugly, you know, one of your clients, Sarah, who’s been on the show a few times. And that’s Bob from Colorado, by the way, hey, Bob, you said, you’ve purchased nine properties from us so far, and eight have been great. And one is a problem child? Well, you know, if you had nine kids would probably be about the same.

Sara 18:43
You know, what I’m Bob, he’s like the perfect example of somebody who has the right mindset for investing. And he does well with some of the, you know, C area properties. And I forget exactly what he said to me. But, you know, he was kind of telling me about that one bad property. And he said, Well, geez, I learned a lot.

Jason Hartman 19:05
So that’s the thing in life you Do you at least if you learn something from it, you’ll be in good shape. But the idea is to learn on our experience, not your own whenever possible. You know, because we sort of aggregate all these client experiences, the good, the bad, and the ugly, and we share them with you on the show. Okay. And I think all our listeners know, we’re just super transparent about that. The ones we don’t always share are the ones that are the clients really shot themselves in the shoe. You’re never gonna let me live that one down. I’m not because you’re so funny. You know, you have a few of those. You had a couple of others too, but very, very good. Good stuff. Okay. So anyway, there we have summed up Jackson, Mississippi, I think for our listeners for the moment. So if you’re interested, Jason, you can compare and A, B and C properties. And eventually when we come out with our new software, we’re going to actually be grading them properties right on the software. So, you know, but you know, I think most of our investors, if they’ve been listening for a little while they can identify an A, B or C property. But actually, we didn’t finish that price criteria thing. So I want to try and take a stab at it. So hybrid markets 120 to 170 is probably likely, though not always, to be an a property. Okay. And now there’s some overlap. And I’m gonna say 80,000 to 130,000. You notice there’s overlap, right? That’s intentional. 80 to 130,000 is probably going to be a B type property. And then 40,000. Yes, we do occasionally have these $40,000 properties, although we don’t recommend them too much. Those are more for more experienced investors usually. So I’m going to say 40,000 to 90,000. Could be a C type property. But I don’t know, Sara, maybe you’ll disagree with me. I mean, I you know, we’ve seen people get a properties for 75 80,000 sometimes do, right? Yeah, sure. And 2010. Oh, well, well, oh, yeah. I’m gonna be I’m sorry. Did I say I think I think you’ve got it narrowed down pretty well. Okay, good. So I just wanted to give that kind of guideline, and then you can tell by looking at them and all kinds of other counseling that we can help give you. But hey, let’s talk about rents for a moment. Okay, I’m looking at an article in new wire. This is really, it’s amazing how this happens. You know, what, what goes on in the housing market, is you always have prices take the lead when it comes to increases, and rents follow prices, and they follow them rather slowly. So the title of this article is rents increasing more quickly than home values in many markets. Well, duh, I could have told you that. Okay, that pretty much always the way it happens. And even when home values level off, or are declining slightly, you’ll still see rents increasing, because those are the lagging indicator, they always lag the prices. And here’s one of the core differences between commercial property and I’ve owned several commercial properties, apartment complexes, and residential properties, meaning under four units, four units and under, okay, when you get over, when you get over four units of five plus that’s considered commercial property. And other types of commercial property, like retail centers, office, buildings, industrial buildings, that type of stuff, the core difference, and one of the reasons I really like housing better residential property better is because it’s illogical. It doesn’t follow the income. So if you’re going to sell your apartment complex, Now, granted, this, of course changes, but generally speaking, the price or the value of that apartment complex will be determined by the income it produces. In a residential property, you listeners, as investors, you determine the value of the property based on the income it produces. But remember, you’re a tiny percentage of the market, the rest of the world out there, even people who consider themselves investors, but they’re really speculating. And they’re they’re just gambling idiots. Okay, gambling fools. Most of them. They don’t consider income to be a big part of the deal. And if you want to know more about this, you can watch the HGTV show called income property. I mean, I don’t know Sarah, I don’t know why they call it income property. It doesn’t produce enough income. I would call that alligator property. That’s property that loses you money. Jason, I think you and your mom need your own reality TV show. You liked hanging out with my mom, didn’t you though? She’s pretty. She’s pretty funny. Fun.

Sara 24:01
She’s a lot of fun. Just so the listeners know, we had a three hour drive from Memphis to Jackson. Mom was driving and she was letting

Jason Hartman 24:09
me DJ part of the way so I got to control the music a little bit. Not always. Yeah, she gave Jason a hard time about his music selection. We put on YouTube now who listening does not like you too, right? I mean, that song one by you too. That’s got to be one of the best songs ever. It’s like Stairway to Heaven. It’s great. Okay, it’s a phenomenal song. Sorry listeners if you don’t like it, but you’re crazy. You’re like my mom. Okay, cuz that’s an awesome song. Check it out. Go to your computer your device and type in one oh n e by YouTube. It’s awesome song. Anyway, I put that on in my mom is Oh no, that his voice sounds to ugly. Mom. That’s Bano. Big time and she goes, I know who he is. He’s always talking about all these causes and political thing. Cuz that’s how she knows who he is. Okay. But yeah, I got to control it a little bit, but not all the way. But she’s funny. She’s, she’s very opinionated, isn’t she? She is. apple doesn’t fall far from the tree. Okay, I guess you’re right about that. Okay, back to rent increases, I’m gonna just cut that one off. So it says residential rents in the United States are continuing to rise up 3.7% year on year to 13 $162 a month. Okay. So that’s, they don’t say if that’s a median or average, okay, but in keeping pace with housing price growth of 3.9% over the same period. So of course, these are nationwide stats, and they’re almost meaningless a little bit because all real estate is local, of course. But anyway, it is what it is, here’s what I want you to notice that listeners are the 1362 as the average or median, I’m not sure, because the article doesn’t say, interestingly, that most of our rents fall slightly below that. And one of the things is Sarah and I were talking about A, B and C class properties a few minutes ago, one of the things that I want you to consider as an investor, and one of the things that we generally do with sometimes we kind of break these general rules, okay, but it’s a general rule is that when we are in an area, we want to be investing in properties that are slightly below the area’s median price. And we want our rents that we’re charging our tenants to be slightly below the median rent in that area. Okay. Because that always, I think, and this is just an opinion, it’s not exactly data driven, but it’s just kind of from so many years experience doing this, it always gives you the opportunity to catch a bargain Hunter, on the way up or down in the socio economic ladder, or it gives you a chance to have your price of your property and your rent on your property pulled up a little bit, just by generally what they’re comparing you to around around in that market. Okay, Sarah, is that a fair statement?

Sara 27:18
Yeah, that’s a fair statement. And the other thing we were discussing was, you know, rent increases per the type of property. So, you know, in a property might have a higher percentage of rent increase annually, then your see property

Jason Hartman 27:34
that is true, and see the key there. And the same goes for appreciation. By the way, generally, these are all general things we’re talking about nothing’s nothing’s set in stone. But generally speaking, what you’re going to see on those a properties is that you have more potential for value increases, and more potential for rent increases, because the people that are living in those properties are purchasing those properties from you, they’re living in there as a renter, or purchasing them from you when you sell them in the future, hopefully, 27.5 years down the road, because that’s how long I generally want you to keep your properties, you know, they’re more upwardly mobile, so their incomes, they’ll find a way to increase their incomes, and be able to pay you more. Okay, and so and so that’s why I mean, I always say try and target, but it depends on the market, try and target a 4% annual rent increase. So that just means if you’re charging $1,000 a month now, hopefully in a year, you can get $1,040. Now, what is going to make that possible or impossible, here are some of the factors. And again, every property is individual. So this is not a conclusive concept. But what is going to make that possible or impossible is what are the interest rates at the time that you try to get the rent increase if rates are very low. And at the same time, if financing is plentiful, and easy to get? It’s going to be very hard, if not impossible for you to get a good read increase. You may have to even when the market was really, really hot in 2004. And things were going crazy. And we were obviously in a bubble time. And I predicted the end of the crazy expensive market in late 2005. And I was right about that. I predicted that just completely accurate and it’s Yeah, you know, I was saying that in all kinds of seminars. I had vociferous arguments with Orange County, California realtors, and, you know, they’d say I was crazy prices are gonna go up 25% next year, I said, No, they’re not. We’re at the end. This is about it, everybody’s tapped out. But what’s going to depend is you know whether that renter has another option. And remember if rates are low, That renter can go and buy. And that means prices are probably going up. And if they’re paying attention to the housing market, they’re feeling a sense of loss a sense of scarcity. They’re feeling like, you know, they’re having conversations like, Hey, honey, if we don’t buy a house, we might be left out. And so they’re likely to be hunting for a house. This is the upwardly mobile tenant, but the section eight tenant who’s living off the government, okay. They don’t usually, you know, they’re not, they’re not delaying gratification. They’re not pushing themselves as hard. They’re not exerting themselves as much usually. Okay, this is a general statement, of course. So, them saving money for a downpayment, even if the downpayment is only $3,000. That’s a big deal for them to do that. And so it just depends. If interest rates are very high, and the option to buy something isn’t possible, than the likelihood is, you’ll be able to get higher rent increases, but the value of your property won’t usually in that type of market be appreciating, in fact, it might be softening and depreciating, but your cash flow will be increasing. So this is the kind of that three dimensions of real estate concept. Sarah, what do you add to that? Um,

Sara 31:21
no, I agree. I mean, I don’t have a lot to add to that, just based on my own experience, I, I agree that nicer properties tend to yield a little higher rent increase. And, you know, my view properties, you know, they’ve been kind of slow and steady. And I have yet to venture into the C class, which is why I have my opinion on you know, the Jackson C class properties.

Jason Hartman 31:49
Now, I want the listeners to know something now, is that when you see an article, or you hear stories about rents increasing in a place like Los Angeles, for example, and maybe you hear me talk about this article, and you hear me say, quoting the article that rents are up 3.7% year on year, and in this article, prices are up 3.99%. Now remember, this includes entire nation, okay? If you’re here’s one that’s interesting. In this article, it says of the 17 metro areas where rents are growing more quickly than home values. The biggest differences are San Francisco with rents up 14.8% year on year, and home values up 9.6%. So that’s San Francisco. Okay, well check this out. Well, Kansas City rents are up 8.6%. And the price is up 4%. One more in Pittsburgh, okay, I used to live in Pittsburgh as a little kid. rents are up 6.3%. And prices are up 4.3%, respectively. So what does that tell you? It tells you that in high priced markets like San Francisco, I use the example of La before I just glanced down the article and decided to read that little clip from it. You know, those rents are so out of sync with values that it’s absurd. I had one of our people on the show that does some video production and podcast editing for us. His name is Patrick, and he was on an episode, maybe two, three months ago. If you want to find that episode, just go to Jason And type Patrick in the search bar, and you’ll find him. He lives in San Francisco. And he lives right in a prime area in a rent controlled house that he pays I think 20 $300 a month for and it’s worth about $1.5 million. And his wife is a trademark attorney or an intellectual property attorney, I should say, you know, he’s a great guy. And they’re basically trapped. But oddly, they’re not trapped in a bad deal. They’re trapped in a great deal. I mean, when you can rent a $1.5 million house for 20 $300 a month. You know, he says that they think about moving and they kind of want to move. But their deal is so good that they’re crap. How did they get that deal? I want that they got it in 1997. And they’re and so their landlord just hasn’t raised the rent. They can’t it’s rent control. Yeah, so it’s the Socialist Republic of San Francisco, just like the Socialist Republic of Santa Monica. down south, okay. And these these these rent control, it always leads to shortages and disaster and you know, it’s every socialist communist program never admit they never work. I mean, history is replete with examples of this, of course, right? So they’re trapped. But if their rents went up by 20% next year, they would still be getting a phenomenal deal. You see what I mean? That’s what I want the listeners to understand. These are why these stats are so misleading. It’s because the rent to value ratios and high priced markets, whether they be Miami, LA, San Francisco, San Diego, New York, Boston, you know, whatever, just any market that’s high priced around the world, those rents are so far behind prices, they’re lagging so much that it wouldn’t matter. If they had a huge rent increase, it’s still a terrible deal for an investor. Because if you buy a new Prime property today in San Francisco, and then you turn it into a rental, you you could pay $1.5 million for that property. And because that renter hasn’t been in there for years, and hasn’t been benefiting from these very limited rent increases, that the rent control laws require, you know, you could maybe rent your place for 5000 a month, or maybe even 6000 a month. But that deal still stinks. Because, you know, for $6,000 a month, I mean, that should be a $600,000 value property, not a $1.5 million property, without 1%. rent to value ratio target. So that’s what’s so misleading. And I’ll just remember Sarah, that years ago, like 2004, there was the Los Angeles Times article, and it just shows you how stupid the media’s and how they mislead people. It talked about the 10 best and the 10 worst rental markets in the country. And it said, if you’re a landlord and investing in Oklahoma City, you’re really out of luck. Because the average rent there is only $763. You know, that’s not exact, but that’s about what it said, okay? And if you’re a landlord in Los Angeles, you’re doing great, because the average rent is like 16 $100. But they did they failed even consider the price of the property in Oklahoma City versus the price of property in Los Angeles. Actually, it’s the reverse was completely true, that article was absolutely 180 degrees wrong. But most people read that, and they think, Well, I better invest in Los Angeles than do yet it seems so obvious, is obvious. But you know, you got to be listening to the creating wealth show and listening to my podcast, to really know, you know, we try to get you know, this is not exactly sophisticated stuff we’re talking about. But compared to most of the world, and even investors with a lot of money, don’t let it fool you that people with a lot of money are sophisticated. Sometimes they are most of the time, maybe they are but not always, you know, they, sometimes a lot of money makes you kind of careless, and not pay attention to things. So I guess the point, the take home point is with everything we’ve talked about today’s era, is that everything is an individual case. Right? It’s all every property is individual, every investor is individual, every tenant is individual. And you really got to think through the numbers. And think through what type of investor you are, what type of psychology you have, and all of that think but more importantly, act. Actually, that’s the best advice you’ve heard all day, folks. Because thinking will not make you any money. Only taking action will make your money so so be sure to get your investment portfolio going. And if you’ve got it going, make sure that you are always always always expanding it. There’s an old saying for investors. And you know, of course, not all states have escrow, but in California and other states you use escrows when you buy a house, and one of the sayings is always be in escrow. In other words, always be buying something, you know. So if your escrow lasts about, you know, 45 or 60 days, you know, that means you’re buying six properties a year, always be in escrow always be acquiring something that has made people incredibly incredibly wealthy over over the course of history gotta acquire assets, you got to control assets and I just have to say no, we’ve gotten a little long here and you know, what’s new? So much for 20 minutes, right?

Sara 39:26
You guys have got to come to Jason’s creating wealth seminar. I mean, you know, I, I go and I sit in the back of the room, you know, every year twice a year you’ve

Jason Hartman 39:37
been but you’ve been to like 100 and some of them probably by now.

Sara 39:40
This is my you know, this month is my eight year Platinum property anniversary. So you’ve

Jason Hartman 39:45
been with me eight years and we’ve put up with each other that long, huh? We have we may actually like each other now. You know, I do like you.

Sara 39:54
Oh, how sweet. Hey, we did ride in a car for three hours together. Not Many people can do that.

Jason Hartman 40:01
We gave Fernando and my mom the front seats. And we were in the back just hanging out. DJing from there. Yep. karaoke, more like karaoke, right? karaoke? Yes. Yes. Bye bye Miss American Pie, drove my Chevy to the levee. We did sing that one remember?

Sara 40:18
I yes, I do remember that. So you know, but back to the, you know, seminar, you have to stay plugged into these events. There’s nothing like going to one of Jason’s live events, sitting in a room full of people that are like minded. I mean, I get pumped up every time I just network with our own clients, and you know, our new providers. And it’s, it’s just really an incredible experience. So, you know, I was sitting back there this time thinking, Man, there were a couple of people that really wanted to come and couldn’t work out their schedules. And I was really feeling bad that they didn’t make it because it was just, you know, very inspiring.

Jason Hartman 40:54
You know, Sara, that I want to comment on one other thing that you told me a couple of weeks ago, every once in a while, we get someone who starts listening to the podcast. And they’re skeptical, the sounds like it’s some big show, and everything is contrived, right. And you know, I understand, listen, there’s a lot of shysters out there. There’s a lot of scam artists out there. But we’re real people, we’re a real company, we’ve been around for a very long time. You know, if you’re skeptical, here’s the best thing you can do, come and meet not us meet our clients, because they are in the room, you’re going to meet people who are real people that you can talk to without us there, you can go have coffee with him, you can go have lunch or dinner with him, you know, without us. And you can hear their real experiences. Our clients who have been investing with us for years, still come to our events, they repeatedly come over and over again. And I always feel like I’m getting up there just totally repeating myself and thinking they must be bored. And not maybe they are a little bit, but they still come and one of the big parts of our events is the networking with other investors, of course, you’ll get to meet us to an our team, but but I think it’s really more important, you’re going to get to meet our clients. And you know, maybe, I don’t know, help me with this one, Sarah, but maybe 30 or 40% of the room is a client? In other words, they purchase one property at least. And then somehow and then, you know, 60 70% there, they haven’t purchased anything from us yet. would they? Would that be about right? That’s my guesstimate. Yeah,

Sara 42:37
that’s a fair statement. I mean, you know, some people are coming back for me, it was some people buy, and they’ve never met us in person. And then you know, your goes by and they’re ready for more deals. And so they’re coming out to tour properties, but they’re getting the education too. And so, yeah, and then some of the clients that come out have been to several events. So it’s, the thing about the seminar is that there’s a lot of new content, even though it’s the same philosophy, and you know, the same overall message, everything changes every year things change, you know, and having the lenders come up and talk about these changes. And, you know, it just, it’s endless. Yeah,

Jason Hartman 43:17
I, you know, there’s one more thing I want to say, before we let everybody go today, you know, we’re always going longer than we think we’re gonna go. But when you start investing, and when you start talking to people about investing, and when you even talk with the providers, we refer you to, okay, whether it be our local market specialists who provide properties in areas, whether it be our lenders, our legal advisors, and we’ve got a whole team. So you know, our slogan is the complete solution for real estate investors, we can refer you to pretty much everybody you need to make this happen for you. But the thing I do want to say, is, be careful who you listen to, don’t just go off far afield. We are the objective ones who provides referrals to all these different services. Just don’t, don’t make a mistake by just listening to some, you know, half baked advice. One of the worst areas of half baked advice that I see, by the way, are real estate investors who, you know, we talk about the 10 commandments, you know, you might follow that, but it’s when you go, and you buy a one off property, a one off deal. One of the huge resources that we offer is that we have such a big volume of customers and a big volume of business is that we have leverage over these service providers. And I just see people that go and you know, in one of the form groups I’m in, you know, people were talking about, oh, you know, some guy’s got three properties that he’s going to liquidate in McAllen, Texas. And someone tagged me like I shouldn’t Look at this, no way, I don’t care. We don’t do one off deals, we do deals based on relationships, where, where our providers have a big stake in, in our referrals continuing, and our clients being happy with the results. So I’m telling you, if there’s one thing to avoid, it’s the one off deal syndrome, because you’re just never going to get great treatment in a one off deal. All right, everybody. This was just kind of an open raw conversation today. So I hope you don’t have an interview after No, no interviews. This is this is the show today. But listen, go to Jason Check out the properties, check out the educational products, the blog articles, if you’re not a member, yet for a whopping 100 120 bucks a year, by the way, we’ve been a lot of people have been becoming members lately. So that’s great. You can get on those monthly members only Jason Hartman University calls and those are, those are really a great resource. Anyway, we just thank you so much for listening. Thank you to everybody who came out to our Memphis property tour. And it looks like our next property tour, although it’s not totally confirmed. We’ll be in Atlanta in probably late July. So listen to more on that. We’ll do the creating wealth seminar and the property tour at that event as well. So more to come on future shows and on the Jason website in the event section. Thank you so much for listening, happy investing to everyone. Thanks for joining me, Sara. Thank you.

Announcer 46:37
What’s great about the shows you’ll find on Jason is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage, and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, here’s a show for that. And if you just want to get away from it all and need to know something about world travel. There’s even a show for that. Yep, here’s the show for just about anything, only from Jason or type in Jason Hartman in the iTunes Store.

Announcer 47:17
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 or email media at Hartman Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own and the host is acting on behalf of Platinum properties, investor network, Inc. exclusively.


Today’s guest is a listener of the podcast, Ian Kimbal. He asks Jason Hartman about owning apartments versus single-family homes, protecting yourself from liability when you’re young, and the best ways to screen property management companies. They also talk about real-estate specific resume and having a bank account for real estate activities.

Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman

Announcer 0:13
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walk the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 0:48
Welcome to the creating wealth show. This is your host Jason Hartman. This is episode number 529 529. We’ve got a good listener q&a show for you today. Our listener Ian is calling in with some questions. We’ll be with him in a moment. But first couple of notes on upcoming episodes. Wednesday will be a 10th show and we will have the world famous Bob Proctor, author of few great books very big on the speaking circuit was also in the very famous little short film called The secret. And you’ve all heard of that. His latest book is the ABCs of Success. He’s also author of you were born to be rich, so he’ll be on on Wednesday. And for flashback Friday we’re going to talk about multi generational wealth preservation with Katherine McBean, author of get rich stay rich pass it on Monday Next week, we’ll have yours truly talking about something or other I haven’t exactly decided what. And then the following Wednesday for Episode 533. The famous economist Laurence Kotlikoff is back on the show with us to discuss Social Security, how you can maximize that. And it’s kind of amazing, you know, this is not something I think about at all. I’m really just knowing that Social Security won’t be there for any of us in any legitimate way. I know. We have to kind of think that way because it is so mismanaged along with our government in general. You know, he’s got a New York Times bestselling book right now on maximizing Social Security, there really are some interesting tricks of the trade on that, that I was certainly not aware of, I don’t think much about it at all. Because I think God, if I actually need Social Security, when I eventually, someday do qualify for it, I am not doing very well. I plan to be extremely wealthy by then not having to think about Social Security, but interesting point. And he’s also of course, going to be with us. He’s done the most extensive studies really, on the 200 and $10 trillion time bomb. So he’s going to talk about that. And then the following Friday for Episode 534. We’re going to talk about some interesting Wall Street stuff, the collapse of Bear Stearns, look forward to those shows.

But as we dive in today, first of all, I am not broadcasting from my closet, the place with great sound with padded clothing everywhere. That makes the sound really good. I am broadcasting from my guest bedroom. How does it sound today, I’m not on my good microphone. So of course, it won’t be as good in that respect. But I think the acoustics in this room are fairly good. Given that I am sitting on top of the unmade guest bed with those a great, a great memory foam. So that’s got to be fairly decent for sound even though I’m not using a good microphone for this one. I was going to record this introduction last night. And I just wanted to kind of sleep on it and process my thoughts and emotions a little bit. And I just got to tell you, we finish last night or yesterday afternoon really our inaugural kickoff for the venture Alliance mastermind group. And I am just I just got to tell you, I’m so honored and I am so moved by the people that we had attend this last weekend. It was really just a phenomenal, phenomenal weekend. And what was interesting about it and I you know I I never really do events like this where it was a really just a very intimate event. It was a very interactive event. It was not the usual thing where I’m giving a presentation. This one was much more interactive. Of course I presented a few times on a few things, a few different investment deals. We had our Analysts come up with the analyst Oliver for the venture Alliance who is analyzing deals and looking at them. We had hot seats, that was really one of the highlights, people, investors come up and talk about whether they want to get out of the corporate world, or they want to increase that real estate portfolio size, or how to manage their real estate portfolio better. A couple of them even talked about starting a business, so that they could supplement that with their real estate portfolio. And really, we just, we just went over some very interesting ideas. We had a guest speaker come in, really our very first, I think our very first paid speaker at any event, who did a really interactive exercise to help everybody get to know each other better with with some very, some very telling questions. And, and that was really good. Friday evening, really, before all of that we ate dinner at a just a fantastic restaurant that is 50 years old. It’s called Mr. A’s. And it’s at the top of a high rise building in San Diego. And it’s just, it was amazing. You know, of course, all of us real estate investors were thinking, well, this, this restaurant is a tenant, on the top of this building, it’s been there for five decades, five decades. And that building, obviously has been there more than five decades, couldn’t be less, right, because the restaurants been at the top.

Real estate is just so wonderfully stable. That building has been sitting there producing income for five decades for its owner. Just think about that, you know, these these rental properties. They are such a stable, wonderful, historically proven asset class, the most historically proven asset class in the world. So that was really great, really nice, beautiful view of San Diego, San Diego Harbor, the city lights etc. You know, Saturday, we had our presentations that I already talked about, I’m kind of jumping around here. Saturday afternoon, we had a couple hours of free time, people went shopping, hung out by the pool, whatever. And then Saturday evening, we met and we got on a beautiful brand new I mean, you know, not completely brand new, we weren’t the first people to ride in it brand new, but pretty much a brand new, beautiful sailing yacht, a 50 foot beautiful yacht, we had some food delivered by a professional caterer. We ate and we drank and we talked, and we cruised around San Diego harbor where there was almost no wind, just very, very dead. But we did actually have the sails out and we motored for a little bit of it and sailed for a little bit of it. Then we went out in the famous Gaslamp district did a little bar hopping. That was fun. And then Sunday morning, we met again, had breakfast together, did some presentations, I talked about a few different things. We did a couple of hot seats, and we weren’t going to go paragliding. But once again, the same thing with sailing, there wasn’t enough wind. So instead of doing that, we went for a Segway race, you know the the famous segway scooter. We rode around La Jolla, beautiful La Jolla on those. And then we went and we had lunch at George’s which is the Georges ocean terrace. Just a spectacular view of La Jolla and La Jolla Village and the harbor and then the ocean. That was great. Then we walked down to the park, did a couple more hot seats, and shared some great ideas. And then talked about our next meeting for the venture Alliance, which is tentatively or thinking of tentatively the last weekend of September for that. And we were talking about different places we might go and different locations for the venture lions meeting. And so I am just honored and moved, you know, the people are, are the ones who make it work. And we have such wonderful clients. You know, they’re so bright. They’ve got so many great ideas. They’ve just got so much to share their such sharing, giving hopeful, wonderful people.

So I just want to thank everybody who attended for being married was a fantastic kickoff. I really couldn’t have been better, except for the weather. You know, San Diego and it’s June Gloom. That could have been better, I would say. But otherwise, it was just a spectacular, phenomenal. Excellent, wonderful weekend. So thank you to everybody who attended and made it happen. If you’re thinking about the venture Alliance, check it out. We do have a formal application that we finally created. Go to venture Alliance mastermind and check out what we have to offer there. Maybe we’ll see you in September at the next meeting. So zoom Bob way, you know Zimbabwe Of course, the poster child for bad central banking and government. Well, their exchange rate now is 35 quadrillion Zimbabwe dollars to one US dollar. That’s how bad their inflation was. Now remember, the Zimbabwe dollar and the US dollar when it began were near parity. They weren’t far off from parity, which means you could exchange one Zimbabwe dollar for one US dollar, and now it’s 35. quadrillion. Okay, that’s quadrillion. I don’t exactly know how much that is. But is that 1000 trillion? Is that what a quadrillion is? It’s a big number. Okay. Amazing. That’s what happens with bad governance, and with bad central banking, an amazing story there and get ready, because we are eventually going to have some real inflation here in the US. I’m looking at a 2009 article that I posted in one of our groups. It is from 2009. From the Wall Street Journal, it’s got a picture of a helicopter Ben, our former Federal Reserve Chair Ben Bernanke. The article is entitled back in 2009, six years ago, get ready for inflation and higher interest rates. Now, we certainly had some inflation since 2009, no question about it. But it got relatively tame the last couple years, so but it’s just we all know, it’s just got to be baked into the equation. And as prudent real estate investors, we’re going to profit handsomely from that, from what I call inflation induced debt destruction. And in addition to the inflation induced destruction, we are going to profit from the packaged commodities investing aspect as well, or the assembled commodities investing aspect, which I also talk about. So, income property, being a multi dimensional asset class, provides so many wonderful opportunities for that. Without further ado, let’s get to our listener today, who’s got a few great questions that I tackled with him. And let’s go to Ian and then Wednesday, I will look forward to talking with you as we have Bob Proctor on for a 10th episode show where we talk about a general success and better living topic, not specifically about real estate, but a general better living topics. So that’ll be Wednesday. Let’s get to our listener with a call in and some good questions here. And let’s talk to Ian. Here we go.

This is Ian Kimble show listener calling in with some real estate investing questions. Ian, welcome. How are you?

Guest 13:00
Thanks, Jason. I’m doing great. Doing great. How are you?

Jason Hartman 13:03
Good. Good. It’s good to have you on the show. Thanks for sharing your questions with listeners, what we always find is that, you know, when one person has the question, usually a whole bunch of other people do too. So I appreciate you being willing to put your questions out there. And, you know, we can educate our broader group of people to so

Guest 13:22
fire away. Absolutely. I mean, the biggest struggle I would say I’ve been having lately as you listen to another couple podcasts recently by by Kevin Buffini had one person on his show, I forget the name offhand. But he essentially said, you know, rather than jump right into, you know, real estate feet first with whatever it is that you can afford, just for the sake of getting a deal done, you know, it’s better to wait a year or two and really, you know, secure that deal. It’s going to make a big impact on your life and kind of give you that initial leg up. So we kind of use the analogy of instead of, you know, buying maybe that single family property for the 15 or 20 or $25,000. downpayment, you know, you should be looking at a, you know, even 12 bucks or 20 unit and I know, for some people, it’s Oh, yeah,

Jason Hartman 14:15
okay, so Whoa, that’s a that’s a great question. Okay. So first of all, I before I answer that question, I want to give the listeners a little background. So you heard me on another show, you heard me being interviewed on Kevin show, and then you’ve been kind of you said, binge listening to my podcast, right. And, and really learning a lot from that. So that’s great. Thank you for listening. Gosh, I think that, you know, I thought you were going to say, it was a question of, you know, do I buy my first single family home as an income property now, or do I wait and keep looking for a better deal? Okay, now, that question, I think, would have been a little harder to answer than the actual question, which is, you got this advice from someone, or you heard this other guy talking on the show saying, you know, don’t do a single family home, just search around, save some more money and wait and try and buy a you know, like a 24 unit apartment complex in status. Is that the question basically?

Guest 15:21
Yeah, yeah, more more or less? That’s easy.

Jason Hartman 15:24
That’s a terrible idea. I mean, that is a terrible idea. Talk about Have you ever heard the expression Baptism by fire? I have. That’s exactly what that will be. Okay, you know, listen, I started out with what I started out with a condo, a little crappy one bedroom condo. That’s how I got started when I was 20 years old, my first property. And I’ve told the story on my show many times, so I won’t, like bore everybody with it. But suffice it to say, you know, it was kind of a bad experience, in a way, my first deal because I had to evict the, the crummy tenants that I had in there. And, you know, I didn’t know anything and know how to do it, then. And I just kind of, you know, I kind of learned by on the job training, if you will, but had I gone into and I’d say, I waited till I was 26. Okay, and I purchased a 16 unit, little apartment complex or something, or even a four Plex, you know, I would have missed out on all that inexpensive education. What I mean is that, you know, your, the size of your mistake is limited on a on a single property, the size of the mistake can be really big on an apartment. And the other thing I would say about and you know, not only that the opportunity cost of missing the return on investment, I would have made on you know, those single family properties I did earlier in my career in my investing career. apartments are complicated. I mean, they are a different animal. And I actually did a an episode, I’ve talked about that subject many times. But I did a full episode on it, where I was actually interviewed on someone else’s show, but I played it on my show on the creating wealth show, where we compared single family homes to apartment buildings, and believe me, you can make money in both of them. But the apartments are like running a business, they are complicated. There’s just a million little moving parts, you know, there’s just a lot more to it. Okay, good old, single family home was a pretty simple concept. And it’s a pretty reliable investment. You know, of course, you know, you got to buy it, right, you got to buy it in the right area, you got to you know, you gotta know what you’re doing a little bit. But, I mean, does that make sense? What I’m saying so far?

Guest 17:48
It does, it does, you know, and that’s kind of the the struggle admin you’re faced with is to, you know, obviously, with the bigger units, you can get economies of scale. And you know, if you have 25 doors to, you know, a single bigger apartment building, that’s only one roof, you have to replace every 30 years versus 25 roofs you have to replace, they know you talk Yeah,

Jason Hartman 18:11
but that one roof is a bigger roof, and it’ll cost you a lot of money. Okay? It’s not that simple. See, one of the things you got to remember when you’re thinking about apartments, and listen, I like apartments, I’ve made a lot of money and apartments too. Okay, I’ve got a lot more experience in single family, maybe, maybe that’s why I kind of like it better. I don’t know, the thing you got to remember in apartments is you’re running a business. And every business has a reputation. And, you know, your apartment building has a reputation. You know, people will go online and they’ll write reviews on Yelp about your apartment complex, right? In a single family home, nobody does that. Okay? They’re not gonna say, I live at 123 Elm Street. And I think the manager is a jerk, you know, it doesn’t happen. But your apartment is like a complicated enterprise. Okay, it’s, you know, you’ve got all these people that are right next door to each other, and they’re talking to each other, and they’re talking about the management, and they can do rent strikes. And, you know, they can like kind of gang up on you, you know, it’s a different animal. It’s a really different dynamic and an apartment, okay? And they’re there. They’re just, you know, the laws that protect you in the world of single family home because you’re when you’re when you’re one to four units, which is what our government considers to be. And, and a commercial property is anything four units or four units and above or above four units, I should say five units and above. And, and residential is four units and under. And when you’re in residential, you’re not expected to be an expert. You’re not expected to know what you’re doing. You know if you get into a problem on campus, commercial property, hey, you’re a businessman grow up, you know, it’s like, the judge will not care, he will not listen to your sob story. But in a residential property, you’ve just got a lot more rights, there’s a lot more disclosure obligations. You know, it’s it’s just a really a much simpler type of investment. Okay.

Guest 20:21
Makes sense? Yeah, absolutely.

Jason Hartman 20:24
Now, now, can we rephrase your question? Because here’s what I thought you were going to ask me when you started to talk, I thought you were gonna say, Well, sure, I’ve got the money to buy my first property today. Should I buy it? Or should I wait until I can find a better deal or wait until I can save a little more money or wait until I can get a little more educated? And here’s the way I was gonna answer that question is, number one, I can’t really determine how educated you are. But if you have the money to buy your first property, and you have at least 4% of the value of the property and cash reserves that you’re not going to touch, that’s your emergency fund, okay? You don’t use that to, you know, cover a little things, you’re gonna keep it in the bank, not spend it on, you know, paying for something in your regular personal life. You know, you’re you’re ready to go. I mean, I wouldn’t, I wouldn’t wait. Because when you Wait, you’re you’re making a prediction on what’s going to happen, you know, will prices go up? Will they go down? Will interest rates go up? or down? Will rents go up or down? And the likelihood is, you’re going to get left out on the cold without that debate? Okay. So that’s what I thought you were going to ask me when you start.

Guest 21:43
Yeah, absolutely. And that totally makes sense, man, I’ve seen things in the news that suggest, you know, reads could be getting higher again, and the not so distant future. And, you know, obviously, money is pretty, pretty cheap to borrow for, for the time being. And, you know, so I definitely had been looking at some properties on the site, you’re in kind of the Memphis and Little Rock region in, you know, anywhere from 80 to 150,000. region. There don’t think maybe you don’t always open to to any class, but I’m sure it’d be easier to start in kind of A or B class, out of the gate, but definitely, you know, makes makes a lot of sense. I guess from, you know, the way that people typically, structure and there’s been a lot of podcasts that talked about, you know, setting up entities or LLC, or just having umbrella coverage, and I had been calling around to a couple, you know, insurance companies and a brokerage company I’ve worked with in the past, I think for you know, $150,000 property in Memphis with like a $1 million liability policy, they quoted me a 1300 and 1400 a year. All in including the obviously the property insurance. But yeah,

Jason Hartman 23:04
right. Right. Right. And, you know, the real question is, do you even need that much liability insurance? I bet you could kick that bill down to, you know, seven or $800 per year. I mean, I haven’t shopped for an insurance there. Well, I actually have I just bought two properties in Memphis, what am I talking about? See, this is what happens when you get so busy that you don’t even remember what you did two months ago, yes, two months ago, I bought a couple of properties in Memphis, but I don’t honestly remember what my insurance cost was on them. But, you know, this is another thing that I kind of find, I think you might be falling into this, like, caught. It’s kind of a trap. You know, frankly, Ian, where, you know, everybody’s like telling you, oh, well, you know, you got to set up a couple of LLCs. And, you know, you’ve got to get all this insurance. And I mean, you’re a young guy, right? Aren’t you in your 20s? Did you tell me that?

Guest 24:01
I’m 28? Yeah. 28. Okay.

