At the start of the show, Jason Hartman talks about the Americans not saving money. He explains how inflation and deflation are directly related to the real estate market and that your investment in income properties will pay dividends for years to come. Afterward, he interviews Eric about the Macon, Georgia market, which ranks #2 out of 20 for highest residential rental returns. Eric discusses the employment opportunities in the area, typical rehab costs, and the average rental home price in the market.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution. Real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth show. This is Jason Hartman, your host, thank you so much for joining me. We have so many listeners from around the world and we appreciate all of you so much. I am once again on the move today. Do you know that the United States is the most mobile society in the world? I was talking to a friend about this at dinner last night when I was in Aspen, Colorado. I flew up there and hung out with some friends and kind of relaxed a little bit. Well, actually, I I am not telling the truth there. I did not relax much when I say that because I ended up doing quite a bit of work actually from my hotel room. But I went up to Aspen, Colorado beautiful place, of course, totally massively overpriced, because why why would that be? Well, it would be because the environmentalists won’t let anybody build anything and everything’s very highly regulated. So it’s super expensive. You know, salad for lunch and Aspen is $26 for a salad that would be $15 at any other restaurant, maybe even 12. It’s Um, so that’s how it’s been for you, you know, the NIMBY syndrome is well, it worked. There were everybody who’s got theirs who, who has their expensive real estate there. They don’t want to let anybody else in or let anybody else build anything because, well, that would just ruin their neighborhood. And it would, it would decrease their values. So this is the NIMBY syndrome. It’s that like that riddle I always say and by the way, listeners, just so you know, tangent alert, we’re on a tangent here. So it’s like that riddle that I share at my seminars. What do you call a developer? Someone who wants to build a house at the beach or in the woods? What do you call an environmentalist? Someone who already has a house at the beach or in the woods. And that’s pretty much the way it works all around. In the US, if not around the world, I coined the phrase when I had Thomas Sol on my show quite a while ago. We did play him on a flashback Friday. And by the way, if you are one of these I know I know I understand it’s a very small number of you. Here’s a tangent within a tangent, double tangent work who sometimes maybe you’ll admit it maybe you don’t you skip the flashback Friday episode. Ah Shame on you don’t do that. Don’t do that. Don’t do that. You must listen to those on hand picking those episodes for you. And they are from many years ago sometimes. So do not miss flashback Friday. Very important. Anyway, when I interviewed Thomas Sol, on flashback Friday, and on the original episode, we were talking about this issue. I think we may have even mentioned Aspen because it’s kind of the poster child for it. But irvine california my old hometown is like that, too. I coined the phrase environmental racism. Yes, environmental racism, spread that one around. It’s a pretty cool term. If you want an explanation of that search, go to Jason Hartman comm search that episode and check it out. It’s interesting idea. Okay, what was I talking about? At dinner with a friend last night in Aspen. And we were talking about I don’t know, we talked about a lot of things. But anyway, that’s size it up Aspen beautiful place. I love it. But you know, it is what it is. You just got to understand the kind of hypocrisy that goes on in these communities. Of course, there is a john Denver sanctuary there. I did not know was there last time it was an aspirin. I wasn’t aware of that he had already died. I really died back in 1997. That was a sad day for sure. I love his music. And the lyrics especially, you know, very meaningful lyrics. I love songs with meaningful lyrics, because they tell such a great story in such a great way. Much better than a poem when it said to music, right? But I went to the john Denver sanctuary and check that out and you know, That was very moving. very peaceful. Very nice. Anyway, I am headed driving to Santa Fe, New Mexico now. And it’s beautiful drive, you know, they just thought to build some more houses along these beautiful places. So more people could participate and live here and enjoy it enjoy the beauty as well. I mean, there’s got to be some balance to it. I don’t think you should totally overrun the land, of course. But let’s just be reasonable, folks. That’s all I’m saying. So that’s where I’m off to now. But today, our guest is going to have a market profile for us on one of these small and again, you know, I don’t love small markets for a variety of reasons. There aren’t as many resources of course, but they can be good because they’re limited in terms of the inventory, which is good once you own inventory there for sure. And the prices have been pushed up so much in some of the larger markets. So what why I should say that is iral larger markets, of course, that you’ve just got to constantly hunt for these markets that make sense that properties work that the rental market is strong. And they’re under the radar. Hopefully they didn’t have the influence of the institutional investors during the beginning of the boom cycle. And so one of those markets is a nice city that I like a lot. It’s Macon, Georgia. And it’s a little less than an hour outside of, well, it’s a little less than an hour, I should say, from Atlanta airport. So we’ll have our local market specialists that we’ve worked with for many years in Atlanta, who has now been busy in Macon, Georgia, because he just can’t make anything work in Atlanta anymore. I mean, you know, and when I say anything, that’s a figure of speech. Okay. There are some things that work in Atlanta. Okay. Don’t take me too, literally ever, because, you know, might make a mistake. doing that. But inventory is very scarce in Atlanta put it that way. So he has expanded his scope. He’s done business in some other markets too. Over the years. We’ve been with him a long time. So anyway, you’re going to hear about this market for a few minutes. And what else did I want to just talk to you about before we dive into this? Of course, keep on the lookout, we’re going to announce our next event here fairly soon. So that’ll be coming up on a future episode. And I am just stunned and amazed again, with these articles that are coming out that the depict the the real tragedy in the American savings world. How so many Americans just don’t have any money saved up. Oh, hey, by the way, I remembered just now, because you’re not here to remind me like when it’s a live audience to keep me on track. I remembered what I was talking about. And that was our mobile society, comparing it to Europe. In other places, I’ll be back to that in just a moment. Anyway, the massive lack of savings. This represents a huge part of the rental market that needs to be served by us along with the millennial generation, along with all of the other things I’ve been citing over the last several hundred episodes that make the the demographics coming at the rental real estate market over the next 10 years. nothing short of phenomenal, probably the best they’ve ever been in history. And how far does history back? Go back? Well, I don’t exactly know. You can decide for yourself. If your feminist listening. I know I hope that word does not offend you. We can call it her story too. We don’t have to call it his story. Yes, you know, His story is Why do the men get to dominate with the stories from the past? We’re going to have stories to so history. Yeah. History and history, coexisting harmony. Yeah, that would be good. Oh, Jason, you’re getting a little punchy. See, I just had this Americano. And whenever I drink coffee, it’s just right away this punchy sort of thing goes on. So what was I talking about about the mobile society before? Yes, America, one of the most mobile societies, it really the most mobile modern society in the world. So we travel all the time. We, we go around every place. It’s amazing. But we move so much to I remember taking an international real estate course several years ago, I remember I was in Tennessee, taking this course, for a designation, something I can’t remember the certified international real estate specialist or something like that. CISSP or something like that. First of all, I want to comment, I couldn’t believe how elementary it was. A huge part of the course was spent converting square meters to square feet, you know, just roughly just divide by 10. Okay, or I mean multiply by 10, depending on which way you’re going, of course. So, you know, 150 square meter homes about 1500 square feet. You know, you really don’t have to be a Brainiac to know this stuff. I couldn’t believe the number of hours they spent in that course talking about that. Anyway, there’s another tangent. Here’s my point. In Europe, there is so little real estate business. I mean, Europe’s a great comparison, right? Because I’d say it’s the second. Well, Asia Of course, too, and I don’t know much about the Asian market. But certainly in Europe, there is so little of a, like real estate is almost a cottage industry there compared to what it is in the US in terms of people moving the traditional real estate industry, because people just stay in these homes forever. They just do not move. So another reason you have a decline in what is it called velocity of money. Velocity of Money is very important to an economy. And that’s why deflation is something that the government and the central banks around the world will do whatever they can to prevent, because deflation not only has all these terrible side effects and direct effects on the economy, you know, in terms of r&b stops, production stops, decisions stop because everybody waits, and the velocity of money just massively declines. Because people postpone buying decisions. We’re in the inflationary world. And this is why the Fed has a target inflation rate, which I think is kind of epically stupid overall. Philosophically, I do but, you know, I’m not gonna, I’m not going to be a slave to my philosophy. And as an investor, you shouldn’t be there. You should. You should understand the philosophy of things, but At the same time, be a realist be a pragmatist, be pragmatic, and just align your interest with the powers that be. So they’ve got a target inflation rate, they’re going to make it happen come hell or high water. That is around 2%. That’s the old Phillips Curve thing, the relationship between inflation and employment. So we need to align our interests and keep them aligned with those powers to be the most powerful forces the human race has ever known central banks and governments with standing armies. Anyway, that is probably enough of that. I just got on sort of a rant here. It is my birthday. So please, excuse me. And by the way, thank you for all the birthday wishes. I really appreciate it. It’s amazing how quickly time passes, isn’t it? Yes, it is. I know. We all know that. And that’s why, again, most people, they’re really upset and discouraged and frankly rather depressed about the passage of time. And that may be true as far as aging and the fact that our body won’t do what it used to do and doesn’t have the kind of energy and flexibility but hey, listen to my longevity and biohacking show and know there are some workarounds. There’s some amazing things coming our way in that world. So definitely check out my longevity and biohacking show if you’re not listening to it already. I know a lot of you are but the the passage of time when you’re a real estate investor is just a wonderful thing. Because you put everything on your side, bad government policy. Father time, Mother Nature, I’ve talked about that in terms of natural disasters, as we have this huge hurricane approaching in the southeast. All of this stuff. Some of it good some of it bad, some of it tragic, I get it. It’s I’m not making a commentary on it. I’m just saying it is. It is What it is our interest is served when all of these things that most people are the victim of. They benefit real estate investors if you’re doing it right, because you’ve aligned your interest with reality, not the way you wish it could be. So I guess that’s it for now. Let’s get to our guest today and get a little quick profile on Macon, Georgia, check out properties at Jason Hartman calm check out educational products at Hartman education calm, and I look forward to talking with you after this brief market profile and on the next episodes. As you investors know, the market has been very, very hot for the last several years. And that has caused a challenge for investors to go outside of some of the bigger sort of flagship markets, whether they be Phoenix or Atlanta, or Dallas or Austin or whatever, we’re all of these markets have had big hedge fund activity, big private equity group activity. And there have been run ups in prices, as investors have just gobbled up every property they can find that makes the least bit of sense. Of course, this problem is even more pronounced and worse, in the cyclical markets, whether they be South Florida, the expensive East Coast markets, and the expensive Western markets. And you already know that so we won’t even talk about those markets. They are an absolute joke. They are a speculators dream. They are based on the greater fool theory of no matter how much I pay some greater fool has to come along after me and pay more. And those people will get themselves into trouble. They always do on every cycle. So we’re not even talking about those markets. We’re just comparing the linear markets who have now become the markets, many of them have become kind of hybridized. And it’s a challenge to find properties there. And not only investors have gobbled them up, but just regular homebuyers as well.
So we’re going to talk about a smaller kind of boutique market today, as this sort of, we’ll call this investor sprawl. You know, they call this urban sprawl in suburbia, right? where people have to drive further and further away to buy a house and get a decent property for the price. But we also have this in the investment community, where you have a little bit of investor sprawl. And so we’re going to talk about a very nice place but it is a boutique market. It’s one of our smaller markets. And a comparison would be say Little Rock, Arkansas. beautiful city, great place, but a smaller size market. And today, we are talking about Macon, Georgia. Eric, welcome. How are you?
Eric 16:49
I’m doing great. I appreciate you having me on.
Jason Hartman 16:51
Good. So we’ve done a lot of business with you over the years in the Atlanta metro area in Atlanta has just become really challenging. It’s hard to find deals there. prices have gone up quite a bit. Tell us a little bit about your interest in Macon, Georgia, which is a little less than an hour from the Atlanta airport. Is that correct?
Eric 17:09
Exactly right. Yes. It’s just south of Atlanta, actually. So yeah, I was obviously very active in Atlanta, and I was even acquiring properties for some hedge funds here. And the returns that you’re getting here did not make sense, in my opinion for the average investor, and actually zero meaning Atlanta, correct? That’s correct. Yes. So I started looking around at different markets and studying some areas like a gusto which people have probably heard of, because of the Masters in some other areas within three or four hours of Atlanta. And I was fortunate because I have actually family in Macon, Georgia suddenly, kind of watching that market over the last couple of years. Notice that some of the price points are appealing with regards to the rent to price ratios and more I studied it more I found it interesting. And so we ended up buying properties over the last year or so down there, kind of testing the market to make sure that the vacancy period wasn’t going to be too long because it is a smaller market. And also make sure that the rent rates that I was being told are accurate by various property managers down there and kind of understanding the whole market. So when you say down there, you’re talking about Macon, Georgia, right? That’s correct. Okay, good.
Jason Hartman 18:24
Got it. And when you say here, you’re talking about Atlanta, because you’re in Atlanta. Right? That’s right. I thought I should clarify. Okay. The listeners don’t know that. So you gotta be clear. Okay, go ahead.
Eric 18:33
Yeah. So we’ve done kind of a trial run on a market down in Macon, Georgia, and it’s been really successful. Our vacancy periods have not been overly long which has been very pleasing. So I just was a bit unsure a small market how that would work out. But we’ve we’ve had a lot of success. Most properties that we have had once completely renovated actually, all of our properties have been rented within 45 days. We do a bit nicer renovation. So that probably helps. But we’ve been we’ve been happy with the occupancy thus far that I’m making. And because I have family down there, I’ve watched the the revitalization of the whole downtown area down there. It’s really improved in the last four or five years, like many places have kind of come around on that concept. But it’s done a great job, a lot of new, new improved restaurants and things of that nature to basically keep the appeals of making around as opposed to people wanting to head to other places and live elsewhere. So we’ve been really happy with the progress and growth of the naked market and it continues to do better the university there. Mercer University is expanding and it’s just added a football team, for example, and just add new, more entry in hotels and other things that surround that type of a product is an exciting thing for making so we’re growing Moving in there and looking forward to continue to find good opportunities there.
Jason Hartman 20:05
Tell us about the economy and and you know, what every investor should be concerned about is weird is their tenant work? Who are some of the employers for these tenants? What kind of what’s kind of that profile tenant? in the areas of that market? You’re you’re doing business in?
Eric 20:22
Sure. Well, I can speak so we’ve got around 20 properties in the area between my group and other groups that have found properties for a good bit of our tenants are in the 900 to 12 50% range. So we’ve got several actually got a couple police officers. We’ve got a couple of teachers. We’ve got actually some college students at Mercer who occupy a couple of our properties. And I would say distribution and manufacturing centers are definitely a decent size in Florida. They’re Mercer employees. Get bit and then you’ve got more small business atmosphere down there, there’s going to be a massive employer that kind of employed that attack the whole town. But there’s,
Jason Hartman 21:12
that’s, that’s good for diversification for sure. I mean, when you have over the one horse town concept, you always need to be concerned that maybe that one horse doesn’t do so well. You know, they get into trouble with the various economic cycles. So diversification of the employment base is good.
Eric 21:28
Yeah. And that one Robins, which is a little bit south of Macon is phenomenally employed by the Air Force Base there. So that market can be a little bit scarier a little bit appealing to whomever bases it around military bases, I guess it depends on your political stance but making itself is is a diverse market. And that regardless is smaller. There, Ivan my, my family actually commutes to Atlanta who lives down there. So there’s going to be some of that because the price points of making are so much more appealing than Atlanta, especially Now since we’ve gone straight up for the last four years, so I feel comfortable with the diversity of making and again, the fact that it’s growing so much in the downtown pocket as a lot of appeal to the area that was not there five to 10 years ago, because it was a little bit more rundown and some people are, who are graduating from Mercer, for example, they always just come back to Atlanta. Well, now there are more more and more college students staying and Mercer for various jobs, which is an appealing aspect of the community.
Jason Hartman 22:31
Okay, good. Tell us about the target property that you’ve been buying and what you’re doing in terms of rehab and, and you know what that property will cost for any of the investors listening?
Eric 22:40
Sure, I’d say your typical cost for an investor is going to be right around the 1% mark of rent purchase price. We’re looking in the A and B areas. I could I could buy you know C and D areas in Atlanta that would be comparable to a small town like this, so the advantage would not be there for making if I’m buying low rent stuff. So I feel like the advantages, you’re buying areas that are better schools, low crime, better tenants overall, but you’re still getting much better returns and you would an Atlanta market. So we’re looking at typically, maybe a 50 to 1250 in rent range. And then for those properties, you’re going to be looking at somewhere between 80 and $125,000 on a purchase price for the investor, or Rita. So that’s that’s a nice one. That’s a nice 1% then right, correct. Yeah. And taxes and insurance are going to be a little bit lower and making versus an Atlanta. So the returns actually are a little bit better because of that as well. But, yeah, rehab scopes, we tried to replace the roof, Cicero’s older than about 13 years. It’s kind of my mark for one to replace the roof. And he kind of just depends on the condition. I don’t necessarily have an age where we’ll replace it. But what I’ve started to do in order to save on turnover, Cause for investors that’s a vinyl plank and all of my Living room Kitchen kind of areas that they don’t already have hardwoods and tile. I hate to break it to you but this is almost becoming cliche
Jason Hartman 24:11
a vinyl plank we’ve talked about so much it’s it’s well you know I’m just giving you a hard time but no you’re exactly right i mean it really is the answer. So many investors are quite happy with that type of flooring you know about two bucks a foot somewhere in that range installed you know if you have to replace part of it is real easy to do. So that’s great and and I want to make sure we get to talking about this realty Trac article housing wire article that says Macon is one of the best markets so we’ll get to that but continue on the rehab if you already I interrupted you there
Eric 24:45
but yeah, sure enough, I really try to focus on turnover costs because ultimately, management and turnover costs are what can be detrimental invest to investors after we move forward with our with our sales process. And I always try to make sure that people want to keep coming back and buying more. So you know, typical kitchen I typically if I’m going to do 1100 or 1200 dollar rent, I’ll put granite and stainless then for the rents below that it doesn’t necessarily make as much sense. So I’ll typically do a laminate countertop so stained stainless steel appliances we’re talking about right? Yes, I’ll do a black appliance package for things that are lower than 1100 nine, I do that because if I want to sell retail for example, or if the investor wants to retail on the back end, it’s obviously going to help a lot more to to have that granite and stainless clients package. Maintain value. So I try to think long term because if we don’t sell it to investors, obviously we’re gonna own it so I would do get carpet in the bedrooms. Obviously we assess cosmetics on all the bathrooms and kitchen furniture. At least reasonably updated, depending on the rent range, but the house that I recently did we put 32,000 into it. And that was a 1250 rental property. And that was, again, a nicer rehab. But I’d say on average, we’re looking anywhere from 15 to, to about 30. in rehab, depending on the prospects with
Jason Hartman 26:23
1616 to $30,000,
Eric 26:26
right? Yes, that is correct. 15 to 30 total rehab here a great renovation? That’s correct. Yeah. So 16 to 30,000 on our renovations, and then there are some older homes making, like one of the ones I bought was an old, true historic Craftsman style property. And so obviously, we look at the electrical and plumbing on properties like that, to make sure that they’re, they’re up to par. But so that’s a generally speaking, that’s about our average rehab. I, my wife is a designer so I try to stay on top of kind of what’s more appealing these days. With regard What about property management? Yeah. So there’s a that I’ve seen who are very active and settled. There’s their six property managers down there. And making. I interviewed several of them, I found one that I feel really good about. I think what you’re best at is saving money on turns. His rehab costs are very low. And so I’ve been very Appleton thus far there’s, there’s others that I’ve heard good things about, but I, once I started with him, and the process was seamless and everything he said, What happened has happened, which is sometimes, you know, up or down in that particular arena of property management. So I’ve been really happy with him. The manager that I use down there, it’s been it’s been very good. He charges 10% of the gross rents, but he does not charge a renewal like some property managers. So I feel like you’re, you’re getting about what’s the least update half, one half months, one and a half months round. Yeah.
Jason Hartman 28:01
And see, you know, this is the this is the reason and folks, I’ve talked to you about this on many prior episodes. When I talk about this flat fee style of management, that’s great that, for example, this manager, and I’m not picking on this manager, but you know, it’s, it’s fine. It doesn’t charge renewal fees. But some investors will argue that, well, then they like it when the tenant moves out. So they can charge a lease up fee, but you know, that’s really a lot more work and, and 50% lease fee really isn’t too bad. I’ve seen a lot higher than that, for sure. It’s all about the alignment of incentives. And this is why folks, I really am pushing this idea. Well, I guess I’m not really pushing it that hard, but I’m still talking about it. I’ll put it that way, at least have this sort of flat fee management where everybody’s interest is aligned. For every dollar that comes out of that property, whether it be a lease up fee, monthly rental income, whatever it is, the manager just takes a percentage and they will have to take off higher percentage because they won’t have these, what I’ll call affectionately garbage fees in their, you know, their fee schedule will just be completely flat, it will be totally uncomplicated. When $1 comes in, the manager gets a certain cut of it, you know, whatever you negotiate, maybe, maybe it’d be 12% or something. But there’s no other fees. That’s just it. I don’t know what that number is. I got a few managers finally interested in this idea. I certainly got some clients interested in it. I don’t know. I just kind of think it’s worth a try. But that’s just me. So I don’t less we go off on one of my famous tangents on this. I will, I will refrain from more discussion about it, but just wanted to throw that in there. So top 20 markets for residential rental returns. Number two, Macon, Georgia
Eric 29:48
really, I know that a part of that article honestly made me think well, maybe I need to take a harder look at this market. And yet, the price points are so low down They’re for a really good quality house in an area that just makes the rent to price. An absolute bargain compared to other big markets.
Jason Hartman 30:11
Fantastic. Fantastic. Well, what else do you want people to know about the market? The management, the properties, the tenants, just anything else in closing that I didn’t ask you.
Eric 30:23
Yeah, and I would just say, you know, initially, a smaller market was something that I was just apprehensive about. So that’s why I wanted to test out the market which I’ve done over the last year. I feel good about it. I feel good about the city. My my family loves it there. They’re not going anywhere. There’s there’s a good job base and making. It seems to be slowly but steadily growing. One of the thing that I like about it is, you know, if you look at 2010 the markets and the big cities are obviously hugely down we’ll make an is is kind of just Stable market, it doesn’t go up or down. So when you’re in a hot market, like we are now where you can take advantage of a solid stable market like make and then you know Atlanta were to come back down to reality at some point here in the future, that’ll be a potentially a good time to look at Atlanta, the market. But I like in a hot environment is trying to take advantage of some of these secondary markets. And so we feel good about the areas we’re buying in. Again, these are nicer areas and then what I’ve done in the past in Atlanta and some other markets just because you can get the best bang for your buck there. So something we’re excited about, and hopefully we’re putting out a good product that investors will be interested in.
Jason Hartman 31:37
Fantastic. Well, thank you so much for joining us and telling us about Macon, Georgia. I appreciate it.
Eric 31:42
Thanks, Jason. appreciate you having me on.
Jason Hartman 31:46
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At the beginning of the show, Jason Hartman talks about a Gobankingrates.com survey that reveals 62% of the US population has less than $1000.00 in savings. Then, he interviews Gary Pinkerton. They discuss an article with 27 charts by Timothy Lee, which is about the 27 Charts that will change how you think about the American economy article. Each chart represents changes in the US economy related to productivity, demographics, or inflation. They also tackle the possibility that Americans may work well past the social security mandated retirement age, inflation-adjusted housing prices, and the growth in the service industry, which is a clear indicator of progress and a higher standard of living.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution. Real estate investors.
Jason Hartman 1:04
Welcome to the creating wealth show. This is your host Jason Hartman with episode number 749 749. Thank you so much for joining me on this very last day before. And yes, next time I speak with you here on the show. We will know who the new president of the United States of America is. Wow. What election it has been? Probably, you know, is this the most entertaining election in US history? I think there’s a high likelihood of that. I don’t know how it was in the old days, but certainly in modern history. This has got to be the most amazing and I’m going to say entertaining election of US history certainly in my lifetime. So We shall see what happens. We shall see what happens as the continuing revelations come out about the clinton crime syndicate. It is doesn’t it just discussed you the way Wall Street people the way banksters bankers banksters politicians are just basically what we have, you know, when you look at those ratings of corruption of different countries around the world and and how corrupt they are, Ecuador is always up in the top of the list, you know, as a very corrupt country. They say, Russia would would be you know, certainly on the list. Many of these Banana Republic type countries, you know, are on the list, right. But in the US, our collection is different. Our corruption is what I call legalized corruption. It’s basically how many lawyers, accounting firms PR firm’s Spin Doctors. How many of those people can you afford to hire? Or can you become too big to fail, either as a person or an institution so that you can commit crimes. And and basically, the clinton crime syndicate is an example of this. And listen, I’m not giving Donald Trump a pass because he’s got his own sets of baggage for sure. You know, this Trump University thing. But, you know, Trump is just your typical greedy businessman, right. And he hasn’t had, you know, partnership and shareholder scandals, the way the Wall Street people do. I mean, the Wall Street people dramatically worse than Donald Trump. You know, no matter what side of the political aisle you’re on. I mean, you just have to admit, Hillary is a criminal. I mean, this Clinton crimes syndicate has gone on for decades. It is mind boggling to me it is truly mind boggling. And we shall see you know, it’s there’s a, this is a very, very close race. Certainly there lots of evidence that it is rigged as they say. And remember I want to do this documentary still called rigged movie. And the the tagline is, heads, they win tails we lose. Yes, it is a bit of a pessimistic headline. And if there are any people out there who could help me get this documentary project that you know, admittedly, I have not spent much time on this or tried very hard because I got so many other things going on out there. I would like to do a documentary on the rigged financial system how it is rigged against the little guy, the rigged legal system, how it is rigged against the little guy rigged elections, you know, as a documentary series, there. The pharmaceutical industry is rigged the Oh Roll healthcare industry is rigged. the voting booth is rigged. There are so many red things in our society. That is just it is just appalling. It really is that Yeah, and you know, I could see how this kind of stuff could happen. In the old days, when people weren’t connected and communication wasn’t phenomenal like it is today. It’s an amazing time to be alive. I always say that and it is certainly true. But But today when the world is so interconnected, and the secrets are out, the jig is up. The monetary system is rigged. I didn’t even mention that one a moment ago, as we often talk about the Federal Reserve and and fiat money and the way that whole thing is rigged. The episode, just the last episode number 748 Jim Cramer you know a well respected guy in the in the world of stock market again His own statements talking about how it is rigged the words from his own mouth, how he basically brags about fooling the SEC and and manipulating the market. It’s just mind boggling, isn’t it? Folks, it is absolutely, positively mind boggling. Now, I have talked many times before about how the next 10 years of demographics and psychographics In other words, people’s state of mind, not just demographics, and also economics, how they Bode so well for us as real estate investors. How there is this tsunami, this tidal wave, this absolute avalanche of great news for us as real estate investors. Coming out the rental market over the next decade, maybe longer, really, really, maybe this is a 15 to 20 year, maybe this is a decade and a half, two decades of phenomenal opportunity for us as real estate investors. I don’t know. It remains to be seen, but certainly the near future, the next three to five years and I would even venture to say the next five to seven the next decade. It looks pretty darn sure that we are in a phenomenal, phenomenal position as real estate investors investing in the most historically proven asset class in the entire world income producing real estate. Well, here is a recent survey and I believe I shared a little bit of this with you on a prior episode. But I’m going to go into a little more detail this time, because we’ve got one of our clients coming on the show today. That is Mr. Gary Pinkerton. Yes. Gary Pinkerton, the now retired Navy submarine captain. Yes, this guy can actually run a nuclear reactor. Pretty cool, huh? He’s gonna be back on the show today, talking a little bit about some different issues in the economy, some different data that I think you’ll find interesting, and a bit of his client case study as a real estate investor. So I think you’ll like that. But before we get to that, this is about the American savings rate. And again, this is one more piece of evidence, just proving how phenomenal The opportunity is, for us, for real estate investors for income property investors, and it is overall sad news. But you know, me, I am a realist. I am realistic about this stuff. I do think it’s an amazing time to be alive. There are so many incredible things going on. And at the same time, there is this divide. There is the digital divide, there is the economic divide, there’s the concentration of wealth divide. There are a lot of problems, obviously at the same time, and this is one of them. But as the Chinese say, crisis is an opportunity writing the dangerous when every problem is an opportunity. In the Chinese language, the symbol for crisis is identical to the symbol for opportunity. So literally translated, crisis is an opportunity. Riding the dangerous wind is the way that works, right? And so this is a crisis, but it is an opportunity for us as real estate investors is an opportunity to serve a huge segment of the population and when you hear A couple of these stats momentarily. You’re gonna see that this segment is ginormous, ginormous. Yes, I know that’s not a word listeners. I know it’s not a word. It’s one of those made up words, but it’s ginormous. That would be gigantic and enormous. Put together. There you go. I don’t think you need me to explain that video. But anyway, I’m kind of a literal person. Okay, so 62% of Americans have under $1,000 in savings. And this is a survey who did this survey here? Well, it’s on go banking rates go banking rates calm, which I guess is a website like bankrate.com It looks like and they’ve got some cool charts here, colorful graphs that illustrate all this stuff. But let me just share with you the first one before we get to our client Gary Pinkerton. And our guest today and talk to him. Okay, so 21% do not have a savings account 21% of the population. mind boggling, okay? 28% have zero dollars, I guess they have an account, but they have no money, or maybe no money to speak of in the account. Maybe they have a nominal amount of money in that account just to keep it open. It’s counted that way is zero dollars. 14% have hay. This is considered Great. Now I’m sure people listening will think this is you know, no big deal, right? But 14% of the population over $10,000 $10,000 or more in savings. Okay, let’s go to the bottom rung again. That’s the top rung over 10,000 10,000 or more, just the minimum balance requirement 9% of the population less than $1,000 in the bank in savings 13% of the population 1000 to 40 $999 10% of the population 5000 to 9000 999 5% of the population 14% of the population with 10,000 or more. Can you believe that? That means that 62% of the American population now, I assume, of course, this is the adult population we’re talking about, you know, a little baby wouldn’t be counted in this right. But 62% of the population have less than $1,000 in savings. Do you think they’re going to be able to move into the homeownership pool anytime soon. Do you think they’re going to be homebuyers? Not likely, folks. This is a huge market. It is a market of opportunity. It is a market that needs to be served. Hopefully, our country will get its act together. And we will start moving away from these idiotic left wing policies that I would argue, because we’ve had five decades of left leaning policies in this country. Okay, forget about who the President is right? Just look at the Congress. The Congress has largely been controlled by the left for the better part of five decades. And in many ways, you can argue that this problem relates to our left leaning social policies because it causes an anemic economy through government spending through inflation, admittedly low in recent years, but overall over the last five decades, Guedes, very high, especially since 1971. You know what happened in that year, of course, went off the gold standard. So this is just mind boggling. It really is showing once more, once again, that there is a massive opportunity and a massive market that needs to be served for us and by us as real estate investors. Okay, without further ado, let’s get to our guest today. Let’s talk to Gary. We’re going to talk about some charts and some data and a little bit of case study. Make sure you visit Jason Hartman calm make sure you check out our new website by the way if you haven’t done so yet, its newly revised website. If you looked at it too early, there were a lot of things that we fixed on it. So go take another look. Maybe look at it too soon. But take a look at it. Lots of great resources there some great products in the store and also at Hartman education calm and we are planning a Phenomenal venture Alliance weekend in very easy to get to Phoenix, one of the well voted actually vif not one of the friendliest airport in the United States, which I would agree with. I love the Phoenix airport. It’s it’s real, real easy, really short lines. Really fast, get, get in, get out. It’s a great airport. Love it there. So join us in Phoenix. For the venture Alliance weekend. That’s the first weekend of December visit venture Alliance mastermind calm or Jason hartman.com. Click on events. And make sure you join us for that you can come as a one time guest or you can join we’ve got a couple of great new members and we got some fantastic speakers that were lining up for this event. One of them an excellent guest who’s been on our show before I’m not going to tell you who he was. But he was phenomenal, really amazing insights on the economy and the markets. He will be speaking at our venture Alliance event in Phoenix, first weekend of December. And we’re going to have some other fantastic guest speakers and some fantastic, fun first class events. So be sure to join us venture Alliance weekend, first weekend of December. Let’s go to Gary.
Hey, it’s my pleasure to welcome one of our clients back to the show. He is also a venture Alliance member. And that is Mr. Gary Pinkerton, who sent me a fascinating article on vox.com last week, and it’s entitled 27 charts that will change how you think about the American economy. I Timothy Lee, and this is just a fascinating group of charts. Gary has picked out some of his favorites he wanted to chat about and maybe ask me some questions about sci fi See if you can stump me on any of these. Always have an opinion even if it’s wrong. That’s my disclaimer. And Gary, welcome back to the show. How are you?
Gary Pinkerton 17:03
Thank you very much. I’m doing great. And I’m really looking forward to talking again. I always love being I think this is my third one, maybe second one. I think I did an intro with you. If I count that it’s the third one, but really enjoyed each time and certainly love talking about these topics.
Jason Hartman 17:14
Yeah, yeah, that’s a it’s great to have you back on the show. And Gary, give our listeners a sense of geography. You’re an East Coast guy. Where are you located? Exactly.
Gary Pinkerton 17:21
So I’m in New Jersey, Belmar New Jersey, which, if you’re ever heading up the New Jersey Turnpike, you’ll see the term for six flags and 195 and it says shore points. And so we’re basically halfway between New York City and Atlantic City. They’re on the coast of New Jersey, just a beautiful place. And it was the epicenter for Hurricane Sandy a few years ago.
Jason Hartman 17:42
Yeah, man, a massive massive rebuilding project there for sure. But you’ve been a venture Alliance mastermind member from the beginning and I thank you for being involved in venture Alliance. It’s it’s been great to have you there and you always contribute such great stuff and you’ve got such a good financial mind and you know, very analytic You are a recently retired Navy submarine captain. So you you know how to run a nuclear reactor in your spare time, right?
Gary Pinkerton 18:08
I do. I’ve done a few of those. Yeah, it’s it’s not the easy work, but it’s certainly challenging. And you know, very satisfying, you know, just a great, a ton of great memories. I just finished actually my 25th reunion at the Naval Academy saw a bunch of submarine buddies as well as you know, just coyotes and surfers worship guys and Marines and some great Americans that I’d kind of lost touch with so great times, but you did do some times in nuclear reactors.
Jason Hartman 18:33
Wow. That’s, that’s amazing. And, you know, the sad thing about that whole deal with your, your naval career for me is that whenever I want to ask you questions about these nuclear submarines, you can’t tell me anything because it’s all secret. It’s all classified. You know, you won’t tell me how deep you go, how fast you go. It’s just nothing. Right?
Gary Pinkerton 18:54
Well, the good news is that the longer I’m out, the less relevant I become. And you know, I’m getting older like All right. So eventually they’ll think I’m seeing I’ll be able to type answers. There you go. There you go. Yeah,
Jason Hartman 19:03
that’s how you’ll blow your security clearance. Okay. Got it. Got it. Well, he Gary, what got you interested in real estate? And how long ago did you discover my podcast and become a client?
Gary Pinkerton 19:15
So it was 2011. Just about mid 2011. I was I was leaving command I just taken over a position in a great job at the Naval Academy, a two year position there. And I had a lot more free time than I did on my submarine, as you can imagine, and I was searching for a way to shift active income into passive you know, I’d read Robert Kiyosaki books over the years, I really just, I mean, they just spoke to me, Rich Dad, Poor Dad, and most of the others, you know, his prophecy it all just made a lot of sense to me. So I was looking for, you know, following his model of shifting and to, you know, passive cash flow income. And, you know, I’m a mechanical engineer and the thing that made most sense to me, you know, not buying the coin laundry machine, although i think that that facility may be a great idea too, but for me, it was about Real Estate and buildings and so I was looking into that you happen to have a great podcast and I I started listening in the teens I think it was and I’ve certainly listened to all of them. And I just you can kind of become a junkie with that and your real estate guys radio, I listen to them quite a bit as well. And I you know, so for my first property in the end of 2011. In St. Louis, I bought a few more there. I’m up to eight and my wife Susan is today In fact, we’ll we’ll get her first three and we’ll she’ll be at six by the end of this month. And hopefully if all goes well, we’ll have Susan topped out and then we’ll go back and start focusing on Gary again. And then what you’re referring to is the 10 loans for each spouse, the 10 Fannie Mae Freddie Mac loans for each spouse,
Jason Hartman 20:45
I got a question for you about living on a submarine and working on a submarine. Maybe you can actually answer this one and I have a feeling I already know the answer. Are you able to download my podcast when you’re underwater so
Gary Pinkerton 21:00
Technical No, not very far underwater. You know, we consider periscope depth underwater. And, and we can actually do that nowadays, in certain circumstances. So it’s when you’re basically on training missions, you know, you’re not someplace where you need to be really covert. So, we do have satellite capabilities. And yeah, so I mean, we can get internet, we can, you know, chat back and forth with family members. Now, it’s totally different than it was 20 years ago when I started this process.
Jason Hartman 21:25
Yeah, that’s great to let all the people you know, in the military, be more in touch with their families and so forth. That’s, that’s gonna really be a morale booster. I’m sure. So that’s, that’s fantastic. Well, hey, these 27 charts are fascinating. This is just a really interesting article, you wanted to talk about some of them with our listeners, you’re an economics wonk, and you’re really into this stuff as EMI, which ones would you like to go over? And maybe let’s pick a few of them and talk about them.
Gary Pinkerton 21:50
So I think we should talk you know, just about the first few and then we’ll jump forward a little bit but the first one, you know, number one is kind of an eye catcher probably on purpose, but he says nice Starts things off here by saying that, yes, America still makes things and you talk, he’s talking about the manufacturing sector, real output, he shows, you know, a trend from 1987 to the present. And as you would expect, you know, it went down pretty substantially in 2008, and nine, but it’s back up, and it’s at the highest level of production, since they started recording in release. And so since the beginning of this chart in 1987, and I think that does surprise people. But I believe also that I’d be interested in your thoughts, but but I think the perspective is that, you know, no one works in in industry anymore. And that’s somewhat true, because, you know, he talks about it, because it’s automated, right, right, the efficiency that companies, but you know, the bottom line is that America is still producing quite a few goods,
Jason Hartman 22:43
right, right. So the if you look at the manufacturing job sector, it is suffering dramatically. But if you look at manufacturing output, it’s still very strong. So this is the this is the paradox of automation and robotics and technology in general. And what it may be leading to, is the fact that, you know, even even some of my most and I shouldn’t say as the fact that but maybe it is a reality, a harsh reality that some of even my most libertarian friends are beginning to face is that maybe we are going to have a large segment of the population that is just permanently unemployed, or are massively underemployed. And maybe the government will have to provide a living wage of some sort to these people to keep the the world stable. But, you know, that isn’t as bad as it might sound because all of this technology makes goods so much less expensive, that you know, maybe you can do that for a lot less money. And and then it goes to the question of, you know, my investing philosophy that is, you know, I say inflation is the home run. That’s the best of all scenarios, but Lot of this is anti inflationary, the monetary and fiscal policy, very inflationary technology is its opponent, it is not inflationary. So we shall see which way it will go. But there’s a couple charts that actually relate to that as well. Right, Gary? That’s right. Yeah.
