In the first part of this episode, Jason Hartman talks about the bullish signs for the real estate market and the S&P movement for the last 12 months. In the interview segment, he speaks to Andrew Cushman about the “tricky” economy, with the odd unemployment numbers compared to stock market success. They also discuss rental scarcity, real estate movement, migration in the US, and opportunity zone.
Announcer 0:02
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:53
Welcome to Episode 1605 1605, our guest today we’ll be talking about many aspects of real estate, the rental market, multifamily housing, a little bit about commercial real estate, and just how the demographics coming at the rental housing market over the next decade, are nothing short of phenomenal. So I want to say congratulations to all of you, because you’re in the right place. You’re listening to the right show, you are doing the right things, you are buying these good quality rental properties in these excellent linear in maybe some bordering on hybrid, or real estate markets nationwide. And you’re finding them on our platform at Jason Hartman comm slash properties. So congratulations to you. So the size and scope of the changes in the economy and the world in our lives is absolutely staggering. And I just thought I would share with you some numbers that I was recently reading about. And it was just entitled, the numbers of 2020. It’s been an absolutely outlandish year, no one would deny that. And by the way, I interviewed another guest today, a Stanford economist, will probably publish his interview next week. But that interview today, is he talked about the remote working situation, the money printing, it’s absolutely it’s all just it boggles all of our minds, doesn’t it? It really does. The scope of these massive, massive changes cannot be underestimated. So here are some numbers, just to make you kind of get some context of what’s going on. Right? So $4.5 trillion. This, ladies and gentlemen, is the amount of money sitting in money market funds, okay, the amount of money sitting in money market funds. And we should all know, I just give you a reminder that this is not FDIC insured, and it is not any kind of a guaranteed investment. So just a word of caution on money market, that money is at risk. Admittedly, the risk is much lower than being in say stocks, but it is it’s risk capital, you know, people can lose money in money markets, they can also lose money in FDIC insured bank accounts. Because as we’ve talked about in the past, the FDIC if there was around the banks, if there was a banking disaster, there is no way that insurance policy has anywhere near the level of reserves necessary to pay claims. See, it’s just like any other insurance policy folks, FDIC insurance is, well what do they do? They underwrite the risk in various banks, they charge a premium to provide insurance to those member banks. And then if a bank goes belly up, they have a claim the depositors have a claim on that insurance. And that insurance, of course, is $250,000 per vesting. So one of the ways you can increase if if you have a lot of cash and hopefully you don’t have too much cash sitting on the sidelines, because that would not be good. But if you do if you do, you want to spread that around into different entities and different banks. So you’ll want to check out our webinar on that where you can set up different entities. Jason hartman.com, slash protect protect your assets plan your state, reduce your Taxes. And this FDIC insurance goes by vesting. So if you have if your name happens to be Jane Doe, and Jane Doe is a real estate investor, and Jane Doe says that she’s going to have $250,000 in her personal bank account, which I hope that wouldn’t be true, because that would be very much at risk, you would be much better off having a couple of different entities maybe LLCs, or a trust or something, and have the account in those names. So that you spread the risk so that each vested account each entities account could make a separate FDIC insurance claim, if worst comes to worse, okay, so do not go over that $250,000 per vesting, ideally, right? Okay. So that number that I just shared with you in the money market funds, is down slightly from $4.8 trillion in June, but it shows just how much money is on the sidelines, earning less, you’re ready for this, hey, I better give you a drumroll on this one, folks, because you’re gonna need it cuz this is gonna blow your mind. drumroll please. There’s your drum roll. That money sitting on the sidelines, is earning less than point 7%. That’s four and a half trillion dollars, just in money markets, waiting to be invested. Folks, that’s huge. And that is a bullish sign for the real estate market. Because that money will, at some point come off the sidelines and flood into various investments, some of them being commodities. And when we’re real estate investors, we’re really just commodities investors, right? Because we invest in packaged commodities or assembled commodities. Right. So there you go. That’s a staggering number. Let’s get to the next staggering number. 3.6 million. That’s the number of long term unemployed Americans who have been out of work for six months or more. That number is growing. Okay, it is growing still. And it shows just how hard it is to get the economy back to full steam. Now, of course, this is especially pronounced if you live under the terrorist regime of someone like Gavin nuisance, the governor of California, and you know, it’s it’s just an epic disaster in places like that. New York same idea, right. Same idea in any leftist place. Because more lockdowns you know, no one’s no one’s counting the disaster caused by the closures. The lockdowns, the quarantines? No one’s counting the increased suicide rate, the increased drug use the increased alcohol use the skyrocketing addictions, the amount of depression, right, no one’s really counting this stuff, or at least we don’t hear about it if it is being counted at all. You know, it’s it’s not as simple as the COVID issue, right? There’s more to it than that. Okay. 13 million Americans are receiving expanded unemployment benefits as part of the cares act. And those benefits will expire on December 31. Unless there is an extension. And by the way, I have tremendous faith that there will be an extension, the government loves to hand out money to do stimulus programs. The government loves it. So I don’t think we need to worry too terribly much about just a cold exploration without something filling the void. There will be something I’m pretty darn confident about that. There may be a little lag diamond between maybe it won’t happen until the after the next presidential term, whether it be Trump or Biden. So that’ll happen obviously, you know, January What, 21st? Right. 22nd. So we’ll see. We’ll see. Now, the number of jobs that have been added back, right, since May, compared to the 22 million people who were laid off during the pandemic 12 million have been added back. Okay. 12 million. So we’re, we have a 10 million job deficit from the pandemic issue. So there you go. There’s some numbers. I got to More for you. You’re ready, the return on the s&p 500 year to date, guess what it is 12%. That’s after a 34% crash in March. Wow, a 40% recovery through the summer as they pumped in the money, right? And a five or 6%. That’s been added since then a 12%. Gain, year to date. All things considered ups downs, sideways. Not bad. But that doesn’t even come close to the return produced by a multi dimensional income property asset. Real Estate has massively outperformed the s&p and the smps. And doing pretty great all things considered. But the problem is that many people sold, they sold out during the down times. So they sold on a loss. And they’re still underwater, right? It depends exactly when you entered and exited the market. This is the problem with trying to time the market in any market, not just stocks, not just the s&p, housing, pork bellies, coffee, beans, whatever, any commodity any stock, any investment. Market timers, really have a tragically bad history, a tragically bad record of trying to make money. Okay, so here you go. Here’s one more number, the percentage of stocks listed on the nysc, the New York Stock Exchange, trading above their 200 day moving average. See that moving average, by the way is telling based on what I said a moment ago, that last number, because that moving average, of course, it as the name would imply is a moving average of 200 days, right? And it keeps moving through time as we move through time every day, the 200 days changes which Bayes it calculates. So people, even though the s&p is up 12% year to date, many people of course, sold out when there was a huge crash of 34%. Obviously, the reason there is a crash is because people were selling the supply and demand, right. That’s how the stock market works. And so many of those people, even though the broader s&p is up for the people that just didn’t do anything. Many of those people lost fortunes this year. And so they might be negative 10% year to date, rather than 34%. Somewhere negative 34% of faith, good, the worst of all things right. But what’s interesting is that the money printing, thus far knock on wood has worked, because it has puffed up the stock market. And obviously, other assets as well. 82% of stocks listed on the nysc are trading above their 200 day moving average. And that’s the highest since 2013. Right? amazing, incredible big numbers. Really, really just hard to believe the kind of numbers we’re seeing in this world. Okay. Another interesting thing. Well, I’ll talk about that later. But Facebook, remember, Facebook’s Libra currency? You haven’t heard much about that. Right? And I like the name because hey, I’m a Libra. Right? And that’s the best sign in the Zodiac. So, so you haven’t heard much about that lately? Remember, there were huge objections, rightful objections, okay. And I’ll talk about that a little more later. But just remember what I’ve always said, folks, whether it be Libra aetherium, Bitcoin, any cryptocurrency Litecoin Kanye coin, which, I guess that never really made it. There are many coins that have just gone under. They’re in a coin graveyard, right for cryptocurrencies. They all represent competition for the most important product, most important product, the most important economic widget of every government on Earth. What do governments produce? Well, many libertarians and conservatives would say governments don’t produce anything. They simply take in money in the form of taxation, and most would not understand this, but you do because you listen to my show. Also inflation as a way governments take in money and becoming rich. So they take in money through inflation and taxation. And then they take a very large handle fee, they buy a $900 hammer at the Pentagon, or a $2,000. toilet seat for another government agency, or you’ve all heard the stories like that right of massive government waste and corruption. They pay off lobbyists, lobbyists pay off politicians, they exchange favors, quid pro quo. It’s a total scam, right? And then they give back a small amount of that money they take in after their very large handling fee, in the form of government benefits, you know, welfare, highways, whatever, right? Whatever they do police force, fire, etc, etc. And that’s what governments do. But just remember, the governments of every country on Earth, they do really produce one thing. One thing they do produce, so the people who say governments don’t produce anything, they’re just a middleman that takes a very large handling fee. They’re wrong. governments do produce at least one thing. currency. Not to be confused with money, currency, dollars, euros, yen, pesos, Brazilian reality, whatever, whatever rubles, whatever their currency, that is the product of the corresponding government. And let me tell you, like any person in business, they don’t love competition. They would rather have a monopoly, a monopoly is way easier than having a competitive marketplace. So guess what monopolistic powers do? I mean, look at it now in the world of big tech, these big disgusting tech companies, they’re operating semi monopolies or duopoly, whatever, right? And they’re doing everything they can to hang on to their monopoly, because it’s easier for them, and much, much more profitable. Same is true with the criminals on wall street like Goldman Sachs, right? Goldman Sachs doesn’t want any competition. So they tell the government to go create tons of regulations. Zuckerberg at Facebook, right? He’s saying we need to be regulated. And that’ll help them hold on to his monopoly. Right. So governments don’t want any competition for their currency. Of course, they don’t, why would they? That’s their main product, maybe it’s their only product, it’s probably their only product. Why would they want a competitor? They don’t. So just think about that. Just stick that in your pipe and smoke it folks. You know, as the saying goes, put that in your pipe and smoke it. They don’t want competition. Okay. Tonight, empowered investor network members. Tonight, we have our zoom meeting at five o’clock Pacific, eight o’clock eastern time. And wherever you are around the world, please do your adjustments for our zoom call. Because tonight we are dissecting and disassembling property management agreements, we’re going to tell you what you should say no to what you should negotiate. And I think it’s going to be very interesting, one of our clients muthiah is joining us on that call. And then our investment counselor team will as well. And we’re going to really go through some property management agreements and say, This is the good, this is the bad. And this is the ridiculous. So if you are a member, you received an email, of course in the community forum, the social network for the empowered investor network, the inner circle, you got the zoom information in there. So we look forward to seeing you tonight. And if you’re not a member, talk to your investment counselor, and ask about how you can become a member. So you’ll get all of these terrific advantages of being in the empowered investor inner circle. Okay, without any further ado, let’s get to our guests. And we’re gonna play part one today, and we’ll have Part Two tomorrow. And we’re going to talk about a variety of interesting things including rental housing, demographics, here we go.
It’s my pleasure to welcome Andrew Cushman to the show. He is a real estate investor, apartment syndicator and has some interesting thoughts on demographics that we want to look into. You know, as I said, 10 years ago, and I recently renewed my 10 year forecast for another 10 years, I said that the demographics coming out the rental housing market for the next 10 years. I said this 10 years ago are nothing short of phenomenal. And I’m renewing that prediction because the next 10 years look incredible as well. So Andrew, welcome. How are you?
Andrew Cushman 19:58
I’m good. Thanks Strap me on Jason’s good to talk with you. And I would agree with your assessment 100%.
Jason Hartman 20:04
Yeah, you’ve got about 1800 apartment units that you’ve syndicated. You’ve done a lot of home flipping and investing. And we met through a mastermind group that were involved in, I had the pleasure of speaking at that group in January. And you’ve really done some good stuff. So where are you located? By the way, you’re in Orange County where I used to write
Andrew Cushman 20:25
Yeah, I live down down in Southern California not far from Yeah, your old home of Newport Beach. And then we primarily invest in Georgia and Florida. And then we also like the Carolinas, and Tennessee, and we used to be in Texas, good stuff.
Jason Hartman 20:39
Well, talk to us just in general about your macro view of the market, in terms of real estate, the economy in general. And then let’s get into these rental demographics. And by the way, folks, if you’re watching on video, we have some good visual aids, feel free to make comments down below, if you’re watching on video. And then if you’re only listening to the audio, we’ll try and translate the visuals into a way that you can understand them as well. Okay, what’s your macro view?
Andrew Cushman 21:09
So, you know, the economy in general that? That is that’s a tricky one right now, right? We’ve got, you know, we’re hearing we’ve got 1012 15% unemployment, but the stock markets are all new highs, we have stimulus that seems to be benefiting the wealthier folks, and and those who own assets, like real estate, whereas the the lower income folks don’t seem to be getting as much of that and seen and, you know, are kind of struggling. And it’s really, it’s difficult to predict, you know, where How is that going to settle out? Right, you know, what is real unemployment? The what was people’s real incomes, what’s real occupancy going to be? You know, we, you know, we call the appearance of the Coronavirus, you know, Black Swan event? I don’t know what the opposite of that is maybe a white penguin or who knows, but I mean, it’s gonna take just about a miracle to just make this all just go away, right? I mean, there’s gonna be some repercussions. And I, you know, when I study it, and when I talk to people far smarter than me, I get completely opposite conclusions, right? One person can have a great argument for why everything’s me fine in six months. And I listen to somebody else who has a great argument for why this is going to be the next great depression. So I think the reality is probably going to be somewhere in the middle. And what the question I like to ask is, you know, as far as investing goes, What can I do to put a tail end at my back, or, you know, wind in my sails, so that almost no matter what the outcome, I should be in a good position. And that’s when I look, you know, that’s where I look at, okay, you know, what asset class or what investment class has those tailwinds. And to me, rental real estate is probably the best positioned to benefit from not only the long term trends that you alluded to Jason, before this started, but what’s going to be accelerated by the current the current crisis, right? So for example, you know, we’ve already talked about this in much talk about the baby boomers starting to downsize and move into rentals. And, you know, already there was a trend for for them to want to age in place, right, not move to the home, not move to the retirement center, but to stay in a house or an apartment or something like that. They are the second largest generation, there’s 70 million of them. And they are in the process of downsizing and, you know, trying in renting, so they have the flexibility to lower payments, they don’t have to worry about maintenance, all that right. So we’ve had that trend going on. behind them is is Gen X, which is a smaller generation. Right? That’s you and I, and you know, we’re starting to get to the point where, you know, lifetime warranty doesn’t sound like quite as good, a good deal, great deal anymore. But we’re kind of in the middle. And then after that we actually have the biggest generation, and that’s the millennials and they’re from you know, 1981 to 96, depending on who you’re talking to. It gives defined a little bit differently. But that generation is 72 million. They’re even bigger
Jason Hartman 23:56
than it’s interesting, because as you quote these numbers, you know, the demographers disagree on Yeah, how many millions? Because, you know, I’ve always gone with the number that the baby boomers are 76 million, the millennials are 80 million, slightly bigger. Gen X, my generation only 46 million. So folks, just understand the demographers vary depending on the cutoff here. They do they do fudge a little bit on it. Not a big deal. The concept is the same, but go ahead.
Andrew Cushman 24:27
Yeah, you’re exactly right. If you compare, you know, Freddie Mac versus I mean, pew, or they’ll have different numbers, but the research center Yeah, do the overall trend is about the same. And so the millennials are getting to the point now where they’re they’re forming households, but they’re very unlikely to buy because number one, they a lot of them tend to value flexibility, and amenities and they don’t want to take care of a house but even a bigger factor is the is the multi trillion dollar student debt bubble, right. That is preventing many of the millennials from being able to buy houses, they are becoming renters. And not only are they becoming renters, they’re staying renters much longer than previous generations. Right. So we have two huge waves of demand crashing at the rental market. And this applies equally to single family and multifamily, right. I mean, there’s different preferences and you know, you can parse out, but the demand is there regardless. In fact, even right now, single family demand seems to be even slightly higher than multifamily, as as people seek space and move out of cities and
Jason Hartman 25:28
things like that, but again, the multifamily has to be defined in terms of, you know, what type of multifamily as it is that high rise, mid rise, low rise, garden style, you know, it’s just so much different. And this is, this is why folks, you can’t listen to the national news media and and their soundbite analysis, it just isn’t good enough. Go ahead.
Andrew Cushman 25:56
Yeah, there’s
Jason Hartman 25:57
a lady on CNN, he’s been predicting the demise of the housing market for the last 10 years. Right. You know, and Peter Schiff has been predicting the end of the world for 20 years. And, you know, Zero Hedge has been predicting it forever. And it’s just yeah, it’s really annoying, frankly. Yeah. Well,
Andrew Cushman 26:14
and you know, we and we have a mutual friend David Osborne, his is it what he says is don’t wait to buy real estate, buy real estate, and we’re
Jason Hartman 26:22
staying, I operate by two, yeah,
Andrew Cushman 26:24
you got to ignore the noise and buy something that makes sense today. And then you hold on to it. So. So that was that’s the demand side on the supply side. And this, this data is coming from Freddie Mac. So this is kind of the same thing, where, depending on your source, the numbers might add up a little bit differently. But they estimate that demand is 1.6 2 million household units per year. Right. So that, you know, we that’s the demand for housing every year. And we haven’t supplied that level of homes or apartments since 2007. So what that means is every year since 2007, we’ve been running a deficit in increasing the severity of the housing shortage. Now that’s very right in 2009, and 13.
Jason Hartman 27:08
Yeah, note on that, by the way. And in 2011, that was a short, brief anomaly, because of the over construction that occurred, because the the lending was so ridiculously liberal, there really was a housing shortage way before that. Also, there was this brief spot, you know, like a snapshot in time of maybe a couple of years, that there was actually an adequate supply of housing, but still, you know, there was a very significant homeless ness problem even then, or maybe, especially then, because it was recessionary time. But yeah, you know, and of course, that also is a stat, you would have to parse up a zillion different ways in terms of location, product type, price range, etc, etc, etc. but go ahead.
Andrew Cushman 28:00
Yeah, yeah, you’re absolutely right. Um, there’s some markets where there’s, you know, 30% vacancy and, you know, rural, maybe declining towns and then well,
Jason Hartman 28:09
in other words, Detroit, I mean, Detroit, yeah. poster child for disaster. Right. And in Detroit, obviously, we saw them bulldozing homes for a while.
Andrew Cushman 28:18
Yep, they were given away for free or Yeah, all that kind of stuff. So. So we’re running, we’re consistently running a housing shortage. I think in 2017, even if things were strong and recovering, we were still short 370,000 units of housing. This has been going on for a decade. The current projection I’ve heard for 2020 is that we’re up to again, this varies depending on who you get the data from, but we’re up to like 1.49. Right. So getting there but still short. And Fannie, Freddie Mac has a projection of their high, their median and their low. And they’re predicting anywhere from a shortage of between now and 2030 of 900,000 to 4 million housing units shortage, right. So when you have two large waves of demand crashing into the rental market, you have anywhere from one to 4 million units shortage, that really leads to one thing and that is, you know, increasing occupancy, increasing rent levels, and therefore increasing value value on on that rental property. And so when we look at just the macro picture within the United States, those demographic trends, which are, you know, set to play out for at least the next 10 years, especially as that millennial generation is just now starting to move into the rental market. That wave is about a 10 year long wave that’s going to you know, push push rental rates push occupancy, and again, it’s a huge tale and now that’s the the really high level picture, which even becomes really important as an as a real estate investor and Jason, let’s share my screen here. Okay.