Jason Hartman 24:03
So, you know, you probably I don’t know, I could be wrong. You could be you know, you know, the founder of Facebook? Well, I know you’re not but you know, but you could have a ton of money, right? But probably your age, you don’t have that much to protect yet. Okay. And granted, what I just said there is kind of a specious argument anyway. So I want to point out the error in my own statement, and that is that, you know, if you got a judgment against you, it goes into the future. Okay. So you don’t want to get a judgment against you. Okay. I, I have a personal experience with this. And I’m kind of fighting a battle like that right now over a developer that I sued, actually and lost the first round and I’m fighting with them what’s on appeal now, but that’s another complicated story for another show. And so you don’t want that to happen. But I will tell you that look, I in this business for well over 20 years, okay, and everybody talks about, oh, you know, the slip and fall off suit, right where the tenant slips and falls, and they sue you, I have never heard of that actually happening in real life, ever, like no client of ours has ever told me, you know, the tenant is suing me really over anything. I mean, I’ve never had that happen to me, you know, they’re only really, if you have good insurance, and you make sure that your insurance doesn’t lapse. In other words, the policy doesn’t expire. And, you know, you forget to renew it, right? There are really only as far as I can tell, and like, I’m not a lawyer, I have to make that disclaimer, I’m not an attorney. So I don’t know, every little in and out of the law. But, you know, just from my own experience, and from what I hear from clients, there are really only two major areas where you could really create liability for yourself owning properties, outside of, you know, outside of the stuff you can easily insure around. Okay, here they are, as I see them. Okay, this is my own opinion, you know, there could be something else I’m not thinking of, but here’s the here’s what, how I see it. Number one is discrimination. Of course, we have fair housing laws in the United States, and you cannot discriminate against people, there are what’s called protected classes of people. You know, there are things like race, age, family structure, sexual orientation, you know, things like this, all the stuff that’s kind of obvious, right, that most people wouldn’t discriminate anyway. Hopefully, they wouldn’t. And, you know, discrimination is something that occasionally landlords get sued for. And, you know, if you’re using a property manager, you’re one step further removed from that kind of liability, okay, and you’ve got to use a reputable manager. Okay. So that’s one area. Now the other area, if there is a safety or security concern on that property, so let me give you an example. If the tenant says, My door lock broke, and I can’t lock the door, and if you just kind of ignore that, and you don’t do anything about it, and someone walks into that house, and Rob’s your tenant, or you know, assaults your tenant, heck, you’re gonna have a problem, okay? Because Because you were negligent in your duty as a landlord to provide a safe, secure property. Okay, you’ve got to respond within a reasonable amount of time and take care of business. And that’s reasonable, right? So, you know, just do those things. And you’ll be okay. Yeah, yeah. Hey, I wanted to mention something before I forget that. I think I found the episode where I talked extensively about single family, residential property investing, versus apartments. And that’s at Jason It’s Episode Number 362, of the creating wealth show. So Episode 362. And I’m pretty sure that’s the episode where I talked quite extensively on that topic. Okay. 362.

Guest 28:18
Yeah, go ahead. Definitely be checking that out. So I’m on the topic of, you know, safety or security issues, then if, obviously, seems like you’re a big proponent of third party management companies. And I can certainly buy into that. I mean, I guess, in terms of who, you know, would would then bear the brunt of that liability issue. If a tenant did make a case about some sort of security issue. You know, and the property manager didn’t handle it as they should have been, without absolve you of some liabilities as a landlord that that still traces back to you.

Jason Hartman 28:54
That’s a great question. I’m glad you asked. There’s something called and again, I’m not an attorney, but this is what I know. Okay. There’s something called the law of agency. Okay. And your property manager would be acting as your agent. And I just learned this in real estate school, you know, many, many years ago. And the, the law says that the principal, in other words, the owner is responsible for the actions of the agent. So ultimately, yeah, you could be liable. And that’s why you want to use reputable agents, okay? Because if you have a really stupid agent, or a really reckless agent, or a really fly by night agent, they might not care and they say, heck, I don’t like purple people, you know, or, you know, I, you know, whatever, and they could get you into trouble. But the likelihood is you’re going to have a reputable agent, the likelihood is they’re going to not want to lose their license, which they could for something like that. They’re they have a business that they want to run, they don’t want to get sued, they’re gonna get sued too In that case, right? They’re gonna get sued first, and you’re gonna get named as well, and that lawsuit probably. And, you know, there, you’re just, you’re just not going to have that problem, you’re going to make it a little more arm’s length from you. So even though technically, you have that law of agency issue, I think, and I, you know, I’ve never litigated a case like this. So I don’t know. But, you know, I think you you do push that liability on to that agent to some extent, but, you know, ask a good lawyer.

Guest 30:34
Right. Absolutely. Cool. So, you know, I, you know, certainly another question I’ve been facing is, when it comes to, you know, I’m from are from New Hampshire area, but you know, working in sort of the Greater Boston Market, and obviously ruled out buying property up here a long time ago. So certainly do see a lot of value in the whole rent to value ratios and some of the more untapped markets that you’ve mentioned, such as, you know, the Memphis and a little rock in Indianapolis region. So when it comes to working from the sort of long distance relationship, do you typically secure, you know, say, insurance or financing from a lot of local brokers or banks in the area? And, you know, for someone like myself, who’s just starting out, do you have any recommendations when it comes to kind of establishing that trust or getting them to take that leap of faith in you, and you maybe don’t have the initial track record of half a dozen properties to kind of put in front of them and say, Hey, have I’ve done this before, you know, been successful and turned, you know, a profit or cash flow each month to, you know, to pay my debt services?

Jason Hartman 31:49
Is that for a lender, you’re asking, in terms of getting financed?

Guest 31:52
Yeah, primarily for a lender? And then I guess even for back to the topic of insurance. And then to to kind of full the third question is that, you know, if you’re talking about multiple properties, would you recommend, and I’ve heard, you know, even going as far as open up a different bank account, for each property that you buy to, you know, certainly make it easier to keep track of,

Jason Hartman 32:13
I don’t know that you need to, you could, if you will, you know, it’s all that’s all kind of personal opinion, how you want to organize yourself, right. But I would have, I would recommend a separate bank account for all of your real estate investing activities. Now, maybe you’ll have three properties, or 20 properties, and you’ll manage them all out of that same bank account, I would not commingle your property stuff with your personal stuff. It’s just a, there’s no law saying you can’t do that. I mean, in terms of your checking account, okay, you do have to keep things separate on your tax returns. But it’ll just make it easier when you go to do your taxes. And, of course, income property is the most tax favored asset in America, it’ll make it easier when you do your tax returns to kind of manage that and see the expenses. Right. So. So that’s one reason. Now, of course, if you if you do ultimately set up an entity, and you have, you know, one LLC that owns one property or a few properties, okay, if you do that, you’ll be in a position where you have to have separate bank accounts, because every entity needs to have its own separate bank account. Okay. So that’s that question. Now, your other question before that was about, I think it was a lender question about, you know, having a resume, if you will, in order to get financing. Was that your question? It seems sort of convoluted.

Guest 33:39
Yeah. Yeah. Basically, along those lines of, you know, even if you you have the cash and the credit score, you know, kind of coming to them with that blank slate still, even if we are talking about, you know, only $100,000 property.

Jason Hartman 33:55
Right, right, right. Okay. So here’s the thing about that, since the financial crisis since the mortgage meltdown that we had, you know, what, eight years ago now, I can’t believe it’s been that long already. It’s kind of amazing. It’s really the first time that I saw lenders putting kind of a lot of stock in the concept of the owners, or the investors resume. Okay. With that in mind, there’s not much of a resume issue in terms of buying single family homes and getting normal Fannie Mae, Freddie Mac type financing, but you do like if you’re going to buy an apartment building, especially if it’s an out of state apartment building, they’re going to ask for your resume, they’re gonna want to know, have you managed property from a distance before? have you managed an apartment building before? You know what kind of you really they really will ask for your actual resume? You know, you’re thinking, gosh, this is like a job. You know? And the lenders you know, they want to know that the person they’re loaning money to To has some experience and and that’s why it’s it’s good sometimes to partner with people, because when you partner with people, you can either ride on the coattails of their experience. And that’s how you can get your own kind of like having being a protege and having a mentor, right? Or they can write on yours. And you could, you know, you can sort of add to each other and complement each other with kind of your combined experience. Okay,

Guest 35:28
yeah. Have you? Do you have an opinion on any of the CC Iam courses?

Jason Hartman 35:34
Yeah, I do you don’t worry, I have an opinion on everything. Okay. I’ve been known to be slightly opinionated. So CCM is a series of courses. That is, it stands for certified commercial investment manager. And I, when I was 1920 years old, I actually started down the path of I wanted to get my CCIE. And I started taking courses like that. I remember one of my instructors, I think, his name, gosh, this was a while ago, I think his name was Dennis McKenzie. And he wrote some of the real estate textbooks for CCI em, and some of them for the state of California test prep and in continuing ed, and that was really fascinating to me, I did learn a lot by doing it. But I gotta tell you something, I think it’s just sort of funny commercial real estate. That world has this image of where you, you think that Oh, these commercial real estate brokers and by the way, the CCN courses for brokers, it’s not really for, it’s not really for investors, per se, although investors would learn some stuff from it, you know, it’s a, it’s a designation that you want to get if you’re a broker or a salesperson, okay, selling those properties. And the image you have in as a as an, you know, I was a real estate agent, while I still am. But back then I was, you know, like really aspiring to be a successful real estate agent. And the image you have is, oh, I’m going to do these huge deals, I’m going to be selling giant hotels for $85 million, and huge shopping centers for $46 million. And all this kind of stuff. You know what most of those commercial people really do?

Guest 37:23
only imagine they show

Jason Hartman 37:24
little crappy office spaces and retail spaces for people to lease. And they really, you know, I mean, a lot of them just don’t make much money at all. I mean, it’s funny, when I lived in Newport Beach, I would say I had about probably 60 friends in the commercial real estate business. Okay. 66 zero, I would say something like that. And a lot of these guys are living on Balboa Peninsula, which is a area in Newport Beach. It’s kind of like the party zone. And they’ve got three roommates, they all drive like Jeep Cherokees, and they’re broke. They’re, you know, it’s like when it comes their turn to buy around the drinks there. You can’t find them anywhere. It’s not what it seems I’ll put it that way. But But um, you know, of course, I mean, that said there are commercial real estate brokers that do do very big deals and make lots of money, but it’s a law of averages, right, the law of the 8020 rule, right, the prayed opens principle.

Guest 38:29
Definitely, definitely.

Guest 38:32
Cool. So I got a couple remaining questions won’t be in terms of your sort of your recommendations on screening, property management companies, I would imagine some of your investment advisors or, you know, advisors for some of the different cities that you guys work in would have kind of a preset list of their own. But when it comes to, you know, looking at, you know, the vacancy rates of some of these management companies or the clauses that they use in their contracts to make sure that any you know, owed money past a 30 day window becomes their liability and not yours or making sure they don’t sneak in sales commissions into the contract or that they’re, you know, if you’re only paying them on, on kind of the gross collected rent not on, you know, any vacant units, do you have sort of a guideline that you like to work off of when it comes to making sure you can trust the people who really are going to be that that face to your business for a lot of your tenants.

Jason Hartman 39:39
Well, yeah, that’s a that’s a hard one in and look, I will be the first to tell you that property management, it’s the hardest part of this whole thing. Okay. And talked on the podcast before Fernando and I are trying to develop a kind of a software and a system that will help people self manage their properties and you can self managed pretty effectively, you know, for our members that pay a whopping 120 bucks a year, okay, I do a monthly members only call, we got to raise the price of that thing seriously 33 cents a day is a little cheap. Okay. And anyway, we do monthly member calls. And we’ve done a couple of calls, and they’re all archived in the members section at Jason Where I’ve talked about how to self manage your properties. I’ve also talked about it on the podcast a bit too. It really can be done. But the the thing when you are dealing with a manager is number one, read the contract, the one part that bugs the heck out of me, is these discretionary repair issues. Okay, so let me explain that. So, there’s a couple layers to this, Let’s peel back the onion for a minute. Okay, these and by the way, these are great questions. Okay. So the first layer is that you’ve got to understand that a property manager has a responsibility to protect your property. Okay. So if a pipe breaks, and there’s an emergency situation, they do have the right, without, you know, maybe they can’t reach you, maybe they can’t get ahold of you, okay. And they do have the right to call the appropriate professional, in that case, a plumber and say, you know, stop the leak, you know, get everything stabilized. And then, you know, I’ll talk to the owner after that about, you know, how are we going to handle this, okay, and, you know, we’ll file an insurance claim, whatever, right. But you’ve got to understand the property manager always has the right to do emergency stabilization. We’ll call it like that, okay, to stop a leak, etc, right. Beyond that, though, the property managers all have this other discretionary repair clause in their contracts. And that discretionary repair clause can say, you know, we have the right to spend up to $200 per month, or $200 per incident. Okay, now, be careful here, because it could be per incident, or per month, and then the amount will vary. Some of our property managers and I have fought them on this, and I’ve told our clients not to do it. And, you know, they’ve written long emails to me explaining, well, Jason, you just can’t tell the clients not too late. Yeah, I can. Okay, I am on the clients side. Look, we love our vendors, we got to have good relationships with our vendors. But ultimately, the clients are what pay our bills here. Okay. Not the vendors, we can change vendors, but we got to have a loyal clientele. Okay, that loves us. And so, you know, I’m here for the clients. First and foremost, the vendors, after the clients, the clients come first, right. And, and so, you know, they have a clause in there that says they can spend up to $400 per incident. And, um, are you freaking kidding me? I mean, that’s crazy. Now, you got to understand, and this is why I, you know, even a great manager has a bit of a conflict of interest, and here’s why. You know, they’ve got to keep the tenant happy. They’ve got to keep the owner happy, and they got to keep themselves happy. Right? Okay. So the problem you have when you’re a property manager is, many tenants out there feel like they’re getting mistreated? Okay? You know, the Generally, the owner or the manager of the property kind of has the power, okay. So tenants will feel weak, and they’ll feel like they’re being abused sometimes. Okay, even if they’re not, they will just, you know, a lot of them have sort of an entitlement, Obama voter mentality, how do you like how I threw that in? Okay? This is why half the country hates me. Anyway, so they all kind of feel like that. And you know, they’ll go and they’ll write bad things about the management company online. And of course, the management company hates that, because, you know, they don’t want the reputation to suffer. And so to some extent, the management company will kind of sell the owner investor down the road a little bit, because they’ll try to please the tenant. And this is why this is why I kind of just like self management. And in my own portfolio, I do both. I self manage some of my properties, and I have professional managers for other ones. You want to know how I decide. I start with a manager. And then when the manager does something bad, I get rid of the manager and I self manage. I have some really good managers for my properties. And a really good manager is worth their weight in In real estate, I wouldn’t say gold, because gold is not a very good investment, it’s worth their weight in real estate, okay? And, and, and so a good manager can be awesome. And then there are the, you know, mediocre managers and then they’re the bad ones, okay? You got to understand the manager has this natural kind of conflict of interest. And it’s just part of the dynamic of everything, right, they want to make the tenant happy. They want to make the owner happy, sometimes it kind of feels like they want to make the tenant happier than the owner. And, you know, that’s kind of ridiculous. Now, what you find, if you self manage your properties, though, is that the the person, the tenant in your property doesn’t perceive you as some big company with an unlimited budget, and they know that you are a regular human being. And if they’re a decent human being, which most of them are, okay, most, the vast majority of people and tenants are very good people. There’s some bad apples, certainly, but they will feel the pressure of having to maintain a relationship with you. And that’s a good thing, because they will tend not to abuse you and ask for every little thing. But we’ve definitely found when there’s a management company, they ask for more stuff. Okay, you know, it’s just sort of like, this is some big, faceless company, what do I care? I’ve got some ants. So call an exterminator. You know, I’ve got, you know, lightbulb burnt out. I mean, I’m sort of overdramatizing it, okay. Now, you know, call someone to change the light bulb? Where is if they’re dealing with you, a lot of times the tenant will do that stuff themselves.

Guest 46:37
Yeah, that absolutely. Makes sense. And I guess, along those lines, for me, no. Last question or two to wrap up when it comes to that long distance self management, you know, or for any property, whether it’s self management, or managed by a third property? Will you always recommend still, you know, going out and seeing a property in person? Obviously, I know the importance of getting it inspected beforehand, and and all those other, you know, checklists prior to that, but do you do still recommend seen all of these properties in person before finally, pulling the trigger?

Jason Hartman 47:17
Yeah, great, great question. So I’m always going to recommend that our clients go and look at the properties before they buy. But here’s what happens in practice, they just don’t do it. Okay, they don’t do it very much, I would say that 95% of our clients just guessing, do not go to look at their properties before they buy them. And you know, when you get past this sort of traditional, local mentality that’s been around forever, you know, as far as real estate before the technological revolution that we’re in, you could kind of understand that, because everybody usually did things in their neighborhood. But the problem is their neighborhood may not be a good place to invest their own city may not be a very good place to invest. And even if it was the best place to invest, they still need to be diversified. Okay. And so most of the clients don’t go and look at their properties. But Heck, when they invested in the stock market, hopefully, they’re not doing that anymore. They didn’t visit the company, either that they were buying stock in. Okay, so it’s really just, you know, it’s just about the numbers, what is that property going to produce versus what you pay. That’s, that’s what this is about. I mean, I don’t much care what the house looks like, I just want it to be a rentable desirable property that is going to perform well. And I can figure that out from a distance, I can go on Google Earth, and I can look at the property from different angles, I can see what’s near the property. And, you know, you should do all of that stuff and deal with reputable people. And you know, you’re, we just haven’t had any big huge problems like that. You know, we’ve had a couple over the years. I mean, we’ve been doing this a long time. So you’re gonna get a couple things. I remember once years ago, a client who kind of was her own worst enemy, frankly, she was upset because she didn’t bother to look at the property on Google Maps. And it was like a block away from a train track. And so there was some train noise. But you know, the fact was, that there were, you know, maybe 100 homes right in that neighborhood. Also close to train tracks, okay. It’s not like people didn’t live there. They even lived closer than her house to the railroad tracks. Okay. Everything will rent at the right price. Okay. It’s not a question of, does that ruin the deal? It might just mean it rents for $50 less per month.

Guest 49:51
Okay, cool. I mean, I know I could go on for hours and hours and hours with uh, with questions, but those were definitely and

Jason Hartman 49:57
you know, I could do you

Guest 50:01
Yes, I do. Yes. Yeah,

Jason Hartman 50:03
yeah. Well, we we’ve been on 38 minutes. And these are great questions. By the way, I think I think a ton of people listening had a lot of these very same questions as you did. So they’re, they’re good questions. But, you know, I tell you, I had I not purchased that first property, when I was 20 years old. There’s just something that happens by what we’ll call on the job training. Because you bring a new, you bring a new person, you bring your A game, when your money is at stake, and when your future is part of that deal. So just get your first property going. Heck, if it’s terrible, don’t buy a second one. You know, it’s pretty good. It’s not perfect by any means. There are problems, there are frustrations, it’s just better than everything else. I mean, I just haven’t found anything else that even comes close, you know?

Guest 50:58
Absolutely. I will believe in that till till the day I die. And yeah, well,

Jason Hartman 51:03
hopefully, you’ll keep believing it after you have your first 10 properties or something. Right, exactly.

Guest 51:07
It’s gonna say, well, we’ll see if it changes once once. There’s a couple, a couple of houses to my name, but hopefully, hopefully, it stays that way. Good stuff. Wait,

Jason Hartman 51:16
it’s great. When did you become interested in real estate investing? You’re 28 now, and what do you do for a living? Did you mention that?

Guest 51:25
So I work at a digital advertising agency in the Boston area, and then here for the last four years or so, you know, back to when it first started as kind of a startup but growing up my mom’s side of the family. Her father, you know, when her relatives came over from Europe and you know, built 30 or 40 plus two units, residences in a suburb just outside of Boston and duplexes, right? Yeah, yeah, over the years, they’d sold some off, but you know, even when I was in high school, they probably still had at least 10 in the family. And, you know, every couple weekends, I would be going down with them to help rake leaves or put down vulture you know, paint walls when tenants changed over so it always been been kind of in in my blood and heard some horror stories, but also saw the the checks coming in each month or you know, that the big lump sum when they would find the seller property in an up market. So it’s always kind of been in the back of my mind, and I’ve you know, dabbled in, in the stock market certain these since, you know, since starting a job, but I’m looking for something, certainly something just more, I think, consistent and grounded. And, you know, it’s appealing to say the least,

Jason Hartman 52:39
yeah, it definitely is, it’s the most historically proven asset class in the world. So I am very glad you are discovering it at a young age. And I tell you, 1020 years from now will pass 10 or 20 years will pass in the blink of an eye I warn you, okay, you know, just get going start building your portfolio, get your first property, and then get your second and your third and it is amazing how fast you can grow your own little mini real estate Empire. So just get get started and just do it.

Guest 53:13
Okay, awesome. Sounds Sounds good to me.

Jason Hartman 53:16
All right. Thanks for the call. He and I’m gonna end the tape now. And we can just start wrap up off tape here. But listeners, I hope you enjoyed this. And that was Ian from we’re in New Hampshire. Yeah.

Guest 53:25
Yeah. down and down in Boston now.

Jason Hartman 53:27
Yeah, Boston. Okay. Boston. Can you say park the car in Harvard Yard for us. I can do it. Do it in a thick Boston accent. We want to hear it POC, the con hava Yod. Love it. That’s good. Alrighty, and thanks for joining us.

Announcer 53:42
Thanks a lot, Jason, really appreciate it.

Announcer 53:45
What’s great about the shows you’ll find on Jason is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage, and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, here’s a show for that. And if you just want to get away from it all and need to know something about world travel. There’s even a show for that. Yep, there’s a show for just about anything, only from Jason or type in Jason Hartman in the iTunes Store.

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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 or email media at Hartman Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own and the host is acting on behalf of Platinum properties, investors Network, Inc exclusively


In this episode, Jason Hartman interviews a local market specialist from Memphis, Ryan. Ryan shares why Memphis is great for rental properties and the different levels of property available in Memphis. Jason also talks about a homeownership article from Time Magazine, government-assisted housing dilemma, and the evaluation process for finding properties.

Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman

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 1000s 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 1:03
Welcome to the creating wealth show. This is Jason Hartman with episode number 539. Thank you so much for joining me for 539. Our next will be a 10th episode of flashback Friday. So get ready for that. Remember, on the 10th shows we go off topic, we talked about something of general interest. But you know, it always relates back to money in some way, because that’s such a big part of the world, of course. And that’s what we’re here to talk about today. investing money, secure retirement, early retirement, or not really retirement, but freedom to do to live your life as you wish. So first of all, to that end, our Chicago property tour is coming up. We are meeting in Chicago, and I’ve got hotel information for you. few of you have signed up for that. And it’s a small group property tour. And so far, we’ve got an awesome crowd. So thank you so much for joining us, folks. Fernando and i, you can stay wherever you want, by the way. But Fernando and I are staying at this very swanky hotel. It’s called love bank, I think is how you pronounce that. It’s la ba n, qu E, we’ve got a group right there. And it’s an awesome hotel, you want to check it out, Google it, check it out, you’ll love it. It’s in Homewood, Illinois. And we’ve got a group right there of 171 per night, a little more pricey than our typical hotel of being like $130. But hey, number one in Chicago. Number two, this is an awesome looking hotel, it came highly recommended. So phone number 708-798-6000 708-798-6000, you want to check in on the 15th and check out on the 17th. And that is just next week. So this is coming up quick. All right. Also, for you venture Alliance members, remember you’ve got a big discount on that property tour. And we’re gonna tour by the way Detroit is confirmed. Okay, so if you want to join us, this will actually be a three city property tour. Now, we don’t have anything very formal in Detroit, the poster child for big government disaster can’t believe we’re even talking about going to Detroit. We’re not doing any business there. We’re gonna just check it out. We’re doing a little side trip there on Saturday, the 18th. So the plan is meet in Chicago, we are meeting there at the morning of the What is it, the 16th. And then we’re going to tour Chicago that day, we’re gonna have all our meals together, all the meals are on us, by the way, Friday morning, it will sweep over in Chicago, the 15th and the 16th. And then Friday morning, we’re going to drive over to Grand Rapids together. And we’re going to tour Grand Rapids that afternoon. And you know, maybe we’ll do a little breakfast on Saturday morning, if anybody’s staying longer. And then we’re headed out to Detroit. And I am leaving from the Detroit airport. So I fly into Chicago out of Detroit. That’s my plan. I’m just really looking forward to seeing you guys there. It’s the first time we’ve done this semi private, very small group property tour. So it should be a really good time. Okay, we’ve got a voicemail from a listener. And let’s play that. Let’s see what he says.

Listener 4:21
Hey, Jason, hope all’s well. My name is Roger. And I just want to say I enjoy your podcast and I look forward every week for the two episodes. I am your client. And I’m actually currently in the process of closing on my first property in Memphis, and really excited about that. And I plan on purchasing at least one income property per year. So as I embark on building an income property portfolio, I just wanted to understand a little bit more in depth about what it means to manage your property managers. I know you’ve touched on this subject, probably multiple times in the past. But I was wondering if we can spend a little bit more time talking about this perhaps in the intro section, or even in dedicated the whole episode for this. And if you can maybe provide some real life cases, examples from you, Sarah, Fernando, or even other investors who are willing to share that be awesome. And if you’ve spoken about this in the past, if you can maybe even provide the episode number, so that’d be great as well. Again, thanks so much. And I hope to see you soon again at a seminar or property tour. Thanks again.

Jason Hartman 5:35
All right. Hey, that was a great question, Roger. So thank you so much for calling in with that. And everybody, please use the voicemail feature, go to Jason Right on the right hand side, you can just leave a quick voicemail super quick and easy to do, just like Roger did. So that’s a good question. And yes, we have talked about that extensively. It’s sort of woven in, through so many shows. That’s what kind of makes it hard on the podcast to give you an episode number or several episode numbers, I will make it a point to do an actual show on that in the future coming up, where we talk about managing your property manager. Now, of course, we’ve talked also extensively, and I don’t want to, you know, Miss saying this one more time, about the opportunity to self manage your properties from a long distance. Again, I never thought I could do that. But it works out pretty well. So we’ll talk about both of those things. And I’ll make it a point to do an upcoming episode. That’s entirely on the managing your manager concept. In the meantime, though, if you just go to Jason, and you use the little search bar in the upper right of the website, and you just type in managing your manager, or property manager, you’re Of course going to see like a zillion occurrences of that and all of our shows and show transcripts and blog posts and so forth. There’s just ample advice in there in our back catalogue. So we’ll do another show on that, though, because we haven’t talked about it in a while. So I appreciate you bringing that up and look forward to an episode on that we will definitely definitely do it. Hey, before we get to our guest today that is going to talk about a Memphis property profile. I wanted to play a little bit of the audio from a CNBC piece. That’s pretty interesting about the market. And you know, as I’ve said, for quite a while now, the demographics coming at the rental housing market are nothing short of phenomenal. Maybe, quite possibly, in fact, I’m almost going to say just this is the way it is that they are the best they’ve ever been in history. So pretty phenomenal opportunities. And this video speaks to that. So let’s listen in and then I’ll have some comments on it for you. Again, this is Diana olek CNBC video very interesting.

‘Audio Clip’ 8:02
It is all about prices for both buying and renting home prices are still rising but at a slower pace than this time last year, not the case for rents which are at record highs in some markets, as demand far outpaces supply. Yes, we are seeing more new multifamily construction and deliveries of those units. But occupancy is now at an all time high despite predictions last year that more renters would turn into buyers. The key for buyers, though is twofold. First, the mortgage market rates are expected to rise slightly and new rules for lenders going into effect in the second half of this year, could stem access to credit, second supply housing starts are rising but at a far slower pace than demand. Now, builders are still trying to hold on to their pricing power, which is a lot easier to do when there’s slim supply. But some are starting to give putting up some lower priced homes, which could actually Stoke sales in the second half of this year.

Jason Hartman 8:57
So Isn’t that interesting? I mean, rents rising, housing prices rising, supply is constrained. And demand is increasing. Did I not predict this? Yes, I did. Of course I predicted it for a long time. And it is just I mean the next decade in the rental housing market. It’s phenomenal. It may be the best time in history. So I know a lot of you are thinking Gosh, I should have purchased in 2008 I should have been buying investment properties in 2009 or even 2010 or 11 or 12 or 13 or 14 last year and you haven’t gotten off the fence yet. And granted it was better than had you purchased then you would have made a lot of money by now. Okay, we all know that. But that’s all the shoulda coulda woulda we can beat ourselves up forever with that psychology. But we’ve got to just get in the game. Everything starts when we take action. So let’s get in the game and make it all happen. Okay. And you know, if you if you’ve already been investing, that’s great, increase the size of your portfolio, I think this is a good time to be picking up more and more prudent, sensible properties, not in the overvalued areas, because they’re definitely out there. But the markets, that makes sense. So go to Jason, click on the properties link, check out the properties we have. They’re phenomenal. You’re gonna hear about some in Memphis here with our guests today. But also, and by the way, this is a Memphis provider that we’ve been working with, it has not been on before. So I think you’ll like this one. If you’re joining us next week for Chicago, Grand Rapids, and our little optional side trip to Detroit, register at Jason For that someone just registered yesterday, we can still get in. And this will be a semi private tour. And venture Alliance members have a big giant discount on that, too. So if you’re venture Alliance, be sure you go because it’s a pretty great deal. Alright, let’s get to our guests. And let’s talk about Memphis.

Hey, it’s my pleasure to welcome Ryan, one of our local market specialists from Memphis, Tennessee, we’ve done lots and lots of business in Memphis, as you all know, we’ve talked about it, we’ve had property tours there, this has just been a really good market for us. If you’re looking for solid cash flow, and you’re careful about the areas within the city and the neighborhoods in which you invest, which we of course, will help you do that, along with our local market specialists, and guide you, you can really pick up some great deals in this market. We have lots of clients having very, very good experiences in Memphis. I own properties there myself, and it’s just great to talk more about it. Welcome. So what’s so great about Memphis?

Ryan 12:00
Well, we’ve had people investing in the Memphis area for many years, it’s not a new phenomenon for us. And so I think we’ve had a lot of attraction over the last four or five years, just because there’s been so many publications, target Memphis and talk about how great it is for investors. And so, you know, back in 2013, The Wall Street Journal rank is the number one city for buying rental properties. We were already working with investors in 2006, and 2007. So once you start getting these other publications and other gurus, start pointing people in that direction, you start getting a lot of questions about that. So I think it’s just been a hot spot for that you had CNN Money Magazine called Memphis, one of the 10, hottest housing markets in 2014. And a lot of that has to do just with the low cost of housing, low cost of living, and then how that works hand in hand with investors purchasing properties, that cash flow for them.

Jason Hartman 13:10
So give our listeners an idea as to, you know, one of the concerns they may have when they hear all of this great stuff about a market like Memphis, and many of the other markets we’re in as well, as they might be thinking, Well, you know, is it oversaturated? Are there too many investors in there, we have had that situation come up in some markets. One of them would be Charlotte, North Carolina, over the years, we’ve moved in and out of Charlotte, as it has been had a little saturation problem with investors. But Memphis, what we find is Memphis is like a renter city. It’s just really, you know, one person we were talking to set and I kind of love this, it’s sort of a funny way to look at it. But you know, I love Memphis, because everybody makes 40 grand a year, and they rent kind of that blue collar type thing. And you know, the the distribution centers, they’re like FedEx,

Ryan 14:05
they’re not gonna get up and move very easily. So these are fairly permanent fixtures versus information type businesses, which are very portable, right? That’s right. And so what we’ve had is you’re right, some of that is truth, even when they’re just in in it. We have about a 46% of our population rents in the Memphis area. Or if you look at the national average that hovers around 30% nationally, so we have an abundance of tenant base for your properties. We run a mid sized property management company with a little over 500 doors, and we consistently have rates of 5% or less, as far as the vacancy rates for our management company, which is just unbelievable. to continuously do that no matter what time of year it is, or Or you know, the amount of properties we have, that we’re currently managing, you have a lot of blue collar industry that provides a lot of tenant base. And we’re continuing to attract new businesses into the Memphis area, which has people moving in. And a lot of times, they don’t want to buy for that first one to three years to see if they’re going to stay in their current job, or just to learn the community. So always in abundance of tenants for your properties.

Jason Hartman 15:30
So what is it about Memphis that makes it such a renter oriented city? I mean, why it’s such a good deal. People say, Why don’t people buy? You know, why don’t they buy a home?

Ryan 15:42
Yeah, it’s interesting. When I first got into the business, I substituted as a leasing agent, when I first got my license. And I think that that was a great thing to do to learn more about investing. I’m an investor, just like most of the people listening to this either are or wanting to get into investing. And the reasons that tenants rent are multifaceted. Some of them are lifelong tenants. I looked at their credit scores, and I asked him, I said, Well, you know, you could purchase this home and pay less. Would you like to explore that? And their answer was, no, we’ve always rented did they have good enough credit to buy? Absolutely. And they literally preferred renting, they prefer renting. And they didn’t I don’t know, if they just didn’t fully understand the homeownership scenario, or you have a certain population that just wants someone else to take care of things. They don’t want to have to put a new roof on a home or to fix the air conditioner. If it were to go out, they would prefer someone else take care of those maintenance issues for world. Hmm,

Jason Hartman 16:51
interesting. That’s, that’s amazing. Yeah. So that so they actually said they’d prefer to rent. Okay. And do you have any other theories as to why that is? I have a few I’ll be glad to share with you. But I, you know, one is, maybe before you answer, I call it financial immaturity. You know, when I first got into the real estate business, and I was working with investors, and first time homebuyers, I mean, I was 19 and 20 years old part time going to college, selling real estate. And I was in Southern California. And, you know, I’d go out to the Inland Empire, Riverside, San Bernardino counties, and I would sell these government repos, FHA, HUD and VA repos. And in selling them, I would almost notice that when it was the first time buyer, not the investor, of course, it’s different for them. But when it was the first time buyer type mentality, they don’t need to take maybe a step back to take two steps forward, you know, they can always rent like a nicer place a little bit than they could buy. Now, back then, of course, interest rates were like, you know, 12 to 14%. Okay, so it was quite a different world. But you know, now amazingly, it can be cheaper, don’t sometimes you know, what, but but that financial maturity thing, it also includes saving up for a down payment, right? So, you know, even though the down payments are not that large, you know, if they’re 3%, or 5%, even that kind of saving is is just something some people just don’t want to do they don’t have the discipline to do i do that.

Ryan 18:26
That’s absolutely right. We we still work, our company is a full service real estate company, and we still work with first time homebuyers. And I would say that out of our capture rate, we still have probably 50 to 60% that never go through and buy a property, even though they contact us and say that’s where they’re ready to go. And they after a month or so going through the process. They they lose contact with us and we never hear from them again. So you know that they’re going to be continuing to rent a home or rent an apartment somewhere. They just can’t make that step to homeownership.

Jason Hartman 19:06
Yeah. Interesting. Any other theories about this? Because it’s a question we have long considered, whether it be in you know, Indianapolis, Memphis, Houston, Dallas, Austin, Atlanta, Charlotte, in any of these cities that we’ve done business over the years, you know, we haven’t totally figured it out as to why people don’t buy, you know, any more theories about that. I mean, you know, it’s a combination. It’s not that the reasons not the same for everybody.

Ryan 19:35
That’s true. That’s true. So, you know, I don’t know other than the, the, the two or three things that continue to pop up on our radar is they they just have been lifelong tenants. And then you have people that don’t even know that they can purchase a home. They don’t they don’t know that they can get qualified and and they’re just afraid to make that step and leap forward. to purchasing a home, and and some of it too, I think you find that the our society is changing, they don’t want to plant roots. And when you buy a house, you feel like you’re stuck in that situation for the next 2030 years. And I think that you have a generation now that’s coming along, that likes to be more free, more accessible to go where they want to go. Yeah, right, right.

Jason Hartman 20:27
Well, as I always say, and my listeners are probably sick of hearing me repeat myself, but the best thing you can have on a resume is mobility, you know, to go to where the jobs are. And it’s fascinating. I don’t know if you caught it. But there was a time magazine article, I’m going to say it was four years ago now maybe out of the time goes so fast. I can’t even might have been seven years for all I know. But but it was a you know, it talked about homeownership, and it had a, you know, picture of a house on the cover or a cartoon of a house, I think, and it said that, you know, they looked at these studies of homeownership rates in the economy. And it’s always been considered that homeownership is good for communities, it’s good for the economy, it lowers crime rates, it makes neighborhoods nicer. It’s kind of that whole george bush kind of ownership society concept. And they really poked a lot of holes in that theory, because homeownership means that when when people own instead of rent, it’s their, it’s more permanent. Yes. And that seems good on the surface. But in a modern economy where there’s a lot of alchemy, and velocity, and things are changing really quickly, you know, and it really helps to be flexible, and nimble and agile. In that kind of economy, the places with high homeownership rates, really, they found were more stagnant in many ways, it was kind of counterintuitive to all this stuff, we’ve all been brought up to believe, you know, because people couldn’t go to where the jobs were, you know, they were, they were trapped. They had to, they had to wait six months or a year to sell their house. And, you know, it was like a big mental process. Oh, my God sell the house. It’s like, you know, sense of loss. And it’s just a whole different psychology than give 30 days notice and be on your way, right?