Gary Pinkerton 24:15
So one of them is, you know, even just going to chart two still talking about manufacturing. You know, it shows that the, the jobs in the service sector have been steadily climbing while the jobs in manufacturing are flat or going down a little bit. Even while you know, US population is growing. And my question was, is that really bad? You know, kind of back to your comment, I’m not sure it’s bad. You know, manufacturing jobs are not, you know, a dream in my opinion, I’ve done a few of them and they’re hard work and people don’t live really long lives and, and in general, they don’t enjoy you know, the back back breaking work that comes along with that. So I you know, people will often reminisce about the good old days I’m not sure they were good old days in the factories. You know,
Jason Hartman 24:59
you That’s a very good point and many experiments and issues and labor unions and child labor and the Hawthorne experiment and working conditions and so forth, speak to a lot of that point that you raised about manufacturing jobs. The other thing it says if you look at the other side of this issue, and you look at it not from the producer and the the job and employment side, but you look at it from the consumer side, generally speaking, manufacturing jobs to me represent needs, but largely not completely, but largely they represent things people consider necessities or needs, you know, having a car having clothing, having a house having all the all the goods that we buy, right, but services really represent wants and they represent a higher level of lifestyle. So when it comes to massages, and going out to eat at restaurants, you know, concierge type jobs and in all of these services oriented jobs, even the Lyft and the Uber driver, these are sort of higher level things. They’re, they’re things that really indicate a degree of progress in life is getting better. And people are more prosperous. I mean, I was talking to my mom somewhat recently about the obesity epidemic. And she says, you know, Jason, maybe it’s just the fact that just people go out to eat so much more often. I mean, when she was a kid, nobody ever went out to eat, you know, you just didn’t do that. It was way too expensive. And when I was a kid, certainly the restaurant world was not nearly as big as it is today. And so that represents a huge growth in the service sector. Right. I mean, would you agree with that, do you you know, like service jobs are are a sign of prosperity, I think
Gary Pinkerton 26:47
I agree. And, and it’s prosperity and a lot of those being typed elective, elective type services that you that you go for, like you like you mentioned, you know, being able to ride around in an Uber but they’re also I think an indication of longevity because I think there’s a lot of service industry coming from, you know, all of the retired baby boomers and for those older than the baby boomers that need those kinds of oral desire those kinds of services and have the ability to pay for them. You know, I mean, the the cruise ship industry right now is booming. Some of it, I think, is because of lower fuel costs. But I think a lot of it is the fact that the people who want to go and travel now are still healthy enough to do it, have, you know, service providers to help them through that and thankfully have the financial ability to do it. And you know, cruise ships are a service industry. So, you know, I think as you look around, it’s an indication like you said of a wealthier, healthier, happier society. I don’t think this is a bad thing.
Jason Hartman 27:40
No, no, very, it’s it’s an amazing time to be alive. Good. Okay. So anything else you take from chart number two, manufacturing employment is dwindling, while more and more people provide services?
Gary Pinkerton 27:54
No, I don’t think so. You know, there’s a, there’s a couple more that relate to that. And those Are number 12 labor force participation rate? And then kind of lumped them together. And then like 15, you know, teen summer employment is and then both are, you know, are dropping off. And, you know, I think the labor force participation rate that’s somewhat to do with, you know, the the crash that we had in 2008, and nine and the one in 2000, both of them caused a significant drop. And clearly, we haven’t come back from that, but, but again, I think it’s about increased efficiency as well, right now, you know, in the industrial world, and I think people are struggling a little bit we have this impression that service jobs are lower income jobs, and they’re jobs that, you know, you know, are beyond you know, and beyond having to do that kind of a job. And I think that’s unfortunate. I think service jobs provide a great benefit, like we just talked about, and and I think if we could change the mentality on that and perhaps change the pay structure for that. Well,
Jason Hartman 28:54
I think one of the interesting things about that is, you know, when you talk about service jobs, most people think of Oh, working in a restaurant. Coffee shop or something like that. They don’t pay very well, those jobs, certainly. But, you know, it’s not that we have have to just talk about this as though it’s two things. It’s either a service job or a manufacturing job. What about a corporate job? What about a management a middle management type of job? You know, the information work or the people working in the offices, right? They don’t fall into either category, and those tend to be higher paying jobs, and they tend to be more pleasant jobs than manufacturing or service. I would say, you know, they’re using the brain more than the the brawn In either case. Yeah, I agree. And, but, you know, regardless, chart 12 people have been dropping out of the labor force since about 2000 is a bit of a disturbing chart. You know, if you follow that arrow further, I wrote Greece at the end of you know, of that, that era where, you know, for whatever reason, the labor force, whether it be entitlement, whether it be disenfranchisement, whether it be taxes are so high, they don’t bother you know, that The direction I think America is moving on this chart and the direction of Europe, where, for whatever reason, people don’t go to work. And that’s not a good thing. That’s very unfortunate. And, and folks, the labor force participation rate is far more accurate than the unemployment rate. Because as we’ve talked about many, many times, and I’d say the guests that spoke to this the most was john Williams, the founder of shadow stats calm website, I would highly encourage all of you to visit shadow stats calm, which is, you know, sort of made its name on the, you know, the reality behind the numbers that the government is publishing. The labor force participation rate really shows you who’s working and who’s not right. Whereas the unemployment rate because people fall off the unemployment rolls. That is a very misleading number. So let’s just share some actual numbers here. Okay, in 19. Well, let’s take 1997 ish to 2000 it looks like we had a labor force participation rate of 66 Seven. And now it’s down to less than 63. And the last time it was this low was, you know, we’re in the era where the misery index was created in the 70s. And the mid 70s. Things were very, very tough back then, obviously. Yeah, it’s just interesting to look at this, isn’t it?
Gary Pinkerton 31:17
Yeah, it is certainly is. And hopefully we turn that trend. But the other thing to kind of keep in mind, and I learned this in, you know, in my master’s program, my engineering master’s program is you have to take charts with a grain of salt, meaning that you kind of need to know what’s behind them, like, you know, what the data set was, what the entering constraints were. But But the other part is that, you know, the scale on these things, you have to look at it and kind of evaluate it. I mean, this, this looks like a very dramatic scale. But I mean, a very dramatic curve. But if you look at it’s gone from 59 to 67%, which is substantial with a company that’s large, but it’s not like it, I mean, it you first look at anything, oh my gosh, we were at 10, we went to 100 and we’re back down to 50 or so, you know, it’s not
Jason Hartman 31:56
that that’s one of the old how to lie with statistics, things. You show someone that And depending on the scale in which they did the chart, they can make it look much more dramatic than it really is. So that’s a very good point A to that are on real estate Jason, I thought we ought to touch
Gary Pinkerton 32:10
charts 18 and 19. Right back to back and 18 is the current recovery is an urban recovery. And it shows it breaks up the chart into four different groups, communities of less than 100,000, between 100 and 500,000, between 500 and a million, and then over 1 million, and what it shows early 90s. The most of the growth was in the very low population areas. Hmm. You know, in 2000 2006, it was pretty flat and low across the board. But then now the trend from 2010 to 14 following the mortgage crisis, all of the growth has been, you know, in the larger cities. Yeah, that
Jason Hartman 32:48
that’s interesting. You know, and this is a really complicated one to look at, because one of the other issues that you have is some of these actual cities have grown like growth begets growth, right? So if you look at where I spent most of my adult life in Orange County, California, I remember when I first started selling real estate in Irvine, California, the population of that city was like 70,000. Okay, and, and those are misleading too, because the cities are contiguous, you know, they’re right next to each other and you go from one, you go from Irvine, to Newport Beach to Irvine, to Santa Ana Irvine to Tustin or Mission Viejo or whatever. It’s like, you’re in the same place, you know, so, so some, some metro areas are isolated where there’s a distance between them. There’s a buffer of nothingness, if you will, and then there’s another metro area, right. But when they’re all clumped together, it really makes it hard to do statistics. But I would say I, you know, and I don’t I haven’t kept up with it, but I guessing that the, the size of the urban population now is about 220,000, or something like that. So, and I could be wrong about that, by the way, maybe under 200,000. I’m not sure. It’s interesting to look at this. Yeah. So this would would would lead one to believe that the the growth is in the cities, right? In the in the bigger wealth. This is county size, right? Yeah. Yeah. And, and you know, if you look at it on County, like LA and Orange County are right next to each other, you know, you don’t notice when you go from one to the other, it’s they’re completely adjacent. So it’s hard to tell, but go ahead with what you’re saying.
Gary Pinkerton 34:22
Well, what I was going to say is that, you know, this really speaks to the the logic behind what you do and your company in that you pick areas that are surrounding major cities, where, you know, it’s it’s ruling up or outside the city enough that the numbers still work. But you’re close enough to the city to grasp this, you know, population and job growth. You know, people can still commute from where we’re buying properties around Atlanta, or you know, where I bought properties in St. Louis, or, you know, the other major cities that we’re concentrating on, they can still go into where that large growth is occurring for jobs.
Jason Hartman 35:00
Yeah, this I’ve still got the the the job opportunity without being in the inspect in the expensive market. And Gary, you know, I think this is like the ultimate formula. I don’t know how expensive it is where you live, but I know your property taxes are some of the highest in the country that I do know in New Jersey, you know, when you can live in a place that offers a good economy, a good entrepreneurial environment, good entertainment options, good weather, and you can do that inexpensively. You know, I mean, look at the difference between like, and we were not doing anything in this market lately, because it just got too expensive. But relative to the comparison I’m going to make it’s incredibly cheap. And so I would compare Denver and Austin, right two cities that we’ve done a fair amount of business in both a little too expensive now to be recommending to our investors, but compare them to a place like say San Francisco, right. These are both called creative class cities, as is San Francisco and dramatically better Valley. Use. And I just think that the Uber high priced cities are I don’t think they have as good a future. It relatively speaking to the low price cities that have a lot of the same offerings, you know, and people are very mobile nowadays, as we’ve illustrated before, but you know, any thoughts on that?
Gary Pinkerton 36:19
No. and and you know, over a million in a county is not a lot. Right. So this is not just York City. I think there’s great counties here that demonstrate again, that I just believe. I think you’re right. I think there’s a lot less opportunity in the super Uber rich, large cities. But I think this this chart speaks to, you know, the strategy that we’ve been using for many years with your company. I think it’s great. All right.
Jason Hartman 36:43
Yeah. Let’s talk about inflation adjusted housing prices.
Gary Pinkerton 36:47
I see. So what I did Jason is I went back and looked at this and I here’s a case of chart that includes tremendously more information right. So this one goes back to 1890. Most of them have been at 1980s or 1990s, maybe even 2000, very small sample size. This one is, you know, since they started recording this information 130 years ago, and I took inflation and adjusted it by 1% higher than they show here. And essentially this thing flattens out and the guy’s argument goes away. His argument is that since you know, World War Two, the that housing prices have consistently climbed and even calls into question, whether the 2008 2009 bubble was significant or not. I mean, you can even look on his chart, and it was huge. So, that’s a kind of a weird argument to make. But, but even just, you know, his point is that you can see kind of an upward trend, but for that many years, you know, we’re looking at 70 years, if you just add 1% to the reported inflation, it flattens this thing out completely.
Jason Hartman 37:47
I tell you, I have a lot of disagreement with Robert Shiller. And this is, of course, the Yale economist. And the Case Shiller index is named after him and he’s written several books. He talks about irrational exuberance he took Alan Greenspan’s famous quote, and talks about that, and he doesn’t really give the whole picture on a lot of things. And I think that can be kind of misleading. Some of his data is great, of course. But the thing that is so misleading about charts like this, is that it assumes that the house is the same house. So the house in 1890, I’m just going to venture to guess I’m going to make a wild guess here is not as nice as the house in 2010.
Gary Pinkerton 38:33
Right, and by the benefit included the outhouse as part of how are you going?
Jason Hartman 38:38
Right, right, exactly. So it’s not as nice a house for sure. I mean, that the houses today are much more energy efficient. Well, they even have energy. My grandmother in upstate New York rest her soul but when she was alive, and I used to go visit there, I mean, all the wiring all the electrical wiring was on the outside of the walls, you know, so you would see wires He’s running around the inside of the house to an outlet. And because the house was built before electricity was wired into homes, and so the homes are obviously much better. But here’s the kicker. And if you look at like one one stat I hear a lot is that you know, American Americans are just living much more prosperous lives nowadays. And they’ll say, the average house built after world war two in the baby boom was about 900 square feet. And the average house today is like 2200 square feet. Okay. But you didn’t talk about the density of that house. You didn’t talk about the fact that that house post World War Two, was it a third of an acre or a quarter acre lot in you know, famous suburban places like I’ll take Lakewood, California as an example, which is a long beach area, Long Beach, California where I went high school. You know, you compare that to today. And yes, you might have more square footage on the interior of your home, but you’re living in a townhome or a high density cluster home with zero lot lines. So there’s there’s more to everything than meets the eye, isn’t there?
Gary Pinkerton 40:04
Absolutely. there absolutely is. There I thought that was a fascinating one. And you certainly cannot discount the bubble that shows even on on this inflation adjusted chart, but but I believe that can that consistent climb that it shows from the 1970s on ironically, if you add 1%, like I said to the inflation adjustment, we’ll find that out. And what I meant by ironically is that that’s where we started messing with the consumer price index, right? That’s where we started taking out volatile things. Shadow stats will tell you that it’s a couple of percent higher than that and when you add that in, you know it’s flat. It’s just following home price inflation is long term with the exception of you know, the 2008 bubble there. It’s just following inflation. Yeah,
Jason Hartman 40:46
fascinating stuff. You know, I A long time ago, and I wish I could find that episode. I did an episode on this where I, I played part of an interview that was on I believe on Bloomberg News, Tom keen on the economy. He’s interesting. Reporter I really liked his stuff. And I actually played part of it on there where they interviewed the Fed chair. Who was Who was it? It was right before? Gotcha. It was no, it was before Greenspan and it was before. You know, the guy that broke the back of inflation and I was talking about why can I think of his name right now? Volcker, Paul Volcker. Thank you. Little senior moment there. It was before paul volcker. There was a Fed chair in there for just a couple of years. And he was talking about how they started manipulating the numbers and how they started using weightings substitution, hedonic. All of the ways in which they understate inflation and that was that was fascinating. I got to find that one and play it as a flashback Friday episode because it’s, it’s really interesting to hear it right. Right there from the inside as to what went on but yeah, yeah, good stuff. It’s a it’s an old one. It’s up there somewhere, but finding it is another another challenge. Okay, so do you want to talk about chart number 20 at all, Gary. I was causing prices. have grown a lot faster than construction costs.
Gary Pinkerton 42:02
Right? Right. So one of the things I was going to do is say that this is a tribute to I’m not sure. Jason haven’t really talked about yet. And things changing in your life, but it came to mind to me the turtles. And you’ve mentioned this before in the past that, you know, some have actual masses around them, like geography mountains and things that cause prices to rise, water around New York City. Some we just manufactured them, like one that came to mind for me was Las Vegas where they have famous, you know, they have endangered turtles that we’ve decided that will prevent you from, you know, expanding and so home prices go up and places like that as well.
Jason Hartman 42:39
Yeah, right. Right. So in other words, you’re talking about constraints on building, right, that cause housing prices to go up a lot faster than real construction costs.
Gary Pinkerton 42:48
Exactly. Exactly. So that’s, that’s one huge part about this, I believe.
Jason Hartman 42:51
Yeah. Yeah. And, and this is something by the way, just to tell the listeners what this chart shows is it shows from 1982 To 2012. And you see during the bubble period, you know, 2004 to 2006 ish or while the run up started happening in 2000. But you see that house prices, real house prices adjusted for fake inflation statistics, so everything’s gotta go, you got adjusted twice, right? But they went up dramatically faster than construction cost, right. And that’s what this chart shows, which is quite interesting. But that doesn’t tell the whole story. And I think that’s Gary’s point. You know, correct me if I’m wrong, Gary. But in places where you have constraints on construction, that’s what causes places like the Socialist Republic of California to have these incredibly high prices. And my opinion that I’ve stated many times before, when I talk about the self driving car and the how geography is less meaningful than it’s ever been in human history, it’s still meaningful. It’s just less meaningful. I think this kind of thing will be underrated. It’ll still be there, it’ll still be a factor. Of course, everybody would rather have a home on the water in Newport Beach or La Jolla, or wherever, then England have it right. But I think that will pretty much be unanimous. But will the will the Delta be as large as it is today? If transportation becomes a lot cheaper and a lot easier, self driving, ride sharing, etc. And, and also technology like virtual reality, then that’s, that’s another component. You know, I believe that delta will will compress. I think you’re right. But this is a nice chart when you’re talking about the the concept of land value, and, you know, and cost of construction, it shows that the Latin the blue line, the real housing prices, essentially the changes in land value, right? I mean, you know, the people that will pay a premium for a specific location over what it costs to build on that location, right. But here’s, here’s the amazing thing about this chart though. That point is Well taken until you get to the peak in, you know, according to this chart, it would be about 2006 or seven. I think it was really before that. But there’s always a lag in the stats anyway. And then you see the dramatic fall of real housing prices. But you see real construction costs increase during that same period, the red line versus the blue line. And I almost wish the listeners could see this, this is really telling. So you see that land prices, when there’s a bubble, just get this massive run up, and they’re, they’re artificial. It’s just built on a tulip bulb mania, you know, it’s built on a mob mentality of scarcity mentality that doesn’t have any real intrinsic value. And this is why the Hartman risk evaluator I think, is a very valuable lesson here and it took me 19 years to discover is that you should be investing in low land value markets because you don’t have That type of volatility. Isn’t that Isn’t that fascinating how you see the blue line dropped sharply and the red line continues to go up.
Gary Pinkerton 46:08
Right? Right. It absolutely is. It kind of drives it home. It’s such a visual chart. You know, it’s something to remember, I think when you start looking at different areas to invest. Yeah,
Jason Hartman 46:16
that’s amazing. That’s amazing. Any others you want to share before we wrap it up, Gary?
Gary Pinkerton 46:20
Yeah. So 2424 is one that that shows the way Americans retire is changing. And this one is not really probably news to most people. But it shows the difference between the percentage of Americans that are covered by defined contribution plans or, you know, 401 K’s IRAs, self funded, if you will, and then those that are covered by a defined benefit, which is just a pension system. And this this chart is really one of those things that I’m kind of dedicating my, you know, the next part of my next chapter of my life towards and with Patrick Donahoe paradigm life is trying to get people in a position where they don’t fall victim to this because this is a tragic You know, occurrence, and you can see that it’s been happening since we started, you know, since we made that shift in the late 70s, early 1980s. And it’s just getting worse and worse. And there’s a comment at the bottom, he says that, you know, this shifts a lot more risk and responsibility on to the employees. So back, you know, with a pension system, which is really just an annuity, that company would outsource to someone like an insurance company, the commitment to pay income to their previous employees in retirement for the rest of their life, and so that that individual had quite a bit of security there. But it became expensive to the companies and they found an opportunity, they found that that Congress would allow or that the government’s would allow them to shift this over to the employee. And so I would argue that it doesn’t shift more risk. I think it shifts all the risk to the individual because, you know, recent studies, you know, in 2015, there were a couple really big studies that showed that and he talks about it in here as well. But now that actually goes over to the next chart. The media And family has just $5,000 saved for retirement and those
Jason Hartman 48:04
that that is so scary. Yeah, it is just mind boggling when I hear those studies about how the average person in America has this, I don’t know the amount but this tiny little amount of money in their in their bank account, it is just shocking. But you know what it means? It means they’re going to be renters for a long, long time.
Gary Pinkerton 48:23
So, you know, I find that to be, you know, pretty rough, pretty, pretty harsh statement about how many people are going to be completely beholden on the US security system. You know, less than 10% of people right now that are over the age of 55 have more than 130,000 saved and 130,000 with today’s interest rates, if you’re planning to use, you know, spend down of your retirement money is just a couple hundred dollars, you know, a month so it’s not a good plan, and it’s something that’s going to result in people, as we said being really beholden on so security and also working probably longer than they originally planned.
Jason Hartman 48:58
Yeah, yeah, but You know, I mean, as terrible as that sounds, and I agree with everything you’ve said, I don’t know that working longer is a terrible thing either, though, you know, I mean, the concept of a 65 year old retiring, that really needs to be redone. Now granted, you know, that’s a sign of how things aren’t going as well as they should be. Right. I agree with that part. But also, I just think in general, as I’ve said many times before, working is good for you. You know, it’s good to be a productive member of society, it’ll make you live longer, you’ll you’ll be healthier. And and, you know, you should work longer. I mean, you can, yeah, when when the when the arbitrary 65 number was created, on average, I think they said and, Gary, you’ll know this better than I will. And as your next career. I’m sure you studied this a lot. But you know, people lived about four years in retirement right? They live to 69. Now they live 20 years, 30 years and and that means we got a plan for that. We got to invest for that for sure. But also, you know, I think working is good for you.
Gary Pinkerton 50:06
I agree completely. I, you know, I think most people should Well, all of America should reevaluate what we think of as retirement. You know, I think perhaps retirement is maybe a change in lifestyle, if you want to transition into, you know, a little bit more travel or, you know, I mean, to everyone, it’s different. But I think, you know, this process of today, you know, baby boomers have the ability, and many of them have done this have know, the first 20 years of their lives has been consumed as obviously being a child and learning, going through education, you work for 30 years, and then in your mid 50s, you have amassed enough and have the ability to retire. And if you retire after 30 years of work, well,
Jason Hartman 50:43
that’s if you’ve done it, right, right, you know, it’s semi right. Hopefully that even sooner, but yeah,
Gary Pinkerton 50:48
so 20 years, not working 30 years working and the ability to do another 30 or 40 not working if you know the advances in health care continue, that that’s just not a survivable model for a society you know, to contribute for 30 and not contribute for 50 or 60. Plus, it’s just hard on the individual, like you said, you know, that that the people who live really long lives in general, I think the studies will show are very active, right, you know, and both physically and mentally,
Jason Hartman 51:11
they’re their work. They’re always working on a project, you know, they’ve always got something going on. And I think that’s very, very good and very stimulating. So folks, look at if you’re listening to this, and you’re thinking you’re at retirement age, and you’re complaining about how bad things are, because you, you know, you have to keep your job as a greeter at Walmart. Quit complaining, No, I’m just kidding. I doubt any of our listeners are greeters at Walmart. But it’s, it’s good to work. I think that is just good for you. And maybe it’s part time hopefully it’s freelance type work where you can make your own hours and, you know, you can take a month off here and there if you want, but people should be working a good you know, 10 years longer and by choice not by necessity just by choice, because they they want to be engaged and involved. So yeah, good stuff. Good stuff. Did you want to talk about any others before we wrap it up, there are some amazing charts here. Now, I
Gary Pinkerton 52:04
think those are the highlights, you know, those that certainly covered, you know, the major trends and I would say personal economics and real estate and, you know, the job market. And, you know, I think they’re, as we said earlier on, there are some things that can sway studies like this, you know, he cobbled together some amazing charts from many different studies and locations and, and so it’s a challenge for him to put them all into one article. But I think it it told a great story, you know, and I think it’s a eye opening story on a lot of charts.
Jason Hartman 52:34
It really is. It really is Gary, give out your website.
Gary Pinkerton 52:36
So my the best website to find me is paradigm life dotnet backslash about and then backslash. Gary Pinkerton and I just wrote an E book that covers some of these topics, and I’d love to pass that to anyone who would find abuse. Is that ebook available. There it is, sir.
Jason Hartman 52:50
Okay, fantastic. Gary Pinkerton client, venture Alliance member and former submarine captain and hack economist. How’s that? I’m a hack economist. Yeah, absolutely. That was a very interesting discussion. Thank you for joining us today and we appreciate your business and appreciate having you on the show.
Gary Pinkerton 53:08
Thank you. It’s a pleasure.
Jason Hartman 53:10
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. He sort of check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
Jason Hartman starts this Flashback Friday episode by discussing The Future of the Mind, a book by Michio Kaku, and what he has learned from it. Afterward, he is joined by one of his clients, Fernando, where they talk about his background and his journey to financial freedom.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com. Welcome to the flashback Friday edition of the creating wealth show with Jason Hartman. As he rapidly approaches 1000 episodes of this podcast, he has hand picked individual episodes that he feels is going to be good review for you to prepare you for the future by listening to the past. Let’s dive in.
Announcer 0:29
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants Get involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:19
Today we have a another client case study. Yes, we have Fernando coming on with us today. This one’s kind of long waited, because he’s been a client for about three years. And I started bugging him maybe almost a year ago now to come on the show. And he said, I will I will in time and and so he finally did it. So I’m really happy about that. And, and both David Porter and Fernando and the other guests that we’ve had client case studies that we’ve had on the show, over the years have done just a great job investing and they’ve been very good managers of their portfolio and, and managers of their property managers. I just love what I do. One reason it is a great thing to do is because I learned so much from you, I learned so much from our clients. And I look at it as a big part of my my job is to kind of gather and assimilate all of this learning that I learned from our thousands of clients, thousands of transactions that they’ve done in building their portfolios. And in some of the best practices. I really learned from them. You know, it’s not like I made all this stuff up or figured all this stuff out. And so today, again, just like on the last episode, that’s what we’re going to do. We’re going to learn from Fernando, and learn about how he acquired 50 properties that are 70 units, so 70 doors or units in those 50 different properties. And I met him about three years ago, shortly after he discovered the podcast and we just had a game plan and went to it and he’s just been doing a great job. So you’ll hear his story. Today, and he will also be at the meet the Masters event. And I think I’ve talked him into speaking at the event as well and sharing some more of this detail with you. So that’ll be a great thing. So you get some today on the podcast, but also, of course at meet the Masters with so many of our other good things. And by the way, we just confirmed one of my own attorneys to speak at the event and he is coming. He’ll be speaking on Sunday. He has just done a phenomenal job with IRA investing. He actually wrote the book on it. One of the best books on the topic about IRA investing and asset protection. He is speaking on Sunday at meet the Masters January 11. It’s the 10th and the 11th. you’re really gonna like what he has to say, as well as all the other fantastic speakers and I’m looking through a land contract deal that I’m actually doing myself I’ve been looking through that for the past oh three days or so, and kind of poking holes in it looking for potential. pitfalls, you know, kind of what, what are some of the possible problem areas? When we talked about all the stuff on the podcast several episodes ago where we talked about land contract investing, that was episode number 454. So I’m gonna bring that knowledge to you as well. And I sent an email to the seller of this land contract. It was really interesting yesterday to calculating my return because the face value of a land contract. I think on this deal, it was 9%. The overall return though, assuming the land contract performs, as the contract has stated, looks like it will be around 14%. But if they default, the land contract deal could actually provide a better return. So you know, it’s just funny how things work. When you set up and structure your deals properly. Regardless of the scenario you can win. You know, you can win if it goes well, and if it goes, seemingly what most people would be, would consider to be poorly, you can actually win more. And we’ll talk about that and meet the Masters in great detail. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday. So be sure to register for that at Jason Hartman calm. We do have a few seats left unbelievably, I thought they’d all be sold out by now, but we’re doing this one kind of earlier than usual. So seats are left to go to Jason Hartman calm and take advantage of that and we’ll look forward to seeing you there. Now before we get to Fernando’s interview, I want to ask you do you want to know an interesting fact? Something I learned a few months ago I’ve been meaning to share with you and it has very little to do with real estate, but it does have to do with the incredible gifts we’ve all been given. I finished a book by Michio Kaku, And I know that’s tough name to pronounce. I want to get him on the show in the future. And he is just a really interesting futurist scientist, all kinds of things and he’s got many books out there. This one’s called the future of the mind. And one of the amazing things I learned about what he says, and I believe it, it’s probably very true, is the most amazing discovery ever and that is the human mind. And can you believe it? You already own one of those free and clear, that amazingly powerful entity, the human mind, we all own one free and clear, cool, cool concept there, isn’t it? So we own this great thing free and clear and we own a bunch of other things, you know, are in our body free and clear, which is fantastic. But the eyes Wow, the eyes are really an extension of the brain. Because they’re they’re basically brain cells in the eyes and the the largest nerve from the sensory organ to the brain is the optic nerve. So, you know, most of our data and perception is visual. And you know I’m not that’s not from the book that’s just what I’m saying there, but and from other readings and learnings I’ve done over the past but here’s the amazing thing from Michio Kaku, his book, The future of the mind, the scientific quest to understand, enhance and empower the mind. Did you know that your eyes, you think you’re seeing everything with your eyes, but you’re actually not. Here’s what I mean by it. All of our eyes actually have a small blind spot in them. Where you think you’re seeing we think I shouldn’t say we think we’re seeing an entire picture of what we’re looking at. But actually our mind is generating some of that it is fake, we’re not really seeing everything we think we’re seeing. So here’s what I mean. It is a physiological fact that the eye does not see everything in front of it, there is a small blind spot in it. So what our brains do is they actually create that image out of what it saw when the eye moved into that area, you know, as it’s moving around so quickly, and the brain actually creates that image on a computer. I think they call this rasterizing how the computer will rasterize the image that could be the wrong word, but I think that’s the word and put it up on the screen for us on the monitor for us to see it right. And amazingly, our eyes are not seeing everything that we perceive a small portion of that in each have our eyes and our visual field is blind, it is not seeable. Our mind creates it. That if you just think about that one, that’s a pretty amazing thing. So again, not much to do with income property investing there, but I just wanted to share it with you. Because I just keep thinking about how fascinating that idea is that our mind literally generates the image to fill in the blind spot. Wow. And you own that free and clear already. Amazing, right? Amazing. Sometimes we got to really appreciate that, you know, thanksgiving wasn’t that long ago, and talk about something to be thankful for the most amazing computer that can outdo any computer that has ever been created. We already own one of those free and clear pretty darn cool. Well, hey, let’s get to our interview our client case study with Fernando and you’ll hear about how he acquired his 50 properties and they total 70 units because He’s got some flexes in there. Here we go, Hey, I want to do a case study with one of our clients. And I’ve been asking him to come on the show for a while, and he said, He’s not ready yet. But then, to my delight, I saw that he requested a time to be on the show. And that is someone I’ve talked about before. And he was on just briefly a couple of months ago, when we were at a conference and that is Fernando Fernando. Welcome. How are you?
Fernando 10:25
I’m doing great, Jason. Thanks. Thanks for having the time to talk with
Jason Hartman 10:28
me. Well, it’s good to have you on and you’ve got quite an impressive story. And I think the clients will really, or the listeners and clients of ours will really benefit from hearing your story. So so thank you for sharing it. Maybe we’ll go back and kind of take a big high level overview here of how you became interested in real estate and maybe even in your childhood growing up in another country, talking about what you saw in terms of inflation and parents business and so forth, and we’ll lead right up to The present day and how you build your portfolio. So sure, Does that sound good?
Fernando 11:03
Yeah. Sounds Sounds like you plan.
Jason Hartman 11:05
So you grew up in, in Brazil. Right?
Fernando 11:08
Right. Yeah, I was born in San Paulo, Brazil in the late 60s. So although my parents are from European descent, I lived in Brazil, you know, when I was there, my childhood and, and as a teenager, and I actually lived through a period in Brazil, where high inflation was really making its mark there was there was a lot of people that were hurt by inflation in Brazil and some people that were making quite a bit of money with inflation at the time, we had annual rates that were over 100%. So it was it was kind of an interesting time. So
Jason Hartman 11:43
inflation rates of over 100% annually. Yeah, that is just crippling. I mean, what a way to do that just destroy, to destroy people’s savings, destroy their stock investments.
Fernando 11:56
Most people living there, even at a young age myself understood that money Left unused, either in the bank or even in their wallet would lose it as purchase power. Literally on a daily basis prices would be nothing for prices to go up by 1020 30% at a shot. I even remember living through a change of currency where the government decided or decreed that we would be using a new currency and they had to remove three zeros from the old currency because it was getting out of hand. You’d be 1000 Crusaders at the tire for a pack of gum. Yeah, it was that bad. Unbelievable.
Jason Hartman 12:30
Yeah, so if the currency was a crusade at attack, crusade crusade Oh, okay, and so 1000 of those for a pack of gum, but what was it before I mean, give us a comparison of how we should relate.
Fernando 12:43
Well, it went from being 1000 to one they took three zeros out of the currency and created a new currency with a new name. Until that, you know, it became more seen you wouldn’t be carrying millions of currency with you with just, you know, I carry a lot last It was amazing my father at the time he owned he was a shopkeeper. He want to bake pre daily. And I used to help him by working there and I was a kid and teenager at the time. And I remember vendors coming in just to you know to stock up and sell goods like cheese and ham and then they would tell him that you know, by the way, Mr. Aries the prices just went up by 20%. You know, my father he would have to pay for for these these products with money from his previous sales. But due to inflation, all these these price hikes he had to come up with this new 20% money to pay for products that he hasn’t sold yet. He was just getting into the business. And I saw this cycle repeating itself numerous times. It was just it was just sad to see. He was getting to a point where the net effect of his businesses you will never catch up. He was always behind the curve, always trying to come up with new money to pay for Other basic goods that he needed. He got to a point where he needed more and more money. He started boring money and get this Jason at a rate of 5% a month 5% interest per month
Jason Hartman 14:12
when you compound that, I mean that’s that’s just insane.
Fernando 14:16
Wow. Yeah, yeah, I took a look at some of his I did a spreadsheet with him back when, when I when I went back to Brazil to visit after living in the US and it just made no sense. It was absolutely crazy to live like that. But on the flip side, you know, this is this is an example of, of my dad was really struggling with inflation, but I had an uncle who was it was talking it’s always
Jason Hartman 14:40
say I know it’s always you know, that’s so funny because I recently listened to the interview that I did with my aunt Joan. And of course, you know, Uncle john, but he wasn’t there, but I did it with Pantone. And it’s always a rich uncle, right?
Fernando 14:52
Yeah, I don’t know how that one. But anyway, I had an uncle in he he was actually a business partner, my father and the only The butcher shop and they own you know, various different things and we lived in Brazil through the same time period went through the same inflationary issues. But that was one crucial difference. He managed during that time to buy a couple of commercial buildings and rent them out.
Jason Hartman 15:18
Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday.
Fernando 15:28
I remember that he used to live upstairs, it was a true story building one of them. He lived upstairs and rented the lower side of the building to a business and the rents would keep up with inflation. As a matter of fact, he would he would raise the prices of rents higher than inflation at times because the the, the the steps were quite big it’d be 20 to 30 to 40% change in, in price hikes. You know, you can you can you can definitely put a little bit more in you know, towards your your rent. Increase in go ahead of inflation. So he was able to make money and save enough money and ended up purchasing a small business in Europe, you know, move away from Brazil, before hyperinflation really took off, you know, this in the, in the 80s. You know, it went from hundreds to thousands of percent a year, it just became insane. So he, he basically left Brazil and then was able to continue with a decent, decent life in Europe. And that really, really stayed with me that learning the, you know, the way to get ahead and to get wealthy was what my uncle did, essentially, that is just amazing. So, when you were a kid, and you saw this type of inflation, I mean, you talked about what it did to your dad’s business and how it put him just behind the eight ball forever where he was just always trying to catch up. How did you feel how did other people feel around you that you knew, I mean, that’s just I mean to see this kind of ravaging of the currency devaluation firsthand is it’s just gotta be just amazing. I mean, it just changes your whole psychology doesn’t it? He doesn’t, he doesn’t. Because when you’re living in a situation like that on a day to day basis, you just thought that and you know, as a kid, I felt that that’s how the world was, you know, it was just prices kept going up and if you don’t keep up and if you you know, if you don’t do the right moves you you you’re gonna fall behind. And it’s just, it’s just the life that you live in. You don’t put too much thought into it. It’s just catching up trying to survive and but the net effect is a lot of people worked very hard and saw their life savings just going down being eaten up by inflation.
Jason Hartman 17:42
It would encourage people to spend sooner rather than later I would assume I mean, it you know it that’s really bad for an economy when you don’t have a way to encourage people to save money, and you don’t reward them to save money because if you don’t have capital formation That really limits progress. Big things are done with capital formation. They’re not done if you don’t form capital,
Fernando 18:07
there was very little credit available at the time. Like I said money was was so crazy. Inflation was so high it was, it was the credit was virtually non existent. So you saw a lot of hard money loans at these crazy rates. And people just being desperate to try to catch up and
Jason Hartman 18:24
most never did. That would be a very dangerous time to be a lender because one of the things I teach is how inflation transfers wealth from lenders to borrowers, and borrowers and are enriched by inflation and lenders are hurt. Amazingly, we don’t have more inflation in the US, which is I don’t know how long they can keep defying gravity, Fernando but they for the past year, they seem to be doing pretty well before that, you know, for the last couple of years. We’ve had some real inflation and you know, the government statistics are always understating it. Which by the way back to Brazil. I don’t even know if you paid attention to it. Certainly as a teenager, I didn’t but did you You notice anything about the way the government acted? Or do they understate inflation like we do here in the US? Or, you know, was there any awareness of that?
Fernando 19:10
I don’t think that they had, it was so obvious that I don’t think there was any way to to play these games. it you know, it’s just so high that people see it every day. And you know, it’s crazy, and it doesn’t really matter if it’s 130 or 150% a
Jason Hartman 19:26
year. It’s still just really, really high. Exactly. Well, amazing. Okay, so, what got you interested in real estate investing? When did that first happened?
Fernando 19:36
Well, as I said, You know, I was, I was learning as a child, what, what inflation would do and I saw how real estate helped my ankle. And, you know, basically, I guess I have to take a step back and give you a little bit of background of, of some of the deep realizations that I had while working. That led me to real estate in a more direct way as I was working in corporate America, you know, a few years ago I, I went through, I guess awakening deep realization that I was not going to become financially independent at the rate that I was going. My investments were basically tied to the stock market stock market and honestly, they’re mostly treading water. I tried to, you know, make a big, becoming financially independent from stock options by working on on startups. And I had to two tries to different startups that I that I worked for, but it didn’t quite work out. I didn’t make enough money to make me financially independent, but instead, it was certainly enough to trigger a huge tax payments to Uncle Sam. You know, I saw though 40 to 50% of my earnings being taken up by taxes. You know, literally there were hundreds of thousands of dollars in taxes to the federal government state of California. For the years where I got lucky enough to have options that were above water that actually made money on stock options, stock options. Right,
Jason Hartman 21:09
right, right. And we should say that you’re an engineer, a chip designer, you live in Santa Cruz. And so your career has been spent in the Silicon Valley area. Right.