Jason Hartman 29:54
Now this what we’re showing here is a data from Harvard University. Okay, you This is the Joint Center for housing studies, we’re looking at a map of the US. And the great thing about this map that Andrew is sharing is that you can highlight an area like say, for example, Memphis, one of the markets we’ve been recommending for many years, along with many others, Memphis is certainly not the only one. And you can you can look at the flow of the population. And it’s it’s pretty encouraging for investors for sure. Go ahead, Andrew, do you want to highlight that one? Yeah. So
Andrew Cushman 30:31
there’s two maps here that I want to highlight. One is just total population change. And effectively, you know, if you’re a rental, and if you’re an investor rental property, you want to position yourself in the counties, and this is done by county that are kind of this green, dark green, or greenish blue color, right? That’s where population growth is the strongest or the highest. And then the red, the red colored counties are ones that are losing population. And then the white is where it’s basically flat. So you look at your areas, of course, you’ve got you know, tech, you’ve got San Antonio, our over blocks it but you’ve got San Antonio, Austin, Texas, Dallas, Fort Worth, Houston, most of Florida is high growth, most of Tennessee. And then like, you know, Jason, you mentioned you’re in Memphis, that’s dark green, that’s looking really good, Carolinas, Arizona, Utah, Idaho, there’s markets all over the country, where you have good growth, and even in some regions or states that are somewhat maligned for, for losing people, you can almost always find at least a county or sub market that is growing for for whatever reasons, right? Because you have different levels of domestic migration. That’s why all real estate is local. But the thing I do have to say, as a caveat there is you have to look at the type of migration it is, you know, is that your target renter, for example? And you also have to consider, can you buy a property there? That makes sense? You know, can
Jason Hartman 31:57
you get a good rent to value ratio, etc. So, you know, in the Great example, is California, you know, my old home and your current home? Yeah, I almost hate to keep mentioning California, but, you know, it’s it’s the biggest state in the country. And, you know, if it were its own country, it’d be like the sixth largest economy. So it’s a pretty significant thing. And it does show an example, a bad one, largely, sadly, it’s just so mismanaged, and it’s really tragic. But California, you know, is finally having some net migration or net net loss of population, right. But over the years, it’s had actually net gains. But the question is, who is the game coming from? Is it coming from illegal immigrants? Or as Hillary Clinton used to call them workers without papers? I mean, you can’t make up this politically correct. You know, these these are such wise, it’s unbelievable work. If you know if they’re all workers without papers, okay? They don’t have the income level that is going to make a good renter right through to rent your typical house. So you know, you’ve got to really parse this stuff up. It’s much more complicated than it might look on the surface. Right. What
Andrew Cushman 33:21
in Jason, I couldn’t have teed this up better. Let me show you highlight exactly what you just said. So if you look at this map, where I have up right now for total population change, California looks great, right? lart lots of dark green color where they’re, you know, the highest rate of population growth. But if I go down to the legends, the bottom and I toggle it from total population change to domestic migration, meaning people moving from within the country, right, California is terrible. The whole thing changes. Wow, California turns red. So what does that tell you? Wait a second. The first map said California is growing like crazy, but the second one says it’s losing people. Okay, well, who is it losing like? It’s losing the people who have the good incomes that can afford to flee the state? Yeah, right. And that that’s key right there. Right. So you’ve got to look at both of these maps it perfectly highlights what you were just explaining to everyone and then you look into Okay, and
Jason Hartman 34:17
one thing we should tell people about this look at the reason this is so important, is because the people leaving are the tax base. Yes, sir. The taxpayers. Okay. And yes, there are some ultra wealthy people in California. Sure. And then there’s a lot of poor people so it’s a banana republic. And I don’t mean the store, you know, look up the definition of banana republic. It’s a country where you’ve got this ultra rich class and this ultra poor class and very little in the middle. What you want for a stable societies, a large middle class, that’s the important demographic in my opinion. I love the middle class, and love them or hate them, but so does Donald Trump. And so this is The thing, you know, the the ultra rich people, they don’t really pay much in tax a lot of times because they have so many sophisticated entities, they do offshore tax planning, they have all kinds of loopholes, they take advantage of, and, you know, these big companies in Silicon Valley and so forth, like apple, Shame on them, and, and all the rest, you know, who are, you know, they set up these companies in Ireland and, and, you know, the Netherlands, and then they got another company, you know, and they, they do this the whole game, to avoid paying taxes, where they’re really located. It’s a complete scam, but you know, they circumvent the law. And, and so, when you lose the tax base, and you lose those property tax revenue, then things start going downhill really quickly. And as we can see, California is desperate. And it’s not the only place there are many other places New York certainly to, and they’re really just attacking the population that’s left, they’re becoming very predatory on them to collect revenue. I mean, New York is, it’s just a huge problem, you know. So when you see that happen, that is a hugely significant trend. This is really, really important. Just click on international migration for a moment, because that’s kind of next. So let’s just look at that one. So what does that one telling us? That’s pretty good in some of the areas, right?
Andrew Cushman 36:27
Well, yeah. And what it doesn’t say is what kind of defining international so if you look at it, Southern California has got a ton of international migration, right. So is that people just coming over the border and staying there? Or is it rich people from China fleeing Chinese oppression, and moving their money to California, which it has
Jason Hartman 36:48
been a lot, right, California benefited from that? So
Andrew Cushman 36:51
yeah, and just just near where I live, I literally about two miles down the road, there was an area that was largely Hispanic 15 years ago, and now it is completely Asian. All the signs like that nothing’s even in English anymore. It’s all high end Asian stuff. Right?
Jason Hartman 37:06
Well, that’s really a form of gentrification, if you will. So yeah,
Andrew Cushman 37:10
so you’re absolutely right, it makes a big difference. If you’re, if you own rental if you own rental property. That’s that’s a really important factor. Right? And then if you look at Florida, you’ve got a ton of international migration as well, my guess is that might be the mid to higher income people, but I don’t know.
Jason Hartman 37:25
Well, you know, in South Florida, I mean, that’s pretty expensive. And that’s a lot of Latin American, it’s a lot of Brazilians. And, you know, certainly a lot of Europeans, a lot of British people, you know, hang out in Florida, and you’ve got the Canadian snowbirds. And so, like anything, this is so mixed in, at the end of the day, you can parse and do statistics, all you want. But I think for the pros, and this is why the pros are valuable, the people that are really just engaged in this stuff all the time. Hopefully you think that’s like the two of us, right? You just sort of get a feel for it. And some of that is definitely anecdotal. It’s not all empirical stuff. You know, you just have a sense of it. Really. Sorry, I can’t give you more specifics than that. But yeah, anyway, tell us more of the insights you learn from this map and and click on the total population change again. And let’s look at some of these markets. Indianapolis, Memphis, Atlanta, some of the Florida markets we really like you know, whether they be Jacksonville, Ocala, Southwest Florida. That’s a bunch of different cities and areas. But
Andrew Cushman 38:35
yeah, I mean, if you were to pick a if you were to pick a two states where it’s almost hard to go wrong, it’s Florida and Arizona. I mean, whether you’re looking at total population change or domestic, those two states are winning and what I what I mentioned earlier about as a rental investor, investing in an area where the wind is at your back, that’s why these two markets are some of them some of the most popular ones. Same thing with Memphis right, it has both total population change and domestic pagano high a high positive level. Same thing with Atlanta, Dallas.
Jason Hartman 39:06
So comment on Arizona, and you didn’t mention a city there. You just said the state. First of all, again, you still have a lot of illegal migration in Arizona, of course, but I lived there for six years. That was one of my I definitely one of my favorite places to live. I really like Phoenix, Scottsdale, especially great town. And we we’ve recommended Arizona over the years, several times. We’ve moved in and out of that market in terms of a recommendation but it’s just too expensive now. Yeah, it’s not it’s not you know, it’s not California, but it’s still it’s still too expensive to really get the good rent to value ratios. And I gotta ask you to, you can do it in Florida. You can have stuff that makes sense in Florida, many places in Florida by the way. Certainly Memphis you can’t do it in Nashville. Nashville’s too expensive. Indianapolis is great Atlanta. You can still do it a little bit in Atlanta. Little Rock and Many of the Texas cities have become too expensive to, you know, over the years, had tons of clients buy in Dallas, Austin, San Antonio, and a lot of them are just too expensive now. But I gotta ask you this, do you do any business in opportunity zones?
Andrew Cushman 40:18
We we don’t. The reason being, we generally buy existing assets and renovate them and improve them. And to get the opportunity’s own benefits to work out. It is more skewed towards developers, because you have to spend more, you have to spend as least as much building or renovating as use paid to purchase the property. And that’s really difficult to do with a with a, you know, just renovating a 1980 construction apartment complex or something like that.
Jason Hartman 40:48
So I never got into the opportunity’s own thing. I always thought it was highly overrated. And I think Luckily, I’ve turned out to be, I think my decisions pretty good. And here’s why. Number one, COVID a lot of those opportunity zones area areas are the high density areas that people are leaving in number two, civil unrest. And a lot of those are certainly opportunity’s own area, and people are fleeing them now. You know, some of those areas just will not come back, maybe for I don’t know how long maybe a generation, because no business in their right mind is going to open in those areas and, you know, get be vandalized and, you know, not be able to operate because they have riots. And these idiotic, disgusting left leftist mayors will not enforce the law, they ought to be frankly indicted these mayors, because they, you know, they, they have an obligation to protect their citizens, and they’re not protecting them, because they’re just selfishly wanting people to vote for them. And all their voters are rioting in the streets. So it’s like a campaign rally.
Andrew Cushman 41:57
Yeah. Yeah, that’s, that’s, I may borrow that from you. Well, and you’re absolutely right. And then I don’t you know, we mentioned this earlier, but you the best way to guarantee success with a, especially rental real estate is buy something that makes sense today. And what I see with a lot of those opportunity’s own projects is they don’t make sense today. They only make sense, right? Everything comes together perfectly down the road, and you get the tax benefit, right. So a lot of those opportunities on deals are just bad deals. And you know, tax benefit doesn’t necessarily change that.
Jason Hartman 42:30
I always say, you know, don’t let the tail wag the dog, a tax benefit is great, but it should not drive your decision, the decision has to make economic sense. And one of my 10 commandments of successful investing is you you keep repeating it for me. And I don’t even know you know what it is, but commandment number five is Thou shalt not gamble. And the subtext of that is, the property must make sense the day you buy it, or you don’t buy it, period. It’s really quite simple. Thou shalt not gamble. So nothing extraordinary should have to happen for you to make a good return on investment, no extraordinary appreciation. Nothing. Just it should make sense from day one. Now, if some great things happen, like a bunch of appreciation, great, you know, but don’t don’t count on it. This will be continued on the next episode.
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In this episode, Jason Hartman plays a recording of a Q&A session from a Creating Wealth seminar. They talk about the process of finding and vetting a Local Market Specialist and how to find the right balance between property portfolios. They also discuss the different benefits that investment counselors provide to investors and the best ways to utilize them.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution. For real estate investors,
Jason Hartman 1:03
Welcome to the creating wealth show, episode number 803 803. This your host, Jason Hartman, thank you so much for joining me today, as we are going to go into about 20 ish minutes of a clip from a live event that I did, where I’m doing some q&a with the audience. And this is just happening after I explain and talk again about my big discovery, my risk evaluator, which I have covered on prior episodes, so I’m not going to replay that again. So just know that if you’re not familiar with the risk evaluator It is one of my great discoveries that I have never heard any other real estate expert talk about. It is solely my idea and it took me 19 years in the real estate business to discover it. It is based on what I call the LT ratio, the land to improvement ratio. And I had just before you come in on this clip, explain that to our live audience, and then took some of their questions. Also remember, when you need tax, legal or other professional advice, that you seek out the appropriate professional, I will always want to remind you that I am not qualified to advise on tax or legal matters, they are complicated. I will give you basic ideas, I will give you my understanding, I will give you my experience, but tax situations and legal situations and really any situation, of course, is individual. So it requires individualized advice from professionals in those particular fields. So please seek that out. Just use what I talked about on the show and at our live events and what you might talk to our investment counselors about as a guideline as a way to initiate a conversation with The professional who can go deep into your situation and give you their vast experience and wealth of knowledge. So I was want to say that to you, boy this weekend it is now Sunday evening. And I am just coming off a wonderful weekend with our venture Alliance mastermind. We do these quarterly meetings and this one was here in Las Vegas and we just had an awesome, awesome weekend. I must say I’m, I’m very tired. It was a great, great time. We had a we had pre meetings starting Friday morning. And then the actual formal venture Alliance meeting started Friday evening at seven where we we played it, we had some fun and partied and played golf at Top Golf here in Las Vegas. If you have not done Top Golf before, it’s really fun. You know, I’m not like any big golf or anything but this is this is kind of a fun, new fangled form of golf. If you’re not familiar with it. It’s called Top Golf and very seemingly successful company. That is a Got centers all around the country. And then we were at the Wynn and encore hotel just beautiful venue in this gorgeous boardroom. We started Saturday morning with our business meeting did a little masterminding breakfast together. We had the former governor of Nevada, the longest serving governor of the great state of Nevada, speak to us, Bob Miller. And he spoke for about an hour and took q&a from the audience and taught us a lot about the history of the state of Nevada and Las Vegas and how people get business deals done in Nevada and you know about the the mafia and the casinos and then how Wall Street came in and how Steve when of course, we were at Steve Wynn’s hotel, the Wynn hotel and encore hotel and how he financed his first property and became this, you know, mega mega successful hotelier and, and real estate developer and talks about his burn rate in his first big project finance with really high yield well, otherwise Known as junk bonds, and how his burn rate in that property his expenses were get this a million dollars. Nope, not a million dollars a month. Not a million dollars a year. Not a million dollars a week. A million dollars a day. Yes, the million dollars a day. And it was just really interesting having the governor speak to our small group we had about oh, I think we had 22 people in the room. We were in this gorgeous boardroom in the Wynn encore hotel. And then we had Jason Hanson, come in and speak after that. And He is a former CIA operative, that teaches class called spy escape and evasion. He demonstrated on himself how to break out of duct tape, zip ties, handcuffs, all kinds of things and some interesting self defense stuff. You know how to know if you’re being followed how to evade people following you whether by foot or car, whatever. And it was just really fun. Fascinating It was like James Bond came to give us a seminar and and that was super cool. And then we do our skill shares our hot seats, and then we broke for the afternoon we went ziplining and Las Vegas. Oddly, you may not know this has a couple of the world’s best zip lines really. The one we did was where we flew like superheroes. You know, like Superman flies right on our Well, you know, in a hardest, you know, on our stomach like laying down flat and you know, you put your arms out in front and we started it. It’s seven storeys up and flew down this awesome zip line and that was just a lot of fun. We got a lot of great pictures of that and really fun time, had a great lunch before that and then had some drinks afterwards and walked around the crazy Fremont Street experience the FSC in Las Vegas in downtown old Las Vegas. And that was a lot of fun. And then we got together for a beautiful formal Dinner at the top of the world restaurant that literally is at the top of the world. It’s at the top of the stratosphere. And you know a lot of times those kind of places aren’t that great, the food’s not great and they’re kind of touristy but this one is really good it got great reviews on Yelp and and we had a group of 24 people at dinner and just had a wonderful time and had drinks afterwards in the nightclub there and I wasn’t at this part but some of the group have worked. They were having more drinks at the Wynn and encore hotel and, and there’s just so much masterminding and so many great ideas being exchanged, you know, and then this morning, Sunday morning, we met back in the boardroom at at the Wynn and just masterminded, we went around and everybody shared all the great books and newsletters they’re reading and the podcasts they’re listening to and what they learn from them and I just thought I thought what what a stimulating conversation. What a brilliant group of people We did some skill shares and hot seats and one of our local market specialists that was there, he shared, how he uses creative visualization, to increase his productivity and get what he wants in life and for his family and his business and, and he talked about his productivity hacks and his bio hacks that he’s using to hack his biology and hack his productivity and manage about 300 employees and all of his businesses. So that was just phenomenal. And people went around the room shared skills. One of our hard money lenders in the room, Mike, he got up and he talked about some new funds that he’s starting to do hard money lending and invest in properties and you know, how yields are compressing and what’s going on in that market, what’s going on in the lending market and financing properties and deals and Wow, it was just an amazing weekend. People did hot seats they brought to the group challenges they’re having and, you know, opportunities they’re having and you know, what should I do? How should I deal with it and, and you know, for five minutes they explained the problem or the opportunity or the challenge or whatever it was and then the group went around and and gave suggestions and asked questions that drew them out and illuminated the situation and help them better handle that opportunity or that problem. It’s, you know, could be good could be bad. Whatever it is the mastermind group, that’s the power of the mastermind and and we had lunch at a beautiful new Benihana restaurant here and you know, we were all around the, the the grill as they were cooking and you know, if you’ve been to Benihana you probably have and you’ve done the what is it the sash, one grill or the tap on grill or the bachi grill. I don’t know what it’s called Anyway, you know, they throw the knives around and do all kinds of cool things. But, but, you know, I looked at the side of me and there was my friend Pat talking to Jeff And, and you know, they’re they’re part of the venture lions mastermind and they’re talking about, you know, saving money on taxes and making money on deals and, and then I looked at the other side of me and there’s Gary and Fernando and you know, they’re they’re talking about stuff they’re doing along with john and, and his wife and it was such a great stimulating, bright, engaged group of people. I just absolutely love the mastermind concept. So, our next venture Alliance mastermind event will be in Chicago, and it’ll be in about three months. So look for more information about that if you’d like to join us and right now, of course, in just about three weeks, we’ve got another Memphis property tour coming up. I think you’ll really like that we’ve got we’re going to focus this time in Memphis on brand new construction, brand new investment properties. So check that out. That’ll be the the major focus of this property tour. And, of course, I’m doing my creating wealth seminar. They’re where I talk about what I talked to this audience about where you’re going to hear this live clip in a moment. The risk evaluator inflation induced debt destruction, what Trump means to all of us in terms of our investments, and a whole bunch of other things, how to select markets, guys, you know, and by the way, today, I have to tell you, is the anniversary, March 12. By the way, the anniversary of the first time I did the creating wealth seminar, my creating wealth seminar, that and the first one was in Newport Beach, California. And it was in 2004. Today, back in 2004. So what 13 years ago, and I remember that day well, so I’ve got that coming up again, in just about what really, I guess two and a half weeks in Memphis, we’ll be doing it there. So I hope you join us for that. Go to Jason hartman.com. Click on the events section and get your tickets for that event. Check out the properties while you’re on our website as well. And make sure you’re talking to our investment counselors if you’re interested in buying because not all properties are on the website. I hate to say that but the inventory is moving so quickly nowadays, it’s hard to keep up with and you’ve just got to you’ve got to be talking with our investment counselors. Don’t just use the website only work with your investment counselor at my company that will help you get the good deals, you know, game right when they come up, boom, boom, boom, because they’re they’re just gone fast. We are bringing a couple new providers online. So we’ve got more inventory one of those new providers was with us all weekend and, you know, we use that as a as a way also for the venture Alliance group, that mastermind group to bring value to you. Even if you’re not in the group. They are kind of this. Well, I hate to use a Bette Midler phrase put the wind beneath my wings, right. That’s a great song. By the way. The wind beneath my wings and the wind beneath your wings because they were with a couple of our local market specialists this weekend and it prior venture Alliance weekends and, and they were vetting them and learning about their business and you know, kind of vetting it out and, and hanging out with them and, and you know, I mean, for better or worse I’m not a huge drinker. But alcohol is a bit of a truth serum you know, you can kind of tell a lot about people’s character because alcohol it magnifies it right just like money does you know, Earl Nightingale the later on Nightingale one of my early mentors at age 17. He used to say, money is like alcohol, it makes a good person better and bad person worse. So, you know, when you’re hanging out in these casual environments at the venture Alliance weekends and you know, having a couple drinks with people, you know, you you really get a flavor for what they’re liking. their businesses like what their attitudes toward customers is like, and, you know, where is it rather, you know, what, what are they? Are they the, the quick buck? Turn them and burn them type of person? Or are they the person that, you know really has a long term vision for their company, their business, their life, their contribution to society? You know, these are all things that you just learned by hanging out with people in casual environments. And so that’s just so critically important. And that’s, that’s what the venture Alliance did for you this weekend. By the way, dear listeners, of course, we have many, many thousands of listeners. And we only had a couple dozen people here in Las Vegas this weekend, vetting some of our local market specialist for you. So they are the wind beneath their wings. So I thank you to the venture Alliance for helping me do that because I can’t do it myself. You know, it’s only one person’s intuition. It’s only one burst. opinion, it’s only one person’s perspective. But, you know, you get another two dozen people there to help you think things through and that things and just a lot more perceptions. And so that’s super valuable to me, it’s super valuable to you, and will continue to provide that value to you. So hey, without further ado, let’s get to this live clip. But do be sure to go to Jason hartman.com, the Memphis property tour and creating wealth seminar is almost sold out. I don’t have the exact headcount on that lately, but I know we’re we’re only a very small number of tickets away from calling that sold out. So do get your ticket quickly. So you can join us in Memphis, and check out the properties and all the other great stuff at Jason Hartman calm and of course, if you’re not an actual subscriber, be sure you subscribe to the podcast, so you don’t miss any episodes. We also appreciate your reviews and your ratings of the show. So thank you for that.
And let’s go to this little live clip. Okay, so Kerry, I just wanted to ask you a little more about markets and, you know, different local markets specialists and some of the vetting that you do, maybe just to talk about that a little bit. And, you know, you guys might have stuff to add to that. What else do you want to say about that? Maybe?
‘Q&A clip’ 16:21
Well, I could I could talk about the process. So we get you know, we find the market so we’re all we all collaborate. Hey, what about this market? What’s this market looking like? There’s new projects coming in Orlando and Memphis. You know, maybe we should look at this neighborhood or see who’s out there. Or we’re getting referrals from someone so we’ll set up you know, phone interviews screen them ask them all their different questions, get them through their property management, you know, see how legit they are? We Google you guys, don’t worry and make sure we check you out. And then we slowly start them will upload their properties on our site, but we won’t give it to the whole public yet because Cuz we want to work through the kinks and make sure things are gonna run smooth and, and some of those that we’ve put up on our site that you don’t see, but we have on the back end, they haven’t worked out, which is good because we didn’t, you know, open it up to everyone. We wanted to see who could handle who could handle the waters out there with them. So those are some of the back end things that we do that you might not know until we might be working with someone for six months. And now they’re just on the podcast, and now they’re new. And you’re thinking, where’d they come from? Well, we’ve been with them and running the numbers and they got to work with us to you know, not just their system has to work, but they got to know how our structure works. And so those that come on board, we have a good good momentum with them and good relationships.
Jason Hartman 17:45
Yep. So what what she’s pointing out is a lot of times, we don’t put them on the podcast right away because we want to kind of test it first. And some client has got to go first. Okay, always right. And they’ve got to buy in there. First, and we’re really judging a lot their communication skills. And you know, are they responsive, if they can’t even some of them can’t even communicate, it’s mind boggling. And then some don’t like to pay us either for the referral, which isn’t a good sign, because usually, they’re not going to be around to handle warranty items, either if they don’t pay, you know, these are all things that we’ve just learned to deal with over and over throughout the years. It’s kind of amazing how they come and they go, and some come back around. And, you know, later like, Dan in Kansas City, you know, he wants to get in again, but he didn’t do it right the first time six years ago, so I don’t know if he’s gonna be back in right.
‘Q&A clip’ 18:42
So that’s not even getting a friend acceptance from me on LinkedIn.