Ryan 22:17
Yeah, absolutely. And so I think you see that, especially with the younger generation, they, most of the young people that we work with, they don’t know if they’re going to be in Memphis three years from now or three months from now. So there’s no right. No way that they’re going to put down roots purchasing a home.

Jason Hartman 22:34
Yeah, right. Right. Interesting. Okay. So any more theory about the renter thing?

Ryan 22:40
Not that I know of?

Jason Hartman 22:41
So what else about Memphis is so attractive to investors?

Ryan 22:45
You know, I think a lot of times, investors are coming from outside the Memphis area. Obviously, there’s a lot of local investors just like myself, and I love to invest in the Memphis community and have for years. But what people are looking for when when they’re looking to purchase in Memphis, or Atlanta or Indianapolis, some of those cities that you’ve described, is they want a market that is dynamic, they want a city to invest in, where there’s a lot going on, not not only with a local economy, not only with the, the tenants for their home, but they like culture. And Memphis has a lot of culture to it. So the investors that are purchasing here, they’re happy with their investment, they love the returns that they’re getting. And they also want to come see the properties because they want to come to Graceland where Elvis is that they want to come to Beale Street and and see all of the blues going on. They want to see the riverfront, where we’ve done just a tremendous amount of expansion. And they want to see the city continued to be dynamic and growing into just a more 21st century typesetting. And so you get all of that in the Memphis package, you get a great return on your investment, you get a house that cash flows, and then you get a city that’s dynamic, and has a culture that goes along with it. So I think that that just makes it extremely attractive to the investors.

Jason Hartman 24:17
What should people look for when choosing an investment property in Memphis? I mean, you know, one of the reasons and I’ll just tell you, and my listeners have heard me say it quite a while ago, so it’s not recent, me repeating myself. But one of the reasons we kind of stayed out of that market for many years, is that we felt it was pretty spotty. I mean, I think it’s, this is true of every city, of course, but I think it might be a little more true in Memphis that you have to be a little more careful about specific micro markets and neighborhoods. Would you agree with that?

Ryan 24:50
Yeah, absolutely. And so what you have you got to know what you’re doing and you do, we, when you when you look at different levels of properties, and most people split it up into an A level B level and a C level, if you find on our website, you asked me what type that is fit to a level property, you’re going to be in a good neighborhood, B level neighborhoods are going to be good solid neighborhoods as well. But when you get into C level, or some people even take that scale even further down, you really start evaluating we do a tri fold evaluation. First thing we do is we drive in and get a sense of the neighborhood. If the neighborhood feels Okay, that still doesn’t mean that there’s going to be the property that’s in question is a good property, we drive to the street, and we evaluate the homes that are around that particular investment property. If that passes test number two, then we drive by and we look at the house and make sure that the neighbors next door to it, make sure that the house has an appeal that’s attractive to tenants. And so with knowing that Memphis has some of those spotty areas, once you get into that sea level property, you really have to take a three level approach to evaluating the homes. And and that’s how you become successful. But the only way that you can do that is to really just know the city inside and out.

Jason Hartman 26:13
Yeah, okay, so So tell us more about that neighborhood analysis, if you would, and, you know, maybe any case studies, you want to share about properties that you you pass on, or you passed on in the past, you probably regularly pass on things, I’m sure, in properties you chose to buy, because you have a couple dozen investment properties yourself for your own portfolio, which ones would be go and no go and why.

Ryan 26:39
So what you get into is we evaluate hundreds of properties a month, just to find a few. And that’s not an exaggeration, we track every property that goes into foreclosure in the Memphis area. And, and we do drive by valuations of those properties. But what you wind up is you drive to that property and you find that it has some functional obsolescence to it, you, there’s no good way to get out of the driveway. Well, that’s not going to be a good property, even though it’s in a good area. Or you drive into a zip code that you you work in all of the time. But there will be a neighborhood that you just avoid like the plague, because it has just had a turn for the worse. And you know, that is going to be a management nightmare. And you got to remember, we own the management company, as well. So a lot of investors like working with that, because once the initial sale is done, we’re still here Manny’s in that property day to day. And so we want to make sure that we place investors in the right type of neighborhoods and the right type of homes, because we’re eventually responsible as a company as well to keep in those occupied with tenants and get them good returns.

Jason Hartman 28:04
Speaking of that, talk to us about government assistance, government assisted housing programs, versus non government assisted housing programs. As I mentioned to you, before we started, we have some investors who really like those types of properties where you have a government assisted tenant because the rent is very dependable. There’s, you know, almost I don’t want to say never, but almost never a collection problem. Because you know, Uncle Sam is writing the check, or some government agency might be a local agency to some people just don’t like them because they feel that they’ve got to comply with like more inspection requirements and more hassles, more bureaucracy, with some feel that the tenant quality is lower. What are your thoughts on that? And we’re Where do you stand? Do you love it? Do you hate it? I find that a lot of people aren’t really in the middle. Either. They love it or they hate it. And I’ll tell you one more thing. My mom had a lot of government assisted tenants in her portfolio over the years when I was growing up. And I sort of like to say sarcastically that she would complain all the way to the bank.

Ryan 29:10

Jason Hartman 29:14
What do you think?

Ryan 29:15
Well, over the 12 years that we’ve been doing this as a company, you’ve nailed it, people call us and they let us know right up front. You know, I I really do not want to explore a section eight or a government Assistant Program. I’ve heard horror stories about them, and I just don’t want to be a part of that. And then we have the flip side of that as well. People call and say, I absolutely love the way that section eight or government housing is run. I would prefer that type of tenant in my property. And it’s one of those things where you just can’t please everyone because it is extremes on both in we work with the largest local agency in the Memphis area is called Memphis Housing Authority, known in general is just section eight. And we do work with that organization. And, and, and have been very successful with it. The, the repairs, or the inspections that the homes go through, are typically looking for safety inspections. Is there some faulty wiring? Is there some type of leak in a plumbing? Is there a trip hazard, all of those things are things you need to be aware of as an owner anyway, because it doesn’t matter if it’s a subsidized tenant, or if it’s a traditional tenant, all of those things can cause you issues from a legal standpoint. So what Memphis housing does is they send out an inspector once a year, and they look for those type items that need to be corrected. So we work very well with them. Because that’s something that we want to be conscious of as a management company and as owners as well. So we do work with them. But we understand when owners don’t want to work within that system, we give them that option.

Jason Hartman 31:05
Yeah. Okay. All right. So what are some of the advantages and disadvantages? You know, maybe elaborate on that a little bit more? What can investors expect? Either way, I mean, one of the advantages, I’ll say, is that the tenants tend to stay a while, and they not always, but a lot of times, I don’t even want to say mostly, I think mostly, I’d say, you know, they, they, they’re pretty good, because they know that there’s this big lever hanging over their head that if they, if they abuse the program, if they get kicked out of the program, it’s very, very difficult to get back in. Some people say they’re just kicked out for life, which I’m not sure that’s always true, because life is long, and it takes a long time to know if that’s really true. And each case is individual, but they want that free money from the government, you know, so they’re, they’re usually gonna behave fairly well. Right?

Ryan 32:01
Absolutely. So one of the biggest advantage of a section eight tenant, in my opinion, is the longevity of it. Some of the houses that I bought, originally still have the same tenants in there. And their section eight housing, they rent, the rents on those are right around 850 per month. And, and it’s just like clockwork, very similar to the cliche like you’ve talked about your your mother grandmother laughing all the way anger, mother crying all the way to the bank. Yeah, complaining

Jason Hartman 32:35
all the way to the bank. Yeah,

Ryan 32:37
yeah, absolutely. And the same thing holds true. They’ve been there for six years now. And and have never thought about moving. So you get some of the advantage of longevity. If they find a place that they believe is their home, and know that they work well, with a management company, they don’t want to leave, they want to work within that system. And so we find that a lot of the subsidized Stinnett tenants stay for multiple years. The second thing is also true that you brought up, they do have guidelines that they have to go by. And if if they step outside those guidelines, or if there’s an issue with them, even within the community, you can get in touch with one of their agency supervisors, and they get involved and help you through that. So so there’s instances where you may have a complaint from a neighbor, and and their caseworker will get involved and say, Hey, we need to get you get these corrections made, or there’s going to be penalties for that. So, so you do have an agency that is there to help you. And third, you you’re 100% correct. They do not want to lose their voucher, then they have to provide the entire rent amount. And most of these people that qualify for subsidized housing, they need it. No other way to put it. And so they, they are very appreciative. And they are not going to jeopardize that by ruining your property or trying to take advantage of it for the most part.

Jason Hartman 34:23
Yeah, right. Right. Okay. Okay, good. So what area of I mean, we have other providers in Memphis, as you know, what is your thing? Is there something that makes you guys unique in terms of what types of properties you go after? Or do you sort of work the gamut of A, B and C class properties? You know, kind of what’s your what’s your angle, if you will, your unique selling proposition?

Ryan 34:48
Yeah, so over the years, we’ve, we’ve been able to provide a very individualized service. So on my board right now we have about 25 homes. that we’re working on. And they range anywhere from $60,000 price point all the way up to $250,000 price point. So no matter what the niche is, or no matter what the request of the investor is, we’re going out looking for those type properties on a weekly basis is there’s not a cookie cutter approach, we evaluate anything that looks like a good investment. But on the flip side of that, what we also sell is a relationship and an understanding of the process, you and I talked a little bit before we get started. And I told you, I’m a buy and hold investor. And so 99% of the time when investors call me, especially new investors, and they asked me about the area about the home about the investment, I usually own a property very similar to it within a few miles, or even in the same general area, and I can tell them about my experience. And then they get a lot of comfort in knowing that I’ve owned that home for multiple years, I’m still in the community, and I can have empathy, and also the knowledge to help them through that process.

Jason Hartman 36:17
Good. Well, is there anything I didn’t ask you that you just like to say in closing?

Ryan 36:21
You know, I think that the the biggest thing for the listeners to look at is just you’re you’re trying to choose what markets are best for investing your money. And the Memphis market has been extremely dynamic. But the great thing is the future of Memphis and the the businesses that are still looking to come here and expand in the Tennessee market, the they’re very attracted to it, just like investors are because of no state income tax, low cost, and an abundance of workers. So when you have big industries that are looking at the city of Memphis to invest their dollars, that is a great place for investors to look as well. And just follow the trends of people that are dumping millions of dollars of research into finding a good place to invest. Good stuff, good

Jason Hartman 37:16
information. Well, folks, if you have questions, if you’d like to be connected with our local market specialists there, go to Jason If you already have an investment counselor at my company, of course, talk to them, they’ll be happy to help you and connect you and arrange a three way conference call where they can be on the phone with you and talking through some of these issues, benefits, property selection, etc. And we’re just glad to help and glad to have another good provider on in Memphis. So thanks very much for joining us.

Ryan 37:45
Thank you.

Announcer 37:47
I’ve never really thought of Jason as subversive, but I just found out that’s what Wall Street considers him to be.

Announcer 37:53
Really now How is that possible at all?

Announcer 37:56
Simple. Wall Street believes that real estate investors are dangerous to their schemes? Because the dirty truth about income property is that it actually works in real life.

Announcer 38:07
I know I mean, how many people do you know not including insiders, who created wealth with stocks, bonds and mutual funds. those options are for people who only want to pretend they’re getting ahead.

Announcer 38:19
Stocks and other non direct traded assets are a losing game for most people. The typical scenario is you make a little you lose a little and spin your wheels for decades.

Announcer 38:30
That’s because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you’re one of them, you will not win.

Announcer 38:40
And unluckily for wall street. Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is disappointing.

Announcer 38:55
Yep. And that’s why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

Announcer 39:09
We can pick local markets, untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely.

Announcer 39:20
I like how he teaches you how to protect the equity in your home before it disappears and how to outsource your debt obligations to the government.

Announcer 39:27
And this set of advanced strategies for wealth creation is being offered for only $197

Announcer 39:35
To get your creating wealth encyclopedia book one complete with over 20 hours of audio go to Jason forward slash store.

Announcer 39:44
If you want to be able to sit back and collect checks every month, just like a banker. Jason’s creating wealth encyclopedia series is for you. 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 or email media at Hartman Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own. And the host is acting on behalf of Platinum properties, investor network, Inc. exclusively.


Today’s guest is Brittney, a long-time team member of the Jason Hartman network. Brittney shares her journey, from working for Jason 13 years ago to being a client. She talks about the first property she bought and the fantastic news that came before her first tenant even set foot in the house. Jason also points out the benefit of renegotiating your real estate deal as you go through time.

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 1000s 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 1688. And it is a pleasure to have someone back on the show you’ve heard her on before. But this time, she is coming on for a different reason. Actually, she’s coming on to share her client case study. And that is our longtime team member, Brittany Roberts. Britney. Welcome.

Brittney 1:12
Thank you. I know this is my first visual podcast I’ve been on before audio. But this is my first

Jason Hartman 1:19
audio only we actually are on zoom so people could see this on the YouTube channel. But certainly on the creating wealth podcast, it’s there. Britney, you’re coming to us from Chicago. And you started working with us back 13 years ago, that was in our office back in Orange County, California. Did you ever think this job would last this long?

Brittany 1:40
I think so. I’m thankful that it has I’ve learned so much. But at the time, I had just graduated from college. I don’t think I was thinking past maybe a year at the time, you know, you know, when you’re 22 years old, and I was happy to land a job during the time and, you know, because that started a recession time. Right? jobs were kind of hard to come by and learned a lot. I mean, it’s I think that’s kind of when at least one of the roller coasters started with real estate and oh, it sure did. That

Jason Hartman 2:12
was right on the precipice of the Great Recession. So I got a front row seat to the you. You saw all of that in the real estate business, for sure. You went to Vanguard University, majored in public relations, and we hired you to do some public relations work for us some PR, and we wanted to get out there in the media and get media attention. But it turns out, you didn’t really end up doing much of that you ended up doing all sorts of other things, right?

Brittany 2:39
Yeah, I’ve worn lots of hats. Over the years, I’ve done marketing, I’ve done design I’ve done what haven’t I done? I feel like it’s a time we had, you know, many people, it was a booming office, but lots of people working. And we kind of downsize over the years and then you know, grew again. So I don’t think there’s much I haven’t been technically an investment counselor. I’ve sourced some properties. And but that’s probably one of the only roles that I haven’t done. That’s

Jason Hartman 3:07
true. Fair enough. Absolutely. But So today, we want to sort of share this with you not to talk about your history with the company. But let’s touch on that a little bit. Because I think it’ll be interesting because clients always want to know the kind of the origin story, right? But we’re talking about your client case study, because you actually became a client last year, closed on a property and had some really surprisingly good news that you just shared yesterday on our messaging group, and I wanted to share that today. So where was this property?

Brittany 3:40
This property is in Coleman, Alabama, the little in between, like Decatur, there’s Tuscaloosa, Montgomery, you know, it’s kind of all in the middle of those bigger cities. But it’s a pretty big city itself. It sounds pretty small. I hadn’t heard of it before, but it’s a decent size. And it’s growing. A lot of tourists go there for I guess the lakes that kind of goes back and forth between the second and third cleanest lakes in the US. So a lot of people go there for the lakes and the outdoor attractions. Only, like a mile from one of the lakes.

Jason Hartman 4:16
So how much was the property?

Brittany 4:18

Jason Hartman 4:19
And when did you buy it? Because it took a while to close? Right? Yeah,

Brittany 4:24
I started looking at properties serious. I mean, I’ve been looking for years, but a little over a year ago, my husband and I are like Alright, it’s time. Let’s buy and then COVID so we drove we looked around kind of we have some markets near us here. Close like in Indiana. So we looked at some there. We probably fell out of some serious you know, we were trying to put contracts on at least to one got snatched up really quickly as we were trying to turn in the contract. Another one we were under contract for a while the inspection didn’t go great. So we ended up back Out of that one, and then we went under contract in January for the one in Coleman.

Jason Hartman 5:05
Okay, so it took a few months to get it closed, you originally thought in the performance said that it would rent for I think you said yesterday 915. Is that correct?

Brittany 5:16
Right. So it took a while to close only because it was a new build. Yeah. 950 is What was projected, which was pretty conservative, obviously. But the property manager there was pretty bullish, and was like, You know what, I think this can go for more. So we listed it at 1100. And within two weeks, we had we had several offers or several applications and quality tenants within the first couple of weeks. And it was, you know, they moved in two weeks later. Sure. So

Jason Hartman 5:46
your rent was more than 15%? higher than expected. Right? Yes. Awesome. Sound Effects? Yeah, that’s really great. Brittany. And, you know, I think when you said that in our message group yesterday, I really thought that, you know, wanted to share the point. And one of the properties I sold recently, one of our clients bought it, he’s renting it for way more than I rented it. And he sent me the thing and, you know, showing it for rent, and I said, Hey, I’m now I’m a little jealous. Why did I sell that? It is really amazing how much pressure there is in the marketplace. To see rents go up. Obviously, prices have been increasing a lot. But the rent thing is a little more opaque. And let’s talk about why because I think it’s really important that listeners and investors understand the opacity issue in the real market. Number one, rents lag, they go up slowly. And they do that because typically, they’re on one year lease renewals, and they can’t raise the rent, except in those one year intervals. But owners, when they have that property, the tendency is to want to keep the tenant and not raise the rent too much. So they will make the mistake of being really conservative on those rent increases, not really understanding the market, not really understanding how short and scarce housing inventory is. And they’ll give them in a booming market, a measly $25, or $50 rent increase. Now, granted, we don’t like tenant turnover normally. But sometimes the tenant turnover really is a good thing. Because if you raise that rent 200 or $250, you might find that the market will totally accept that rent, just lickety split. And that tenant that is currently living there may not be able to afford that house any longer. The market may have passed them by sadly, but that’s just the way it works. Okay. And so you may have to return in it. But that may be the best thing that ever happened to you. So I just want to say to people listening, don’t be too scared of returning your property. There are investment groups, and apartment syndicators, who literally have that is their business model. They buy a shabby apartment complex. And, frankly, I’ve done this twice myself with my own investments. They buy a shabby apartment complex, they fix it up, then they re tenant the units one by one, when leases end, they fix it up. And you’ll find that that newly renovated unit will go for $200 more than the old unit. They call it the classic unit versus the new upgraded in Orange

Brittany 8:42
County where office was before that was happening quite a bit when I was there.

Jason Hartman 8:46
Yeah, yeah, it happens all over the country all over the world, I’m sure but in the US, you know, it’s much

Brittany 8:51
to say to that you get a higher quality tenant, you know, if you’re going up 200 $250,000 a month, your tenant pool can generally be from

Jason Hartman 9:01
when these apartments, they’ll wait till the leases expire one by one. And they’ll just you know, do some minor renovation to the unit. And then that unit will be up way above the price of the units next door to it quite literally. And it’s the same exterior, it’s just the interior is different. And I’m not even saying you have to fix up your properties. I’m just saying these rents are a lot higher than you think folks, and the landlords have a lot more leverage than you think. Because housing is in such scarcity mode right now. So raise your rents. If you don’t raise your rents outright charge pet rent charge for extras. If your property has some kind of storage unit on it. You can charge extra for some things now and then, and we’ve talked about that on past episodes. But Brittany got $150 more than expected on the first rental and probably you could have been gotten a little bit more right based on all the offers, and maybe

Brittany 10:03
I didn’t. So in this area, there’s a small row of new homes. So I don’t know if I wanted to go too much higher than the other ones that are renting forward just to keep maybe the tenant happy. But yeah, maybe even more, we’re thinking 1150 to start, but we settled on 1100. Yep, good.

Jason Hartman 10:19
So you got a lot more than the 950 you were expecting. So that’s great. And, folks, when you’re looking at some of these properties to buy, you’ve got to realize that some of these rents are just understated, or they’re undervalued, you know, like my own property that I sold to one of our own clients, you know, I had it rented for like, $200, less than he’s renting it for. So shame on me, not a very good landlord all the time. Sometimes, I could do better, I could pay more attention to my own portfolio, you know, it’s the shoemaker with no shoes, right? That old story, too busy working for other clients. And sometimes I got to pay more attention to my own portfolio. So that’s true. But Brittany, when you came to work for us, let’s go way back 13 years now, when you came to work, originally, you weren’t looking to get into real estate, that wasn’t one of your particular interest. You had a public relations major, you wanted to do marketing and PR work, which you’ve done for us for many years. When you got around it? What were some of your initial thoughts, you know, you went to some of our conferences, talked to a lot of clients, and the investment counselors and so forth. What were you thinking back then?

Brittany 11:28
I was a young pup at the time.

Jason Hartman 11:30
You’re still young, but well, you know, I

Brittany 11:33
was just so so fresh, so wrong, as far as you know, just jumping into the workplace and to finance and investing. And, you know, I was eating it up. I loved every minute of it. I love going to the conferences, learning as much as I could talking to clients, I’d say the client testimonials and the case studies. I mean, those are always a favorite. Right? And they were for me at the time, they kind of still are now, just hearing real life stories. But here I am, 13 years later, finally doing it. You know, I probably looking back, you know, like you say, you know, I wish I would have done it two years ago wish I would have done three years ago,

Jason Hartman 12:07
or 10 years ago.

Brittany 12:09
It’s true. And I remember at the time, there’s $5,000 down properties. That was the big thing at the time. And obviously that’s not now but I wish I would have snagged one of those up even with my little money that I had at the time.

Jason Hartman 12:22
Yeah, no question. We all have our shoulda, coulda woulda is, you know, we all we all have that. And it’s like the old saying, What’s the best time to plant a tree 20 years ago, the second best time today, you know, you got to just put your foot in the water and start somewhere, right? And everybody can only start where they’re starting. But once you get into this, I promise you, it’s addictive. And it’s addictive in a very positive way.

Brittany 12:47
Jason dadri question. I think inflation just like, you’re just the fact that you hammer in the idea of inflation. That’s probably what hit me the most. And what I took out initially is just the fact that you know, your debt over time, inflation just destroys it. And I think that was what really at least kind of hooked me in. And obviously I’ve learned a lot deeper and wider, you know, in my knowledge since but that’s probably one thing that I first remember the light bulb going on?

Jason Hartman 13:16
Sure. Yeah. By the way, folks, if you see our graphics out there, Brittany creates a lot of those graphics, she’s got a very good eye for design. And she created a great new one for us inflation induced debt destruction graphics. So thank you for that. Britt because it looks awesome. You know, let’s also talk about inflation in the sense that not only does the inflation destroy your debt, but let’s look at the real price of properties today. And I think this is interesting. Now, we talked about the coulda, shoulda, woulda thing. But when you look at it in some other ways, it’s not as bad as you think. Right. And I’ve been talking a lot lately on the podcast and the YouTube channel about how nobody has been forcing any of us to store our wealth, whether it be big or small, in dollars over the past 10 years or 20 years, we could have stored that in gold. We could have started in oil, we could have started, you know, for all for the last 12 years or so in cryptocurrencies, we could have started in silver in corn futures in soybeans and coffee, you know, whatever any commodity on earth could have been our storehouse of our wealth. Most people think of everything in dollars, even around the world, not just in the US because the dollar is the reserve currency of the world. But we also always need to look at not just the price of the property and the prices have gone up enormously. And that can be very discouraging for some who think Gosh, am I buying at the peak? am I paying too much? I wish I would have done it 10 years ago? Yes, of course I get it. I understand that. Okay. But remember, it’s also about the payment on the property. And that’s the way most people really buy a house, one of our clients that you know, all too well, because he used to come into the office, Brittany, that’s drew Baker. He’s been on the podcast many times. He just bought a high end property for himself and his family in cornado, in Southern California, San Diego, Erie, Coronado Island. And he keeps sending me messages, you know, since he bought that property last week, saying, I can’t believe how cheap the payment is, it’s incredible. And he said this today, by the way, let me play this message for you. This is really, really telling, because I was looking at the the like amortization schedule of a $1.5 million loan in 30 years, you only pay back like half of it in interest. So like, if you borrow $1.5 million, and pay it back in 30 years, you only pay like seven or $50,000 in interest. I mean, so in 30 years, you don’t think you can make 50% of your money? I mean, hello, how much is how much is inflation going to be? 30 years? It’s probably gonna be way more than 50%. So yeah, free money. So Isn’t that incredible? So three decades, and you borrow 1,000,005, and you pay back? $2,250,000? That is absolutely incredible, right? That you only have to pay $750,000 to use that money for three decades. Until 2051. That’s just incredible. It really,

Brittany 16:24
interest rate was so low.

Jason Hartman 16:25
Yeah, yeah, it’s absolutely amazing. So Brittany created a logo for my new economic index, called the H ci or the Hartman comparison index. And what it does is it compares a lot of things. Okay. So 21 years ago, in the year 2000. If you wanted to pay your mortgage, not in dollars, but in shares of the s&p 500 index, the most commonly used gauge for how’s the economy doing right, they just look at the s&p, maybe it’s GDP, but but the s&p is a really good measure. So it would cost you 11.12 shares of the s&p to pay your monthly mortgage payment based on the interest rate at the time, and the price of the medium priced house at the time. But today, just 21 years later, it only cost you 3.03 shares of the s&p to pay the monthly payment. So is it cheap, or is it expensive? It’s cheaper, okay. Now, let’s look at this in the mortgage payment based on the number of hours worked at the average wage. So that same mortgage payment, in 2021 years ago, it would take you 69 hours of work to pay your mortgage. But today, it only takes you 48 hours of work. So it’s cheaper today. Now, mortgage payment and hours worked at minimum wage. Well, most minimum wage, people aren’t buying a house. But in case they were right. It’s a good comparison. In 2000, it took 192 hours at minimum wage to pay the mortgage. Today, it only takes 165 hours. So when you look at it like that it’s cheaper. But does that mean you shouldn’t have bought a house back then? No, you would have made a lot of money. Because when the price goes up on the house, you get that in real dollars. This is just the monthly payment and the carrying cost. And one of the beautiful things about income property that I always say, and what I absolutely love about it, well, many things I absolutely love about it. But one of them is that you are never stuck with a deal you agree to when you buy the property, you always get to renegotiate the deal along the way. So for example, 21 years ago, interest rates were higher than they are today. 10 years ago, they were higher than today. So as you go through time, you just keep renegotiating the deal. And what do I mean by that you simply refinance the property, use my refi till you die program that I’ve outlined on other shows, and you extract cash from your property, hopefully buy more properties without cash, and you lower your payments. As rents are increasing. It’s just an absolutely beautiful asset class. Nothing else behaves like income property.

Brittany 19:24
Yeah. And that’s one thing I’ve learned over the years to just how creative you can be you know, not depending on how your life is your you know, risk tolerance, you can kind of structure it a lot of different ways. Yeah,

Jason Hartman 19:38
yeah. It’s really just a super flexible, multi dimensional asset class. So that’s what people love about it. Britt, anything you want to say to people listening who haven’t started investing, and the reason I really wanted to have you come on the show is because this took you a while. Now. It’s not like you weren’t busy with other things. You know, you got married, you had a beautiful wedding. I was there. You moved around. A bunch, you had three kids. Okay. So you know, you’ve been busy with a lot of other stuff. But you know, just what do you want to say to people who are thinking about it or are just barely dipping their toe in the water. And

Brittany 20:13
I would say, even though right now you may not be able to pull the trigger, maybe you can, you know, I’d say if you can pull the trigger, do it. Because, you know, again, even looking at prices, and just things from last year, you know, I drool, you know, look at looking at that, but just set some goals and really try to work towards that and achieve it. And it’s pretty neat. Once you get into it, you know, I’m still pretty fresh. I just had my first tenant, but I’m already you know, looking for others, like you said, it’s addicting, and just mapping out your 10 year plan and seeing what that could be. It’s really exciting.

Jason Hartman 20:53
Well, Brittany, thanks so much for joining us. Really appreciate it. And, folks, if you have any questions reach out to our investment counselors. You’ve heard Brittany on the show before, but she was never speaking as a client like she is today. And so it’s just great to to share that story. And congratulations on getting about I don’t know about what’s a workout to maybe 16 17% higher rent than you expected. That is just phenomenal. So congratulations on that and happy investing to you Brittany and to everybody listening, and we will be back with another episode in two days.

Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out this shows specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice 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 shares how to handle late rent and eviction for long-distance self-managed properties. Then, Jason and his mom talk about their road trip through several markets, including Cleveland, Cincinnati, Columbus, Nashville, Birmingham, and Dallas. They also discuss minimalist management philosophy in creating bulletproof rental properties.

Announcer 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present, and propel you into the future. Enjoy.

Announcer 0:16
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities, this program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 1:05
Welcome to the creating wealth show. This is your host, Jason Hartman. And this is episode number 389. Thanks so much for joining me today, I kind of feel like I haven’t been with you in a while, at least not directly in that we’ve played a lot of interviews with guests and so forth, but not that many where I’ve just kind of been talking to you. So I’m really glad to just be talking to you today and going over a bunch of issues. And I’m actually on the way to the airport. I’m here in the south in beautiful Gulf Shores, Alabama, and mom is with me, she’s taking me to the airport. The first thing I wanted to say is, since I announced my mom’s medical condition on the show several weeks back, thank you so much to all of you, I guess we’ve got a lot of doctors in the audience. So we really appreciate the calls and the emails and the advice we got from you. So thank you very much for that. And I’ll give you a little update as to what has happened since then. Here’s Mom, mom saying hello.

Jason’s mom 1:54
Hi, everyone. I just want to say thank you also for all of the concern that Jason’s audience seem to show about my carotid artery operation. And just want to let you all know that everything turned out terrifically Well, at the Cleveland Clinic, that is just a class place to go. If you have everything anything wrong.

Jason Hartman 2:18
Good stuff, I would totally agree. The Cleveland Clinic is an incredible operation. I was very impressed. So with all of that, you know, real estate is kind of in our DNA. What happened is I actually flew to Cleveland to meet my mom there. And she drove up there. And well, I was in Cleveland, we were there for about a week with her recovery and so forth from the surgery that went very well, as you just heard, and I met with our Cleveland, local market specialist who actually is one that we’ve been working with for quite a while in another market. He formed an alliance with a group up in Cleveland, and I met with him and I looked at their properties. And I got to say, I did not think I would like Cleveland very much. We have shied away from a lot of the previously blighted markets. We’re still shying away from the real blighted ones like Detroit. But you know, I was pleasantly impressed with Cleveland, I really was It was amazing. Now, I was impressed with all of the extensive downtown redevelopment projects, I was impressed with the properties and the cash flow on those properties. I was impressed with the rehab again, we’re working in Cleveland with the same provider we’ve been working with for many, many years in another market. So you’ll hear more about that. And you’ll hear more about his partner in the Cleveland market that’s doing the direct business more on that to come. I did shoot some video, and I’ll share that with you on our YouTube channel. And maybe we’ll even play the audio track from some of that video, we might even do it on this podcast time permitting, because one of those audio tracks is really just a conversation while the other videos are looking at properties. And so the visual helps, but for the conversation, we can probably just play the audio part of that video on the podcast here today. And then mom and I after looking at Cleveland, Oh, Mom, you got to share the funniest thing. And I was very concerned about you, you know, during the surgery as I was pacing around the waiting room and so forth there at the Cleveland Clinic, but I knew you were okay. When you were in the intensive care unit. And you demanded your iPhone. And what were you doing on your iPhone? I actually took a funny picture of you. Why don’t you talk about that?

Jason’s mom 4:22
Well, I had the operation the second or third day of the month.

Jason Hartman 4:26
It was the second it was July 2.

Jason’s mom 4:27
Okay, it was July 2. Anyway, you know, the rents are supposed to be in my bank account on the first day of the month. So I was simply calling those that I didn’t think had paid yet that weren’t registered in my bank to pay the rent immediately.

Jason Hartman 4:42
I know my mom’s been on a few shows before everybody and you’ve heard her talk before. She’s the I call her an extreme do it yourselfer. She’s not a do it yourselfer. She’s an extreme do it yourself or that mansion in which you live you probably would have built it yourself if you could have

Jason’s mom 4:58
I could have gotten rid of all of it. Help.

Jason Hartman 5:00
Yeah, I tell you building a house isn’t a nightmare project. So I would never recommend that to anybody. But you know, that was your childhood dream ever since you saw Gone with the Wind as a little girl. But anyway, what you do that I think is kind of interesting is number one, you self manage all your properties, you don’t use managers, and you self manage from a long distance, you have properties as far away as about 2000 miles or so. And then you have closer properties that are within maybe I don’t know, 6080 miles, Biloxi, Gulfport, that’s where you’ve got one, you’ve got another one in Tuscaloosa, I think right? Yes. Those are the closest, do you have anything in Mobile, Alabama? No. So those rental properties, what you do that’s interesting is you have all your tenants deposit the rent into your bank account. So you bank with a big national bank, and they’re responsible for going to the bank and depositing the money into your account on the first. And I remember when you were in the intensive care unit, and this was literally I mean, look, folks, I tried to stop her, I tried to take the phone away, she wouldn’t have it, it’s just you have to know my mom understand that. You’re not gonna, you’re not gonna stop her from doing anything. And so you had a sheet of paper there. And you were looking at the deposits and you had a pencil and you’re writing down on a sheet of paper, which ones had deposited and you discovered that OF ALL your rental properties for people had not made their deposit, and you were calling them on your iPhone from the ICU where they strictly say that you’re not allowed to have phones in there?

Jason’s mom 6:28
Well, actually, it was only three people, the bank had kind of made a mistake on one of the tenants deposits, I couldn’t quite recognize it. But they corrected that the next day. And the tenant told me that they had definitely deposited, and they were telling the exact truth. So it was only three people that had deposited it immediately.

Jason Hartman 6:48
What strikes me as interesting. And again, if you use property managers, you don’t have this opportunity. But I remember listening to you talking to your tenants on the phone. And what strikes me as interesting is how I think that because you have this kind of a personal relationship with them. Of course, as a business relationship, you’re not friendly with them, so to speak, you’re not getting too close to them, in other words, but because they know you and they view you as an actual person, rather than sort of some sort of nameless, faceless institution, I feel that you exert some more pressure over them to get them to pay and to pay quickly. Do you agree or have anything to say about that,

Jason’s mom 7:24
I just make it very clear that I cannot tolerate late rent payments, or when they sign that lease. And they know that I expect and demand that my rent be paid the first day of the month.

Jason Hartman 7:36
So tell the listeners kind of how you handle that and what you say to people and things like that. And by the way, folks, we’re gonna cover a lot of other subjects in this show. So in this episode, so I’m just going over a few things here that struck me is kind of funny with mom. But But tell us tell the listeners how you handle that what you say to them?

Jason’s mom 7:54
Well, I simply call them and say, you know, hi, whoever it is, on the other end of the line, I don’t see your rent in my bank deposit yet. And is there a problem? Or did you already put it in or what is going on? And they tell me what has happened? And I say, look, you know there’s a $60 late fee, if you don’t have the rent in there the first day, I really do not want your $60 I simply want your rent on time, when will the rent be put in the bank? And they tell me? And if it isn’t in there on that first day of the month? I say well be sure to put in the $60 for the late fee.

Jason Hartman 8:31
Okay. And do they usually do that with a cooperative and put it in?

Jason’s mom 8:35
Yes, have most of them all do that there is one tenant that does not do that. And that all of those $60 late fees will simply be depth deducted out of their security deposit when

Jason Hartman 8:47
they leave. Okay, so now you did have a problem, though, that was kind of stressing you out on one of your properties. And this is a long distance property again, it’s about 2000 miles away from you. So it’s far away. And you actually called up a real estate agent. I think you were calling a century 21 office and, and kind of described for the listeners that whole story. And that happened this month. You know, these are unusual, but it happened to happen this month, you happen to be in the intensive care unit at the Cleveland Clinic, which I think is ridiculous that you were doing this. I don’t know. Maybe that’s what keeps you alive is you have a purpose. You know, we you knew you had to recover from surgery and recover quickly because you had to collect your rent. So it’s kind of like Victor Frankel’s Man’s Search for Meaning. You know, another version of it, the modern version.