Fernando 21:17
Right. Let me let me give you a little bit of background that I came to the US, I guess for, for permanently in 1984. I was an exchange student through the Rotary Club. It’s a service club, and I went to live in New York State. I attended high school there. And when I was in high school, I played soccer and I caught the eye of a soccer coach. There was a nearby State University of New York campus and the soccer coach offered me a small scholarship to study classical engineering computer graphics at the State University in New York. And after I graduated, I was offered a job with a company that no longer exists. It’s It was called Digital Equipment Corporation. And at At the time, it was a huge company it was I think IBM was the biggest one in the in the 80s. And digital was was second. Although like 15 times smaller than IBM is so big difference but it was a great company it had it had the top but technology. And I ended up going to work near Boston, Massachusetts in actually Hudson, Massachusetts to design computer chips. I don’t know if you recall their Vax line of computers. And then I went on to to work on their alpha computer chip blind is all with Digital Equipment Corporation. And in 1993, digital decided to open a design center in Palo Alto, California. This is where the when I moved to California moved to Palo Alto, the end of 1993. There was a design Santa that digital opened up. And in Palo Alto, they were actually designing chips for a project that Apple was developing called the Newton.
Jason Hartman 22:55
You might have heard that that it was I do remember that you do that Uh, but you know, if Apple didn’t have the Newton flop, we probably we might not have the iPhone if you ask me. But
Fernando 23:06
anyway, it was a predecessor, it was kind of a PDA and a personal assistant that it had some handwriting recognition software. But it was just before its time it was it was a commercial disappointment, to say the least. But I work for digital in that project through 1995. And that’s when I tried my luck with a startup. You know, being in Silicon Valley, I had to, I had to try at least one startup and I knew that this was one way to become financially independent. So I tried going to work for a company called Next Gen. In 1995. Next Gen. It was basically designing computer chip CPUs. It was a competitor of Intel, along with many other companies, that actually struggled quite a bit since Intel was a virtual monopoly for for the PC World at the time. So next gen. I was bought by Advanced Micro Devices, which is a much bigger company and was also a competitor of Intel. And they paid quite a bit for for the startup that I was in a paid $1 billion in 1996. And even though that was a great price, bottom line for me is I made very little money on the deal. I think I made less than 100,000. I didn’t have enough shares, and I didn’t have enough vesting,
Jason Hartman 24:26
and the government took all the money in taxes, right?
Fernando 24:29
Yeah, they took a lot of any taxes. And I was I was really, I was really lucky in a way but unlucky enough to not really make money out of the deal. So I worked for AMD, since they bought the startup. I wrote for AMD as a chip designer from I think 96 to 2004. And during that time, we went through the.com bubble and AMD stock actually reached its peak, it was over 40 bucks, and you know riding that bubble, but overall For for the time that I worked at AMD was about eight years. During these eight years, I was able to make a few hundred thousand dollars from stock options and I put some away some of it away as investments in the stock market. I worked after AMD for another startup since the first one, you know, didn’t really get me to financial independence, I went to another startup co pa Sammy, and PA Sammy was a startup that produced a line of power efficient CPUs. And this was quite revolutionary at the time. And it was to be used for gaming consoles and routers, internet routers, and that sort of thing. And, you know, I worked there for them through 2004 what I do remember even though I didn’t didn’t quite make it big with the startups is the work in the startup was very demanding. You know, I was having some difficulty seeing enough of my kids and family. You know, during the times I was working in the In a startup it was it was quite difficult. Fast forward a little bit, if you would,
Jason Hartman 26:04
to your work at Apple and how that came about, and then how you got interested in real estate.
Fernando 26:09
So Pac Man was acquired by Apple in 2008. They paid almost 300 million for for the deal. And honestly, for the four years that I worked there, the start off, I made about 350,000, probably from the sale, but the government again took over 100,000 in taxes, you know, in the interesting thing is in in California, the money that I made, and that money that I made from all of these years was not enough to even put down as a down payment for a decent house. Houses in Silicon Valley, you know, a million dollars is is common for a house here and then I couldn’t even put it down for I mean off down for a downpayment, it was said, but Apple did offer me a nice package, you know, as I joined them, but it required a four year vesting period. You know, you have to wait for your stock options to fail. And, you know, restricted stocks too vast, so we had to, you know, put your time through in order to reap any rewards. And I worked for Apple as a senior manager there getting doing chip design, doing program management and working on their intellectual property hardware. Yeah.
Jason Hartman 27:16
So we’re, we’re so now you’re working at Apple, and Apple, you know, Apple makes great products, obviously, we all love them, or most people do. But, you know, that’s hard work, isn’t it?
Fernando 27:28
It was hard work. And you know, as I as I mentioned, when I was going through some, some enlightenment or realization internally and in becoming disillusioned with, with, with how fast I was progressing towards financial independence, and especially the my stock market investments, you know, I went through the subprime and the financial crisis, you know, 2007 through 2009 that really took a dent on on my savings in I remember paying thousands of dollars for a financial analyst and an investment counselor Charles Schwab and Morgan Stanley, but my returns are absolutely terrible. It was just
Jason Hartman 28:07
come to Wall Street.
Fernando 28:09
Depending on the home on, you know, how I how I measure which account I used I, I lost 20 to 40% of my savings that, you know, my investments that I have worked on for many years, you know, that would mean mean that it would have to go up by 40 to 80%. For me, just to be back up to where I was, it was just, it was just sad.
Jason Hartman 28:30
You just don’t get anywhere you spin your wheels on Wall Street and the stock investments because even if you make a return on the deal, the government takes so much of the game. It’s just not a tax favored investment. Income property is the most tax favored investment in America. So how did you get interested? I mean, what did you do what you started searching for podcasts or what was your start?
Fernando 28:52
Oh, yeah, sure. So it was kind of an interesting story. Before I got to the podcast in Things 2011 I was watching late night TV at a lake in New York State. And I was there with my American family. And I saw a program from from a TV network called America auction network and TV. And they were sort of sounding newer homes in southwestern Florida in Lee County. This is where Fort Myers, Cape Coral Lehigh acres are, you probably know. And these new homes in their homes were built in 2006 2007. And there were $60,000 $70,000 in here being rent rented out for 750 dollars $850 a month. These were nice three bedroom, two bath, two car garage, 1500 square feet and higher. They were renovated, ready to rent. The guys that were selling them on the network were showing returns on investments are wise available. 13% I just could not believe it. I, you know, I, I could not believe the amount, you know, the prices for the season and the returns that you could get it was just a completely new idea for me. Although there were some caveats. You had to pay cash for the houses, you know, we had to close within a couple weeks. There were no contingency on inspection. And so one. And I think the network also made 10% off of the sale. But But still, it was it was a great deal for me living in Silicon Valley. As I mentioned, it’s not uncommon for you to find a house cost a million dollars there needs some work, and these homes in Florida were being sold in their entirety for less than a typical downpayment. For me, well, I studied it quite a bit. I put a spreadsheet together I analyzes and compare different properties that are being sold on the network for months and I thought about going to Florida during this time, and I think I spent in about three months doing this just just kind of trying to get over my fear of actually purchasing something in a market that I wasn’t familiar with, but I did decide to go to Florida and buy properties in his early 2012. I ended up buying a couple properties in Collier County, not not in Lee County. I found a real estate agent who was a colleague of a colleague and the agent knew some contractors handyman that couldn’t
Jason Hartman 31:27
So here it’s all fragmented and you’re just bouncing around. Yeah,
Fernando 31:30
exactly. Yeah. I actually had my dad go down to Florida for three weeks to get the house ready for rent. Oh, he helped fix it up. It was a hot hodgepodge of of items that I had to go through. In as of today I self managed, I still have the property itself manage it. And it was definitely not turnkey and I had quite a bit of difficulty finding support services around the area. That’s exactly what I found and so many of our clients have found Fernando is that they Just, you know, there just wasn’t any way to properly and prudently invest on a nationwide basis. So after that, you know, this was in early 2012. This is when I found your podcast, I found that creating wealth podcasts with with you. And I got to give you a little bit of background. I’ve always loved podcasts. So I, I searched and I listened to many different financial and real estate related podcasts, and especially a lot of these in early 2012. As I was getting into buying property, I had bought a couple properties in Florida. But honestly, almost all the podcasts and webinars and education out there had very little content that could make a difference in my life. There was it’s just lots of talk about the current real estate market and interest rates and a bunch of guesses on where things are headed. It was actually a real board. It was just very repetitive. There were some that were offering flipping, you know, buy how to buy cheap and do rehabs. But honestly, they sounded like a lot of work. Work Yeah. In most of them require you to be present in the city where the properties war, you had to scrub news, newspapers and county auctions to find the right do the right property and then you gotta go find a contractor to fix them up. I remember one of them. It taught you how to become something called a bird dog. You probably know that term, right? Yeah, sure. And, you know, it was just it was just so much work. I think what I was was was learning from from that process is, despite what they were telling you, being a bird dog or flipper, it’s it’s not as quick and easy for the novice guy that really doesn’t know the area or, or the contractors to get economies of scale. So you wouldn’t become the next, Donald Trump doing this. I think most of the successful ones, they spent years or maybe decades working around real estate and they develop their instincts about what properties to buy and so on. So I didn’t think it was that easy.
Jason Hartman 34:15
So Fernando, you started looking for podcasts out there and tell the listeners what you found?
Fernando 34:20
Well, I basically found creating wealth podcast by searching iTunes, and immediately resonated with your message, you know, the great return on investment, significantly significant reduction in taxes, steady income that could eventually replace my corporate job income. Also, what I found very powerful is along with that message, I was impressed by the high caliber of your guests and I remember listening to economist investors, lawyers, authors, basically people who could present their expertise and allow me to judge their response against your message. So as an example, When you talk about inflation, your your your ideas about inflation going up over the next few years, I could vet that message against your guests and, and be sure that what you’re saying made sense. So that was very powerful to me.
Jason Hartman 35:12
Oh, that’s an interesting point. So, in other words, you didn’t have to just take my word for it. You heard the guest, you know, saying, I mean, assuming they agreed, I certainly don’t always agree with the guest or they don’t always agree with me, but
Fernando 35:23
right, not necessarily agree but but understanding their reasoning and seeing how that compares against your reasoning. And if I was to follow your plan for financial independence, would it would it work according to the experts, and not just you? So basically allow me to solidify my understanding of the various facets of real estate income investment and you know, the multi dimensions that he has, and and listen to these top notch experts. So it just, I mean, it was just clear that after I listened to the first few episodes, in this is in early 2012 I went back and I downloaded probably one year’s worth of podcasts. And I went on a listening spree. I was gobbling up, you know, every podcast that I could get my hands on. And then at that point, I knew I was ready to sit down with you and come up with an exact plan on how to achieve my financial independence.
Jason Hartman 36:17
Good. Good. So you took a trip to Phoenix just kind of on your own. Right. I mean, I know that you you talked with a couple of our local market specialist in Phoenix at the time. And then you had contacted me and asked if we could meet. And I remember I remember our first meeting together. I just walked down from my my apartment and met you at a little bar there called canteen Cantina. And we we just had a beer and a bite to eat, right?
Fernando 36:47
Yeah. And you brought cocoa with you if I really Yeah, well, no, actually,
Jason Hartman 36:50
I think that was puppy. I had puppy back then. And you didn’t meet my old dog. So there you go on that meeting.
Fernando 36:59
Yeah, so That meeting was really key because I at that time, I had put together what I called my independence day plan spreadsheet. And this was a lot of my thoughts into what it would take, how much money would they count how many properties I would have to have in order to replace my corporate income. The goal to me was was clear that I wanted within a year to be financially independent. And that would meant that again, I’d have to have enough rental income to match my corporate income. I wanted to quit my corporate job and have the choice of live anywhere that I wanted. If I wanted to live in California I could stay or if I want to relocate, I could stay because I was I was not not tied to an office.
Jason Hartman 37:46
Yeah, I loved I love that you call it Financial Independence Day, and you were so organized. I mean, you know, we went over kind of your different assets that you could use. I know that you sold a bunch of your Apple stock and purchased income properties, with And, you know, we talked about the possibility of using Home Equity and all of the different things. And then you just started, you know, after you have that financial independence day outline, which was a great guide, you were you were extremely organized. Then you started acquiring properties, right. Where did you Where did you start? I can’t remember, you know, well, we
Fernando 38:20
Yeah, we talked about buying in Dallas, Atlanta, Phoenix, St. Louis. We made a plane in you know, at the time, there were different lenders that were offering incentives for different markets. So we made a plan, and I ended up going to Atlanta first. The idea was really to try to to use up my conventional financing spots. As you probably know, there’s a limit of 10 additional financing loans that you can have under under your name. And those are the 30 year fixed interest rate. mortgages that are just great. So we tried to use those 10 spots in Atlanta and and get those done and out of the way so I could purchase more properties with commercial financing after that point.
Jason Hartman 39:12
Right. Okay, so Atlanta was the first market then. Right,
Fernando 39:16
right. Exactly. Yeah, I bought several properties in Atlanta by October 2012. And then a few more by November 2012. In Phoenix, we we looked at some houses, I ended up making a couple of offers, but we didn’t purchase any the inventory was already getting pretty low and Phoenix at
Jason Hartman 39:34
that time, Phoenix Phoenix doesn’t work anymore. So well. So you know, but there will be time on it probably will soften a little bit or the rents will catch up either one. You know, it’s just a it’s just a question of either one, it can happen and once they do, then, you know, you’ll be in good shape to be buying there again, possibly, you know, so
Fernando 39:52
yeah. Okay, good. And then I went to St. Louis, St. Robert, in Missouri. As you know, the St. Louis that specialty there were the multi you know, the duplex is two, you know two unit and four unit buildings. The older buildings you know built 100 years ago I bought several of those also in 2012 and I bought new construction plexes in St. Robert, near the military school in base and that was completed by January of 2013. Okay, I after that I bought a few properties in Austin, Texas. Also, in 2013. I ended up buying a couple properties in Dallas as well. I started using my IRA IRA money for that I opened up self directed IRA. After going to one of your meet the masters. weekends, I learned about self directed IRAs and I opened up one in July 2012 and bought a couple properties under under the IRA as well.
Jason Hartman 40:56
So tell us what you know some of your biggest challenges we’re in Investing in these different properties. I mean, you would you went to a lot of the markets and really You worked hard at this. I mean, you you were not. You were not unambitious here you, I mean, you really jumped in and you did it. I mean, I gotta tell you, I was impressed.
Fernando 41:14
It’s funny people talk about being lucky and you know, how great your life is at any point, but what they don’t look at is how hard how many hours you put in and how much thought you put into, into the planning. Now, I was lucky enough that I was able to sell some of my Apple stock during the time that happened to be going up in a you know, strong clip. So I was able to reap the benefits from that and putting to the real estate. But the challenges were where I you know, I had a clear plan. As you remember from my financial independence, my independence day spreadsheet, I had a clear goal of becoming independent within a year. And it was very difficult to to accomplish that within that time period. Most of the because of what I call mortgage sequencing you know, it’s it’s it’s one thing to have the money and be ready to buy a lot of properties in, in try to achieve a goal but in reality, you have providers that might not have many properties available at any one time, it might be that they only have one or two crews that are doing rehabs at one time so they just don’t have enough inventory. Even if they have the inventory, they might run into snags where it takes longer to finish the rehab one particular property in you can’t buy what you thought you could buy at a time you wanted to buy. The interesting aspect of marching mortgage is sequencing because of what I just described is, is this the banks they want to take a financial snapshot of the applicant prior to close of escrow. They want to know where you are financially. They don’t want any new contracts, any change to your financial picture during the 30 or 45 days prior to close of escrow once you once you open a contract. You know, in essence, that means that I couldn’t just go down to Dallas, for example, and make an offer to buy a couple houses with one lender, and then go to Atlanta and make an offer and a couple houses from another lender, you know, the lenders, they all want to know about each other. I was at the time, I wasn’t lucky enough to work with a single lender that could take a holistic approach to my plan, and do it across the US and tell me Okay, I get what you want to do. Let’s, you know, let’s put a grand plan together. It was kind of a, it’s kind of an ad hoc type type of approach.
Jason Hartman 43:37
What’s interesting, I want to comment on something you said a moment ago, too, is you talked about how the different local market specialists wouldn’t have enough properties for you to buy. And by the way, just tell the listeners, how many how many properties Do you have now and we’re just talking income properties, not your own home. Are you at 57 properties now?
Fernando 43:55
I got about 50 properties 50 off 70 doors, there’s about 12 plexus, you know,
Jason Hartman 44:00
right. Okay, so you have some plexus. So yeah, how many doors total 7070 doors. Okay, so 70 units and 50 properties. All right, good. And, and so one of the challenges you had is that they just wouldn’t have properties for you to acquire. And, and this, by the way, is why Wall Street has a very difficult time being in our business, which is great because it keeps them out the institutional investors find it frustrating. Okay. Yeah. And, you know, they they want to just be able to go and deploy, you know, a billion dollars with a mouse click and a due diligence report, you know, and it just, they just can’t do it in our business. Can they? Not very easily at least Yeah.
Fernando 44:40
So So as I was saying, I really had a tough time, you know, hitting my goals within one year. I frequently got into a spot where I was getting purchasing two or three properties in and they’re all being rehabbed, getting ready for tenants. And what the Banks, you know, if I was getting the close of all properties to be done at the same time, the banks would want to make me wait until all properties were ready, you know, for their appraisal until we could close on all of them. So if you had one that had troubles rehabbing, it would delay the purchase of all the items, it would then push out the timeline for all the eventual purchases. Bottom line is I had to wait longer for for my independence day, Financial Independence Day, date, and he got pushed out from one year to two years.
Jason Hartman 45:33
Right. Right. So it took twice as long it took two years rather than when you’re ready to get to financial independence. And how did you feel about that? I mean, you know, it was just a problem of, of being able to get the properties, right. You just couldn’t acquire the properties fast enough.
Fernando 45:48
Yeah, it couldn’t be done fast enough. You know, I had to sequence my conventional financing backed by Fannie Freddie, early on and only after those are done Move on to commercial and portable portfolio landing. So even though opportunities were presenting themselves for, for commercial lending, I had to first get get my conventional loans done, because those are so much better terms than then everything else. So it just has, you know, the point is there’s a sequence that you have to follow. And it doesn’t just happen the way you want it to happen even though we might have I had a great credit score, you know, almost 107 87 credit score a great job, you know, paying over $200,000 a year. I mean, I had no problems getting credit financing for for these properties, but it just doesn’t happen as fast as I thought it would.
Jason Hartman 46:41
Yeah, that’s, that’s true. This is a fragmented business and you gotta you got to dive in. So let’s talk about more of the challenges. You know, you talked about some challenges in acquiring the properties Fernando, but what about managing them, you know, how difficult is it and, you know, I just want you to share kind of some of the the pitfalls And the challenges and then some of the good sides to you know, to give people an accurate sure
Fernando 47:03
it’s a you know, there’s bumps in the road, it’s it’s not rosy as as you might think is a passive investment, you have to be involved. As I was purchasing properties in Atlanta, the property manager was indicated by the local market specialist by the providing a planet was was becoming overwhelmed. She just had too many properties that were coming her way too many clients that were coming her way. And she didn’t have enough of a software backbone to her business to handle all these properties. And it became so bad that he got to a point where I fired her and I, I got involved with a new property management company and had to transfer all my leases over and make sure that the tenants were aware of it. So that took quite a bit of time to go through. As a matter of fact, the very first home I purchasing Atlanta we had to evict the tenet This was my first taste of my financial independence the Hey, Blaine started out with a big bump and you know it took took a while was over three months to get that ironed out mostly because the the property manager was was getting overwhelmed and just could not handle it properly wasn’t on top of thing. Okay.
Jason Hartman 48:21
All right. So you got that squared away and that took some time. What else what other challenges
Fernando 48:27
challenges in in rehabbing St. Louis was a perfect example. The rehabs in St. Louis are extensive in you’re basically looking at these hundred old properties that needed to be gutted in have new plumbing, new electrical, you know, sometimes they had to remove you know, bad plaster jobs and had to put sheetrock and sometimes had to repair the frame. And it was it was just, it was just a big rehab. It was not a cosmetic type of job. So these took a lot longer than planned. both, both because of this, and also because the provider was also getting overwhelmed with too many clients. And in just trying to do too many things at one time just didn’t have enough contractors and knocking on resources to, to address all of these clients. is it’s interesting that in the boom times there, we had some real challenges
Jason Hartman 49:22
in St. Louis, that was one of our most challenging markets for a time and they’ve mostly iron themselves out now, but it took some time, that’s for sure. Oddly, though, Fernando, as many challenges as we had in St. Louis, people benefited from the most of the time because well, they had huge construction delays and you know, people were anxious to invest the market was going through and so you know, even though it was kind of disappointing, to some, it really overall it had a pretty big financial benefit in a lot of ways. Yeah,
Fernando 49:53
if you look at the building prices now they definitely have gone up. So it’s a it’s a It’s quite interesting.
Jason Hartman 50:02
So, so with these with these 50 properties and 70 units that you have, you’re really good at keeping track of things. I mean, you’re an engineer, you’re a chip designer. So what what kind of gains Have you made? And what kind of returns if you had?
Fernando 50:16
Well, I was just looking at this recently and, you know, when I, when I set out to do my replace, when I set out to replace my corporate income with with with my rental income, I took a snapshot in the beginning of this year, in my corporate income after everything taken into account, all my expenses, all of the normal items that you would, you would see from from just working regularly, I would come up with about 8500 monthly of net corporate income. My net income from real estate rentals is now closer to 10,000.
Jason Hartman 50:56
And the difference is you have a huge tax advantage on rental properties, right?
Fernando 51:02
Right. This is this is already, you know, 15 to 20% more than my corporate income. And, you know, I do have equity building in all of these properties. And I do have the tax benefits going into this property that the nice thing about taxes, when when I look at my situation is I’m getting to a point where I have over 150,000 in depreciation every year. And what this means is I can make this much in cash flow income before I need to pay taxes on the rental income.
Jason Hartman 51:31
Okay, so say that again. So the depreciation for the few that don’t know is the most wonderful tax benefit in America. I mean, it is when you say depreciation, that’s a good thing. The way we’re talking about it now, because that’s what the IRS calls it. But the property could double in value it could appreciate in real life, but according to your tax return, you’re getting a big deduction as though you’re losing money. Yeah. So it’s a great thing because it doesn’t make any sense in a way That’s what’s wonderful about it. Okay, so say Say that again, what what, what are the numbers?
Fernando 52:04
Yeah, so I have over $150,000 in depreciation expenses as
Jason Hartman 52:11
tax benefits
Fernando 52:12
as a tax. Okay? And what this means is I can make this much I can make, you know, 100 up to 150,000 in cash flow before I need before I show any income and therefore need to pay taxes on the rental income because right I can deduct that 150 straight from my income. So it’s just wonderful. Yeah, it’s
Jason Hartman 52:34
just a great tax but if you calculated like your return on investment, you’re pretty good at using property tracker, and and keeping track of things. What does that look like?
Fernando 52:43
Well, I don’t have the actual numbers in front of me but it took a while. For me. I started in 2012 2012, actually 2011 but 2012 was when I when I got gained a lot of traction with you and the properties took a while to get to perform took awhile for the rehabs to be done, etc, etc. So my cash flow was was very little was like 5000, or something like that it was it was not very, very much. This is the reo cash flow where I think a lot of the noise out of the equation in 2013, it was much better the yearly cash flow was 60,000 as the properties came came to perform, and for 2014 the projection is about 120,000. And that’s, that’s where I, I come to the comparison of being able to replace my corporate income. When you look at taxes that you’re paying with your corporate income, you realize that you don’t need as nearly nearly as much rental income to to get to the same point because of the tax benefits. So you know, things will will only get better.
Jason Hartman 53:47
So let’s just talk about that for a moment. I want to make sure people understand that. I mean, if you have $10,000 a month in tax free income, depending on where you live and what your tax brackets are, of course, you know that that’s That’s about $6,000 per month at your corporate job, right, you know, so. So you’re, you’re really, you’re really, if you attended, I should say that the other way, if you have $10,000 in income from your job, you’re really only keeping about 6000 of that these are very rough numbers, okay? And they do depend on, on where you are, you can earn 6000 in, in rental income, if you’re able to take all those depreciation tax benefits and actually earn more. I mean, you know, it’s incredible. It’s just an incredible thing. Taxes are the single largest expense in anybody’s life. And, and we’ve got to learn about them. We’ve got to, we’ve got to manage and position our investments so that we can benefit
Fernando 54:42
in this way rather than being hurt by it. That’s exactly it. It’s interesting that I have you know, you gave your exact example, I can give you my exact example where my gross income with a corporate income was 18,000 a month in This is gross. But my net income was, as I mentioned before 8500 when I look at real estate, my total income it’s 10,000 a month, but my net income is about 10,000 a month because I get the depreciation to write off you know, this this the income that comes in so the comparison at the end of the day is in favor of of the real estate. rental income. It’s so much more powerful because taxes are such a big, big hit on your on your finances.
Jason Hartman 55:28
Yeah, yeah, for sure. That’s it’s just it’s amazingly important thing. It’s amazingly important. Okay, good. Well, just wrapping up here, Fernando, what else would you like people to know? What else should they know about real estate investor?
Fernando 55:41
Oh, there’s a lot to know. I’m always learning. I think it’s a I think there’s there’s different things you can do with real estate. There there are opportunities for using your self directed IRA for some aspects of real estate that provide short term returns that I’m interested in getting into, such as land contracts and notes and that sort of thing. So that’s definitely something for people to think about to tap into their IRA savings. The other point that I want to make is, for people that are thinking of buying many properties, financing is very, very important. Try to get as much financing as possible with the low interest rates that we have now, you know, I’ve financed over 80% of my properties and pretty small tried to, to do refinancing on some of the ones that I paid cash for your returns I just leveraged by so much when you get appreciation of three 6% multiplying by that leverage that financing allows you It really makes your total income be much, much higher than anything else you can do.
Jason Hartman 56:48
Yeah, it sure does. And did you buy into that idea initially, Fernando, because it’s kind of counterintuitive for many people. You know, they think that Oh, I’m too conservative. I don’t want to take on debt, you know, I want to own the properties free and clear kind of that old school mentality. And, you know, once you come around to the fact that the most conservative thing to do, I sort of, ironically, is to have as much financing or as much debt as possible on the property. Yeah. And the the riskiest thing is to own them all free and clear. Yeah. Which is counterintuitive, right? Did you buy into that right away? Well, I
Fernando 57:24
sometime I used to have that same line of thought the old line of thought that, you know, I wanted to pay off a lot of my investments, but I, from my learning over the last three years, and in my real life examples, I would like to leverage as much as possible and push all of the, all that, you know, equity onto the into the lender. And, you know, leverage is is probably one of the most powerful aspects of real estate income. So I’m definitely strongly on the side of leverage as much as you can see, especially with the current rates that we have,
Jason Hartman 57:56
yeah, yeah, good. And just to wrap the story up, What happened? I mean, you achieved your financial freedom day and you retired from Apple. And when did you retire from Apple in May? May May 2000 for a few thousand 14 2004. You know, it’s funny because I heard someone talking on the radio, and they kept talking about 2004. And I kept yelling at the radio the other day. It’s 2014 you’re talking about? We don’t realize it’s lighter than we think.
Fernando 58:27
Exactly. We went to coffee go back 10 years. Yeah, so I retired and I immediately went to Brazil for three months to spend time on the beach with my family and you took the summer off. I took the summer you saw the World Cup and all this other world cup. I was in Brazil, we had a great time. Just I could never even dream of taking that much time off when I was working for any of the tech companies, any of the tech companies that I worked for before. So we spent time there I came back and I absolutely love the freedom I have only my time and if I wanted to go to a conference which I have done with you even and I can do that and I really have the choice, I don’t need to worry about asking permission to go on vacation, or how long I’m going to be out for it interesting enough, you know, after being retired from corporate America, there are lots of opportunities for for me to get involved in I’ve been helping quite a bit of of people with their planes, being a coach and investment consular and trying to, to answer questions for people that work with me to Apple and colleagues that want to do a similar plan as I have done. So it’s just been incredible.
Jason Hartman 59:44
Yeah, yeah. Good. Good for you. That’s so good to hear what a great story and thank you so much for sharing it with all our listeners today. I really appreciate it and you know, what’s next for you, you’re gonna buy more properties. I know you’re looking at notes and land contracts, and I’m really excited about doing more In that world, too. I’ve dabbled in it for many, many years, but I won’t do it in a bigger way. And it’s not as good as the real estate. It’s better to own the actual property. But for simplicity sake and ease, you know, owning the paper is my second favorite,
Fernando 1:00:14
you know? Yeah, yeah, no, I think my plan right now is, is for me, too, I got enough properties that I need the help in managing the managers and just just some of the day to day tasks, so I’m not going to be buying more. If I can’t get more help to take care of them. I do want to get into contracts and notes. I do have a few properties that would lend themselves nicely to to two land contracts. One of them has an issue with Hoa and I would rather do a land contract with it. Also, with my self directed IRA, I have plenty of opportunities to buy notes. I think he lends itself very nicely to the short term income that notes providers there’s not as many tax benefits as you do with rental income. So I do want to get into that as well. So those are the next few steps that I’m planning on doing
Jason Hartman 1:01:11
it. Good stuff. Well, Fernando, thank you so much for sharing this today and keep up the good work, you are doing an awesome job as an investor. And it’s just really it’s really gratifying and great to hear your story. So thank you.
Fernando 1:01:22
Thanks to you. I’ve never really thought of Jason as subversive. But I just found out that’s what Wall Street considers him to be. Really now How is that possible at all? 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. 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. Stocks and other non direct traded assets are a losing game from Most people, the typical scenario is you make a little, you lose a little and spin your wheels for decades. 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. 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. 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. We can pick local markets, untouched by the economic downturn, exploited packaged commodities investing and achieve exceptional returns safely and securely. 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, and this set of advanced strategies for wealth creation is being offered for only $197. To get your creating wealth encyclopedia book one complete with over 20 hours of audio, go to Jason hartman.com forward slash store. 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.
Jason Hartman 1:03:40
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website Hartman Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice or advice and any other specialized area. Please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
This Flashback Friday episode is an impromptu show with Jason Hartman and his mother, Joyce, where she shares her low-tech approach to investing in income properties. Joyce also tells her journey from having a low-income job and a small investment to a $7,000,000 portfolio that generated a net income of well over $200,000 annually (and rather passively) at retirement. They also talk about creating wealth and passive income using modern strategies instead of old-fashioned ways.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com. Welcome to the flashback Friday edition of the creating wealth show with Jason Hartman. As he rapidly approaches 1000 episodes of this podcast, he has hand picked individual episodes that he feels is going to be good review for you to prepare you for the future by listening to the past. Let’s dive in.
Announcer 0:29
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants Get involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:20
Thanks for joining me today. So today I’ve got a really interesting guest. And that is my mother. Yes, my mother, a successful real estate investor in her own right, I saw what she did growing up and how she built a lot of wealth through real estate just by doing it the old fashioned way. And there’s nothing wrong with the old fashioned way. But there are ways to do it a lot better than that. And that’s what progress is all about finding a better way. So you’ll hear her experience and I think this will be very valuable to you. I certainly saw her experience her real estate investing career through the years as a kid growing up starting at age 11. And then going on there and you saw her manager properties and kind of deal with it and buy different properties and so on and so forth. So I think mom will be an entertaining and interesting interview. My mother is a well a zany person, I’ll put it that way. She’s funny. She’s got a good sense of humor. And anyway, so we’ll get to that in just a moment here with my mom on the show for the first time, you’d actually think that with almost 160 shows behind us now we would have had mom on by now, but this is the first time So anyway, we’ll have that for you in just a moment. A couple quick announcements before we get into the interview with mom. First of all, we have got a conference call a free conference call coming up on Wednesday, March 3 at 6pm. Pacific time 9pm. Eastern Time, and this one will be a preview of our totally new creating wealth in today’s economy bootcamp online course. Now this is an online version of that course. And of course, that course is always updated. And we always say to people, if you’ve been bitten And we’ve had a lot of people Riad it and come over and over, you should come every six months, because it really does change substantially every six months or so we change with the times we change with what’s going on and constantly update you on what’s going on in the economy. So this will be a preview call, where we’ll give you a good update on the market on what’s going on out there. And then also tell you about the online course that will start the following week. So if you’ve been listening to our show, there’s a lot of stuff you don’t hear on the podcast on the show. And that’s because the show is more of an interview format and an educational format, but it’s not in sort of a structured way, the way the actual bootcamp is done. So we’ve got some special pricing where this is only $97 if you attend the call, so register for that, at Jason Hartman, calm, the call is free. That’s a preview call it will be valuable and educational. And we’ll also talk about what we’re going to cover in the course over the following six weeks and if you can’t be on the call each time or you You can interact with me and the different speakers on the call. If you can’t be we’ll always have a replay of that for people who sign up for the online course. Now the online courses in webinar format, so you have audio and visual with that. And we do have some special stuff that we give away for people that attend the online course. So don’t miss that. That’s well worth it. And we’ve had the request from a lot of you who say, I’d love to come to one of your live events, but it’s hard for me to travel and I just can’t get there. Or even if I’m local, we got the kids soccer game or whatever it is. So we designed this online course just for you. And the nice thing about doing it as an online course, too, is that we can get different speakers to come in and guest speak during the course from all around the country. And we’ll be doing that so I think that’ll be valuable to you. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday and of course the Masters weekend. Now, let me tell you, folks This masters weekend is shaping up to be so exciting. And the reason this one is really exciting is that it’s unique in the sense that we’re going to cover a little bit, I’d say it’s going to be about a two thirds, one third ratio, two thirds on personal finance and real estate and getting ahead financially through your investments, making your money work for you, but then one third on making technology and business and leveraging that stuff to work for you. So we’re going to talk about personal entrepreneurship, internet marketing there. Let me just go over a little bit of the agenda with you because I haven’t done this yet. And I know that several of you have asked, so we’re going to start off with financial self defense in a world you cannot trust. That’ll be Saturday morning, March 6, and I will be giving that talk then we’ll have Mark who’s been on the show before the author of the book, lawyers are liars talk about asset protection secrets on the cheap, and that’ll be a great presentation. He’s an excellent presenter. We’re going to talk about hot deals in the Lone Star State. Of course, that’s all about Texas. And then our next speaker will talk about secrets of credit enhancement and credit restoration. A lot of Americans are getting their credit beat up right now, a lot of them are doing it intentionally, as I’ve talked about on prior shows. And you know what, that is a bit of a risky game, but sometimes it actually makes sense to do it and that’s why people are doing it. Well, let’s talk about getting back in the game and repairing your credit. Then our next speaker will talk about incredible leverage on income properties and new construction properties. And that speaker is flying out from Missouri. So that’ll be a really interesting presentation. And that’s not Kansas City. That’s the st. Robert speaker. So totally new guests. We’ve never had any masters weekend and then our next speaker will talk about the Indy 500 property investment in rehab properties in Indianapolis. If you want cash flow Indianapolis is one of the best places around for that is you know, as a regular listener It’s not just about cash flow, though. So there’s multiple dimensions to a good income property investment, but cash flow is certainly one of them. And then our next speaker will talk about how to profit from the boom and bust cycles that are always occurring throughout our economy. So you want to buy low, you want to sell high, you want to know when the boom times are to understand it and to see it and I know that sounds easy, but it’s not that easy when you’re in it. fish live in water, but they never noticed the water. We live in air. And unless we live in LA or some other really swanky place, we don’t usually notice the air do we but it’s vital to our life. And we don’t always really notice when we’re in a boom cycle when we’re in a bus cycle. I know that seems simple, but there’s really a lot more to it than that. So we’re going to explore boom and bust cycles in depth. Then our next speaker will talk about the power of analysis. Now this is a repeat speaker who has spoken at every masters weekend and she just does a great job presenting this. So the power of analysis and really understanding what you’re getting into and why you’re getting into it. Our next speaker after that, we’ll talk about Rocky Mountain High. Now, I’m a huge john Denver fan. I’m not sure you know that. But that may sound a little geeky, but I know the lyrics to almost every john Denver song, and I got to see him in concert before he died tragically, a big fan of him. And of course, Rocky Mountain High is all about what Denver, Colorado we have 5280 reasons to invest in Denver. And so our local market specialists will be flying out for that. Our next speaker will talk about the power of exchange on residences, your personal residence and your rental properties and your income properties and how to defer gain and defer taxes basically forever. So pretty exciting income property is America’s most tax favored asset, and that’s what we’re going to talk about. And then Sunday morning, we’re going to pick it up with life is a marathon, not a sprint, the power of long term thinking Then I’m going to talk about the 10 commandments of personal entrepreneurship. And after that, we’ll have a speaker who will talk about internet marketing and how to make extra income with internet marketing. Our next speaker after that, we’ll talk about creative destruction, how innovation makes the rich poor, and the middle class and potentially the poor, the poor, who have a vision for their future richer. So that’ll be very exciting. And then our next speaker after that Lisa will talk about juicy marketing, creating income with conscious marketing. So we’re only at lunchtime on Sunday. Now, folks, can you see how packed this masters weekend is. And next we’ll have a panel of investors, our actual clients who have invested in properties who have had good experiences and bad experiences. We’ll talk about the school of hard knocks. We’ll talk about Tales from the edge, we’ll talk about overcoming adversity, which, by the way, is what a lot of this show is about that you’ll hear when when I interview my mother in just a moment here and then our next speaker will talk about investing in real estate with your IRA, and then we’ll have a segment on Roth conversions and whether a Roth conversion is right for you. So that’s a special opportunity that just opened up January 1. There’s a lot more to it. We did a prior show on that. But there’s a lot more to it. And you’ll be able to ask questions and meet the experts when you’re live. And this is the Masters weekend gathering of experts. And of course, I didn’t mention because we just booked him on the agenda. We just booked our expert on taxation. And you know, that’s one of my favorite areas, because I just love not paying Uncle Sam. That’s what’s so great about real estate saving money on life’s largest expense taxes. There was an article in Forbes on forbes.com and in Forbes magazine, and this was really interesting. It’s about how new home construction is not keeping up with population growth. And folks, I tell you something, I have been predicting this trend for about two and a half years now. Because when The market really took its turn for the worse the builders stopped building and our investors started buying property at or below or sometimes far below the actual cost of replacement or the actual cost of construction. And this is a huge opportunity. Now we’ve seen in the last couple of years, the population keeps increasing dramatically, both through people having kids through immigration, and also through demographic shifts. And what do I mean by demographic shifts? Well, Generation Y, who is just coming into their prime renting years is the largest demographic cohort in American history. Think about that. It is slightly larger that demographic cohort than the baby boomers, the baby boomers had 76 million Americans, well generation Why is 80 million Americans it’s the biggest one ever to move through American history. And guess what all of those people are coming Coming into their prime college years. So student housing is a huge opportunity. And by the way, we were really lucky. There was an investment group who was trying to buy some of those South Carolina student housing opportunities that many of our clients have purchased that had 30 of the properties tied up and they lost some of them. They weren’t able to go through with the purchases. So we had a couple new opportunities open up there. So call one of our investment counselors inquire on our website. Jason Hartman comm phone 714820 4200 to ask about the student housing opportunities. That’s just a little side note because Gen Y, very good cashflow there. So we’ve got this huge demographic cohort that’s moving into their prime renting years, construction stopped two and a half three years ago, populations increasing and the particular demographic cohort moving into their prime rental years is phenomenal. Folks, this is about to really turn in the favor of the investor, not to mention under the Obama administration in the tail end of the Bush administration, the disgusting amount of money printing going on, and what does that mean? Of course, it means inflation, which is great for people who own what packaged commodities investments and a lot of long term fixed rate debt. Remember that debt is a huge part of the asset, not a liability when it’s on an income property. It’s an asset. So we’re really moving into a very exciting time. In fact, I got to tell you, I’m getting goosebumps saying this to you, because the opportunity is starting to get so interesting. So lots of good stuff coming up. Be sure to join us for the upcoming conference call where we’re going to do the preview of the creating wealth Bootcamp, and also the Masters weekend. We’ve got a lot of people flying in from all over the country for that we got a deal with the Marriott $109 per night. It’s at the Marriott Hotel in Costa Mesa. And if you’re flying in for that, it’s five minutes from Orange County’s john Wayne Airport, which is a gorgeous airport. It’s just real easy. You can come in you don’t need to Rent a Car, we may be able to have one of our staff or investment counselors just pick you up at the airport take you to the hotel, you can check in, enjoy the whole weekend fly out, it’s just real easy. Also, we’ve got a couple more contest winners, we’ve been giving away a couple of freebie admissions, and then a couple of discounted half price gift certificate admissions. So Jason hartman.com, slash contest, I think we’ve got two more of those to give away before the event. And if you register and your name is drawn as a winner, we’ll just refund your admission. So that guarantees the best of both. So be sure to register Jason urban COMM And join us for all those two events. They’re going to be great. And here is the interview with my mother, real estate investor who did it the old way and I tell you, when you invest in these income properties, time is on your side. We can make this a little better for you with the new techniques. Now I have to tell you, my mom, she’s just funny. But my mom it takes a long time to convince her of something Think when it comes to friends and family, they don’t listen to us even if we happen to be the expert. It’s funny like a total stranger will listen to my advice and follow it lickety split right away. But my mother takes a long time to convince her. If she heard it from a total stranger, she probably just listened to it. Just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday and every Wednesday. And so lately, mom has been investing based on my plan the last several years where she’s using leverage. She’s using long term fixed rate debt, but on her other properties, she did it kind of the old fashioned way. She bought properties, rented them out, paid the mortgages off, and lately she’s refinanced them because she sees what I’m talking about here. What I’ve been teaching you on the show and through our other educational products and events, but mom did a great job. I mean, look, she retired, what maybe eight years ago, well over $200,000 a year in income from rents and $7 million in equity. You just accumulate these wonderful little properties over the years and you put time on your side you put irresponsible government spending on your side, you put inflation on your side, there is no better wealth creator than income properties. That is it, period point blank. It’s the best opportunity in America. And there’s no better opportunity as far as income creation than little sensible internet businesses. So we’re going to talk about both of those at the Masters weekend. Without further ado, here’s the interview with mom. We’ll see you soon. So I have an interesting person here in the studio. You’re laughing. And you know that is that’s, that’s my mother. So my mom Joyce is here with me. And she is really quite a real estate investor. And I’ll tell you something, before mom talks here and tells you kind of some of her real estate experiences. I remember that when I was a kid, we used to always play Monopoly You remember that mom?