Jason Hartman 18:48
Oh, not Facebook. That’s a connection on LinkedIn. Right? Yeah. Right. A Twitter follower. Yeah. That’s for Twitter. Okay, cool. So Other questions? Yes. Aaron? And who’s got the mic?
‘Q&A clip’ 19:03
Pretty good. What’s the overall philosophy when building a portfolio with having a blend of the appropriate you know, a properties B, C’s and DS, having that right striking the right balance? I have my sort of philosophy about it. I would love to know yours personal actually, all four of you guys. philosophy on that?
Jason Hartman 19:20
Well, first of all, I think it just that’s sort of your decision. If you want all A’s or B’s or C properties, you know,
‘Q&A clip’ 19:27
yeah, well, you know, what I straight up ask, you know, what’s your goal? What do you want to get out of it? Do you want to get the the cash flow, right now, what are you looking to gain? Because, you know, if you go in the in class A, you’re not going to get, you’re going to barely hit that 1% Rv ratio with that cash flow. And then you have your B’s which is kind of a steadier, you’re going to have some cash flow, but not as much appreciation and then C’s, you’re going to have higher maintenance, but then classy, you have higher maintenance, but more cash flow. So you leverage them out and then it’s like you said it’s all up to you, you know, do you want to go I would say if you’re going to go to right now get two B’s and and then you can up it to two A’s and then two C’s and diversify with the classes, but also in markets, you know, make it a follow all around blend of, of what you can expect to you know, if What if you buy those two bees, but you don’t like them, you know, you don’t want to straight up then do 10 bees right away, you want to kind of gradually see
Jason Hartman 20:30
your feet in the water.
‘Q&A clip’ 20:30
Yeah, what’s gonna work for you and in which management company’s gonna, you know, take you to the next step of, Okay, I see you do have bees, I’m gonna go to your A’s or vice versa, right.
Jason Hartman 20:42
And so, in addition to what Kerry is saying, it’s how much involvement Do you want, you know, ROI means return on investment. But we in the venture Alliance mastermind group, we came up with a new one, we also think it means return on involvement. So if you’re willing to be more involved You can probably get a higher return on those seed properties but your it’s going to take more attention than a property’s generally in these are of course generalizations they’re going to be less than that I say a less yeah less involvement. Okay, see properties who might be in the doghouse? There you go over
‘Q&A clip’ 21:18
anything that maybe you don’t know? I don’t it’s ultimately how easy Do you want it and if you if you’re okay with being more involved and focusing 100% of your time on real estate and your ultimate goal is maximum return on investment and you don’t have a full time job, you know, what not, if that’s what your goal is, and that’s what you’re gonna focus on. I mean, you probably want to maybe go into the stuff that’s going to be higher return on on investment, and if you’re someone that has a full time job that you’re like, Listen, I only have a couple of hours a week to maybe look at this you know, I definitely steer you away towards the the B B plus a properties because those are typically speaking you know, generally the ones that will be a little less headache.
‘Q&A clip’ 21:57
Yeah, keep in mind when when you buy properties in Higher rent range, I think the the rents tend to go up accordingly. They they go up a little bit more when you buy,
‘Q&A clip’ 22:06
tenant quality goes up with higher rent you mean right,
‘Q&A clip’ 22:08
the tenant quality, but over time, I think the rents increase faster. Oh, yeah. Okay. And then sometimes, and again, there’s no guarantee it depends on the market, and we don’t have the crystal ball. But sometimes those nicer properties in nicer areas appreciate better over time. So it’s like all over said, or Carrie or one of them said, you know, do you want your cash flow now? Or, you know, do you want a little cash flow now and maybe a better potential for rent in Greece and appreciation later? And I think, I think the ultimate answer is, you know, one, diversify geographically but also in the types of properties that you get. So maybe you start with, you know, get a few solid, a area properties and, you know, then you add from there, depending on your comfort level. Good, good.
Jason Hartman 22:53
Gosh, I had kind of a question based on that, but go ahead and Matthias, who, by the way, he’s going to be on the podcast soon. We recorded live Cuz that was a rant at that point. I think I was ramping that up. Anyway,
‘Q&A clip’ 23:06
I just wanted to mention to everyone about a different kind of leverage that, that has not been spoken about. And that is, you know, I’ve
‘Q&A clip’ 23:15
had a fair number of exchanges with property managers by email and
‘Q&A clip’ 23:23
and lenders. And I think that it’s important to point out there’s an intangible benefit that comes from letting these people know that you’re working with the Jason Hartman investment team and I always copy carry on all the emails that I sent out and, and I think it gets a little bit more attention because they know that someone is watching from the other side. And I think it’s important to know that you, your questions will be answered, they’ll take a little bit more seriously. And if they screw up often enough, they’re not gonna be on their network anymore. So I just wanted to point that out.
Jason Hartman 23:58
Yeah. carries like the Principle. It’s like taking, you know, copying the principle on the email, right? Yeah. Be careful what you say.
‘Q&A clip’ 24:09
So, I’m really new at this. I really don’t know what I’m doing yet. But as wondering how, like, in 15 years after you purchase the property, if you have like a really major
Jason Hartman 24:22
that microphone keeps going in and out. I don’t know what’s wrong,
‘Q&A clip’ 24:26
changing the roof and stuff like that, how that can affect
Jason Hartman 24:29
your overall. So her question because it kept cutting out is if you own the property 15 years, and then you have to replace a roof, right? How can that affect your ROI? Well, obviously negatively, because it’s a cost, right? And it’s a it’s an expensive one, you know, it’s a cap, that’s a capex a capital improvement cost, rather than a maintenance costs. If you patch the roof that’s maintenance. If you replace it, that’s a capital improvement. So that is definitely negative. You know, you can kind of amortize do some charts on this, you know, typical life of various components of the property and budget for those expenses in advance. This is what, you know, homeowners associations, for example are supposed to do is that they have reserve accounts for capital improve large expenses like that. And so they know that in 20 years, you’re gonna have to repave all the streets in the common areas, right? Or you’re gonna have to redo the pool. And so they have reserve accounts, they just accumulate over time for that purpose. Okay, so, yeah, you do have big expenses like that and be prepared for them. If not financially, mentally know that, hey, how old is that roof getting on my house?
‘Q&A clip’ 25:48
Right? That’s, that’s one of the things I love about new construction. They don’t always pencil out very well on paper. The day you buy them, they don’t look like they’re going to cash flow very well. But You have a lot less maintenance. And hopefully by the time you know the house needs a new roof, you may be able to just maybe appreciate it and you could 1031 exchange, you know, you sell it to a homeowner and maybe the homeowner is willing to overpay come in. And you know, they want to be in that school district and they’ll put the new roof on and you can pass that expense to somebody else.
Jason Hartman 26:20
And and the roofs on new homes will you know, a lot of those are pretty sturdy roofing materials. So they last a long time.
‘Q&A clip’ 26:27
So one of the things to bear in mind with that is, remember, I always tell my clients to remember the initial performance sheet, we had allocated roughly five, maybe six 7% towards maintenance. Well, it depends on the age of the process depends on the use of the property, so it really ranges. But sometimes you may go, you know, four or five years without using that full percentage range. But then 10 years comes down the road, you’re like, oh man, I’ve got to spend two $3,000. Now to replace this. Just bear in mind that essentially if you didn’t have to use it during that time, you essentially saved it up and you will use it at one point. So Not to freak out too much. Yeah.
Jason Hartman 27:01
kind of be ready for that stuff. Hey, by the way, I didn’t say this before, but I should have just say your first name and the city you’re from, if you would. So Aaron from Aaron from Irvine. All right. Yeah. That means now you can ask a question, one bank account for all the properties or a separate bank account for each property. Good question. I wonder what Fernando does. And I don’t know the answer, but I do one bank account for all the properties in that entity. So if I own it in my personal name, that’s just, you know, a bank account in my name, right. If it’s in an LLC, and there are several single families in that LLC, one bank account for all those properties. I don’t think that’s that hard. Some people say one bank account per property. I think that’s your I think it’s overkill. Yeah.
‘Q&A clip’ 27:50
unless those Wells Fargo, they’ll do it for you.
Jason Hartman 27:53
Yeah, if you read that article yesterday or the day before, did you hear about Wells Fargo? Oh yeah Ross I think you’re the one that gave me that link originally, Wells Fargo has basically been found guilty of opening up ghost accounts for people and they fired 5300 employees and paid like 180 $4 million fine to the government so that’s Yeah, you might have accounts you don’t even know you have to so you know, it Wells Fargo. But then for the larger properties like the apartments I own and mobile home park, those have one account for that whole property. Okay, but for single family, one account all the properties for me,
‘Q&A clip’ 28:29
what do you do? I do the same thing as he does. Per LLC. Mainly, yeah. And then one catch all, which is for the personal stuff that I started out with?
Jason Hartman 28:40
Yeah. Okay, good. So question back there, Fernando. Did you guys have anything to add to that, by the way,
‘Q&A clip’ 28:47
if you the only thing to add to that is Emily, I know that this is something that Fernando is where does is if you want to have it per state if you have a bunch of different properties in different states for now, if you want to elaborate on that, but essentially if you have a bunch of properties in Georgia or you know, Tennessee, just have them per state?
‘Q&A clip’ 29:06
Is this an LLC question? Because that was actually my question is how do you with many, many properties like that? How do you structure entity management to reduce your risk?
‘Q&A clip’ 29:15
I do it that Oliver said it’s broken out per state. Now that doesn’t mean that that’s the recommendation that depends on who you ask, they’ll give you a different answer. If you ask a lawyer that makes money off of creating LLCs, he’ll tell you to create one per property and one bank account per property. And, you know, you have to be comfortable with what you do. Obviously, you might not want to go on either extreme where you have one big LLC that contains all properties, but honestly, the answer can vary so widely and depending on who you ask that it becomes hilarious at some point. So in my case, it was more organic, you know, as I was building a portfolio and just turns out that I was, you know, buying properties in this state. It made sense To me to have an LLC for that state. When I was working with a particular bank, when I purchased a set of properties for a particular bank, they wanted a single purpose LLC for those properties. And fine, you know, that’s made sense. And it turns out that that’s what I kept. So, you know, it really it’s up to you on what you’re comfortable with it at the end of the day, there’s many different ways of doing it.
Jason Hartman 30:24
Just to speak to that a little bit. Last week, we had our venture Alliance mastermind that’s like my mastermind mastermind group, right. And I’ve talked about on the podcast, so we had our meeting in Seattle last week. And I gave all of the attendees the Garrett Sutton book loopholes of real estate, which is very good. There’s a couple things I disagree with him on that sort of old school thinking a little bit I think, but Garrett has formed some entities for me, I think he’s, he’s great. And his prices are very reasonable too. But just when you start forming all these entities, life gets complicated quickly. Okay, I’m just going to warn you because the problem Come up when you first of all, if you live in the Socialist Republic of California, you’re pretty much screwed. Okay? because what they do is they essentially want you to domesticate every entity you have in their state, even if the property is in a whole nother state, and literally and Fernando, you and I talked about this, if you have a mailing address in the Socialist Republic of California, like I do, they could try to, they could try to make that your tax Nexus just because you have a peel box there. Even if you don’t live there, it’s insane. Like the property is not in California, the person’s not in California, and you literally just have a mail service in California that receives your mail, boom, you might be in that tax Nexus, where they charge you $800 per year per entity, okay? And you know, a lot like Garrett will say, you know, put your entity your LLC in Wyoming. But then the problem is depending on the state where you own the property, you Got it domesticated in that state? Maybe? Maybe not. It’s complicated. Okay. But his book is great, I’d highly recommend it. There are a few things I disagree with him on. One is, you know, like Fernando said he, you know, to anybody selling something is going to tell you form as many policies as you possibly can, right? Because another way that the attorneys make money off stuff is by being a Registered Agent, and you have to pay annual dues for that, and all of that stuff. Also, he says, just one sec, I just want to finish my thoughts on that Garrett book. He’ll say, Don’t buy properties in your IRA. And Tom wheelwright, who’s like another Rich Dad advisor on tech stuff. I don’t think the IRA thing is that great. I think it’s better than stocks for sure. But they’re really kind of like down on it. And I think they overreact to that. It’s not that bad either. Oh, and then you’ll say don’t buy properties, you know, far away from home. And that’s just old school thinking, you know, because the problem is, it requires you number one to learn Live in the best market in which to invest, which probably you don’t, okay? So if you live anywhere in California, it’s not going to be a good place to invest from a cash flow perspective, if you live there, no matter where you live in the state, or if you live in South Florida, or Northeastern markets that are any expensive market is not gonna make any sense from a cash flow perspective. You’re not an investor, you’re speculate. You’re a speculator, you’re a gambler. And then the other thing is, even if you live in the best market in which to invest, say, you all lived in Memphis, okay, or Orlando. And, you know, we think we’re Indianapolis, and those are all great markets to invest, right? But if you do that, and you want to buy all your properties close to home, you’re still not going to be diversified. And you should diversify into at least three markets. So you know, this is like old school thinking back in the day when you didn’t have any tools. When there weren’t companies like ours that help you do this. Yeah, I agree. I would only buy locally. But nowadays, it’s just a different world. You didn’t have before. Google Earth back then. You didn’t have Zillow, you didn’t have us. You know, you didn’t have these different business models and tools that have been created around that. Did you
‘Q&A clip’ 34:09
agree 100%. It always amazes me. Every so often every week or sometimes two. I see companies popping up that do Pease do a piece of the property management or the real estate, the income property, investment, philosophy. And because you have all of these resources that didn’t exist 20 years ago, it’s easier than ever to be able to manage properties from anywhere. I travel all over the world. And there’s there’s no issue whatsoever. As long as you have internet connection. You need that. Yeah, but that’s about it.
Jason Hartman 34:44
See it really the key turning point was when al gore invented the internet. That’s a joke. Some of you did not laugh. Anyway, Al Gore is a joke. Okay. What were you gonna say?
‘Q&A clip’ 35:00
Just about saving some of you some money. It’s a bit of a, I guess, quote unquote hack. I’ve been able to save a lot of my clients money just by doing this. For those of you that have registered agents, just do a quick search in the area, find the cheapest one and then go back to your registered agent and see if they’ll match it price. Yeah, the clients, my clients have saved hundreds of dollars on this every year. So just do that make note.
Jason Hartman 35:22
Just ask them to match the price. Yeah, one firm that I used to use, and they’ve been on the podcast, I do not use them anymore. Definitely not ever again. They were just I was paying out rageous fees for registered agent and entity maintenance where they’ll do your minutes every year and your filings and stuff and it was just such a ripoff. So I moved a lot of that over to Garrett Sutton’s office much, much better deal.
‘Q&A clip’ 35:46
And you should do the same thing with your property insurance or your homeowners insurance, their property management companies. You just shot them against each other.
Jason Hartman 35:56
That’s the way free market capitalism works. It’s a good thing. Tilburg Sanders. Okay, any other questions? Yes, over here.
‘Q&A clip’ 36:04
As a new investor, why would someone use an investment counselor? I don’t I’m not extremely clear on what it is that you actually provide or why it is that I as a new investor would want to use you.
Jason Hartman 36:16
Yeah, good question. So first of all, it doesn’t cost anything. It’s free. We make our money because we get referral fees from the local market specialist in that market. If you were to find the property yourself directly, you’re still going to have all that in there. Okay, you’re still going to have a broker or an agent in there, probably okay, most of the time. But secondly, and this is really what my vision of getting into this business was back in 2004. is when I was when I was selling my company that I talked about earlier. And I went to these financial services firms, I thought, the great thing about the Wall Street stuff as they make it so easy, they will let you just walk in and give them money. And they can put you into a variety of investments. Well, why Couldn’t there be a real estate company? We have the best asset class, but a really in this industry a really bad sales force. Because it’s all local realtors, they don’t think like investors. They’re not area agnostic. They’re totally attached to their one market. And we’re not attached anyone market. We’re area agnostic. So is if you buy in any of our markets, from any of our local market specialists, we’re going to make money. Okay, we’re area agnostic. So any of the markets you buy in, we’re still gonna make money, right? So they’ll be impartial with you in terms of what market you should invest in. When you talk to our local market specialists, they’re going to be motivated to sell you their market only. Okay, so the difference?
‘Q&A clip’ 37:47
Yeah, and, you know, we’re working with several investors at any given time, so we’re getting constant client feedback on property management, lenders, you know, the market specialists You know, who communicates well, who goes the extra mile to repair a refrigerator that was broken 30 days after close versus one that, you know, Fred over here had an experience with.
‘Q&A clip’ 38:14
One of our market specialists that we fired, and this was the straw that broke the camel’s back is Oh, hey, she got the same, right,
Jason Hartman 38:22
the straw that broke the camel’s back.
‘Q&A clip’ 38:26
So, you know, we had, you know, a few complaints over the year and this was on the property management side, and this was one of our Birmingham providers. And, you know, Fred came to me and said, geez, you know, I just closed it had been, I don’t know, 30 days or within 30 days, and there was like, a little hole in his door, maybe the back door. And there was one other thing with the property. What was the other thing? The hot and cold? Yeah, the toilet was producing hot water. And so I I said to Fred well, Those are two really easy fixes. I’m sure we can call this provider and you know, get those fixed. And they didn’t do it. I mean, that’s like the only provider that I’ve ever heard of that I can think of in nine years that would not you know what he said? He said, Well a squirrel probably chewed through the corner of that door. And I just about last night, you know, you know what I was upset, marbles. marbles. I was gonna say something.
Jason Hartman 39:30
I don’t know if everybody knows the inside joke. So I was tea Sarah cuz she always gets the saying a little bit different than, you know.
‘Q&A clip’ 39:38
Things are better.
Jason Hartman 39:39
Yeah. shoot yourself in the foot or shoot yourself in the shoe.
‘Q&A clip’ 39:44
In the summertime, shoot yourself in the sandal. Okay, so anyways, we did go to bat for Fred. And we were not successful. And so we stopped working with that provider, although we removed the properties from our website,
Jason Hartman 39:59
and we got in a big hurry. with him,
‘Q&A clip’ 40:00
he got in a big argument with them and on boxer and I think you were on that thread. Yeah, it was. I mean, it was just it was kind of embarrassing. You know, I felt that you should play
Jason Hartman 40:10
the boxer thread on the podcast. Another lawsuit? Oh, great. So what I need,
‘Q&A clip’ 40:17
and that doesn’t mean that Fred has a property that’s not going to perform, you know, he may switch to another property manager. And in fact, he did. And, you know, we helped him we gave him some contacts in the marketplace. And so sometimes you fire the local market specialist, or you fire a property manager
Jason Hartman 40:33
and occasionally fire the client.
‘Q&A clip’ 40:35
We have fire clients.
‘Q&A clip’ 40:38
You might be looking at a property all this is going on, and you might have been looking at those properties. So that provider in fact, we did have clients that were you know, inquiring, and you you may have already, maybe we took them off the website and you didn’t notice but maybe you were already communicating with them, or maybe you purchased two years ago and you went back to them directly to buy another one, which this just happened with that provider and you happen to call them Say, Hey, can I just want to get an extra set of eyes and ears on, you know, how is this provider doing? And I might say, Wait, you know, this is what’s going on, maybe you should look at another market or another seller in that market. So that’s we leave provide value as a network, I think I mean, you help us as much as we help you guys because we’re getting that feedback. And we can make decisions based upon your valuable feedback.
Jason Hartman 41:25
And hopefully, we can exert, exert some real leverage over them. And that’s what Messiah was mentioning earlier. You know, we hopefully that local market specialist views it as Look, there’s a carrot out here, and there’s a lot of business coming. So I really care about this relationship. Okay, some of our local market specialists, they’re probably making a million dollars or more a year off of our referrals. Well, they definitely are making over a million bucks a year. And so they’re not going to screw that up. I mean, they’re just, they’d be crazy to mess that up. Right. versus doing a one off deal. That’s why when I tried to do this myself back in 2004 I had no leverage. I couldn’t get anybody to do anything even returning a phone call seemed like a chore sometimes, right? Because I go to this mark, and I’m like, hey, I want to buy two houses, or like, I don’t care.
‘Q&A clip’ 42:11
Just, Lindsay, just to elaborate on that we’re ultimately here to really help you help all of you, the investors. And really without you guys, this would really be happening. The other thing too, is there are other companies out there that will charge 510 50 I’ve also even seen up to $100,000 to coach you for maybe six months or a year on how to do exactly what we’re doing. And then when they find out about us, we’re like, what you guys actually helped me and for free, yeah, free. Like, yes, there Josh sort of drop and, you know, they’re very happy because now they can use that money to buy more properties.
Jason Hartman 42:45
Yeah. Education nowadays is almost free. Okay. Someone had asked about coming to one of our events and, you know, said, Well, why do I have to pay to come to your event, what you’re paying to come to our events. It’s like nothing We lose money on these events, okay? Where we make the money is because we’re a real estate company, right? That’s just a huge difference because we’re tied to the actual property, right? In the sense that what we say at the seminar has to come true in real life. Well, you know, at least has to come true at the time you buy, right? admittedly things have bumps in the road, or you’re not gonna buy properties and we’re not gonna stay in business. And that’s, that’s the key distinction. I have had so many people and you remember that, like many of these over the years, that have come, they’ve been in one of our seminars and, you know, buy lunch, they they walk up and they say, you know, I just spent $43,000 on this guy’s guru coaching program, and I just finished it and I felt like I got nothing. I learned more before lunch from you for free, or for cheap, you know, 200 bucks, or whatever it was, you know, it’s just you just don’t have to pay a lot for education. Use your money to buy actual properties, you know, for 40 years. thousand dollars, you can buy two properties. And you
‘Q&A clip’ 44:02
should thank Jason for charging for his events because otherwise anybody could come and all those people that are next door selling juices. they’d all be here.