Jason’s mom 9:38
Well, what happened is that this tenant is now we’re in the eviction process, and the candidate had moved in a girlfriend and he simply didn’t pay so I called a local real estate agent. And I told them the situation and I asked them to what they please go over there and just check and see if the place looked like If it had been abandoned, if tenants were still living in there or what? Anyway, the gentleman, very nicely did go over there. The realtor, the realtor and his he was there, someone was coming out of the door, and it happened to be the girlfriend. And I said, Please let me speak with her. And so she just took his phone and took it in the house to get to the poor. he’d lost his phone, it was ready to call the police to get his phone back. And she carried out a 10 minute conversation with me about when they were going to pay rent and all of the details. I said, Please now give that man back his phone. I talked to the realtor.

Jason Hartman 10:40
This is hilarious. It’s like a reality show. You know,

Jason’s mom 10:44
I talked to the realtor A few hours later, I called him and said, I wanted his address, I wanted to send him a check for his for his work and helping me out. And he refused the check. And he says that’s just my job to give really good service to people. So I thought that’s a great guy. And I will certainly go back to him when I need to. Yeah,

Jason Hartman 11:05
so so the realtors You know, there’s what you’ve got to realize, if you want to self manage your properties. And if you want to be, you know, an extreme do it yourselfer like my mother, I mean, the vast majority of our clients, you know, and I’m talking vast, vast majority, maybe, you know, 95% of our clients use property managers. And, you know, I do it both ways, myself some of my properties I self manage. And as I said to you on many episodes, for a long time now, I was happily pleasantly surprised that I could do this from a long distance. I never thought that was achievable. And I, for our members, I taught a whole webinar on that topic. And I’ve talked about it on the podcast as well, in prior episodes about long distance, self management of your property itself. There are advantages and disadvantages to each. What you’re hearing now is from a an extreme do it yourself are so so good. Anything else on that?

Jason’s mom 12:02
No, other than the fact that I have now done all of the eviction preparation work, and

Jason Hartman 12:08
in turn, so So how do you handle a long distance eviction like that, without a property manager, tell us what you do. You go online, you find an eviction service, etc. You tell us what that’s about and how it works and how much it costs?

Jason’s mom 12:21
Well, first off, I do file a three day notice to pay rent or quit because I know all of the details. And I then hire a process server, which costs anywhere from 30 to 50, or $60, to get a thing served, then you send the proof of service to the return to the attorney. Now you can go online and just Google eviction services, you always want to get a firm that specializes in evictions don’t get a firm that does every other kind of legal work, just evictions online.

Jason Hartman 12:55
So there are lots of law firms out there they are technically law firms that are eviction services that are like an assembly line. They’re they’re a mill, and they just process evictions and deal with tenant issues like crazy. And one of the things I say when I talk about self management is that sometimes your property managers will actually do this process themselves, you know, they will go and they will post a three day notice right on the door, sometimes they nail it right to the door. And it’s kind of embarrassing, you know, for the neighbors to see that. And they will actually do all of this and they will handle the eviction, they will show up in court, they will take it all the way through getting your judgment against the tenant, which you can later collect on, or at least try to collect. And I’ve talked a lot about that a lot of those judgments are a lot more collectible than people think. In fact, when you were online today, I saw on your computer screen mom, when you were online looking at eviction services, I saw that there was like a banner ad there on that website that said, we want your old judgments. And so a lot of these services and a lot of other people out there will actually buy these judgments from you. Now, of course, they’re going to buy them at a discount. So if you have a tenant who owes back rent or has damaged the property, and you’ve got a judgment against them for say, $2,000. I’ve never sold off a judgment like this, but I would assume that these services will buy the judgment from you and do all the collection themselves for maybe 5060 cents on the dollar, depending on how big it is, how collectible it is, etc, etc. But you can just sit there with a judgment and wait and collect eventually too. And those judgments do accumulate interest. So this can actually be kind of a good investment. Oddly, and if that tenant ever tries to get an auto loan, or apply for credit somewhere or someday buy a house, that prospective lender will usually say, Hey, you got to pay off this judgment before we’re going to give you a loan. So don’t just assume because the tenant is broke today or they’re a deadbeat today, fortunes change. And that won’t stay the same forever. So what else happens in the eviction service? Tell us about that. Any Anything else? You did you hire the attorney on that one already?

Jason’s mom 15:08
Yes, he sent me a couple of forms to fill out. And his price for an eviction and Riverside County is $670.

Jason Hartman 15:16
Now, that’s pretty expensive. Actually,

Jason’s mom 15:19
the prices went up, I think about a year ago or within a few months ago, because it was usually around $599. Something like,

Jason Hartman 15:29
well, I’ve heard of people hiring them for a lot less than that. I’ve heard of people getting them for two $300. You know, I bet you the now those are old properties that are in the Socialist Republic of California. And I’ll bet you Although I do not know, this is just a guess that part of that has to do with the fact that California is such a tenant friendly state. And it’s just harder to evict people there. You know, one of the reasons, we don’t recommend it as a market.

Jason’s mom 15:57
You know, I don’t know, in some in some counties, it. Los Angeles County has a different price. And I think San Bernardino County has a slightly different price. And Riverside County has a slightly different price. So it depends upon which county you’re operating in.

Jason Hartman 16:14
Have you ever done one? Did you do one here in the south where you’ve got your southern United States properties?

Jason’s mom 16:20
No, I’ve never done any eviction here.

Jason Hartman 16:22
And your cash flow is so much better here, too. You got to you got to see my mom’s strategy. Now look, folks, you know, of course, your family’s never going to really listen to you too much. But now, now I can see that you should see her expression right now. Here we go. Again, rolling the eyes, but selling those properties, those properties that she’s had for decades, okay, from the 70s 80s 90s, maybe about some of the 90s I think he did and selling them on 1031 exchanges, and exchanging those into other properties in more tenant friend or more landlord friendly places, I should say, and you know, with much, much better cash flow, that would be a great strategy for you. But speaking of that, let’s talk about some of the markets we saw because we took a road trip after your surgery, they let you out of the hospital, after two days in ICU and one day or one night, I should say in the regular room in the hospital where we watched a fireworks from your room. And it was pretty good. Actually, Cleveland had I don’t know how many fireworks displays did we see there maybe 1315 fireworks displays and a beautiful sunset. The Cleveland Clinic is like a hospital that sort of on the Swank Enos level, almost as the W Hotel. But with the service of a Ritz Carlton was just totally impressed. And I know you are too. And so we watched fireworks there and you checked out the next day. And then we we drove around Cleveland and number one that was super impressive. But then we took a road trip. And we went to Cincinnati, we looked at properties, we went to Birmingham, we looked at properties, we went to Nashville, and then back home to Gulf Shores, Alabama. And then I took off to Dallas to go look at some discounted mortgages, discounted notes, and we’re thinking of offering that to our investors. So we’ll talk about that on a future episode in more detail. But it’s interesting to talk a little bit about Cleveland if you would mom. And then let’s talk about maybe the other highlight would be Birmingham. I’ll talk a little bit about the properties I looked at in Dallas. And, and then we’ll kind of wrap up here.

Jason’s mom 18:20
I was really, really, really impressed with the city of Cleveland. I had it in my mind that it was one of these old steel kind of rust belt cities, blighted, blighted area. Wow was I impressed downtown, beautiful, beautiful displays of flowers everywhere and darling restaurants and shops. I just couldn’t get over how lovely it looked. It was it was incredible. And then the drive that we took along Lake Erie, or all of those big beautiful houses were I mean, some of them were just like castles. I was just blown away.

Jason Hartman 18:59
They’re like, you know, those are like the old money, probably old industrial money, homes. And they were they were very impressive.

Jason’s mom 19:07
But there were also beautiful neighborhoods that these weren’t castles, but they were beautiful big homes, just one house after another huge big lawns. Everything was green, lots of trees, flowers, just a lovely sight to drive around.

Jason Hartman 19:23
Amazingly, you know, some of these former Rust Belt cities are really finally getting it. They’re not doing the idiotic thing. You know, the the big government liberal thing where they drive all the businesses out like, like California has been for so many years. And they’re getting it. I mean, there are a whole bunch of incentives to move your business to Cleveland. They’ll give you free real estate, they’ll give you free warehouses. And I mean, one of the things that just I couldn’t believe it, you know, we went to the Rock and Roll Hall of Fame. We have lunch downtown. We had dinner downtown the night before that beautiful restaurant what was that called Blue nose or something?

Jason’s mom 20:01
I think it was blue point or point blue. And then there was, it was blue point. Yeah, there was a horse with carriage that you could drive around the city with

Jason Hartman 20:10
there. There were a few of those, remember and remember my dog Coco, who’s in the backseat here.

Jason’s mom 20:14
More than one of them. Definitely.

Jason Hartman 20:16
Remember her Coco freaked out thinking that horses a big dog, and she didn’t know what to think about. But, but that was amazing. And it was so clean. I didn’t see a single homeless person anywhere. Now maybe it’s just too cold to have many homeless people. But it wasn’t cold when we were there, of course in the summertime, but it is other times of year. And I mean, I was just amazed. I did not think it would be that nice. It certainly Wasn’t that nice. Last time I was there years ago.

Jason’s mom 20:47
And there was one charming area called Little Italy, with all of the cables out out on the sidewalks and the tablecloths and people eating out in the evening, it was just just totally charming. I was

Jason Hartman 21:02
I liked it a whole bunch. Okay, let’s switch gears. And let’s talk about our next real big property stop. I mean, we did some others. But you know, these are the major highlights we’ll give you. And that was Birmingham, Alabama. Now, we’ve been doing business in Birmingham for a while, we stayed at that beautiful Westin Hotel in Birmingham, and that whole new area of redevelopment there, that was really, really nice, shops, restaurants, it was gorgeous. It was really nice. Then we went out with our provider who had been working with for a long time, we saw some of the homes that you the listeners, our clients have purchased and rented and some that are in escrow or under contract, I should say and, and you know, you haven’t closed on them yet, we saw some of those and took some video. And the thing about Birmingham is that there are different management styles, different rehabbers, or local market specialists that we work with have a different style of doing business. And you know, one of the things I say is that this is a very fragmented industry, everybody works a little differently. That’s what keeps the institutional investors largely out of our business. I know we’ve been talking about hedge funds and private equity being in the real estate business, but they don’t like it very much. And they’re not really staying and they’re not here to stay. Because it’s just too fragmented. for them. It’s It’s not easy for them, like other institutional investments that offer lower returns, but when it’s not your money, your return is not that critical of an issue. Okay. And that’s how they think is they just get paid to manage capital, right. So Birmingham, the key thing there is our local market specialists, there is what I call the minimalist manager. What I mean by that is that these properties are really designed and the rehab is done in a way, in such a way so that the property is kind of bulletproof, if you will, where there’s just not that much to break. And, you know, I was thinking about all the properties I own and have owned over the years. And the things that break and the things that I get, you know, calls on or, you know, the property manager shoots me an email on asking me, do I approve this expense to fix this or that? And I couldn’t believe our manager, our local market specialists there who’s also a property manager. You know, Mom, do you want to talk about some of this minimalist management that you you, by the way, loved it, okay, I was a little bit less enamored of it, the new but the more I think about it, the more I think, gosh, you know, you really could have nearly expense free properties with this style. What are your thoughts?

Jason’s mom 23:33
I was impressed because if you don’t have a garbage disposal to fix,

Jason Hartman 23:38
or a dishwasher, you know, they said they actually prefer properties with no garages. And if it has a garage, they usually take the garage door out and just make it a room. Because it’s less, it’s less things to break, you know, there’s never going to be a garage door to repair. There’s never going to be a garage door opener to repair things like that.

Jason’s mom 23:57
Yeah, and no, no, no, a microwave oven to replace. I just love the whole concept of this minimalist type of thing. It reminded me of houses that were built in Los Angeles in the 1940s. They didn’t have all of these great modern improvements, you know, all of these kitchen packages, the stove, the refrigerator, the microwave, the garbage disposal, that wasn’t in existence in Birmingham, and those would be great houses, the rent might be lower, but you’re not going to spend all of that money fixing them up and hiring plumbers to go out there.

Jason Hartman 24:31
Well, the rent really is quite good. I mean, these are lower middle houses, okay. And so the typical deal there that we looked at where you’ll buy the property for maybe 55 to $65,000. I mean, there are you know, this fluctuates, but this is what we kind of looked at that day, and it will rent for about 1.2% of the value, maybe somewhere in that range. So your $60,000 property will rent for $800 a month. And it’s a minimalist deal. So again, the tenant doesn’t have very high expectations, they get a single family detached home, and they get a yard front and back. And they get three bedrooms and one or two bows.

Jason’s mom 25:14
And another nice aspect of those homes is because they are the older homes is that they typically have hardwood floors in. So hardwood floors are much more desirable than carpets. And you don’t have to keep replacing the carpets. Yeah,

Jason Hartman 25:27
a lot less maintenance there. So that’s the minimalist style of management and what it means. No garbage disposals, no dishwashers, no microwave, no garage, and obviously no refrigerator, washer and dryer, the tenant supplies their own. And the tenant, you know, can treat the dishwasher, just like any other appliance, you know, they they don’t, a lot of times expect a washer dryer or a refrigerator. So you know, they can they bring those, and they can bring a dishwasher to you know, there are dishwashers that are mobile that are, you know, not built in, when I

Jason’s mom 26:05
said the rents are lower, they’re not lower in their lower in the rents that you would get in California. But in relation to the prices that you pay for those houses, you are having positive cash flow, I mean, great positive cash flow. And the point is that you get to keep most of it because you don’t have to spend it all in repairs.

Jason Hartman 26:24
Yeah, good stuff. And we’re gonna be touring, by the way, slated for mid May be late September, but our little rock property tour by the time you hear this, I’m pretty sure it’ll be on the website at Jason Hartman calm. So there’s another great market that you can look at. And I just, you know, we’re kind of running out of time. So I think I’m gonna skip telling you about our Dallas tour. I mean, not ours as a company, but my Dallas tour. And I’m not going to tell you about discounted notes. And those kinds of opportunities in this show, because we’re already at about 30 minutes here, but I do want to tell you go to Jason Join us for our little rock creating wealth seminar, and property tour. And that will be in mid to late September. More details to follow very soon. But you can register and get the early bird pricing at Jason in the events section.

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In the first part of this episode, Jason Hartman talks about changes in the economy and how technological advancement can help with the shift. Then, he answers a question from a listener about investing in an apartment building. Jason shares the critical questions that need to be asked, why it pays to be cautious, and the importance of reading every word of the documents.

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This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman

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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 1000s 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 1:03
Hey, welcome to the creating wealth show. This is your host Jason Hartman episode number 541 541. Thank you so much for joining me today. I am in beautiful Portland, Oregon. Yes, Portland, Oregon. I’m here for a conference. And I tell you one thing this state did, right. You know what I’m going to say that right, libertarian Jason, one thing they did, right? No sales tax, as left wing as this state is, it is a great place for shopping. So if you need some retail therapy, no sales tax is quite a good deal. Quite a good deal. Hey, So today, we’re gonna take a call from a caller and just talk a little bit about investing in funds. And I gotta tell you, it boggles my mind. People, it boggles my mind, how many smart, sophisticated people will go into deals, just not really even knowing what they’re getting into. And this is not rare. You know, this is done, probably 10s of 1000s of times every day, maybe hundreds of 1000s. I don’t know, I’ll venture to say it maybe millions of times around the world, each day, that people do things like this, just really knowing so little about what they’re getting into, you know, they just don’t talk much about it. And it’s, it’s amazing that people will go in, and they will invest in some sort of pooled money asset, whether it be a stock or real estate fund, whatever kind of anything, where you pull the money together any kind of fund a general partnership, an LLC, whatever the vehicle, let’s not complicate it with that, let’s just call it a fund. And they’ll do it and get a lousy return on it. Or they will even lose money, they’ll be susceptible to one of the three major problems might be investing with a crook might be investing with an idiot, assuming they’re honest and competent, taking a huge management fee off the top for managing the deal. I’m going through that quickly. Because you already know commandment number three, but it just boggles my mind.

I got pitched last week by a friend of mine who syndicates hotel and apartment deals. I said, Look, send over your documents, I’ll take a peek, and probably nine attachments to one email, with monumental amounts of reading, that have to be done to look into video. And still, when you do all that reading after you’ve done all of that, you still really don’t know what you’re getting into. It is mind boggling. And I have to tell you this, of course, as you know, is one of the reasons I started the venture Alliance, because I want to do some bigger deals. And I’ve done some big deals myself and you know, with with a couple of different clients, you know, they’ve worked out fairly well, I definitely would say some have worked out very well. But, you know, I, I think the thing is, when you when you want to do everything as a direct investor, that’s great for the vast majority of people, the vast majority of our clients, being a direct investor, and buying 510 20 houses over the course of you know, maybe quickly depending on how much you have to invest in terms of capital. Maybe you do that over the course of several years. It all it’s all different for everybody. No problem there. But, you know, the one downfall it has is you can’t have access to big deals necessarily by yourself, right? So it necessitates making this choice and I say the fund choice where you’re doing it with a bunch of people you don’t know. And you’re basically giving your money to a fund manager, you don’t know, that is not a good choice. And above that the bigger bigger choice is the sort of a wall street type choice.

And that’s a really bad deal. And below that, if we’re looking at amounts of capital, by the way, that’s how I’m kind of ranking that, you know, you’ve got the big wall street stuff, the huge stuff, you know, all of their different funds and pooled money investments, even stocks, private equity, hedge funds, whatever, we’ll call that the, the sort of the Wall Street category. And that stinks. We all know that, okay. It’s great for the insiders, but it’s terrible for the average investor. And then below that, we’ve got the people that are out there, you know, syndicating hotel, or apartment deal or whatever, you know, those are, I don’t know, they’re all different, but maybe they’re raising $10 million to buy a hotel or an apartment or something like that, those deals usually stink to, okay, because you’re doing it with a bunch of people you don’t know. And you’re just likely to get burned at some level, with the three major problems, then below that, in terms of amount of capital raised, is getting together with a few people, you know, like, and trust hope, well, you don’t even have to like them, just know him and trust him. And, and there, you’re basically going in on a deal together. Now, I’m not sure how it might be structured, you can structure it a lot of different ways. general partnership, limited partnership way, lots of different ways. But you’re doing it with some people, you know, in all the people in the deal, or at least the vast majority of them, you know them. So you’re really keeping an eye on it. It’s almost like being a direct investor. And then the level below that, in terms of, you know, overall capital raised for the deal is where you’re just doing it yourself. You’re being a direct investor.

And, and, you know, I mean, we all know people who have started with very little and created some really nice wealth for themselves, just buying some houses. I mean, it’s so simple. And as humans, it’s funny how our nature is that we want to just overcomplicate everything. I do it myself all the time. And, and I see other people doing it. And it’s, it’s a lot easier, I guess, you know, certainly to critique what other people are doing who’ve been to look in the mirror and to critique myself. But you know, I have this tendency to I certainly overcomplicate things, a lot of times when the best things are really pretty simple. So, something to keep in mind there. So we’re gonna take a call and talk about that today. I think it’ll be educational for you and enlightening. So we’ll get to that in a few minutes. But as I’m at this conference, you know, I i’ve been hanging out with Doug, you’ve heard Doug on the podcast, he lives up here in Portland. Tomorrow, I’m meeting with one of our lenders, the conference ends tonight. And you know, these conferences, I really have expanded my horizons, my network a lot, you know, the past couple of years, I’ve really made it a point to attend a lot of conferences and get out there and see what’s going on in the world. And, you know, I’ve done this over over the course of years, but I don’t know, I guess I was in a little conference rut for a while where it wasn’t really going to too many things. You know, this has been a fairly interesting event. It’s called the world domination summit. Kind of a funny name, definitely skews left wing for sure. I mean, heck, we’re in Portland. Okay. And it just always amazes me how inefficient conferences are, you know, I mean, it’s great. You get inspired, you learn some things, you meet some great people and stuff. But someone has got to do an expo is a, really, someone needs to take this on, and it’s not going to be me. Okay, so. So listeners out there, maybe you’ll do it. But someone has got to do an expo say I never see anybody talking about this on these conferences, and the environmental impact of them. I mean, you know, this conference there, they’re talking about, you know, how we need to take care of the environment and all this kind of stuff.

And, you know, when I was in Europe, a month and a half, two months ago, I was in Croatia, at another conference, the same type of drivel, you know, we got to take care of the environment. But people are traveling to these things from all over the world and making a huge environmental impact. Now, I don’t think, you know, I think people are a resource. You know, I don’t I don’t think that’s all that bad. I think we should be good stewards. I think we should be conscientious about things. But I don’t think we should view ourselves as like this elite class and get up on stage and say that the rules apply to all of the little people out there, yet they don’t apply to us. Right? And that’s just what I hear over and over are these some of these left leaning conferences and I it’s just really annoying to me. But anyway, enough of that. So the debt crisis? Wow, you know, we’re watching the news about Greece, it continues to unfold. Do you know that in Greece, over half of the population under age 34, is unemployed? And over half are Oh, sorry, no, it’s more than half. I can’t remember the number, but it’s like a really high percentage. I am gonna, I’m gonna botch this one, I bet I just want to say it’s like 70% of the population under 34. lives with their parents in Greece, and Spain is almost exactly the same. Right? In terms of those numbers. Do you know that for 90 years, Greece has been an irresponsible debtor, they’ve basically been in a debt crisis for nine decades, half of the time, they’ve been independent. It’s just it’s mind boggling. When you look at this stuff. And you you look at what’s next and the domino. And I constantly am talking about this about, you know, the US, and how much debt we have, and how many unfunded mandates we have, how many obligations we have that we cannot possibly meet. In less. One of the six things happens, the six things I talked about, and I’ll just highlight a couple of those, I’ve talked about them before, they’re Jason’s six ways to escape the debt disaster. One is to have garage sale. Another one is to increase taxes, not enough tax money to increase to solve that problem.

Another one is to have technological innovation. That is America centric. And you know, that, I don’t know, you know, it’s a wild card, because nobody really can analyze the impact. It’s, it’s impossible to tell. But as you know, and I’d love to have some listeners come on the show and talk about this with me, because I am wrestling with this big time. I really, you know, I, I like to make predictions. I like to think of myself, to some degree as a hack economist and a hack futurist. And in doing that, you know, I’m talking to all these people all the time on all of my shows, not just the creating wealth show about scientific advances about technology. And in doing that, it is a huge wildcard as to what technological innovation will mean to us. But if America is at the center of some of these things, and certainly the whole world will benefit from them. That could save us all, technology could save us all. And the thing I’m really wrestling with specifically as it comes to technology, is the subject of robotics. And the way they will displace workers in virtually every industry, the transportation industry, the I’m going to say it, don’t laugh when I say this, but the poetry industry, yes. You didn’t know there was a poetry industry, did you? But computers, and artificial intelligence can write songs, it can write poetry, they can write books, do you know some of the stuff you’re reading now? is actually written by computers? It’s written by machines? Yes, it is. There are now algorithms and you know, the the burgeoning field of AI or artificial intelligence, that is literally writing some of the articles you read. There’s a company who does this, I actually talked to them on the phone about a year ago, and communicated with him. And for example, if you need an article, if you’re a media outlet, and you need an article on a sporting event, or the financial markets, think of it it’s really not that complicated. For a computer to write about this stuff. You have an event. And with that event, you had certain numbers occur yesterday, you know, the Dow went up, the Dow went down, the NASDAQ went up or down or the s&p went up or down the Russell 2000 went up or down, you know, the the Nikkei index went up or down and in what happened, you know, that’s just some data. Those are just data points. And you can put that into English or any language for that matter what machine.

I mean, Google has made incredible advances in understanding natural language. And if you look at the apps like Siri, on your iPhone, or the, I guess there’s a similar product on the Android, I don’t know, I’m not an Android user. But this morning, for example, I said, on my phone, I said, Siri, tell me a story. And, you know, it came back and said, you already heard that. Or I already told you a story. And then I asked a few more times, and it really did tell me a story. It was kind of funny. So try that on your on your iPhone, if you have one, ask Siri to tell you a story. So when you look at that, maybe this will save us all. But overall, as far as the debt crisis goes, and being the you know, the best house in the worst neighborhood, I think the United States is definitely in that seat. Because I’m looking at a Business Insider article now of 14 countries that are spiraling towards a government debt crisis. This articles by Heather Stewart from the guardian. And let me just share with you a little bit of these lists. Okay. And you know, you think Greece is bad. You think the US is mismanaged? And you know, we’ve got a lot of debt in the US. Certainly, you’re right. But the US happens to have the reserve currency. And like I always say the military to keep it that way. So forgive me if I’m pronouncing some of these country names wrong. By the way. They’re, some of them are rather small countries. Okay. Boo Hatton. Cape Verde, Dominica, Ethiopia, Ghana, Laos, mera tawnya, Mongolia, Mozambique, Samoa, Sao Tome a principi. I don’t know how to say that Senegal, Tanzania, Uganda. Those are countries that all have a very high risk of a government external debt crisis. And these countries are currently in a government external debt crisis. Armenia believes we use we’ve we’ve talked a lot about believes over the years. Costa Rica you know many people think let’s just go invest in Costa Rica. Are you kidding me? Have you been to Costa Rica? Have you tried to drive on those roads in Costa Rica? The potholes are like the size of VW bugs. Sometimes it’s insane. Croatia, I was just in beautiful Croatia, external government debt crisis already. Cyprus, you know about that they had the haircut where they just swiped a bunch of money out of the bank accounts. The Dominican Republic or the Dr. El Salvador, Gambia, Greece, of course, Greece, Grenada, Ireland, I was just in Ireland, Jamaica, Lebanon, Macedonia, the Marshall Islands, Montenegro, Portugal, Spain, Sri Lanka, St. Vincent and the Grenadines, Tanzania, Ukraine, Sudan, Zimbabwe. Okay. All of these are already in a debt crisis. The world is in a debt crisis. I mean, in those are just the high risk countries. There’s a lot of lower risk countries as well. I mean, look at what is going on around the world. I mean, China is an I had just had Harry dent, I just recorded an episode with Harry dent again last week, and that will air soon. You know, that’s, I think his fourth time on our show. And China does not look good. Okay. Russia does not look good.

I mean, this is a matter of relativity. Okay. It is relativity. So when we look around the world, there’s there’s a lot to consider. And when we look when we look at real estate investing, the United States has a very special real estate market, very special, very unique characteristics that are unrivaled in the world, having been to 78 countries, myself, and some of those countries I’ve been to several times, okay, it’s not just a one visit. In many cases, I tell you, the US has got some pretty good real estate deals for sure. But if you are interested in this topic of robotics, and robotics, replacing jobs, and what that means to the economy, call into the show, leave a comment, go to Jason And just press that little leave a voicemail tab there on the right hand side of the website at Jason Leave your comment about what you think about robotics displacing jobs about the future. There’s an interesting Mises Institute article that I want to share in a future episode. Maybe we’ll have another we’ve had some Mieses Institute guests on the show before over the years, you know about robotics and about how it’s it’s great news because we don’t want jobs. We just want wealth and prosperity. Well, maybe that’s what the future holds. Maybe we really are moving into a state of utopia. Maybe we are, we will see. Or maybe we’re going to see as some say, 47% unemployment around the globe. Of course, we’ve already got that in Greece and Spain, and, you know, many other countries like that that are close to it. In the United States with these minimum wage increases in the movement to increase minimum wage, we’ve got that in some minority communities. I mean, I think that’s just downright cruel. You increase minimum wage, and you basically put people out of work. By the way, we haven’t talked much about it lately. But certainly, we had john Williams on the floor from shadow stats, calm, very interesting insights into what’s really behind the government statistics. And we’ve talked about the unemployment rate, the inflation rate, how all of these things, the GDP, how they’re all manipulated, okay?

Now, they’re talking about how the unemployment rate has fallen to 5.3%. That is totally bogus on so many levels, because it doesn’t take into account the labor participation rate, the much more important metric, and it doesn’t take into account the types of jobs. So we’re seeing, of course, manufacturing jobs disappear. We’re seeing many white collar jobs evaporate. And part of this is the alchemical economy. You know, part of it is robotics at some level. And when I talk about robotics, I don’t just mean some machine, you know, building cars on an assembly line. Robots come in many forms. Okay. Some of them are just circuitry, nothing actually moves. They’re solid state robots, right? They, they think they do high speed, high frequency trading with robots on Wall Street. Okay. They displace jobs to there. And they’ve certainly displaced investor profits. We all know that for sure. So let you know, what will this mean? I’m really struggling with it. I do not know, I can’t quite formulate my thinking around this. But I think it’s critically important because I’ll tell you why folks, this is imminent, it is like three years away, five years away, by 2020, we are going to see massive shifts in the economy, we’ve got to be thinking about this, it is hugely significant. And it doesn’t just affect the US it affects it affects the entire world. So a lot to think about there and a lot to talk about. So if you want to call into the show, and you know, talk to me real time about it, I’d love to have you do that. Just go to Jason slash Jason, if you want to be on the show book a time with me real easy to do that there. And, you know, make some comments in there. So I know what it’s about and so forth. If not, just go to Jason And leave a comment on the voicemail. We’d love to hear from you. And those of you coming to our Chicago tour, look for an email in your email box. We’re going to be touring Chicago, Grand Rapids. And if you want, join us for our little side trip to the poster child for big government disaster, Detroit.

Okay. You know, you may want to be packing heat for that trip. I don’t know, I haven’t been there in a while. And here, it’s pretty bad. But we’re gonna go kind of look around there, just for a little while. And we will see you on what is it Thursday? Yeah, we’ll see a Thursday morning. We’re gonna meet at 830 at our hotel, and then we’re going to our first provider, we’re going to have breakfast there. We’re just going to spend a great day together. So I’m really looking forward to it and look for an email with details about that. And you can get the full details there. But 830 Thursday morning, that’s when we need to meet you. So you know that that’s our little semi private Chicago, Grand Rapids and yes, Detroit. I can’t believe it. Property two, or Hey, Detroit’s right there. We might as well go check it out. So it’ll be interesting to say the least. Alright, let’s get to our caller today. And let’s talk about investing in funds or maybe why not to invest in funds. Here we go. Hey, we’ve got a listener call in and it is Andrew, who I know through one of my mastermind groups. He’s looking at a real estate deal in Texas. Andrew, how are you?

Andrew 24:47
I’m doing great. Thanks for having me. Jason.

Jason Hartman 24:49
Yeah, well, The pleasure is all mine. Tell us about your deal.

Andrew 24:53
Okay, so, um, it’s really in the very early stages but it’s it’s it came to me through My brother, who I trust and gentlemen have one of his close friends that he’s known for a significant period of time, who’s done from what he says very well in real estate, and my brother has a lot of trust in him, but he doesn’t have the time to really look into the deals, do the due diligence, and, and be the competent investor that he wants to be. So I’m, I’m, I’m filling in for him, and I’m going to be doing the investment a while potentially, I’ll be the one doing the investment if everything looks good, so I kind of wanted to get your perspective on the the handful of details that I know. And I’m going to be getting more information as, as as as we proceed down the line. Obviously, before I make any agreement, I’m going to have more information than I have now. But I kind of wanted to run past you kind of the information that I know so far. Okay, super.

Jason Hartman 25:54
So don’t tell us exactly where the property is located. But it’s a it’s a Texas property. And it’s two apartment buildings, is

Andrew 26:02
that correct? That’s correct. Two apartment two buildings, which is attractive to me, I think that’s a better direction to go. Rather than just individual units. Both of the apartment buildings have 32 units. And they’ve done they said they’ve done due diligence on it. And there weren’t any surprises. And properties are in excellent, excellent condition. And they’re planning on? Well, you let me read you some details on it.

Jason Hartman 26:33
Yeah, I’m gonna ask you the income they produce, how old they are all kinds of stuff. Also, I want to get your take on why you think this is better than single family homes? Probably because of the deal size? I’m assuming. But tell us what is the seller asking for the property? And how much income does it produce every month?

Andrew 26:51
I don’t have those exact numbers in front of me, Jason, I would have to I would actually have to, I would actually have to get some of that information from, from the gentleman that I’m talking to.

Jason Hartman 27:04
Okay. So that is obviously critically important, right? So first of all, do you have a price

Andrew 27:10
yet? Well, they’re breaking it up between several investors. So the, they’re going to purchase the 232 unit buildings under a company. And they’re going to have multiple investors who are going to invest chunks of it. Who is they? This gentleman and his his partner who have approached me about the investment.

Jason Hartman 27:30
So what you’re saying is he’s not actually selling the property, as one piece, he’s selling a bunch of little shares and basically syndicating it to investors. He’s not

Andrew 27:39
selling the property, he’s going to purchase the property with me as a partner. So him and I would be partners along with maybe one or maybe zero other investors, we would all put down chunks of money, you know, own different percentages of the two properties.

Jason Hartman 27:54
Okay, so what’s the partnership structure he’s offering? Is it a true partnership? Or is it an LLC, where you’re owning shares and or, you know, all that kind of stuff?

Andrew 28:02
We haven’t gotten that far yet. And kind of one of the reasons I reached out to us because I don’t know the exact questions I need to ask in a situation like this, whether it’s a single unit, or a multi unit dwelling, I don’t know the exact questions I need to be asking in this situation. Okay.

Jason Hartman 28:16
So what’s the likelihood Andrew, of you doing this just with with him? Or? I mean, is it going to be many investors or you just have no idea yet?

Andrew 28:27
I don’t know yet. Exactly how expensive the the the properties are, and how large his personal investment is going to be?

Jason Hartman 28:38
So what makes you interested in this deal? I mean, there’s so little information about it, I know that you’ll get more information. But why are you interested in it? I mean, there’s a zillion deals out there. I want to do business with somebody I trust,

Andrew 28:49
obviously. But I’m really looking for the questions that I need to ask before I even consider the deal. All that I have right now is a very basic information, and they’re going to be giving me more information in the future. But I don’t know the proper questions to ask.

Jason Hartman 29:03
Well, there’s definitely no shortage of deals. Okay. I mean, you know, deals are all over the place. But I should actually clarify that whether they’re actually a quote, deal, unquote, is quite another question because most of them aren’t very good deals. So you know, I’m saying you can buy properties you can buy into syndications and partnerships quite easily. Those are plentiful, but most of them aren’t very good deals. So the first thing we’ve got to do is we’ve got to get a price. We’ve got a we there’s just a zillion details, we need to know what do you know, you said you had some information you wanted to share about it?

Andrew 29:39
Yeah, I can give you I can give you the outline as it’s been given to me. They’re going to be running this as a single entity, because they’re adjoining apartment complexes. They’re conservative five year projection is returned to 100% in five years. They’re classified property’s built in 1986 in a in a great location in between two major freeways into sub market, and the properties are already stable, meaning that there’s no vacancies and the rents for class B properties in this area are increasing more than in any other class. From their analysis, they say that they’re planning a $3,000 door in rehab, which will be completed as units become vacant. And rehab is virtually offering interior improvements, because there’s very little required on the exteriors, the interiors are in excellent condition and are easily rented as they are due to the location in excellent condition. The property management company does not even need to market or advertise and they have absolutely no issues renting the units.

Jason Hartman 30:45
Did you say they were 100%? occupied? No vacancy at all?

Andrew 30:48
Yes, that’s correct. They’re 100% occupied at the moment.

Jason Hartman 30:51
Okay, that’s, that’s pretty awesome.

Andrew 30:53
Okay, go ahead. And once they take over in the units become vacant, they’re going to make improvements to update with newer fixtures, lights, kitchen backsplashes, interior paint, and in some cases, they’ll also update the flooring. Now based on their market, their market analysis, they should be able to get an additional 20 to $25 a month in rent, if they do not make any improvements just by raising the price. But if they make some minor improvements, they should be able to get an additional 50 to $75 a month. If they do the full upgrade, including floorings, we should be able to get an additional 75 to $100 a month. So from their pro forma, they’ve only bumped the rents rents up by $25, which they say is conservative, and they use a economic vacancy of 10%. But the management company who conducted the market survey believes that 8% should be achievable. So 10% is conservative is what they say. And they did not increase their their other income, but they’re, they’re considering charging for covered parking Petric cable test in trash, which will result in even better returns.

Jason Hartman 32:01
Okay, great.

Andrew 32:02

Jason Hartman 32:02
you know, I think like, Look, you know, me, I mean, listening to the show, I don’t like funds or really investing with with groups, unless you really know the people. I mean, obviously, if you’re going to be a direct investor, and everything, you know, it’s going to keep you small, if you want to do something big, eventually, you’re going to have to partner up with someone probably right, or it’s gonna limit your growth. So I can totally understand that. If this is a fund type deal with a bunch of investors, I would, I would definitely shy away from that, as as you probably know, without me even saying that.