Joyce 17:01
Best Game in the world?
Jason Hartman 17:03
Best Game in the world? Definitely. And I remember one time when we lived in marvista in that crummy little one bedroom apartment when you were saving money to buy your first house. And I remember I was losing you were killing me. And it was interesting because my reaction in monopoly was always to have as much cash as possible. I like passing go. I like collecting cash, cash, cash, and I would save the cash. And I wasn’t really I didn’t have the propensity to buy properties. Now, I was probably seven years old when this happened, right? I but I remember this. And I remember I was just getting so discouraged about it, and you just stopped the game. And he said, Look, Jason, if you want to win the game, you’ve got to buy more houses, so that every time I pass, you can charge me rent. Do you remember that
Joyce 17:50
was that best lesson for you?
Jason Hartman 17:52
It was a good lesson for me. And so I started buying properties and I started winning the game because I kept collecting the rent as you went by and the story Hear that my mom bought her first house when I was 11 years old, and it was in West Los Angeles. It costs $62,500. And it was a fixer upper on Kelton Avenue and tell the story, you started buying more rental properties and how did it all go, mom?
Joyce 18:16
Well, that was the first one and that is always the hardest one. It seems like the next one I bought was in the San Fernando Valley, and I bought it was on
Jason Hartman 18:25
Bassett Avenue on
Joyce 18:26
Bassett. Uh huh. And I bought it exactly two years later. Now, sometimes you have to go out and take several jobs in order to get that downpayment together, you
Jason Hartman 18:35
know, to support your real estate habit. It’s like a drug habit, right? But it’s one that really does pay off.
Joyce 18:42
Yeah, absolutely. And then it just seemed as though that this was really opening my eyes to how people should start running their lives. You’ve got to not live at the top of your income. You’ve always got to be Little frugal and start making some good investments.
Jason Hartman 19:04
And I will testify that when I was growing up you were frugal because I never got enough money. So you were executive director of the Leukemia society. And that was back in the days when you always said you felt there was a glass ceiling more than there is today. Right?
Joyce 19:23
Absolutely. Just and I had this boss like me are competent be brown.
Jason Hartman 19:27
Yeah, me Brown. I wonder if he’s gonna listen to this show.
Joyce 19:31
Who was the most conservative guy in the world? And of course, I had just moved to California. Well, not really just but he called it being in the lands of fruits of being in the land of the fruits in the nut that kind
Jason Hartman 19:45
of describes California fairly well.
Joyce 19:46
Yeah, but anyway, I had to just kind of circumvent having a very respectable job. I took a sales job selling space at the convention center. I worked as a waitress at norms
Jason Hartman 20:02
restaurant I remember you you worked at norms and, and you used to work there at night like after work to save money for a downpayment.
Joyce 20:09
Yeah, you just
Joyce 20:10
you just do whatever it takes. Because once you get that in your head that hey, this is really the way to make things go. You just put everything toward it.
Jason Hartman 20:19
You mean the way to make things go is what to invest in real estate home rental property?
Joyce 20:23
Absolutely. And you know, now I’m retired. But I’m so happy that I don’t have to get up and think about going to work all day long for somebody else, because my retirement investments in the stock market, probably moat for most people. They’re just cut in half. And it 401 k that came to 201
Jason Hartman 20:45
k Well, yeah,
Joyce 20:46
exactly. Exactly. Real Estate. It’s just a totally, totally always interesting profession or a way to make a living, because you meet all of these people. What you have to fix up a rental house. You meet everybody knew. you negotiate with them.
Jason Hartman 21:03
You always love negotiating. I strive to get a best deal. I will tell you, my mother gets the best deals on the planet on everything. Well, okay, so let’s just kind of tell the whole story here because the listeners don’t know. Okay, so I want to give a little biography of you. So yeah, sorry about this. So you grew up in upstate New York, and you grew up on a farm. You’re the middle of five children. And you grew up? I gotta say, very poor. I mean,
Joyce 21:33
fairly, certainly weren’t rich. Yeah. But then neither was anyone else. Yeah.
Jason Hartman 21:36
I mean, it was in upstate New York in the middle of nowhere. You were born in bliss, New York. And you You always say that the population is 300, including the cows and the cats and the dogs. And then as soon as everybody turned 18, all five of those kids, they moved to California. They just wanted to escape, right?
Joyce 21:54
Yeah, because there was nothing in that little hometown. And upstate New York was kind of a decaying area. Because they were highly taxed,
Jason Hartman 22:02
right? Yeah. So all the people were leaving upstate New York. So yeah, there was an opportunity in upstate New York and the weather was terrible. So all the kids laughed, and they moved to California. And your brothers and sisters mostly went to Northern California. But for some reason you went to Southern California and you before,
Joyce 22:19
yes, I came to a football game between University of California, Berkeley and UCLA. And I saw the climate down here. immediately decided once I graduated, I was coming here
Jason Hartman 22:32
you like the sunshine in the warm water. So that’s what a Floridian would say, from New York to So you went to Berkeley, and you graduated from Berkeley with a degree in social welfare. And Berkeley, of course, is a fantastic school, very good education and put yourself through college, right? Basically, I mean, I’m sure your parents didn’t have any money to help you.
Joyce 22:52
I work every summer. When I got out of high school. I went to business school for two years to become a secretary. Because that’s what girls did in those days, you became a secretary, or a teacher or a nurse, and most everybody became a secretary. But after I sat in an office and typed for eight hours a day, I thought this was a terrible, terrible profession. So I decided I had to have some higher education.
Jason Hartman 23:20
So you graduated from Berkeley? And then what?
Joyce 23:23
And I went to work in my chosen fields, social work.
Jason Hartman 23:27
Okay, so your social work, and what do you do with that job? Like, what’s that really mean? Really, all you did was go out and verify that those people who are still receiving their governmental checks from the government so you weren’t you were you were calling on people that were receiving welfare from the government?
Joyce 23:45
Yeah, you were an eligibility worker. And you had all of this psychological training. And all you did was look at the report cards and make sure that the kids were sleeping in that house. And
Jason Hartman 23:56
because they’d be a lot of like a certain amount of money. Yeah.
Joyce 24:00
According to the number of children, and it was just, it was a ridiculous type of career.
Jason Hartman 24:05
And and so did you actually discover though, you’ve told me this before that the people you were calling on some of them were living better than you.
Joyce 24:13
Actually, this was really the truth because they were getting all sorts of money under the table. Some of them, you know, some of them obviously, we’re not. But really and truly, that seemed as though they were living better than I.
Jason Hartman 24:26
And so Okay, so you were a social worker, and then what,
Joyce 24:29
and then we’ll skip a little time and I went to work for some charities, but always I just wanted this thing to have a business for myself. And I had a pioneer chicken store. I had
Jason Hartman 24:46
two small businesses and those were both crappy experiences. I know.
Joyce 24:52
Jason, it was fast hair and fast food.
Jason Hartman 24:55
Good like a Supercuts style franchise.
Joyce 24:58
One day what really happened? Is that I was in my pioneer chicken store? Oh yeah, the area that my store was in was that that was not very good. It was rather dangerous. And Previous to that I had bought a couple of houses from a real estate agent. And she said to me one day while I was sitting in my store, why don’t you become a real estate agent? She says, I shouldn’t say this, because I know I’m going to lose a good customer. And that very afternoon, when I left my store, I went to a real estate school lumbo that I
Jason Hartman 25:33
can never remember. For. Right? It’s
Joyce 25:35
very, very deformed.
Joyce 25:36
Uh huh. And I went down to lumbo a real estate school and signed up. It took me about three months to complete the course. And when I completed the course and passed the test, I invited Mary over to the house that she had sold me to to cook dinner for her. And she said, Well, what are you going to do now with your real estate license? And I said, Gee, I don’t really know. She said, What gotta come down to my office. And so I i traipsed right down to her office, I did exactly what she told me to do right and went to work. And I sold my first house in a week.
Jason Hartman 26:12
Thank you for listening to the creating wealth show. This is Jason Hartman, your host, and we appreciate you following the show. We have many, many episodes, hundreds of episodes, and some of the older episodes have been archived and placed in our members section. And that applies to this one. So we include a sample that’s about 25 minutes long. And then for the rest of the show, you can go to our members section at Jason Hartman comm many of the other shows are still in their full length complete version. However, some of the shows like this one are in our member section where you can hear the show in its entirety. And again, you just need to go to Jason hartman.com. And you can get the full show there in the members section plus a whole bunch of other great members benefits and resources, whether it be documents for forms, contracts, articles, other video and audio content just a great resource, so be sure to join as a member at Jason hartman.com. And thanks again for listening to the creating wealth show.
Jason Hartman 27:24
This show is produced by the Hartman media company All rights reserved for distribution or publication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own and the host is acting on behalf of Platinum properties, investor network, Inc. exclusively.
Jason Hartman 28:02
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Income property investor Andrew Baker joins Jason Hartman to talk about historical data, the future, and all things financial. They discuss capitalism and how it affects the US economy how it causes the sharing economy to develop, cryptocurrencies to exist, and blockchain algorithms to reinvent financial transactions. Jason also plays a Mark Steyn clip from his book After America. He also comments on the European versus US lifestyle. Andrew and Jason also share that investors should invest in the most historically proven asset class, the single-family home.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the company leet solution for real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth show. This is your host Jason Hartman with number 870 870 164 countries worldwide. Welcome. Thank you for joining us today. We do a 10th episode show, every 10 shows, we go off topic, we talked about something of general interest. And today we’re going to talk about a lot of stuff about general interest. But first, we’re going to talk a little bit about real estate, because everything comes back to real estate investing and income property investing in the most historically proven asset class in the entire world. We’ve got a returning guests here today, one of our clients, and that is Mr. Andrew Baker. Drew, welcome. How are you?
Andrew Baker 1:45
Good. Thanks for having me back.
Jason Hartman 1:46
Yeah, it’s good to have you back on the show. You were on the show a few years ago, you talked a little bit about your young life starting investing in income properties in your mid 20s. Really, I guess or late 20s. And now you’re married and Got a kid you got Scotty and, and your wife Katie. And we’ve been friends for I don’t know, about 1012 years now, right? Something like that. Yeah, yeah. It’s it’s been just great to watch you grow and develop and accumulate more properties over the years and you’ve got 10 properties now. And you’ve got I think Memphis, Indianapolis and then your own home in the Socialist Republic of California. Is that correct? Sadly,
Andrew Baker 2:21
yes, I have a house in California. So, you know, we’re in a nice area. So we live in orange right near the circle, in an old, like, historic community, and I think it’s one of the oldest county like cities in Orange County. So yeah, it’s really nice here. But uh, you know, just seems like more people are moving in then or moving out. So it’s nice that the neighborhood kind of has are getting revitalized, but at the same time, it’s getting a little crowded. So you know, it’s funny how many people are moving out of state though. I’m just in orange. We’ve had half a dozen friends move to Texas. So it’s kind of funny. Yeah, just did a fair Well today for someone who’s going moving to Texas,
Jason Hartman 3:03
as I’ve often said, If Texas were to secede from the union, it would become the Hong Kong of the United States. And it says Hong Kong is to China, Texas, would be to the US. That’s my metaphor on that. You know, of course the freer the marketplace, the less government intrusion, the healthier the economy, and really the healthier society in general. And we’re going to, we’re gonna play a little clip from none other than Mr. Mark Stein today. He’s a quite famous New York Times bestselling author, radio and TV personality. Mr. Sarcasm, I just love his sarcasm, but he’s a truly intellectual guy, I love him or hate him. pretty controversial. He puts stuff out there that, you know, some people won’t like, he talks a lot about this free market stuff and some I what I love about his work is and I you know, I have my disagreements with him too, of course, is his counter intuitive way of looking at things. You know, most people just kind of in this is interesting, you know, I’ve read A lot of books about this and heard you know, experts talk about this how the brain is a cognitive miser, our brain is the biggest energy suck in our body. Okay? So our brain tries to be lazy on purpose, it tries to conserve energy and not think too much. Because thinking actually takes a lot of power, a lot of energy. And I’ve heard the stats, comparing, you know, how much wattage if you will our brain uses compared to the other organs in our bodies, and the brain is a man it’s a, that’s a, that processor takes a lot of power, it takes a lot of juice to juice your brain. And if you don’t believe this, whenever you’ve been engaged in a lot of thinking in a day or in a lot of perceiving and the one example I think is a good one, at least for me, that I think everybody can relate to because other intellectual endeavors or maybe harder and this is not exactly, quote, intellectual endeavor, unquote, but I’m gonna Put put it out there it’s the shopping mall so so the the reason the shopping mall at least for me tires me out is because my brain is just being stimulated with overload so many things to look at so many things to perceive. What’s the price of this? What’s the price of that there’s so many people there’s all these products signs colors, you know just wow in it just tires me out when I
Andrew Baker 5:25
go to the mall, you won’t have to worry about that because most of the malls now are going to be closing
Andrew Baker 5:31
retail Armageddon,
Jason Hartman 5:33
the retail apocalypse as it’s been called. And I think there is a potential us apocalypse I think there is certainly a European apocalypse going on. I just got back from from Europe. Two days ago, I and spent a day in New York and now I’m back, thankfully in Las Vegas. And yeah, it’s pretty interesting. But the thing I want to point out about that brain being a cognitive miser My point is Andrew, I think you’ll agree with me here is that most People, I mean, all of us to a degree, we want to conserve our brainpower. So we don’t try to think too hard a lot of times. And, you know, that’s what I love about a person like Mark Stein, because he really digs You know, he, I can tell he’s the kind of person and I’d love to have him on the show in the future. We’ve asked him once, and we didn’t get a response, but hopefully we will get them soon. We certainly had a lot of other more famous people than him, but he seems to dig deeper. You know, like when I can tell he’s the kind of person who when he thinks of something, he thinks deeper and then he thinks the layer deeper than that and peels that onion back. And that’s what makes him so interesting to listen to. But tell us
Andrew Baker 6:38
about that house down the street. I don’t know what you’re going to say. You wanted to talk about that to your point. It is funny because you know, your brain is a muscle and if you don’t use it, it’s gonna atrophy and you know, with her, and the more you flex it, the more you know, you’ll be able to use it to your advantage and we kind of laugh my wife and I because you know It had been awhile that we started going to this gym more regularly. And, you know, when you’re trying to figure out the weights to do exactly how much, you know, lifting you need to do. It’s funny how this grade school math you go, Oh gosh, I’m so bad because I haven’t had to exercise that part of my brain in a while. And, and so we had to just sort of laugh at it. But But yeah, as far as this house, you know, so we live in this little historic community. And I want to read a house description for you. This is about, you know, probably 10 doors down from our house. And it’s, I want I want you to both guess how much it’s for rent. And then and I think you might get a kick out of this. So it’s a four bedroom, three bath, Queen Anne’s Victorian style house. It’s 2200 square feet. And it’s for lease and it’s cute inside, you know, original dug for, you know, flooring and, you know, and so I’m just curious, what do you think a four bedroom, three bath house would rent for you might be pretty good at this in your neighborhood. It aren’t marked on our neighborhood.
Jason Hartman 8:06
Well, I don’t know. But I wish he would tell me one number because I can guess the other. And interestingly, I just a little quick sideline. Before we wrap this one up yesterday, I was in Uber car. And the driver, the Uber driver was from Bangladesh. And he told me that he had an apartment in Bangladesh that he purchased in 1998. Or maybe it was 97. Yeah, 9720 years ago, and he paid $100,000 for it. And he said it had skyrocketed, I think I think the city is called DACA. I think as the name forgive me if I’m wrong on that. But I had read that both Bangladesh and Sri Lanka had two really expensive real estate cities. So he said, and he we were talking all about real estate and he didn’t know I was in real estate, by the way. We were just talking about New York real estate and somehow it got onto this. He said today it’s worth $875,000
Andrew Baker 8:56
Oh my gosh.
Jason Hartman 8:57
Yeah. Can you believe that? 20 years later and hidden So the market there is skyrocket. And I said, How much do you rent that for? And he said, Well, I rent it for $1,000 a month. And I thought, oh my god, terrible. And he thought he was doing great, of course, and he said, but but the tenant pays for the maintenance fees, which are like two or 300 per month. So 12 1300 per month, really, right, whatever that means. But then he said he was looking at a place to buy because he rents in New York City, and I was telling him that not in New York City, specifically but Long Island, okay. And, and he said, he, he’s looking for a place to buy and he’s looking at a place but the downpayment is pretty steep. And I said, How much is the place you’re looking at to buy? And, you know, I said, How much does the house you’re worth you’re living in now, how much is it worth? And I can’t remember which number I think we were talking about the house he lives in now. And he said it was worth $430,000. And I said, Oh, well, I’m guessing you can rent that place for 2500 He said exactly how
Andrew Baker 10:01
do you know that?
Jason Hartman 10:02
I said, Because no matter where you go on planet earth unless it’s government controlled, in terms of the marketplace, the ratios are always the same. Okay, now on his Bangladesh apartment, he should be getting at $750 per month at 1% rent to value ratio, or RV ratio, which I told him, he thought that’s impossible. And I said, Yeah, I know. That’s why you should sell it and buy eight houses with them for 1000 a month each.
Andrew Baker 10:29
You’re a bridge. Which boy, isn’t it? That’s getting hard? Well, it is. Yeah, even the 1% which is kind of surprising. I would have thought that that was a metric that would be easy to obtain, but it’s the market the markets appreciated, it’s pretty hard to get 1% but you know, still haven’t be the target. get as close to it as you can with decent quality properties. Of course, if you go to crap properties, where it’s gonna be really hard to collect the rent, you can get 1% all day long, even better, but well, you can get it on the performer but can you get it in real life? That’s the question. Okay. So, so you got to give me one of the numbers on the house either what the rent is or the value. Okay, before I tease this out totally I want to read you this description because I think it’ll just bring more into light. So you’re gonna find this funny landmark 1905 three story Queen and Victorian with four bedrooms. Two and a half baths is rich with history and was the original set for the movie big momma’s house. So this is a house that obviously is nice, but you know, I think big momma’s house was with Martin Lawrence. And it was like, you know, Martin Lawrence dressing up in a fat suit and being like this kind of, you know, grandma with a spoon wanting to hit you or something? I don’t know. I don’t know. I you know, so I what I thought was funny is like, here’s a house that’s representative of someone who’s, you know, middle class, maybe even slightly, you know, lower middle class and this is the house that they picked, like, you know, how many times have you seen Commercial where someone’s going to the front door with an apple pie. And you look at the house and you go Yeah, that’s supposed to be the middle income, you know, middle class type house going next door asking if they have sugar. And today those houses are worth millions of dollars. And I just thought Boy, that’s funny that that stuff is like so unaccessible now to people who are even upper middle class you know and so this house is like they said a four bedroom two and a half bath they’re asking 70 $500 a month for Wow. And and that Yeah, and in fact, I thought that was so insane.
Jason Hartman 12:37
They’re never gonna get that or they I mean, that’s no way
Andrew Baker 12:39
you know, why don’t
Andrew Baker 12:42
you know it’s hard because the zestimate a house like this was selling for about has gone up. I’ve seen about 1.2 1.3 which is they’re not gonna get 70 which I mean in 7500 is what a house in Laguna Beach was selling for was renting for 70 $500 Maybe even slightly cheaper than that, like a nice house and Laguna Beach was at this rate, but I’ll tell you what, Jason, I’ve looked at other rentals and literally three, four doors down. a two bedroom, one bath $4,000 a small three bedroom two baths. $4,000 It’s just nuts. So,
Jason Hartman 13:25
yeah, that’s that’s crazy. That’s crazy. Well, interesting stuff for sure. So yeah, the point is having these smaller, less expensive houses diversified into many markets with good RV ratios are that’s the way to go. I mean, it’s just totally the way to go. So yeah. What what’s your next game plan with your real estate portfolio?
Andrew Baker 13:48
drew? You know, I’m not sure I think I have to. I think I would like to go into another market and you know, or possibly, I am looking in northern Indianapolis. Like fissure, Carmel, or Noblesville, I’m sort of looking into those areas right now. Because there’s a lot of investment going on there, some big companies are moving into that area. And, you know, you can get a nice new build for, you know, 225,000 and rented out for maybe, you know, 1800 to 2000 a month. And I think you get a better quality tenant, you know, you don’t have instead of having one renter that’s renting a place for 1000 bucks a month, and you have, you know, a utility utility bills and property taxes, you know, I don’t want to have everything. If I can, I’d like to find a place where, you know, it’s maybe a little bit more expensive, but you have a higher quality tenant, you have more rent, you don’t have you have less complexity, you know, you don’t have two dishwashers. So I’m kind of looking in that that that area, but since I own so many in Indianapolis right now, and I’m not sure I might tease it out and think about somewhere else. Interesting stuff. Let’s talk a little bit about the US and where it’s going and kind of contrast with some of the rest of the world a little bit. And then let’s talk about some technologies that are going to really impact real estate investing, and the world in general. As you all know, listeners, I think it’s an amazing time to be alive. But interestingly, I must have had a doctor in Jekyll, you know, personality, or Dr. Jekyll and Mr. Hyde personality, because, in some ways, I’m like this super optimist, right? But in other ways, you know,
Jason Hartman 15:35
I listened to a lot of negative stuff. And I don’t know maybe that’s the you know, I just try to balance myself out. I am a Libra After all, the sign of the scales. So maybe that’s the reason but you just got to hear both sides of the equation. And remember that everything is relative. The question to always ask ourselves, I think is Compared to what? I think that’s the magic question of life in every category, compared to what with a question mark, and as bad as things are around the world, as bad as things are in the US as mired in bureaucracy and political correctness, as we are in the US, and you know, it’s it’s better than Europe. I’ll tell you that I just got back from Europe and what a mess. So many levels in so many ways. But yeah, I don’t know. I mean, Drew, any any thoughts on that? I want to play a little clip from Mark Stein here.
Andrew Baker 16:39
Well, you know, it is funny. I think my actually my first time traveling outside the US in a major way, like I went to Canada and Mexico, but I think my first trip outside the US was to the Caribbean and I think when we traveled for a month together, and so it was interesting doing that trip with a group of friends and getting disturbed. That’s when you and I
Jason Hartman 16:59
traveled together. With a couple of other friends this was like seven years ago I think we bought the Jet Blue all you can jet pass and traveled around for a month everywhere JetBlue flew Yeah, that was pretty. I wish they’d bring that program but yeah, I think
Andrew Baker 17:13
I think they stopped it because of us. They were losing money. Yeah. But you know, it was funny when when I when we went and traveled over there getting the chance to see the contrast and I remember doing that trip, I think we went to St. Martine and Angola and then came back to you know, the boring Orlando Winter Park and going into the Walmart with those like blinding halogen lights and just seeing all the abundance just how much it hits you in the face versus going to you know, what basically is a third world country you know, a pig with lipstick on and, and seeing that contrast. So yeah, it is funny how much how much abundance we have here. When you say compared to what?
Jason Hartman 17:57
Yeah, compared to what exactly and I tell you how This morning I woke up at about 5:30am. And I went out I did a bunch of errands really quickly. I stopped at Lowe’s hardware store and I just could not believe the abundance the selection. Then I went to Trader Joe’s and I couldn’t believe the abundance the selection. And Trader Joe’s is a small grocery store. And I’ll never forget, I’ll never forget that time that I got back from my first trip to Latvia. Now I went to Riga Latvia, for my third time on this last trip. My country count still stands at 81 countries. I did not visit any new countries this time. I just repeated. And you know what they built this new Albertsons grocery store in Irvine, California when I lived there in quail Hill in Irvine, California, and I know a lot of listeners in Irvine, so they’re gonna be hearing this and saying, Yeah, and I walked into that Albertsons, and I just I was overwhelmed with the abundance of selection. how cheap the prices were, and how it’s just incredible. Like how, As Americans, we do not appreciate this enough. We’ve got to just constantly appreciate this, the standard of living, and I’m not saying everything’s about money, it’s certainly not. But it’s, that’s part of it. Okay, there’s no question about it, it means something. And that’s really true. But on the negative side, let’s just listen to a little clip from Mark Stein’s book called after America, get ready for Armageddon. It’s interesting Drew, because I played the Harry dent interview from a year ago on on the last episode of this show, and you didn’t hear that yet. But
Andrew Baker 19:44
tell us a little bit about your thoughts on your last Harry dent book that you finished? Well, I don’t know in the interview that he calls to have the duck to have the next 10 crashes or something. Yeah, he
Jason Hartman 19:56
made he made a lot of doom and gloom predictions and you know, I don’t know what this is about. about these guys, but in general, I think the doom and gloom thing just sells better. You know, there’s an old saying in the newspaper business, if it bleeds, it leads.
Andrew Baker 20:08
Why? Yeah, I think he, I think he believes what he’s saying. And I, for a while, I believed what he was saying, too. And I think what should happen on paper and what happens in reality are different things, you know, stuff takes longer to happen, stuff happens quicker than it should, you know, so kind of how it how it manifests itself. I think sometimes even though maybe he’s right, in philosophy, you know, it doesn’t always work out that way.
Jason Hartman 20:33
You know, that’s true. That’s true. But yeah, Harry dents got a lot of predictions that are just all over the board. And I don’t know, I don’t know what to think about them. But, but we’ll see. But let’s listen. Let’s listen next time for a minute. Okay. I think you’re gonna have some good, interesting thoughts on this. And I think our listeners will be fascinated. Pardon the audio quality. I’m literally just playing this from my iPhone speaker. So here we go. This will be about a seven minute clip, but we’ll probably interrupt it for some commentary. So let’s listen And Mark Stein from his book after America.
Andrew Baker 21:03
Okay, so where is it?
Andrew Baker 21:07
crescent moon. Half a century ago the future felt different. Take 1969 quite a year in the aerospace space. In 112 month period, we saw the test flight of the Boeing 747 the maiden voyage of the Concorde drf’s deployment of the Harrier jump jet and Neil Armstrong’s giant step for mankind. Buzz Aldrin packed a portable tape player with him on Apollo 11. And so Sinatra is ringing Dean recording a flight to the moon became the first human music to be flown to the moon and played there at any other nation beaten NASA to it. They demand the occasion with the Ode to Joy or also spread Zarathustra, something grand and formal. But there’s something marvelously American about the first human being to place his feet on the surface of a heavenly sphere, standing there with a cassette machine blasting our friend and the Count Basie band in a swing in Quincy Jones arrangement, the Susilo swagger of the American Century breaking the bounds of the planet in 1961 Before the eyes of the world, President Kennedy had said American ingenuity a very specific challenge and put a clock on it. This nation should commit itself to achieving the goal before this decade is out of landing a man on the moon and returning him safely to the earth. That’s it no wiggle room. A monkey on the moon wouldn’t count nor an unmanned drone nor dune buggy that can’t take off again but transmits grainy footage back to Houston as a rustle in the crater it came to arrest it. The only way to win the bet is with a real live actual American standing on the surface of the moon planting the Stars and Stripes. Even as it happened, the White House was so cautious that William Sapphire wrote President Nixon a speech to be delivered in the event of disaster. Fate has ordained that the man who went to the moon to explore in peace will stay on the moon to rest in peace in America did it. Fly Me To The Moon Let me sing forevermore. What comes after American yearning and achievement democratization. Everybody gets to go to the moon. That almost forgotten Jimmy Webb song from 1969 catches the spirit. The age isn’t it a miracle that we’re the generation that will touch that shiny bauble with our own two hands. Whatever happened to that? four decades later, Bruce childs and Professor of theoretical Medicine at the University of Buckingham in England, wrote that, that landing of men on the moon and bringing them back alive was the supreme achievement of human capability, the most difficult problem ever solved by humans. That’s a good way to look at it. The political class presented the boffins with a highly difficult and specific problem, and they solved it in eight years. telogen continued 40 years ago, we could do it for heatedly, but since then, we have not been to the moon. And I suggest the real reason we have not been to the moon since 1972, is that we cannot any longer do it. Humans have lost the capability. Of course, the sound of the line is that humans stop going to the moon only because we no longer wanted to go to the moon or could not afford to or something. But I am suggesting that all this is BS. I suspect that human capability reached its peak or plateau around 1965 75 at the time, of the Apollo moon landings, and has been declining ever since. Can that be true? Tell them is a controversialist gadfly in British entity. But comparing 1950s to the early 21st century, our time traveler from 1890 might well agree with it. And if you think about it, isn’t it kind of hard even to imagine America pulling off a moon mission now? The countdown the take off a camera transmitting real time footage of a young American standing in a dusty crater beyond our planet, blasting out from his iPod, Lady Gaga and the Black Eyed Peas or whatever the 21st century version of Sinatra and the baby daddies. And half lingers in collective consciousness as a memory of faded, grander, the way a 19th century date farmer in Nazareth might be dimly aware that the great ziggurat of Earth used to be around here someplace. So what happened? According to Professor Charlton, in the 1970s, the human spirit began to be overwhelmed by bureaucracy. The old can do spirit. Oh, you can try to do it, but it will toss every obstacle in your path. Go on, give it a go. invent a new medical device, start a company Go to the airport to fly to DC and find a patent. Everything’s longer, slower, more soul crushing. And the decline in human capability will only worsen in the years ahead. I think
Jason Hartman 25:09
this is one of the comments I want to make. I want to just stop that for a moment about the European experience. And, you know, Drew, I just I mean, you’ve been to Europe, I’ve been many times I was born there. It’s my ancestral homeland. It’s just shocking, that, you know, it’s like, what the US is becoming if we don’t fix this, hopefully, the Trump administration will fix it, who It remains to be seen. I don’t know Trump’s certainly got his share of problems and issues. You know, no one would deny that not even not even a supporter of him. But it’s like, there, it’s every obstacle is thrown in your path. You just try to do a simple thing. And the European response that you hear all too often is, well, that’s not the procedure. It’s not policy. But you know, at least in the States, you’ll have some creative thinking, someone will go out of their way to try and make the customer happy. But it’s just so just like bureaucracy is, is just ingrained in the culture. And everybody seems to look at the government is like their uncle that’s protecting them, instead of the Reagan era, you know, is, is that like the most dangerous words are? I’m from the government, I’m here to help, right? But I look at the government mostly as an imposition as something that gets in the way. And it’s, you know, that’s just, you know, when you’re in business and you live in the real world, and you’re not some Professor living in some college womb, or some student that just got out of that college womb. When you live in the real world you find out to be true. Yes, we need government. It provides some things that we need, you know, I don’t like anarchie But it just it just gets in the way it just stifles innovation. Mark Stein was talking about how, in the old days, all of these great new medical cures were invented. And now with the FDA, it’s just become this. This bureaucracy that’s corrupted by money and lobbyists and special interests just like everything else in
Andrew Baker 27:27
favor. Oh, no,
Jason Hartman 27:29
I don’t I say Yeah.
Andrew Baker 27:31
You know, it’s funny, I was having a conversation with someone about, you know, how the European mindset is, you know, buying your groceries that you need that day and like how that out, you know, in America, we just have this gluttony and how we have so much excess and like how the Europeans do it so much differently. They, you know, have five pieces of clothing that they would wear over and over again and sort of this minimalist lifestyle,
Jason Hartman 27:54
that’s why they some of the subways
Andrew Baker 27:59
some of that’s to be admired But I was telling the person I said, Don’t you realize that they’re doing that of necessity? Yeah, they can’t they don’t have that abundance. They don’t have that option. So they’re doing with what they can. So even though I think we can get a little out of hand, I just thought that was kind of amusing.
Jason Hartman 28:17
Look in the US you can you can say Americans are gluttonous, and you’d be right. Okay, that’s not that’s not untrue. Unfortunately, it’s a sad thing about the US, but at least, I’d rather have the ability to be a glutton and have to exercise my own self control of not becoming an out of control materialist or packrat or collector or out of control consumer or out of control. overeater Okay. Then the then the other way around, where I could be, you know, the person who is forced into, you know, minimalism, you know, like, yeah, let’s at least have the choice. Let’s have our economy and our culture and our legal system. Give us the freedom of that choice. Now we may well become our own worst enemy and not be able to control ourselves, right? The kid in the candy store metaphor. But, you know, that’s what freedom is all about. We with freedom comes responsibility, and that responsibility is self control. So let’s just finish up this mark Stein thing and then we’ll go on.
Andrew Baker 29:24
It’s not just access bureaucracy, but insufficient cash. Yes, we can drone the dopey Obama trans of 2008. No, we can says Talton. Not if you mean land on the moon swiftly win wars against weak opposition and then control the defeated nation. Secure national borders, discover breakthrough medical treatments, prevent prime design and build to a tight deadline, educate people so they are ready to work before the age of 22. Houston, we have a much bigger problem. To be sure there’s still something called NASA and it still stands for the National Aeronautics and Space Administration. But there’s not a lot of either aeronautics or space in the inbox of the agency’s head honcho. A few days after Charlton penned his elegy for human capability, NASA Administrator Charles Bolden appeared on Al Jazeera and explain the brief he’d been given by President Obama. One was he wanted me to help re inspire children to want to get into science and math. He wanted me to expand our international relationships. And third, and perhaps foremost, he wanted me to find a way to reach out to the Muslim world and engage much more with dominantly Muslim nations to help them feel good about their historic contribution to science and math and engineering. Islam The Final Frontier to boldly go where no diversity outreach consultant has gone before. What format foremost Vanessa is to make Muslims feel good about their contributions to science. Why as recently as the early ninth century, Mohammed Al Parviz me invented the first universal horror quadrant. Things have been a little quiet since then, or at least since tacky. Alvin’s Observatory in Istanbul was razed to the ground by the Sultan’s janissaries in 1580. If you hear a Muslim declaring we have liftoff, it’s likely to be a triumphant animal. After lighting up his crotch, as far as I recall, the most recent Islamic contribution to the subject of space exploration came from Britain’s most prominent in Abu Hamza, in 2003, declared that the fate of the Space Shuttle Columbia was God’s punishment, because it carried Americans and Israeli and a Hindu, a trinity of evil against Islam.