Jason Hartman 44:12
Armando montelongo people would be here. Yeah.
‘Q&A clip’ 44:16
Yeah. So.
Jason Hartman 44:17
Okay, any other questions? Maybe one more. Okay. Or two more. We got two more and then we’ll wrap this up this panel
‘Q&A clip’ 44:25
from Carrie from Irvine. So I’m just curious between among Sara, Carrie and Oliver, what is the difference between working with any of you? Do you specialize in specific type of markets? Are you a specialist? Or do you specialize in certain types of
‘Q&A clip’ 44:43
investors?
‘Q&A clip’ 44:44
Where are your areas of expertise and,
‘Q&A clip’ 44:47
you know, who is the best person to go to?
Jason Hartman 44:50
That’s a tough one. That’s a tough one. Okay. And and Fernando, by the way, do you have to include him in that? I mean, I can answer that one. They all Do all the markets, there’s not enough markets that you need to specialize. Our specialist is the local market specialist at the back of the room, right in that various in those various markets. And we have many more of them besides the the few that are here. But they all handle all of the markets, okay. And they all handle a variety of different types of clients in different situations. So it would be sort of impossible to say you only work with certain type of client and you work with another type and you work with another type, because the clients grow and change over the years. So,
‘Q&A clip’ 45:34
yeah, and the way it works, I mean, to be honest, you guys go on a round robin through our system when you put your name and number in and it just gets automatically assigned. But the one thing you should know is that we all bring something different to the table, and we collaborate. I mean, we do a team call every single month. We do our venture Alliance meetings. We had a team meeting yesterday. You know, so if you ever need access to a Anybody, I mean, we all work together. So, all the way up to Jason I mean, on that issue, usually I can handle property management issues on my own. But on that issue, I was just so upset for the client that I mean, you can ask for it at the break. I got Luke Jason and and I did what he asked me to do, I started a boxer thread, and got everybody involved. And so in our Birmingham guy hates Fox.
Jason Hartman 46:24
He says, I don’t want to talk on here because guess what it’s recorded. And everybody can hear it. I love it. He always wanted to just talk to me, you know, like, I’m gonna fall into the conspiracy of let’s just make money. You know, I you know, I want a business that last right you know, so,
‘Q&A clip’ 46:41
but I mean, if there’s a there’s a question that I can’t answer all of our can answer. And we know Jason has the answer. We’ll go get the answer for you and refer you to the to the right person.
Jason Hartman 46:50
But a lot of times you guys have the answer. You teach us a lot of stuff. And part of our job is to assimilate the knowledge we learn from you that you know, when you have a question problem in a certain market with a certain provider, they’re all talking about this on our voxer thread every day, you know, Carrie will say, Oh, you know, guess what I’m having a problem with so and so they’re not returning our call. And by the way, on our last deal, they didn’t pay us yet either. And then we start to get worried about, you know, their financial condition and so forth. And so yeah, this stuff is officers
‘Q&A clip’ 47:20
really helped actually, you know, all say, hey, Sarah, who did you use in this market for an IRA or Hey, Oliver, how did it work out with your client in that situation? You know, because I’m kind of going through the same thing. So we we work together, and it’s really nice, because I think she left the building here, but yeah, and why to use an investment counselor? Well, because we’re working there to support you guys. I mean, we’re supporting each other. But we’re supporting you guys. And and there’s things that we can help you with that you wouldn’t know. You can’t Google that situation. You know, we’ve gone through it or someone’s gone through it up here already, so we know where we can help guide you to the right steps to take stuff. Okay, we have one more question.
‘Q&A clip’ 48:02
Joe from Idaho. Idaho is not a city. Well, you just won’t know. 500 people that live
Jason Hartman 48:11
you don’t really I know by the way, Joe from Idaho Canadian say that. I’ll meet him at conferences where you from Canada? Oh, really? There’s a banner? That narrows it down. And
‘Q&A clip’ 48:23
I it’s really that a lot of people in America have no idea where the majority of the cities they
Jason Hartman 48:28
don’t know the difference between Vancouver and Toronto.
‘Q&A clip’ 48:30
They have no idea. I’m not kidding. I mean, how many how many people here can tell me their capital Canada? Ottawa, lift your hand? Alright, 780 of
Jason Hartman 48:42
us here. Okay, Americans aren’t that smart.
‘Q&A clip’ 48:45
Damn Canadian snob. So So when we say Canada like okay, cool Canada. That means you’re probably friendly. Say I live in a poll or something.
Jason Hartman 48:55
What do people buy from us they buy that they live in houses now. Who says
‘Q&A clip’ 49:01
that’s maybe a Jason Hartman thing?
Jason Hartman 49:04
A boot house whose Canadian girlfriend she called it? I remember one time we’re eating dinner. And she says, Pastor I never heard anybody say that before. It’s pasta Sherry. Anyway, yeah.
‘Q&A clip’ 49:20
Okay, Joe from Idaho.
Jason Hartman 49:24
Do you like it? Do you like pasto or just Idaho potatoes?
‘Q&A clip’ 49:31
So I just being new, I just could you maybe walk us through the steps of how to utilize you guys the best and what that process would entail to, you know, pull the trigger and buy that first property there. Sure. I’ll go ahead and tackle that one. Essentially, we’ll have our intro call. Start out, see where you’re at financially, what your goals are, what your expectations are, and from there, we will then identify other a certain market. But alongside of that tangent to that, I want you to use you to one of our preferred lenders get your pre qualified and then move forward from that point. See what that range is that you qualify for, you know, if it’s usually 80 to 130 or so that’s where the majority of the houses tend to fall and, and almost everybody qualifies these days for for that. So, you know from that point we’ll then identify that home and then put you under contract. And then usually expectation is 30 to 45 days. From there, we’ll close you’ll get a fully rehabbed house and fingers crossed, majority of time, it’ll be tentative by the time that we close or if not shortly thereafter. And we sort of help you along the whole process. That’s essentially like a six step breakdown, but there’s a lot that happens during all of those different steps. And then repeat that over and over and over again. Anybody else on that one?
Jason Hartman 50:50
We’ll wrap it up. Okay. Thank you all give them a big hand.
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This episode of the Creating Wealth podcast is about a case study with client Vernon Grant. Jason Hartman gives investment guidance on how to handle Vernon’s parents’ properties. Jason looks into both properties, their rent-to-value-ratio (RTV), and their existing debt structures. Jason also talks about the New York market, depreciation offsets, refi-til-ya-die option, and renting.Â
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution. For real estate investors,
Jason Hartman 1:03
Welcome to the creating wealth show, episode number 809 809. This is Jason Hartman, thank you so much for joining me today as we do a another case study. Yes, we have one of our clients on with us today. And we love it when our clients come on the show and share their experience, the good, the bad, and the ugly, ask questions and get them answered. So if you would like to be on the show, just reach out to us and let us know. If you’re working with one of our investment counselors. Now you can just reach out through them. Or you can just reach out through Jason hartman.com. And we’d love to put you on the show and answer your questions, hear your experience, etc. Of course, you can always reach me on voxer as well. My voxer name is Jay Hart 88 Jay Hart 88. If you just have a quick question there, which we may play on the show, we don’t always play those on the show, but sometimes we do sometimes they’re a little hard to organize and Too many of them come in, and I can’t keep track of them all. But I went when applicable, I tried, I gotta get back on that and start playing those on the show. Anyway, yeah, let’s get to our guest today and do this little client case study. I hope you enjoy it. And one of the things I want to remind you of, and we, we talked about it here on this interview with our client, is that the ideal thing in terms of properties where you don’t have good rent to value ratios, the ideal thing, if they’re really far off is always to sell them, do a 1031 exchange if necessary. So you have tax deferral, and then buy less expensive properties with better rental value ratios. That would be the first choice. The second choice is to refinance them, because at least if you refinance them, you get control of that equity. you’ve engaged in the practice that I call equity stripping, which is a very good practice. So that your equity is no longer lazy money, it’s not tied up in the property, you can use it, you can do some good with it, and you actually lower your risk. I know this is counterintuitive for many people, and we’ve talked about it many times on the past 808 episodes. Just keep that in mind, selling, doing if necessary at 1031 tax deferred exchange, which by the way, a word of caution here and remember that I am not a tax advisor. I’m not a lawyer, always seek competent and it’s not easy to find competent, by the way, always advice when it comes to this stuff because taxes and legal questions are particularly complicated. And one of the things that people are sometimes surprised by is that they can have a property that they are selling for the same price they bought it but they’ve taken a big tax write off for many years, and that tax write off is the the best tax benefit because Income property is the most tax favored asset class in America. And that is called depreciation. It’s a non cash write off, it’s a phantom write off. It’s a wonderful, wonderful tax benefit. But remember, if you’ve taken that tax benefit for the last five years, and you sell the property for the same price you bought it for, then hey, you gotta pay that back. And that’s called depreciation recapture. So even if you’re, if you think from a very elementary understanding that you’re just breaking even, you’re really not, you’re really making money. And this is the thing with real estate investing because it’s this wonderful multi dimensional asset class, income property, the most historically proven asset class in the world, a multi dimensional asset class where we’re where we earn our profits, we earn our returns from many dimensions. With that in mind, a lot of people, they just, they’re making money, they’re winning the game. And sometimes they think they’re losing, because they don’t know how to keep score. And that’s what we teach you to do is keep score on the show key and know how to keep score. And of course, go to real estate tools.com for some excellent tools that can help you keep score, and help you be a better investor, go to Jason hartman.com. Listen to or really watch that free 27 minute video that we’ve got on how to analyze a real estate investment, that can be very, very helpful in learning how to keep score. And so part of keeping score is knowing that you’ve received this tax benefit for in that example, I just mentioned the last five years. And if you sell the property for the same price you bought it for, hey, you’re gonna have some depreciation recapture potentially right? And so you still might want to do a 10th 31 tax deferred exchange. So that is something very important to keep in mind. Okay, so in either case, we let’s get to our guest interview today. And if you’re out there, you’re one of our clients, we’d love to have you on the show as well just reach out to your investment counselor, or contact us through Jason hartman.com. Or contact me through voxer at Jay Hart 88. And we’d always love to have you on the show. Anyway, here we go with our client case study.
Hey, it’s my pleasure to welcome one of our clients back to the show. Well, first time for this one, but we’ve had many clients on the show over the years. And we always like to share these talks with you as sort of case studies and also have them ask some questions and so forth. And all of those questions apply to many of you listeners as well because many people have the same questions and are thinking along the same Lions about stuff. And I just want to welcome Vernon grant. Vernon How are you?
Vernon Grant 7:05
I’m well thanks and yourself.
Jason Hartman 7:07
Good. Good to have you on the show and you’re coming to us from New York City area. And it’s great to have you and you have really been helping your your parents out with their real estate investing it sounds like and, and doing some of your own. Give us a little background if you would, yes, well, I’m an engineer by trade, but
Vernon Grant 7:29
I went into business for myself in 2001. And I’ve been continuing that until today. And now I have a little bit more time that I can help my parents out with their investing that they started in the 90s I would say and I like a lot of your ideas and I would like to put what they have to good use to because what they have already is growing But I think you can do a lot better based on
Jason Hartman 8:04
your stuff. Yeah. Well, that’s that’s a great topic. When did you discover my podcast?
Vernon Grant 8:09
Actually, I was listening to Ryan Moran’s podcast.
Vernon Grant 8:16
Freedom Fastlane I’m not sure if you remember it.
Jason Hartman 8:18
Yeah. I’ve been on a few of Ryan’s shows. So yeah,
Vernon Grant 8:21
yes. And so it was quite a while ago that I heard about your podcast, but I just was so busy. I didn’t have the time to listen. And within the last, I would say two months I have been so many episodes of it’s so great. You have so much good knowledge. You know, so many people, they will pick and choose information that they wish to share. But it’s not the big picture and you give such a clear, big picture. You tie in so many things to the market. And what if and what if and What you should do in those situations? And you’re you’re quite conservative with how you invest. And so I mean, it just makes so much sense.
Jason Hartman 9:12
Well, I appreciate it. Vernon Thank you. And I’m glad you like the show. So you’ve you’ve been bingeing on the episodes. Any idea how many episodes you listen to?
Vernon Grant 9:21
Oh, man, at least a couple hundred.
Jason Hartman 9:25
Yeah, good, good stuff. Well, I hope you don’t get sick of me anytime soon. But you’re probably sick of me already. And you went to college for computer and electrical engineering. And then, and you were also in the Marine Corps for eight years as well.
Vernon Grant 9:41
Yeah. Yeah.
Jason Hartman 9:43
So and then you said you started your own business. So in 2001, what kind of business is that?
Vernon Grant 9:49
Well, it was a automotive accessories. So you know, people hooking up their cars to go faster and look different and all of that stuff and I was really into that scene, I still love cars. However, I wanted to try to shift gears because you know, as the economy changed, things changed with the industry, and although I love cars, it’s just not that great have a business and more. And, and you know, we’ve made a lot of money and in the crisis, we’ve lost money. And so again, you know, with your strategies, even in those different markets, I could have been making money. So I don’t want to lose any more, so to speak,
Jason Hartman 10:39
let’s not miss any more opportunities if we can help it. So your father was a property manager. In fact, he was managing director of a property management company in the 80s and 90s. So you’ve got that background in real estate in that interest. It sounds like
Vernon Grant 10:54
yeah, I mean, I’ve been around it so much. You know, there have been times where He had to go back to Manhattan at like 3am because some commercial property that he’s met in managing some crisis happens. And so I’ve been in it and even his father was a realtor as well. So I like it. I just hadn’t had time to wrap my myself around it and and digest all the information because there’s a lot of information, but thank goodness in this day and age, you know, it’s so readily available.
Jason Hartman 11:33
Yeah, good, good stuff. Mo sounds great. Well, tell me about some of the questions you have. And you know, what, what you’re thinking of doing and let’s outline some strategy here because you’ve got a couple of different moving parts, and I think we could, you know, align those really well
Vernon Grant 11:50
for you. Okay, so, we’ve already identified a few properties that we’re getting but my main question is My parents have a particular house that they want to retire in. And when they bought it in 96 it was they purchased it at approximately $195,000. And now it’s worth about 424,000. So they’ve got quite a bit of equity in there. And
Vernon Grant 12:24
I’m not sure which
Vernon Grant 12:27
direction will benefit us best keeping in mind that you know, they still want somewhere to go to vacation and have fun and or live for several months out of the year. So I want to take that equity out and do something with it or do a 1031 exchange, but I need your advice as to which one might be best.
Jason Hartman 12:51
Okay, so the $424,000 property I believe that’s in the Tampa Florida area. Is that correct? Yes. Okay, and we Your parents are living in that area. Are they living in New York or kind of both or what?
Vernon Grant 13:05
They’re still living in New York? Okay.
Jason Hartman 13:07
So they live in New York and they want to retire in the potentially in the Tampa property. Right?
Vernon Grant 13:13
Correct. Okay, good.
Jason Hartman 13:15
So do they own a home in New York?
Vernon Grant 13:17
Yes, they do. And how much
Jason Hartman 13:18
is that worth?
Vernon Grant 13:20
That is about the same. About the same
Jason Hartman 13:25
125,000. Same price. Exactly. Okay. And what what’s their target date for retirement?
Vernon Grant 13:34
Maybe
Vernon Grant 13:36
my mom will definitely retire within the next year. So they want to move not maybe right away, I would say within the next four or so four or five years.
Jason Hartman 13:48
So is the property in Tampa rented out now? Yes, it is. Okay, and how much rent are they getting? Well, I actually I can tell you, okay, without without knowing. I’m gonna go Guess that they’re getting somewhere in the ballpark of maybe 20 $100 a month. Wow, that’s really really good is 20 222 you know, I was gonna say 2200 and I just didn’t want to be too aggressive but you know, they paid 195 for it so they’re basically getting about a point five rent to value ratio. And Vernon Isn’t it amazing? You know, I have tried this little parlor trick all over the world. And it doesn’t matter what city what language what currency. You know, it can be Paris, France, it can be Hong Kong. It can be you know, Tokyo, it doesn’t matter where it is. It could be LA, you know, it can be Tampa, Florida, or Miami or anywhere Boston, it doesn’t matter numbers and numbers, right? The the ratios are always about the same. It’s incredible. You know, if you’ve got a property that’s worth 420 For thousand dollars, you can convert that any into any currency on earth. And that rent to value ratio not not withstanding, you know, rent control or communism or you know, something like that, right. But if it’s in the free market, it’ll generally be just about the same ratio. So it’s, it’s truly amazing to me, it really is. I remember I was in Belize once looking at properties down there. And this has nothing to do with those properties because I wasn’t interested in them. But I was talking to a wealthy insurance guy, about his business and so forth. And he, I talked about this on a former episode, and I don’t even remember where he moved from now. But, you know, he, he and his family had moved, and they were renting a place in I think, Miami if I’m not mistaken. And they said it was worth I think they said it was worth 1.3 million. And I said, Oh, so you’re paying about 4000 in rent, and he said, How do you know and I you know, I just know Amazing how well that works. So listeners that let that be less than that it’s all about ratios. And those ratios hold hold true. And in every language, every currency, every geography, it doesn’t matter where so it’s really amazing. Okay, so they’re getting 2200 for their, their Tampa property, and it’s worth 400 and let’s just call it 425,000. And they’re renting it now. So is do they have some attachment to that property? You know, like, when did they buy it at night? 96 I guess did they ever live there? Or was did they just turn it into a rental and say, Hey, you know, in 20 years we’ll retire here was that they’re thinking or
Vernon Grant 16:41
that’s exactly what it was in 20 years. We’ll retire here. Okay.
Jason Hartman 16:45
All right. So, I mean, from a pure numbers perspective, I would definitely be selling that property. And you know, when they retire, they can buy another property and that retirement thing is is a moving target, you know, they might not retire on the timeframe, they’re thinking they might find a better property, they might pick a different area, you know, I don’t know, I mean, all of this stuff is such a moving target. And there’s so many opportunities and the world is changing so quickly nowadays that, you know, from a purely investment standpoint, that property definitely does not make sense, right? Because, as you well know, I would like to see them get 1% per month. So again, for 425,000 invested capital, I’d like them to get, you know, $4,250 per month, not 2200 per month. That’s just a pure numbers angle. It doesn’t include psychology. It doesn’t include sentimentality and emotions and various things like that. Of course, you can’t quantify those things very well. But then the other thing they’ve got to think about is the property in New York. Of course, when I probably wouldn’t do anything without because it would be too upsetting to their life, you know, unless they want to move and they don’t like it if they if they want to move, then I would sell that one and, and pay 20 $200 to somebody else to have the equivalent home, you know and live in New York until they retire. There’s also a question of kind of timing the real estate market because that New York market is such a frothy, cyclical market. Right. And it’s, as I always say, it’s very difficult Vernon to time any market. I would certainly say it’s, you know, it’s on the verge of being overvalued. Okay. But again, who knows, you know, that could that could, you know, if if the Trump economy really does boom, and the money loosens up, I mean, that that frothy market could go on for years more. I’m just saying that today. From a fundamentals perspective, it’s out of whack and we all we all know that Okay, did you have a deeper question here, like,
Vernon Grant 19:04
so they are also old school mentality. So it takes a bit of convincing to to let them know that, you know, it’s not about we get the property and you pay and you pay till you pay it off. Which is what they still, you know, especially my mom, she has that that mentality. She’s a nurse, by the way. So you know, she’s, she’s been working at the same job for like 40 plus years, and that they just want to pay it off. So if I introduced to them an idea that they’re going to have to pay for where they live again, it has to be, I have to offer them something more than Hey, you you have to pay your monthly mortgage on this place on this new place. So whatever it is
Jason Hartman 19:57
yet the hardest thing in life Especially for old school, people that are thinking like old school way, which, by the way, they’re not wrong. They’re just out of sequence with the time’s right? Their plan worked great. when it all started to not work was post 1971. When we went off the gold standard, then the game really changed because the lending standards changed. Money got easier and inflation reared its ugly head, and the game just totally changed. That was really the the inflection point when it all happened. The hard part, as you’ve heard me talk about on the show, Vernon, to get people to understand in any area of life, not just investing is that you can’t hear the dogs that don’t bark. They never look at what what might have happened, or what didn’t happen because they did or didn’t take another path. They only see what they did. They didn’t see what they didn’t do or what they could have done. That’s hard for the human mind to think that way. And it’s it’s that old thing. You can’t hear the dogs that don’t bark.
Vernon Grant 21:11
I’ve heard a quote sorry to cut you. I’ve heard a quote that that reflects that same thought that you can’t see past the choices you don’t make.
Jason Hartman 21:21
Oh, that’s a good quote. Who said that one? I like that.
Vernon Grant 21:24
Yeah. Oh, remember?
Jason Hartman 21:26
I like that. Let’s let’s find that I got I’m gonna I’m gonna search that. That’s a good quote. You can’t see past the choices you don’t make. Mm hmm. Oh, really? Good. Thank you for sharing that one. I like that one. I almost like that one better. It’s it’s more understandable than you can’t hear the dogs that don’t bark. But anyway, yeah, you can’t see past the choices you don’t make. So it begs the question, what choices are your parents or many other there are 10s of millions of people in this very similar situation right? When choices aren’t they making? Well, they’re choosing not to sell $850,000 worth of two properties and do 1031 exchanges where they could buy eight single family detached homes and diversified markets. That would net them around. While not net I want to say it’s really gross, but it’s net. Also, I’m kind of thinking of it differently than myopically people would think of it from accounting perspective, but it would just get them 800 or $8,000 per month in income, right. And then they could turn around and rent the place they live in and pay 2200 for that one. Right? Because in New York, or or Florida, it’s the same deal. You know, it doesn’t matter. Right, right. Right. They could rent that equivalent property. They’re living in now for about 2200 a month in New York. And then when they moved to Tampa, they could also do the same thing. But most people’s minds say, Well, hey, if I’m renting, I’m throwing money away. That’s how everybody thinks of it. Now, I used to think of it too, but when they the choice they didn’t make is they chose not to get $8,000 a month for that same value of real estate.