Andrew 32:37
Hey, Jason, can I ask you a question on it? So what in particular about that specifically? makes you want to shy away from it? Is it is it just having that many people involved makes the deal complex can introduce unknown legal issues? What is it would make you shy away from something like that? Oh, yeah,

Jason Hartman 32:57
great question. Well, you’ve heard me talk about my 10 commandments of successful investing. And number three is thou shalt maintain control. And you know, whenever you relinquish control of the investment to somebody else, you leave yourself susceptible to the three major problems. Number one, you might be investing with a crook number two, you might be investing with an idiot, assuming they’re honest and competent. The third hurdle is they take a huge management fee off the top for managing the deal. And most of these guys running funds or partnership type investments of any kind, are usually just looking to skim money off the top of the deal. And that’s, that’s how they make their money. A lot of them are involved and engaged in the construction themselves. You know, they have these like, vertically integrated businesses, and you just really don’t know what you’re getting until later, unfortunately.

Andrew 33:45
Okay, that that makes sense. So that should be one of the questions I ask is, is they are they taking a management fee or a cut? Because they’re fronting? They’re, they’re spearheading the deal?

Jason Hartman 33:54
Right. And they will definitely take some kind of fee for that. But beyond that, Andrew, there are so many more subtle ways in which they do this. You know, for example, if you have an investment fund, and you want to bring other investors into the fund, even if it’s a small fund, like it’s you, the owner who’s doing the kind of the syndication deal, or the buyer, I should say, and they want to bring five other investors in? Well, you know, do they have to go into wine and dine them? Do they have to travel somewhere, and all that’s happening on your dime most of the time, right? Yeah. Right. So I just I just don’t like that. There’s also a lot of trickery that goes on. And it may not be overt cookery, in the construction side of the business. I will guarantee you that any of these guys that have big projects, when they want another project done for them or they want their home remodeled are some favoritism from a lender, any party in the transaction, there’s so many people in the transaction, that they’re going to get some favoritism and basically Simply that cost is going to be built into your deal. And so I There are just so many reasons I just don’t I just totally believe in being a direct investor, you know, I mean, I have partners and some of my deals, and most of them have worked out great. You got to really watch them. And when it’s a bigger deal, and there’s so many little subtleties, you know, you’re not gonna have time to figure all that out, even if you can, you’re not a forensic accountant. And even if you were, who wants to spend the time doing

Andrew 35:26
that, right? Well, and that’s, that’s kind of sort of a catch 22. Because, you know, one of the reasons that a deal like this would be attractive to me is because I don’t have a whole lot of experience myself. I believe, you know, this is a personal family friend that’s been vouched for. So that inspires a little bit of confidence in me. And I don’t have the time to manage it myself. But this is what they do full time. So I think the question is very good. Is there a management fee, because that hasn’t been brought up at all? I because before you mentioned that, I was assuming that they’re just looking for investors to fill out the remaining cash that they need to get a large property,

Jason Hartman 36:07
right. You know, usually, the way this stuff works is if the deal is that good, they’ll just buy it themselves, you know, they don’t need to take on partners. Now granted, nobody has unlimited amounts of capital, so you can’t buy every deal yourself, right. But if the deals really good, and if they’re not looking to, you know, melk, the the partners and the investors, then usually, they’ll just figure out a way to use bank financing, or some other type of financing to buy the deal. Even if it’s hard money financing, it’s cheaper than having partners, and what I mean is hard money financing at high rates, you know, it’s it’s usually easier than actually getting real partners, you know, because partners are like the most expensive part, you know, for you to split the equity and the profits with someone if the deal is good. So, I mean, is this a Is this a big company, tell me a little bit about who the promoter of this deal is.

Andrew 37:03
Okay. So here’s

Jason Hartman 37:05
just just always remember, Bernie Madoff had tons of friends.

Andrew 37:09
Exactly. So they already own eight properties. They’ve been doing real estate for a long time. But if done on smaller deals, such as one to four unit buildings, about two years ago, they started getting involved in larger complexes, some are newer deals. And the deals they make are the deals, I’ll read what they’re saying, the deals we are in either make or projected to make 10 plus percent cash on cash return year, in double our money in five years or less, a couple of the deals are already being sold again, because our five year projection has been met in two years. I would not say this is common though. For the sake of discussion, we project these two properties will make a 10 plus percent return a year on cash on cash and double money in five years or less.

Jason Hartman 37:56
Wow, that’s those are pretty awesome projections. But remember, you’d be hard pressed to ever hold somebody accountable for projections. Okay. You know, you can’t sue a fortune teller. Okay. You know, what I mean? You know, what I would definitely do, if you really are, you know, dead set on entering into a deal like this, is, you definitely want to talk with our investors who’ve been in there other deals, the ones that they claim were so good, and so forth, and talk with a lot of them. And, and, you know, I kind of know your dilemma, Andrew, and although we haven’t totally, you know, really talked about it here. But I know you’re a very successful businessman, and you want scale, you probably kind of look at what we talked about on the show and think, you know, I don’t want to fool around with buying six houses, single family homes, right? Because it’s not, it’s not big enough for you, it doesn’t impact your net worth enough, right? I’ll tell you something. If nothing else, as considering it part of your education, just having a few little houses, you’ll learn a lot, you know, and you’ll you’ll, you’ll just kind of get your feet wet with that. And you’ll kind of see how real estate deals work. So that training is pretty invaluable if you just consider it training. If nothing else, that’s a consideration. But I tell you, I just do not like funds. There’s just too many ways. And I’m not saying they’re illegal ways, but sometimes they are. There’s just too many little subtle ways that the investor is just losing out. You know, you’re just not reaping the big profits. The big profits are to be the promoter of the deal, you know, or just do the deal directly yourself.

Andrew 39:34
Yeah, that makes sense. That makes sense. So what would be the sort of questions I would ask to do the due diligence on this besides just know your you know, your two great pieces of advice to talk to the other investment investors in their other deals if I’m not sure there are other investors in the other deals since they were smaller. Ask them if they’re taking advantage fee to handle the deal. What are the questions would you ask Jason

Jason Hartman 40:01
ask them to disclose all of their fees, and disclose whether or not they own or are somehow involved with a construction company that’s going to do the rehabs. If they’re involved with any of the other parties in the transaction, okay. And say you want them to disclose any revenue they get from the deal, or any benefits they get from the deal at all. But see, the problem with questions is, they don’t much matter, because people can lie, they can spin doctor, you know, they can shade the truth, you know, what you really need to do is read their document, read every word of their document with a skeptical eye. And just notice in that document, how many disclaimers they probably have, how long it is, you know, good deals don’t need to be complicated. And you don’t need super long documents. I remember one, a buddy of mine, who’s a really nice guy, he started a fund invest in real estate deals, and I just offered to kind of throw him a bone and say, Look at you know, what’s your minimum? He said, 25 grand, I said, Well, I’ll give you 25 grand, you know, just just to kind of be involved with him, because I because I like the guy, right? Anyway, he sends me three, I think it was three documents. And the main document was 138 pages long. And you know what, I emailed back to him? And I said, Hey, do you have an audio book version of this?

Andrew 41:28
You know, it’s just

Jason Hartman 41:29
absurd. You don’t need lengthy documents like that, unless you’re just looking for ways to paper over things and give yourself a bunch of outs, you know, people complain about the real estate contract, the standard forms, you know, being eight pages long, or whatever they are, depends on the state and you know, the locality. read every word of the document, it’s much more important than the questions, the questions you ask them aren’t going to be that important. It’s the questions you ask their other investors, and try to really be somewhat suspicious about those other investors, you know, are they involved with him? Do they have an agenda in some way? Try and verify them from multiple directions? I mean, one deal that I invested in, I knew the other investors personally before investing before I was even approached on the deal. And that made me feel a lot better, because I knew, you know, it would be really hard for them to be shills unless they were setting up this, you know, big scam from a long time ago, right, which certainly does happen. But that would have been much more complicated to do. So. It’s really nice when you can kind of like verify that from a third party.

Andrew 42:38
Okay, agreed it to be quite honest with you, this isn’t. This isn’t something that I would be interested in if it had just come out of the blue but it like I said it is a family friend. It’s somebody who’s vouched for and I trust. But I completely agree with you. And I promise I’ll have plenty more questions when I actually get a legal document from the

Jason Hartman 42:59
good stuff. Well, hey, let’s have you back on to look at that when you get some paperwork and you know, a whole private placement memorandum, you know, whatever you got whatever you get from them. Let’s talk about it on the show.

Andrew 43:09
Okay. Okay. Sounds fantastic.

Jason Hartman 43:11
I appreciate it. All right, Andrew, Hey, thanks for being on. A lot of people have the same kind of questions you do.

Andrew 43:15
Thank you, Jason.

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In this episode, Steve G Jones joins Jason Hartman to ask about income property and renting versus buying properties. Jason also explains why you should not invest in the stock market and the only three types of smart investment.

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This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman

Announcer 0:13
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walk the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities, this program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 0:56
Welcome to the creating wealth show. This is your host, Jason Hartman with you for episode number 527 527. Can you believe how many episodes we have? I can’t believe it either. But I can’t wait until I get to say, Well, this is your host Jason Hartman with episode number 20 731. And you know what, at the clip with which we are proceeding, that won’t be too far away. While I guess you could actually calculate it three episodes per week at our current pace, how long would it take to get to Episode 20 731? How many licks does it take to get to the center of a Tootsie Roll Tootsie Pop? The world may never know. So you have to be old enough to remember that commercial. Anyway, hey, we’ve got a good show for you. Today, we’ve got a listener who’s calling in our listeners, Stephen from Las Vegas, called in we discuss some stuff, rent versus own that kind of stuff. You know, frankly, and I know he’s a newer listener to the show. But, you know, I kind of can’t believe we’re still talking about some of this stuff in a way. And here’s why. You know, I’m always hashing this out with my mother. I don’t know what it is about human psychology and why why is it that? I don’t know, why is it that this doesn’t really kind of resonate with some people? It does with me, because the way I look at it is, you know, if you’re investing, you’ve got a given amount of capital, you don’t want sleeping money, you don’t want lazy money. Heck, all of you business owners out there, you know, if you had a sleepy or a lazy employee, you would want to get rid of them for a productive employee, you got to make your money productive to it’s the same way with money as it is with employees or children, for that matter, no lazy kids. You got to put them to work too, and make them become productive members of society, right? But if we haven’t given amount of capital, let’s take for example, $100,000, right? Or no, no, let’s not take 100,000. That’s a bad example. Let’s take $500,000. And if we could use that capital, whether it’s money we have in the bank, and we’re paying cash for the asset, or if it’s money that we borrowed, partially or completely to pay for the asset. Remember, the money we can borrow is an asset. And it is always perplexed me how a when you look at a balance sheet of assets and liabilities, our ability to borrow is a huge asset. And just as if we have money in the bank that is earning almost zero interest, or we have equity in our real estate that is earning no return. Because remember, I don’t believe there’s any such thing as return on equity, I think that metric is is really false hood, because the return, the amount of income the property generates is the same, at least in theory, it should be the same is the same, regardless of how much equity we have in the property. So all of you listening, if you have equity in your real estate, whether it be the home in which you live, or an income property. Tell me what size check Did you get for your equity last year? And you know how every year in late January and early February, you received 1099, or 1098, I think statements made is at 28.

Now Forgive me, I don’t know. Anyway, you get it. You know, it’s that statement you get for your taxes that shows you what the investment earned. What interest you got on say a bank account. Well, did you receive any statement for the equity in your properties? Let me guess, No, you didn’t receive a statement. Why didn’t you receive a statement? Well, you didn’t receive a statement because you didn’t get any return on your own. Woody, silly, there is no return on equity. If you have a high loan balance, or a low loan balance, if you have no equity, or you have massive equity, if you have 100% equity in your property is free and clear, the property should be generating the same amount of gross income. The tenant has never ever asked you. What is your mortgage payment? I want to make sure I cover it for you. They’ve never asked you that, have they? No, I knew I knew it. They just care what is the market value of the property. So if you have $500,000 invested in an asset, I want you to get 1% of that back every single month, I want you to get 12% of it back every single year, I want you to get $5,000 per month, or $60,000 per year for your $500,000 asset. Regardless of how it’s financed, that’s not relevant to this part of the investment analysis decision is it it is just not relevant. Okay. So it kind of perplexes me why we keep talking about this stuff. So I’ll go back to the example of my mom. Remember, mom was on a show several months ago, and you know, I burst her bubble, I felt kind of bad about it. You some of you listening might say, Jason, why are you always picking on your mom? Well, I’m not really picking on her. Okay. She’s done great for herself. There’s no question about it. She just did it the old school way. And listen, I think that’s fine. She was smart to invest in income property. She always wanted her own income property. I mean, ever since the first home that she owned after growing up poor on a farm in upstate New York. It is amazing how far she’s come. And she bought her first property in West Los Angeles in 1976. For $62,500. Now it’s worth over $800,000, give or take. I frankly, haven’t checked lately. But remember when she came on my show several months ago, you know, she’s been on several times. And she said, I’m so excited. Jason, I just rented my house in West LA, for West Los Angeles, West LA for $4,000 per month. And I said, Mom, yes, you’re excited because you only had it rented for 30 $200 per month before that. But guess what? You’ve got an $800,000 asset there. You are losing $4,000 per month, you’re not making $4,000 per month, I guess it’s really that old issue of is the glass half full or half empty, isn’t it? Right? Isn’t that the question here. So call me a pessimist if you want, but I think mom is losing $4,000 per month. Because if she were to sell that property on a 1031 tax deferred exchange, and by the way, that property is fully depreciated. It has run its 27 and a half year depreciation schedule. So there’s no depreciation benefit, you got to cash out and start over every 27.5 years. You’ve heard Fernando on the show when he spoke at our Memphis property tour. He said, I plan to live to be 125. And by the way, Fernando, I believe is 48. Now he’s in great shape, super healthy guy, very health conscious. I would bet that, you know, given no unforeseen circumstances, he probably live a lot longer than 125 years. Remember, listen to my longevity show. Okay? The problem most of us listening here are going to have is too much life left at the end of the money. And it is a great problem to have. But remember, it is a problem nonetheless. So we’ve got to plan for that. The type of longevity we will be facing in the coming years is going to amaze and delight us. So plan to live a good long life.

So Fernando said at the Memphis property tour when he gave a little speech there, he said, I plan to live to be 125. So he’s going to go through three depreciation cycles with his portfolio. He’s got 70 units, he’s going to sell them. So he’s going to run that depreciation schedule again and again. And it’s just a phenomenal opportunity. longevity is a big deal. Let’s plan for it. Let’s prepare for it. Let’s invest for it. It’s an amazing time to be alive. It’s an amazing time to be alive. I’m not sure the sound is any better. I don’t have my room set up in my new home here in La Jolla, California. But I’m working on it and as one of our listeners Christina pointed out when she saw a picture of my room, one of my rooms here on Facebook. She said you need to get a throw rug a big piece of carpet in that room. Because those marble floors made too much of an echo, so I’m not in the closet right now. If you don’t know what I’m talking about, listen to the past episodes, the closet is the best place to record because it’s got nice soft clothing to help with the acoustics. But given all of that, I want to play another listener question for you here, before we get to our listener guest. So let me just cue that up, and I will play it for you. This comes from listener tape, by the way, thank you for going to Jason And leaving a message for us. We love getting your questions and comments and playing them on the show. Please do that go to Jason Leave us a voice message. We’ll play it on the show. I like this a lot better than emails, folks. Okay, so so please do that. And we love getting your questions. Do tell us though, from where in the world are you calling? We would love to know that what city you know, your city in your first name would be great to hear. We have listeners in 164 countries worldwide, most of them in North America. Please let us know your first name and your city when you leave a message. So here is a message from tait, let me cue it up for you.

Listener 11:15
Hi, Jason, I have two questions for you. The first is, why do you offer to be a 19% partner with any Platinum properties opportunity as opposed to any other percentage, whether it be 20 or 25? or what have you? And my second question is, is there a minimum number of houses that you would recommend a person to start renting out in order to minimize risk? In other words, if there’s a newbie investor, should this person rent out? Just one? Is that okay to just rent out one unit or a home or whatever? Or is it better to wait until the investor can buy five properties, for example? So those are my questions, and I love your podcast, and thanks for responding.

Jason Hartman 12:07
Alright, so tait, that was a really those were really good questions. Okay. Because I know that the first question on the 19% may just seem totally weird. And it does to me too. And that’s not my number. Here’s where I got it. The lenders for some arbitrary reason, and I’m sure this differs from lender to lender out there. But the lenders say that 19% is the magic number, where someone can buy in and own up to 19% of the property without the complexity of going on the loan. So that is the magic 19% number. Okay, and I’m sure it varies between lenders. But that’s what I hear from the vast, vast majority of them. And your second question about diversification is another good question. So when it comes to diversification, if you just have one property, you have one vacancy, you have a 100% vacancy rate, if you just have one property, and it happens to be in a bad area, maybe that city, the economy isn’t going as well, then you have one property with a problem for sure. One of the things we say is diversify. There’s an old saying that all real estate is local, all real estate is local. And in the United States, there’s no such thing as a national housing market. There’s really just about 400 400 local markets, represented by what’s called m essays, or metropolitan statistical areas. So I would say, diversify into at least three markets, and as many as five markets. Now I try to talk about my mistakes on the show somewhat frequently, I do make them. One of the mistakes I made many years ago, among others, is that I over diversified. I just went in and I was buying properties in all the markets that we were opening nationwide, and I had too many markets. And that was a mistake, because I was dealing with too many different parties, too many different property managers, too many different cities, too many different insurance agents, etc. So I would say keep it at a manageable number. If you’re going to buy three properties, then you might buy three in three different cities. If you’re going to buy 30 properties, you might buy 10 in each of three cities, if you’re going to buy 99 properties 33 in each of three cities. But if you want to be a little more diversified, I think our minds can Still handle five markets. So in that same example, it would be 20. You know, if it was 100 properties, it would be 20. In each of five markets, if it was 30, and you were in five markets, just take 30 and divide by five, what would that be? Six. Right. So there you go. There’s, there’s an answer to your question. So I hope that helps. It’s a great couple of questions there. And let’s get to our guest today, Steven, who is a listener to the show, and we’re going to talk about that rent versus buy dilemma, and how to maximize whatever assets we have. That’s what we want to do. We don’t want lazy money, we want to maximize our money and put it to work. Check out Jason For some great properties. Oh, my gosh, one more thing. There’s always one more thing. So I just moved. And in, in moving, you’re never gonna believe it. Guess what I found? I found that we have another dozen of those old classic meet the Masters home study courses. Those are I’m going to check right now. I believe they’re still on the website. I’m going to chase in Clicking on the product section, the creating wealth courses definitely sold out. Those are totally gone. But the meat the Masters home study course the physical product is on the website. We got just about a dozen more of those I was I’ve been stashing these away in all these little places, go on the website, buy those, I will send them to you I fulfill the orders myself. So you know that it was done with love and appreciation. And they’re only 197 bucks. Well, the digital product is 497. I know that sounds like it’s bass. ackwards, doesn’t it. Yes, it’s bass ackwards. So we’ll send those out to you. So go and order them. Well, supplies last can’t believe I found more of those things while moving. But anyway, we did. So take advantage of those the meet the Masters home study course for only 197 bucks. Shipping is free within the continental United States that cost about $22. So we’re covering that for you as well. You’ll get these beautiful CDs and workbook 500 page book. I don’t know what is there about 20 CDs in there, they look beautiful on your bookshelf, any guests that come over to look at your library will think gosh, you must be a very wise and prudent real estate investor because you’ve got the meet the Masters home study course. So take advantage of that. And let’s get to our guests. Here we go.

So this is Steven G. Jones, a listener call in to the show, Steven, you have some great questions that you’ve posed before on the voicemail. So it’s great to talk to you in person finally? And what questions can I answer for you?

Steve G. Jones 17:53
Well, Jason, you’ve done a great job answering all my questions so far. And I appreciate that you really opened my eyes to a new way of thinking. And the current question I have is that I am in a situation where I live in a I live in a condo, it’s a four star luxury resort, and I am renting it. I’m gonna already tell you, you’re a smart guy, because I don’t want you to buy that. But we’ll analyze it. So let’s analyze it. So yeah, I got a really good deal on it is 2100 a month that includes utilities, cable, everything, and it is a what city, Las Vegas. And the reason I moved here is no state income tax.

Jason Hartman 18:36
Yeah, no, I mean, I, I plan someday to live in Nevada, or Florida, or maybe both. Because I really want to live in a no income tax state. So I agree. So you told me that you live in this beautiful four star place 20 $100 a month, and it includes your utilities. It sounds like so let me just venture to guess that that place if you were to buy it would cost you about $500,000?

Steve G. Jones 19:04
not currently currently this place would cost $275,000 with a 12 $100 a month Hoa at the height of the market, this would have cost about 500.

Jason Hartman 19:18
Okay, but that doesn’t matter to the market doesn’t matter. Okay, so so that’s a lot cheaper than I thought it would be. But we’ve got to add in those huge absurd, ridiculous association fees, homeowners association fees, as though it were part of the price. And here’s what I mean by that, Steven, I’m going to do this math. And this is not the only way to slice it and dice it. But your rent to value ratio there isn’t as favorable as I thought it would be for you. Until we tack on the ridiculous association fees. Okay, because you’re paying 2100 a month and you say you can buy the place for $275,000 That’s not bad. Okay, I thought it would have been much worse when I, when I threw out the $500,000 number I thought you were gonna say, Oh, 450 or something, you know, something in that ballpark.

Steve G. Jones 20:12
Okay. Cash Only, by the way.

Jason Hartman 20:14
What’s that mean?

Steve G. Jones 20:14
They don’t you can do financing in this building. Oh,

Jason Hartman 20:17
I’m glad you said that. Let me guess there’s litigation that that means all the lenders have run for the hills and they won’t finance right.

Steve G. Jones 20:24
I don’t know. But it is a condo hotel, which means it’s, you know, part of condo part hotel. I don’t know about the litigation that is possible. Is it in the palms by any chance? No, I’d rather not disclose the place live just because one of the problems but it is not in the palms.

Jason Hartman 20:41
Okay. So first of all, let me tell you that there has been a massive amount of litigation in Las Vegas, condo hotels. And now for the listeners who may never have heard that term condo hotel. What that means is it’s a condo that is owned by an individual owner, but it acts in some ways, like a hotel. Now, Trump did this. He was sued relentlessly, or and when I say sued, I’m using that term generically, because a lot of them had to go to arbitration, unfortunately, and arbitration is an epic scam, in my opinion, that’s a subject of another show that I am planning on doing, by the way, and cosmopolitan and poms, and there are many others. And these things are just really complicated investments. Okay. So I would say that, you know, it’s okay to buy one real cheap, but like you said, at the peak of the market, someone would have paid 500 and something 1000 for that. And a lot of the lenders just won’t finance these types of things. Okay. And I will tell you, I have a personal experience. That has been a horrific experience dating back 10 years. But I’m just waiting for it to wrap up before I tell the whole story on the show. Okay. So let me just go back to that math that I want to do with you, Steven. Okay. Or Steve, I’m sorry. Why do I keep wanting to call you Stephen?

Steve G. Jones 22:10
My mom asked me that when I was in trouble. So maybe,

Jason Hartman 22:16
Stephen in your middle name, right. Okay. So what I want to do is I want to take the 12 $100 a month association fees, and I want to just assume that that is equivalent to if it were a good real estate investment, a good cash flowing investment to $120,000 in actual value, because in most of our network, you could buy $120,000 house and get 12 $100 a month. So I know that’s, you know, kind of an maybe an obtuse way of doing that to some people. But that’s the way I look at the world. If I put in 120 grand into something, I want to get 1200 a month. So in the reverse of that is, if I’m paying 1200 a month, or getting a 1200 a month benefit, which you are as a renter, because you’re not paying those fees. It’s a homeowner’s association, so the homeowner pays it right. So I’m going to equate that to 120,000 in value. Okay. So that means that the true cost of owning that property of buying it is really 275,000. Because that’s what you can pay cash for it, plus 120,000, which makes it 395,000. That’s the way I look at that type of thing. Okay, so, so then I also look at, gosh, you get the benefit of living there for 20 $100 a month. And you don’t have to worry about anything if a pipe breaks on the wall, and it floods your unit in the neighbor’s unit. Yeah, you know, you’re going to have to deal with your renters insurance company and replacing your furniture and stuff, and you’re going to have to move out and that’s a huge hassle. But guess what, you don’t have to deal with contractors, you don’t have to fight with the insurance company over the property damage, you know, the of the actual property itself. You don’t have to fight with the HOA and get in litigation with him. It’s just much easier to be a renter, and one of your very astute questions that you had asked before. And I didn’t get a chance to play all of your questions on the show yet, either. I know I’m a little behind on those from the voicemail. But is you know, aren’t you just throwing money down the drain? Right, and renting? Well, look, we’re all renters, none of us really own anything. We just get the use of things. And if you want another take on this, it’s not exactly like my take, but it sort of has some parallels. Go to the Khan Academy, which is you know, in kind of an odd place, but there is a great couple of videos that they’ve done about renting versus owning, and Khan Academy. is a great free educational website k h a n That I just love. Because anytime I have a spare 15 minutes and I want to learn about, you know, organic chemistry, I just go there.

Steve G. Jones 25:12
I do too. I study theoretical physics on there. And I’m certainly not qualified to study that. But on there I you know, they explain it so nicely.

Jason Hartman 25:20
I know isn’t a great, it’s awesome. But but they have a rent versus buy analysis that’s really quite good. You know. So check that out. Okay. It’s really good. But I would say just keep running it, enjoy it. You know, if you buy it, you’re basically going to be renting to yourself, because in my book, the final analysis says, We’re all just renters, we’re all just getting the use of something. And you’ve probably, you know, come in contact with Robert Kiyosaki, Rich Dad, Poor Dad type writings at one time or another. And he talks about how his rich dad said, Your home is not an asset. It’s an expense. Because it doesn’t produce income, it costs you money. So it costs you money to rent a place. So I say pay 2100, rather than the equivalent of 395,000, which should get you 30 $950 per month, you’re basically getting it for half price.

Steve G. Jones 26:17
I fully agree with that. Let me let me run, uh, let me put a little bit more data in the equation. You’re looking at this, I don’t think it’s long. I don’t think it’s sustainable long term. I think that this guy who owns the place, when the market comes up, he’ll dump it because he’s been suffering he bought at the height of the market down half. If it goes back up, he’ll dump it, which means I’m out of here. Also my mark, my my rent is already not, you know, not not market level, it should be up by about four or $500 a month, because I’ve been doing some comparisons.

Jason Hartman 26:50
That’s a fair thing to say. Yeah. So so if you have to replace that you’d probably have to pay 25 or 20 $600 a month. And as a renter, you know, you could be forced to move every year. That’s a hassle. So yeah, there are there are, you know, there are some downfalls?

Steve G. Jones 27:06
Well, what I’m what I’m comparing, so I’m looking for a 10 to 20 year plan, something that’s sustainable. And what I had compared it to on a previous show, and I called in to your show was comparing it to a house that’s about, I get it for about 330,000. It’s also a house here, which would serve my tax purposes, to have a base in Nevada, it would also be, you know, a home for a good part of the year actually, a very inexpensive one story, you know, low maintenance low costs in a good area. And I wanted to throw that into the equation for our conversation here.

Jason Hartman 27:40
Okay, so if you look that $330,000 that’s a single family home, right?

Steve G. Jones 27:45

Jason Hartman 27:46
yeah. And I would much rather you see if you’re going to buy something, I’d much rather you see for financial purposes. So you buy a single family home, because though they’re just not fraught with the problems of lenders not lending in there. And litigation and condos are problematic in so many ways. And condo hotels are even worse. Okay. So that’s the first thing. So I’d much rather see buy that type of property. But I bet you you can rent that $330,000 house for about 1700 a month, maybe 2100 a month, you know, less than that when

Steve G. Jones 28:24
I was negotiating with the lady and I went over there and I talked to a lady, she’s moving to China with their daughter, so she needs to get out of the house. She said, Can I stay in the house after you buy it? Can I rent it from you for a couple months before I moved to China? I said, I really don’t want that. But just out of curiosity, what would you pay me? She said, Well, the house across the street runs for 1400 a month and I thought Wait a minute, 1400 a month, Jason Hartman would rent the house across the street. So like, I don’t need to be spent $330,000 on the mortgage,

Jason Hartman 28:55
you know, I think you can pretty much like around the world. I’ve done this in Europe, I’ve done it in Australia, it’s worldwide, you know, you change the currency doesn’t matter, the percentages are the same. It’s amazing how this equation holds up. If you’re going to be in living in a place that is worth more than about $150,000 in price, then you should probably rent it or at least very much consider renting it. And this is only I’m only talking about this from a financial perspective. I’m not talking about it, if you want to live in the call to sack and have your kids grow up there for the next 14 years. Okay, you know, I get that’s a different thing, but you’re gonna pay a huge premium for that privilege. Okay. But you know, what we’re talking about is just the financial angle, okay? So, you know, when when the price goes up, it becomes a great deal to be a renter. It really does. And I never experienced that more than when I first moved to Arizona and rented this big, gorgeous person. house for a couple of years. I’ve since moved from that property. But I gotta tell you, that was just a great deal. You mentioned on your last thing about me moving to San Diego, I am now negotiating a lease for $4,000 a month for a property in La Jolla. And I’m thinking, I bet that property would cost me a million or a million to to own. I’m not really sure, because it’s part of a multi unit. But I’m going to do a little research on it. You know, that’s a great deal.

Steve G. Jones 30:29
Yeah. And I understand your logic with that. And let me let me ask you this. And by the way, I had a meeting coming up in a few minutes, my push to head so I’ve got a little bit more time if you’re, if you’re Oh, okay, great. Cool. So, so that so let’s take that scenario. Again, I know these prices are low, and I kind of like it looks, I want to my my home base in this tax restate to be kind of inexpensive. But the house was 330, she told me about the house across the street, that’s about 1400. I know that’s a point five loan to value ratio, according to the rent to value rent, rental value, okay. Now, that equation, I think is you know, it’s probably going to change over time, because it isn’t, it isn’t the case that if I get a mortgage on the house, I kind of lock in rent for 30 years, whereas my rent the house across the street, it just escalates for 30 years,

Jason Hartman 31:17
you know what I’m so glad you brought that up, too. Okay. And this is an important thing, everything I just said kind of goes out the window, if you don’t invest that money somewhere else that works. See, I’m just considering that look, if you’re going to spend 330,000, or, you know, 275 plus 120, which is really 395,000. You know, if you’re going to spend that money, I’m assuming you’re either going to spend it on that house that you would live in or that high rise condo that you’re running now, okay? Or you’re going to invest it in something else, if you don’t invest it in something else, and you just put it in the bank or stick it under your mattress, which is almost the same thing nowadays. Because the bank doesn’t pay you any interest, you’re going to lose as a renter, because your rents are going to escalate. So I’m only saying, don’t spend 330,000 on the house that you might live in. Because you can spend 330,000 on three income properties for 110,000 each. And hopefully, if everything goes well, you’re going to get 30 $300 a month for them. And you’re going to get to raise the rents on those, you know, and not only are you going to get that 3300 a month gross, but once you leverage them, you’re going to get some positive cash flow from the financing, you might be eligible for some tax benefits, you’re going to take advantage of appreciation. One thing I will say kind of against my argument, too, on the Vegas high rise place because that price is pretty suppressed. If and this is a giant if Okay, it’s a giant if I wouldn’t, I wouldn’t bank on it. I, I’ve just gotten too conservative at my older age. But if somehow financing is available in that in that property again, and the markets trending in the right direction, and interest rates are still low and there’s no litigation, or the HOA is not in litigation with a builder or other owners or whoever, you know, that that property could appreciate fairly well. Because, you know, it might do better than one of my boring bread and butter properties in Memphis or Atlanta or something like that. Okay.

Steve G. Jones 33:33
Yeah. And I have talked to somebody who pumps 15 of the units here. And he was saying the same thing, but I agree it’s a big if it’s a Vegas style gamble.

Jason Hartman 33:42
It’s a gamble.

Steve G. Jones 33:43
Yeah. Yep. So then my further questions that I that I left you that we didn’t get to were, so I have little over a million in cash right now. And Wells Fargo has approved me for $1.2 million for a loan. And I went in and asked him I said, you know, can I use this for I just asked for I just asked for 1.2 million they approved me I think

Jason Hartman 34:04
it’s like a line of credit. Right? For a house. Oh, for a house. Okay. All right.

Steve G. Jones 34:08
Yeah. I asked him I found a house a couple years ago, I liked his 1.2 million. I said, Well, you guys give me 1.2 million. They said yes, of course you did it all with the paperwork. So it’s formal. But and I did it again recently, and there was the same. I have a feeling if I asked for more, they give me more. But then recently asked them, so I started listening to your podcast. And I said, Well, can I use that 1.2 million for investment properties in other states? And they said yes, the interest rate would be low fours, but I could do that. So my question is, I don’t own anything I have, I need to figure out this principal residence thing where I’m going to live got a little over a million in cash $1.2 million to invest in houses either primary or rental. What would you do? Okay,

Jason Hartman 34:52
so would I buy a $1.2 million house or would I buy income properties with that money? Is that The question, right? Yes. Well, you I think you already know what I’m gonna say.

Steve G. Jones 35:05
Definitely you’re not by $1.2 million house.

Jason Hartman 35:08
Yeah, no, I wouldn’t. And listen, I’ve owned, I just want everybody including you to understand. I have pretty much always been an owner. Okay. When I moved out of my mom’s house, and you know, what was it like 23, maybe, or 22, I moved in to a little condo in Irvine. And I owned it, I bought it, it was my second property. Okay, I my first property was that rental property in Huntington Beach. My second one was a condo I bought for myself in Irvine. And, you know, I worked my way up to where I own some beautiful homes in Newport coast. And Irvine. You know, I had three gorgeous homes in Newport coast, they were high end properties. I mean, I certainly felt a certain sense of pride without I guess, and, you know, of course, you can fix them up and change them however you want, because you own them, but you’re ultimately responsible, and you’re gonna pay for your fix up, if the buyer doesn’t like them when you turn around to sell it. But, you know, I just discovered that the delta between the in as long as it’s above 150,000, and hopefully a lot above that, okay, you know, if it’s like a million dollar property, you can rent that million dollar property for 4000 a month in almost any city on the planet, okay, so it’s just a much better deal to rent it when you could buy a million dollars worth of income property, and get $10,000 a month. And when I say that, of course, I’m talking gross, but I’m also talking gross on the personal residence, too. So it’s, it’s pretty much an apples to apples comparison. Now with the income properties, you got to pay attention to them and manage them. So you know, there is some amount of effort that goes with that. But I got to tell you, too, when I owned my own home, and you know, I felt like I was spending every weekend at Home Depot, and those were brand new homes, you know, and I was just always like arguing with a gardener because he wasn’t doing a good job, and the flowers would die. And, you know, the it’s a hassle. I don’t want that hassle anymore.

Steve G. Jones 37:10
You don’t want the hassle of owning a house or a condo or

Jason Hartman 37:14
owning a house that I lived in, even though it’s a hassle, you know, so so compare that you’re going to spend some time doing that stuff on your rental properties, too. That’s what I’m saying, you know, in the interest of full disclosure, if you got 10 rental properties that are worth 1,000,002, and they’re 120,000 each, that’s gonna take some of your attention, for sure to manage those, okay? Even if you have managers, you got to manage your manager or self manage either way. So you would take now what would you do you

Steve G. Jones 37:41
talk about the $1.2 million credit line for housing and a little over a million dollars, cash and shopping time, what are you going to buy? Well,

Jason Hartman 37:48
I’m going to go out, and I’m going to pick three, minimum and no more than five different cities, different diverse markets around the country. And I’m going to start picking off nice little income properties. And the typical performance of one of those should be and of course, you know, nothing’s guaranteed except death and taxes. But they should be something along the lines of you’re going to get about, you know, if you can fully leverage them, meaning about 75%, maybe 80% loan to value, which is full of leverage. If you can fully leverage them in that way, then, you know, you’re going to get maybe $200 a month in positive cash flow. And your gross is going to be about 1% of the value of those properties, give or take a little bit, and you’re going to be diversified, you’re going to have say, you know, three to four properties in each of three different cities. So if one economy goes down the tubes, you still got two others that are doing okay. You know, don’t put all your eggs in the one basket geographically. And that’s what I’d recommend you do and just rent yourself. You know, a couple friends of mine live in Las Vegas. And they are they just moved out of this beautiful property that of all things is owned by Leonardo DiCaprio. That’s their landlord. It’s a high rise, condo, gorgeous, gorgeous property. And I think they’re paying like five grand a month, and they just moved out of it. And Gosh, rent that place. It’s worth like a, you know, over a million bucks, you know, really beautiful. I’ve been there.