Jason Hartman 31:18
Can you believe
Andrew Baker 31:19
that the likes of Abu Hamza, they’re not as easy as it should be not in Europe and Canada, where the state is eager to hold you into court for Islamophobia. But the last one is, NASA is the government agency whose acronym was known around the planet to every child he looked up at the stars and wondered what technological marvels the space age would have produced by the time he was out of short pants. Now the starry eyed Muppets or green boomers, the agency that symbolized man’s reach for the skies, has transformed itself into a self esteem booster is an operation. Is there an accompanying book, Muslims have amassed infidels are from Venus. There’s your American decline right there. From out of this world out of our minds and increasingly unmanned flight from real historic technological accomplishment to unreal a historical therapeutic touchy feely multi culti so we can’t go to the moon. By the time you factor in getting to the airport to do the shoeless shuffle in the enhanced pat down, flying to London takes longer than it did in 1960. If they were trying to build the transcontinental railroad now they’d be spending the first three decades on the environmental impact study and hammering in the golden spike to celebrate the point at which the feasibility Commission’s expansion up from the fifth floor met the zoning board’s expansion down from the 12th floor. Google and Apple and the other Latter Day American success stories started in somebody’s garage, the one place where innovation isn’t immediately buried by bureaucracy. Or at least in most states, not until some minor municipal functionary discovers you neglected to apply for not sitting around on my ass all day permit. Apple and company doing those garages they invented in refined home computers and entirely logical response to late 20th century America. When reality seizes up, freedom retreats and retrenches to virtual reality to the internal where once space was the final frontier. Now we frolic in the canyons of our mind. We’re in the Wilbur and Orville era of the internet right now but at the federal commission vacations commission and other agencies. They’re already designing the TSA uniforms for the enhanced cyber pat down. And wait,
Jason Hartman 33:06
you know what I’d call those. I call them the political correctness thought police at Google, Facebook and now Airbnb. It’s just absolutely scary. This is like the new Nazi book burning the new Fahrenheit 451 where these huge companies get to decide who rents a house illegally, by the way, based on total discrimination, shame on Airbnb, read about it, folks. It’s it’s, it’s in the news. Okay. And and Google and Facebook, the literally the morning after we heard about the Trump election, I’d never heard the word the phrase fake news before in my life. And suddenly fake news was everywhere. That’s how Trump got elected fake news, right. But yet, these big news media organizations have been engaged in fake news for at least four Read decades, it’s, I mean, CNN has been caught red handed the communist news network with their fake news propaganda. So many times it’s pathetic. I mean, it’s just it’s this is just pathetic. So yeah, the the thought police are here. I mean, it’s just unbelievable.
Andrew Baker 34:20
Yeah, it’s really funny that this whole article this whole, you know, essay is talking about NASA and you know, I remember this article that I read not too long ago talking about how how the social warriors the social justice warriors were really upset with target because apparently they hadn’t come out with a female version of a NASA shirt for little girls. And so they had a boys shirt but they didn’t have a girl shirt. And it was funny because target actually responded linking to the girl’s shirt because they had even gone that far of having both the girls and a boy shirt and, and so we’re so consumed with, you know, doing what’s politically correct. Rather than accomplishing anything substantial, you know, and that kind of leads into what Elon Musk is doing with his private SpaceX because NASA just couldn’t get anything done. He went on, you know, now Elan Musk, the world’s biggest crony capitalist. Yes. Well, I mean, you know, the thing is the government loves to give money to Boeing and all these other companies, you know, the industry, the war machine. And, you know, he does tap into that, but, you know, he has called for ending all the subsidies, which I guess is easy to say. But, you know, it’s the thing is, the rules are so skewed that you have to play by that game, otherwise, you’ll lose, you know, whether,
Jason Hartman 35:37
oh, and that’s, and that’s okay. So that same standard then should apply to Trump’s cabinet. You know, the guy who said he was going to drain the swamp, which arguably, he’s not draining the swamp. I don’t know. Yeah, maybe he will. Will, you know, the jury’s just out? I don’t know. I don’t know what to make of Trump. Yeah, it’s too early. But But, you know, all the liberals criticize Trump saying look at who he’s put on. his cabinet, you know, all these people from here and there? Well, how Who’s he supposed to put on the cabinet? Like, you know, I mean, how do you how can you not put people that are big execs and people who have power and connections on a presidential cabinet? I mean, who you supposed to put, you know, the homeless guy down the street? I mean,
Andrew Baker 36:23
yeah, no, don’t be a little
Jason Hartman 36:25
like an impossible thing.
Andrew Baker 36:26
Right. I agree with that. I mean, you know, he’s gonna put people that he knows and have some connection to and have some authority as he should. I think it is a little weird when he’s putting, you know, Trump Jr. and Ivanka on the cabinet, even though maybe I’m told nepotism. Yeah, I think that, you know, when you’re taking your staff from your reality TV show and putting it in the White House, I just think it. I think it’s poor form. And obviously they have no experience. Trump thinks the presidency is a reality show. That’s what’s scary about Trump.
Jason Hartman 36:54
Yeah, I know. But I don’t know. You know, maybe he’s actually a genius and we just don’t know it. Because you He’s controlling the news cycle
Andrew Baker 37:00
I, you know, well, according to Trump genius.
Jason Hartman 37:04
Yeah, well, yes. If you listen to him, one man PR firm,
Andrew Baker 37:09
which was, you know, when he got elected, he was beholden to no one. I mean, he kind of stumbled into winning, in my opinion, and, you know, and then, you know, because they picked a terrible candidate to run against them. And, and then, you know, he was he didn’t know anyone anything. And it seems like he had the ability to drain the swamp. But you know, I don’t know. I, it doesn’t seem like he is, but hopefully, you know, I guess we should give him a little bit more time to try to get something done. I know.
Jason Hartman 37:38
Well, we’ll see. We’ll see. We’ll see. But it let’s talk a little bit about some technology and wrap up with this. You know, as pessimistic as some of the stuff we’ve talked about today is and Mark Stein talked about, I do really think it’s an amazing time to be alive. I think technology could just rescue us all. Hopefully, the government will get out of the way and let it all happen. But you know, to some extent market forces are so powerful that it you know, it’s they ultimately win. Okay. Even in even in North Korea and Cuba, the free market wins. You know, even with massive government control, there’s always a gray market, a black market that’s underneath the government controlled market that always ultimately wins eventually, at least. What did you want to talk about that’s going on with like self driving cars and these amazing technologies that I think will change the real estate game significantly. And just to bring that back into focus, you know, I’ve said before, but the three primary value drivers of real estate have always been what location, location, location, and location or geography are less meaningful than they’ve ever been in human history. I’m not saying they’re not still meaningful. I’m just saying they have less meaning than ever before. through technology through communications technology through transportation to Technology, especially the autonomous vehicle. What did you want to talk about there? drew?
Andrew Baker 39:06
Well, first, on a pessimistic note, I think it’s funny that we’re talking about NASA. Because in light of that, you know, Peter teal had a had a very funny quote that he made a few years ago talking about how we all wanted flying cars, and instead, we got 140 characters with, you know, Twitter and how, you know, there’s been a bit of a stagnation in terms of, you know, technology, you know, in the, in terms of transportation. So, I think that we’re coming to the point now, where things are going to change dramatically. And we kind of talked about this in private, where, you know, I think what’s interesting is, you see Uber, kind of taking over the inefficiencies of the taxi system and sort of trying to dominate in transportation. And you see Airbnb, you know, sort of going after hotels and the, you know, the lock that they have on that and kind of offerings, inefficiencies. people having access, whether it be in their homes and putting that to use. So why don’t you let me just talk about that for a moment. So what you see is you see how the sharing economy is taking all of these formerly dormant, unused resources in the world. Okay. And it’s putting them to work, which is an amazing, amazing thing. And it’s funny because the last European country I was in was Norway, okay, Norway, becoming a disaster of socialism and immigration, even though Norway’s got tons of money in their sovereign wealth fund, I get it, you know, with the natural resources and so forth. But
Jason Hartman 40:37
I’m telling you, Scandinavia, is not looking good. Okay. You just just wait 1020 years, you’ll see what I mean. Okay. But the amazing thing is, when I was leaving the hotel, I was asking the concierge to go to the airport, should I use Uber or what? And she said, Ubers illegal in Norway, and I pulled it up on my phone and I said, No, I got it. Right here. And I already used it once when I was here and she’s Well, it’s illegal. Well, so what if people use it anyway? And who cares if it’s illegal? You know, Airbnb is illegal in New York City, but people use it Okay, is that you cannot stop the power of a great idea. And that’s what the free market is. That’s what capitalism is the most natural and most successful, quote unquote, religion ever in human history is capitalism. And and everybody wants it, it’s totally natural. And you can’t stop it no matter what you do.
Andrew Baker 41:33
Go ahead. Well, you know, I I completely agree. I think what’s funny is that you know, when you look at Uber and transportation and Airbnb with real estate, how it has changed the landscape and in terms of how people approach real estate, you know, a lot of these beach communities have had to just add a lot because it’s changed the dynamic so much there. My wife and I, we went and walked down on the peninsula in Newport Beach, and it’s just every other house on the on that board Walk is just, you know, a beach rental. And so now when you have what would be a, you know, a place that someone would live full time, and you’re competing against someone renting it with four families for, you know, for a weekend, the prices just have changed so dramatically that it has, you know, and think about all the congestion and just issues. So, you know, I know a lot of people have been trying to stop it. Because it does have unintended consequences. But, you know, again, yeah, right, when you have a good idea, and, you know, most people wouldn’t be able to rent a place right by the beach at night, you can, you know, there’s kind of a there’s kind of a give and take, as far as you know, whether it’s good or not, but obviously, it’s the government wants to stop it, because, you know, the hotel industry is probably petitioning them to, you know, get on it, so they don’t take away from their monopoly But well, you
Jason Hartman 42:53
know, they’ve got their lobbyists for sure. Yeah. So to the taxi drivers.
Andrew Baker 42:59
I you know, I think Just kind of I’ve been looking at kind of these trends in. And I think when you say the shared economy, I think there’s a more broader issue here, which like, is about how people are circumventing all this congestion in the UK, in government rules, like whether it be, you know, for example, just solar power, you know, having to be tied to a grid. And now, you know, if you could put solar on your house, and that becomes affordable enough in the foreseeable future, or if you have an old like, you know, electric car, that you don’t have to go to the gas station, and you can power off your, you know, roof panels. Now, I don’t know if it will quite give you enough power. And I know there’s a lot of government tied up in that. But, you know, I think it’s interesting that all these technologies are basically trying to work around the inefficiencies that the government has put there. And I think that’s why we’ve had such a reaction to, you know, to Bitcoin, because the government what they’re doing with money, has, you know, most people are rejecting I think that’s a bubble. But but maybe I’m getting off topic, but I, well, well, the whole cryptocurrency and alternative currency thing as I’ve said before, I would love nothing more than to be wrong about this, I just don’t think the governments and central banks around the world are gonna let it happen. I mean, they’re gonna let it play out a little bit, but somehow they’re going to find a way to control the money supply, they must do that it is imperative to their mission. Yeah, it is where the governments and central banks around the planet gain most of their power through the control of the money supply that is the one last very reliable Bastion that you know, they they can control. And so I don’t have a lot of faith in alternative currencies that aren’t controlled by the government. Now people confuse the Bitcoin thing and I know we’ve got to wrap up through because you’ve got to go, but
Jason Hartman 44:52
they confuse the concept of the block chain, which is part of the technology on which Bitcoin for example, is built And they they confuse that with Bitcoin itself. Okay, those are different things they have to be separated Yeah, well the lock blockchain is great and and you know, any government or the United Nations or whatever, or any central bank can create a digital currency that uses blockchain technology and that would be awesome for them, but they will still control and manipulate it at some level. And that’s how they can control the literally The Wealth of Nations to borrow a cliche from Adam Smith. Not a cliche but a wonderful awesome philosophy. No, you should read The Wealth of Nations by Adam Smith. It’s incredible. The Invisible Hand but government needs to control that they’re not going to give that up okay, they are not Mark my words. They will never give that up.
Andrew Baker 45:47
Now it’ll you know, it’ll be and they’ll, some government will outlawed because, you know, there’ll be some news story, whether it be contrived or real. where, you know, someone’s trying to protect somebody.
Jason Hartman 45:58
Yeah. Oh, somebody’s trying to launch Money and this is the terrorists are using this. So we’re gonna make it illegal and if you do any terrorist and the prostitutes and the drug dealers and the International arms dealers, that’s all it’s gonna be in there, you know? And then there’s gonna be some crash and some bitcoin wallet company. You know, it’s already happened a few times and you know, China’s really come down on Bitcoin, folks, do not place your bets against, you know, the old saying, never bet against the Fed. With my philosophy of investing, you’re betting with the Fed. You’re you’re using, you’re taking the two most powerful entities on earth governments and central banks, and you are aligning your interests with them. And that is the way to go. If you ask me.
Andrew Baker 46:37
Yeah, I watched something on device. They have some great stuff, even though they have an agenda, where they were talking where they were talking about, you know how drug dealers now they’re doing the they don’t deal in US dollars anymore. They deal in gold, because it’s completely anonymous. You can’t track it, and they basically will just and it’s, you know, valuable and highly portable. So It is funny how that how the original money is sort of being preferred now and I don’t know how that will interplay with gold. I know some people have talked about cryptocurrencies backed by gold, but that I just don’t think it’s ever going to work. I’m not buying it
Jason Hartman 47:14
away. Well, this has been an interesting talk. We’ve been all over the board, Drew, we got to wrap it up, especially for you because you need to go. But um, anything else you want to say to our listeners?
Andrew Baker 47:23
Well, I wanted to tease out that last point that I think we were talking about, or we were talking about self driving cars, because I think that that is going to be the next big thing. If we have time to talk about it. That’s going to be the next big thing. And I think I talked to you about how that will change the real estate landscape dramatically. You know, I think now it’s quite amazing how you know, I’m in a, I was in a foreign I was in Denver for the week and didn’t know the area too well. I got on my phone. I went on Uber Eats and I delivered something to the place I was staying in where I didn’t have a rental car. Then you know, the friend I was staying with did this five years. Dollar subscription thing where every ride that you take with Uber is $5. And you can just go anywhere within the town. So, you know, we’re spending, spending $20 a day on, you know, just driving around going to different places walking around the city and then Uber and back. And you know, just how going through all the, you know, insurance and paying the city taxes for renting a car and doing all this sort of stuff just now and sort of getting usurped. And I think that what’s going to happen in the future is people are just not going to, you know, retire couples, and even maybe young people are going to create a nomadic lifestyle where it’s going to be too expensive or predatory for them to be in one place. So what they’ll do instead is just have a vehicle or you know, like, let’s say a self driving motorhome, where they will be able to commute all around and go from place to place and have it drive at night. And, you know, their services can be both mobile and their You know, lifestyle can be in enriched because they’re not going to be in the same place at the same time. And if they can have a peel box in, you know, in Las Vegas, and have that be their primary residence, well,
Jason Hartman 49:12
have it be better yet have it be in Puerto Rico. Oh, yeah, there you go. Even better. But but this is the thing is see all of this concept of taxation is about Nexus tax Nexus, right. And the tax Nexus is always based on geography. And now that geography is becoming difficult, you know, in the old days, if you were a business owner, you probably owned a physical business, which was either a store or a factory, or something where it was definitely clearly defined as to where that was located, and what jurisdiction got the privilege of oppressing, I mean, taxing you, and now that’s become very fuzzy. You know, I think, you know, I think about these immigration laws, and I’ve often thought, Well, what if I want to go live in another country for a while just to have an interesting new experience, right? Say I want to move to Europe, right? That, you know, maybe even Eastern Europe, the land of the supermodels. The problem is, I can’t put up with a stupid bureaucracy in the small thinking European mindset, right. But that’s what drives me nuts. And that’s why I’m glad to be home. But if I did that, you know, the immigration laws that would let me potentially move to another country would say, you know, look that what they don’t want you to do, is they don’t want you to go take someone’s job, they don’t want you to go to take the job of a of a native of a citizen that lives there. But see, I wouldn’t have to do that. I wouldn’t take anybody’s job because I just work from my laptop and an internet connection. Okay. And, you know, do my podcasting, we’ve got this global audience listeners, and 164 countries, clients all over the world that buy properties, admittedly all in the US but in multiple states and jurisdiction jurisdictions. And so, you know, it’s just, it’s just a total New World, and people can be much more nomadic than they’ve ever been. So like my quote,
Andrew Baker 51:06
geography is less meaningful than it’s ever been in human history. I think that’s really interesting. I mean, so I’ll be curious to see how it plays out. Because, you know, the government is going to keep trying to make more rules to pigeonhole people. And, you know, it’s it’s funny how they always are trying to incentivize certain things rather than give people freedom. So it may be whether it’s, you know, telling people that we’re going to give you a tax deduction, if you have more kids to say, and if you buy a house and you have a bunch of debt, we’re going to give you you know, this reprieve or this benefit or incentive. And so, you know, when people book that system, and, you know, technology becomes your friend to basically get around those, you know, incentives. It’ll be interesting to see what happens, you know, where the incentive is, maybe up front But I don’t know how it’ll play out as far as in the long run.
Jason Hartman 52:03
I would say if if someone is a government bureaucrat, they are in a high insecurity position. Nowadays, the power has swung away from governments, and it has swung toward the people. Thankfully, that’s the way it should be. And it is much harder for the government to figure out how to tax people nowadays, you know, they’re trying to keep up with it. But the law and the government are always behind the trend. So we’ll see how that unfolds. And we’ll talk about it more on the show. But needless to say, you know, owning real estate, in divert in diverse jurisdictions is going to be helpful to you in this new world. So following my 10 commandments of successful investing, owning real estate that is not in the expensive markets, because transportation is getting much better and easier and communication as much better and easier. There’s a new app. Forgive me. I was listening to The Wall Street Journal just yesterday. When I was coming back from the airport last night, that basically the you know, some of the new social media stuff that’s taking place in communications is basically where it’s like this living room, very lightweight communication. And if you look at Amazon’s new, it’s not the Echo, but it’s the new one with video where people can basically just drop in, it’s not as formal as making a phone call, or sending an email or a text message or even a boxer boxers my favorite way to communicate, where they can just kind of you drop in and open a video chat, like, like they’re in the same room with you is, is improving communication dramatically. So there’s a lot of stuff that’s changing things and making geography so much less meaningful. So if you’re buying the point here is if you’re buying the typical type of properties that we sell through our network, these suburban type properties in these lower price markets, I think the value of those is going to be pushed higher. Expensive type properties is going to be pushed lower. Right. Yeah,
Andrew Baker 54:05
yeah, I think that that’s interesting. I think that the top plot properties are going to plateau, because they’ve gone up so much. And that will push downward pressure on the lower properties, the properties that are more the be, you know, Beast type properties a second second to your property. Second City. Yeah, absolutely. Because I mean, you think about it in the last decade, you know, we were talking about with my wife went to a baby shower, in Emerald Bay, which is probably like the most expensive real estate in Orange County. And, you know, she was looking at the beautiful house, it was huge and $20 million. Yeah, exactly. So we went looked it up, and it was, you know, $8 million. And that’s what we’re wondering what the Zillow was, and I said, it’s probably worth more than this. But, but it’s probably worth 10 million and they bought the property in 2000 for a million dollars. And it’s funny because you know, it’s gone up 10 times. So that can’t happen again. They can’t go ahead. Not gonna go up another sustainable. Yeah. So I think it’s more going to flatten. And you know, that’s going to put downward pressure on, you know, people what used to be a million dollar house now, you know, that’s going to be more in the B property zone as far as, you know, some more suburban, I think, yeah, that’s, that’s where the, that’s where the action is.
Jason Hartman 55:24
So it’s more than necessity type housing. That’s, that’s where the action is no question about it. And, you know, being in New York City yesterday, I just thought what is the huge attraction about living here? You know, I was there a month ago on my way to Europe, I spent a day there on the way back and you know, it’s just everything is just high on the hassle factor. If he asked me, I don’t get it. I want to get it. You know, I thought maybe I’ll go live in New York City this fall. I’m still kind of thinking about that. Because I’m, you know, very mobile, and I really want to experience some other places. I was stuck in Southern California, the vast majority of my life so I’m kind of one Do that. But it’s just very high on the hassle factor. Of course, it’s super expensive, everything is a fortune. And so I just think that the power is moving away from places like that to the second tier, and even third tier type places that just make a lot more sense life is easier. You can still communicate and have all the benefits of those places. You know, like one of the things New York City people say to me all the time is, you know, you can get food from any type of restaurant 24 hours a day. Well, you can do that with Uber Eats now to folks. Just
Andrew Baker 56:38
Yeah, he’s also when you talk about the hassle factor, I have to laugh because my metric for those sorts of things is how big of a hassle is it to get a case of water in your house? And that’s that’s kind of my metric for how it how easy some more places, so maybe you’re in you know, rural, you know, Montana and you have to drive you know, an hour to the grocery store to buy something and drive it back or you know you’re in New York City and you have to go down five flights of stairs and you don’t have an elevator and you know then you have to walk to the market and don’t forget in New York City and if you have a doorman in your building you’ve got to talk him a fortune because he will not give you will not get your packages if you do not tip your unionized incredibly lazy, greedy doorman in New York City, but yeah, go Yeah, I heard that. Like, if you don’t get him a gift for you know, $5,000 or something for Christmas, they’ll like not Yeah, it’s just something ridiculous. I don’t know. It’s ridiculous. Yeah, yeah. So
Jason Hartman 57:38
yeah, interesting stuff. Interesting stuff. Drew, we got to wrap it up. I know. You’ve got to go to lunch. And our listeners have been listening a long time. So let’s let them go. But we’ll have you back on a future episode. Thanks for joining me everyone. Happy investing Be sure you go to Hartman education comm slash contest and get your last chance in to enter the Amazon Echo. Amazing Technology love that. Also go to Jason hartman.com and get in on the early bird pricing for our upcoming meet the masters of income property event in Southern California, San Diego in January. A lot of you we’ve sold a zillion tickets for meet the Masters already so thank you for buying those and getting in on the early bird special. Anybody who hasn’t done it yet, Jason Hartman calm click on the events section and get your tickets for that, Andrew, thanks again for joining me happy investing everyone.
Jason Hartman 58:29
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional and we also very much appreciate you viewing the show. Please go to iTunes or Stitcher Radio or whatever platform are 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.
To start the show, Jason Hartman hosts Drew as they discuss his journey of self-management and whether self-managing is worth it or not. Afterward, Jason revisits Kyle Bass’ speech about China. Later in the show, Jason explains how Commandment #3 (Thou Shalt Maintain Control) and Tesla’s current situation go together, as the company continues to make some poor business decisions. They compare that in real estate, you can fire someone and get another person to do the same job. With big companies like Tesla, you fire Elon Musk, and the company’s in trouble.
Investor 0:00
IÂ really need to thank you and Sarah for being there for me, you guys could have easily said, This isn’t my problem. This is your problem. Your lack of due diligence is entirely your fault. And not done anything at all. But you guys have been there for me every step of the way. You responded on voxer at 342 in the morning, I know, it might have been 642 depending on where you were, but honestly, who works at that time. So just the fact that you guys were there for me. I appreciate it so much. 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. seven states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:22
Welcome to Episode 1194 1194. Thank you so much for joining me today. I’ve got a good show for you. As always, I hope you think that’s true. Always. You know, we cover a lot of stuff here. So it’s a variety. It’s a variety. Anyway, today I’ve got drew back on the show for a few minutes, because we need to talk about commandment number three of my 10 commandments of successful investing. And we also need to talk about something that my dog is always saying My dog is always saying this. She just constantly says roof roof. DREW Welcome. How are you?
Drew Baker 1:59
Woof woof. I’m doing great. Sorry, Jason.
Jason Hartman 2:01
Yeah, well, that’s actually roof roof. And, yeah, the reason I bring that up is because, hey, my dog can speak English. He can talk about roof. She’s into real estate. You just replaced one of your roofs on your self managed properties. Tell us about your roof deal, folks. The reason I have drew on the show quite a bit. Of course, he’s a client. Of course, he’s a great case study, but he’s also good at getting deals. Now. Some of you listening have had property managers give you crazy ridiculous invoices for a rent ready that is literally close to the cost of drew replacing a whole roof. I saw the pictures. It looks great. Drew, this is a Memphis property I think or is it Indianapolis whereas it’s an Indianapolis, okay.
Drew Baker 2:45
It’s one of the five or six places that I’m self managing in that area. You know I’m looking here at the expenses that I had. And last year I had in the Memphis area I had a roof replaced at their quote unquote cost because the property was basically what happened was the property manager did put a bandaid on a heart attack. And I said, Hey, this roofs a mess. Why are we doing patchwork on this roof? I wouldn’t have spent 1500 dollars to repair a leaky roof that’s 20 years old, I would have replaced the entire roof. So they offered to do the roof at cost, quote, unquote. And they did this for two different properties. In other
Jason Hartman 3:33
words, in other words, they did it at cost saying, hey, looked through. We’re giving you a great deal, right, but I’m guessing the deal wasn’t nearly as good as the deal. You just got.
Drew Baker 3:42
Yeah, so I don’t want to confuse the audience. But basically, they charged me their cost, quote, unquote, which was one of the roofs was 9200 Oh my god, the other roof was 7700 at cost, quote, unquote, because I had a 1500 dollar roof Repair build before this, that was done in a way that I would never have done it because why would I want to put 1500 dollars towards a bad roof to just do this piecemeal, you know, repair to stop one leak when the whole thing needs to go. You know, there’s that analogy of Houdini’s wand where Houdini has his one that he uses it and he breaks the tip while he’s doing the magic trick. And then they go and they replace the top of the wand. And then he gets the one back and he does another magic trick and breaks the handle and then replaces the bottom of the handle. And people say is that still Houdini’s one because it’s a whole new thing, right. I don’t want Houdini’s wand on my roof. If the roof is 20 years old. It needs to go going in there and doing 1500 dollar repair. It’s pointless. It’s not worth fixing. It’s worth replacing. So the point as the point is last year, you did two roofs get overspent this year. You got a beautiful new roof on one of your products. 40s and it was only can I say the price? Or do you want to? Do you want to say Hold on, I’ll set y’all up. So this actually has to do with the show and a lot of ways because I appeared on your show, someone reached out to me and wanted to ask me about self management. I started to talk to them and they said, I bought some homes in this property and have someone who’s a seasoned investor, and they gave me their vendor cheat sheet of all the people that they’ve used throughout the years and the people they liked and didn’t like, I traded in some contacts and he traded me for his contacts. So I reached out to this roofer who does 20 roofs like a week, and it’s kind of the inside guy that everybody uses. He usually replaces about two roofs a day, he went out and bid the job and he did the repair for six. He did the new roof for 1600 and $50. Okay, so as the saying goes and your wife’s name is Katie, Katie. Bye The door Wait a second, you said 1600. So only 1600 dollars. Now that was just for labor, you actually purchase the materials. But wait, there’s more when we get here 10 and getting you a discount, go ahead. So, the thing that was nice is the shingles that the builder used on the property, you know, in 2001, or whenever the property was built, they use shingles that were not resistant to when they’re the cheap shingles that you might find. So the roofer said, Hey, we should get these dimensional shingles that are more wind resistant, because we had an insurance claim on this property because of wind damage because of all the crazy Midwest, polar vortex wind issues. So I’m still dealing with the insurance company on getting them to pay for part of the roof. But the beauty of this was I had to Say in the color of the roof, tile shingles, the quality of the materials that were used. And then I made sure that he bought them at Lowes and the $3,000 worth of roofing materials. What would the beauty of this that’s kind of an irony that you would never know, unless you were self managing is my tenant works at Lowe’s. And she’s an employee there. And she said, Hey, if you leave your receipts with me, I can get you a 10% discount, and they’ll give it back to me on a on a gift card, and I can send it to you. So I got a $300 discount on my roof that will end up costing me about $5,000, which is at least a 50% savings. Jason, if not 100% savings off of what it would have cost me to use one of these other property manager vendors, right, because the thing is, they claim they’re doing this at cost. I agree. calling their bluff. Yeah, well, that’s Bs, I’m sure. Okay, so here’s the thing, just to wrap it up and make everybody understand that then let’s get on to commandment number three. This beautiful new roof. I saw the pictures myself. Looks great. cost you 1600 dollars for labor 1400 dollars for materials. It was probably about $3,000 worth of material. Oh, I thought it was 3000 total when you said that to me? Yeah, it was. It’s 40 $400 or 40 $600, then
Jason Hartman 8:30
correct. Okay, so it’s about half price. But wait, it gets a little better. Because your tenant who you now since you are self managing your property, you have an actual relationship with your tenant. Normally, this is this sterile thing. There’s no people helping people. There’s no sense of community. There’s nothing there’s no relationship. Your tenant said, Hey, by the way, you bought those materials at Lowe’s. I work for Lowes, send me your receipt. I’ll go and get you a 10% credit, because that’s my employee discount, right?
Drew Baker 9:05
Yeah, exactly. Unbelievable.
Jason Hartman 9:07
Awesome.
Drew Baker 9:08
Awesome. Yeah, you, you couldn’t make it up. So it’s sort of like building your own network. And I mean, this all came together because of your show, and talking to an investor in the investor talking to me and kind of that network effect of having a relationship with these people. And everybody’s happy at the end. Yeah. So it’s really, really turning a situation for the best
Jason Hartman 9:33
look at we talked about commandment number one, which is now shall become educated. commandment number two, you know, basically, thou shalt have a team, right? A network, right? That’s essentially commandment number two, we talked about investment counselors and so forth. And part of that network, part of your team. listeners, I want you to think of it this way. part of your team is literally your own tenant, your own customer. I mean, Look, take my business as an example, all of you listening, who are clients of our firm? You help us all the time we love you for it can’t tell you how much we appreciate it. Look, Drew’s a client. He’s not being paid to be on the show. He’s just helping out because well,
Drew Baker 10:15
I’ll share a good story. I’m gonna send you your bill.
Jason Hartman 10:19
You’re not sending me a deal?
Drew Baker 10:21
Well, you know, you’re totally right, Jason. And also, you know, my tenants are a valuable asset to me. And one of the properties that I have, it was a duplex. And so lawn care was my responsibility because it’s a common area. And I talked to the tenant, and she said, Hey, one of the trees is falling over in the backyard. I had someone out there the next day to remove the tree. I got a bid for them to do lawn care, and it was outrageous. And I said, No, thanks. So I talked to the tenant again, and she said, You know what? We’re having such crazy winds in this area. Since this is a common backyard. That sprawls because there’s no fences, I think you’ll be wasting your time doing a bunch of cleanup because the winds just gonna transfer all the neighbors leaves over to our yard or back and forth. So it’s better to wait for the wind to die down the weather to improve and then do the cleanup. So I said sounds great. So she texted me today and said, Hey, have you had anyone to find to do lawn care? So I said, Well, I I reached out to a couple people that I had, and no one responded to me. So would you do me a favor and keep your eye out for the next week and see if you find someone in the area that’s doing lawn care, and get their information, and I’ll hire them. So I sort of put the responsibility on the tenants to find the person for me rather than me cold calling people to see if they’ll come out and deal with it.
Jason Hartman 11:53
So that’s the point I was making. Look at. I want you to look at you know, every guru out there will say hey, if you want to invest in real estate and you want to be a big real estate investor, you gotta have a team, right? You’ve heard it before, folks, it’s not new part of your team is your own tenant, your tenants are part of your team. They are your customers. And they’re also a valuable asset, they will help you, you’re all moving in the same direction here. So look at your tenants as part of your network as part of your team. Okay, make sure you do that. That’s really important. And that’s a good lesson. And that’s another benefit of self management and of having those tenants on your team to be an asset. I can’t tell you the number of times through over the years that I’ve had my own tenants, repair things, fix up the house, meet contractors for me, you know, I mean, I’m not local, I can’t meet them. The tenant will meet them, the tenant will take their phone number and set up the appointment and just do the whole thing. In fact, I remember one tenant who was telling me that, you know, he was giving me his opinion on Which estimate we should go with? And he said, You know, I think this other guys overcharging you, you know that that’s too much, you know use the cheaper guy, these tenants most of them are just great people. I mean, I know we hear a lot about bad tenants here and there but the vast majority of them are just really nice good people that just want a good place to live and are happy to pay you the rent and help you be a better manager. Now drew one last very quick point on that. People listening and you’ve addressed this before in prior shows and it meet the Masters they’re probably thinking, Oh my God, he’s spending so much time on this. This is his full time job. Not really, you’ve got a very successful business that you run, got a new baby and and another kid as well. You’ve got lots of other things to attend to. So do you feel that this is worth your time given that you’re a highly compensated person, the self management or or are you doing menial work here? Tell us how you feel about that real quick.
Drew Baker 14:01
IÂ think part of the performance of this asset is my oversight. Because if something is being managed by a third party, they’re not going to do as good a job as I am. So I don’t think it’s fair to talk about how much money I’m making per month, when once I’ve resolved all these problems, I have that compounding effect of you not having that accounting competency, you know, building up inside the property. So I think there’s a lot of unseen benefits that I’m going to get from this that I’m already starting on. Where the first couple months, it was a little bit more trouble than I would say it was worth if you were looking at on a monthly basis. But now the amount of work I’m fielding and the amount of projects I have has gone dramatically down here. And if you think these property managers are doing one or two things every month at your property, most likely they’re not
Jason Hartman 14:55
Oh, no, they’re just a lot of them are just overcharging people. So you know, we want to empower people. And I really recommend the self management if you have never tried it, try it once, try it with one of your properties, see how it goes, you’ll be surprised how little time it takes how overall your tenant turnover will be reduced, your expenses will be much lower, your whole experience will just be better. I bet. Yeah. Well, I mean, you know, now I’ll say that of course, and, and you know, someone listening will do that. And the first experience will be the bad unlucky, you know, experience that everybody’s going to have once in a while, but overall, I just think it’s a much better deal. Okay. Hey, let’s move on from the self management. We got two more things to cover and Drew, can we jump into Kyle bass and then we’ll talk about commandment number three? Sure. Okay. We promised last week, we would just wrap up this video that I played while I was in China. It’s quite interesting. So let’s just finish it. You know, we’ll have a couple comments on it
Drew Baker 15:52
to Gordon’s point and the thinking back to the fall of the Soviet Union, it looks to us like I don’t want to say fraud. But let’s say the The disingenuous nature of the exchange rate between the RMB and the USD. So he’s
Jason Hartman 16:06
talking about China manipulating the numbers, essentially between their currency, the RMB, or the one and the dollar, you know, saying it’s it’s disingenuous, the way it’s portrayed in the Chinese economy is not nearly as good as they would have you believe.
Drew Baker 16:24
Back then China is completely running out of dollars and raising dollars through Hong Kong. And Hong Kong is as levered as it is and running out of its own rainy day funds. If you have money invested in Asia, I would rethink that. And I’d rethink it very quickly. And if you have Hong Kong dollar deposits, you’d be foolish not to convert them in the US dollar deposits because the you don’t even earn 80 basis points more and in overnight rates. So I think this is multifaceted. You need to think about the nexus of Hong Kong and China economically. But then we go to the politics and I know a lot of you here are political animals. So if you’ve noticed in the last month or So China has actually floated a proposal through Hong Kong’s legislature that says they would just like to extra judicially grab people off the streets of Hong Kong. If China deems them to be a quote, fugitive and a future that means that they’ve broken a law. That happens to be a law in China and Hong Kong, let’s just use murder. For example, if President g issued a warrant of arrest and calls the Hong Kong Police and says, Hey, this person XYZ committed murder in China and he’s there in Hong Kong, we want you to ship them over to us. Hong Kong is going to be obliged to do that without due process. Now, that’s that’s not autonomous anymore. That is a that is a breach of the 1992 agreement that the US has with Hong Kong. It’s a breach of the 1984 agreement that the Brits have with Hong Kong. And so China believes over playing their hand in a big way in Hong Kong, and I think this legislation is about to become law. The most interesting thing about these agreements is the night 92 Hong Kong us Policy Act is ratified annually by the US president, the State Department as a report to the president and then it’s up to the president to decide whether or not Hong Kong is still quote, autonomous enough for us to give them the status that they currently have. So given the economic fragility of the region, and going back to Gordon’s point, China’s in a really bad place today, running out of dollars flowing with their economy, and the biggest credit binge in world history. Hong Kong is the most levered, developed nation in the world today, and they’re running out of dollars, we have them exactly where we want them right now. We should not sign a trade deal with them, we should go ahead and impose these tariffs, and then negotiate something much more meaningful with them six months down the road. So I think it pays attention you need to pay attention to both the politics and the economics of Hong Kong which for 36 years, has been a relatively stable place. In Asia, and I think going forward, that’s actually not going to be the case. So, Frank, thanks for Thanks for having me.
Jason Hartman 19:06
That’s pretty interesting speech by the very renowned Kyle bass, you know, very renowned in the financial world. Andrew, thank you for sending it to me. I played part of it on the show last week. Do you have any thoughts on that?
Drew Baker 19:20
Well, I mean, I think it shows that the prosperity and the Chinese economy is all based on debt. And it’s interesting that the way they transform their economy, as you might know, is sort of modeled after the American empire of printing money. I think the difference is, is that the Chinese do not have currency that anyone wants to hold, not even the people in their own economy. I mean, if you think about the robber baron era, you know, the JP Morgan’s these folks, when they were making billions of dollars in adjusting to current currency, they kept their money in the US economy. They weren’t going out and trying to get their money out of the system. If you look at every successful Chinese entrepreneur, they are trying to get out. Right? And people speculate that’s why Bitcoin went hyperbolic, because they could literally just dance between borders and cash out, you know, in speculated the same not not worry about the political risk. Yeah. And like you kind of predicted, you know, once these governments see a threat to their monopoly, they’ll just put an end to it. And so that’s why some people speculate that when China said no more, it was only a matter of a few days or weeks where Bitcoin then crumbled. Very, very interesting stuff. Now, the point is that China is hungry for US dollars, the reserve currency of the dollar is not going away anytime soon.
Jason Hartman 20:52
So all of this doom and gloom stuff you keep hearing from you know, Jim Rickards or Peter Schiff, or This stuff it’s super interesting to listen to, but they’re just always wrong. The sky never falls. And they’ve been saying that forever. I mean, I remember when Howard rough was talking about that in the 70s. And I had him on the show, I believe he passed away. But he was a super interesting guy. All of this stuff. It’s just always, it’s just always wrong, because they just do it by math only in the US is in a very good position. And all these Chinese people want to buy our real estate, they want to keep their money in our banks. And hey, listen, it’s certainly not perfect over here. But by comparison, it’s better than what else is out there and most places in the world. So that’s important.
Drew Baker 21:38
Kyle bass has some interesting strategies to prevent China from stealing our intellectual property by basically attacking the businesses that are trying to use sell their products here. The one thing I would disagree with Kyle bass and it might just be a matter of semantics is I think China is going to play the long game, and they’re just waiting for Trump to time And the thing is, is there’s a lot of bluster. There’s a lot of hyperbole. And I wonder, you know, if Trump has all this rhetoric but doesn’t follow through with it, China is going to call the bluff. So I think that’s what I’m in fear of. But what’s nice is Trump is at least trying, so I couldn’t do better than he is in that regard. Yeah,
Jason Hartman 22:20
there you go. Okay. Now, you talked about how China’s economy is built on debt. And, you know, everybody listening is rolling their eyes and saying, well, so is the US economy, so is virtually every economy, and they’re right. But let’s not look at economies for a minute. Let’s look at an individual company, a corporation or really a person specifically, who claims always not to be selling his stock, but he’s just leveraging his stock and borrowing against it. Now, folks, this all relates to commandment number three of my 10 commandments. Thou shalt maintain control. Because when you relinquish control and invest in a stock or a pooled money investment, you leave yourself susceptible to 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. You got past those two hurdles, they take a huge management fee off the top for managing the deal. Let’s go to Tesla. Very much in the news lately. I owned two Tesla’s myself. First one i thought was good. The second one was a lemon. Tesla finally took the car back and gave me a refund. So I stopped pestering them so much and kind of just let it go and, you know, said that’s done that deal. But look at what’s going on with Tesla. No, Drew, this is crazy making what they’re doing. I mean, where do we start? You want to talk about Ilan leveraging a stock or executive overcompensation? Is this company going down and they’re just trying to steal all the money from it before it goes down the tubes or what?