Vernon Grant 23:14
Right? I mean, it’s, it’s also the tools that they have for you, you can’t really understand a thing if you don’t have the tools to understand it with, right.
Jason Hartman 23:27
Yeah, you know, what that reminds me of? It’s, it’s kind of like the concept of vocabulary. Now, we’re going on a little tangent here, but when you know certain languages have, you know, fewer words from which to choose. So it literally limits the populations ability to think and, you know, on educated people or children, for example, you know, they have a smaller vocabulary, right? So they that that’s their vocabulary is literally the A tool with which you can think. And if you have a big vocabulary, you can think more thoughts. You literally can’t think a thought that you can’t express usually. Right? And so if there’s not a word for it, then, you know, it’s very hard to think about it. Right? So,
Vernon Grant 24:17
yeah, yeah. How do you express it? That’s why we come up with labels for things and containers to put things in, classify things. So we can understand. Yep,
Jason Hartman 24:27
yep, no question about it. And, you know, props to the English language that most widely spoken language on Earth. It’s also the largest language with about six 700,000 words, I believe, where if you look at like French, Spanish, Italian, I think they’ve all got around 150,000 words. So a lot fewer tools. And the reason English is that way, is you know, not because English is so great or anything, it’s just a language that happens to adopt and sort of suck up a lot of words from a lot of other languages. You know, we have also sorts of foreign words woven into the English language, right? And I guess other languages don’t do that as much as English does. So it’s just kind of interesting. Tangent alert. Alert here. Yeah. But okay, so the other thing they could do, if they don’t want to sell those properties, because I know that, you know that, that mindset that you know, your parents have, my mother has that same mindset is, when you sell something, it’s like you lost it, right? You You gave it up, right? And that mindset is very hard to, to, you know, kind of argue with, right. So the other thing they could do is they could do refi till you die, right. And that is another option because at least they could get that equity out and make it work for them. Do you know what kind of debt they have on the properties if any, or has they paid them off or
Vernon Grant 25:55
I’m not sure about the Florida property. I I know that still paying for it, but very minimal amount. And I know the one in New York, I did recently convinced them to refinance it. So refi cash out. So that’s how we’re getting those extra few properties that I was just mentioning to you. And I’ll be at the Memphis store by the way.
Jason Hartman 26:21
Oh, good. Hey, I look forward to seeing you at the Memphis property tour with that. Boy, I’ll be at Memphis in six days, I haven’t even it’s right around the corner. So we look forward to seeing you there. And by the time people listen to this, that will have probably already happened.
Vernon Grant 26:37
So we’re going to buy about three properties with that with the equity.
Jason Hartman 26:43
Okay, how much are you pulling out to buy the three properties?
Vernon Grant 26:46
Ah, I think so far total it came out to about 68,000 that we have to put down
Jason Hartman 26:56
that’s not bad. Not so basically for 68 thousand dollars, you can buy three properties, you’ll gain or they are you or, you know, both of your guests gain diversification because you’ll be in a totally different market, right, which will be good. And those three properties should produce somewhere in the neighborhood of, you know, 2700 to $3,000 per month in income, right?
Vernon Grant 27:20
Yeah. Okay, good cash flow, actually,
Jason Hartman 27:22
yeah, fantastic. And once once your parents see, you know, sometimes you got to do it to really internalize it or understand it, you know, in your inner gut. Once they see that, and they actually do that deal. And they see that look, here, we’re getting $1,000 per month for each of these properties, for example, and I’m just pulling out around number I don’t know the exact properties you’re looking at, then, you know, they’ll think well, these three properties with only $68,000 down, we generated a gross of $3,000 per month. They’re gonna be thinking, Well, here, we’ve got $425,000 in this property in Tampa, and all we get is 2200 a month.
Vernon Grant 28:08
And it’s only breakeven sometimes.
Jason Hartman 28:11
So that will probably go a long way in getting them to see the light, if you will, you know, and I know it’s it’s hard, you know, I mean, I take my own mother’s example, the countless conversations, had, you know, slash arguments that I’ve had with her about this stuff. You know, it’s funny. This is the funny thing. Another funny thing about the way the human mind works, and I don’t know why it’s this way, it just is. But we will trust a stranger, a total stranger, more than we will trust our own friends and family, the people we know well, and I don’t know why that is, you know, there’s an old saying familiarity breeds contempt. And even if we love these people, or you know like them really well There’s a familiarity, we just don’t respect that as much as we respect someone, you know, at a
Vernon Grant 29:06
distance, it happens all the time, even like, let’s say, my dad, if he’s having some medical issues like with eating and stuff like that, because I’ve taught myself so much about health and so on. I tell him, okay, this is what you should eat. And this is why you’re having this problem because you’re doing this and he is not listening to me at all. And then one day, he goes to the doctor, the doctor tells him, that’s when he changes. I said to him, what is it because I don’t have a PhD or an MD, and that’s why you don’t listen to me. Come on. I’ve been telling you this for years.
Jason Hartman 29:45
Yeah, no, you’re right. But even if you did have a PhD and an MD, you still would be family and he would not listen to you. That’s so true. It’s just it’s just the way I don’t know why that is. It’s just there’s all kinds of these funny quirks about the way the human mind works, but it just is just an odd, odd thing the way it works. So I think with your folks that that refi plan is really going to help when they see those three properties performing. Now, are those going to be all three in Memphis? Or are those? Have you purchased those properties yet? Or don’t tell me about that
Vernon Grant 30:20
we’re under contract. So we’re just getting our approval stuff. We’re already pre approved, and we just need all the paperwork and so they can run by the underwriters.
Jason Hartman 30:30
Okay, good stuff, and where are those properties?
Vernon Grant 30:33
Those are all in Memphis. Okay.
Jason Hartman 30:35
So after you do those three in Memphis, if they’re, you know, if they decide to sell one of the two properties, and by the way, I didn’t ask you Do they own any other properties? Yes, they do. They own a couple pieces of land. And one other property but that property,
Vernon Grant 30:55
you know, they lost some money on it. So they’re just, it’s rented and the prices re appreciating again. So we’re just waiting it out.
Jason Hartman 31:04
Tell us a little bit about that one.
Vernon Grant 31:06
That one is actually also in,
Vernon Grant 31:10
in South Florida that is near Tampa.
Vernon Grant 31:16
And I forgot exactly
Jason Hartman 31:18
how much is it worth? Do you know that the metrics on it, what it’s worth and what it rents for,
Vernon Grant 31:22
not what it rents for, but I do know they purchased it at 105. And the current value is 89.
Jason Hartman 31:31
Okay, so it’s gone down in value, and that one is probably got a pretty good rent to value ratio. So oddly, that one that they lost the money on is probably the one that they maybe most likely should keep. However, I have a feeling and I don’t know this but I have a feeling that that’s a condo isn’t it?
Vernon Grant 31:52
It absolutely is.
Jason Hartman 31:55
And I don’t like condos unless they’re very good deals. I just don’t like condos. And there have been a lot of condo problems in various areas around the country. And, and look listeners, I don’t want you to hear me say that I’ll never do a condo, I will do a condo. It’s just got to be a much better deal. Okay, there’s got to be something to offset the fact that it’s a condo. Okay. I just, I just don’t like condos, they have a whole new set of potential problems with them. Okay, so that one, you know, that probably rents for around 900,000 a month? I
Vernon Grant 32:28
bet right? Yeah, I’m thinking it because I remember seeing the numbers. It was like anywhere from eight to nine.
Jason Hartman 32:34
Yeah, so so that’s, that’s fine in terms of rent to value ratio. Now, the one thing we didn’t explore on any of these properties, by the way, is the debt structure on them, you know, what is the is they say the capital stack, right? You know, if you have a high interest rate loan on one, or an adjustable rate loan on one, and you know, maybe you have a low interest rate on another, these things could also influence your thinking. on selling or refinancing or, you know, when you refinance, if you’ve got a very low interest rate first loan on the property, occasionally, it’ll make sense to put a second loan on it, sometimes not. So there are there are numerous factors here, right? We, you know, I just want to make sure everybody knows that. Maybe the age of the property, the location, you know, properties. Some areas in Florida, for example, have really high insurance cost properties in New York have really high property taxes, right. So, you know, there are multiple things to think about. And in New York, you might be in a rent controlled area, and that’s really bad as an owner, but it could be really good as a tenant. So there are all kinds of other dimensions, but what were you going to say?
Vernon Grant 33:48
I was gonna ask what so I am assuming that the advice would be the most optimal thing would be a 1031 exchange, correct?
Jason Hartman 33:58
Oh, yeah. The 1031 exchange Is is the way to go for sure. Because it allows you to basically trade properties all your life and defer defer defer the gain. And, you know, listeners also need to be very mindful. I was looking at one of my properties I’ve been over the past several years, I’ve been reworking my portfolio and selling some properties and trading them for others. And so I’ve got this one property in an old market. We used to do Mobile, Alabama, and it’s been very good to me, I bought it when there was something called the go zone going on. And you hear me talk about that on the old episodes. Yeah. And that was a tremendous tax benefit. Like so many government policies that eventually turned into a mess because the you know, so many investors got attracted there that the properties became overvalued and we stopped recommending it but our, our clients who got into the zone early enough, did very well and including me, you know, this particular property is only worth about the same as well. I purchased it for, but because I had such tremendous goes on tax benefits, I would I would potentially sell it and break even. But I would really need to do a 1031 tax deferred exchange on that property because, and I asked my accountant, I said, Hey, dude, what’s my depreciation recapture on this property? And guess what he said. So then by the way, this property’s worth about $170,000 give or take. But if I sold that outright, and just broke even on paper, by the time the tax consequences came up, I would get at $98,000 in depreciation recapture on which I would have to pay taxes. Wow. So, you know, in a way you can get kind of trapped into this real estate game, which isn’t all bad. Okay. It’s actually quite good. But you’ve got to really think of it and, you know, people make mistakes sometimes and they’ll sell a property thinking, Hey, you know, I’m just breaking even or I’m making 20 grand, it’s no big deal, I’ll just pay the tax on the 20 grand. No, you’ve already taken a bunch of tax benefits over the years here that you got as a deduction. And now, if you don’t do a 1031 exchange, you got to recapture those and pay them. Okay. So things aren’t always as simple as they look. So be careful. Always consult a tax advisor, and make sure you have one that knows about real estate.
Vernon Grant 36:34
Yeah, certainly.
Jason Hartman 36:36
Very, very important. So any other thoughts or questions you want to share with the audience?
Vernon Grant 36:41
At what point do you know if it should be a refi till you die versus 1031 exchange?
Jason Hartman 36:50
Well, really what tells you that is the rent to value ratio? And on both of those properties, ideally, if there was no The sort of life hassle factor or emotional factor involved from just a cold pure number standpoint, I would definitely be selling those properties. Okay, and doing 1031 exchanges, but I do, of course understand there are other considerations. So, you know, those those are there are other factors to weigh in there. And, you know, if your folks are going to retire in two years, it’s looking like the markets going to continue booming pretty well. I mean, that’s what most people think i think that you know, the money money supply is flowing into real estate. For all the Trump reasons I’ve mentioned on prior episodes of, you know, our for him being our first real estate president, you know, eliminating or softening, Dodd Frank, etc, etc. If they’re going to retire in two years, just stay put make life easy and keep that in New York property. You know, it’s only two years not a big deal. Right. And, and but, but I would really consider selling the Tampa Bay Florida property.
Vernon Grant 38:01
Okay, and I guess purchasing another one that they like somewhere to live down there.
Jason Hartman 38:07
Yeah, or three or four more and, and then they can buy back into that market or they might really decide they just want to rent. Because maybe that’s, you know, that’s not their final perfect location. Maybe it’s not their dream home, maybe they want to have some flexibility, you know, maybe they want to go on a cruise for a year or travel. I mean, renting is just so, so, so much easier, you know,
Vernon Grant 38:31
and that’s true. You don’t have all those costs that you have to worry about. Yeah, yeah,
Jason Hartman 38:37
no question about it. It’s it’s really quite easy to be a renter, you know, and you don’t have to unload a property. You know, you can just give 30 days notice and move out. You don’t have to show it and have people invading your privacy and it’s just much easier. There’s a lot of hidden costs in homeowner homeownership to
Vernon Grant 38:55
upkeep and all that stuff.
Jason Hartman 38:58
You know, a lot of times They’re spending working on their house and going to the hardware store and when you’re a renter, you just you just live there. No, it’s much easier. So, all good stuff to think about. But Vernon Hey, thanks for coming on the show and sharing your story and your parents story with us. And, you know, hopefully they will listen to this podcast if you can get them to do that. And I hope it helps them and we will look forward to seeing you at our upcoming creating wealth seminar in Memphis property tour next weekend.
Vernon Grant 39:28
No problem. Thank you so much for your help and time.
Jason Hartman 39:31
My pleasure, happy investing.
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Jason Hartman starts the show by sharing why you should immerse yourself in the most historically proven asset class, income property. He breaks down the multiple dimensions and the various factors that prove that income property is the best investment class. In the client case study segment, Jason Hartman interviews Ani Wee. She starts by talking about how she came upon the Creating Wealth Show. She also tells her story of monetary and portfolio growth from her income property investments.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the company leet solution for real estate investors.
Jason Hartman 1:04
Welcome to the creating wealth show listeners from 164 countries worldwide. Welcome to episode number 824 824. This is your intrepid what exactly does that mean? intrepid? Yeah, well, I don’t know. Am I intrepid? This is your host, Jason Hartman. And thank you so much for joining me here today. I just got back from another brunch over at Tony Shay’s house. Yeah, Tony Shea, the founder and CEO of Zappos. He has these interesting Sunday brunches at his very unassuming trailer park here in Las Vegas. And he does them every Sunday. Really a very generous guy to host everybody there. And you know, it’s an interesting crowd to say the least. Tony Shea is definitely a hipster. So, going to his brunches. It’s probably not what you would expect from a billionaire. And he is likely the most popular man in Las Vegas. He’s redeveloping the whole downtown and really doing some phenomenal stuff. So I just love it and you, you may have read his book Delivering Happiness or, you know heard about all the corporate folklore about Zappos and amazing customer service they have and so forth. And, and then he sold the company to Amazon, you know, did incredibly well. And then he’s using his money to do all kinds of cool things in the city and, and other stuff as well. So that’s the one thing I want to say. I just want to remind you of that, you know, when I was in Peru a couple years ago, I remember I did a show from there, or at least an intro from there, and maybe you’ll catch this on a flashback Friday episode, or you’ve already caught it. And you remember what I said there? Because the group I was with in Peru, one of the hotels they put us up in was, it was so beautiful. I mean, it was just, it was spectacular. And a couple of us were just so impressed and we went down to the front desk and count out that like you know, and of course hotel room prices are all over the board. I know y’all know that never pay the rack rate for a hotel. You can always negotiate a hotel price. But you know that that hotels was so gorgeous and and like in the closet, you know, they had four bathrobes, two women’s bathrooms, two men’s bathrooms, you know, so you could take your pick of different styles. And I mean, it was just it was phenomenal. It was a phenomenal hotel. And I have stayed in some gorgeous hotels over the years. But this one was phenomenal. And it just came to mind. And what I said when I was recording the show that day, is take care of this money thing. Take care of this money thing. It’s a thing, right? It’s a thing in all of our lives. And we’ve just got to take care of it. And look, I grew up poor. I did not have money at all. And you know, money isn’t everything. As the old saying goes we’ve all heard it but it is something is definitely something and you would have to be completely in love. Sure, and jealous and green with envy as the saying goes, to deny that money isn’t something it is something it matters. It matters in our world. It matters to capitalism to freedom to being able to do good in the world. And I just kind of thought of that again today because I was looking at all this stuff Tony Shay’s doing and it’s just really phenomenal. And also, I am going to be talking to you in the upcoming weeks from Europe. Yeah, I’m going on another trip to Europe. And, you know, speaking of that money thing again, it is I mean, look, I like getting a good value better than anybody. Okay. And, you know, I got a very good deal on my airfare. I can’t believe how cheap it was really. And then I upgraded You know, my class a little bit there. But I don’t like to waste money either. Right. But you know what I’m thinking about my first trip to Europe as an adult, right when I rented a car drove around with friend and You know how a couple of different trips to Europe just really, or anywhere in the world for that matter, I’ve been to 80 countries now how I just always try to economize and stuff like that. And you know, I’m thinking Isn’t it just so freeing not to have to think too terribly much about money right hey, look at even billionaires and I know a few billionaires and many many deca millionaires and, and sent them millionaires couple of those to deca means more than 10 million and sent them means, you know, like 100, right? More than 100 million. So, you know, even they like getting a good value. They don’t like just wasting their money, especially if they didn’t come from money, you know, then they appreciate it more because they remember how their life used to be usually and that’s one of the one of the good things, but it’s really just a it’s much more efficient for you to live in such a way where you don’t stress about money. So take care of this money thing. That’s the First thing I want to say on this episode today, and we’re going to talk to a client of ours, a client case study on IE we, who will be with us in a moment here. You know, her story’s interesting, a single mom really did some phenomenal things in real estate. You know, she talked to me the other day, and just went on and on about how, you know, listening to this one specific podcast episode of mine, changed her entire life, changed her entire life, listening to that one episode. Now, what could change your entire life? You know, what do you want to do in your life that could completely change it? I would urge you just get to that breakthrough point. I mean, for example, if you’re listening to the show, and you’re thinking, Well, you know, I’m on the periphery, right? You know, I bought a couple of properties, but I’m not like really doing it, right. I’m not really building a big portfolio. And maybe that’s what you want to do. Hopefully it is because income property is the most historically proven asset class in the world, right? It is. And that’s what we, we teach you about here a little bit of business and life success stuff as well on the creating wealth show, but it’s mostly about income property investing, of course, it’s the most historically proven asset class in the entire world. So what do you need to do to get more immersed in that whole thing immersion get immersed in it? Well, one of the things you could certainly do, as a shameless self promoter, I will say is join the venture lions mastermind that will get you more immersed because you’ll be hanging out with some friends that are really going after it. They’re going after life in general. But certainly after building good real estate portfolios, come to our live events, when we have live events, come to them come to all of them. And by the way, if you’re a venture Alliance member, those are included with your membership. But that’s a really important thing. You know, get yourself more immersed. That is a key thing in life in immersion be immersed in, in the thing you want to do more and more very, very important. Now, I want to talk to you about crap rate. I mean cap rate. Now, for this episode for the first time, I’m going to call it crap rate. And it’s not the rate of how much crap you’re willing to tolerate or anything like that. I’m calling it crap rate, because I see some clients making a big mistake, focusing on the crap rate for a property, the capitalization rate, cap rate, capitalization rate, obviously, you know, I’m kidding, right? I’m making that word up crap rate. But why shouldn’t you focus on the cap rate? Why is it you know, look at we have never promoted this metric that is commonly used in commercial real estate, where they are used to making lower return on investment for many reasons we’ve discussed on many prior episodes. In commercial real estate, they’re used to using cap rates. Why is it the thing in commercial real estate? Well, in commercial real estate, it’s much harder if you’re buying a big building a big office building or you know, hopefully not a big retail center as the retail apocalypse is in full swing as I predicted it would be 20 years ago, more than 20 years ago. I remember going to a presentation at the Pacific club, a swanky private club in Newport Beach, California, used to be a junior member there. I remember hearing a presentation from some retail brokers who were talking about commercial real estate and I said, Hey, you know, this internet thing, I think it’s gonna turn into something. You know, I said this 20 years ago, before anybody really knew what the extent of that would be, obviously, right? But I said, Don’t you see this putting downward pressure on shopping in the physical world? And they said, Well, no one guy got him to kind of come around, you know, he was an old time. Made a ton of money in, you know, in retail properties. And I got them to kind of come around and see my point of view on that. And I’ll bet you nowadays, he really sees my point of views 20 years later, because the retail apocalypse is upon us. And we’re going to talk a little more about that and what it means to our tenants, our tenants need to have jobs to rent our properties. Well, actually, they don’t really need to have jobs, because they could be on the dole and have section eight government handouts. But that’s another type of investing. So not necessarily good or bad. By the way, you know, a lot of people will do very well in section eight, and some people hate it, I find that there’s not much middle ground there, as I’ve talked about before, but back to the crap rate, because that is where we were going, the risk of being on a tangent here before we get to our client case study interview. The crap rate is not that meaningful. Why you know what I’m gonna say, right? You know what I’m gonna say, because it doesn’t include a couple of very important things. It doesn’t consider appreciation, and it doesn’t consider leverage. And see in commercial real estate. Typically, of course there are every By the way, I wanted to make a disclaimer, everything I ever say on this show ever, there is an exception. There’s always an exception. No rules or laws apply universally, including this one, including this one does not apply universally, even the universal law is not universal. And so typically, commercial real estate does not appreciate as well as the good old humble single family home, talked about that analyzed it, many other episodes not going to go into it here. So that’s one thing. The other thing is, the financing is not as good on commercial real estate as it is on residential real estate investments. So if you’re using crap rate, and you’re comparing it to say, buying a Walgreens on a triple net lease buying the property a Walgreens leases from you or an office building or something like that that would not be an accurate comparison. Crap rate is not a very good metric for the residential real estate investor, what you should look at is the overall return on investment. So when you go to Jason Hartman comm slash properties, and you look in our properties section, and you look at the overall return on investment, that is the key metric, that is the proper number to look at. Now, if you want to look at something close to crap rate, okay? Look at the cash on cash return if you want, okay, but, you know, I’m telling you, again, you can’t compare that to other investments, because it doesn’t give you enough information. It’s not multi dimensional enough now, even the overall return on investment does not include a couple of things. It doesn’t include money. A trademark mouthful phrase that you can’t say 10 times fast, even if you try really hard. In fact, maybe we should have a contest who can say this 10 times fast, and you’ll win a prize, inflation induced death, destruction, inflation induced debt destruction, inflation induced debt destruction, blah, blah, blah. Okay, so that’s the metric that of course cap rate doesn’t include, but even the overall return on investment doesn’t include inflation induced debt destruction, the hidden wealth creator in real estate investments. Additionally, what else doesn’t include well, none of the returns on any of our performers, look at the overall lifetime value of your property portfolio. When you get the advantage the huge advantage by the way of the 1031 tax deferred exchange, when you rebalance your portfolios when you do the 241, or the 341 rebalancing of your portfolio, and you take advantage of the 1031 tax deferred exchange So you get to reinvest all of that capital without paying tax. You sell your business, you sell stocks, you sell bonds, you sell that mutual fund, you’re gonna pay tax, you got to pay the government, before you get to reinvest the money. With income property, under the 1031 tax deferred exchange, you can reinvest the whole thing that is beautiful, not your post tax dollars, you get to reinvest your pre tax dollars. phenomenal, phenomenal deal. None of it includes that. So if you’re going around and you’re comparing even the overall return on investment, which looking at Jason Hartman calm in the Properties page, you know, typically you’re going to see overall return on investments and of course, this is a performance of course, it’s a projection Look, just assume it’s not going to work out as well as projected, okay, it might be better. I mean, it happens better many times. In fact, the client he studied with Coming up, you’re going to hear a story that’s way better than what’s on our Performa. Okay. When you hear Ani we’re talking a few minutes here, okay, but just assume it’s not gonna be as good as that cut it in half if you want and take that projected 35% return and cut it in half 17.5% but just know that even the 17.5% which is phenomenal it’s truly amazing and those of you new listeners who don’t believe anything I say and think I have no credibility and think I’m crazy and I’m, you know, the hokey broker that’s about to go to jail, right because you don’t know how to calculate return on investment yet because you haven’t listened to me teach you that. And by the way, you should go to Jason Hartman calm and on the front page. Watch that free video we have because that really leads you through reading the Performa and understanding the numbers in 27 minutes for free. You can learn to be a great deal analyzer. Okay. Rate deal analyzer and that’s a critical component. But yeah, even the overall return on investment does not include the benefit of inflation into step destruction which is huge. You know that from those of you who’ve been to my creating wealth seminar or my jQ Jason Hartman University live seminar, or have listened to the show and heard me talk about that, you know, that’s very significant. It also does not include the tax benefit of the 1031 tax deferred exchange, which plays out over time, even internal rate of return IRR the holy grail of metrics does not include that either of those things. Okay, so there you go. All right.