Steve G. Jones 39:24
Yeah, it sounds good. I know a lot of celebrities own condos around here. But what are your thoughts about? So getting back to my original original question about $5,000 a month in rent being wasteful, I guess it’s just a matter of scale. I mean, because you could rent a house for $1,000 a month in some smaller town

Jason Hartman 39:43
but the in that house, it’s going to be more it’s going to be a better deal to buy that house. See if the value of the house is over 150,000 and if the rent is under 15 $100 per month, it starts to make sense to own It, okay, and live in the house alone, it’s the delta is when you get a seat look at the psychology of this renters will only pay rent to sort of a certain point in when they’re paying, you know, 20 $500 or more per month, they kind of look at themselves in the mirror and they say, why don’t I just buy something, which is not really that smart, but that’s just the way people think. Okay. And so, you know, the the delta between the price increasing, and the rent increasing, it gets bigger and bigger as you move up the socio economic ladder. So, you know, there are these beautiful high end homes on, you know, Martha’s Vineyard and in the in on the coast of California and everywhere, you know, around the world, okay. And mostly, those aren’t rentals, mostly people buy and own those, they’re not rental neighborhoods. So when you get a rental in there, you know, the the rent to value ratio is very favorable in favor of the tenant, not the owner. Because most people will just buy they get out of the rental market. And what I’m saying is, do the reverse of what most people do, okay? If it’s a, if you’re a low priced, renter, 1500 a month and under, you should probably buy that place that you live in, or some comparable place, and own it and live in the house you own. But if you’re going to spend, you know, three 510 1000 a month, I guarantee you, you can rent a lot more than you can own for that, and invest that money elsewhere and use the income from the other properties to pay your rent. It’s beautiful. I

Steve G. Jones 41:52
like that a lot. By the way was that Ben and Sarah who had Leonardo’s? No,

Jason Hartman 41:57
but you know, Ben and Sarah?

Steve G. Jones 42:00
I do I went to a party they had when they first moved into their penthouse level thing, and I met them in Malaysia or somewhere in the

Jason Hartman 42:08
world. I don’t want to mention their name, but I have a feeling it’s the same Ben and Sara with three children.

Steve G. Jones 42:13

Jason Hartman 42:14
same friends of mine. Yeah, yeah. No, they’re, they’re in one of my mastermind groups with me. And this is two guys who are roommates in their 20s. Who are their good friends?

Steve G. Jones 42:26
Okay. Okay. So, back to the shopping spree. So how much of the money would you spend? You got 12 1.2 million in credit and about a million dollars in cash? How much of that? have you spent one also is all said and done?

Jason Hartman 42:39
Okay. Well, you know, there are really only two investments that work well, three investments that work in my eyes. Okay. One that I believe you asked a question about this before, is your own business. And in your own business, if you can put money to work, and if you are sure you can earn a very high return on it without spending a lot more of your own time to manage the investment in your business than a business can be a very good instant gratification type of way to invest your money. Okay, so there’s your own business and you have your own business, okay, as a hypnotist. So that’s something, you know, I would certainly consider investing in which I, I certainly think you are considering or you have considered. Okay, number two is owning income property. And number three, is investing in hard money loans, where you become a lender, and you can lend that money out and get anywhere between eight and 12% annually on it. And you know, listen, I don’t like the lending as much as I like owning the real estate. But for purposes of diversification, scalability and simplicity. It’s not bad. I mean, look, you’re getting a lot more than you could get in the bank. And, you know, I’ve never had one of these first trustee loans go bad. They’ve all been paid 100%. It’s worked very well.

Steve G. Jones 44:00
Yeah, that sounds good. So you would spread out the entire, we’ll say it’s $2.2 million, you would spread it out among those three potential type investments,

Jason Hartman 44:11
I would and of course, you know, you should have some cash reserves. So in terms of cash reserves, for the property portfolio, you should have at least 4% of the value in the bank in cash, okay to cover vacancies, unexpected maintenance, things like that, okay. And so that means if you have $1 million worth of income property, you got to have at least 40 grand in the bank set aside for living. You know, the typical financial planner speak would tell would say that you should have six months of your expenses in the bank, okay, so don’t use it all. But don’t leave too much in the bank because remember, when you leave it in the bank, you’re losing money through taxes and inflation, you know, unless we have deflation, which is another discussion but

Steve G. Jones 44:59
by the way, The numbers I shared with you the historic rate, you don’t like it at all. But the historic rate of inflation being about 2.5. And I know those are just reported figures, and the historic rate of bank savings account what they pay on that over the last 20 years being 4.5. I know you may not remember, but it was at some point, last one is high enough to make the average over the last 20 years, about 4.5. So if we take the reported numbers, it does keep bank savings do keep pace with inflation. But when you add to the argument, what you say, which is these numbers are underreported for inflation. And that goes out the window, of course,

Jason Hartman 45:39
yeah. But even then, you know that that’s really a question of, what kind of player Do you want to be in life? Right? Are you playing to win? Or are you playing not to lose? So in your scenario, and let’s assume that the inflation isn’t under reported, which we all know, it is okay. But let’s say it’s not in that scenario that you shared, you know, that’s a playing not to lose scenario, right? Which, as we get older, you know, we get generally more conservative, right. And, and, you know, that’s okay, depending on your age, and risk tolerance, and so forth. But, I mean, you’re definitely not playing to win, okay, even if you did beat inflation by sticking your money in the bank, where you kept pace with inflation. Number one, it doesn’t account for taxes, so you’re going to lose some of that interest to taxes. And number two, is, your everybody around you, hopefully, will be investing better than you. And since economics is a relative game, then you’re going to be beat out by others around you who are earning 1020 30% annually on their investments. So why would you want to do that? I mean, I just think keeping your money in the bank is a pretty, pretty risky thing to do. It’s kind of counterintuitive. I understand that.

Steve G. Jones 46:59
Yeah. It’s just something that came as a reaction to losing money in the you know, the stock market crash, but I do need to readjust my thinking, and I appreciate your input.

Jason Hartman 47:07
Well, you know what I say Wall Street is the modern version of organized crime. So don’t be in the stock market. That’s like my mission in life is to help people not be in the stock market, the stock market.

Steve G. Jones 47:20
A bunch of money in there, too. I probably need a risk to be careful.

Jason Hartman 47:24
It’s it’s pretty inflated right now. It’s pretty frothy.

Steve G. Jones 47:27
Yeah, I am kind of keeping I’m thinking of pulling the trigger and getting it out. So especially after reading your friends book, rich. I’ve he calls himself, rice Delmon, but it’s like Rick Adelman, or something like, oh, Rick Adelman.

Jason Hartman 47:39
Yeah, right? Yeah,

Steve G. Jones 47:41
I got that book.

Jason Hartman 47:41
He spells it that way, because it’s our I see for Rick, and then, you know, Adelman, yeah,

Steve G. Jones 47:47
it helped me remember it, actually. But now I’m remembering his role. So just to sum up, you would, so you know, my situation, you know, the money I have available? Can you plot out the next few years for me? Would you maintain this rental situation, for example,

Jason Hartman 48:04
you know, if you’re happy living there, and I don’t know if you’re single or married, or in a relationship or not, but you know,

Steve G. Jones 48:10
dating, just

Jason Hartman 48:12
a condo hotel kind of thing sounds like a really cool thing for a bachelor. So I think that’s probably pretty good. I would just kind of hang out there, as long as you like the place, and you’re like your landlord. And I would just be investing and building a nice nationwide real estate portfolio.

Steve G. Jones 48:30
Okay. Now, the long term sustainability is what concerns me because at a certain point, as I said, this is going to go up in value so much that he’s going to raise the rent, or he’s going to sell it out from under me, I won’t be able to replace at the same price. At that point. What would your plan become

Jason Hartman 48:43
if the rental goes away?

Steve G. Jones 48:45

Jason Hartman 48:46
If he if he gives you notice, and says, Hey, you got to move? Well, number one, if you like the place, try and negotiate yourself a lease, like I’ll give you an example, on the lease, I’m negotiating. It’s a one year lease with the option my option to renew for a second year for 100 bucks more a month. So my rental go from 4000 to 4100 a month, if I want to stay another year. So you know, that’s pretty good. I mean, you can do a two year lease. I mean, landlords do those all the time. In fact, some of our investors really recommend that as a way to manage their own properties, just because, you know, you don’t have turnover expenses and any vacancy in between. So

Steve G. Jones 49:24
yeah, I don’t want to go too long with here but this person will not do a lease because then you’d have to report the earnings to the whatever I need to get charged $900 a month extra. So I actually have month to month, but I don’t have a signed lease. Oh, because because it’s a condo hotel.

Jason Hartman 49:40
That’s a unique situation. Yeah, I know. I know what you’re talking about.

Steve G. Jones 49:43
Yeah. So so we look at the sustainability of this. We realized that plotting it out over even five years, it’s not sustainable at this price. Either. The market will go up and they’ll sell it or he’ll realize that my rent is too low and they’ll raise it. So at that point, what would your reaction be? Well,

Jason Hartman 49:59
I just find another one. rental,

Steve G. Jones 50:00
okay, just a higher price rental and just keep going up over the next.

Jason Hartman 50:04
I mean, look, if you don’t need something, it’s a waste of money at any price, right? But you know if you enjoy it and need it and get a lifestyle benefit from it sure. You You know, financially, you will generally almost always really get a better deal if you increase the the property that you rent, because the Delta keeps getting bigger as prices go up.

Steve G. Jones 50:30
Okay. Excellent. So So you mean if I pay more rent, I’ll get something much nicer.

Jason Hartman 50:34
Yeah. Yeah, you should, you know, I mean, long as you shop around and just, you know, act like a prudent good business person, which I’m sure you will.

Steve G. Jones 50:41
Yeah, yeah. As you as you know, I asked a lot of questions. So sounds good. Thank you, Jason. I appreciate it.

Jason Hartman 50:46
All right. Hey, thanks so much for being on Steve. I really appreciate it. And if you have any more questions, listeners, feel free to call into the show. Because all of the questions Steve asks, I know that many of you have thought of those and ask them over the years to so you’ve helped a lot of other people understand this stuff, by coming on and talking about it, Steve. So thanks for joining us. Thank you, Jason.

Announcer 51:07
What’s great about the shows you’ll find on Jason is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage, and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, here’s a show for that. And if you just want to get away from it all and need to know something about world travel. There’s even a show for that. Yep, there’s a show for just about anything, only from Jason or type in Jason Hartman in the iTunes Store.

Announcer 51:47
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 or email media at Hartman Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own. And the host is acting on behalf of Platinum properties, investor network, Inc, exclusively.


Jason Hartman starts by talking about the insurance industry and The Algorithm Echo Chamber. Then, he interviews Andrew Freitas about his investing journey. He shares how Covid-19 has impacted his workplace, how to deal with property managers, and why he has slowly gravitated toward more expensive properties.

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 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 0:52
Welcome to Episode 1661. How are you beautiful people doing today? I hope you’re well, because I got some bad news for you. Our installed President, Mr. Biden planning the biggest tax increase in three decades. Yes, Bloomberg reports that tax rates might rise to pay for the next White House initiative. Well, surprise, surprise, surprise, oh, sleepy Joe, come on. We knew you were going to do this, we knew this was coming. And you are going to want to make sure you only make $399,999 a year because if you go to $400,000, they’re going to hit you really hard. They’re going to increase the corporate tax rate, they’re going to increase. And that means, you know, those big giant corporations, they probably won’t be very affected. And if they are, all they’ll do is raise their prices. Hashtag inflation coming through your way because corporations are a pass through entity. But the small businesses that compete in a more difficult, more competitive environment, they will find it hard to pass those tax hikes through to the consumer. And the big companies. You know, they do the double Irish twist. It is St. Patty’s Day After all, by the way, don’t be spreading the Blarney today. Happy St. Patty’s Day tall. Hope you’re wearing your green. I must admit I am not wearing green today. Because the one green shirt that I own. I couldn’t find. Not that I looked very hard. But I’m just saying I couldn’t find it.

So here in the office today with all of these people, no one pinched me for not wearing green. So I’ve made it so far. We’ll see how it goes. All right. And I’m sure you’re, I’m sure very few of you are in a big office with a whole bunch of people. Because nowadays, we work remotely, which has created big new real estate opportunities for all of us investors, hasn’t it. And back to Biden and his tax increase, make more than a million bucks, you’re gonna pay a higher capital gains tax, and the estate tax is going to be expanded if he gets his way. So a lot of tax hikes coming your way, folks, what is the most tax favored asset class in America, income property, income property, so we can help you with that. But yours truly, I did. Another thing that I’ve been researching, toying with thinking about for about 10 years, never pulled the trigger. Until last year, I spent a lot of time researching this at the end of the year, and a lot of time dealing with it in January, frankly. But I set up my own insurance company. Now, I’m thinking of doing one of our monthly empowered investor calls on this topic. Or maybe we’ll do a public web class on it, I’m not sure. But it is pretty interesting. You do have to have your own business and your own business needs to be you know, doing a bit of revenue to sort of make it work and make the extra costs work. But I must tell you, as I have said before, insurance is a interesting, interesting business. Why? As I have been saying for the last decade, I have mentioned this even though this is not an insurance show. I have mentioned to you the idea of that is quite fascinating that the insurance business is possibly I think it is the only but I say possibly because whenever I’m Talking to a large group of people such as yourself, someone always fact checks me, and they call me out. And they, they write me an email and they say, Jason, you are wrong Wang Wang about this.

So I have come to self censor a bit, be more careful, which is not all bad. I will be the first to admit, but the insurance business is the only business in the world with a negative cost of capital, I want you to really let that one sit in for a moment. And negative cost of capital. Think about it. If you’re an insurance company, what do you do? You receive money before you spend money. I mean, on actual cost of goods, right, like a normal business, you make your widgets, you spend the money, maybe you’re making maple syrup, maybe you’re making shoes, I don’t know, whatever you’re making, right in your business, you’re spending money to make that. And then you sell it in the marketplace. And you get money back. And hopefully, you earn a nice profit by creating a win win transaction, where the consumers want your stuff. And you have enough pricing power to where you can charge good price to make you a reasonable profit. For your efforts. You have a positive cost of capital, because you had to spend the money before you could bring the money and before you can bring the revenue in, but insurance, you receive the money as a shared risk premium before you pay out the claims. So it is an interesting industry. And it’s got interesting tax structures. And I think if you tell me if you go to Jason slash ask Jason slash ask. And you say, Jason, told me more about how I could be in the insurance, business and shelter more money than I’m just sheltering on my income properties alone and escape the wrath of Joe Biden and communist Harris. I mean, Kamala Harris, communist heroes, which one is okay, communist, let’s call her communist.

Okay. So, if you’re interested, let us know, tell your investment counselor, I’ll do a class on this because I spent about a decade researching this thinking about it. You know, me, I’m not quick with all my decisions. I am a Libra after all, as great of a sign as Libra is, and let me tell you, Libras are really good sign. They have one flaw. They’re a bit indecisive. I mean, I used to be indecisive. And now I’m just not sure. Okay, enough of that. So maybe we’ll do a class on that, at least for the empowered investor network. We’ll do that. And by the way, empowered investor members, we put a new vintage recording we have we had our archaeologist team. Yes, we have a team of archaeologists over here, and they dug up 238 I kid you not. We don’t really have archaeologists. But we did dig up 238 vintage recordings from 10 plus years ago. And we are now putting those vintage recordings in to the empowered investor network. So as part of your membership, as a surprise bonus, we put one in there yesterday, that is on due diligence, good subject, good subject due diligence. So check that out empowered investors, if you’re not a member, well reach out to us. And we’ll let you know how you can become one. Alright, our guest today is one of our wonderful clients and also in the hero league as a medical professional. Our guest today will be talking about his client case study. So we always appreciate when you clients come on the show. If you’re out there listening and you’re thinking, hey, I want to come on the show. Just reach out to us, we’ll be glad to have you on because we always love hearing client case studies, the good, the bad and the ugly. We want to help our other clients learn from your successes, your challenges, and everything in between. So we will have that in a few minutes. But first I do want to talk to you for a moment about debt to GDP ratio because I have noticed something I have noticed that and maybe I’m just more sensitive to it. Maybe I’m trapped in algorithm echo chamber. We all have to be careful with that today because the powers that be are listening to us of course the Mike on your cell phone that’s always on the Hot mic on your computer, your TV, your al e xa. devices, if you have them. They’re listening to you. They’re reading your mind.

They’re looking where you click on your mouse and looking at what you surf on the internet. And they’re doing all this stuff, right? So you might be trapped in an algorithm echo chamber. Maybe I just coined that phrase. And I just coined that phrase, I might have, anyway, algorithm echo chamber with a little tm after it for trademark. So I might be caught in that, but I have noticed that there is a lot, a lot, lot, lot, lot lot more talk about inflation expectations now than even a month or two months ago, from not just the people that are usually saying that, no, not just Peter Schiff, the sky is falling, it’s the end of the world. You’ve been saying that for decades, but a lot more mainstream, this inflation expectation really seems to be headed to the forefront. And it’s definitely related to the debt to GDP ratio of a country. So the gross domestic product, the economy’s value in any given year, right, versus the debt that country has. Well, we all know Japan is the worst, it has the highest debt to GDP ratio. And that is about 230%. Next in line Greece third about 200%. Greece is an epic disaster, Japan is sort of a disaster in a different way because of its demography and various other things. But at least in Japan, you have hard working really smart people in Greece, you got people that like to be a lot more leisurely, okay, so it’s a very different environment than Japan. Next in line, you still got some leisurely people, and I’ve got quite a bit of this blood in my genetic background, and that’s elite.

Okay. You can say a lot of things about yours truly. But you definitely can’t say I’m lazy. No one’s ever gonna be able to say that. But Italy, they like leisure over there. Let dolcevita you know, the life of indolence and self indulgence, le dolcevita. About 150% debt to GDP ratio, Italy is in big trouble. Amazingly, Singapore, now Singapore, that is a country of winners. Okay. And Singapore got ahead so much and rose up so much over several decades because of its very libertarian policies. It really, really zoomed ahead because of that. And it’s it’s really a marvelous, incredible country. Portugal, another sort of leisurely country debt to GDP ratio, about 130. And guess who is next in line? Guess who’s next in line? That good old US of A with about 120% debt to GDP ratio. I’m pretty sure that’s the highest it’s ever been ever even post World War Two. fact check me I could be wrong about that one because I’m, I’m not looking at anything that would tell me that now. After the US we’ve got France, Spain, Belgium, canadia, aka Canada, Argentina. Argentina has so many other problems besides their debt to GDP ratio. We’ve got the UK, Brazil, India, South Africa, Hong Kong, even though it’s not a country, Germany, Ireland, China, Poland, Netherlands, Australia, New Zealand, Turkey, Mexico, Denmark, Norway, Sweden, Indonesia, Switzerland, Russia, Russia has pretty low debt to GDP ratio. So that indicates that is an inflationary indicator. There are others, but that is definitely one of them. And all of these countries are running up the debt. And the USA has extraordinarily high debt. Remember, just in the last year, about a third of all the dollars ever printed? Ever. Right? You got that as ever, like in the country’s history, what 240 years ish, give or take printed last year in one year. So folks, there are many more indicators out there, showing that there is definitely inflationary pressure in the system. And we like that as real estate investors as income property investors. We’re fine with that. Because we will be enriched through inflation, while others will be hurt by inflation. So that is part of my inflation induced that destruction strategy. If you want to learn more about that go to Jason type in inflation induced debt destruction. I know, it’s a long phrase, but it works. And check out some of the prior episodes on that, and some of the blog posts and articles on that. Okay. Without further ado, let’s get to our guest. And let’s hear his client case study.

Hey, we always get great feedback from you whenever we do client case studies. And so we really appreciate volunteers like our guest today, Andrew fritas, who’s with us. He’s got seven properties. He lives in Vancouver, Washington, and has been working with one of our investment counselors, and really just a pleasure to have him on the show. Andrew, welcome. How are you?

Andrew Freitas 15:55
I’m quite well, thank you so much for having me, Jason.

Jason Hartman 15:57
Good, it’s good to have you. So you know, maybe we’ll start at the beginning. First off, what attracted you to real estate investing,

Andrew Freitas 16:04
I’ve always kind of known that real estate would be something that I would want to some vehicle to pursue, you know, for income. My parents told me they even own a business when I was growing up a little coffee shop. And they told me that even with that for 15 years or so the only money they ever made was actually owning their own houses and having an appreciation, and then selling them and moving somewhere else. And they were very lucky in their life have some good appreciating market. So they happen to be moving into at the time, then they had a rental property for a while they were the old style of letting the property pay itself off, you know, and just have it be free and clear. And it worked well for them. Fine. And again, that’s the money in their life that they’ve made, even though they’ve worked really hard and been diligent workers they have their actual income or wealth has been because of real estate. And so I was never really afraid of real estate as a thing. My brother also has in this area remodeled houses, he’s bought his own places and remodeled and flipped them and done the work himself and also done some buy and hold stuff. So I knew real estate, I was never afraid of real estate as a thing. You know, it was never like, it didn’t feel like a risk to me as a concept as a vehicle for wealth. So yeah, that’s kind of how I as a child, or as a kid even was not afraid of it.

Jason Hartman 17:10
Good stuff. You know, just to mention something on that. You talked about your parents in the business they owned and you know how really the money they made was on real estate. And you made me think of something a friend of mine, who was I had I had a very wealthy parents, he said to me something interesting. And you know, I’m not really a fan of commercial real estate, mostly, I think housing is really the key, you know, single family homes being my favorite apartments being my second favorite mobile home parks also good. But housing, right? Not office space, or retail so much. You can make money in anything. But I just think the housing assets the best, I said to met, you know, how your dad gets so successful, you know, what’s his secret sauce in business? And he said, you know, interestingly, he didn’t really make his money from the businesses. He just made his money from all the real estate, the business is occupied. I thought that was interesting, you know, the business kind of just becomes the tenant. Right? And it pays the mortgage, but it’s really the properties that made the money. And then, you know, they purchased a whole bunch of houses and did stuff outside the businesses directly to so I thought that was sort of an interesting aside.

Andrew Freitas 18:23
Yeah. And my parents never owned the commercial properties that the their coffee shops were in, you know, it was never probably even in their thoughts at the time. Right, you know, but they certainly lived in. It was nice, you know, and again, that’s as you talked about this kind of the icing on the cake. And for them it just happened that they just luck of the draw year after year, they kept getting in the right markets looking to say,

Jason Hartman 18:42
yeah, and you and you live near the place where they pretty much invented coffee in America.

Andrew Freitas 18:47
Yeah, by quite a lot of here. Yeah, for sure. Yeah.

Jason Hartman 18:50
Good stuff. When did you discover the creating wealth podcast.

Andrew Freitas 18:54
I lived over in Sweden for about seven years. My life is from Sweden and 2009 I was painting my roof there metal roofs over there. You got to sometimes you got to paint them and I was a do it yourselfer kind of a guy. So I was up on my roof, scraping off paint and paint I had downloaded or had ripped some some CDs that I had had of real estate investing prior to this onto an mp3 player. And it was 2009. And my friend had just gotten the first iPhone in the States. And he sent me his iPod Touch. So I like had this new cool device that I don’t even know was available in my town in Sweden, you know, up in the north of Sweden. And so like kind of gotten podcasts, you know, iTunes and all that kind of stuff. And so I was looking for something else to listen to, you know, real estate. I was listening to real estate thing. And I was like, Huh, so I discovered you through a searching on the whatever it is iTunes Store, whatever it is now, you know, the podcast and just yeah, I had heard a couple different ones. And you were talking about just resonated with me. And so that was great. Yeah, I don’t even know what number of episodes you were back in 2009. But I think it was probably still in the double digits. Maybe in the low one hundreds by then.

Jason Hartman 19:55
Yeah, in 2009. I don’t know either offhand, but but we You have a lot more episodes now. So you discovered us about 12 years ago, then how long did you listen to the podcast before? You know reaching out and becoming a client?

Andrew Freitas 20:09
Yeah, so I kind of did often on you know, kind of had some periods of time where I just wasn’t listening anything I was doing, you know, hunker down knows that the grind doing my own stuff. And I think 2013 was when I attended meet the masters and it was an Irvine. And you know, if I’m just being transparent, I thought it was a cool event, but I don’t know maybe I just wasn’t ready for it. You know, I kind of knew that was still a vehicle you’re the concept you were talking about so certainly resonated with me I thought, platinum properties Jason arm, I thought that was the way to go. But I was like, I just, I’m not quite ready yet. You know, maybe that was just a risk thing. I was nervous about jumping in the pool. Who knows? But 2013 was my first like, event with you. And I enjoyed it. You know, it’s nice getting out of the limit Pacific Northwest and in January as well, and get

Jason Hartman 20:47
down and coming down to Southern California. Yeah,

Andrew Freitas 20:49
for sure. That wasn’t a bad thing. But then in 2000, I think 2016 Yeah, December of 16, is when I bought my first property threw you off. And that was my first investment property. And then like about one in 17, then one in 18. And I had cashed out of retirement plans, I was working for the local county here. And I had some sort of vested retirement plan kind of thing. And I was like, This is ridiculous. They decided to like protect people and start choosing what investments you could and couldn’t do, and taking a portion of your investments and making it less risky. And I’m like, I just want to go all in, you know, I’m not, I’m not a conservative investor in that way. You know, it’s gonna be something that I don’t have control over or something I can’t touch or whatever, I want to just, you know, go full bore and as much as possible. And so I was kind of disappointed with that. So I decided to cash it out and take the hit on the taxes and hit on the on the withdrawal penalty. So

Jason Hartman 21:39
that was a retirement plan now, you know, taking on the withdrawal penalty, paying the tax. In hindsight, was that a good decision?

Andrew Freitas 21:46
Oh, she’s Yes. Okay. Yeah, of course. Yeah.

Jason Hartman 21:50
So you made more on the income properties through our network, then you lost on paying that tax and penalty?

Andrew Freitas 21:57
Yeah. And that’s because of the stuff that you talked about a lot. You know, yes, there was cash on cash. That was great, you know, but there was also depreciation, you know, writing stuff off your taxes. So I mean, the overall return on investment has been phenomenal. It’s I, I probably should have done it earlier. But it was what it was. Yeah. So I bought, like I said, about one in 16, one in 17. And then because I cashed it out, I bought about one in 18. And I cashed out the very beginning of 19. And I, yes, with 19, and about three properties in 2019. And then last year, I didn’t buy any properties, and then I just closed on my seventh one in January, just this January.

Jason Hartman 22:29
Fantastic. And you were kind enough to do a surprise testimonial video for us, we sent out a link where people could give us a review. What I loved about yours is you were standing in, I guess, like office room in your home. And you’ve had all of our property tracker performers on your wall behind you of your properties. I just I just love that.

Andrew Freitas 22:51
And I think it’s it’s good to have, for me anyway, to have visual reminders and things like that, you know, it’s really important to say, you know, this, yes, this is, you know, a goal of mine, I need to like, present this in front of me. And yeah, it’s been kind of fun, you know, to have this reminder. And, and, you know, even though I’m not, I wouldn’t say super far along in my real estate journey by any means. It’s fun to kind of see that well slowly grow. Yeah,

Jason Hartman 23:11
that’s great. Yeah, more more posters on the wall mean more income for you? Right? Yeah.

Andrew Freitas 23:16
It’s close to the goal. Yeah,

Jason Hartman 23:18
good stuff. Good stuff. Andrew, tell us a little bit about what you do for a living if you care to share it. We talked OFF AIR about it. And I thought it was fascinating.

Andrew Freitas 23:27
Yeah, so I’m a nurse, I actually got my nursing license over in Sweden initially, even though I’m from the Pacific Northwest here. And now I work in a psychiatric hospital, here in the Greater Portland metropolitan area. And yeah, I really love it. You know, it’s fun to work with people and to help people and, you know, sometimes it’s exhausting mental work, you know, working with people always is, but it’s a it’s really rewarding. And I think the team that I work with, certainly makes it so much better. You know, it’s it would really make or break, you know, the work that you do. Sure, sure

Jason Hartman 23:54
they do. What I didn’t know, which you mentioned is is your facility as an emergency psychiatric facility? Yeah, I sort of never even considered there was such a thing. But given going on in the world the past year, maybe Can you share some things with our listeners? Of course, not confidential things, but just in general, what’s happening to people out there?

Andrew Freitas 24:16
Yeah, as you know, I mean, it’s been a very, very rough year for most people in the United States, and many people around the world of course, too. And folks who would normally be able to check in with their therapist, or psychiatrist or whatever it would be along the way, have been bumped into the zoom world. And that’s very hard sometimes to not have that human contact and very hard to not, it’s just a different relation, you know, a relationship is very different over the web than it is in person. And I think a lot of people kind of fell off, you know, a path where they were already on that was kind of a supportive structure for them and got into the zoom world and it just, it’s the game is falling apart for them. And when that, you know, mental health starts falling apart for them to the rest of their worlds starts falling apart. And so I think a lot of we’ve seen a lot of that, I think over the last year Folks who otherwise would never probably needed a psychiatric emergency department seek help and service because they’re in crisis,

Jason Hartman 25:07
I hope out like, I mean, you deal with, sadly, you know, suicide attempts and things like that. Have you seen maybe just anecdotally, because I know, empirically, there has been an increase given what’s going on. But anecdotally, like, what have you seen? What can you tell us?

Andrew Freitas 25:24
It’s a good question. I don’t know that I have, honestly, you know, I mean, again, we’ve been a psychiatric hospital there. I’ve been working there almost three years. And so that’s always been a daily part of the work, you know, so I haven’t really noticed there being like, somebody, I don’t deal with somebody who suicide on Sundays, I do. You know, every single day, there’s somebody I’m working with who is struggling with thoughts of suicide, and that’s just, I’m glad the hospitals there for them, you know?

Jason Hartman 25:44
Sure, sure. Here’s kind of as a superstitious aside, and I don’t know if you have anything to say about this, but you just made me think of it. For years, I’ve heard about these possible wives tales about the moon cycle, right. And I’m just curious, do people talk about that in your profession? You know, lots of like, lunar issues and

Andrew Freitas 26:05
the classic like, you know, the, the moon’s out this lunatic, right, that, that, you know, that’s

Jason Hartman 26:10
where the word comes from? I never.

Andrew Freitas 26:12
Yeah, totally. I don’t know. I mean, it’s funny, when when there is an odd day, people say, Oh, it’s a full moon, you know, so that there’s, I don’t know if it’s superstitious, but there’s, it’s ironic, and it’s funny, and sometimes it does seem to line up with that. But you know, again, we we have days that are less crisis than other days, it feels like, and they’re not always lining up at the lunar cycle that we’ve all heard those things that, you know, emergency rooms fill up on full moon nights, and DUIs increase and all this kind of stuff. So I just was kind of wondering, I

Jason Hartman 26:41
thought I just ask that as an aside,

Andrew Freitas 26:43
I haven’t noticed that Jason Yeah. But it’s entirely possible. Yeah. Yeah.

Jason Hartman 26:47
In terms of real estate bit, where are your properties?

Andrew Freitas 26:50
So the first one I bought was in Montgomery, Alabama, and that was going back in 16. I think you guys were in that market really briefly. And then it just didn’t quite work out. The relationship with the provider over there was kind of fell. Yeah,

Jason Hartman 27:00
we didn’t like that provider too much. But you know, we had some bumps in the road. I hope you weren’t one of them. So you know, some have worked out fine.

Andrew Freitas 27:08
as Sarah said, I got in, I got a good one. So that was great. So I my first one there, and then you all were no longer in that market or recommending that market just because the you know, whatever the relationship, the inventory, whatever wasn’t there. And so I moved on to Jackson, Mississippi for the next five properties, yeah, down there. And those are primarily in Jackson. And one of them’s in Clinton, which is just a suburb of Jackson. And that’s, that’s probably been my best. My best property has been that Clinton, Mississippi property, it’s been really good. And then the last one I bought here in January, I was back in Montgomery, I figured I’d start trying to maximize my relationship with the management company there. And so yeah, I want to get a few more at least in Montgomery before I moved to a third market. Right.

Jason Hartman 27:47
Great. So you’re in two markets now then. Right? Yeah. Good, good stuff. And so your first one was five years ago, now you’re up to seven properties, share some of the experiences or you know, lessons learned good things, bad things, whatever you want to share in it. And also, I was want to ask, are there any tools you’re using? You know, whether it be software or ideas or contractors? Or just, you know, anything like that? Without giving out necessarily?

Andrew Freitas 28:15
Yeah, totally understood? Yeah, you know, I, I’ve tried to let the professionals that I’m recommended by or to to be the professional. So I, you know, I work a lot, I work a lot of hours, I put a lot of overtime. So my ability to really engage in the day to day kind of stuff has really been limited. And I don’t have a desire to do that yet, either. You know, I have a desire to really let the management companies kind of run those pieces and just monitor the management companies, you know, and if things don’t look right on the page, and ask a lot of questions, you know, so for me, I don’t want to be more engaged right now in day to day stuff at the properties someday I will. But at this point, I’m working a lot right now. And the work that I’m doing, and my focus is on the work that I’m doing, and I’ll let my business be the business, but let the professionals, the professionals and do that part for me. And it’s been an okay, I think, you know, it’s not been perfect, like anything like you always say to it’s not a perfect thing, but it’s certainly better than anything else. Or some of this stuff, you know, in that first Montgomery house that I bought back in 16, that one had two kind of bad tenants in a row. That’s always tough. You know, thankfully, like I’ve mentioned kind of before, I’ve always been just convinced that real estate was the vehicle anyway, so it didn’t like the real me at all I didn’t get I mean, I get discouraged. I mean, who wants to pay out money rather than receive money, but it didn’t derail my plans at all. And I knew that I knew that was a part of the business at times too. And unfortunately, hit that kind of in the first year, a couple, couple of rough tenants who just and they didn’t destroy the place, they left it very dirty and filled with junk. And, you know, there’s costs involved in that turn, you know, and that wasn’t very fun because the profits were shot for the year, but still, it’s been a good ride so far. One of the things that I didn’t you mentioned this to being able to, you know, pay attention to the management companies. That was one of the things that in that particular property that I’m mentioning there, went over to a national company for management after the particular company that I originally bought it from and had managing it transferred all of their properties over This national company as well, I just went along with for the ride on that one. And that was done. That was That shouldn’t have happened for me because they didn’t actually even have an office in Montgomery. And so how can you pay attention to a property or that if you’re not even, like, geographically located there? So that was, that was a little rough. And I think I got a little burned on that one, but learned a lesson, you know, and then got a local company there. That’s been been great. So far, I’ve been joined. Yeah, they’ve been they’ve been really on top of it.

Jason Hartman 30:24
So are you, you know, really looking at your property management statements every month? And it sounds like you’re holding the managers to account if something doesn’t look right. If you know, you’re concerned that you’re paying for stuff you don’t need to pay for, or, you know, costs are too high. Right?

Andrew Freitas 30:40
Yeah, I mean, I don’t know about costs are too high, because I I don’t know enough yet in those markets, what things you know, cost, you know, like, for doing stuff on my own home here in Washington, you know, I do a lot of my own construction work, I do a lot of my own repairs and those kind of things. So for me, things are, you know, the cost of materials and a little bit of my time. So I don’t really know what the market costs are for a lot of things, just to be honest with you. But it’s interesting, you know, with real estate, you don’t have a lot of times know, if something’s happening until after it happens. And you get the statement at the end of the month. And you’re like, Oh, you know, I’m having a conversation after the fact, which isn’t always the best time to have a conversation. But you don’t always know about the information or the situation. In the moment that it’s happening. There’s been a couple times where like, a larger expenses coming up and you know, on, you know, right away, you know, the management company, lets you know, right away, hey, there’s something that’s going on here that we need to have sussed out and see what the repairs are going to be. But for the most part, it’s been, yeah, it hasn’t been too bad. Sometimes I’ll see like, oh, somebody didn’t pay, and I will call the management company, like what’s going on? You know, tell me about this, you know, whatever your action steps been, since, you know, this has been going on for a month, you know, rather than like, what are we going to do now? Because their job is said no, in a moment than to be responding to things in the moment.

Jason Hartman 31:46
Yeah, you know, the thing I always have noticed, and I say is that, you know, even when you have a, an expense, that’s a surprise, or, you know, a manager who’s a little too liberal on the spending money, right? You know, it’s still better than those Wall Street investments where you just don’t know what’s going on. I mean, here, you notice it, but they’re, you know, you just get your return at the end of the deal, or along the way, right, and you look at your stock portfolio, and you have no control over what they’re spending, you have no control over whether, like Intel, for example, just got nailed with, I think a $2.1 billion patent infringement lawsuit or something like that. I just read about that. And, you know, that affects all the shareholders. You know, if you own stock in Wells Fargo, and they got like a scandal every week, they’re you know, and they’re getting fined by the government, they’re paying these giant fines to the SEC, you know, it doesn’t really affect, at least not very much the executives, it affects the shareholders, they go for that stuff.