Drew Baker 24:01
Well, there’s a lot of financial engineering that’s going on with the company that’s putting. And I have dubbed it Tesla math, because it’s its own thing. And everything is seen in the best possible light. When ever they come out with a number. It’s always tweaked in a way where it’s a manipulation. I mean, it’s even down to the trunk size where they’re adding the Fronk into the cubic square feet into the trunk. Right, the thing that Tesla has going on right now is the cumulative debt is exploding. They’re losing about a billion dollars a quarter. And the only reason they’re able to mitigate some of those losses is by selling end credits to other car makers, which will soon be disappearing once they all start coming out with their electric model. That’s
Jason Hartman 24:56
like Al Gore selling carbon credits. It’s kind of similar idea, huh?
Drew Baker 25:01
Yeah, yeah, you know, but you also look at the rate of their cash burn. And it has the same hyperbolic explosion as the stock based compensation for the executives, so they keep getting paid more as the company keeps burning through more cash. And so the financial engineering is just absurd. You know, Ilan talks about how he’s never sold a share other than to pay for taxes. This is his baby, and he’s going to go down with the ship if it ever goes down. And he’s a true believer in his word, but the thing is, is that what he doesn’t tell you is that he has leveraged his stock by almost a billion dollars, and it’s taken loans out against his stock. So sure, he hasn’t sold his shares and sure he keeps buying shares. But if you’re buying shares with money, you’re borrowing against your own shares just to get headlines. Is that really a fair assessment of what’s going on.
Jason Hartman 26:02
Yeah, right, right. Very good point. Very good point. It’s pretty ridiculous. What about executive compensation it? It seems like they’re just ravaging the company. They’re just taking all this money
Drew Baker 26:16
out of it at the wrong time. You are brave for being vocal about Tesla because they sure have their fanboys and I would even say that I was one and I think I may were definitely waited you I persuaded you to buy your Tesla I bought Tesla as far as the stock goes and made decent amount of money and I
Jason Hartman 26:35
bought two of the cars and you bought the stock.
Drew Baker 26:38
Yeah, I think I did better than you but
Drew Baker 26:42
IÂ think you did do
Drew Baker 26:43
but the difference is is you know, I think a lot of Tesla fans are thinking this is the dream and don’t bother me with the facts have already made up my mind. The thing is, this persuaded me is the data you know as the stock market and equities rise and Tesla gets all the dumb money. They’re just pillaging that by giving themselves preferential stock prices before certain big moves happen, but I will tell you that that is wearing out, you know, days before Ilan came out with his quarterly was first quarter of the year 2019 results regarding deliveries. It was a disaster. It was dramatically less vehicles and more losses than any analysts predicted. And the thing is, is that Ilan came out and days before came out with a an autonomous investor day to try to get more interest in the stock to kind of distract those from this disaster. His numbers he expected to come out soon, right. So he’s wagging the dog. Of course, he’s a master at that. But you’re going to talk now about his he’s basically now go compete with Uber and Lyft and all the other ride sharing companies all of a sudden, is that what you’re gonna say? Yeah, so days before his whole thesis about selling half a million cars a year crumbled because demand is falling apart, he decided to shift the company’s strategy to get away from that thesis, to say that he’s going to compete with Uber and Lyft and design his own chip board for his car and wait,
Jason Hartman 28:27
all the Tesla owners can now make an extra $30,000 a year he says, if they’ll allow their autonomous vehicles to give rides to people 30 grand a year. I mean, that is crazy.
Drew Baker 28:42
It is crazy. I mean, no way. The lives just have to keep getting bigger and bolder and more outrageous. And it’s wearing off. I mean, days after this autonomous cars event. The stock just went down in price. People just weren’t buying it. What’s funny about it is You know, the idea that this car is going to come to you without anyone in it. And what’s going to be required is that people will have to sit in the driver’s seat with their hands near the wheel if they have to take over. And what insurance company is going to underwrite this by having a drunk person in the driver’s seat having to take control if the car accidentally is about to collide, in the center median as it’s done dozens of times seeing Ilan speak about it. He was just so absurdly dismissive. It looked like he was delusional. He was like, well, we’ll just take the steering wheels out, we’ll just take the gas pedals out, or you know, the pedals out, because nobody only does I mean, this is all coming. Of course, I’ve talked about autonomous vehicles extensively. I love it. I love it. That’s why I bought the first Tesla. I love it, but it’s coming next year. It’s not gonna be here next year. I mean, that’s just ridiculous. Yeah. So there’s a couple things going on in the Part of the problem is Elon is trying to do too much at once. I mean, the Tesla semi hasn’t been delivered. The Tesla solar roof hasn’t been delivered. Full self driving hasn’t been delivered. You just have tons of service issues and quality problems. Yeah. So yeah, I mean, this goes back to when you put your trust in one person, and you lose that trust, it becomes an issue and in real estate, you know, if we don’t like who we’re using, we can fire them and find somebody else to do the job. And the problem is, is with Tesla, if you fire Ilan, what’s going to happen to the stock? So it’s an issue?
Jason Hartman 30:37
Yeah, it sure is. It sure is. It’s it’s absolutely crazy. But again, commandment number three, thou shalt maintain control. You’re all listening to this show, because you want to control your financial future. So just buy some little houses. Ideally, consider self managing them, maybe not either way is fine, but be Control. Don’t relinquish control of your money to a company, a CEO, a mutual fund manager, a financial advisor, any of those people because no matter what they say, or how good they seem, they don’t have your interest at heart. You’re clearly seeing this now with a majorly newsworthy company. So that’s pretty interesting. Drew, thanks for joining us. We gotta wrap it up. listeners, we are getting ready to go to Savannah, Georgia for our venture Alliance mastermind retreat this weekend. And we will be seeing some of you there and we look forward to it. We’re focusing on tax lien and tax deed investing at this retreat will tell you how it went next week. Thanks for listening and happy investing to all. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes, be sure to check out the show’s specific website and our general website Hartman media.com For appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
Jason Hartman hosts Investment Counselor, Sara, to discuss her three new properties in Memphis. They discuss how competitive the market is and how one of her clients beat her to some properties in the area. Later, Jason does a client study with Dr. David D’Ambrosio who shares his experiences with 1031 Exchanges on properties in the Orlando and Indianapolis markets. They go through the tax benefits of real estate and why they think its the best investment.
Jason Hartman 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present, and propel you into the future. Enjoy.
Announcer 0:15
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. Here’s your host Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:05
Welcome to the creating wealth show. And thank you so much for joining me. This is your host Jason Hartman with episode number 738 738. Again, thank you so much for joining us listeners from around the world. We are going to give you a client case study today. We love it when our clients come on the show and hear one of our many doctor clients is on the show, talking about his investing journey, the past, present and future. And we’ll talk a little bit about equity stripping. We’ll talk a little bit about 1031 exchanges. We’ll talk a little bit about the investing mentality with Wall Street with other investments with doctors and other professionals, and just a whole gamut of things. So I think that’ll be interesting to you. But first, for the intro portion. I invited David who is our client case study today Dr. David D’Ambrosio. I invited his investment counselor in to talk with me a little bit about him and help introduce him. Sarah, welcome. How are you?
Sara 2:06
Hey, Jason. Great. Thanks for having me.
Jason Hartman 2:08
It’s good to have you back on the show. And you just closed on three properties of your own, I think, right?
Sara 2:15
I did. Yeah, I went with properties in Memphis this time around, and I was super excited and eager to get them closed. I want to get them leased up before the holiday season comes around and things are looking promising there. So yeah, I bought two with one provider and one with a different one. So I’m going to try out two different property managers so I can compare and contrast and, you know, keep them honest. That’s
Jason Hartman 2:41
good. That’s a good plan. Yeah, we always like to try and have that customer experience. You know, I purchased a couple properties in Memphis last year, a couple more this year. You know, we’re we’re practicing what we preach and having those same experiences that you’re having. Interestingly, you would Think and this is oddly to me. You know, it’s just sort of interesting that this doesn’t really seem to be true. You know, you would think we are insiders, Sara, you and I would get like special treatment from these local market specialists. I don’t think we do unless, I don’t know. It seems like a pretty normal experience. You know, I don’t think they they bend over backwards for me, they probably consider me to be a pain in the ass. Oh, I said the word the a word.
Sara 3:32
Well, it’s funny because I feel the same way. In fact, we probably get a little less attention because they expect that we know what we’re doing. So it’s kind of like you’re signing the contract, you’re on your own. counsel yourself, you know, but you know, funny enough when I was, you know, ready to pull the trigger and I had my financing lined up and I was starting to look at inventory. I was looking at a few different markets and it really my decision just came down to what was available and I actually lost out on two properties to my own clients. Because I didn’t pull the trigger fast enough. You know, someone came in from under me and asked for the contract before before I did. So, yeah, I definitely didn’t get any special treatment. If anything, I learned how to make a quick decision.
Jason Hartman 4:17
Your your shame on you, Sarah, that your clients are more decisive than you
Sara 4:24
are maybe, you know, maybe they just saw the deal before I did I you know, I don’t know. But the third one that I that I finally got. I remember seeing it hit our website in the morning. And I hadn’t even gotten out of bed yet. You know, I’m, I’m notorious I, I don’t follow the rules. And I you know, check my email first thing in the morning, which I know you’re not supposed to do that. Right. I do that so yeah. Guilty. So I was checking my email and I saw this awesome house. And I’m like, oh, I’ll just call you know, I’ll just call the LMS local market specialist after I take my kids to school. And then I thought you know what, I bet you This one’s gonna sell so I call them right away. I hadn’t even got out of my PJs yet. And sure enough, right after I asked for the contract, he got an email from somebody else that was interested. So you know, it’s it’s a little competitive right now. You know to find that that great deal.
Jason Hartman 5:17
No question. It definitely is in listeners. That’s maybe one of the biggest things you learn from this episode today. Did you catch it? What Sarah just said, Sarah wears PJs to bed. That’s the big that’s the big takeaway from today’s episode PJ’s?
Sara 5:35
Is that is that a problem?
Jason Hartman 5:37
Yeah, I don’t know. You know, whatever. But we want you to post a picture of your PJs on the Jason hartman.com blog. Okay. We should put it in the show notes because you know, who really says PJ’s anymore. That’s not a kid or a parent talking to a kid I guess you’re a mom. So okay, that’s
Sara 5:59
if you’re lucky enough. To be one of our venture Alliance members, you might catch me walking around the halls in my PJs searching for a water bottle.
Jason Hartman 6:08
There you go. Yes, that’s better Alliance members. We’re kind of a more intimate group for sure. That’s no question about that. But that’s what I love about it too. It’s great. Good stuff. Well, hey, Sarah, you wanted to share a an opinion that you have on rate locks on when someone should lock in their mortgage? Or if they should, at all right, when they when In other words, when they apply for a loan to buy a property? Should they lock the rate? Or should they let the rate float and you had something you want to share on that right?
Sara 6:38
I do because I had some clients come up against this and then it happened to me and and the problem was, so I put the properties under contract before the rehab was done, and that’s happening more and more these days. And so the property was still being renovated and the lender said, you know, when do you expect these to close Okay, you know, the rate locks good for 30 days. So based on the Closed date, you know, they lock the rates, I said, you know, that’s fine. Well, what ended up happening was that you know, and this happens all the time, the rehab took, you know, just a little bit longer and, you know, you have to schedule your inspection and then and then things come up on the inspection report and then you got to send the construction crews back and then you got to send the inspector back out. And that all adds time to your, your, your closing process so so that happened to me and I was pushing up against that rate lock expire ation, which kind of forced me into a situation where I was like, rushing to close and it made me like a little uncomfortable with my closing because I ended up having to get the local market specialist just to put in writing that, you know, they’re gonna provide me with a clean inspection report after I closed. Ideally, you want to clean inspection report before you close. So it just I think it just caused a little unnecessary rushing around and stress to the process. And what I learned is that if I would have Just not locked the rates, I probably would have still gotten the same rate. If it only closed a few days later, I probably would have ended up closing, you know, maybe one week later that I did, and everything would have been fine.
Jason Hartman 8:12
So of course, of course, the risk though is if rates are climbing, you could end up paying a higher rate if you don’t lock right.
Sara 8:20
You could but but you could also be paying extension fees on the rate lock. That’s what I you know, they charge like a daily rate. So, you know, you get the you get the lower rate, but then you’re paying a fee and I, you know, I can take the time to like, do the math and figure out what’s the, you know, what the best way to go because the rates didn’t go up anyways for me, but yeah, that is the rest of the risk is you know, your rate might go up a little bit. They go up and down a little bit every day. So
Jason Hartman 8:48
right. And then basically what’s interesting about what Sarah just said, is that you see how in essence, when you pay for a rate lock, you’re in essence renting the money or your optioning that money because that money has to be available at that rate. And that’s why you pay for it, you know, you pay a certain amount, and then you pay a daily rate for extending it after that interesting. Yeah, just want to have you know, and really, that goes to kind of my broader point. And we’ve talked about this on past episodes, listeners, but the concept of, you know, money, just like anything else, and it shouldn’t even be called money. In our case, it’s currency. Right? But it’s just a commodity. It’s just like coffee beans or soy beans or copper or anything, any lumber, you know, everything’s just a commodity, okay? And that’s how I want you to look at the world and just understand that all those commodities have a price. And those prices fluctuate and there’s a certain amount of demand for those commodities and there’s, there’s a whole supply and demand market for them and, and when I talk about commodities that are the ingredients to a house, or an apartment building, copper wire, glass, steel, lumber, concrete petroleum products, etc, etc, etc. You know, these are not they’re independent of any specific currency, whether it be the dollar or the Euro or the yen, or the real or whatever, right? They have intrinsic value. And we think that’s a good thing. So just a, lest we get off on a tangent but I just wanted to kind of bring that up again. And in by the way, I think this next episode for flashback Friday is gonna be the Donald Trump episode. There’s so much controversy about that guy. I think I’m gonna do the Donald Trump episode on the next flashback Friday. Okay, so listeners Be sure to catch that one. Do
Sara 10:39
you know how many times I’ve like typed on my Facebook and then just deleted my comment because I just can’t even
Jason Hartman 10:48
it’s kind of not worth all the hate you know? So anyways, I’m Gary Gary Johnson is looking awfully good the Libertarian candidate, folks, if if we’re ever going to have a third party I know everybody’s always concerned. I’m gonna waste my vote, you know, but we got to do it. Someone’s got to do it at some point. Okay, we, you know, this two party system is just a total scam. I mean, look at both of these clowns we have running. It’s crazy. But one one’s worse than the other. And I would happen to say that that’s the clinton clown. But they’re both. I don’t know. Yeah, they’re both pretty cloudy for sure. All right. So in addition to rate locks, and politics and commodities, and PJ’s, anything else before we get to your client and share this case study? 00
Sara 11:39
Well, do I do I go on another rant about Obamacare. I mean, I took my son to the urgent care yesterday and I didn’t even stay and get him seen. I couldn’t get it a same day appointment. So I went to urgent care. I cannot believe how overcrowded and understaffed Kaiser was. It was unbelievable. And that was the rant that I typed. And then I just said, You know what, forget it.
Jason Hartman 12:05
Not gonna post it’s only it’s only gonna get worse. I mean, my insurance cost has gone up about 35% since Obamacare, look at if you if you regulate or tax something more, and you know, in this case regulation, but regulation is just a form of tax, okay? Because it’s a burden, right? If you burden something more, you’re going to get less of it. And so this means we’re going to have a lower supply of healthcare in all its forms, whether it be equipment, pharmaceuticals, actual practitioners, you know, doctors and so forth. And it’s interesting we’re interviewing a doctor right and you know, he’s gonna have a lot of opinions about this our case study today. It’s Obamacare is it’s it ain’t gonna work, folks, even even even good old slick Willie, Bill Clinton said Obamacare was a mess, so that I thought that was interesting coming from the same side I’ll even Bill Clinton. So what would you say sir?
Sara 13:03
I just said that it’s just my one of my biggest fears is you know, the healthcare industry and it’s it’s a scary it’s a scary thing. You know, when you take your, your kid into the ER, I mean, this was last year I remember taking Alyssa into the ER with shortness of breath, and she has a history of asthma. But back in the day, when you take a child into the ER, and they have shortness of breath, they get seen right away to decide, you know, if, if they need or urgent care that moment, or they can wait 20 minutes, I had to wait 30 minutes just for the initial, you know, triage I guess they call it. So it’s really like, it’s really scary to me with, you know, with kids and a family and I’m sure it’s scary for a lot of other people. But what does this have to do with real estate? I don’t know. I just,
Jason Hartman 13:47
you know, it has to do with the cost and political issues and, and people that say politics, you know, I get these, like I got this review. I thought this was funny. By the way, Mr. reviewer, I’m sure you’re listening who posted a review on iTunes and said, Fox News for real estate investing. It’s like I thought that was totally creative. So thank you for the review. You know, it’s kind of a half hearted compliment. I understand that. But you know, this is not I mean, I don’t I’m not a fox news guy. I don’t even have TV. So number one, I don’t watch Fox News. Except when I’m maybe in a hotel room. I’ll watch mostly cnn because that’s what they have political stuff, you know, influences. It’s a big part of real estate investing, folks. So, you know, this is not irrelevant stuff. I know, most of you understand that. It’s relevant, but a few people think it’s irrelevant, and it’s not. It’s very relevant. Obviously, it’s an election time right now. So we won’t always be talking about it that much. But, you know, it matters. It’s something that definitely matters. So anyway, without further ado, let’s get on with our show here and shut up and quit rambling before people write me more. More reviews about Fox News for real estate investors was hilarious. And that was Creative, I must say, very creative. Check out Jason Hartman calm we’ve got the new website up, it does have several bugs it launched just yesterday, the property section, we’re going to dramatically improve that, by the way, that’s on our roadmap here, and dramatically improving a bunch of other things and functionality and so forth, and do a lot of things with the website. So look forward to that. We’ve got a really good web development company helping us nowadays. Check out the educational products in the store there or at Hartman education Comm. And then we’ve got another venture Alliance meeting coming up at the beginning of December. So check out venture Alliance mastermind.com we’re pretty sure that’s going to be located right here in beautiful Scottsdale, Arizona. So that’s an easy easy trip for most people. I know a lot of you out there have been asking me about the venture Alliance mastermind group and, and considering joining and I tell you, it just keeps getting better and better. The comments from our last meeting in Seattle, people said to me, Jason, you really applaud This one, the speakers were great. We had some awesome speakers come in and, and we’re just going to keep trying to make it better and better. There are some really big names in real estate here in in the Greater Phoenix metro area. So for our Scottsdale event, I’m going to try and get a couple of them to come in and talk with us. These are people who have been on the show who you’ve heard of, you’ve probably read their books. They’re quite famous, and nobody is confirmed yet. So I can’t mention any names, but I just tell you, I’m working on it. Okay, folks, I’m working on it. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday. So Sarah, thank you for joining me for the intro. Let’s get to our case study and talk to your client, David, and hear about his investing journey.
Sara 16:50
Yep. Thanks, Jason.
Jason Hartman 16:54
It’s my pleasure to welcome one of our clients to the show. It’s David D’Ambrosio and he is located here In New Jersey, and has an interesting story about his journey as an investor, and some of his next plans and talk a little bit about his recent 1031 exchange and so forth. David, welcome. How are you?
Dr. David D’Ambrosio 17:12
Great, Jason. Thanks for having me on.
Jason Hartman 17:14
Good. Hey, thanks for coming on. It’s great. How long have you been listening to the podcast?
Dr. David D’Ambrosio 17:19
Probably a little bit over a year. So I’ve listened. I went back though, and I listened to the older the older ones that I could get my hands on as well. So I probably listened to maybe I would say probably about 300.
Jason Hartman 17:33
Wow. Three hundred, and you’re not sick of me yet. Well, thank you. That’s great. Good stuff, good stuff. Give us a little bit of your your background and, you know, tell the listeners what you do for a living and kind of let’s just dive into your journey as an investor.
Dr. David D’Ambrosio 17:48
Sure, sure. So, I am a physician. I’m a I’m an oncologist, a radiation oncologist specifically, and I’m the son of an immigrant. So I feel like I’m living the American dream. As long as that’s going to last who knows, but I always have had an interest in investing in general and educating myself about different types of investing. And I’ve always kind of come back to real estate in general because of all the things that we we discuss on your podcasts all the time. And I read you know, a lot of real estate books and I think a lot of people probably talk about that Rich Dad Poor Dad book which opened up some some new thoughts in my head, especially the actually the 1031 exchange they mentioned in that book. And my medical partner, Jolla, Tansy is the one that actually turned me on to your network because he he had invested with you. And that’s how I came specifically to to your podcast. I spent a lot of time educating myself before diving in. And the method that I hadn’t started my investing with you was was through this 1031 exchange.
Jason Hartman 19:00
So you were interested in investing and in a great immigrant story. I love that. And, by the way, just to comment on your American dream, as long as it last comment, I think we all unfortunately, and it really is no laughing matter. See the country taking the wrong direction in so many ways. But, you know, at the end of the day, it’s all a game of comparison, right? It’s not a question of whether America’s gotten better or worse. Yeah, you know, that’s, that’s part of it. But it’s just, you know, compared to what is always the question, it’s always a relative thing.
Dr. David D’Ambrosio 19:30
Where’s your family from, by the way? So we’re off. We’re from New York City. Originally, my father, my father came over on a boat into Brooklyn. And then I grew up in Queens, and I live in Jersey now.
Jason Hartman 19:43
Yeah, but we’re originally like you say the immigrant story. That’s why I asked
Dr. David D’Ambrosio 19:46
what part what part of Italy My father was from a little town north of Naples.
Jason Hartman 19:51
Good stuff. Well, fast forward. Now. You You learned a lot about investing and listen to 300 of my shows or so. So thank you for that. And you did a 1031 exchange now. So what did you sell? And what did you buy in that exchange? Sure, so so that story, the story with that was that actually the house that I had grown up, and
Dr. David D’Ambrosio 20:13
my parents had retired a few years ago. And they were looking to sell the house. And my original plan was they were selling it to me, obviously, I was getting a son discount. But my plan was actually to keep that house and rent it in New York City. And I would have had maybe a little little bit of cash flow, if I had done that, but that’s when my eyes were opened, kind of at the same time, I was listening to your podcasts. And I realized that if instead of renting out long term, if I sold it and did a 1031 exchange, that I would I would greatly improve my cash flow, and also my overall investment by instead of just having one switching that over to multiple properties.
Jason Hartman 20:58
So so you sold them property and when did you sell
Dr. David D’Ambrosio 21:02
it the end of last year? Towards
Jason Hartman 21:04
the end of last year? And you did a 1031 exchange on that, right? Correct.
Dr. David D’Ambrosio 21:08
So I transferred that into four properties in Orlando that I bought with the group. And you know, the, the cash that I got out of that and put into those four new houses was enough that I was able to put even more than 25% down so it was really, it was really a very good deal for me. Obviously not having to pay the tax on it was a big thing too. Right. Right. Yeah.
Jason Hartman 21:37
Good, good stuff. So all in Orlando now. It’s interesting. You didn’t you didn’t want to split those up and get like get into two different markets there. I know. You’ve got some other properties. Where else do you own or did you feel you were diversified enough already?
Dr. David D’Ambrosio 21:51
You know, I have I have four properties in Indianapolis as well. I really, really like the Orlando market because I feel like the We’re in a unique situation there that the value is so good for cash flowing. And I think there’s a lot of upside potential for appreciation and I ascribed to your philosophy I’m not an appreciation investor but I thought that it was a good idea for me to try to split split myself up by putting more more of my portfolio there. I think I’d like to get into one more market but I’m things are still settling down with that. But that that was my thought process with Orlando was, seemed to be a nice, a nice combination of good cash flow, but also the potential for some appreciation down the line.
Jason Hartman 22:39
Right. Absolutely. And I think that’s a good decision. You know, one more market get into three total, you just be super nicely diversified. So yeah, that’s definitely a good idea.
Dr. David D’Ambrosio 22:50
The other you know, the other issue with that, too, is these 1031 exchanges when you’re doing in general are a little complicated, but when you’re trying to go from one property to multiple properties, it can get pretty. It can get pretty hairy. And if I was trying to, I was trying to make sure that I had places set up in more than 111 location, I think it really would have complicated things for me with all the deadlines that are involved.
Jason Hartman 23:12
Yeah, that’s true. That’s true with these changes. Did you have any trouble selling your exchange? Were you worried at any point? I mean, the last two, I’ve done I did. I did. Well, I did two of them last year. Actually, I should say the last three exchanges I’ve done two of them last year and one this year so far. It’s it’s been kind of difficult. I’ve been worried, you know, coming down to the deadline on those exchanges. I I did make it on all of them, thankfully. But I was worried that I might not because it was a little bit hard to find properties.
Dr. David D’Ambrosio 23:43
Yeah, I was definitely worried about it. But what I did was you’re allowed to you’re allowed to name I don’t remember the exact rule. I think you’re allowed to name 250% more value of additional properties, not just the ones you take. So when I’m when I made my list I picked about 10 properties, six more than the ones that I actually wanted. So in case any of them fell through for whatever reason I could, I could still pick up the other one, so I didn’t have to lose out on any of it.
Jason Hartman 24:10
Yeah, I know, they keep you the IRS won’t let you just identify the whole world. You know, I wish you could just give them a big list of properties. But they’re, they’re too smart for that they, they only let you I think it’s 200%. Possibly it might be I don’t know, might be 250, I can’t remember. So in other words, if the value of the exchange is, say $500,000, just to use a semi round number example, then you could identify $1 million worth of property if the rule is 200%. By the way, don’t quote us on that because neither of us are sure we can remember. And then you only have to close on 500,000 In other words, to to meet your requirement. So in other words, half of the deals could fall through and you would still meet the requirement and make the exchange without paying any capital gains tax and you would have that nice to throw in there. So
Dr. David D’Ambrosio 25:02
yeah, right? Because you only have 45 days to do the identification which you have six months to close. So you cast a wide net and then narrow it down later. Exactly.
Dr. David D’Ambrosio 25:12
The other thing. The other thing I didn’t realize about the exchange was I thought that it the cash that you have to reinvest, I thought it was only the capital gains, but it’s actually all the cash that you get from the sale. So I had put some money into renovating that house while I was renting it and I know that it was a big deal but I just for your listeners, you you have to spend all the cash, you can’t take any cash out from that sale, you have to spend it all even if it’s not a game, and you have to use at least the same amount of debt that you had on the initial on the initial sale.
Jason Hartman 25:46
Well it’s pretty awesome tax advantages. What do you see in your profession with with other doctors and so forth? Are they are they really into real estate? You know, this is something that I mean, highly paid professionals like yourself, have just Got to build real estate portfolios, because obviously you have a giant tax problem. And, and, you know, thankfully you have great income, but I see a lot of professionals, doctors, lawyers, well, lawyers don’t even make that much money anymore a lot of times unfortunately for them, but they’re just not really doing this they’re not they’re not getting tax breaks for themselves and, and given 40 some odd percent of their money away to the government. It’s, it’s just
Dr. David D’Ambrosio 26:26
tragic, really, it’s extraordinarily frustrating to try to educate people because it’s, you know, these these are people, men and women that devote such a large amount of their time to educating themselves and helping people but they don’t really have any, any real financial IQ. I can’t tell you how many times I hear people talking about you know, I called my stock broker, and this market crash and I just sold a bunch of stock and, you know, I feel like half the time I’m on a soapbox telling them you have got to invest in real estate at least two or three times a day on talking to people about it. on and get on. people involved it really, you know, it really is an absolute no brainer with the tax advantages, you know, not to mention these returns that you’re getting on your cash when you leverage it or just, they’re better than anything else out there and particularly Sure, yeah.
Jason Hartman 27:16
Leverage leverage can become very addictive, that’s for sure. Yeah, it’s, it’s really incredible. Were you one of those people though, because you’re your partner in your business. The other doctor you work with approached you and said, Hey, you should be real estate investing. Are you really open to it? Or were you were you one of the skeptical doctors out there?
Dr. David D’Ambrosio 27:34
No, I was I was always open to what I just wasn’t sure how to go about it. And he’s really he introduced me to the concept of of your model where you don’t invest locally. I was always thinking I would buy some some houses near me and you can’t cash flow in New Jersey or New York. It’s there. The the property taxes here are ridiculous.
Jason Hartman 27:56
Tell us about that for a moment. Yeah, your taxes in New Jersey are so The high I think you have the highest property taxes in the nation, don’t you?
Dr. David D’Ambrosio 28:04
I mean, I’m embarrassed to even say how much my property taxes on my property tax on my house that I live in. is a mortgage payment on. Boy it’s it’s it’s a mortgage payment on probably six, six of my houses all together. Wow. Oh yeah, yeah, it’s bad.
Jason Hartman 28:26
That’s crazy. Yeah, it really is. Anyway what were you saying before I got you on the tax tangent the property tax.
Dr. David D’Ambrosio 28:32
I was just talking about how a lot of a lot of physicians are just not educated, educating themselves about finances and, you know, I try to I try to talk to friends and colleagues about getting involved in this. And I think you were asking about how I got interested specifically. I was, so I was I was saying I was always interested in in real estate but I wasn’t sure how to go about it because you can’t cash flow here. And my partner, my partner, Julia Tansy told me you know, check out this Jason Hartman guy. So I, you know, I started listening to your podcasts and I haven’t stopped but the whole, you know, go into buying houses in other cities where they make sense. Just well first of all I was on I was when I first looked at it, I couldn’t believe how much cheaper it is to live in other parts of the country growing up in New York and living in New Jersey, for the some of the houses that I that I own in Florida would, you know, would probably be four times the amount if they were here.
Jason Hartman 29:31
Yeah, it’s it’s really incredible. I always wonder why doctors have that wrap. You know, they, they say doctors are notoriously poor business people. And I think it’s because they’re, you know, is it is it like the science you’re a scientist, and scientists just don’t think usually I mean, some of them do obviously like yourself, but they don’t think in a in the world of finance and money. It’s just a kind of a different. It’s kind of a different thought process or something right.
Dr. David D’Ambrosio 29:59
Yeah, I think That’s part of it. But I think the other part of it is, is the whole the whole way. Doctors typically think which is that we, we it’s goes on, on set and understood that we have a fiduciary obligation that we do the right thing for our patients. And I think we assume that people that are trying to quote unquote, help us invest our money are looking out for our best interests. And they don’t have the time or the inclination to really delve into that and educate themselves about it any better than, you know, then they do. Unless they have somebody that turns them on to it.
Jason Hartman 30:32
Yeah, that’s an interesting point and Wall Street, just as such a better job of marketing than the real estate industry does. I mean, my industry is terrible at marketing they have, they have the most historically proven asset class, you know, the real estate people, they’ve got the best asset class, and they’re just lousy at it, marketing it. And Wall Street has a really mediocre to terrible asset class, and they’re fantastic at marketing it. So I think that with professionals and with highly educated people, the Wall Street world kind of it just appeals to them because it’s, you know, you can go see a guy wearing a nice suit and you know, he’s got a degree from a good college, or as a lot of real estate people that didn’t go to college or they’re certainly not dressed professionally a lot of times. And you know, it’s sort of like a mom and pop industry, but it’s, it’s such a good investment. It’s such a good asset class. It’s just a strange part of our society. It’s always baffled me to some extent,
Dr. David D’Ambrosio 31:30
you know, it really, it’s, it’s not, it’s not sexy, like the, you know, the the guy on Wall Street, you know, spending $1,000 on a bottle of champagne. But I bet you if you look at his account versus an account of one of your clients, you’re gonna see a lot more wealth in there.
Jason Hartman 31:44
You agree with you, unless the guy buying the thousand dollar bottle of champagne on Wall Street is an insider. Now he probably has a pretty good bank account, and he probably owns a lot of real estate. That’s the irony of it. You know, the irony of it. These insurance companies that sell annuities and products like that is that they’re all investing in real estate with that money. It’s just it’s just such an irony to me that they take their insurance premiums and buy real estate, you know, especially office buildings, they seem to love office buildings, you know, can large institutional investors obviously, and I just thought that was really kind of kind of just a total irony, you know, the way that that works, but it is the way of the world it is the way the world will. Do you have any questions for me that maybe you know, some of our listeners might want to want to get answers to, as well?
Dr. David D’Ambrosio 32:33
Well, you know, I think a big question for me is, where do I go from here? You know, I’m almost at my limit with traditional mortgages. And I know that there’s some, you know, there’s we always talk about or you always talk about, and I read about how there’s these portfolio lenders that will lend you above 10, but it’s almost like this kind of black box where, how bad are the rates when you go above 10 should Just stop at 10 and wait and just do keep doing 1031 exchanges. That’s kind of what I’m struggling with right now is where to move from here.
Jason Hartman 33:09
Yeah. So if you’re at your 10 limit, if you’re married and your spouse can qualify, your spouse has to have income and so forth, then you can do 10 more, that spouse can do up to 10 more, which is which is great. But whether or not you can do that, and you get to 20 properties that way, there are still some pretty good portfolio loan options out there some community banks that will finance you, and I tell you, the rates aren’t bad. I just talked to one this morning, actually, that will finance pretty good rates. Now it’s it’s only fixed for seven years in their case. And I think there’s somewhere in the in the high fours. I mean, I don’t know that’s not bad. Okay. And it’s certainly not as good as 30 year fixed at four and a half percent. I know, but it’s certainly not bad. I mean, Have a seven year fixed and, and maybe by the end you do a 1031 exchange or there’s a refi opportunity or if the rates are insanely high and you have cash to pay it off, you know, what should we you know, I’m not a fan of paying things off, but there are some times when it can potentially make sense.
Dr. David D’Ambrosio 34:18
So will these these local lenders though it’s my impression is that they they really tend to want to lend to local people like would they lent let’s say for instance, I wanted to buy a property in what is it the Quad Cities there? Would they lend to someone living in New Jersey but was buying property in the in their state?
Jason Hartman 34:36
Well, no, you’re gonna you’re probably gonna go to the bank in that market. Okay, you where you’re buying? Yeah, and these are these local community type banks that make really a lot of them big, really sensible loans. You know, they do financing that’s just logical. It’s not dictated by the government and damn well, the government. entities Fannie Mae, Freddie Mac, you know, the sort of pseudo governmental entities, I’ll say, it’s not dictated by them in that sense, you know, they’ll they’ll do some really logical loans with usually 25% down and, and they’re not going to be 30 year fixed because they can’t sell them off on that secondary market. But seven year fixed maybe 10 years if you’re lucky. And the rates very reasonable. I mean, I think this is a very good option. And then after that, you can decide, do you go to a B to R or Lima one, we have a representative from Lima one at our last event in Phoenix, they do some really logical sensible loans too. They can do some good things for you as well. And there there are some good options out there you just it takes it takes a little more digging and they’re a little more fragmented, if you will, in terms of the choices and and making decisions, but but they’re not too bad at all. And not too bad at all. Still
Dr. David D’Ambrosio 35:54
still good when you say seven year fixed it’s still a 30 year amortization.
Jason Hartman 35:59
Yes, sir. To your amortization, and it will become adjustable rate in seven years. And the reason they have to do that is because they’re not selling it off to the secondary market. They’re they’re probably keeping it on their books, or they’re selling it to a another investor not rather than this big secondary market of Fannie Mae and Freddie Mac that has very specific guidelines. Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday.
Dr. David D’Ambrosio 36:36
So let’s say you did something like that. Right. And you wanted to do a refinance of that into a more can you do something like that where you refinance into a more traditional loan? Are you still constrained by that same 1010 property limits?
Jason Hartman 36:50
Oh, no, because we don’t know what the rule will be in four years or seven years or five years or six years or anything in there, right. So the lending climate may become more liberal by then. Or it may become more conservative by then. But the nice thing is, you’ve got seven years to watch and evaluate. And you’re hopefully going to get a really nice return on your property for those seven years, you could sell the property, you could refinance anywhere in between there. You know, in the old days, you could get an unlimited number of Fannie Mae and Freddie Mac loans, but post financial crisis, they first cut it down to four, and then they raised it to 10. And they’ve stuck with that 10 number for quite a while. But who knows that may become liberalized, you just never know what the future will bring in terms of financing options. And the other you do have a risk though, obviously, I mean, you know, goes without saying, but I’ll say it, you have interest rate risk, right? So the rates could could go up, and then you’ll be paying a higher rate, but if they do, and again, there’s always lag time in here, but if they do, you’ll probably see substantially higher rents and low Or inventory of new housing being built. The problem is there’s an adjustment period, there’s a lag time to this. So for example, if rates spike up tomorrow, it’ll take a couple of years for rents to adjust inventory to decline. And that’s the part that kills investors. And this is why the prudent investor in the long run I believe, always wins the game, because they can ride out those adjustment periods. Those storms were the people that bought high rise condos in Miami or San Diego or overpriced property in California or the Northeast, you know, they don’t have that luxury that they can ride out that adjustment period that that storm that lag time when everything is adjusting, but but ultimately, it always does adjust. It just takes a couple of years to see it happen.