Hey, without further ado, because I risk the already this intro is getting very long and I have a whole another part of the show for you. Our interview a client case study with Ani, we so let’s listen to Ani and hear her story. It’s a great story. And she is one of our clients from Alaska. how unique is that? So here is Ani Hey, it’s my pleasure to welcome another client back to the show and this will be a client case study with a listener and now client from Anchorage, Alaska of all places we don’t have that many listeners in Alaska, but it’s always great to have one and I have been to Anchorage and Fairbanks before and through the Yukon Territory as well up in Alaska and Canada A long time ago. It’s very beautiful up there. And our client is Ani we and Ani. Welcome. How are you?
Ani Wee 17:32
I’m doing very well. Thank you, Jason.
Jason Hartman 17:35
Yeah, well, it’s good to have you on and I just loved it when one of our investment counselors introduced me to you the other day. It was so great to hear your story and I I just always love to hear someone tell me I changed their life. And that’s always great, hopefully for the better. I think so in your case, it sounds like but give us a little bit of your background. First of all, what do you do for a living?
Ani Wee 17:58
Yeah, I work with Federal government as an auditor, and that’s, you know, most people with it’s basically accounting work pretty much all the reconciliation of schedules and, and doing audit. So I think we’ve done for close to 10 years now and I’m I’m pretty happy there.
Jason Hartman 18:19
Good stuff. Did you grow up in Alaska?
Ani Wee 18:21
No, no, I grew up actually is I am from Taiwan, the Republic of China. I relocated to America when I was 16. I went to a boarding school in Michigan and then I just settled down and went to college in a different state and then I moved to Alaska, actually for the job.
Jason Hartman 18:45
Okay, so that’s I was gonna ask you, how did you end up in Anchorage, Alaska, you know, that’s sort of an out of the way place. Give us a little insight before we talk about your real estate investing story, because I think a lot of the listeners will be interested you know, not a lot of people go to Alaska. I have been and I feel very fortunate to have been there and you know I did an Inside Passage cruise from Vancouver I’m on the way there and then on the way back I did some back country stuff and I remember going to was it Denali Park I think and, and, and seeing all of that and you know, just gorgeous up there, obviously. But hey, I was there. Actually, I gotta tell you something funny. I have a picture. I gotta find this picture. It would be great for a Facebook flashback Friday or Throwback Thursday of me standing on the Alaskan pipeline at midnight, and it’s his Brightest Day. Because I was there on the longest day of the year, the summer solstice June 21. And you know, it really messes up the sleeping patterns. I remember we were in that famous fish restaurant you have there Simon and Seaford I believe it’s called. That’s when I really loved Alaskan halibut and discovered it and I thought it was about six o’clock and I looked at my To watch it it was 10pm
Ani Wee 20:04
for me, because a lot of times I have to, I really have to have a military clock here otherwise, I have a hard time remembering whether that’s two o’clock in the morning or two o’clock in the afternoon. And because the light is you know, summertime is all 24 hours available, much more so in Barrow, Alaska, which is the northernmost northernmost town here in America, rather than anchorage anchorage is a little south and it’s a little easier in terms that they like to recognize what I did when I lived for many years in Barrow Alaska and and and that was a challenge for me to try to figure out what exactly what time is exactly the time am or pm. And so you so you,
Jason Hartman 20:52
you lived way up there. Wow, that’s just amazing. And so do a lot of people use the military clock the 24 hour clock up there.
Ani Wee 20:58
A lot of people Do because it’s easier to know, you know, like two o’clock in the military time will be 14 hours. So it just easy to recognize because you can, you know, get him can trust your sense of time from that. Our darkness a lot of places. Yeah. And so yeah, it’s a lot easier. Yeah, absolutely you cut out for just a moment but I think people got the message. It’s very hard to recognize time with that. So I mean, you you you work for the government, you’re an auditor. Tell us a little bit about your real estate story, I guess. How did you happen to come across my podcasts a few years back in a into a I was going through a personal divorce at the same time, the market crashed. So I had a lot of questions about the economy at large. And so I was looking for answers in with the alternative media has led me to share Just website, website and website and podcast. I started to listen to him. And pretty soon I remember he did an interview with you. And, and I, I, it resonated with me. And because I am I was listening to a lot of messages given to me by people who are more of a golden silver invest investment. And, and, and a lot of people were telling me that, you know, in terms of the global economic crash, real estate will be a liability more than an asset. So a lot of people were advising me to purchase heavy metals, such as gold and silver versus metals.
Jason Hartman 22:50
And the interesting thing about all those precious metals people on E, they have the right premise, and their arguments are correct. They just don’t have the right Conclusion I’ve been very as you know, from listening to the show, I’ve always been very fascinated with them, but they just they just don’t get they don’t get the whole picture.
Ani Wee 23:10
Yeah, I definitely resonated with your idea that about, about precious precious metals, I use precious metal more as an insurance policy versus an investment strategy. And so, and before I think before I ran into your podcasts, I was just finding real estate I was I started the real estate investing actually because of the book Rich Dad Poor Dad by Mr. Kiyosaki. But then I didn’t really know what I was doing so I would buy it I suppose I would, you know, like, say for my neighbor died of breast cancer. I bought her her condo which is just right next to mine. I live in a multiplex. And I just went and pay cash for it, you know, I just didn’t really think about levering June or anything because in my world where I came from, people tend to pay for things in cash and they don’t have the money they just don’t buy. So so it was very strange to think to hear you talk about leverage, because it was the antithesis is what how I was brought up you know, and then I keep listening I just I said well, you know, having the sale please keep an open mind because it is true using leverage you can buy more so I made some fairly investment just you know, buying condos and one I hearing Anchorage Alaska, but they’re not as lucrative and investment now looking back after having heard your podcast for several years, I look at my old investment, real estate investment I realized there really not generating very good, you know, income for me. But today in the meantime, fortunately, during that period of time, I just happened to live in the area where we have a lot of military personnel wanting to move out of base. So despite the fact, condo investing wasn’t the greatest investment I can think of, but it wasn’t the worst investment either, such as no putting your money in a CD account. So, so I ended up breaking even I later sold a condo and then move the investment to Florida instead. So I first started purchasing property from you. I think after hearing your podcast for several years, into a one, three, that’s when I decided to purchase a property from your network.
Jason Hartman 25:57
Yeah. And so the first property you bought through us had was a duplex, right?
Ani Wee 26:01
Yeah, it was, um, you interview this gentleman named jack and, and I mean, I heard many, many interview before and I don’t really know why I just really liked the interview. And so I went to your website and then I noticed there’s a duplex I say, oh, multifamily, because most of the properties on your property when you know on your website is single family. Yeah. So there was the first time I saw a duplex and there was two Oh, a, he looks you know, kind of new and so I started doing some research around the area and I discovered an issue with Chinese drywall. So I called up Sarah and then she gave me the name of jack so I contacted him I discussed about this duplex, so I purchased it from jack Lee for some da thousand dollars. At the time. I didn’t really have the money because my money were all tied into it. condos I bought a couple investment condo plus I live in the condo myself and most Alaskan You know, a lot of a lot of Alaskan like condos just because it’s really hard to do maintenance.
Jason Hartman 27:18
Alaskan winter it’s very difficult. Yes.
Ani Wee 27:21
Yeah and on top of that there’s you know and then the problem with a condo is always the condo view and it’s which is pretty hefty, maybe about three $400 a month. So but at the time, you know, I that’s what I did. So I, I talked to jack I said them, you know, he I think originally was listed for 80,000. And I said if I pay cash, you know, he agreed to take some TA. So I just went to the bank and for the first time they’ll put a cut in line with equity equity was what I call a line of equity loan against my condos as I didn’t have a mortgage because I was paid for cash. So Got a low interest loan and pay jack and bought the duplex from him.
Jason Hartman 28:05
Now that one, that one just about doubled in value, right. Did you did a cashout refi. I believe on that.
Ani Wee 28:10
Yeah. Well, I continue listening to your podcast afterwards and then you know, jack secretary, Laurie manages to manage the condo until jack decided to retire So, so I bought it in somewhere in April 213. I just recently maybe around like January of this year, I did a cashout refi or it was appraised at $150,000.
Jason Hartman 28:38
And you are How much did you say 89,000 70,000 78,000? Well, so yeah, that’s fantastic. Congratulations that doubled in value. And and you bought a bunch more of them, right. Didn’t you buy?
Ani Wee 28:51
Yes, I did. I and the reason why I only did I did a cash out refinance because the rent has also gone up. I would have Soda if the rents stayed as $100 per side each month, but the rent had gone even, you know, a 50 per sign each month from from 500. So it was not really a good idea to sell, even though I was getting getting a lot of offers. People write me postcards or letters for wanting to buy.
Jason Hartman 29:25
By that by the way, folks, if you don’t have investment properties, yet, if you haven’t started your investment career yet, you’re gonna start getting and it’s such a great feeling, isn’t it to every month on all of my properties, I get constant postcards and letters from people saying they want to buy my property. And I just know that I am controlling the world’s most valuable commodity income property, you know, in the whole world pizza path to your door, you know, there’s such a limited supply of it. It’s just a wonderful position to be and to be that the seller you know, you in the driver’s seat when you’re the seller, and or the owner, I should say, you know, hopefully you’re not selling them, but you know, occasionally we do sell and when we rebalance our portfolios, but yeah, isn’t that a great feeling though?
Ani Wee 30:11
Yeah, it was. I know I never gotten any postcards. Well, my Alaskan condos, even you know, but but I was starting getting postcards for this particular duplex many postcards. And I decided not to sell and then I just continue to rent them, you know, just rent it out. And I used the proceeds of the money to purchase I think one more property, a single family home for $10,000 in Fort Myers. This time, the duplex that was sold to me by jack back into a one three was located in a server for Myers, Florida, although Lehigh acres, so and so I bought a I know I didn’t really leverage Either I just I just put to put them, you know, cash down, just make the transaction faster. And but I, I was very, I was very surprised by the appraisal record of 100 $150,000. And then later on I attribute to the fact the fact that for my or area has the number one job growth or number two is one of the top at least top 10 in the nation for job growth and population influx. So, if you tell you though, if you talk to any of our clients that bought properties back in, and I love how you say the numbers, you always go to Oh, two, row eight and so 2008
Jason Hartman 31:44
you know, but any of our clients that bought, you know, anywhere in the last seven years, I mean, they have just cleaned up, you know, it’s incredible the kind of appreciation they’ve had. And that leads to the next issue. You know, generally as you know, from To the podcast, and as all our listeners know, we believe in buy and hold investing, you know, why would you sell an asset that produces 2025 30 35%? Or even, you know, 40 45% return on investment every year, right? That’d be crazy, you know, when you look at the overall return, because it’s a multi dimensional asset class. And, you know, if you want to look at those, go to Jason hartman.com, click on Properties and look at the actual performance if you’re not familiar with how we calculate all that, but, you know, we generally believe in buy and hold, but occasionally the properties appreciate so much and, you know, that’s a great problem to have, okay, it’s a great problem to have. You really do need to rebalance your portfolio because the the rents the income never keeps up with the appreciation. You know, it’s always out of sync a little bit. And, and so I would ask you, and this is an interesting part of our case study for the listeners. Today, your property you bought it for the first one that you were talking about here, the first one you bought through us, you bought it for 79,000. And it appreciated to 150,000. Now, what is the rent on that? And do you remember what the rent was when you bought it and what it is now, for example, like it was a comparison there.
Ani Wee 33:18
Yes. When I bought it into a one, three front jack, it was $500 on each side, so it will be $1,000 1000 total.
Jason Hartman 33:27
Okay, so a little better than 1% rent to value ratio, and you acquired it at acquisition.
Ani Wee 33:32
Okay. And now it’s a city, so I’m getting 1700 dollars a month.
Jason Hartman 33:38
Wow, that’s fantastic. Those rents have gone up very, very nicely. And you know what, you don’t need to sell that property. Don’t don’t don’t feel you need to do that at all because you’re still getting better than 1% rent to value. I would even almost question I wonder if it’s worth more than the appraisal you got. You know, maybe it’s we’re really worth 161 71
Ani Wee 34:00
According to the appraisal report because they use different methods to come up with their figure, according to the appraisal report, so you say use the rent method, it would be appraised at maybe around 168,200 70,000 but then but then the appraiser decided to use a more conservative cost approach or some other approach and then he came up with 150,000 but yes if you look at the it’s on a quarter acre lot he has a septic and a well probably not exactly If I had known he has a septic and well and and sometimes he does involve more work when you are
Jason Hartman 34:43
Yeah, those aren’t that’s not ideal, by the way.
Ani Wee 34:45
Not ideal, but it was better than a lot of properties have it so
Ani Wee 34:50
yeah, so I bought it and I have a little repair, you know, with the wells and the septic tank, but it’s not nothing big. Nothing major happens. I think I had to change your oil pump one time but it but I think that the area has a lot of potential and I got a lot of yellow postcards
Ani Wee 35:13
you know that
Jason Hartman 35:15
yellow postcards a famous yellow postcard please sell your host to us.
Ani Wee 35:19
Yes and interest and I think that the people who who are truly investors knew the intrinsic value of the duplex because of economic development in that area. And and demographic studies like Mr. dent has done also indicated that a lot of really really dense area they like to move to a warmer climate and Florida is considered a very desirable area. And I think for Meyer Cape Coral the hikers happen to be without any major industry in essence pollute, you know, pollution control. There’s really no pollution. There’s no heavy industry. The area is, you know, enjoy some sunny weather, which is almost like the opposite of Alaska.
Ani Wee 36:10
You know, a lot of stuff. It’s the
Jason Hartman 36:12
it’s the polar opposite of Alaska almost. Pardon the pun. Yeah.
Ani Wee 36:18
So I just attract that baby boomer population, you know that, like, yes, 10,000 people reach their 65th birthday, every day now and just more and more people moving in isn’t?
Jason Hartman 36:32
Yeah, it’s amazing for sure. Okay. So I want to make sure I mentioned a couple things. So the listeners get some more education out of this. You talked about the appraisal. And you know, I’ve talked about this in the past, but just for everybody. There’s three basic methods of appraisal. There’s the comparison approach, which applies to condos and single family homes, mostly, there is the income approach, and you talked about how the appraiser did the income approach and wanted to appraise it, basically. For more money, but then he got more conservative on you. And he did the cost approach. So three basic approaches comparison, income approach and replacement cost approach. Okay, just so the listeners know that because I didn’t want to gloss over that it was an important point.
Ani Wee 37:17
Yeah, that was it. And I think because of the vendor wants the most conservative approach, so that’s, that’s why he chose and so basically how it works is that one side of the duplex, one tenant pays the mortgage, the property tax, and the insurance. And the other side is pretty much pure cash flow unless I have a shoe repair related issue such as replacing washer dryer or issues with the garbage disposal. But but it’s, I’m not self managing it I have a property manager and my property managers name is Kevin and and I find him extremely reasonable Because, because I learned from your podcasts, you know, to scrutinize the property management agreement. What I have found is that seven is also a real thing. bester he’s not just a property manager. He’s not just a realtor. He’s also an investor. So he has experience in all three area. So he immediately agree with me that the lacing should be split 5050. So, so that, you know, a lot of time when you look at a property
Jason Hartman 38:30
of the agreement, they want to keep the late fees. We’ve talked about that before, and I don’t I don’t like that. Yeah, yeah. Yes, folks. You know, one of the things I want to tell you is that don’t be afraid to push back a little bit on property management issues. You know, you can negotiate, read that contract, don’t give them too much latitude on discretionary repair items, because there’s just a funny thing about life, that when you give them a lot of latitude, they tend to take it. So and we’ve talked about that many times in past episodes, you got to be in control of your property management experience. Okay, so very important,
Ani Wee 39:06
very important. And the second thing I like about him is that he doesn’t charge me the markup fee for repair. So those are the two things and interchange for for that I agree to make payments on all the repair directly to the vendor. So save him a little bit of paperwork and that also give me some level of control if I you know, and I can contact the vendors directly. So I it’s
Jason Hartman 39:30
an expensive repair, ask for more quotes and call them a quote, not an estimate, you know, in your emails and your discussions. Granted, it may not come out exactly that way but calling it a quote will help you in case you need to argue with them later. But only you know, I want to ask you how many units do you have now total in your portfolio?
Ani Wee 39:52
Well, because I was so happy with my my duplex investment in Lehigh acre. I Later on purchase for more. So I have a total five duplexes. I also so that’s 10 yeah 10 and then I also own two single family homes in the area where Kevin Manik 1212 properties and then you own your own condo and the one next door to you, right? I sold the one next to me but I, what I did is I bought another one from your network in Jackson, Mississippi from a gentleman named Brad and I, you know, again, I heard your interview with Brad fall I decided that’s interesting opposite strategy because he’s a, I consider him more of a specialist for section eight housing at a time so. So it was a $50,000 investment in a single family home in Jackson, Mississippi, and it produces a $725 a month on rent, and I know that When I purchased that property I knew the appreciation of, you know, in Jackson, Mississippi would not be as high as in Lehigh acre or four miles is pretty much just a cash flow.
Jason Hartman 41:15
Yeah, that’s a much more linear cash oriented market. I agree. Yeah, absolutely. Absolutely. Good stuff. Well, what are your plans? Next on E? You’ve got I guess what that sounds like it’s about 15 units now total. Right.
Ani Wee 41:29
Right. Yeah, I have. I have one. I have two more single family home in Arizona, that that I purchased prior to becoming a podcast listener. And, and those were purchased in tool kit, tool 11. And tool 12. Oh, you You did good. On those two. We were back in the Arizona
Jason Hartman 41:52
market a little while it got too expensive. So we stopped recommending it but in Phoenix, you know, that’s a sort of a hybrid model. it, so it gets a little expensive at times, and then we’ll stop recommending it. And, you know, throughout the cycles, we’ll go back in and recommend it for a time and, you know, if you’re, if you’re there and you have properties, just keep them. I mean, you’re stabilized, you know, you’ve got, hopefully a good tenant so forth.