Andrew Freitas 32:52
Right, the regular the regular person on the street. so unfair. Yeah. You know, one of the other things too, is, aside from being just, you know, a frivolous expense that nothing’s done on, if there’s an expense, you’re still improving your property. So the money is still going back into the investment, which, even though it doesn’t feel good, like I said earlier, to pay money, it’s much better to receive money than it is to pay it, but it’s still there’s some, you know, some some comfort in knowing that the money is going into your investment, rather than just loss, you know, which it is in the wall street side.

Jason Hartman 33:22
That’s a good point, you know, few people think of it that way. So when you get an expense, at least you’re not paying for the executives and their private jets, and you’re not paying for corruption, necessarily. Sometimes you might, but you got to watch that, obviously. But the ability for a property manager to be corrupt is dramatically lower than it is for a CEO or a fund manager to be corrupt. Right?

Andrew Freitas 33:48
I would expect so I mean, again, the degrees of separation are much farther with the Wall Street’s you know, scenario, right? Where I’m a phone call away from my management person.

Jason Hartman 33:55
Yeah, absolutely. Interesting, interesting. Any other experiences or tools, you want to share any anything people can learn from any? You know,

Andrew Freitas 34:03
I’ve just noticed, like, my first house that I bought in Montgomery, Alabama, was, it was probably a C class property, right? You know, I know, you’ve talked about, you know, try to stay away from the C class properties and get into the B, Class D class properties just a lot less work a lot less trouble, you know, better tenants, all that kind of stuff. And, and it’s true, you know, I can’t say it’s not true. I probably was a little excited back in 2016, about the pro forma and the, you know, the starry eyed gains of cash on cash, you know, so every one of my properties, interestingly enough, every one of my properties has been increasingly more and more expensive as I’ve gone along. So the first property of button

Jason Hartman 34:34
in other words, you’re buying more expensive properties, correct? Correct. Yeah, yeah. Now is that is that due to the appreciation that’s been happening? Are you buying Are you up leveling the quality of your properties?

Andrew Freitas 34:45
I think it’s just been up leveling the quality honestly. Yeah. You know, there’s been definitely the last year particularly it’s been an incredible amount of appreciation, but I’ve only bought one property, you know, but again, the first one I bought was like 68,500, right and rents are at 25, which is phenomenal. rate. And when they’re paying, it’s great, right? that’s a that’s a phenomenal cash flow. But again, that level of tenant can be one who, you know, leaves without paying and causes a more expensive term, shall we say? The last property I just bought was like 131. Nine. So I’m still relatively inexpensive property. Yeah,

Jason Hartman 35:17
that’s, that’s really inexpensive.

Andrew Freitas 35:20
And that’s, again, that’s in Montgomery as well in Montgomery, as the cash flow is going to be on that one, probably really close to $200, maybe just a hair over $200 with all the, you know, incidental, and But still, that’s I mean, I can’t get that on Wall Street consistently, year after year after year, there’s no way you know, there’s no way maybe in it, maybe in a boom year, right. That’s the way I can do it otherwise, and

Jason Hartman 35:40
that boom, can retrace and go backwards very quickly on Wall Street,

Andrew Freitas 35:45
they can sneak real quick.

Jason Hartman 35:46
Yeah, with the real estate, it it just not that volatile. You know, so

Andrew Freitas 35:50
yeah, so so it’s been good. You know, I think I remember, one of your guys who lives in Augustine, who’s kind of a provider of newer construction out there I can name is the surfer guy. He talked a lot about that, too, when at the meet the Masters, I think in 2018, or 2017, I went to both of those as well. And he was talking, he was one of the speakers. And he was talking about how he went from a lot of properties that many of them were lower quality, lower price to consolidating to fewer properties that were much more valuable properties. Still cash flowing, still still a great investment. But I remember him talking about that transition that really resonated with me, just with my brief experience in the in the C class property, kind of getting that Yeah, well, getting up to the B class makes a lot of sense. So yeah. B class properties.

Jason Hartman 36:35
I agree. And, you know, I think the thing I want to just say about that again, so everybody knows is look, you can make money in anything. Okay, you can make money and F class properties, or a class properties, right. But we find that for the tolerance of most of our clientele, is that they like the better properties, they just have better experiences with them on the whole, there are certainly those out there who are kind of the bargain hunters that want those el cheapo properties, they’ve got great numbers on paper. And if they pay more attention to them, they can work, they can do great with them. But by and large, the A and B class properties tend to work out better for at least for our people, we find

Andrew Freitas 37:18
Yeah, I’ve done a little bit of remember all of it right now. But But I think they’re pretty close to each other pretty active B class properties and the C class properties right now. But again, you know, I think I went into real estate investing already knowing that it was the vehicle I wanted to do. So the difficulties that a C, Class B present is not something that I was like, afraid of, you know, it wasn’t like I wasn’t worried about the tenant who’s going to trash my property, I just, I was never afraid of that. I don’t mean that in a bad way. Just I was always exposed to real estate, you know, from from a younger age, too. So there was no hindrance or barrier for me to get into real estate and to be worried about those properties. And I’ll be honest, I talk with a lot of folks too at work, you know, a lot of nurses who are in the place where they could probably they have some expendable cash, they can probably get into real estate investing too, if they want to. And I certainly promote this style of investing, I enjoy it, you know, and it makes a lot of sense to me. And it’s been well for me, I always tell them to you know that, yeah, there’s risk. But the people that work with the people on your team that I’ve worked with, you know, you Sarah, the folks that I’ve connected with, at the the meetings that you have the events that you have, you know, conferences, and all the management companies and that to you know, everybody is a professional, sometimes the management companies don’t do a good enough job and you decide if you want to stick with them and you know, hopefully get better or you or change that, but, but it’s not like I’m working with a bunch of people that don’t know what they’re doing. Right. It’s so comforting, you know what I mean? It’s like going in with novices, you’re like, uh, you know, we’re going with somebody who’s been doing it for a long time and understands the questions to ask, it just takes so much for me the risk also away, you know, just dealing people who this is what they do all day long. You know, the mortgage people that the buyer’s broker in the market, you know, all of those things. They’re just, they’re just all professionals. They know what they’re doing.

Jason Hartman 38:57
Yeah, thank you for that, by the way. that’s a that’s a compliment to us, obviously. And you know, I’ll tell you, Andrew, that’s the reason I got into this business back in 2003 2004. It’s because I tried to do this myself. And it was so difficult. I mean, you know, I had been in traditional real estate all my life up until that point. And then I tried to become a nationwide investor. I couldn’t get return phone calls. I was flying around the country, I was meeting with people who didn’t know anything about investing. A lot of them were just a bunch of slocks frankly, you know, or worse, they could be just really sleazy and unethical too. I thought we have the greatest investment of all and yet there is no easy system to take advantage of it for people I thought there’s got to be a business here. I basically became my own first customer and created the business out of that so it was out of necessity You know, that’s, that’s kind of what what entrepreneurs do you know, they they notice a need and a hole in the market. Place and then they feel like, you know, so Yeah,

Andrew Freitas 40:02
I know. for it, yeah, their vision for it and they and they make it happen. So that’s great. Yeah,

Jason Hartman 40:06
totally understand what you’re saying there because

Andrew Freitas 40:09
I’ve always been kind of a nuts and bolts kind of a guy. So like, you know, you have people who envision this Oh, there’s a problem I see this, this I envision a solution for this problem. You know, I’ve always been the one who said, Okay, tell me what your solution is. Let me make it happen. You know, I’ve always been kind of like that guy. I’m just not a visionary thinker. And that’s it is what it is. But definitely a rubber meets the road. how’s that gonna get done? That’s pretty much what I’ve done. And so again, having your system already in place was perfect for me. You know, I don’t need to envision a new pathways. I say, Oh, that makes great. That’s that’s a great path. Let’s let’s just make that happen.

Jason Hartman 40:37
Yeah, Fantastic. Fantastic. Hey, I’m curious. Where in, in Sweden did you live?

Andrew Freitas 40:42
So I was two years down in Stockholm when my wife and I, we lived down there for two years. And then, when we were going to have our son, we moved up to the north of Sweden, Pete to Sweden, which is pretty far north overall, not quite as far north as where you were in the Icehotel which I visited before. Yeah.

Jason Hartman 40:56
That was such a neat trip.

Andrew Freitas 40:58
Yeah, it’s pretty, pretty amazing up there, honestly. Yeah. It’s a five hour drive south of that, which is still very hard for us, you know, probably about an hour and a half drive south of the Arctic Circle, roughly. What I was there for about five years.

Jason Hartman 41:09
Yeah, that’s amazing. Yeah, I

Andrew Freitas 41:10
have a lot of snow in my life. Yeah,

Jason Hartman 41:13
I couldn’t do that. But, but for some it works. Good stuff. Well, anything else you want to say to wrap it up? Do you have any questions about any of the, you know, the techniques that we teach or any anything that you like, that you want to talk through real quick?

Andrew Freitas 41:26
Yeah, I didn’t, I hadn’t really thought about the questions side of things, to be honest with you. Um, yeah, I don’t think I have a whole lot of questions right. Now. I again, you know, when I have questions, I just reach out to Sarah or, or somebody that the team and usually they know exactly what I’m talking about? And can answer really quickly. So good stuff. Yeah, one of the things I did mention that I think that would be that was kind of cool was that the whole business that you have, there’s a referral business, it’s a business that, you know, connects, you know, buyers and sellers and, and that, and I just remember one time, Sarah, that my investment counselor told me not to invest in a particular property that that was very interesting to me. And she’s like, yeah, just matching you up with that particular seller wouldn’t be a good idea. They don’t match your style. And I was I was interesting, and I was glad that she gave me that feedback. And she was right, you know, but you know, as an investor, you don’t, you don’t have a relationship with the seller, you know, ahead of time, which is what you guys also do, too. So that was just kind of an interesting aside to all of this to you know, steer you in the right direction, but also steering you away from the wrong direction, which was very helpful.

Jason Hartman 42:17
Yeah, that’s great to hear. And, and, you know, I, I certainly take a long term view of business, and I hope all of our team members always do, we really don’t hire sales people. You know, we hire counselors, who really take a long term view and want to make sure clients have good experiences. They hopefully are always doing the right thing for them. And, you know, we just did a survey, and I can’t wait to read all we do an annual survey. And I can’t wait to read all the results. I skimmed over some of them yesterday, and, and they all looked pretty good. So I built mine out. Okay, good. Well, I look forward to seeing yours too. Yeah, good stuff. Well, Andrew, thank you so much for sharing your story with us on behalf of all the listeners, because everybody really appreciates these client case studies. And we appreciate your business and just want to wish you a very happy investing journey. And again, thanks for coming on the show and sharing your experiences.

Andrew Freitas 43:12
Yeah, thanks. I hope in some small way This encourages other other folks who haven’t gone this route to to jump in because it’s it’s been great.

Jason Hartman 43:18
Thank you. Well, thanks again.

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In this Flashback Friday episode, Jason Hartman answers a listener’s question about sole proprietorship and if an LLC can be a self-management company. Afterward, he interviews Harry Dent about the inevitable Chinese market crash, debt detox, and high-end real estate. The two also talk about deflation and the mortgage rate in the next 3 to 4 years.

Announcer 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

Announcer 0:14
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman

Announcer 0:25
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 1000s 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 1:16
Welcome to the creating wealth show. This is episode number 545. This is your host, Jason. And thank you so much for joining me today. Today, our guest will be Harry dent. Yes, Harry dent is back on the show for I think the fourth time, he has given us some great insights. As you know, I love to try and keep things simple and be guided when it comes to the economy and my investments by big principles. And one of them that makes me really like Harry dents work that I discovered back in the mid 90s, actually, is the concept of economic demography. You know, there’s an old saying that demographics is destiny. And well, Harry dent has been, you know, right and wrong about predictions over the years, sometimes spectacularly. He’s out with some pretty heavy duty new ones that you’re gonna hear. I mean, gosh, if some of these things come true, I don’t know what’s going to happen. But we shall see. So he’s going to talk about that with us in a few moments. Just a couple of things.

Before that, first of all, a quick listener question. This one comes from our listener, Daniel. And he says, Hey, Jason, I recently flipped a house and want to use the profits to acquire a rental property and start building my portfolio. So of course, he’s doing the right thing, he did a flip for some quick cash, then he wants to turn that into a long term portfolio. So congratulations, that’s a good way to view real estate as a vehicle. You know, flipping is like a business, right? You got to pay a lot of attention to it, it’s a lot of work, it’s hard to find deals, selling them this complicated, you know, there’s just a lot of attention, a lot of moving parts, right. And what you want to do is take and turn that into your long term portfolio, and your buy and hold portfolio. So that’s a good thing. He says, I want to self manage this property. But new do not want to do it under my own name. I’d like to create a sole proprietorship to operate as the management company, but the business would not own the property, I would still personally own it. I would like to get your thoughts on this, or if you have any experiences with yourself, or someone else relating to this. Thanks. And I love the show, Daniel. So Daniel, good question. First of all, you must know that I am not an attorney. So I cannot really give legal advice, I can only talk from my own experience, and the learnings that I get out there in the marketplace from our clients, which is really one of the best places to learn. And, of course, from our boots on the ground, people in all of our affiliates in our rather large network, you know, the first thing to know is that a sole proprietorship will not offer you any asset protection. And that’s something you must know. So please, although I don’t think you are from the tone of your email, expecting to offer asset protection, but don’t because it is not an entity, it’s just a name. It’s it’s really kind of nothing, okay, and if you don’t want your tenants to know that you own the house, you know, you can call it Hartman management await, you probably wouldn’t want to do Hartman management, but you can call it ABC management, or Daniel Hall, not Daniel management because that would be your name. And so that can give a little bit of, you know, kind of a difference in the way they relate to your management company and so forth. But it would be better to set up an entity, maybe an LLC, and make that the management company, if you want to do this self management thing, especially in a big way.

Again, we’ve talked a lot about different assets. Protection strategies. We recently had an attorney on the show talking about this. And there are tax implications too. So nothing is super simple. I have never done this myself, I have always when I’ve self managed, the people know who I am, and they know my name. And when I have managers, they don’t know who I am. And they don’t know my name, and they don’t deal with me directly. And, you know, I really, I don’t find tenants to be much of a problem at all. They send me the rent, I talk with them, they’re usually quite nice. They’re usually quite helpful. I’m here at a conference in La Jolla, California, where I now live. And we were on the property tour, of course, got back on Sunday, and Fernando, who’s one of our big clients, and now an investment counselor with a company, Fernando and I are starting a sort of self management software company that we’re working on to help people self manage their properties. And, you know, he’s been staying with me at my place for the last couple of days as we attend this mastermind meeting that we’re in and by the way, the value of masterminding this as a tangent alert is really big folks. So if you have not yet joined the venture Alliance mastermind, you need to get into that we’re gonna do some awesome, awesome stuff together. So keep that in mind. It’s gonna be well worth your money, maybe three times over.

Okay. But anyway, what was I saying? Again? Yes, Fernando was just telling me yesterday morning, a story about one of his tenants and one of his self managed properties that was just taken care of business for him, you know, calling, apparently in this property, I think it was a Texas property, if I’m not mistaken. The air conditioning was blowing warm air, you know, needed a recharge of Freon. And the tenant sends them a nice email says, Hi, Fernando, you know, it’s blowing warm air. Do you want me to call in an air conditioning company, maybe get a couple of quotes and get the best price and you know, coordinated? Or do you want to do this? Well, the tenant actually becomes your property manager in some ways. I mean, they’re there. Most people are really good people. It’s just not as big of a problem, as you hear, right? You know, after doing this for over two decades, I just don’t see all of these tenant problems that people talk about. Certainly there are deadbeats, I know that I don’t see all these slip and fall lawsuits that the lawyers love to talk about, you know, of course, you should have good insurance, maybe you should set up some asset protection entities. But again, I don’t know if you need to have another name. I mean, sometimes I think if you deal with a tenant directly person to person, and they know you, I think a lot of times, they feel the pressure of that social relationship. And I think that they will treat you better than they might treat some, you know, company with a name that’s kind of amorphous. That’s not a human being. I don’t know, do what do what you wish, but do definitely know that that sole proprietorship will not offer any asset protection. And by our emails, I know you already know that. But I thought it was a good question for the show. So wanted to share it with the listeners. So venture Alliance mastermind group, I tell you, I am in four mastermind groups.

Now, one of them here, this is our second day of our conference here in La Jolla. And wow, this is my second meeting in this group, I’m paying 25,000 bucks a year to be a member, which, you know, if you asked me five years ago, what I ever thought I’d be spending $100,000 a year on joining all these, you know, different four groups that I’m in, I would have thought you were crazy, like you need your head examined. But in an exponential world, in the exponential world in which we live. Knowledge is obviously power. You’ve heard that before. But connections have so much power. I mean, it is just amazing. The learning curve, the things you can do with a group of people that you hang out with, that you share meals with, you have drinks with that you attend conferences with, you know, when you both heard the same thing all day, well, not both, but all of you heard the same thing all day. And then you kind of debrief on it at the evening over a meal. It is it is just incredibly powerful. And, and you know, you go into deals together your joint venture things together. And that’s what the venture Alliance is all about. You know, I haven’t talked much about it lately on the show because we just didn’t really have anything much to say. But we do have our next event coming up. Our very first members, Neil and Elizabeth gave us some great suggestions that we’re looking at for doing something in the Pacific Northwest. And one of the San Juan Islands off of Seattle, which will be beautiful that time of year. And by the way, we’re looking at the end of September, early October, probably for this. But we’re also considering Lake Tahoe. And you know, maybe something back east, like a fall foliage tour type of event, you know, maybe in the Berkshire’s, maybe, I don’t know, somewhere in the northeast, back there is the leaves turn. And it’s just spectacular and beautiful. But most important, is not just the fact that it’s a vacation, you know that you get a vacation element to the venture Alliance. But also that we get to spend time together, we get to brainstorm deals together, and then actually do deals together. So a lot of good stuff coming up there, check it out.

Again, this pricing is not going to be so low forever. And I know you’re probably as I say this, don’t think it’s low at $10,000 a year, but compared to other groups out there that is really, really inexpensive. So you may be hearing the bell ringing back there. And I’ve got to get back to my mastermind conference here. But anyway, let’s get to Harry dent, and hear what he talks about. You know, one more note on that. The thing he talks about is largely deflation, when he talks about what’s going to happen to the Dow what’s going to happen to the gold price. And there’s an interesting article I just saw yesterday about moon exploration and maybe colonization of the moon. Certainly, there’s a lot of industrial implications to this to the moon. And with that, this article was talking about how the cost of colonizing the moon could actually be reduced by 1/10. Or by 90%, I guess I should say, by 90%. There are certainly some cases for some deflation, in terms of looking at technology and the amazing things that it offers. But all that’s going to do is give us a better life, and more resources and just do tremendous things for the human race. So it’s just an amazing time to be alive. All things considered. Real Estate Investing income property investing, works best in the inflationary environment, it’s a homerun if you structure it correctly for that. But in the stagnation environment and the deflation environment, it works pretty well to probably better than anything else. Not quite the home run, but certainly better than anything else that I can see out there. With that, let’s talk to Harry Dent.

Hey, it’s my pleasure to welcome Harry dent back to the show. You’ve certainly heard his name. He’s a very prolific author. I started following his work back in the mid 90s. And you know, he’s been right on with a lot of great predictions, you know, missed a few, of course, but he’s been on with a lot of them. And it’s great to have him back. It looks like Harry dent is on a roll again with the predictions too. So it’s good to have him Harry, welcome. How are you?

Harry Dent 13:09
Oh, nice to be back. Jason.

Jason Hartman 13:10
It’s good to have you in Where are you located today?

Harry Dent 13:13
Tampa, Florida.

Jason Hartman 13:14
No income tax state good place to be?

Harry Dent 13:16
Exactly. That’s why I’m here.

Jason Hartman 13:18
You Tony Robbins. Rush Limbaugh a whole bunch of others. Yeah.

Harry Dent 13:22
Yeah. And I was in California before this. And Tony moved because they raised it, I think the 14% and made it retroactive a year. So he said, you know, are still a visa, baby. Yeah.

Jason Hartman 13:33
Well, he was right about that. So that makes a lot of sense. socialism doesn’t work. And we all know that by now. And when we look around the world you look at Greece is is on the verge of epic disaster. Again, Spain is a mass Portugal, I you know, when will people get the message? Harry, this doesn’t work, you can have something for nothing.

Harry Dent 13:53
I know that there’s something for nothing, though, sells. I mean, that’s what marketers do. I hate to say it, but I mean something for nothing. People want life to be easy. They want it to be, you know, no stress, no problem, no pain. And that’s not the way life is and people who who do something to make a difference in the world and who are successful, do go through pain. And that’s how they get gain. And you know, the markets are like this. No, we won’t. We won’t let the markets go down. We’ll just print money, we’ll just fill up every hole with with free money. I mean, how stupid is that? And yet, I go on these financial shows and have to argue this as if it’s as it shouldn’t be obvious.

Jason Hartman 14:34
This is this should be you know, basic economics supply and demand, you know, you increase the supply of money, you’re going to have problems. But really, if we look at that, and I want to make sure we talk about China because the president of your company, Rodney just released an interesting piece about China but why don’t we have some significant inflation with all this money creation?

Harry Dent 14:55
Well, it’s because we had a You know, one of the greatest debt bubbles in history, in fact, the greatest. And what happens once we get too much in debt, we’re no longer expanding the money supply and that debt starts to D leverage. Now, it’s deleveraging very slowly because the government is stimulating the economy. But what they’re doing is basically, Jason, they’re fighting deflation with inflation, every major debt bubble in history, and I like them in the roaring 20s. And then the 1870s railroad bubble before that, and then canal bubble before that, in the 1830s. They’re always followed by deleveraging of debt, financial bubbles bursting, and then money disappears, money is created by the banking system too fast. And then when it de leverages wealth, I mean, stock market goes down 89% in 1932, my wealth disappeared and didn’t come back bank loans, we wrote off about half the private bank debt and mortgages and stuff in the early 30s. So that is money created, like magic by the banking system and then disappears, now you see it. Now you don’t and and we had debt grow at 2.7 times the rate of GDP growth from 1983 to 2008. For the entire boom, any economist that does not see that as a problem shouldn’t be an economist.

Jason Hartman 16:19
Okay, Harry, I want you to, I want to make sure we just really comprehend what you just said, because I think it was very important. Say that, again, give the years and the amount of debt versus GDP. And you’re only talking about us, I assume, right?

Harry Dent 16:32
Yes, in the US, of course, this happened around the world, but the US from 1983 to 2008, where private debt peaked at 42 trillion, and the government deficit about debt back then was 10 trillion at federal level, what debt had grown for 25 years, 2.7 times faster than GDP. So you know, you can’t have debt, grow that fast and not have a debt bubble not have a debt crisis. And when there’s too much debt in the economy, people speculate more, they buy bigger houses, they can afford cars, all this sort of stuff. And then when the economy goes bad, they’re underwater, and they’re in trouble. And that’s what happened in 2008. And again, the government’s solution is we’ll just pretend like it never happened, and just keep printing money. And I’m like, Hey, if you’re gonna print money, don’t don’t give it to the banks and goldman sachs and all these people send send people a $10,000, check. If you’re going to create something for nothing, at least send it to the people. all it’s doing is going into financial institutions who are borrowing money at zero rates, leveraging up 20 to 30 times and speculating banks don’t lend money anymore. They speculate in the stock markets and commodity markets.

Jason Hartman 17:41
Yeah, well, Glass Steagall, you know? Yeah, it’s something else but but see their argument, the powers that be unfortunately, their argument is that if we give it to the banks, of course, the banks have lobbyists. And there’s all kinds of you know, crony capitalism going on. But if we give it to the banks, their rationale is there’s a multiplier effect.

Harry Dent 18:02
No, it’s not not No, not when you speculate. When you lend it, there’s a multiplier effect. But first of all, we don’t need the banks to lend more money, consumers and businesses borrowed the most in history, private debt is twice as a ratio to GDP, what it was at the top of the 1929 bubble, and we’ve got on top of that, the government debt. And on top of that, we’ve got unfunded liabilities for Social Security and Medicare, Medicaid, that are alone four times our GDP. So we’ve got eight times our GDP. In total debt obligation, we don’t need more debt. What we need to do is d leverage, especially the private debt that got so far to control that $42 trillion, we got to work with what happens in this

Jason Hartman 18:46
trillion with a T that’s a T,

Harry Dent 18:48
yeah, with a T 42 trillion in private, and 18 trillion in government, and $67 trillion in unfunded liabilities for Social Security and Medicare. That’s how in debt we owe, we’ve got like $130 trillion in debt, and all people hear about is the 18 trillion from the government. So we have to do a big, what I call a debt, detox a debt deleveraging. That’s what happened in the 30s was very painful. But know that after that bottom and 32 in the stock market and the bottom in the economy, unemployment, housing, everything else in 33, we turned around and grew like crazy, and didn’t stop until 2008. Pretty much so. So def de leveraging is a good thing. It takes burdens off of business and consumers. But what they’re really doing, Jason is the reason they’re funneling the money to the banks. They don’t want the banks to go under, because that’s what happened in the 30s had a run on the banks, banks failed loans failed. They’re there by giving this free money to banks and financial institutions can speculate and end with a slam dunk. With free money. It’s free long term adjusted for inflation, 10 year treasury bonds, and it’s free short term. It’s zero rates. They basically are getting a free gift. And they’re they’re able to keep alive through speculation. But all that is doing is creating more and bigger bubbles than we had before the stock market is at substantial new highs. Now, real estate in a lot of cities is substantial new highs, that means now we’re gonna have to, you know, D leverage these bubbles again. And and it’s just it’s the sickest thing I’ve ever seen that anybody would tell the public that the way to cure a debt crisis is through more data by creating more money out of thin air banks created most of the debt, not the government. In that boom, I talked about 2.7 times debt growth. But now the government’s creating money, you know, 4 trillion in the US about 14 trillion around the world, central banks are just creating money throwing it in the economy, and it’s not being Lent, it’s not creating jobs, it is creating speculation, and bubbles.

Jason Hartman 20:53
Okay, so couple comments on that. Number one, I have long said that the prosperity of the United States over the last few decades is an illusion. It’s It’s It’s a game of smoke and mirrors. We’re not really as prosperous as we think we are. From Nixon on closing the gold window, you know, this is just like, we get to we get to sort of bully our way around the world and be irresponsible, because we got the reserve currency. And we got the military to keep it that way. You know, I mean, this, this is not a sustainable thing. I mean, do we are we in a legitimate recovery?

Harry Dent 21:35
No, no, no, this is what we would have had a depression, we were going into a depression, which is just a big debt deleveraging and financial bubble deleveraging. We were this was exactly like the early 30s. Except this time, the government’s bailed out, everybody but Lehman Brothers, and the government’s pump money. I mean, in in the early 30s, they took interest rates down to near zero short term, but they didn’t do this QE thing, they didn’t just create money and throw it in the economy. So they’ve had to, just to keep GDP growing at 2%. On average, since that crisis, they’ve had to pump $4 trillion, you know, you know, almost, you know, 20 25% of GDP, that’s the only reason we’re growing, we would have been in a depression. Without that, actually, we would have been over it by now largely, and then we would have been in better shape. And now we’re still gonna have to now we’re gonna have to D leverage an even bigger bubble. More and more debts been added around the world. $57 trillion, globally, has been added to the debt pile since the crisis in 2008. And the majority that’s coming emerging countries, and they’re suffering from falling commodity prices, which is something we predicted very strongly. In my last book, the demographic cliff, we said, Hey, the only the countries that have the good demographics, the emerging ones are going to get hit by plummeting commodity prices. And that’s exactly what happens. And now they’ve got more debt than ever. So it’s a global debt bubble.

Jason Hartman 23:01
I totally enjoyed the demographic cliff. By the way, I thought that was an excellent book. I mean, I’ve read so many of your books over the years. How many books do you have, by the way, I’m

Harry Dent 23:10
curious, not I’ll probably seven or something. But then the important one, were the great, boom, ahead, the great boom ahead in late 92, that was prophetic. And then the roaring 2000s was a book I sold most of in early 1998. And then the Great Depression ahead, and now the demographic cliff, those are the four books, I would tell people to go back and look at.

Jason Hartman 23:30
Okay, so I gotta ask you this, and I want you to answer this. Honestly, please don’t feel like, you know, you’re playing to the host here, not as if you would, but I just want to make that disclaimer. So in the Great Depression ahead, or the demographic cliff, I mean, in the demographic Cliff book, you talked about real estate, and of course, you know, I’m in real estate in the investment side. And I agree with you on the mcmansions. And the high end real estate that, you know, I mean, you you predicted that many years ago, I want to say a good 1518 years ago, you predicted around 2012, the mcmansions would start to soften I if I’m getting that right, I think I am and you’re predicting that still that that’s that’s not a good place to put your money. My mom owns a big 9600 square foot McMansion herself I’ve been trying to convince her to sell. You’re not bullish on real estate, but you don’t make the distinction as I would on you know, low end real estate sort of necessity housing versus high end real estate or, you know, different localities like, you know, high end markets. I mean, I don’t like any market with high land value. So I throw out California, the Northeast South Florida, you know, we only like these sort of cheap middle markets like, you know, Memphis, Dallas, Houston, you know, Indianapolis, boring places you never hear about, you know, that nobody, you know, they’re just like really milk, milk toast kind of investments, you know, $100,000 properties. What do you think?

Harry Dent 24:54
Well, yeah, actually, yeah, there’s a huge difference for a couple reasons, the fluent the top 10 to 20% And really the top point, one 1% even more so have done incredibly well in bubble land, and especially since 2008. Everybody else has seen their wages go down their buying power, all this sort of stuff student

Jason Hartman 25:12
loan debt, don’t forget that.

Harry Dent 25:14
Yeah, they’re they’re the ones making this mansion bubble and high end bubble, you know houses selling for 100 million 100 50 million on 1000 square foot condo in New York sold for 135 million. I mean, this is absolute insanity. And I The thing that I get that the rich people are the dumbest. They don’t think their real estate can go down because they think they’re always going to be rich and rich people like them will always want to buy this, it is the high end real estate that bubbles the most and goes down the most and is baby boomers are done buying housing. And what they’re going to do is trade down into smaller places, while the millennials come with much fear and difficult to get credit. And they want small places. So that everyday house is the best place to be in the very, very worst are these super expensive, I live in an expensive neighborhood and people don’t think this is going to go down. This is going to go down Palm Beach is going to get plastered Manhattan, San Francisco, Vancouver on and on and on. The are the number one rule is bubbles always burst. And the bigger the bubble, the bigger the burst. So it is the high end that it has got the most risk. And by far, the thing

Jason Hartman 26:21
that makes me want to say that maybe that’s not true is because the rich do get richer. And when you have economic policies like we’ve had, you know, the wealthy benefit from inflation. I mean, it’s just amazing to me, you have all say it, idiot, Bernie Sanders yesterday, commenting, or maybe the day before commenting on Greece and how, you know, they, they shouldn’t be willing to have austerity is if you know, like, what is he a child? I mean, do you think someone else just gonna bail you out all the time, and you can be irresponsible. And

Harry Dent 26:55
the flipside is word banks and governments made loans to those people that they couldn’t afford to pay, they made bad loans. And when you make bad loans in the free market capitalist system, you’re supposed to lose money. So people on a write off these loans, and Greece should default. But if Greece defaults, they’re going to lose their ability to borrow money, and they’re going to be forced to live within their means for the first time in decades. That’s the only way what happened if they’re forced Greeks would never choose austerity, they’re gonna get it. They’re gonna get it big time. Right, right.

Jason Hartman 27:29
But but so so these kinds of policies that we have really pretty much around the world, they always benefit the wealthy class, or do

Harry Dent 27:37
you know, Jason, that this is not true? This is true at times when you have a bubble boom. And when you have high credit creation, yes, the wealthy get wealthy faster. And that’s been happening for the last couple decades. But what people don’t understand and when these bubbles burst, guess who owns most of the bubble financial assets, guess who owns these 100 million dollar dumb ass condos in New York, and in San Francisco and Shanghai and stop it is the Uber rich, they get slaughtered. The rich went from 20% of the income in 1929. The top 1% went from 20% share of the total income which is huge, down to 8%. In the early 70s. They they did not get rich, faster. After that they got the everyday person advanced, we had the first middle class society to merge and all a history from the Great Depression and after World War Two. So I’m telling people, it’s the rich that are going to get smacked the hardest. It’s not going to be easy on Homer Simpson,

Jason Hartman 28:37
I bet people will be happy to hear that because the Uber rich I think are just ridiculous. They’re the crony capitalists, and they

Harry Dent 28:44
think they’re invulnerable. Every person I know, that has owned something, you know, super expensive real estate in Martha’s Vineyard or London, or New York or San Francisco or Sydney, Australia, Vancouver, I can’t talk one of these people out of it. They think these places will never go down and people like them will never stop buying and they are going to be so wrong. It’s going to be unbeliev

Jason Hartman 29:07
that that whole market in you know, Uber rich real estate market. It operates on one principle, the greater fool theory, no matter how much I paid, some greater fool will come along and pay more. There’s no sense to it. There’s no cash flow metric. There’s nothing logical about it.

Harry Dent 29:24
Oh, well guess who the greater fools are today, Jason, the wealthy Chinese, just like the Japanese were in the late 80s. Japanese had a big bubble while nobody else did in the world. And it made them a lot wealthier. And they go around start buying real estate in London, New York Pebble Beach and stuff. That’s what the Chinese are doing today. I’ll tell you why. They don’t care about the price, Jason, because they’re laundering money. They’re getting money out of their country. And this is the only legal way they can do it. They pretend like they’re moving temporarily to California to get their kids in a good college. And they buys expensive real estate as they can because they’re trying to get their money out at Dinah before the bubble close they’re not idiots

Jason Hartman 30:02
they’re looking for the Brinks truck. Okay. And America has always been the Brinks truck not I’m not sure if that will continue but you know, it’s it’s a it’s a game of relativity, right? It’s just all we have to be a slightly better than everybody else right as a place to put your money. And that’s what the South Americans are doing in Miami and South Florida. That’s what the Chinese are doing everywhere in the US and Canada.

Harry Dent 30:23
Brazilians have been Yeah, that’s right. You go to Miami. It’s Brazilian right bags of cash from illegal activities, buying condos. They don’t haggle either. But but it’s more than anybody. Now the Chinese are the last fool standing because the Russians got do this. They got killed by the ruble being smacked the Brazilian economy is doing really horrible. So it’s really now made the Chinese are the last fools and I tell you, when when their real estate and stock market implodes. And this is beginning already and we’ve been forecasting this for years that China was going to be the biggest bubble burst, China was going to take down the world more than any single country. When that real estate bubble implodes, these wealthy people are not going to have the money to buy these 15 million 20 million 100 million dollar condos and houses. Okay, so

Jason Hartman 31:06
tell us more about China. Like I mean, you’ve spoken about the Chinese demographic problem with a one child policy. And, you know, you wait, what, I don’t know how far you push that out. But I want to say it’s like 15 years from now, China has a big lopsided demographic where you got too many older people, not enough younger people. I’m not sure that the number of years but you’re the expert. Tell us more about China. It’s interesting.

Harry Dent 31:32
Yeah, they’re the only emerging country that doesn’t have favorable demographic trends. their workforce has already peaked in 2012. It slows and it kind of kind of flattens out over the next decade. And then about 10 years from now. They start aging as fast as Japan did in the 1990s and stuff. So China doesn’t have the demographics, they’ve overbuilt their infrastructures, their industry, their housing, their offices by I’d say basically 12 to 15 years out. So they’ve been building stuff for nobody 27% of condos and in Chinese cities are empty, you got whole cities, like Ordos built for a million people, nobody there, got empty malls and stuff. So they’ve been building stuff just to drive the economy and keep people employed. And what happens to these, right now there’s 240, illegal rural migrants in Chinese cities that have no access to health care, welfare, education, anything, they’re only legal back in their rural areas, which are now paved over and they can’t go back. They’re trapped in these cities with low skills. They’re an underclass. And when this machine a building stuff for nobody stops, they’re going to be dead, they’re just going to be trapped in these cities. And the only positive thing is there’s going to be a bunch of empty condos for them to, to squat in. But But these China is the last place I’d want to be in the world right now, because they’re gonna have unbelievable urban unrest when this happens.

Jason Hartman 33:06
Well, that’s that’s a big deal. When you look at economy as large as China and a population as large as China. I mean, will the Communist Party survive that? I wonder?