Dr. David D’Ambrosio 38:54
Do you think that it’s prudent or sensible to do a cash out refinance? If you can get significant money out through due to the debt paying off or it appreciates a little bit, if that means you’re going to take away your cash flow on a monthly basis, or is that more of a personal decision? I guess? Well, I’m
Jason Hartman 39:13
probably gonna say absolutely, yes. But here, here are the questions I would have. What is the rate on that underlying mortgage you’re refinancing, compared to what are the rates today, on the new loan you would be getting, and you might will get a lower rate or a similar rate. And then I would say definitely take the cash out, because the point is not and this may sound really odd, and it takes you kind of got to get your head around this listeners, okay, because I know a lot of you are going to say this is imprudent, and it doesn’t make any sense. And what are you talking about? I’ve heard it all before, but in a way in a way, it’s not really about cash flow. Oddly, what did Really about his rent to value ratio. Okay? So for example, if someone told you, you could control 100 million dollars of real estate tomorrow, that had very good metrics, very good rent to value ratios it rented for 1% per month. But because of the financing on it, it was fully encumbered and had zero cash flow. Would you still want to own 100 million dollars worth of real estate? Absolutely, yes. I hope you’d say that right. The reason you’d want to do that is because you have other multi dimensional things that will make you wealthy with that real estate portfolio. You don’t have to get monthly cash flow. What you really want is a good rent to value ratio. And this is going to be a bit of a long answer as my usual answers are I know I’ve never been accused of being short winded, but in the old days when before For the Great Recession, you know, some some would say I was imprudent recommending this strategy. But we used to talk about something that I called the deferred down payment. Okay. And the reason there would be a deferred down payment is number one, the market was appreciating very quickly, and rents take a while to keep up and adjust to the appreciation there they lag appreciation, which always seems to happen faster. And you could buy properties with no money down. Okay. So the question was in this equation, I used to show this at my seminars on a spreadsheet, I use, you know, and I don’t have it in front of me, and I don’t remember the exact example but the concept is this, that, you know, if you put 25% down, for example, the property could yield you, maybe $300 per month in positive cash flow. But if you put nothing down, you would be zero cash. Cash Flow, or you might even have negative cash flow. Now, the lenders won’t even let you do this anymore. But in the old days, they would. And a lot of people listening will say, well, Jason, isn’t that the reason we had a crash? Well, not exactly. Not on these types of properties. That wasn’t the reason. The reason was, is that people were using this strategy to buy stupid properties in Southern California or elsewhere. That never made sense anyway, okay, because they had bad rent to value ratios. That’s how you can tell if the deal makes sense not by the cash flow, but by their rent to value ratio, okay. So, the the time horizon on this equation, this deferred downpayment equation was that it was basically about nine years. So, if you get your $300 a month, or you get zero per month, in the in the difference in the amount of money you put down if you just kept that money in the bank and drew on it at a rate of 300 dollars per month. And, you know, I don’t remember the exact number. So you may be doing the math and saying, well, Jason, that’s not nine years. But the example I used to show it was nine years based on the interest rates back then. And based on the rent to value ratio back then, and based on the down payment options back then, it was basically a nine year breakeven point. So I would rather have my 25% in the bank. In other words, your cashout refi, you have control of that cash, then have that $300 a month in positive cash flow. I mean, that’s an easy decision for me to make in that way. I would rather have the property more leveraged with less cash flow, but more money under my control in the bank or giving me the ability to buy more and control more real estate. Does that make sense to you? Or do I sound like I’m crazy
Dr. David D’Ambrosio 43:52
now that that makes that makes a ton of sense? Absolutely not answer the question. Sure.
Jason Hartman 43:58
You always really Want to lean in favor? And it depends on the climate in the market. So no answer is ever completely simple. But you always want to lean in favor of the idea of equity stripping, pulling the money out of the property, having control of the cash, and still having control and ownership of the property. That’s the beautiful thing about real estate, you can acquire the asset, put some money down to acquire it, and then later, get all your money back out and still own and control the asset.
Dr. David D’Ambrosio 44:31
I mean, can you do that?
Jason Hartman 44:33
Yeah, and you don’t have to pay tax on that borrowed money that you took out? It is a absolutely beautiful, beautiful asset class I absolutely love it for for not just that reason, but many others as you know. So good stuff. So what are your plans? Next, you’re gonna get into a third market. It sounds
Dr. David D’Ambrosio 44:50
like right. Um, yeah, I’m gonna I’m gonna think about it. I’ve, I listened to the, to the pockets on the Quad Cities. So I’m looking at that a little bit. I’m probably gonna pump the brakes, pump the brakes, since I did so much this year and maybe maybe do something early next year, but I don’t want to wait too long because I know the interest rates at some point are going to start
Jason Hartman 45:09
going off. It seems like they would have to doesn’t that it’s just, it’s just what I’ve been saying that for five years. I’ve been saying it for 10 years. So I’ve been wrong. My interest rate predictions, but I tell you interest rates are very, very difficult to predict, because they’re basically they’re basically set by Fiat, you know, by Federal Reserve and government policy overall, the best place and I want to get them on the show. I don’t know if it’s the best but you know, it’s it’s well known in the world of interest rate and banking is a newsletter called grants interest rate observer, and I want to get a representative from that group on the show. haven’t done it yet, but they seem to have some pretty good insights into interest rates. But again, it’s a roll of the dice. Nobody really knows not even Janet Yellen at the Federal Reserve. She doesn’t even know He’s gonna do next quarter always so we shall see. But David, thank you so much for being on the show and just sharing your story with our listeners and in your experience and we appreciate your business and just want to wish you continued success and happy investing.
Dr. David D’Ambrosio 46:14
My pleasure. Thanks for having me on.
Jason Hartman 46:18
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional and we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
In this episode, Jason Hartman interviews Muthiah Nachiappan. They start the episode by talking about property management contracts and how it always favors the person who is drafting them. The discussion then revolves around managing the properties through self-management, a la carte services, and flat-fee property management. Muthiah shares how he got interested in income properties and also explains his Property Management Survey. Jason also discusses the four options for property management that should be available to every property owner.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution. Real estate investors.
Jason Hartman 1:04
Hey, it’s my pleasure to welcome one of our clients back to the show, we actually recorded another show a while back. We didn’t air it yet, because we kind of thought we could do it better. And he’s just such a great contributor. He’s been to several of our events. He’s got nine properties through our network, and that is Messiah from Los Angeles. mithya. How are you?
Muthiah Nachiappan 1:21
I’m good, Jason. Thank you. How are you?
Jason Hartman 1:23
Well, welcome. Welcome. And thank you so much for the preparation you did for this podcast interview, I think the information that you’re going to share here is going to be very valuable to all of our other clients. So I just want to first say how much we appreciate that. I’ll say that on behalf of my company, but I want to say that on behalf of all of our clients, because I just think what you did here is really, really valuable. I’m looking at the stuff you sent me in preparation for this interview. You may be more than any of our other clients have really delved in to property. Management contracts. And what I believe is this outdated, outmoded, in many ways dysfunctional model of property management. And as I say, you know, the two biggest challenges we have in our business is well right now, and this will change, it always does its dynamic and ebb and flow, but lack of inventory of properties. So we really, inventory is very scarce very tight for the past few years, seems to be getting worse, frankly. And property management. Those are the two biggest challenges we have. If we can, if we can solve those, everything will just be rosy and wonderful. But Matthias what kind of caused you to get so interested in the property management part of the business being an investor with nine properties?
Muthiah Nachiappan 2:54
Jason, I have a habit of reading everything in time.
Jason Hartman 2:57
It’s a good habit.
Muthiah Nachiappan 3:00
To my detriment I did I do read all these property management contracts that come that I have to sign and there are things in there that don’t seem don’t seem like it. So anytime, you know, I’ve seen a lot of leases over my time and a lot of the leases and agreements they always pay with the person who’s drafting it. And in all these agreements were drafted by attorneys for on behalf of property management companies and you know, as a as an investor, you know, always looking at myself, obviously, each investor and so there are things in there that I’m not really comfortable with and you know, half the time you go back and forth and, and the argument often from the property management company is hey, look, you know, this is what everybody signs and, and we can change it just for you. You know, that type of thing. And so, I was I was able to change a few things, you know, here and there that seemed important to me, but you know, certain things I don’t really bother even negotiating because it’s not worth in the long run the big the big pictures of personalities. reactions. Well, you you gotta you gotta As the old saying goes, you got to pick your battles, right? So,
Jason Hartman 4:05
yeah, yeah, absolutely. But what I think ultimately needs to happen is I want to disrupt the property management industry. I want to see self management become more popular. And certainly we have made a dent in that it has become more popular as we’ve been teaching it for the last six or seven years now. And I also want to see all a cart Property Management Services. Why is it that most property managers out there expect you to just sign up with them? And they do the whole kitten caboodle? Why can’t you just buy the service you need? Right? So those are two things that I want to see. And then the third thing is what I proposed maybe four years ago, God I don’t know time goes so fast. Maybe it was five years ago now. At our meet the Masters event, which was this flat fee, property management and you did a beautiful spreadsheet on that, that I am looking at now, and we’re going to talk about that, where the manager just charges a flat fee. And I think this is the way to go. I really like this plan. So where would you like to start with it as we dive into this?
Muthiah Nachiappan 5:14
Well, we can start with, you know, like, like, like in any business right there good property land companies and bad property management companies. And as an investor, you know, going into this, you know, not everybody’s, you know, experienced investor, you know, most of us are just starting out, you know, I think that what what do you look for in a property management company, when you first get started, I think that would be a good place to start and then maybe that, you know, from that it can evolve into other areas.
Jason Hartman 5:43
Absolutely. Okay. Good. Talk about that, you know, in terms of what you look for, you’ve got the, what you call the property management company survey. And I just love this, you know, you’ve you’ve, you’ve gone over, you know, several items like the lease up fee, the re renting fee or the renewal fee. Other fees, if any, you know, monthly management fees, pet fee and deposit, maintenance advertising, late fees, rent do uncredited and you know, statement of accounting of rents. Tell us about that?
Muthiah Nachiappan 6:13
Well, I broke these fees down based on the nine different agreements. And I actually may have seen up to a dozen, you know, I looked at these and pulled out the different fees that these companies charge and, you know, and so I figured that, you know, good to see what were the biggest chunk of your your rent is going, you know, the biggest chunk of your hands, obviously going to the to the to the management company, and the management team, just really, maybe not a whole lot at 10%. But then you start, you know, nickel and diamond with these, you know, other fees and they don’t want to share those fees.
Jason Hartman 6:51
I call I call those garbage fees. There’s a bunch of garbage fees in there. But listen, folks, as I as I say that don’t think of it as too derogatory because everything has been Garbage fees, you know, hotels are now doing resort fees, this fee that fee, you know that these are all garbage fees, you know, they’re all over the world. So, you know, it’s not just managers doing that, but But yeah, you know, they’re not the they’re not the apparent obvious fees, right are these extra things they, they kind of slip in there and a lot of people aren’t really thinking about him. And Mutharika. Before we dive into this, I’m actually Sorry, I didn’t ask you about this before, but it’s always nice to know where someone’s coming from. You’ve got nine properties now. What do you do for a living and you know, give us a little bit of your background first, just so we’ll understand kind of how you how you think maybe?
Muthiah Nachiappan 7:36
Sure. Well, look, you know, I mean, I’m actually a real estate broker. I’ve done some loans and things of that nature but I you know, it kind I started out as a broker. And really what the rates all got started was I became a broker and I went to get my fingerprints and I couldn’t find a place in downtown LA to get my fingerprints. I had to drive 15 miles to get my fingerprint. And I thought, well wait a minute, this this looks like it was a market this was around 2008 that time where mortgage brokers are not doing that well and so I said, Wait a minute looks like this might be something that there might be a need, you know, and always when there’s a need for need to make some money, that’s generally the business concept where people make money. So I slowly got into, you know, setting up this business where we got, I got certified to the FBI, the Department of Justice, what the equivalent went through training, and then you know, just started and then the mortgage brokering business fell off and this picked up. So that’s what happened. So I started doing the run background checks and all 50 states we do Department of Justice, the FBI, criminal background checks for, for immigrants for professional occupants and professional licenses, lawyers, doctors, nurses, children, learning people who are come in contact with children, oh elders, those sorts of things. So there’s a there’s been a market for that. So I’ve been fortunate to make a living at that. And so I did that for a few years. And then I just started you know, slow angling, I listened to your podcast and I looked at other things to do as well and, and your podcast got me interested in investing. And I started very slowly in all in a matter of three months, I bought three properties and then slowly started taking up and I’ve been doing properties, I basically refinanced my primary home, took the money out of that and bought some properties. And then I used this conventional financing and you know, what other property so it was not an easy process because it’s family, Fannie Mae, Freddie Mac guidelines are so strict and the requirements are so so rigorous that it took me a while to, to close on the last four properties that I close on, and I closed for before the end of last year. And so it became more and more difficult. And so but anyway, that’s what I did, and I intend to continue, you know, buying, but I’m looking at maybe doing something unconventional maybe doing seller seller financing, some lease options, that type of thing. And other than just going just with the conventional way of buying properties. Yeah.
Jason Hartman 10:14
Okay, good. So what else happened? First of all on your business? Did you open a fingerprinting business?
Muthiah Nachiappan 10:20
Oh, no. Right? No, no what what I was going to say was, the way it works is and I don’t know all the I don’t know the specifics in terms of how they do the the calculations, but when you when you have a business and you have a show a profit, and I have an S corp, so basically, they take the profits that added to your your income, and then just kind of, you know, escalate your income. But by the same token, if you have a loss, they basically offset the income against the loss. And so when you calculate your debt to income ratio, it really hurts you and you’re very tight in terms of qualifying for a loan. So that’s what happened for me. In 2013, the business that I was running was had a little bit of a loss, you know, and and so that affected my my ability to borrow more money. And so that’s why I kind of stopped at nine you’re starting, but for and then I’m looking at other ways of buying property right? Yeah. Okay. Okay, good.
Jason Hartman 11:21
So on the property management agreement side now that you we got a little background on so that was great. Tell us, you know, what, what your thoughts are about this property manager, survey, property management company survey, you’re using this to really understand what you’re getting into. Right.
Muthiah Nachiappan 11:39
That’s the key to it. Right. And I think it’s also important for property managers to look at this survey because I don’t know if they’ve done an internal analysis on what their fee structure is because they know they’ve been doing this for a number of years. I don’t think they’ve sat down and broke me down and say this is what we’re talking with this dad and the other, I think allows them to look at all the fees they charge And make a make an informed decision on whether or not it would be worth a while to just charge a flat fee. No and everything is transparent. There’s no hidden fees. And other things like the markup fees on on maintenance, you know, the, for example, a lot of them become very common practice, among the other many property management companies if they, if you if they call a maintenance person into your, into your rental to fix something, then they will charge, you know, up to 30% on top of what what the maintenance guy charges you. You know, I don’t know how you know why that’s even necessary, right. And I think
Jason Hartman 12:37
the thing to do is to empower the tenant, you know, the property manager doesn’t even know something is wrong until the tenant reports it. That’s kind of the irony of this situation, is that if you just work with your tenant Now, granted, you know, there are bad tenants out there, we all know that. But if you just kind of work with your tenant, a lot of times They can be your best ally. I mean, I get, you know, I try to get my tenants to, I was gonna say I get but I don’t always get I try to get my tenants to, to, you know, basically get into partnership with me here. And you know, you get some there are some really great most tenants are wonderful people, they’re just people, they want to have a nice place to live. And they are our customers, you get some bad ones for sure now and then but by and large third grade, you know, so, so, okay, go go through this survey a little bit more, you know, lease up fee re rent fees,
Muthiah Nachiappan 13:33
right? These are the cheat that I have. And I think people know, it’s like, it’s like mutual funds, right? But they have all these hidden fees. I’m going to sit down and break it down. You don’t really know how people just think that this thing a flat fee, but there’s all these that Tony Robbins had a book published a book not too long ago where he had like 16 or 17 different fees of mutual fund companies charge all hidden, you know, unless you, you know, you you really know what you’re looking at. They’re all hidden and you just think that Getting this your return. But in that within that region, there’s so many hidden fees. So I’m just saying that look, as an investor, if you’re looking for a return on investment, you want to look at all the fees that you’re charging and see if you’ve been charged and see if there’s a, there’s something you can negotiate before, you know ahead of time, you know, and the point, you know, in addition to the fees, right, let me just go through the future use of fees the fee that they normally charge when they find a new tenant for the property. Now, here’s the thing that can be as much as 100% of the first month’s rent, so basically get nothing the first month’s rent and you get nothing, the whole fee is is gone. When they find a tenant for you and the property is vacant. I’d like to buy a property with a tenant in it. But but that’s the least of that. So basically lost the whole first month’s rent. The other thing that returned for you they find a new tenant for the property in the second year. Then they charge you a fee. Again, that’s another you can go from 60 to 80 from 50 to 100%. Average is a pretty big chunk of money, you lose a whole year’s worth. And then
Jason Hartman 15:00
some but sometimes and here’s here’s the odd thing about it. Sometimes there’s no renewal fee, or sometimes the renewal fee is $150, or $100. So it’s all over the board. And here’s the problem. This, this old fashioned philosophy of property management is out of alignment. Whenever you get into a deal, you want to have a strong alignment of interest, the owners interest is to get as much income out of the property as possible. The property’s managers interest is to make as much money as possible, why can’t we put these two things together? You know, rather than having all these diverse motivations, so let me just tell you about that.
Muthiah Nachiappan 15:45
In also, besides the owner in the management company, the tenant, the tenant is the one that’s being a being the thing. So I think aligning the tenants interests as well. You know, if you make it hard for the tenant to stay there, they’re not going to stay there very long. They’re not going to stay. Yeah,
Jason Hartman 15:59
yep. Exactly. So here’s what I was gonna say about that. Some clients will say, the property manager is not aggressive enough on rent increases, they tell me to just not raise the rent or to raise it a very small amount when I know I can get more and and then they’ll they’ll say, well, the property managers being too lazy on getting me a higher yield. But then others will say, well, in they’ll say that one of the reasons is they’re lazy. They don’t want to have to go replace the tenant if they decide to move when the renewal comes up, right. But then, on the other side of that spectrum, you’ll get a different client that says, Well, you know, these property managers, they always tell you to really jack up the rent, so that the client so that the tenant is incentivized to move because if they move out, they can charge you another lease up fake. You can’t win in this debate, right? Nobody knows really what the real motivation is right? We totally see that you see how it’s the exact same set of circumstances in two completely different belief systems, right? So here’s what has to happen. We have to have a flat fee system where you as the investor, pay a higher percentage, but it’s simple. It’s totally flat. every dollar that comes in, the property manager gets a certain defined percentage of that dollar. And if the dollar doesn’t come in, they don’t get anything. And then I believe there is an alignment of interest. That’s why I proposed this idea about four years ago at meet the masters. And, you know, nobody really took me up on it. I, I didn’t really push it too hard. I have mentioned it on the show over the years. But let’s talk about this spreadsheet a little bit. Okay, so we see from just what you haven’t even gone over All of these 18 items yet we see that there’s a misalignment of interest, right? Let’s see if we can get the interest aligned. Okay. Tell us about your spreadsheet here.
Muthiah Nachiappan 18:08
Well, look, I took the I took the three most common fees that are universal in all property management agreements, they were the the managing fee, the lease fee and the property inspection fee. All the other trees exist to some to some extent or the other, but these three trees seem like they exist in all contracts. And, and I analyzed them from 8%, assuming the management fees are 8% 9% 10%, you know, on a $1,000 per month progress, right? I’ll just make the numbers easy. So $1,000 a month. So having if you do that, you know, the basic the total fees on an 8% or one year it’s all annualized. So one year it’s 1710. For the 8% of the total just in fees are 9% is 1008 30 and 10% 1000. 50 but the annual rent is 12,000. Throughout, because you can throw 1000 bucks a month no matter which way you go. So as a percentage of the rent, you’re paying anywhere between 14 and a quarter percent is 16 and a quarter percent. You know, that’s, that’s what you’re paying, you know, if you look at it, that’s, that’s a sizable amount, right? I mean, you could be whatever. I agree. I agree.
Jason Hartman 19:21
And a lot of times this is this is not this doesn’t happen on the first year because the property will be pre rented or they won’t charge the lease up fee for the first tenant. But then after that, you got to pay it right. And sometimes, and to be fair, sometimes the tenant will stay for two or three years or half, maybe even longer. Okay. And that brings that number as a percentage down quite a bit.
Muthiah Nachiappan 19:46
No, it does bring in vendela five percentage points, it brings it down. So that’s why I’m saying even if they don’t charge the lease fee or you bought you buy a property with a tenant in it, or if you already bought a property the tenant in it, then There’s no reason for nissa t because you buying it as it is. And the second year of the Terran continues to stay there, there’s no lease up fee, you know, maybe the renewal fee of 150 bucks, which is negligible if you break it down over 12 months is nothing. So if you can take the same management fee as a percentage of rent, and you remove the lease fee from this equation, you get, you know, between anywhere between nine to 11, or 12%. And that’s why I think that maybe it would be better these if these, that’s one of the questions I have in my survey is, Hey, you know, you know, would you consider switching to a single flat percent of percent monthly? The property management fee, yes or no? If you answered yes, what is the percentage fee would be, what would be the percentage fee? And if you answer No, provide your reasons. See if they look at this, right. I mean, they basically making it 10% anyway, and they’re getting all these bickering going back and forth between the investor and Marissa things they know this will trust versus gotta trust the management company. I gotta tell you something. There are a few companies in your network that I trust implicitly, I’m, I don’t have to do any work at all, they do a lot of the stuff for me, they find the best insurance for me. I mean, they do everything. So on the other hand, there’s some others that I have to go out and shop for this, that and the other, and I have to call them, you know, spends more, it takes more of my time. So the more value that a property management company can add to this relationship, it will be much better for all parties. I couldn’t agree more. And, you know, this comes down to the old thing is that, you know, it’s the question of thinking long term in business, or thinking for today. It’s instant gratification versus long term thinking. And, you know, just humans think differently about that.
Jason Hartman 21:43
So I say the, the solution to this is number one, you know, there are some options, either self manage your properties and learn how to do that. It’s really a lot of times it’s easier, frankly, if not self manage. You can propose an all a cart Property Management relationship that the blend that I like is having your property manager, do the lease up and handle things between tenants. But the rest of the year, just collect the rent directly, just have them pay you. And then you’ve got that manager there. If you need a local contact, if you need some help, you can just call them up or you know, email them and they can help you and they’re going to be happy to do that because they want to earn your business, right? versus if they have you under contract. It’s more like they’ve got you and they become complacent. You know, it’s it’s just human nature. That’s just the way things are. Okay. That’s the way humans are. So when it’s a transactional relationship rather than a contracted relationship, I say you get better service, which is odd because you pay less to
Muthiah Nachiappan 22:52
it. Well, one of the things I did one I did want to mention before I forget is you know, this thing, I don’t know, maybe you can, you can enlighten me on this. You know, the rent, rent is due on the first becomes late on the set, right? Generally that’s it, that’s the thing. And then you don’t get it till the 20th.
Jason Hartman 23:08
Well, yeah, sometimes Another benefit of your rent sooner, you
Muthiah Nachiappan 23:12
know, sometimes they don’t they don’t credit your account to the following month. There’s no reason for them. That’s wrong. That’s, that’s, that’s ridiculous. Yeah, they float and
Jason Hartman 23:21
I can bring that over 100 properties, you know, you’re collecting month, people’s rent and then holding it, you know, under the pretext of saying, Hey, you know what, there might be expenses. So we want to wait for, for all expenses to be paid. Wait a minute, you already have $500 of minimum reserves that you already holding in a market in a market if there were actual interest rates paid on savings. And you know, this wasn’t a trust account, I would accuse them of making money on the float. I can’t do that now because there’s no money to be made. But yes, in a normal world where we had normal interest rates, not these exceptionally low interest rates, that would be absolutely true. I think right now Just customer laziness, but it’s ridiculous. If you self manage, then you don’t have that you get the rent right away. My mom self manages all her properties all across the country. None. None of them are local to her. She doesn’t own any properties anywhere near where she lives. Okay, you know, some of her properties are 2000 miles away from her, okay, and she self manages everything. Now, I think she does too much. I think she could do a nice hybrid arrangement where she wouldn’t go out and do lease ups. Frankly, she’s retired. I think she just kind of wants something to do. Okay. And I’ve had her on the show talking about that. That’s not very logical. Okay. So, look at the third option. You know, remember, I was telling you three options, you know, there’s really four, you can go into your typical property management relationship. And if you have a good property manager, it’ll be great. Most of them are pretty good or mediocre ish or mediocre to good. You know, they’re on like the, the 70%. They’re like C and above. Right most property managers, but some are like, you know, C and D and some are F’s, they’re terrible, okay? They’re all over the board. So you if you get a good one, a traditional property manager arrangement is not going to be too bad. Okay? It may be fine. Okay, and I have some great ones and I have traditional deals with them and it’s fine. Or the next step is you can have a hybrid arrangement, okay, where you pay all a cart for services. Okay. The next one is you could completely self manage your property. And the one we didn’t mention, which is really what your spreadsheet is about, is you could do a flat fee arrangement with your manager, where you actually pay them a higher percentage, but there’s no garbage. There’s no they don’t get to keep the late fees. They don’t get to charge you renewal fees. They don’t get to do any other fees, except you might pay them say for example, tene percent instead of eight or 9%. And you might be thinking, well, that’s crazy. Not really, okay, you know, that could be a better deal. And even if the deal isn’t better, you can’t hear the dogs that don’t bark. And here’s what you can hear, you can hear that that tenant becomes a happier tenant, because they’re not dealing with a property manager that’s incentivized to be predatory and charge them late fees. Or, you know, they’re, they’re, you’re you as the investor aren’t dealing with a property manager, who’s predatory and wants to ding you for a bunch of little miscellaneous fees, right? Everything is simple and aligned, and it’s just a clean deal. And this is where the industry needs to go. If it wants to survive. You know, one of the old look at your sort of into the technology world I know Messiah, you know, one of the things We’ve really all realized in business the last few years is that successful companies are willing to take the risks of cannibalizing their own business, before a disrupter does it to them. And, you know, look, for example, if the taxis would have done that, if the music industry would have done that, okay, they wouldn’t have suffered so much in the transition. You know, the taxis got killed by Lyft and Uber, the music industry got killed by Casa and what is it Napster? Okay, you know, they wouldn’t have had that if they just were willing to disrupt their own business preemptively. And this is what the property management business has got to do. They need to disrupt and cannibalize their own business and they will win. That’s what I say.
Muthiah Nachiappan 27:47
The group, they’re in the comfort, they’re sitting in the comfort zone. They don’t want to get to get uncomfortable in doing something they’re not used to doing. That’s a problem. But but i’d honestly say if we look seriously at a long term relationship that they have with, with the investor, I think it would be in their best interest to move away from the model that they have right now, because it’s not, it’s not something that’s, I don’t think it’s sustainable given given all the new technology and how you’ve done podcasts on, you know, keys, please and other things where you don’t really need these guys to do stuff for you, you know, I mean, you can, you can like, like to say, maybe do a hybrid, you know, maybe use somebody for just leasing it out and somebody for maintaining it, you know, and then just the checks come to you. And there’s no waiting 45 days to get the check and just just so many different things that that people wanted that get smarter about how to manage these properties. Now, you don’t have to get rid of they’re not i’m not saying get rid of the property management companies, but I think using them in a more in a more efficient manner. And I think once you do that, then the property managers become wise to the fact that maybe they should change their business model. That’s my
Jason Hartman 28:58
Yeah, absolutely. Absolutely, this is the hint. And you know, look at I want to say you mentioned mutual funds or earlier Messiah. And you know, look at even though it sounds like we’re griping and complaining about this stuff, which we are, okay. But you know, we we want to cause some change, okay, we really want to cause some change and disrupt this industry, and be the forward thinking people here. And I’m so glad that we have such intelligent, interesting clients that are so engaged, and we theia Thank you for coming on the show and talking about it. But at the end of the day, this is a zillion times better than any wall street investment, any you know, fund of sorts or any pooled money investment, you know, invest in someone’s private placement memorandum, their LLC, you know, they’re always skimming the profits off the top there, at least here if you read the contract, you know, where the money’s going, right. So, it’s not, you know, it is transparent in that sense, but, and you know, when you gave the mutual fund example, I was thinking Messiah, you didn’t even mention all the skimming that’s going on at the level of the companies in which that mutual fund invests. So the mutual fund has all these hidden fees, right? But then there’s a whole nother layer to the onion. And that’s the graft and corruption of all the executives at the company in which they invest right there. They’re paying themselves the big fat bonuses, they’ve got expense accounts, they’re going on first class trips, they’re going wining dining and people you know spent that’s all your money folks paying for all that.
Muthiah Nachiappan 30:36
All the while while your investment is tanking every day, you’re not learning anything. These guys are living high off the hog. I you know, I’d love the thing is in order for for them to to, to have that kind of, you know, to charge those fees. I mean, they, the problem is is nothing is transparent. Most people are not educated enough to drill to look through their statements and see what the feed was learning open the door. statements. That’s the thing you see. And you know, all you gotta do is open your table you see all this, you know, you got to go through and read your stuff and then you’ll find out all these fees is getting charged and and most people just leave it to someone else to handle it and then they cry afterwards about, Hey, you know, I’m losing money here then. Yeah, they do they do.
Jason Hartman 31:17
And so that’s what I also want to tell people this is not a new thing. You know, I’ve said this many times before, but is it the beginning of the relationship with your property manager? And if you’ve already had the same manager for years, then you know, start today, okay. really pay attention at the beginning and set the tone that you are an aware investor, ask questions about this fee about that fee about that expense, what is that, you know, and and get it all down so they know you are paying attention. They know you are an attentive investor, who is aware and who is not going to be you know, Feed, okay, so just set the tone. And if you haven’t done that, and you’ve had the same property manager for three years, then do it next month when you get your next statement. Okay? And just set the tone for a while, you know, be courteous, don’t be rude, you know, don’t be difficult, but make sure they get the message. You are paying attention.
Muthiah Nachiappan 32:20
Okay, right, absolutely. No, I need to know you’re spending your money. You know what you’re spending nine. There’s certain things I’ve tried to follow your philosophy, okay. $250 per per, per month per property. You know, this, I mean, it’s difficult to enforce that a lot of them want $500 just fine, you know, but don’t you know, I mean, you’re going to spend you know, spend investors money let them know where it’s going, you know, I mean, that’s all I mean, so you can’t argue them for every like you said pick your battles right you know, but if they’re going to charge you all kinds of fees and which you didn’t even agreed to, you know, I mean, I look there were there was a I got my bank. My Account was credited you know, for With a 10% fee, and I said, Wait a second, I just signed an agreement you guys for 8% What are you doing? Oh, I’m sorry, it was a mistake, we’ll credit you the other 2%. So those kinds of things, you got to catch them, right? Otherwise, they just you just think that Oh, they crediting you nobody’s perfect. And that’s all being done by human beings anyway. So you know, somebody will make a mathematical error or somebody may make an error. It’s your money if you if you want to, you know, see, make sure it’s done well, you know, you need to do it or hire a bookkeeper to do it. But you know, I mean, I don’t know. I mean, just paying attention to the details I think is important. Absolutely. Well, I think
Jason Hartman 33:33
we covered it in Messiah. Thank you so much for preparing this information. Really good stuff, you know, on the positive side, what’s next for you with your investments in your portfolio? Are you looking to buy in any more markets? Tell me Yes. No, I am Jason. I am you know, I I like new construction, you know, only because they require less maintenance. You know, I’ve got one in Ohio that I’m buying one in Tennessee. That buying Yeah, you pay a premium for it, but it is more convenient. There’s no question. Yeah. So you’re buying in Ohio and Tennessee right now.
Muthiah Nachiappan 34:06
Right, right, Ohio and Tennessee. We’re both new construction is gonna be done in March or April. And I think there’s something that carries me saying something’s coming up in Dallas, and we’ll look at that, but I don’t want to go too far out, you know, I’ve got four markets and then Tennessee, Ohio, Alabama, Mississippi. So that’s where I’m at. And, you know, I like Tennessee myself. Stop at five. Don’t go Don’t go more than five don’t go more than five just just double down in the same market now. Okay. You know, this is one of the mistakes I made and don’t make the mistake I made that’s,
Jason Hartman 34:42
that’s, that’s why you’re here listening to you know, you can learn I spend the money and I make the mistake and you just get the lesson. Okay? So, don’t over diversify. Definitely do diversify. It’s a you know, it’s a commandment, thou shalt diversify one of my 10 commandments, but don’t own diversify. So three to five markets are enough. That’s enough diversification not more than thought
Muthiah Nachiappan 35:06
okay, I mean I’m still looking at you know, every day and looking at different different things that are coming up and looking at these deals and seeing what would work and you know, some you know, I know the inventory is limited but there’s still some that are good you know, I mean, I’m just a matter of looking and going through stuff and hopefully making the right decisions, you know, it’s not all Gavan golden I’m sure you make mistakes and I’m sure I’ll make them I made mistakes and make them but hopefully at the end of the day, you know, with these rental incomes will allow me to just retire that’s the whole that’s the objective objective of doing this so that no, we don’t have to you can do what you want when you want and drive a Tesla when you want. Yeah.
Muthiah Nachiappan 35:55
Good stuff. Good
Jason Hartman 35:56
stuff. Well, hey, Matthias. Thank you so much and happy investing. And we really appreciate you contributing to the show and sharing with everybody and, and folks insist on some of this stuff we talked about with your property managers. And let’s together, let’s move the needle on this and let’s get some new thinking into this industry. We have thousands of clients out there, and way more listeners than that. We are a powerful group, folks. So let’s move the needle. I have a dream. There you go. Not quite as inspiring as the original guy who said that but you know, there we go. Alright, Matthias, thanks a lot happy investing in thanks for having me on your show. Jason. Thank you.
Announcer 36:41
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In this episode, Jason Hartman talks about America’s mass migration, real estate excavator, vacancy, and rental rates in San Francisco. He also shares stories from the time he spent with Tony Hsieh in Las Vegas. In the show’s interview segment, he continues his conversation with Andrew Cushman of Vantage Point Acquisitions. They answer questions such as the market to invest in, how to identify growing markets, and where to start building a portfolio.
Announcer 0:02
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:53
Welcome to Episode 1606 1606, otherwise known as Hey, did you see that monolith in the Utah desert? Well, guess what? It disappeared? I guess it disappeared. Remember, hopefully you saw the movie 2001 A Space Odyssey. It is a masterpiece. Stanley Kubrick, brilliant director. Hey, why do the good die so young? Right? He was just a brilliant director. And it started off with that scene of the monolith, and the primates. And wow, that was, you know, everybody’s tried to interpret that ever since he made that movie way back in. What was it 1968? Well, again, you know, this monolith showed up in the Utah desert, and it has disappeared. Wow, this is a big mystery folks. Maybe the aliens came to get it? Who knows? Who knows? Anyway, so we’ve got part two of our interview regarding demographics and rental housing, future and so forth, coming up in a few minutes. But first, we’ve talked a lot about the mass migrations, I predict this will go in multiple phases. Were just in phase one, maybe maybe just starting a little bit of phase two tomorrow. It’ll be like these concentric circles as people migrate out of the cities. And guess what? I’m looking at an article about San Francisco Here we come right back where we started from, or maybe not. It’s entitled, San Francisco renters, regained something, they lost, leverage. Leverage, vacancies are up. So they have more choice, and some negotiating power. The median price of a one bedroom apartment in San Francisco, is 20 $800. And that is encouraging news. According to some, okay, now, we’ve had part apartment list and I think we’ve had zumper on the show before, but certainly apartment list has been on and I think they’re booked again, I think we’ve got another interview with them coming up. So they provided this data and they save the pandemic has caused many residents of the city to depart by by San Francisco. Same is true in LA, New York, Philadelphia, Boston, etc, etc. Yes, it is happening, the mass migration is underway. And this article goes on to say that the year over year rents in San Francisco have decreased. Yes, rents are down. And that sound effect was a bomb being dropped from a plane. Right? That’s what it is. rents are down 20.7% year over year. Wow. And vacancy rates are up. You ready for this one? They are up more than 100% over last year. So the tenants have a lot of power. in a state where you shouldn’t have been investing. I hope none of you are investing in the Socialist Republic of San Francisco, or the Socialist Republic of California to think of it more broadly. Because that is a a jurisdiction on both counts. That is extremely tenant friendly, and unfriendly to evil landlords, your evil landlords you How dare you expect tenants to actually pay your rent? Yeah, so there you go. rents are down in San Francisco in New York and all the others. So it’s, it’s really no big surprise, no big surprise. Okay, so I did an interview today that we will probably air for you next week. And I just wanted to share with you something the guest shared with me off air before we started the interview. Now, he commented on this during the actual interview that we’ll probably have up for you next week. But he said that a friend of his owns an excavating business, right. So they are the ones that get in on a development project of a housing tract. Early on, early on, they’re in there, they’re pushing the dirt around. And after they excavate, what do they do? Well, maybe they bring in streets and streetlights, or maybe they bring in the utilities, right? So this is early on in the game. And this person sees what is happening in the real estate market early, early. And he said that his friend has been in that business for 20 years, not as long as I’ve been in real estate. I’ve been doing it longer. But I’m not an excavator, as you know, hopefully, you know that I’m, I’m on the I’m on the brokerage side and the education side, right. So for 20 years, he said he has never seen the land development business at such a fever pitch, where developers who hire him are buying up every piece of land they can possibly buy. And they are building every house they can possibly get entitled and approved to build. He says it’s absolutely just crazy. Crazy, crazy, crazy. Yep, the market is in fuego on fire. So I don’t know that that necessarily comes as a big surprise to a lot of you. But it is, it is pretty amazing what’s going on out there. And one of our clients, who is in our content group, Marc Anthony, he posted an article and said, q the U haul trucks, nearly half of all Americans 46% are considering moving within the next year. According to a recent lending tree survey, the online financial services marketplace based the report on a survey of more than 2000 participants in September, but certain groups of people are much more likely to consider relocating than others, as they have some pretty compelling reasons to do so. So folks, I think this market is going to be pretty solid for a while. pretty solid for a while. Also, I talked about him on the show before. But many of you know that I had when I lived in Las Vegas. I went to brunch several times at the very interesting homes, two different ones of Zappos founder and the iconic developer of redeveloper of downtown Las Vegas, Tony Shea, and you probably heard by now he passed away at age 46. Sadly, apparently he died of injuries in a house fire in in Connecticut, and I don’t know what he was doing there or what but he was such an interesting CEO. He sold Zappos to Amazon for hundreds of millions of dollars. his net worth was about 800 and $50 million, I believe, and going to those brunches at his very interesting homes. I talked about them on the podcast before but but one of them was a combo hotel that he bought a little sort of old fashioned 50 style Hotel in downtown Las Vegas. And he turned the parking lot into a trailer park and brought in a bunch of Airstream trailers and not big ones, small ones, and tiny houses. And people would rent them from him and live there but he would only you know rent them to really cool people that he thought was doing interesting things and he had to be the most unassuming billionaire or near billionaire that I’ve ever met. And I’ve met several billionaires in my life. And Tony Shea Wow, what an amazing success story. And sadly, he has passed away and you’ve probably heard that in the news but I just thought I should mention that on the show because I talked about going to brunch at his He has places several times over the time I lived in Las Vegas. And you know what he would do is he’d have these Sunday brunches, and he had a couple of llamas. Yes, the animal llamas. I would bring my dog and my dog would actually freak out. She thought she thought, What is this Martian? creature, this llama and, you know, you’d go up and talk to the llamas, and sometimes they’d sort of spit in your face. It’s pretty gross. But yeah, the llamas would be roaming around. And the setting of Tony Shay’s place was like, Burning Man. And I’ve never been to Burning Man. But I’ve certainly seen the pictures, and many of my friends have been to it. And that’s where they they auditioned, the former CEO of Google, who got the job at Burning Man, you know, Sergey Brin and Larry Page, said, you know, for your job interview, we’re gonna invite you to Burning Man and you’ve spent several days with us or a week and we’ll see how you cope at Burning Man. And it’s pretty, pretty funny way to do a job interview, right? But that’s that’s the way the evil Google operated, right. And anyway, Tony Shay’s place was decorated, like Burning Man, sort of, and he had a stage. And sometimes he had some musicians up there performing and you know, there was a fire pit, and then he’d have a brunch. And there was all sorts of different odd food. Sometimes it was like a potluck, or he had some caterers and this and that, and it was it was just interesting. I was glad to have that experience. And, you know, go hang out at Tony Shay’s place, it was pretty cool. And, and he was just the most unassuming guy and by the way, he lived in one of the little Airstream trailers. There’s a, I believe it was CNBC did an interview with him. And they, you know, interviewed him inside his little 200 square foot Airstream trailer that he lived in. And you know, he could afford anything. So, and he said on that interview, he said, You know, I really want to spend my money. Yeah, you know, having experiences more than things and doing things. And boy, he sure did stuff. I mean, he redeveloped downtown Las Vegas and had big, big plans. I remember the first time I met him was actually as part of a mastermind group I was in. But then, you know, I went to his house for brunch several times and, and met him again. And the first time he showed us his plans for redeveloping downtown Las Vegas, and they were just amazing. And he finished a lot of it. But you know, I hope that someone picks up the slack where we were Shay left off and, and finishes Tony Shay’s vision for downtown Las Vegas, because it certainly was pretty creative and pretty unique. And, and pretty awesome. So sad to see Tony Shea go. So I just wanted to mention that. And now let’s get to part 201. more thing I want to mention, yeah, I always do that. I want to thank everybody who joined us last night. For our empowered investor, inner circle, we had such a great call so much participation, I want to especially thank our team members, our internal team, and then our client, moonfire, who shared a little bit and we did that podcast with him a couple of years ago, he has to come on the podcast and talk about property management agreements, you can go find that old episode at Jason hartman.com. And we reviewed them last night, we got on zoom, I shared my screen, we looked at maybe four or five different property management contracts and agreements and pick them apart and said, Hey, this is ridiculous. This is normal. And anyway, it was just a great time, we have these monthly zoom meetings with all our empowered investor inner circle members. And last night was just great. I really enjoyed it. So thanks to all of you who, who came and attended, we were on for about two hours. And it was just great to see everybody you know, we we don’t meet in person anymore. But it’s it’s nice to have the community of our social network and, and our monthly zoom meetings. So it’s really great to see all of you. Anyway, here is part two of Andrew Cushman talking about demographics, the rental housing market, and more. So here we go. nothing extraordinary, should have to happen for you to make a good return on investment, no extraordinary appreciation. Nothing. Just it should make sense from day one. Now, if some great things happen, like a bunch of appreciation, great, you know, but don’t don’t count on it. And by the way, Gen Z. Now the oldest Gen Z IR is 23 years old. And that’s the biggest of all 82 million people
Andrew Cushman 14:52
to they’re about to get out and start renting. So So yeah, so when we when we change this to when we change it over to domestic migration. Again, you know, Florida looks really good. Lots of markets in Texas, Tennessee, Carolinas, Arizona still as that migration, like, as you said, it might might be tougher to get the numbers to work. I don’t invest in Arizona just because I don’t want to be too spread out. So I don’t have as much depth and depth knowledge there. Utah, you can almost see where highway 15 runs up through the center of the state. There’s all kinds of growth there.