Ani Wee 42:15
Yeah. tenants and different property manager. And then on top of that, you know, I had really cheap debt at a time, because when I was in Toy 11 and 2012, the interest rate were 375 for 30 year mortgage 3.3 point
Jason Hartman 42:34
seven sighs
Ani Wee 42:35
Yeah. And, and then now the ones that I purchased in the high and the rest of the youth house, Southwest Florida, there was a 4.75. So so the debt in Arizona at the time was considerable, considerably cheaper. So I think talking to Sarah about at some point, I would need to do it again. 31 exchange because the rents in the area didn’t keep up like Florida. The rents in this little Arizona town that I purchased real estate pretty gone up but they didn’t go up as high as the rent situation in Florida but this Florida situation is kind of abnormal because that’s the for Meyer has a number one ranking increase in I think in 2014 to a one five out of the whole entire nation. So for a while my already don’t Iran also increased all the time when I purchased it. I think at a time when I purchased it into a lab and I was only getting maybe about seven 750 but now I’m getting 1150 currently, so it has gone up but then the property South has even gone higher
Jason Hartman 43:53
is the rents the rents will never keep up with with a with a hybrid or definitely not a cyclical appreciation market, you’re always behind on the rent and rents they lag because they’re one year leases because the comps aren’t good for rental values. You know, it just it just doesn’t it’s a much more fragmented market you know, there’s just not a an exchange of data. When it comes to sales prices. There is a true exchange of data in the multiple listing service and at the county recorders office, but that’s not true on rents, and that can work for and against you as an investor. And you know, we’ve talked about that on past episodes. Ani we’ve got to wrap up though, but you know, I just wanted to ask you kind of In conclusion, you know, any thoughts you have for investors, anything you want to share with them before we wrap it up?
Ani Wee 44:42
I think it’s important to make up your mind, buy real estate for and wait, don’t wait to buy real estate. I think it’s important and then also to I would consider duplex investing side by side duplex. Because even if you change, you lose a renter, you still have another renter paying the mortgages and property tax, and insurance that will make it a lot easier for you to hold the property. And another thing I realized was my single family.
Jason Hartman 45:23
Let me let me just comment on that for a moment on if I can, and I don’t mean to, like totally disagree with you there or anything. I think the plexes are okay. But I’ll tell you something, you always get a better quality tenant in a single family home in the single family homes. Generally, although listen to your story, which is a great story. They generally appreciate better than the plexes and you know, we’ve sold lots of duplexes, triplexes, and for plexes, and then some big apartment complexes from time to time to, you know, you can do that same diversification with two single family homes, right? So I just don’t want people like totally go overboard on that idea. I’ve heard that argument a lot. There’s a lot of people out there that sell for plexes and develop them and say well, you know, one’s vacant you only have 25% vacancy. If you have a single family home and it’s vacant you have 100% vacancy yes you’re right I get that but you know, you can have for single family homes okay. So
Ani Wee 46:20
yes, you know, and what I have found is that with my single family home, even though I may have four or $500 a month on cash flow, but when a tenant move out, pretty much all the cash flow will put into updating the paint the carpet, a lot of state so and I think you should and the multiplex I think you should be very selective Personally, I don’t like triplex or four Plex because I think too many renters can gang up on the property manager. They do ganging up
Jason Hartman 46:55
on Yeah, that’s the other thing I meant to say even in duplexes they’ll do that they do when those people get together. Talk settings can become difficult for you.
Ani Wee 47:03
And so you have to be very selective. I don’t like the up and down kind of duplex. I only buy side by side, because it gives a little more sense of independence. And, and so I think you need both. I think we do need you know, duplexes, single family homes once you have a pretty good mixture. But you know, you got to start somewhere, right.
Jason Hartman 47:32
We’re all about diversification. So yeah, totally, totally hear you there. Yeah, it’s
Ani Wee 47:37
a family home and just kind of, you know, use that as an example, to learn, you know, as a starting point because, truthfully, I don’t think I would have learned as much about real estate investing, if I didn’t buy it, and then start making mistakes. But I would say pretty much all the silly mistakes. I have made my tenant basically paid for them. Oh,
Jason Hartman 48:05
isn’t that great? I love that comment on he that’s a great comment. All the all the silly mistakes you made your tenants basically paid for them for you. Isn’t that beautiful? we outsource our mistakes and our debt to other people called tenants
Ani Wee 48:20
Love it Yeah. And then you learn and then and then you’ve been making a decision you know, by the time when I moved to, to a one three out but I know when I start purchasing real estate outside Alaska, I already made a lot of mistakes that I can and pay for. So when I look at something I will be able to see why that’s a better investment than the one I made before. But if you don’t have any investment, real estate investment, you will not have the opportunity to learn to make mistakes and learn from it. And then you will not be able to tell which one is a better investment. I think you just have to get get it started somewhere and with the help of your investment counselor And then move forward.
Jason Hartman 49:01
Very good advice, Ani Wee from Anchorage, Alaska.
Thank you so much for joining us today and sharing your your client case study with our listeners. And I’m sure everybody learned a lot from you. So thank you listeners out there. If you’re a client of ours and you want to come on the show, reach out to us and let us know we always love to hear these case studies stories. So, Ani, thank you very much for sharing. Thank you. Bye bye. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional and we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
In this Flashback Friday episode, Jason Hartman talks to Patrick about the benefits of investing in real estate. Patrick also shares what’s it like working with Jason and the Platinum Properties Investor Network’s investment counselors.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com.
Announcer 0:09
Welcome to the flashback Friday edition of the creating wealth show with Jason Hartman. As he rapidly approaches 1000 episodes of this podcast, he has hand picked individual episodes that he feels is going to be good review for you to prepare you for the future by listening to the past. Let’s dive in.
Announcer 0:29
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants Get involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:19
So I tell you, folks, you sure don’t have to convince anybody to buy good income properties anymore nowadays, do you? It is unbelievable how people are just gobbling up rental housing inventory right now. And I mean, from an investment perspective, but when you don’t when I say rental housing inventory that could easily mean rental housing inventory as a tenant, and I guess both are true, really. And that’s one of the reasons the opportunity is so good for investors. I recently interviewed Dan Ammerman on the show and we’ll we’ll have that show published fairly soon. Here. Today, we’re going to do a case study, or we have a client of ours on the show. Any of you listeners that want to come forward and be On the show, just touch base with us, contact us through Jason Hartman calm and go to the Contact Us section and say that you’re interested in being on the show and telling your story. And Heck, we may just put you on and we may even record an interview and hack if it’s terrible. How about this? We won’t publish it. Just kidding. Well, only half kidding. I guess my ex girlfriend Melanie used to say there’s a little bit of truth in every joke, right? And she only used to say that because her mom used to say to her, I guess that’s how old things like that get started. But you know, I interviewed Dan Ammerman on the show. And he talked about this really interesting article that he did about arbitrage and fed policies with rental housing, cash flows. And that’s mainly what we talked to him about in that upcoming show. But you know, I was just kind of looking at this article of his again, is kind of a prelude to this show. And I just wanted to point out a couple of things that are just so telling and make this opportunity so incredibly, incredibly robust right now, in terms of the opportunity for us as investors and there’s one chart that He has here a 20 year history of financing costs. And he looks at the 30 year fixed rate mortgage from 1992 to 2012. Okay, so for that 20 years, and he looks at the Freddie Mac, primary mortgage market survey, and you see that back in 92, rates were about eight and a half percent. And they have just totally, totally plummeted to where they are now, just above three and a half percent. But what does this really mean for us as investors? Well, of course, it has a huge impact on our investment. Because when you combine that with what he talks about, on the next chart, the average price of US single family home, that is inflation adjusted from 1992 to 2011. And this is in $2,011. You can’t go to 2012. Because the years not close yet, obviously, and this is the Freddie Mac house price index, which by the way, I want to make a point, much more accurate to look at that index, which people rarely do, then the I’m gonna just say it from This stupid Case Shiller index. I’m really getting upset with the Case Shiller index nowadays, and, and, you know, we should get someone from Case Shiller on the show, so that they can defend their index, which only represents about 5% of the market. Only 20 out of 400 markets, 14 of those 20 markets, I wouldn’t touch with a 10 foot pole. I mean, isn’t that crazy that people just revere that and that’s like the most, I think, I mean, at least anecdotally, that’s my impression. That’s the most commonly used index. Everywhere I look people look at Case Shiller Case Shiller this Case Shiller that why the heck are they doing that? It’s so it’s so irresponsible. So in this chart, what he looks at here is 1992. And this of course, is inflation adjusted. Okay, the average home price and by the way, there’s a really good debate on what is a more accurate study is average or medium. Remember, you’re listening to flashback Friday. Our new episodes are published every year. Monday and Wednesday. Well, median. Remember, median is just the middle number. A lot of times when you see these statistics, they’re looking at the median price. Okay, I think it’s almost more important to look at the average price. Now, probably the most accurate would be look at a weighted average. But I don’t even know how you could do that on a national scale, certainly, because so many markets and the prices differ so dramatically. You look at overpriced coastal real estate and in the Socialist Republic of California or overpriced real estate in the socialist city of Manhattan, Manhattan, New York. I just don’t know how you can even do that. But this is amazing. 170,000 or so 1992 down 2011, about the same price. And he’s got a line right through the middle of that. That shows it hovering just above $190,000 for the average price for that time period, right the average graph uses single family home prices in the US over the last 20 years as reported by Freddie Mac and is adjusted for inflation with a CPI, you index, the urban CPI, the consumer price index, you for urban, okay. The two most striking features are the surge in prices. That was the real estate bubble and the plunge in prices since that time. Now get this. We go to one more thing here to talk about, and that is this inflation adjusted mortgage payments. And when you look at what has happened to Americans, and what has happened to people in this economy, even non Americans illegal immigrant Oh, I’m sorry, I don’t mean to say that. undocumented workers or as Hillary Clinton called it during the last election against Obama people without papers. I know that’s a little bit snarky, of course, but it’s just so as the ridiculous of our political discourse in this country sometimes. Okay. But anyway, you look at that, and I was thinking, you know, gosh, I had this wonderful, wonderful housekeeper in Southern California for many years. I mean, her name was gourmet. She was just a doll. And she must have been my housekeeper for, I don’t know, 1214 years, probably for a long time. And she was she was great. And I just couldn’t believe it. I was thinking back to that. And I was thinking here in Arizona, what I pay, I pay $65 a week to have my house cleaned. And then I pay an another different party to come through and clean the floors, because it places so big, I pay them 20 bucks. So I pay $85, I guess you should say per week, right? But in California, I was paying $65 a week. No, I think it was actually paying 60 and I was thinking back to the olden days. I only paid goomy like 50 or $60. And I was thinking my gosh, isn’t that ridiculous? Isn’t that ridiculously unfair, that the market price for house cleaning, has probably not increased in enlightened Two decades. That’s insanity folks. I mean, America, when you look at Americans, and you look at all these salary surveys, Americans haven’t hadn’t had a real wage increase in over 20 years now, folks, yet their cost of living has shot up dramatically. And a lot of it I say is deceiving again. And I remember when I was taking back at UCI University of California, Irvine, I used to take these classes on what they called light construction development, which is, you know, all the classes in this iram or Maroon they had like two series of Forgive me, I don’t remember what the acronyms were. But these were basically all the classes you took if you wanted to be a real estate developer. And I remember I took these classes years ago when I first got into the real estate business because I always wanted to be a developer. And after taking those classes, I realized what an insanely risky proposition that is and how totally complicated that is. I would much rather be in the business of what I do now or rehabbing properties Or something like that than developing them from the ground up from scratch. So when I was taking these classes at UCI to learn how to become a developer, What amazed me, is the way that they would look at the statistics, and especially as they related to inflation, cost of living and lifestyle. And I remember in the classes, they were always talking about how the average American Home the square footage has increased so dramatically. I’m just giving you the concept here, because I don’t have the exact numbers, but just conceptually, this is the idea. You know, they would say something to the effect of Well, after World War Two, when the baby boomers started their family formation years, the average American home was like 900 square feet. Well, you know, that’s true. And I think of a place like Lakewood, California as a great example. But there are many other places around the country. That of course became these suburban locations for these small homes. But what they didn’t tell you and what they never tell you is that the the density they were on a quarter acre lot, okay, at that time nowadays, though, or you know, maybe a 8000 square foot lot, but still a nice size lot, by the way, an acre is about 42,000 square feet, I believe. And what they don’t tell you is nowadays, yes, the house is bigger, which means the building materials, it consumes more building materials, of course, but the density is so much higher. I mean, people are packed into much smaller spaces nowadays. So, when you adjust home prices for inflation, you’ve got to really consider what are you really getting? I mean, in the early 70s, when this beautiful area in Newport Beach, California was built called harbor view homes. Okay, maybe mid 70s. Don’t quote me on the year Exactly. I think those homes when they were originally sold, sold for like $45,000 or something like that. Okay, and in the 70s, and nowadays, they’re easily upwards of a million dollars and much more. Most of them have been remodeled and dramatically improved or knocked down but the neighborhood is like a million plus neighborhood Okay, and so back then that was sort of your upper middle class home. And it was on a big lot in a neighborhood with green belts and a school right in the center of it and so forth. Whereas nowadays, you have a little row home, yes, the house itself, the structure is larger, but the density is much higher. And so people are much more on top of each other nowadays. So, in looking at this chart, this is interesting they had now this this effect didn’t happen very much over the past 20 years. It happened before that, that the density dramatically increased. And builders got much better at it building for higher density too. So the quality of density improved, but I’m just pointing out that all things are not equal and they are not as they seem on the surface. So inflation has had huge impact on our lives. And some people haven’t even had a raise. I mean, have you had a massage lately? Okay, spa services. There’s an example luxury item, right? So the price of a massage has not really gone up in many, many, many years. And I’m thinking, Why don’t these people get a raise? Don’t they get a cost of living raise? Doesn’t my housekeeper get a cost of living raise? Actually no. And if you look at typical corporate jobs, the same is also true. So this has been a huge problem for people. And we on this show, we learn how to fix this problem and how to solve this problem, how to actually make it benefit us as proven income property investors. So this last chart that I’ll talk to you about is inflation adjusted mortgage payments. And this one is particularly telling. It goes from 1992 to 2012. And it’s in $2,011 $2,011. So what it shows is back in 1992, your mortgage your typical mortgage payment in America was about $900. And then it went up and it went down. And during the boom times, you know, when things were crazy, 2006 era it went up to 11 over 1100 dollars now That same payment in 2012 get this This is amazing. I mean, think about what this does for your cash flow what I’m about to tell you 20 years ago, that typical mortgage payment $900 boom times typical mortgage payment. I’m going to say on this chart just kind of guessing it’s about 1100 and $20. Now, it is $570 $570 if you are not jumping out of your chair to buy good prudent income property right now, you are completely missing the boat. Okay, you are totally missing the boat, and incredible opportunity we have now and of course you can learn a lot more about this by joining us for the meet the masters of income property event and that is March 24. And fifth in beautiful Irvine, California. It’s at the Hyatt Regency in Irvine, by the way, many of you have registered already. So thank you. We look forward to having you join us. Let me give you the airport code you don’t need to run a car. The hotel is literally five minutes if that from the airport but it’s gorgeous hotel and the airport code is sn a for Santa Ana sn a Orange County Airport, john Wayne Airport, Santa Ana airport. It has about three names to it. And it’s beautiful Airport. The transportation is super simple. There’s a shuttle from the Hyatt Regency. You could take a taxi to cost you nothing. Basically. Just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday, every Wednesday. So join us for that and there’s still early bird pricing. It’s now $597 and that will cover you and the guests Be sure to join us for that I increase the size of the room block and we were able to extend that $99 rate. But I can’t say when the hotel will cut us off. It’s sort of illogical how these hotels act they extend the rate but then when the roadblock sells out They still have rooms, they won’t sell them for $99 anymore, which is a quite a bargain price. So the early bird gets the room. early bird gets the worm too. And so join us for that 597 and $99 room rate, well the room lock and the early bird pricing last, and that price will escalate again pretty soon. So register at Jason Hartman calm two days it will be filled with all kinds of great info. So join us for that. Now one of our vendors, and this kind of irks me a bit here, one of our local market specialists or LMS, as we call them, they have set up a fund, a realty fund, a distress realty fund, and they’ve been sending out solicitations to our clients who have purchased from them in this market to join this fund. Now look, folks, you know me I don’t like pooled assets. I have a quote that I say pools are for fools. I think we should all be direct investors and we should not relinquish Our financial future to anybody else in my 10 commandments of successful investing. What is commandment number three, you’ve heard me talk about it before it is, thou shalt maintain control. Because when you relinquish control to somebody else in a pooled asset, mutual fund, this distressed asset fund that they’re setting up, stocks, bonds, whatever anything else that someone else has control of besides you, where you are not a direct investor, you leave yourself susceptible to those three major problems. And look, folks, you can make a lot of mistakes in your investing career. But if you just don’t make this mistake, you’ll you’ll stay out of a lot of hot water be a direct investor, that is the commandment number three is probably the most important commandment, but the others are important too. So three problems you might be investing with a crook and you’ll lose your money because they’ll just rip you off because they’re graft and corruption. Number two problem you might be investing with an idiot and you’ll lose money because of their sheer incompetence and stupidity. But assuming they’re honest, assume they’re competent. They take a huge management fee off the top for managing the deal. So why would you leave yourself susceptible to that be a direct investor in speaking of direct investment, boy businesses booming, we got a good case study coming up not only in this show, but on another show. I rarely take on clients of my own. But you know, we have investment counselors to do that. But a larger client was referred to me a couple of months ago, and I’ve been working with them on this 1031 exchange. And let me tell you something, they are going to profit so handsomely from this. And we’re going to do a case study a show about this because it’s a it’s a great case of highest and best use of any asset you have. And basically this particular client had a beach home in the family and expensive beach home and was worth about, I think $2.7 million, produce very little rental income. And they’ve turned it around and they’ve been buying property through us all over the country. They just bought 10 properties today in Atlanta, Georgia. Last week, they signed up for 20 in Dallas, although I don’t think they’re going to do all of them. Dallas deals, they purchase some in Phoenix and in St. Louis as well. And it is really amazing. I mean, folks, the the cashflow will be improved for these people more more than tenfold easily from what they had to what they will get when this exchange is finished. And people all over are coming out of the woodwork buying dozens and dozens and dozens of income properties. Because this opportunity is so impressive right now. So take advantage of that. But here’s what I don’t want you to take advantage of. And this is from a competitor. And you know, I actually like this competitor, some of my competitors I really like and I really do respect but I can’t say I agree with them on everything. And this one I definitely do not agree with and they’re offering properties in Nicaragua and they’re saying Oh, it’s the next Costa Rica and folks, we have so many people pitching us on this believes Costa Rica, Nicaragua, all of this stuff, and I don’t know the details of this deal. I suppose I could be wrong, but I bet I’m not. I’m a world traveler. I’ve been to 64 countries. I have not been to Nicaragua. Although I have read a lot about it. I subscribe to international living. I’ve met with real estate brokers and numerous countries around the world in Eastern Europe and Central America, in South America. And I look at real estate pretty much everywhere I go, even if I don’t meet with a real estate broker, I’m still checking out the real estate market because it’s just fascinating to me, in Ukraine. I mean, made Russia I’ve done it everywhere. Okay. I am not a novice at this stuff. And I have not found one international investment anywhere on planet earth in 64 countries. And some of those countries I’ve been to numerous times, that makes anywhere near the kind of sense American real estate makes, and I’ve got friends that have purchased properties in Costa Rica. I’ve got friends that have purchased properties in all different places around the world. And clients. I hear about their experience. And let me tell you something, folks, This doesn’t make sense, in my opinion, you want to purchase property that produces income. Now on this sheet from my lovely competitor here, it talks about how you can get oceanfront condos and non recourse zero percent financing for 20 years. Well, why are they offering zero percent financing? Because they’re building it into the price? The new Costa Rica Prices start at 70,000 bucks basically. Okay? And who is your renter here? Are they American tourists or European tourists? Are they Vacation Rentals? I mean, these places don’t have much of an economy at all. And if they have any, and I tell you something, when I was in Belize, I was gonna just jump over to Nicaragua. I was with one of my investment counselors down there, and we were looking at property and we were looking at banking and thinking of, you know, I had actually opened up a Belize bank account, and I didn’t find it yet though. I just opened the account before I left, actually several months before the trip and then went down there and I went to the bank and going around the country. I was so completely unimpressed. I couldn’t believe it. It was the sum of these places, folks. These are totally third world countries. Well, I read the Lonely Planet Guide, which is one of my favorite travel guides, by the way, about Nicaragua. And we were going to go over there. Instead, we went to Guatemala from Belize, but Nicaragua was right there. We were going to go over to Nicaragua. And they talked about the crime, the crime, the crime. I don’t know last time I was in Costa Rica, there were bars on every window. I mean, granted, there’s a couple of nice beaches. So what what are people thinking when they do these investment? These are not even called investments. Yes, they can own properties. They’re sure if you want to check out a society and check out a civilization and go lay on the beach somewhere fine and dandy. That’s one thing but to consider these investment properties, or you have employment and rule of law, and good infrastructure, I just think you got to be out of your mind, American real estate is a steal right now. People from all over the world are lining up to buy it. I talked to one of our vendors. He said he’s got a group in Egypt that buys properties from him. 30 at a time 30 single family homes at a time just in one shot. Every several months, they come back and they buy another 30. Unbelievable. Shouldn’t you be doing that? Yeah, yeah. So So stay away from these distractions, Belize, Costa Rica, Nicaragua. And listen, if I find one of these deals, that makes any sense. I’ll be the first to tell you about it. But I haven’t. And I’d say the closest thing that makes any sense in my opinion in Central America is Panama. I did go to Panama. I looked with a broker there. And that was sort of interesting. I’d say it was it was the closest but it did not beat anything we have in the United States that we recommend through my network and on the website at Jason Hartman, calm Okay, join us for meet the masters.
Let’s get to our case study here and We will be back with an actual client, talking to you about life and retirement and college and investing and all of that good stuff here in just a moment.
Announcer 23:10
Have you listened to the creating wealth series? I mean from the beginning. If not, you can go ahead and get booked one that shows one through 20 in digital download, these are advanced strategies for wealth creation. For more information go to Jason hartman.com.