Harry Dent 33:14
I don’t think so don’t The only thing they got going for him is older people don’t rebel and revolt like younger people do. And like you said, they have an aging problem, which is unique in the emerging world, because of their one child policy all the way back to the 70s is when that started. So that’s, that’s hitting them now. And like I said, it’s going to hit them much bigger 10 years from now, by time they get to that real point of demographic weakness. They’re going to have gone through a 10 year digestion of all this overcapacity of everything. So I, you know, I, when we do finally have this crash, and this reckoning, I’d invest like crazy in a place like India and many other emerging countries, but I still wouldn’t I still wouldn’t be bullish on China. Even after they have a major crash,

Jason Hartman 33:58
what was the what’s gonna cause their crash like specifically?

Harry Dent 34:01
Well, you see, the stock market started going down crazy, because there’s too much speculation and went up 160%. And one year, while the economy decline, because the app book because people in China saw that real estate, the greatest bubble in history finally started going down. So you couldn’t make money there. So they stopped all of a sudden and became stock flippers. So people just buying stocks, and they said two thirds of the people who open new accounts there which were meteoric and the rates of opening new cash, two thirds of them didn’t even have a high school degree. So this is the dumb money pilot in the markets. And now what’s it doing? It’s just falling apart. The government had to step in and get brokerage firms to pony up $20 billion to buy stocks to bully the markets. They told all their pension plans. And in the country, you can only buy stocks we will not it’s against the law to sell stocks. Do you understand how desperate This is? So this bubble, this bubble is going down just like 1929 did, and the US government at first did the same thing. They had broken firms step in, and purposely buy stocks. And it only worked for a couple weeks. And next thing, you know, the market was down, you know, 89% couple couple years later. So this is not going to work. It may may work a bit temporarily. But when a government has to step in and tell people, it’s illegal to sell stocks, and you have to pump up prop up the markets artificially. It’s just in I’ve never seen anything this insane. And the one thing I’ve done more than anybody is study history. And this is central bankers gone mad.

Jason Hartman 35:33
It really is a really, as well, speaking of central bankers, any thoughts on Janet Yellen, you know, bring us back to the US and, and just, you know, any of your predictions, you you predicted some amazing declines for gold. You know, I’m sure you view the stock market as being in a ginormous bubble right now. But, you know, tell us, what do you think is going on here?

Harry Dent 35:55
Well, again, you know, they’ve re inflated the bubble. They’ve done it now, for six years, things are starting to crack Greece, the neck, the you know, the next problem is going to be is not just Puerto Rico, and Illinois and Chicago, the United States, the frakkers. That’s a trillion dollar industry, with 600 billion of highly leveraged debt that is going to default and make Greece look like nothing. That’s just one sector and it’s going to start killing the junk bond market. And then of course, Portugal, Spain, as you said earlier, I mean, we’ve just got a whole string of debt defaults coming around the world you can only keep a bubble going for so long and and whoever is sitting in the chair IE Janet Yellen, ie the next president, whoever it is, when this bubble burst is going to take the blame for it, even though they didn’t create it. But Janet Yellen has followed Bernanke he Bernanke he didn’t create this bubble either. You had to blame it on more on Alan Greenspan. And and George, don’t be a boy, I

Jason Hartman 36:50
think Greenspan was the bubble Maestro, you know,

Harry Dent 36:52
but they get blamed and nobody wants a bubble to burst on their watch. That’s why the central bankers just keep printing money, they really don’t have any other option. As soon as they if they would have stopped printing money, this bubble would burst so fast. It’d be unbelievable. And we’d be in a depression, you know, within six months.

Jason Hartman 37:11
Okay, so a couple just rapid fire thing. So what’s the future hold inflation, deflation,

Harry Dent 37:17
deflation. Long term, we’ll go back to an inflationary economy at mile levels. But But deflation always follows in deflation is a sign that a bubble is bursting a credit bubble, debt is being written off and financial bubbles are coming down to earth. And it destroys we have I estimate, and this is a big figure, Jason 100 out of $225 trillion in financial assets, including loans and mortgages around the world. 100 trillion of that could disappear in the next several years, $100 trillion disappears, that’s less money chasing the same goods. That is deflation. I’ve had this debate with the gold bugs over and over and over again. And I keep winning the bets I keep saying gold is an inflation hedge and a really good one did wonderful in the 70s when inflation was a trend. But what the gold market realized in 2013 that’s why it dropped so strongly that the Japan just tripled their QE, us just committed to QE three forever, and inflation kept going down. So the markets finally got that we’re not going to get inflation in a deflationary world. And the only reason we have mild inflation is because all the money that’s printed so far, so gold is gonna go down. We’re gonna see deflation. Dow I think the next stop is below 6000. And that’s not the final stop. I think the Shanghai is going to go from 5200 down to 1000. At least Wow.

Jason Hartman 38:47
I mean, listeners, do you? Do you hear what he’s saying? So the Dow is going to go below 6000. You were talking about the Chinese stock market?

Harry Dent 38:54
Where’s that going? 1000 from 50 to 100. And, you know, over 80%.

Jason Hartman 38:58
So that’s, that’s going down by 80%. Wow,

Harry Dent 39:01
that’s the US market sp 70%. Now, I’ll tell you the neat pattern. And I don’t understand people in soap denial on Wall Street. This is a simplest pattern. It was the same thing that happened in the late 60s, early 70s. When the last generation p you get you get the market keeps going to new highs and then crashing to new lows. It’s called a megaphone pattern. So we’re right back at that, you know, we’re in the third bubble. We’re right at the kind of the resistance line around 18,000 on the Dow, and the next new low in that pattern wouldn’t be projected to be just below 6000. So I have a specific reason for having that target. That may not be exactly what happens but that is what you should expect. When when a debt bubble burst when when a financial bubble burst. Every burst is going to take the market to lower lows because we’ve pumped up the economy even more and got more out of balance. The economy knows how to balance itself. I tell people it’s like hey, you eat some bad sushi. Your body knows what to do flush it out as As soon as possible, it’s poisonous. The body’s good at this. That’s what the economy wants to do. And central banks won’t let the economy do it.

Jason Hartman 40:07
They keep interfering. Yeah, yeah, you know, what does a good metaphor for? That’s a great metaphor, you just made it. So I’ll just add to that a little bit. It’s like, you know, you go to the doctor, the traditional Western medicine type doctor, and you say, Well, you know, my back hurts, they give you a painkiller to cover it up, that you don’t fix the problem. If you go to a more holistic thing, they actually look at the problem. Whereas what we do in the, you know, Keynesian economies, we just cover things up, we cover up symptoms that are too painful, you know, we don’t want to experience Yeah,

Harry Dent 40:38
you know, and Keynes, I mean, brilliant guy in some ways, and people abused what he said. But basically, he was the original pusher. He invented financial drugs and and it got acceptable in economics starting in the early 70s. Like you say, with Nixon, everybody else, we’re all Keynesians now. We’ve been printing money, borrowing money, running deficits, running trade deficits, creating debt Ever since then, because you’re supposed to borrow more and run deficits in bad times to offset the private economy, but you’re supposed to run surpluses, we haven’t run a surplus, and hardly anything since the early 70s. So we’ve gotten addicted to financial drugs, and we can’t kick the habit. And boy, when you go down, when we finally come down, I don’t see how it couldn’t be worse than the Great Depression. And that’s the worst downturn we had in history. And by the way, what preceded the Great Depression, the creation of the central bank, the Federal Reserve, they prevented the economy from rebalancing. So we got a bigger and bigger bubble. And so when it first it was horrific, and that’s what we’re gonna get, again,

Jason Hartman 41:40
it’s hard to argue with that. It certainly does. Okay, what about interest rates? Where are they going?

Harry Dent 41:43
I think, well, junk bonds are going to get crucified. So you’re gonna see a huge spike in that, like we’ve already seen in Greece, in some of the Southern European countries, fracking bonds are going to totally default. What’s going to happen is, interest rates are all going up. Now, despite quantitative easing around the world, that’s a sign that the central banks are finally losing control of zero, long term rates. At some point, the safest the highest quality government and corporate bonds, like a Coca Cola bond or a 10 year Treasury, their rates are gonna go down for them when the deflation sets in, but they’re gonna keep spiking up for junk bonds and riskier bonds, because there’s going to be growing default risk, the more governments and the more companies default, the more the bond market worries about it, the more it raises rates, the more credit costs the more default so it’s so it’s a vicious spiral so so interest rates are going up for most bonds, which is going to kill the bond market. But ultimately, after maybe six or eight months, and this happened in the Great Depression, there was an initial spike in all rates, including government bonds, but after that, the government and the triple A corporates did well their rates came down their bonds appreciated and and the risky bonds just rates kept going up. So this is something that if you look at it past debt crisis is what you’d expect. Okay, but what about what about mortgage rates, though? mortgage rates will tend to come down because they they play off of the 10 year Treasury and 30 year Treasury

Jason Hartman 43:13
Right. Yeah, the bellwether?

Harry Dent 43:14
Yeah, I tell people, you know, you might want to get an arm right now. But but maybe three or four years now you’re probably going to get the lowest cost mortgage of your life.

Jason Hartman 43:23
Very interesting. Good stuff, Harry, give out your website.

Harry Dent 43:26
Okay, it’s Harry we’ve got a free newsletter economy and markets, I’ve also got no other products and things you can look at. I’ve also got an unpublished chapter on China you can download it Harry dent calm so so that’s the best place to go daily newsletter for free. And if you if you you know, if you like us, after a while, you can subscribe to our, our big boy newsletter. And, and I would get that chapter on China, the book was just too big the demographic Cliff to put that in there. So I let people download it for free on our website,

Jason Hartman 43:59
Good stuff, Harry Dent. It’s always such a pleasure to have you on the show. And it’s so interesting to talk to you and look at these patterns. And so much of this stuff is based off of demographics and, and when that interplays with the economics and the fiscal and the monetary policy, it just gets really fascinating. So it’s great to have you back and look forward to having you on the show again. Thanks for joining us today.

Harry Dent 44:19
Okay, thank you, Jason.

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In this Flashback Friday episode, Jason Hartman answers mortgage FAQs from a Profits in Paradise event. He also tackles financing a primary residence, cash-out refinance, and Refi-Til-Ya-Die method. Then, he continues his interview with Drew Baker. They discuss cryptocurrency, the college tuition bubble, and the appreciation vs. cash flow dilemma.

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Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

Investor 0:13
Trying to sell a house in 2010. And I just got a little frustrated with the potential buyers I was meeting and so I decided just to turn it into a rental. I currently own five properties the one that I did originally live in I own three unwritten Little Rock as well as one in Mississippi. I am in those markets because I was super impressed with the turnkey operators that I met and super impressed with the renovations that they did the proper the management that they had. And basically it was one stop shopping and everything was in place when I basically I showed up with my money. I kept on investing in real estate because I realized it was just an awesome way to build my wealth. Not a lot of effort on my part. Basically, once again, show up with the money and see my money make money for me. I found Jason through my friend Elizabeth and been super impressed love his passion, love his enthusiasm, and not to mention seems extremely knowledgeable.

Announcer 1:05
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 1000s 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 1:55
Welcome listeners from around the world. This is your host Jason Hartman with Episode 1084. Today we have some winners. Well, you’re all winners because you’re listening to the show. No, but we have some actual contest winners today. Well, and I say winners, did you notice that was plural? Yes, that was plural. very intentionally, because we only promised that one person would win. But I thought, Hey, you know what, why not pick a couple of winners, we can have more than one. We’re generous. Christmas is coming up. So there you go. Okay, so we will announce those here very shortly. And you have the choice of the Amazon Echo, or the ring doorbell. Let us know which one you want when we announce the winners. And we will get those out to you. post-haste post-haste right away. You know, I just want to remind you, of the thing I talked about somewhat frequently, you know, my four major mentors in life, Jim Rohn, Earl Nightingale, Denis waitley, and Zig Ziglar, those guys changed my life, right? They changed my life at age at the tender age of 17 years old. And as I was once again at yet another venture Alliance event in Hawaii in beautiful Hawaii and on the island of Hawaii, just last week, and we wrap that up and got back here. I’m back in San Diego now. It’s so nice to visit California, when you don’t have to pay taxes here. Yes, that is an awesome deal. You know, if you move out of California, you can still visit without paying 13.3% income tax, just pay the feds and they’re happy live in a no income tax state. My recommendation, you must get on that train and get that plan going for yourself might take you years, but get it going. Anyway, that’s not the point of my tangent here. And I was reminded again of that Jim Rohn quote, that I say all the time, you know, your income will be the average of the five people you spend most of your time with. And that’s why it is so vitally, vitally important to really strategically choose your friends and associates. And that’s why a mastermind group is so valuable. It’s one of the things I personally love, even though.

Hey, it’s my group, right about the venture Alliance mastermind. But regardless of that, you know, I was in many other mastermind groups, long before I started the venture Alliance. I liked them so much. I thought I got to start my own group. This is awesome. And you know, you just, you’re uplevel your associates. Now, maybe not. Maybe you are in the situation where you don’t need to uplevel your associates because you’ve already developed your own in essence mastermind group by very strategically picking and choosing who you spend your time with, but for the vast match have us in life that happens by accident and circumstance. And you know just where you happen to find yourself and where you happen to find your friends. I really want to encourage you to do that strategically. Okay, the tragic tragic fires in California here. Wow, the death toll has has risen and risen, and the number of structures that have burnt up in Northern California and paradise. Over 7000. Over 7000 structures have burned. Last I checked. Sadly, the death toll was I believe, 43 people people trying to escape in their cars. Can you imagine that? I mean, it’s just tragic. Unbelievable. So hopefully, we will find as a society an answer to some of these fire problems. And you know, don’t accuse me of being a Trump fan here when I say this, okay. But I think Trump has a point when he called out the National Forest Service. I remember years ago, I was in Lake Arrowhead. And I was with my girlfriend Monique at the time many years ago. And we were up there. And they had just it was the year after they had those huge fires in the arrowhead area. They said that one of the reasons these fires were so bad is that the environmentalist wouldn’t let them remove all of the brush on the ground around the trees because it would disturb, you know, a bug or something, right. And, of course, we need to be conscious about the environment and the ecosystem. That goes without saying, but some of these things are just, you know, they’re just dumb. And these problems get worse and worse. And they’re compounded by some of these crazy agendas out there. So that’s that. But you know, many years ago, in maybe 1994, I remember I had just purchased a new home in Turtle Rock in the Turtle Rock area of Irvine, California, which is earliest was I should say, at the time, maybe still is the most exclusive prestigious area in Irvine, and Turtle Rock, just a gorgeous area. And I remember when they had those big fires in Laguna Beach, I had to evacuate.

Now, it was a very eerie sight. I evacuated, the fires were getting closer, and they said people need to leave. Some of my friends just showed up with their cars and minivans without me even calling them and it was very heartwarming that they did that they just came over to my house and said, you know, here, can I help you? Do you know, is there anything you want to take? And of course, what did I take right? photos, because back then they want all digitized 1994 I took photos that was you know, one of the things I took my computer photos and you know a few other things. I loaded this stuff into friends cars and and then loaded my own car and went and stayed at my mom’s house that night. But I remember when I came back in the morning, the house was still there. It did not burn the fire did not make it into Turtle Rock. As you probably remember, it burnt a lot of Laguna Canyon, it was really a tragic fire. Not as bad as this one, though, are these really not this one. But these these several fires that are raging in California. It was such an eerie sight. The next morning, when I came back, there was ash all over the ground, the streets were just ash everywhere, just all over the place in the sky. It felt like I was on Mars. I mean, the sky was just so weird. It was like this pink sky. But it was in the morning, you know, you see that at sunset, but you don’t see it in the morning. You know, late morning like at 10am. It’s just really terrible. These these fires are something else. So we will hope for the best there. And I want to wish all of our veterans a happy Veterans Day. Thank you for your service. Of course, we acknowledge that yesterday. And having just come back from Hawaii. I remember I was in Hawaii in Pearl Harbor for Veterans Day several years ago. Got to see the you know, the memorial there and the USS air I guess it’s the USS Arizona, I believe is the name of the ship, right? That is underwater, and so many people died underwater there in the Arizona. So that was something to see. And I’ll never forget that and seeing it on Veterans Day was was really quite something. So thank you for your service. Definitely we appreciate that. And hopefully we will find a time when we can take the profit out of war and make war unprofitable for central banks. So we can avoid it completely. Fifth, the world can do that. That would be very nice. But like I say, as long as war is profitable, there will never be peace. So that is the world we live in. financing. We talked about financing some FA Q’s. Let me grab a couple of these before We get to part two of our guests from Monday’s episode, we continue talking about self management, the booming economy, a little bit on cryptocurrencies and some other things. We will get to that here in just a moment. But contest winners and a couple more financing things. So let’s talk about financing for a moment.

Okay. Another question. These questions came up at our profits in paradise event in Hawaii on Waikiki Beach over the weekend, while the weekend before last, can I do a cash out refinance? of my properties of my investment properties? Remember, investment, property financing? and personal residence or owner occupied financing? are two different animals? Not completely different? But they’re a little different? For sure. And yes, you can. That’s the good news. So many of you listening I know, I know, who are you are, are bold and daring clients who purchased many properties from us back in 2009 2010 2011 2012 2013 2014, even 2015, or 16, and you’ve made some money, some of you made a lot of money, congratulations touching, you’ve got a bunch of equity sitting in these properties. You can refinance them, of course, you can pull cash out, and you can buy more properties. Because that’s the thing to do with your cash, right, definitely, definitely the thing to do. Fannie Mae will allow you a cash out refinance on the first 10, properties finance. And you can always take cash out of your primary residence, regardless of how many properties you have finance. So that’s great news. Don’t allow equity to become lazy. Use your equity. And I want to also remind you of that idea that I have been talking about for many, many years, probably 15 or 16 years. Now, it’s the concept of a balance sheet, a balance sheet, we’ve all seen a balance sheet, right? On one side of the balance sheet. on that one column, you have your assets. On the next column, you have your liabilities. And the way you know your net worth, of course, is to add up all your assets, and subtract all your liabilities, and whatever that number is, that is your net worth. But a lot of you are forgetting about a major asset you have. And if this asset has a really high number on it, you’re actually hurting yourself. You have an unused asset that you should be using more. What is that asset? It’s what we talked about on Monday, and what we’re talking about a little bit today, two credit score, your credit score, you know, I love now this is counterintuitive. Okay. So a lot of my stuff is counterintuitive, you know that if you’ve been listening for the last 14 years, you know that a lot of my stuff is not what the typical guy in the street thinks, right? He doesn’t get it, he doesn’t get it. So I try to bring you a more counterintuitive different perspective on a lot of things. And this is one of them. If you have an 850 credit score, or an 800 credit score, or any credit score above, what’s the magic number, your FICO score 720. If it’s above 720, you need to borrow more money. But you need to borrow money for investment grade things with investment grade debt, not consumer debt, borrow more money, use your asset, use your credit score, it’s just like this unused equity sitting in your properties.

There is no such thing as return on equity. You’ve heard that metric return on equity. It doesn’t exist. It’s a myth. Woof. It’s false. It’s Bs, return on equity does not exist. Okay. Yes, I know there is a metric and you can do the math for it, I get it. I know I get how they do it. But here’s what I mean by it, I mean, something a little different. Okay. And what I mean is this luck, the property will go up in value or down in value, regardless of how much equity you have, it will get a certain amount of rent, regardless of how much equity you have. So the best thing to do is to have your properties properly leveraged to treat leverage with respect and to have good solid fixed rate financing on your properties. Now, with a little caveat to that. Sometimes, a little Adjustable Rate loan isn’t totally a bad idea. And we’re going to explore this more as we see rates going up. And we see a little bit more of an interest in the adjustable rate market for so long rates have been so massively artificially low. Did you know it wasn’t even worth talking about an adjustable rate mortgage, but I will teach you again, as I have in the past how to evaluate an adjustable rate mortgage using the five major criteria that goes into an adjustable rate mortgage. Okay, we’ll do that in a future episode. We don’t have time for it today. But that is coming up. And I think you will really benefit from it. Because occasionally, occasionally, it’s not my first choice, usually. But depending on the rates at any given time, an adjustable rate mortgage makes sense to consider it. Okay, it does. But the point of this question is, do your cash out, revise as long as you can get good financing on them? The mortgage is a part of the asset of the property. Most people think it’s a liability, but it can really, really be an asset. Okay, can I finance a primary residence, you know, your own home? Regardless of how many properties I own? Yes, you can. So you have a whole bunch of financed income properties, rental properties, finance, you can still finance your own property, so don’t worry about that. It’s not a problem to do it. Okay. Can I use projected rental income on the property that I’m buying and financing to offset the projected mortgage payment? Yes, yes, you can. Good news there, right. The rental income is something the lender will consider to help you qualify. So a lot of people think you need really, really high income to buy income properties, and you don’t because guess what? They produce income. Isn’t that nice? You can use that. And you can use 75% of it. So what the lender basically says when you’re financing is they assume that you will only receive 75% of the income for qualifying purposes. And they will count that into your debt to income ratio. So that’s really good news. Very good news for you, that the property can help you buy the property. It’s kind of like in the old days, you know, especially in the 80s.

Remember, that was the era of the corporate raiders and Ivan Boesky and T. Boone Pickens, and Carl Icahn, you remember all those names, right. And what those guys would do is what’s called an L b, oh, lb o standing for leveraged buyout, leveraged buyout. And basically what that means is you use the company, you’re requiring you use the income of the company to pay for your purchases, the company is in this beautiful with income properties, we get the benefit of what’s called self liquidating debt, and that self liquidating debt can help us buy the property. In other words, we use 75% of the income of the property to buy the property. How cool is that? Can’t do that with stocks? Can’t do it with precious metals. Can’t do it with cryptocurrencies. But you can do it with the most historically proven asset class in human history, income property. So that’s that, okay, contest winners, we got to get to our guests per two today. So first contest winner is Tate launchbury. Tate, you won, congratulations. And you can choose between the ring doorbell, or the Amazon Echo, whichever one you want, tait said and I got it. We had a couple questions here that we asked you when you entered? What is your monthly cash flow goal from income properties in five years? And 10 years from now? And how do you plan to achieve this goal? Okay, so you said five years, 16 $100.10 years 20 $600. Now, I gotta say something. That may not sound like a lot, but I have a feeling that Tate gets it and wants to keep those properties fully leveraged. And that’s why you don’t want that cash flow to be too high. Remember, you get taxed on that cash flow. You want to properly leverage your properties because my refi till you die plan shows that there’s no tax on borrowed money, and you want to use the refi till you die plan. Tate has purchased three properties in the past one and a half years and intends to buy one property each year going forward. You know what, Tate, I have a feeling in a way, you’re not going to achieve your goal, because your cash flow is going to be a lot higher than that. So congratulations. That’s one time you actually don’t want to achieve your goal. You’re going to pass your goal.

Okay, the next winner and I hey, I said let’s get one extra winner. Why not? Why not have one more winner than we promised? Tim Davidson. Tim, you won. You said when talking about how you plan to achieve the goal, although the goal itself is blank, you said by the following moves, raise my employment income to contribute saving to $1,000 more per month towards a down payment for rental property extract equity out of my principal residence. Oh, pay doing exactly what we just talked about, and consider moving to a low Cost area, possibly to the States? I don’t know, maybe not live in the US now, maybe, maybe that’s what you meant, and listening to the creating wealth show. So Tim and Tate, hey, two T’s, T and T. One today, let us know, you can just follow up with your investment counselors. I think those are all over in Sarah. In both of those cases, let them know if you would like the ring doorbell or the Amazon Echo. And by the way, folks, we will be announcing now that our Hawaii event is out of the way, we will be announcing in the very near future here, meet the Masters 2019. This will be our 21st anniversary meet the Masters event. And we will be announcing that very soon. The dates are tentatively looking like late February, early March, somewhere in that range location is looking like Southern California. Just look for more to come on that on upcoming episodes. And we will announce that and have ticket sales available for you.

Okay, let’s get to part two of our guest from Monday and dive into that right now. Like I’ve always said, When Bitcoin has a standing army, it will take over the world. But until it does, it will not it may still be a thing. And just to make a distinction. cryptocurrency could certainly and probably will be the future. The only distinction is it’ll be the cryptocurrency sponsored by the governments and the central banks. That’s the distinction. I’m afraid of that but you’re probably right. And it may be a one world cryptocurrency, which is even more scary, because then no one will have any financial privacy. And they can inflate unilaterally and equally around the entire planet, which is really scary. I mean, they could just the powers that be the central banking cartel, the governments of the world could just impoverish everybody. Overnight, right?

Drew Baker 22:04
I mean, think about Bretton Woods, and you think about everybody using the dollar as a reserve currency pegged that gold and then them removing that. And you have to say that, I mean, basically the dollar is the One World currency, everything gets traded through the dollar. I mean, so in some ways, it’s kind of scary that we have that. And the more money the government prints, it seems like the more asset prices go up, but at the same time, you still hear about deflation. So I think we’re in this very strange pickle that no one could have expected. So in some ways, there’s deflation and other ways there’s inflation. So it’s like, how do you fight a Jekyll and Hyde economy? I do not know. Yeah,

Jason Hartman 22:47
I know. It’s a weird thing. It’s a weird time. You wanted to talk about a couple other issues, I think. And just before we wrap it up, I wanted to give you a chance to do that. Was there anything else on your list,

Drew Baker 22:58
I kind of have more of an open ended sort of dialogue I want to have with you about college. I know we talked a lot about, you know, the college bubble.

Jason Hartman 23:07
That’s the college debt bubbles, probably specifically. But yeah, maybe there’s a college bubble in general, but the debt bubble for sure.

Drew Baker 23:13
I was talking to my wife. And I was saying how it felt like our parents version of having a stay at home parent will be our children’s version of going off to college. So it’s like a luxury that is to be obtained, but is not an entitlement. And I’m sorry, if that’s a confusing thing to kind of sort through in your brain. What do you mean, but I’m saying that if you think about you know, today, the idea of having a single parent at home is an expense, it’s a luxury, and it’s a sacrifice, right? It’s something that’s not normal, if you think about our children’s generation in the future, because it’s so impractical to Bill $100,000, for what the internet and technology could do for 1000, that life experience is going to be impossible, or very rare to duplicate if the government gets out of education, but if they did, I think the prices would come down, but I don’t expect they will. So you have to ask yourself, like, is the college bubble ever going to break or burst? Or, you know, what are your thoughts on that whole thing? Do you get what I’m saying? As far as like, I think people are gonna have to reject putting a mortgage on their back for their education in terms of how much it cost, right? It’s like a mortgage size debt. And that’s just going to it’s so sad that you’re preying on kids basically. And so, I don’t know that in the future. I think there’s gonna have to be some Titanic shift, where one of these big tech companies wants to undermine this huge bureaucratic dragon that they could create. Their own standard that is seen as more superior, more refined.

Jason Hartman 25:06
The problem and you know, the missing link, in my opinion, is accreditation. You can get all the education yourself now, you can probably get better education yourself. I mean, look at all these people homeschooling their children, right? You know, that’s a lot of work for parents to do that. But apparently many people think it’s worth it because the public education system is such a disaster and such a brainwashing institution at the same time. And the University System certainly is that the government student loan debt industrial complex, the debt slavery complex, it’s ridiculous. It’s a scam of epic proportions. But the problem is, you can’t tell there’s not a good way to judge, you know, at least if someone goes to college, they get that credential, and it’s accredited. And this accreditation thing is where the lockup is, in my opinion, that’s where the real scam is the Khan Academy online. And by the way, my foundation, the Jason Hartman Foundation, donates to the Khan Academy every year. I love that concept, you know, along with Kiva, and many other things I’m passionate about, but it’s an empowerment. Right. But there’s no accreditation, you can’t, no employer really knows how much that person knows. And let me tell you, college isn’t that credible, either. Because I know a lot of people who are in their 20s. And believe me, I look at their posts on social media and they can’t spell. Their grammar is terrible. It’s scary. You know, and they went to college. They’re college graduates. It’s mind boggling. Really, it is. And you know, colleges is a lot of times just a drinking club. It’s just a party, which is ridiculous.

Drew Baker 26:47
Yeah, I heard you went to college just a few years ago.

Jason Hartman 26:51
Yes, listeners, if you’d like to hear the story you’ve already heard, and we don’t have time to repeat it. But yes, I sort of had my college experience. It was fun. But I’m jealous. Yeah, yeah. No, I mean, it’s just a big marketing scam. The fact that universities are hiring branding consultants and marketing departments is ridiculous. They’ve gotten completely away from the mission. It’s, it’s terrible. So

Drew Baker 27:15
yeah, I just wonder if there’s some big with a name behind it, like, you know, Apple university or something, somebody that big companies where, you know, you think about the technology today without reading your face? They could do it? Yeah. Yeah. Was it reading your face? I mean, you can, you can make sure that the person that’s taking the classes is who they are. And there’s so much technology that can, you know, accredit the person is who they are. And by the way, there could be a real skills test associated with testing this person. Let’s say you want to create a certain job position, and you just go and check mark, which ones you have one, and then you can do a search according to who has passed a particular test. And you could administer a test and see if they’re the right fit. So I just think that you’ve this much money. I wonder if someone’s got to give?

Jason Hartman 28:04
Yeah. It’s, it seems like it does, you know, the either Google Company A few years back said that they’re not going to require college degrees anymore. So they see it, you know, they see it. But again, I think the lockup is in the accreditation scam. And yeah, they’ve got to be able, you know, Apple University, right, if it ever occurs, could become accredited. And when that happens, and they look, you can notarize a document with your iPhone. Okay. Why can’t like you said they can verify that person is actually taking the test or taking the class. The technology can do it. And yes, it has to happen. It needs to be displaced. The college thing has just too much of a stranglehold on on our economy. It’s it’s got to change. So hopefully, we’ll win. We will. Yeah, I

Drew Baker 28:54
mean, when we talk about all this stuff, I think the one distinction is what should happen. And what does happen, rarely a quiet lineup. So it’s always funny how these things kind of manifest themselves in a way that you don’t expect, but may come true, but in a way that you’re like, Well, technically, I guess I’m not right still. Right. Now. Well,

Jason Hartman 29:15
we’ll see. Well, hey, let’s wrap it up with a thought for investors, real estate investors, and what it all means to them. We’ve kind of jumped around a lot on this show today. Where do you think things are going for real estate investors? What should people do? You’ve got your portfolio I know you’re buying more rental properties and looking at more stuff. And obviously, you’re self managing about half of your portfolio. What should investors be looking at

Drew Baker 29:39
now? What I thought was interesting was I sent you that link with Harry dent who’s called every crash that’s never happened.

Jason Hartman 29:47
He’s been right a few times. Yeah.

Drew Baker 29:49
Well, you know, I guess clocks right. Twice a day. Yeah, right. A broken clock. But um, but anyways, he was talking about how you know people today that can’t afford or hire income individuals that live in these bubble cities are buying in the non bubble territory. And it’s funny when I was a kid, if you told someone you were from California, they thought you were from, you know, Hollywood and you’re, you’re friends with, you know,

Jason Hartman 30:19
it was a status symbol. Is it that way anymore?

Drew Baker 30:22
Is that where you’re going? Definitely with? Yes. And you think about it today. And most people, if you tell them from California, they want to like hiss at you and stick their fingers up and across, you know, because they in a lot of that doesn’t seem like a lot of that has to do with the assets in those territories going up because people are fleeing California or buying rental properties, or just capital outflow from California to all these other places. So what Harry was saying was people are taking their assets and investing in these non bubble areas that are not so susceptible to crashes. Right?

Jason Hartman 30:57
The good solid cash flow markets. Yeah,

Drew Baker 31:00
exactly. I mean, that’s the thing is, those are the bread and butter. I mean, that’s what how what turns the world, those areas that you have people that are driving the trucks, maybe not for too long, but you know, working at the airports, doing those type of jobs that make the economy turn, you know, if you can rent to those people, who maybe wouldn’t be able to buy a house themselves, but want to not live in an apartment, you can find that sweet spot of somebody that’s, you know, in that stage of life where you can provide them a home. And I think that’s, I think there’s a lot of value there. Yeah,

Jason Hartman 31:39
I think so too. I think the good conservative, boring linear markets are still the thing, even more. So nowadays, I would argue, because the bubble markets are so over frothy. And so past the point of any fundamental valuation, that makes any sense. Just do the conservative thing, folks, it’s always the safe bet, and don’t pay too terribly much attention to it. Don’t worry about timing the market, the market timers just never seem to succeed. They always have a good pitch, though. It’s always very sexy sounding. But it never seems to really work in real life,

Drew Baker 32:15
does it? One of the things when you had Ron Paul, as one of the guests at your event, you know, I remember him getting interviewed at one time, where he talked about how, hey, the government’s doing this stuff, or Oh, this is happening to a certain asset price. And he said, I don’t care because I think that it’s immoral, or it’s against my philosophy, to accept this as fact. And so I think, to invest like for us to invest in the California market, it just goes against my philosophy, even though I might be able to make more money, or that could have the wind blow in my face at any moment.

Jason Hartman 32:52
Yeah, I don’t think you can say you’re gonna make more money now. But you certainly know, you know, in the rearview mirror, if it were 2008. You could say that, but nobody knew.

Drew Baker 33:02
No, and I yeah. And back then, I mean, I bought pretty close to the bottom, and I bought in a linear market, because I said, I don’t care. I’m doing it for cash flow. And it needs to make sense today. And I’m not going to go against my investment philosophy. Yeah, to go in some of these other markets that are a little more speculative, that have been hit really hard. Yeah. Okay, so I can make more.

Jason Hartman 33:24
Let me talk about that for a minute. So a few years back, I did an analysis. And you know what, I really wish I could figure out what the episode that was on because I did an analysis of San Diego versus one of our linear boring markets. And interestingly, you know, one of our clients who’s probably listening now, Hi, Richard. Hi, Derek. Well, two of our clients, I went and had coffee with them. And then I came back and recorded the podcast after we met for coffee on a Saturday morning in in La Jolla, California. And, you know, I was thinking about what Richard said, and Richard was pretty sure that the market was going to go up a good 15% annually in San Diego. And you know, he, I don’t think he was very off, I think he was close to being accurate. But what’s interesting about that, is I analyzed the monthly cash flow of being, you know, slightly positive in one of our boring linear markets like Memphis or Indianapolis or whatever, right? They’re all kind of similar in terms of the numbers. And I compared it to a San Diego property that would have been a sensible San Diego investment right now, I don’t think anything ever makes sense in a cyclical market like San Diego, or orange county or any high end market, right. They’re great places to live, though. Well, if you don’t have to pay the taxes, but other than that, they’re great places. So I compared it though, and even with very enhanced, phenomenal appreciation, and the negative cash flow you would have there versus the positive cash flow and I was only taking like a 300,000 Dollar or $350,000 san diego property not an expensive one that had really bad cash flow, you know, by cyclical market, high flying market standards. That was a pretty good property. Okay. It was about the best you could do in a place like California. And I compared it with one of ours. And interestingly, with the cash flow, which most people don’t pay much attention to, they only look at the appreciation because it’s so much more sexy, right? are boring market investment beat the sexy market investment in San Diego in that example, and I got to find that show because that analysis was pretty interesting. I could do it again. But I did it pretty well. I thought then, so I really need to find that episode. Yeah. Good point.

Drew Baker 35:45
Yeah, yeah. Well, I think that people in San Diego, I mean, I went down there, because I wanted to get a house in Coronado. And I mean, it is so expensive. I mean, it’s, if you wanted to rent something, it would be, you know, probably a third of what it would be to own it. It’s just incredible. So you know,

Jason Hartman 36:06
I get it. I totally get it. Well, well, interesting stuff. Drew. Hey, we got to wrap it up. We’re going pretty long here. But thank you for talking to us about this today. Any final word that you want to mention?

Drew Baker 36:16
So yeah, I think the final word that I would say is if you think about 2016, I think most people thought Oh, I don’t know, the economy’s getting pretty dicey here. And so, you know, everyone had thought maybe the downturn was going to happen then in stocks are real estate. And it is not happening. Now. I think if you look at the appreciation that has happened since then, if there had been a crash, if you had gone into the market, and had that cash flow accrue, I think you’d be out of the weeds by now. And you would save all that appreciation, or you you know, you get all that cash flow that would get built up that you know, the opportunity costs of keeping your money on the sidelines, just goes out the window if you just wait. So having that be on your side, collecting the tax benefits of you know, scheduled depreciation, all that stuff is powerful when you have time on your side, right? If you don’t deploy the capital, you know, I think Warren Buffett says, a Full Wallet is like a full bladder. And so if you’re not using your money and putting it into assets, you know, you’re just gonna lose the game.

Jason Hartman 37:23
Very interesting. Very interesting. Good stuff, Drew, happy investing to you and all our listeners when thanks for joining us again.

Drew Baker 37:30
Thank you.

Jason Hartman 37:32
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