Jason Hartman 15:21
We love Utah, but again, too expensive. You know, we, many years ago, we were recommending properties and a lot of our clients purchased in Salt Lake City and around Salt Lake City. It’s awesome. But again, that’s a hybrid market. It’s just too expensive. You know, many years ago, we did a lot of business in Denver, great market. But again, now it’s people are priced out. So a lot of our clients made a lot of money in those markets, though.
Andrew Cushman 15:45
Well, and so and this is this could apply. So let me ask you how you seem to be doing a really good job of getting ahead of these markets, I your agenda, what you’re doing is you’re identifying emerging markets, where you’re you’re getting you know, we’re looking at this data now and everybody knows Oh, wow, Denver has been hot. Nashville has been hot. Memphis is great. You’ve been there for a long time. Well, we
Jason Hartman 16:04
never got into Nashville, we just could never make Nashville work. But I love Nashville. It’s great town. That one never worked for us. But we did do Denver, Salt Lake City, Austin, if you can believe it, you can’t even touch Austin now for the prices you need to as an investor. And even Dallas has gotten too expensive. You know, even most of Atlanta. We do have Atlanta properties today. You know, if you go to Jason hartman.com, you know, one of our investment counselors, they can get your properties in Atlanta, amazingly. But it’s really hard to make Atlanta work.
Andrew Cushman 16:34
Yeah, yeah, a lot, especially a lot of the primary markets have gotten a lot of secondary have gotten much more expensive and difficult to get them to pencil out. Yeah,
Jason Hartman 16:43
yeah. Tell us more.
Andrew Cushman 16:45
Yeah, well, I’ll just say, so how did you know, maybe you just for the listeners, you’ve done a really good job of getting ahead of the curve. Right? If you you know, one of the biggest ways to make money in real estate is to find an emerging market where, you know, population growth, or is about to happen, or income growth is about to happen, jobs are about to move in. So, you know, what, I know what we do, but what of what did you use to identify these markets early so that your investors benefited so much, whereas it might be tough to get in now. But if they were investing with you five years ago, they already have a portfolio? Yeah, or 10 or 15 years ago? You know,
Jason Hartman 17:17
I can’t say there’s any one thing, there’s just a whole bunch of things. You know, we we interview people on the podcast all the time, you know, just constantly reading and research and it’s a bunch of fragmented stuff. There’s, it’s not like, I can give anybody one great website to go. Yeah, you know, and all the answers are there. I was just not that simple. You know, but, you know, over time, you you notice trends and chatter. And now,
Andrew Cushman 17:43
you know, another thing I would say is, you know, if you’re out looking at, okay, you know, do I buy a single family house in this market or a small apartment? Or do I do a syndication here, whatever the same principles apply, whether you’re looking at the whole country, or state or city or region. So like, for example, take a take Atlanta, you know, if you look at these, these charts that we’ve been, we’ve been sharing, most of Atlanta is dark green, right? population growth, incomes have been going up there as well. But there are some markets in Atlanta that I wouldn’t touch with a 5050 foot pole. Right? They’re declining. Yeah, very low income, very high crime, right. And so the same principles of positioning yourself where the right demographics are coming in, incomes are rising, you ideally have a business and landlord friendly environment, right? You want to position yourself in those markets. So you start big picture like, okay, Florida, Texas, Georgia. All right. Well, what markets do I want to maybe Atlanta, maybe Tampa was inside of Atlanta? Am I going to invest in East Point? Or am I going to go out to Duluth, right? Those are very, very different markets. And so you want to apply those principles to every property you’re looking at to help guarantee success, right? So if you’ve got a if you’re going to buy a single family house and Duluth versus East Point, you want to look at the income trends, you want to look at the population growth trends, you know, and if you can get the data on that level, who’s moving there, right. And that might take some digging, but you can find that out. And you’ll be I can tell you between those two, if I had a choice between East Point and Duluth, I’d be in Duluth, hands down. So the same principles apply. That’s a question I get a lot of times as a leader, how do I pick a market? So one of my mentor, you know, one of the questions I get asked a lot is well, Andrew, how do I decide what market to invest in? I live in San Francisco. It’s too expensive. And I want to go out of state. Well, how do I find one right? Well, one way like my when I mentors Tim road says a ski and somebody else’s way. Right? If you ever go waterskiing, you try to smooth behind the boat. So find a guy like Jason, who’s already really good at identifying markets and invest with him. The other way is to look at a map like this and say, Wow, Florida is looking really good. I’m gonna invest in Florida. Then you drill down to Florida and say, Okay, well, Tampa, the panhandle and Orlando look really good. Okay, I want to do those markets. Then you pull up Tampa and you say okay, you do Same analysis rates the same process just narrowing down Okay, well inside of Tampa, I like this market in this sub market, this one has population decline and low incomes, I’m going to stay out of that one, right? And you say, okay, so within these sub markets, that’s where I’m going to invest. So that’s how you determine where you’re going to invest. Number one, you can find a great operator like Jason, or if you’re gonna do it on your own, you get on you get onto a map like this, you understand the overall trends, and then you just start drilling down and apply the same principles that you apply that the larger macro level down to the micro level in the market level.
Jason Hartman 20:33
Yeah, definitely. You know, here’s one thing I do want to say about that. And I agree with everything he said. But every property, not every property, but every property I’ve ever bought, looks like a great deal in the rearview mirror. Okay. And it’s sort of easy to look like a genius in the rearview mirror, you know, because we’ve had this market, you know, so that just goes back to the old saying, don’t wait to buy real estate, buy real estate, and then wait, you know, it, you know, it would be easy to try and take credit for everything you said, and I appreciate it, I’ll take the credit. But you know, look at I mean, the real estate’s just such a solid investment, with so many things going for it, that it’s just hard to lose, if you buy a property that makes sense the day you buy it, you know, if you do that, you’re going to be pretty good.
Andrew Cushman 21:25
It will kick in, can I give an example to illustrate what you just said. So let’s say you buy a house for $100,000. And you put a 15 year mortgage on it, and you rent it out right? In over 15 years, you picked the wrong market, you got you put 20% down, right, you put 20 grand into it $80,000 one, you pick the wrong market, and over 15 years, it does nothing is still worth 100 grand at the end. But guess what? a tenant, somebody else paid off that mortgage for him. Yeah. And you put in 20 grand now you have 100 grand, is that the best investment in the world? Is that a home run? No. But just not bad. You didn’t lose and your risk was minimal, right? So a lot of times even the worst case in
Jason Hartman 22:08
real estate isn’t all that bad. Yeah, it’s not, especially if you know how to do the math. And you really a lot of people in real estate, you know, they think they’re losing when they’re really winning, because they just don’t know how to keep score, you know, learn how to do the math. So that’s, that’s another important thing, because a lot of this return is below the below the surface of the water just like an iceberg.
Andrew Cushman 22:30
You’re absolutely right. You’ve got you know, appreciation, hopefully principle pay down depreciation, cash flow, and there’s all kinds of ways to win with real estate.
Jason Hartman 22:38
Yeah, definitely. All right, good. What else do you want people to know, Andrew? Anything else on the map? Anything else in general?
Andrew Cushman 22:46
You know, I think I think we covered it pretty well, I would just say I know it’s turbulent times I know a lot of folks are scared to invest. This will. This is short term in the in the scheme of real estate. This is short term, right? Even if this is a two or three year deal. If you’re if you’re going to buy and hold for 10 years, we are very likely to get into an In my opinion, very likely to get into an inflationary environment with all the worldwide money printing that is going on. One of the best ways to protect yourself against that are hard assets like real estate, those will appreciate in an inflationary environment. Those are a hedge against inflation. And I and I can’t think of a better way to not only earn a good return, but to protect investment from, like I said, the likely inflationary wave that’s coming in even if we don’t get inflation, we haven’t really even had it for Well, again, depends on how you parse it. But
Jason Hartman 23:43
it depends on whose stats you’re watching. Yeah.
Andrew Cushman 23:46
So we have many people would say we have not had the high general inflation over the last 10 years. And look how well real estate has done right now we have had asset inflation. So don’t be scared about the next 12 months or, you know, we’re if you buy something that makes sense today, again, repeating that and hold it long enough. It’s very difficult for that to not work out to be a good investment. Yeah,
Jason Hartman 24:10
definitely. Andrew, do you want to share a social media page or a website or anywhere where people can find out more about you? Yeah,
Andrew Cushman 24:19
easiest way to connect with me is my company is vantagepoint acquisitions. So the website for that is just the p a c q.com. Or if you just Google vantagepoint acquisitions, it’ll come up. There’s a little couple tabs on there. One, just contact us and reach out that comes to my inbox, email inbox. If you just want to have a conversation. There’s a tab on there for our multifamily accelerator mastermind and some additional information but yeah, that’s the that’s the best way to get in touch. Come on LinkedIn and all that but a real conversation best ways to reach out to the website. Good stuff.
Jason Hartman 24:55
Andrew, thanks for joining us and happy investing.
Andrew Cushman 24:58
Likewise. Take care, Jason, good talking to you.
Jason Hartman 25:05
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Jason Hartman starts today’s episode by sharing how real estate is getting cheaper and that we’re looking at record-low interest rates again. Afterward, Investment counselor Adam joins him to continue discussing the possibility of another recession, and understanding IDEAL can help set you up for comfort.
Announcer 0:02
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions, this program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:53
Hello, hello, and welcome to Episode 1608 1608. So It never ceases to amaze any of us does it? Know It probably doesn’t. How, how ignorant some people are of calculating return on investment, understanding investments, understanding market timing, they think they can time the market. Usually they can’t. And listen, I’ve been doing this a long time, I don’t pretend to know how to time the market either. And nobody should really think that they can time the market. You know, if you think about it, look at all of these large institutional investors. Look at also the folks who run the economy, the Federal Reserve, the other central banks, the governments right, all around the world, not just the US government, every government if market timing or possible. Wouldn’t all of the institutional investors? Wouldn’t all of the governments and all of the central banks, just have it all figured out. Would there be any collapses in markets any crashes? wouldn’t they be able to just guarantee fantastic returns on their investment? And I I draw your attention, of course to the one of the most famous references on this. Look it up look it up. If you don’t know the company, I’m about to share with you, the defunct company I’m about to share with you. So you know when I say the company name, long term capital management, okay, ltcm long term capital management now that I got the acronym straight. That’s the company that thought they had it figured out those quants, those mathematical geniuses, they had figured out the market. And they went under, famously, or infamously, I should say, they went under the geniuses who? guaranteed, they told everyone they had the market figured out and guess what, a lot of professionals, a lot of experts believed them. They believed them. And they couldn’t figure it out. zillions of dollars lost lives ruined, etc, etc. Right? So just if you think you can time the market, or if you think your friend is smarter, and they can time the market, you know, that all of the all of the stories of all the people who’ve tried to figure that out, have failed, failed, failed miserably. It’s been disasterous. And that was a bomb dropping. That’s what happened to them. That’s what happened to them. So don’t be one of those people. All right. I’ve talked to you before about how real estate is getting cheaper, cheaper, cheaper, cheaper, yes, everybody thinks it’s getting more expensive, but they don’t know how to do the math. They don’t understand reality. So they think it’s getting more expensive when it’s actually getting cheaper. Interest rates just broke through a another floor on their way down. We had record low interest rates than we had record low interest rates again, and then we had record low interest rates again. And then we had record low interest rates. But guess what? Now we have them. You guessed it again. Again, again? Yes. So the interest rates got even lower. And when I say interest rates, I mean mortgage rates. And what does that mean? That means the houses keep getting cheaper. Remember 1% in interest rate equals approximately 10% in price So when you see the rates drop by a percent, the price has to go up by 10%. To make it up, it’s not exact. Okay? It’s not exact. There’s my disclaimer, do your own math, okay, but it’s close enough for government work As the old saying goes. So that’s the kind of differential we’re dealing with here. And if you look back at 2006, when the median home price, the median home price was $235,600, in the third quarter of 2006. And the interest rate on June 29, of 2006, for a 30 year fixed rate mortgage was 6.78%. That payment was about 1500 and $33 per month. But guess what? In 1984, the house payment was $1,003. I don’t have that in front of me. But yeah, $1,003. So it actually got cheaper to have a mortgage in 2006. And then guess what happened at the peak of the market in 2006, for the Great Recession, where most people consider the peak before that, the median home price in the second quarter. Wait, I already went over that. Good night. I’m on the wrong chart. Jason, look at the right chart. Okay. The right chart is today I’m talking about today. Sorry, not talking about 2006 anymore. We already talked about 2006. Now we’re talking about present day, second quarter of 2020. Okay, not the most recent data, I agree. But second quarter, median home price 313 and $200 313,200. And interest rate on July 30 2.99%. Making your payment on that medium price home. A beautiful, incredibly low, super cheap, actually, it is you know what, you know what that payment is? It is supercalifragilistic expialidocious? Yeah, supercalifragilistic expialidocious. Is that is Did I do that right? Let me know, go to Jason hartman.com slash ask. And let me know if I did that. Right. You know, it’s like trying to say another long word like antidisestablishmentarianism. Remember that really long word you’ve learned in elementary school? I think that’s it. Right? antidisestablishmentarianism. What does that even mean? I don’t know. I gotta look it up. Okay, but you’re whopping 1300 $18 payment on that median house price today. Means means Guess what? It means that that same house today is about $657. Cheaper when adjusted for price, interest rate and inflation. Yeah, but I do want to remind y’all, y’all, I’m sounding Southern now, because in the southeast is where you should be buying houses, mostly right now. And we’ve got lots of them for you go to Jason hartman.com slash properties. It has not adjusted for wages, and the wages are not adjusted for inflation for most people. But, but I’ll Betcha for most of you listening, you dear listeners. They are inflation adjusted your wages, or they are close to being inflation adjusted or they are even better than inflation adjusted. And that means the housing from your perspective, is even cheaper than that. Those numbers I gave you, or for as Amity shlaes who was on the show, Amity shlaes the author, she’s written some great stuff in the great while not in the Great Depression, but she wrote a book about the Great Depression called the Forgotten man, right? You are not that person. You are probably beating the system, especially if you are following the advice of Jason Hartman. Oh, that’s me. Don’t talk about yourself in the third person. That’s just really weird. Yeah, I agree. Don’t do it. I hope I’m entertaining your folks because if I’m not, I’m at least entertaining myself. It’s the end of the day and I’m a little punchy, you know? Boy, sometimes the days are just like a blur. so much stuff coming out. Yeah. Oh boy. Oh boy. You know, I used to say that years ago, when it was just a fax machine just kept humming and humming. And all these faxes and phone calls, and now all faxes just converted to emails and text messages and so on and so forth. And and still some phone calls in there. But Wow, wow, too much stuff coming at us nowadays. Anyway, folks, it is an amazing time to be investing in real estate. Yes, I am pretty bullish right now. Remember, I am the same person? Who in what was it? March? Maybe it was March? Who told at least you first time investors to keep your money? Don’t even think about it. If you try to invest with us. We don’t want it. We don’t want Yeah, go away. That was me. Go back and listen to the old episodes from probably March, I think maybe April, but probably March, where I told you not to invest? Yes. I said, Nope. Don’t do it. Well, right. Now, I’m telling you, you should do it. Now. That doesn’t mean the entire market. That means selected markets, selected properties, pretty linear markets, which by the way, are turning to be hybrid markets pretty quickly. And if you’re new to the show, and you don’t know what I mean, when I talk about linear, hybrid or cyclical? Well, listen to the Quick Start podcast, if you’re new to our content, we have a another podcast, just with some of our core content, the Quickstart podcast, and there are a lot fewer episodes a lot less to sort through. And that’s available for you also, the YouTube channel does a good job of summarizing some of this stuff. And, of course, our team can help you Yes, we are not just a platform where you can buy properties, although we are that we are people and our people are happy to help you just go to Jason hartman.com. And fill out any web form there. And we’ll be we’ll get in touch with you are extremely knowledgeable. And now that I’ve gotten rid of some are superduper, ethical, wonderful people will be happy to help you. Okay, so we have got a talk of the continuation of a talk with one of those people. And that is coming up right now. Again, if you need us, Jason hartman.com reach out to us. If you’re in the United States, you can always pick up the good old telephone and call us at one 800 Hartman. Okay, without further ado, let’s get to part two of today’s episode.
So that really begs the philosophical question of, you know, what is the government the government is just a series of taxpayers that pay into have a government in organization, it’s look at it like a homeowner’s association or a we’re a nonprofit membership organization like the PTA or something right. I don’t have a PTA. I don’t know how that works, that I made a bad example. But whatever, you know, say you have a club that you’ve created, right? Well, the club collects dues from its members to pay for its expenses, right, and the club could go into debt to get it all. And the club has to pay that back, meaning the member that
Adam 13:38
the situation that we’re in, though, we are in a situation where the club can’t create its own things. The government creates the dollar we I don’t owe it back because I can’t create dollars. The federal government spending is the is the receiver saving. So it’s the net Publix or the private sector savings. So the public sector spending is the private sector savings. If you look at the debt clock, which I don’t know how to pull it up on here, about the debt clock, the US national debt is 27.26 4 trillion we had seen that’s
Jason Hartman 14:12
That’s trillion with a T, folks.
Adam 14:15
But if you look at us total national assets, it’s 150 $6 trillion.
Jason Hartman 14:23
You know, I would be very curious to see because what you’re basically showing sharing with us is the concept of the balance sheet. Okay. So I would be interested in seeing what how do they calculate those assets. And I do agree with you, by the way that the US has a ton of assets, both tangible and intangible assets. And I’ve done you know, many podcasts on that topic over the years because I agree that it’s not as bad as the duman bloomers would have you believe. If you’re listening to Peter Schiff, and reading Zero Hedge all the time, you know, and Jim Rickards these guys They’re just always wrong. They’re they’re so interesting to listen to. But they’re just like, when is all of their doom going to come true? You know, they were telling us that in the 70s, the 80s, and 90s, the 2000s, the 2000 teens, and here we are in the 2020. And they’re still saying it. And yet, there’s been like very little consequence, except higher taxes, more government intrusion in our lives, and higher inflation, whether hidden or unhidden.
Adam 15:34
Alright, we need to move on, or else, we’re never gonna get to the actual good part that I have. Okay, but you really got to just address that one thing. All right. So let me Let’s finish with Jerome Powell real quick,
‘Jerome Powell clip’ 15:45
preserving the flow of credit is essential for mitigating damage to the economy and promoting a robust recovery. Many of our programs rely on emergency lending powers that require the support of the Treasury Department, and are available only in very unusual circumstances, such as those we find ourselves in today. These programs serve as a backstop to key credit markets, and have helped to restore the flow of credit from private lenders through normal channels, we have deployed these lending powers to an unprecedented extent. And they hold in large part by financial backing and support from Congress and the Treasury. When the time comes, after the crisis has passed, we will put these emergency tools back in the toolbox.
Adam 16:27
So that was the whole back of the toolbox thing. Again, like we talked about before, they’re not, they’re not going away. And they will be coming back whenever times get times get bad again. So So yeah, so the question is,
Jason Hartman 16:41
That the good part? Is that the aha moment?
Adam 16:45
No, no, that’s just the key part of that. Remember, as we move into the next one,
Jason Hartman 16:51
I was worried that that was the climax MERS, I was like gonna go.
Adam 16:59
So we have to ask ourselves, what if it’s another great recession right now. So I went through, and I said, let’s run this scenario. So I looked at the Dow Jones, because that’s the sexy one that gets all the love from the media. During the Great Recession, the absolute peak of the great recession hit the peak of the market before the great recession hit October 2007. The Dow reached 17,356. So I said, Let’s pretend that Today is October 2007. In the housing market, three years later, October 2010, you’d seen a 24% drop. So if you’d waited three years, it had gone down and come back up. 24%. So I wanted to know, what if I bought a house today? And in three years, I bought a house at about a 20% drop? What would it look like? If
Jason Hartman 17:54
it was good chunks, this might be the good part.
Adam 17:58
This is the good part. So let’s say I bought a $250,000. House today, with 20% down. So I got a $200,000 loan for interest rate of 3.75. Very easily gettable. At 30 year mortgage, I would be paying $926 a month with principal and interest.
Jason Hartman 18:17
That is, folks, that is a gift from your rich uncle Jerome Powell right there. Wow. That is I mean, get your cash register ready. You know, that is phenomenal. I mean, only 900 and something dollars a month for $250,000 house, you can see everybody in the country is trying to buy a house right now. And
Adam 18:38
so then I looked Alright, if in three years from now, and I just went to the beginning of the year to make it easy for myself in the future. If then beginning of if on January 1 2024. I close in that $250,000 house drops 20%. And now I’m trying to buy it for 200,000. My interest rates going to be higher, because obviously if we’ve had a 20% drop, and the economy, interest rates are going to go up because of fears in recession. And it’s I just said let’s just say it’s 6% it could be higher. I you know, I was paying 6% for an investment loans not that long ago. So if it’s 6%, even $160,000 mortgage, it’s $959. So it’s $33 a month higher in three years on a house that’s 20% cheaper, and
Jason Hartman 19:25
if it ever gets 20%
Adam 19:27
she didn’t gets lower. So I’m playing the game of let’s run the numbers the same as the Great Recession. But on January 1 2024. When I have the $200,000 loan, I have also paid down 12,000 In principle, I have had $23,000 in interest that I’ve paid that had been at least partially tax deductible. And assuming the port I found a portfolio for one of our Florida properties that was around 250,000 the cash flow after 8% management 8% vacancy and 3% mainly It was around $250. So I said, assuming $250 a month, I have also got $9,500 in positive cash flow. So I’ve paid down 12,000. In principle, I’ve gotten a potential $23,000 in tax benefits. And I have 9500 in cash flow in my pocket. On January 1 2024, my first payment is due on the other one. That’s it. And I’m going to assume about $225 a month cash flow moving forward. Because my rents probably dropped a little bit on that house, if I have to go down to 200,000. You know, you’ve got a higher monthly payment, and you’ve got no principal pay down no interest, no cash flow. So you’re at zero. So that’s what you’ve missed waiting the three years to try to buy it bottom.
Jason Hartman 20:49
Adam, I think it’s easier to evaluate the missed opportunity by simply just looking at the return on investment directly, right. So so here’s another way to look at it. Okay, so, you know, how much is the downpayment you made on that house?
Adam 21:06
You said it’s Tom, it was 50,000.
Jason Hartman 21:08
So, okay, so $50,000. And if you go to Jason hartman.com, slash properties, and look at the performance there, where they’ve got all of the numbers, and if you want to know how to read that sheet and standardize your data, as a real estate investor, just look at the free video, which by the way, is an updated free video. Hopefully, the update is there now. I think it is, I think it was updated. Just yesterday, there’s a new version of that video at Jason hartman.com on how to analyze a real estate deal. How to Read a performance. I mean, the worst of these performers will show you an overall return on investment of say 25% annually, okay? I mean, that’ll be about the lower end, some will be 30 35%. But whatever it is, okay. Say it’s, you know, 25%, so you take 25% of $50,000. So that would be $12,500. And your time period was two years, right, Adam? There’s three, three years, okay. So I won’t compound it. But the return on investment should be compounded to do it properly. But since I’m just doing it in my head, that’s 12,500 plus 12,500. For year number two, plus 12,500. For year number three. So that’s $37,500 return overall, on a $50,000 investment. Now, disclaimer, okay, you have to understand that, number one, that might sound really phenomenal and ridiculous. Like, I can’t imagine that’s really going to happen, Jason, you’re just making that up? Well, no, you have to understand that income property. The reason it’s the most historically proven asset class in the entire world. And it’s made more people wealthy than any other asset class for generations now, is because it’s a multi dimensional asset class, and you earn return in lots of different ways. A lot of it, it’s like, it’s like the old metaphor of an iceberg, right? You know, only a small part of the iceberg is above the water, the rest is below the water. Okay? As as the captain of the Titanic, okay, so the iceberg, a lot of that return isn’t directly seen. And that’s why you have to know how to do the math. And that’s what that free video, it’s like a 30 minute video got a little longer when I read
Adam 23:29
26 in one long.
Jason Hartman 23:31
Yeah, you can’t imagine me going long, right? That video will explain it to you. Okay, how you earn that return. But I think that’s just a really easy way to look at it. You know, I mean, you could look at it the way Adam presented it to either one, you know, I just
Adam 23:44
wanted to present real numbers here, right?
Jason Hartman 23:47
set of percentages.
Adam 23:48
Yeah. Right. So that’s what you’ve given up the first three years. So now, now, let’s go six years out, if you look six years out, from the peak of our market, in the Great Recession, it was essentially flat. After six years, so you’re back to square one. So you’ve held on to an asset for six years and got nothing in the stock market. So if we look at the $200,000 loan we took out today, and the hundred on the left, and $160,000 loan we took out on January 1 of 2024. If we run it through to where it’s been six years from today, so on January 1 2027, the $200,000 loan, you have now paid down 25,000. In principle, you’ve had $43,500 of interest paid and you’ve made 18,500 in cash flow on your other one your your three years you’ve only made 6000 in principle pay down 28,000 in interest paid in 80 $100 of positive cash flow because you’re making lower cash flow. So the the the opportunity costs of just waiting those three years to try to buy it. The bottom doesn’t really exist. Because if you remember, that’s the three years that you’ve paid on this hundred and $60,000 loan that you’ve gotten over the last three years is worse that 60 228,080 100 is worse than the 12,000, in principle, pay down and 9500 and positive cash flow from the first three years of your $200,000 loan. So did you really gain anything? Waiting those three years for the trough?
Jason Hartman 25:27
Yeah. Now, I think that that this folks, see, you look at you know, when you hear these talks about the value investing philosophy of Warren Buffett, and they talk about that in the stock market, and that is, so they say, you know, you don’t time the market, don’t try and time the market, just buy quality, and let it ride. And I generally agree with that philosophy, the value investing philosophy is sound, you know, Benjamin Graham, was Warren Buffett’s mentor, or inspiration, I’m not sure which way to say that, you know, the market timers almost never win, right? They they win occasionally. And they got a few great stories. But usually people don’t like to talk about their failures as much as their successes. So you don’t hear about all the times they lost money, right? Or you don’t hear about the dogs that don’t bark and how much they would have made, if they just left it in. Okay, so. So that’s, that’s an issue. But with income property, Adam, it’s so much better not timing the market, because you earn your return in so many different ways, right? You started off this presentation with that slide, which maybe we should just go back to for a moment, the ideal acronym, and that’s a really old acronym in the income property world, but it doesn’t even cover it anymore. You know, I be EA L, okay. Income property gives you these ideal characteristics, it gives you income, it gives you depreciation, and that means good depreciation, it’s a, it’s a tax benefit, it’s the best tax benefit ever, because it’s a phantom write off, or a non cash write off. In other words, the property could be appreciating, it could be positive cash flowing, it can be doing great, and you still get a tax benefit, potentially that depreciation, right. And then you have equity growth, meaning your tenants pay your mortgage down, you have appreciation, meaning the property goes up in value, and so you get equity that way. And then to top it all off, you have l in ID EA L, you have leverage, meaning you can do more with less. Okay? So in Adam’s example, you put 20% down, and you have 80%. Paid for by the bank, you’re using OPM, you’re using other people’s money. This is just a partial list. By the way, this is an old thing. It doesn’t have any of my advanced techniques in there, like inflation do step destruction, II d d, inflation induced debt destruction. If you don’t know what I’m talking about, when I say that, go check out my podcast, the creating wealth show, we go into that in detail. If you want to find exact episodes on that. Just go to Jason hartman.com and type in inflation induced debt destruction and you will be wowed and amazed. Most people are by the hidden wealth creator with income property that is in addition to what you see on the screen, income, depreciation, equity, growth, appreciation and leverage. But leverage is OPM. It’s other people’s money. It allows you to be so much more than you are. It allows you to be a five times bigger investor than you are. Okay, it’s just a wonderful thing. Okay, Adam, any comments on that? But
Adam 29:05
no, i i agree. I didn’t put the depreciation in there either. But you’re missing out on three years of roughly $10,000 a year depreciation for your property in the first three years of the $250,000. One,
Jason Hartman 29:20
that’s good. Now understand that depreciation is a bit of a complex issue. We are not tax advisors are numerous talk to your tax advisor. You know, of course, the the terms of service at Jason hartman.com and the privacy policy do so, but yeah, you know, taxes are a complex subject, but income property is the most tax favored asset class in America, the most historically proven asset class in the world. So Adam,
Adam 29:47
I was just looking through to see common Gosling’s nest in New York says I know this is off topic. Did you hear the latest the nanny state in action and are looking to have all of us have masks on in our homes? Why are you guys not masked Oh,
Jason Hartman 30:01
that is so absurd. I can’t read that.
Adam 30:04
Have you read it? It makes more sense if you read it,
Jason Hartman 30:06
what was Pennsylvania doing that or something?
Adam 30:10
I don’t know what it was. But essentially, it’s only it’s not if you’re just in your house, it’s if you have like a worker over, or if there’s people who you’re not usually around, it’s essentially, if it’s an out, if it’s like you’re at an outdoor event, but it’s in your house,
Jason Hartman 30:24
they just ask that you wear a mask, you know, look, look for my YouTube video on my YouTube channel about where I interviewed the mask, doctor. He’s an expert on mask, and he shows how the mask is actually made. The mask is making people sicker. Those masks are dangerous, folks, it’s not as simple as it seems. There are many reasons, but one is that you’re breathing in your own respiration, which is extremely unhealthy. The point of getting it out of your body is to get it out of your body. But number two, is people spread more germs because they keep touching the things and fiddling with them. Okay, so there’s the mass has a lot of problems. And of course, all the error still comes out. Okay? You know, it’s not like when you exhale, the air goes away, it still goes into the environment. You know, it’s just a way for the government to control us. So
Adam 31:14
Alright, so ultimate bargains, thanks to the taxpayers.
Jason Hartman 31:17
Adam’s wife is a is a nurse. So she wears a
Adam 31:22
95, eight to 12 hours a day. And
Jason Hartman 31:24
I don’t think that it’s happened, I can hardly wear it for 20 minutes at the grocery store. I hate those things.
Adam 31:30
But ultimate bargains says the Fed cannot put the toothpaste back in the tube, it will never increase interest rates. I don’t agree with them never be able to increase interest rates again, it’s going to be a little it’s gonna be a while I will grant you that. But I think we will see higher interest rates. Again, they can’t, it’s eventually the economy will turn around and start going back to where it was, you know, before COVID. And when that happens, they’ll have to start changing things in the economy, or else it’ll run too hot. And inflation will skyrocket.
Jason Hartman 32:04
Yeah, well, the problem is, and what the people who disagree with that statement, Adam, what they say is that, you know, like, like our viewer said, You can’t put the toothpaste back in the tube. They can reel that in, but it’s not nearly as easy as it so I agree. Okay. And the the one great example we have of that is Paul Volcker, who recently passed away. We talked about him many times on the podcast, he was the Federal Reserve Chair in the early 80s. Okay, and he was the one that broke the back of inflation by raising interest rates to astronomical highs, because inflation was just rampant. And it was, it was ugly. I mean, that was really hard to do that. What Paul Volcker did it was hard to number one, have the have the courage to do it, because he was so hated at the time for doing it. It’s like making someone take really bad medicine. And so it’s very damaging to, to raise the rates and manipulate the market that way to stop the inflation. These things have a spiral of life of their own. So it’s not like I mean, Jerome Powell just glibly sort of says the same way. Ben Bernanke. He said, you know, we’ll just put the tool back in the toolbox and everything is gonna be okay. Yeah, well,
Adam 33:28
not quite. But even if the Fed doesn’t end up raising their rates, eventually, you know, the stock, other parts of the economy will get good enough that they’re going to have to raise the rates to get investors to come in and start buying the mortgages. So the rates will have to go up in order to get the spread that they need. Sure. But I mean, the Fed not raising the rates isn’t that big of a deal. So acentric says, Now that Biden may be president, are you guys learning Chinese, as that will soon be the national language of the world? Yeah, I haven’t gotten that far yet. Are you learning any new languages? Jason?
Jason Hartman 34:03
No, definitely not.
Adam 34:05
We got away is censored also says have you seen the news about the California law about foreclosures? people buying homes for personal use will be able to underbid investors? I haven’t seen that.
Jason Hartman 34:16
Yeah, I have seen that. And I thought about it. And of course, it’ll be another failed disaster. Gavin Newsome, stupidity. That won’t work for a million reasons. We’ll talk about another day, because it’ll take too long. Craig says fed raising rates is a huge deal. Raise equals economic collapse.
Adam 34:35
I don’t agree with that. I mean, we were at the I mean, the Fed rate was significantly higher than it is now just two years ago. And we didn’t have an economic collapse.
Jason Hartman 34:46
Well, it depends. You know, it’s all a matter of degree. It’s really just all a matter of degree and in speed at which they do it. So see, Paul Volcker did it. He did it quickly, and he ended the inflation problem, but it was very Very painful, folks. So we’ll see. We’ll see what happens. So folks, we will wrap it up. But join us tomorrow for our Charlotte webinar. You’re going to learn some good stuff. I have a little teaching at the beginning of that webinar. That’s Jason hartman.com. Slash Charlotte. Kim just posted something.
Adam 35:18
She said, Why do you think people buying houses in Seattle? Like a crazy?
Jason Hartman 35:22
Yeah.
Adam 35:25
I don’t know why people are buying in Seattle. Yeah,
Jason Hartman 35:27
they’re, they’re crazy. They’re crazy. They’re crazy. So that is not a good idea. Don’t do it.
Adam 35:34
Correct. And Volker was able to because the country had way less debt than we are not restrained in our spending by the dead. The dead, like I said, is just money that we’re holding, as assets. I mean, the federal government creates the dollars and puts them out there, our taxes don’t actually pay for anything. The only reason they have to tax is to give our currency value, and to potentially remove any try to get us from not using some of the resources that are needed. The danger of inflation comes when there’s competition for resources. And we’re not experiencing that right now.
Jason Hartman 36:12
Yes, there’s a housing market.
Adam 36:14
There are some areas where it’s happening, but the government spending is not what’s causing that, like government’s not going and trying to buy up all the lumber. A big part of our lumber problem right now, is the fact that COVID shut down a lot of the production for a while, even the new for that now.
Jason Hartman 36:31
Now, those but that story, right? But yes, I
Adam 36:36
heard you talking about it, ramp up the production, they still know each other Go ahead. They still have to ramp up the production, we still have tariffs coming in, on all of the lumber that’s coming in from Canada. So it’s not the government purchasing and the government money coming in? That’s the issue with that. It’s the other parts around it, that’s creating the run up in cost.
Jason Hartman 36:58
Okay, that is just too complex of subject to debate today. But, you know, we’ll talk about debt and inflation and, and you know, I’m a little bit in the middle of this. I don’t think it’s as easy as Adam makes it out to be,
Adam 37:09
but I don’t make it out to be easy. This. The theory itself is easy. The implementation is hard.
Jason Hartman 37:15
Well, I also don’t think it’s as bad as the doom and gloom errs, like Jim Rickards and Peter Schiff would say, either, so you know, I’m, I’m a little bit in the middle about it. So good stuff, everybody. Thanks so much for joining us. We really appreciate it. Be sure to like and subscribe if you’re watching on YouTube and do the bell notification. So you’ll catch those impromptu live streams like the one I did on Monday. And also, we will see you tomorrow at our Charlotte investing webinar. This is a totally new one. It’s a it’s a market we haven’t been in for several years, I made some great money in that market. I profiled and exchange I did out of Charlotte into two more properties in Memphis. And this is just a great market. It’s been pretty hard to access. We’ve got brand new construction there, and some teaching we’re going to be doing on that webinar as well tomorrow. So join us Jason hartman.com slash Charlotte. And we will see you there. Thanks everybody, and happy investing.
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