Jason Hartman 23:31
My pleasure welcome Patrick to the show. He is one of our clients and he has been to many of our events, meet the Masters creating wealth etc. And he wanted to talk today a little bit about his experience with investing and planning for your own future. None of us is going to retire with a gold watch anymore unless we’re a wall street insider that’s basically ripping off the middle class, which is what Wall Street seems to be so good at and you know, they’re we’re just living in a great state of insecurity Nowadays, but insecurity breeds opportunity at the same time. So as long as we plan and act correctly and view the situation correctly, the opportunities really in many ways have never been greater. But for those living by the old rules, you’re going to be sadly sadly surprised at how things do not work out. So that’s what we’re going to talk about today. And Pat, welcome. How are you? Alright, not too bad. How you doing today? Good. Hey, thanks for joining us on the show here. And first of all, let’s just get a little background. Tell people you don’t have to be very specific, but just maybe what industry you’re in what you do for a living.
Patrick 24:33
I’m in the aerospace industry in an engineering field and currently manage people and work on various military type programs.
Jason Hartman 24:42
Fantastic one. Sure. You can give us all the details about those military programs, right? Yeah, that’s a top secret. So how long ago did you I guess you first found out about us through the podcast. Right?
Patrick 24:53
Right. Yeah, first, I guess I have to thank apple and then I have thank you for doing the podcast. I’ve learned You know, a lot of I’m sure I’ve listened to all your shows, and that was probably back in 2008. And the one thing I was thinking of I kind of maybe listen to them in the wrong order because I was in the middle of purchasing a house locally and in the end, after I closed escrow and then a few weeks later finishing the podcast, I you know, wish I would have not bought that property here locally.
Jason Hartman 25:19
Well, there, sorry about that. They’re not in any order. But and speaking of locally, you’re in Southern California, right? Yeah,
Patrick 25:25
I bought the house in Lancaster, California, which is probably 80 miles north of like, LA x. And you know, at the time, I thought it was a good deal. But you know, since then it’s probably declined some and you know, I had to come in with a lot of money and could have really used that money to have better cash flow in other areas, but I look at it as a learning process and I want to keep pushing through and learning more and sometimes it costs you money. Sometimes it doesn’t.
Jason Hartman 25:51
Well, yeah, that’s true. You know, we all live and learn and I gotta tell you, I it was interesting, because just when I was driving on my way to do this, this interview with you I was listening to a real estate show on the Phoenix radio here. And they were talking about doing short sales. And there were two guys hosting the show. And one guy says, Call us today because your house is your greatest asset. And then the other guy says, Ah, your house is your greatest liability. And, you know, for a long time, I didn’t look at it that way either. And, you know, Robert Kiyosaki says that he says, your houses is your usually your biggest liability. And I think we’ve got to just change our mindset, slightly, not completely here. And and of course you have and I have to, you know, in the past several years, whereas when I moved out of my house, living at home with mom, okay, when I moved out, I moved into a brand new condo that I bought, and I remember that was a condo in Irvine, California. And that was not my first property, but it was it was my first residence that I actually lived in and I bought that for $102,000 and 11 months later, I sold it to a buddy who was Wasn’t a friend at the time, but now has become a very good long term friend. And he bought it from me for $160,000 in 11 months later and I thought, yeah, and then Patrick it gets even better than this because I borrowed the money for the down payment from my grandmother. So my I wanted to calculate my return and being at about 600% in 11 months, but it was really infinite because it was someone else’s money I used for the downpayment and that is the beauty of income property, and I have made some money on the houses I’ve lived in over the years. And I’ve rarely ever been a renter all my adult life only a couple of times one time when I was building a house in Newport coast and had to wait for the construction to finish and I rented them and, and I’m a renter now, as I mentioned on a few few shows ago, and it’s great to own property income property is far and away. The greatest asset class it’s the best wealth creator there is, but owning our own home, not necessarily So your home doesn’t produce income for you, it just costs you money. And if you’re going to live in an upscale area, you can usually rent for so much less as a percentage of value than owning. And so when you get into more upscale property, the rent to value ratio has become so in favor of the tenant. And that’s, that’s a reason really, why as an investor, you shouldn’t invest in these expensive or even medium price areas of say, Southern California or New York City or you know, any high price market you want to you want to serve the masses and dine with the classes As the old saying goes by low and low end and medium low rental properties. And you can rent your house.
Patrick 28:44
Yeah, you know, where I live now. I mean, our house you know, right before it all blew up. It went to as high as about 600,000. And I, you know, talked to my wife and said, hey, let’s we should maybe sell it and it’s, I think there’s an emotional attachment sometimes. And now I think my house I’d be lucky if I could sell For 250 so it’s it’s really been depressed. And, you know, in my industry now we’re going through some downturn with the the government, you know, not being able to spend the money it used to. And what I’ve seen is the people that can’t move, and part of it is they’re upside down on their house, so they can’t move and the ones that are getting the jobs are the ones that are actually mobile and able to go move 50 miles or move 200 miles and they can get the job the people, some of them are locked in or they have these houses that they’ve bought that now they’re upside down, they can’t, you know, short sell them or get rid of them without you know, a credit issue. So I think being a renter gives you that mobility that you’ve talked about before, and I have talked to several people and they you know, there’s some people that just like owning a house, but I agree with you like in a South Bay down in Redondo Beach or Manhattan Beach in Southern California, you could rent a house for 3000 a month and that same one to buy it, you’d have to come in with a couple hundred thousand dollars and then, you know, end up having a payment of about 5000 a month, right?
Jason Hartman 29:59
Yeah, no, you You’re absolutely right. And you know, what we’re going to do on our discussion today is really challenge some of these old ideas that people have. And we’re going to talk about college and retirement planning. And we’re starting out with his homeownership thing. And you know, I have said that on the show, the best thing anybody can have on a resume nowadays is mobility. And being able to move to where the jobs are, where they were they the business climate, or the jobs climate, it’s friendly to those who want to work. And so that’s a very important factor that you just mentioned, houses tie people down. The United States is the most mobile society in the world. You go to Europe, and you go to South America, these people, they live in their houses forever, they don’t move. And I say that that really cost their economy a lot of money because it reduces efficiency and velocity in the economy, when people can’t move to where jobs are. And being mobile is a stimulating factor to the economy. And as investors. That’s what we’re here to do is to provide that mobility to our renters to our tenants. And in turn they’re gonna make us wealthy by doing it so it’s just a it’s really a win win deal for everybody concerned. Okay so you found the show the creating wealth show back in 2008 and then what happened?
Patrick 31:17
Well then I Sarah you know work with me you know over probably six months I was in the middle of an escrow on the house that I bought here locally. And then I kind of decided to go purchase house in Indy just because at the time to be honest, it was the cheapest one and had the least amount of risk if I lost my money, it would have been you know, less than maybe buying a Dallas property and that one in the end you know, your team really helped out because about two weeks for us supposed to close the the original lender I went with decided he wasn’t going to make enough money on the loan and didn’t want to do it and Sarah scrambled and worked with you know, her team to help get me the the mortgage. That one you know, it’s been a good house. I’ve had a turn at one time and that cost me about 16 hundred dollars you know, the people had been there about two years but it’s uh, the numbers you said it would hit they’ve hit and I always put my own, you know, little margin in there in case it doesn’t but
Jason Hartman 32:09
that’s a good point assume it’s not going to go as well as, as the performance or the projections say because life happens if it goes that Well, great, but you know, assume it won’t assume it’ll go worse.
Patrick 32:20
Yeah. And one of the things that I think when I’ve researched these other markets and I like kind of look in and dive in a little deeper than maybe most people is, we make some assumptions here in like California, when I buy a house I pay taxes based on the price I paid for it. Well, an indie you buy a house based on the value that I think it’s worth, not what you paid for it. So you have to kind of factor that in or the taxes may be a little higher. The other big thing I think is that I’ve learned from you is you know, keeping that reserve you know, I have money set aside to handle that I could pay payments on all my mortgages for about six months. And I was really tested earlier this year. We were going on a cruise to Alaska, spending a lot of money My daughter is getting ready to go to college. And then all of a sudden, I had four, four of my houses going rented all at the same time. I didn’t think it would happen, but it was literally with all within about a month and a half. And the initial reaction is maybe to go sell everything, but I really just kind of said, Hey, I put this money aside, I saved this For this reason, and, you know, started dipping into that money and, you know, eventually we got everything, you know, taken care of and rented. But what I’ve learned, you know, listening to you is I got to do my planning and then stick to my plan and not change it just when something bad happens. So
Jason Hartman 33:30
yeah, well, a couple comments. I want to just say before we go on, first of all, you said India and I want to make sure listeners know that means Indianapolis and then you also refer to turning the house or turning what you meant is turning the tenants the tenant turned over. So in between that cost about 1600 dollars to do that turn and then the new tenants have been there for two straight years with no vacancy right now. Why did it cost you 1600 dollars?
Patrick 33:55
Well, in I guess I gotta correct that. I did get some of that deposit back.
Jason Hartman 34:00
Basically out there security deposit you mean yeah
Patrick 34:02
I mean so it probably total cost me maybe 600 out of my pocket I’m just thinking of what I had to pay the contractor but it was carpet paint you know people some some tenants are dirtier than others but you know and once again to you know all honesty I’ve never been there never seen the house I’ve I do have a house in Phoenix that I got on my own not through your network, but I’ve never actually been to my house. Well, yeah. We’ve just given you a hard time ship with a realtor. So you know, I’ve never been at Annapolis. So you’re really relying on your team and their property management, they’ve done a really good job. You know, they communicate well with us and and you are paying a little bit more every time I talk to somebody about this. They always say well, I could fix that faucet for this much money or, you know, save $50 here but I really don’t have the time. So I think when I look at it when I have my house here locally in Lancaster, when I have to go change a tenant out or do something it costs Ask me a lot of my personal time. You don’t have to go over there to get bids. And when I do this one in Indianapolis or Atlanta, you know, you’re paying a little bit more money, but you’re really not doing any work. You know, what I’d like to say about that is if you’ve got a good, honest property manager, they’re great. They’re really not making much money. But if you’ve got a dishonest property manager, and you got to watch out for them, they can cost you some money, but not nearly as much as something in a pooled or traded Wall Street Style investment, where you don’t notice all the costs. They’re just skimming all the profits off the top and you don’t even know they’re doing it. So right. Yeah, I mean, I am doing self management on the place I have in Phoenix and actually, I bought that I partnered up with another guy, and we’ve purchased we’re in escrow on one right now in Indianapolis. And we have a total of three and then the one in Phoenix, we’re self managing. And so I’m trying that And what’s nice about it, you know, it’s it saves me about $100 a month. The real challenge is getting to know all the different contractors. And we’ve had a few little issues that we’re able to resolve, but we’re trying to maximize our return on investment on that. Plus, you know, like you said, when you have a really great property manager, to me, it’s worth the money when they don’t do a good job. It makes it more complicated and more work for you anyway. So you might as well just do the work yourself if you can.
Jason Hartman 36:20
Yeah, that’s a good point. One of the things I wanted to mention about that you alluded to earlier, was about sticking to the plan. And it just reminds me of a great quote that I’ve always, really tried to live by at times when I’m indecisive. I’ll try and remember this quote, and here it is. Successful people make decisions quickly, as soon as all the facts are available, and change them very slowly, if ever unsuccessful people make decisions slowly and change them often. So you see the difference in the in that when a successful person they look at all the They make a decision, they don’t agonize about it. And then they stick with the decision and they stick with their plan. Now, that doesn’t mean being so unaware that the whole environment has changed around you, which is actually one of the things we’re going to talk about today, when we talk about the business world and college and so forth. And you just keep following the old plan. I mean, but when it comes to doing these, these properties, I think that quote really applies well, because you’re gonna feel the bumps in the road here and there. And it’s just important, you know, real estate is a game of staying power, it seems that people that stay in the game, always make very, very nice profits, but the people that are jerky about it and indecisive and get hung up on little issues that when you look at them in the rearview mirror, they’re really very minor. Those are the people that really, they just don’t do well. They don’t do well with business or real estate, or relationships, for that matter. They don’t do well with much of anything in life that I can think of.
Patrick 37:54
Yeah, the people around me too. You know, it’s there. There are people that are going to support you and there’s people, they’re going to have Want you to fail? And the funny thing is, when I lost some of my tenants this last summer, you know, there were several people that said, Oh, you should sell and they were almost happy that it wasn’t working out.
Jason Hartman 38:11
Yeah, right. And some of those people can be your best friends. Ironically, it’s just sort of an ugly part of human nature.
Patrick 38:18
Right. And like, I’ve been to many of the Masters events you’ve had, and, you know, I think there should be maybe a frequent flyer program for that. But I’ve been to so many of them. Really what I enjoy going back is that networking because you’re around people that are passionate about doing this and wanting you to succeed where even the people in your own life, they’re just too negative, and they don’t understand it. I mean, I’ve invested. I mean, I’ve listened to every one of your podcasts. That’s a lot of investment in you and not just you’re creating wealth one but the Solomon success stories and other things. So there’s a huge investment and I gained a lot of knowledge and just by me talking to somebody I really can’t convey that and when you when you tell people Hey, go Go check this out and they don’t do it. And then they wonder why things don’t work out for them. And they don’t understand how to do something, it’s it’s not real hard to understand why they’re not being successful. But I agree this is about staying power. And I it’s important, I think, for anybody to make sure they have their reserves and have a basic plan. And, and I hear a lot of people saying they’re going to go out buy 10 houses in a year. And I’ve partnered up with another, you know, one of your clients that I introduced Sarah to, and we’ve had our LLC form now for a year and we’re on our third house, and it you know, it’s, it’s hard when you’re working, and you got to get the funds together. But to me, if I could buy one house a year, I always tell these younger people that are 25 or 30, you know, if you could have 10 houses by the time you’re 30 you’d be set. You know, when you’re 60 Oh,
Jason Hartman 39:46
yeah, you know, and so when you’re
Patrick 39:49
60 and also where to buy I mean, like Like I said, I’ve bought here locally. And I think the the thing that I wanted to say about that is that with California, we have earthquakes and I know if For a fact my house is, you know, Indianapolis is covered for a tornado, but yet my rental house here is not covered for a earthquake.
Jason Hartman 40:07
Yeah, and you know, one of the things about earthquake insurance is that a lot of people think that when the big earthquake comes in, it will inevitably come it has to, nobody knows exactly when, but it will come. And when it comes, they just think the earthquake insurance, it won’t be able to pay, there just won’t be enough money to pay the claims. Because it’s, you know, earthquakes are so devastating to a whole area, just a huge, huge area and the claim will be so major that they just don’t think the money will be there. And that’s why I say is is counterintuitive as the sounds and as maybe sounds a little ugly, but the best insurance is a high loan balance.
Patrick 40:44
Yeah. And I’ve with folks at work everybody, you know, they keep saying they want to pay their mortgage off and to me, money’s not that important. It’s, you know, what can you get for the money you have? So to me, it’s about the cash flow. And I think I my first house that I bought here when I was kind of Listen to your podcasts, I don’t lose money on that I kind of break even. But I really bought it for a speculation that in the future would go up. But now looking at the economy and where we’re at, you can’t fix the housing market to fix the job market. And I think we’re five to 10 years away from having recovery, at least where I live. And I bought that house based on the fact that one day I could sell it for maybe twice of what it’s worth, but I you got a lot of inventory, jobs are moving out of California. So you know, to get into that one house, you know, it’s a beautiful house, and it was really big, but I probably spent 64,000 get in that and I could have bought a couple houses and other markets that have maybe give me you know, $300 a month each. And it’s really just using that cash flow to maintain your lifestyle. And I still argue with a lot of people on this when they say hey, I’m gonna go out and buy a car, and I go, why don’t you go buy two houses in Indianapolis or Atlanta and then use that money to pay for your car payment. Get a good point. Now they don’t get it.
Jason Hartman 41:57
They don’t get it unsuccessful people they spend money On the appearances of wealth, successful people spend money on the things that create wealth and there is a big big difference so if you want to buy a liability and you want to enjoy those things in life those material things those little perks like that like a new car or whatever, just buy some assets to counteract that pay for it and have have the liabilities paid for by the assets and then you’re out of the rat race and that’s the way you want to be so in what cities do you own properties now you’ve got Phoenix Indianapolis, Southern California where else
Patrick 42:31
so I have a let’s see, I have two houses in Indianapolis one I bought with my 401k rollover I did a self directed IRA I bought a house in Atlanta that was a $7,000 down deal. And you know, if I look on the return on investment on that, it’s been you know, really great. I mean, I still make about you know, 150 bucks a month on that house and
Jason Hartman 42:52
with only 7000 down that’s an awesome cash on cash return. Yeah.
Patrick 42:56
And you know, so far there the market you know, the, you know, the rental market it’s hard to predict. I’m glad I’m a little diversified because I know if I, you know, stick in one area, other areas may do better. And I have a condo in Long Beach that I bought from my brothers and my father passed away. And that one is kind of a break even. And then I have the house in Phoenix, I partnered up with a friend of mine and we have an LLC. We bought that one. And we have two more in Indy that we bought together.
Jason Hartman 43:26
Good, good. Well, so what do you think when you when you look out at the landscape and you talk to the people with up work and you’ve got a daughter that’s going to college? What do you think about retirement planning? What do you think about college and really this it’s, it’s not even new, but I want to say the new economy and of course the rules have been changing, but I’d say that in for purposes of this discussion, a few major shifts that were just huge, huge. mega shifts in our world is number one back in 1971. We came off the gold standard Number two, we really became a globalized economy, all these free trade agreements, China, etc outsourcing to India, China, other countries, and then to really, really even magnify that trend. It was NAFTA when Clinton signed NAFTA. So a lots been going on. I mean, and and you know, I guess the other big mega trend I’d mentioned would be automation in the internet. And it’s it’s really causing a lot of job insecurity nowadays, and things are changing quickly. You know, they say we live in our in alchemic economy alchemy, where things change really quickly. We’ve got to be very nimble. We can’t depend on any company or any job, or even any line of work or profession. Because sometimes whole professions are just imagine Think about it. Imagine if you were a successful travel agent in 1998. Where would you be now wouldn’t have a career. I mean, yeah, there’s virtually no travel agents. It’s a very small industry, compared to It used to be so things they are changing as Bob Dylan said, Yeah,
Patrick 45:04
well I just was I almost took a picture of it and send it to you. I was in Denver last week and I walked by this big you know, shopping center and there’s this big blockbuster video it’s all boarded up and it you know, look like it was pretty fresh. But I mean, if we think back maybe five, six years ago, everybody went to Blockbuster Video and you would have invested money then and thought it was a great deal. And now with with technology, it’s put blockbuster least a segment of it, where you actually go pick up the movies kind of out of business. So with with industry, I think it’s changing so fast. And then also, all the companies are lining up where they’re not giving the great pension programs they’ve, to me, that’s a disservice. I mean, I’m no financial planner. I’m not a big stock market person. I don’t you know, could give anybody advice on that. But the, the issue I have is that companies have shifted people from pensions to 401 K’s and they tell them to go manage their own money, and it’s gonna end up hurting people in the long run because they don’t really know how to do it.
Jason Hartman 46:03
Yeah. And now tell you something, we’re gonna do a 401 K’s show on it was inspired by a client that I spoke with just the other day in Atlanta Mario, I asked him to look up on Google. The video I just said type in 401 k jL and you’ll see a video we produced about that these 401 Ks and IRAs that aren’t self directed, the ones that are in very liquid, very mobile, things like stocks and Wall Street Style investments. I think there’s a big fear of them being nationalized. And you know, I’ve talked about that on the show, especially the interview with Doug Casey a few shows ago. And I tell you, Patrick, I think that’s what’s coming next. That’s going to be a big big shift is the nationalization of retirement plans. And if you’re, if you’re if you either don’t have a retirement plan, in the sense of a 401k, or an IRA, or if you’ve got a plan that’s self directed, where the assets are immobile, it’s going to be very difficult for the Government to, to nationalize those assets in that way. And that’s that’s your protection, there are two ways you can protect yourself against that possibility.
Patrick 47:07
Yeah. And unfortunately, like, you know, I’ll be 47 here in a couple months. And, you know, I’d like to retire when I’m 55. I mean, look what’s changed in the previous 10 years? What’s going to change in the next 10 years? And you really, you know, you kind of make your financial plan for what’s going to be what’s going to happen, you know, 10 years from now, but I don’t know that you can really count on it. So that’s why I’ve chosen to take some money and put it to these investment properties. And the thing I look at Sometimes I wish I would have done it sooner or understand it better, but I don’t think there’s ever been a better time I keep hearing people say well, everything’s bad don’t do it. But it’s, you know, interest rates are low. Housing is below construction costs. If I if I look back in the past 20 years, I don’t think there’s been a better time than right now to actually go do it. I I don’t know if there is either given the combination of all things now I I hate to say it again because I’m always saying it but the the housing market on a national basis if you’re looking at Case Shiller is probably still in decline as far as a price issue, but again, Real Estate’s a multi income property is a multi dimensional asset class. So you have the cash flow from it, you have the tax benefits from an etc. And just from a cash flow basis in the markets that we recommend. Who cares if the property goes to zero? I doubt it ever could or would, because you’re already buying way below the cost of replacement or construction, but you’re very protected. But the problem is, you look at the stupid Case Shiller index, and it’s only got 5% of the nation’s market, only 20 cities, and 14 or 15 of those cities, I wouldn’t touch them. Those are overvalued cities that are still going to decline. So I you know, I just can’t stand it. When people talk about housing as though it’s one monolithic thing instead of a bunch of little diverse markets. All real estate is local. Of course, we know that I could ask Actually in the market where I live right now, it’s kind of unique where the you know, we can get a single family home for probably anywhere from 100 to 150 and make a return on investment. So it’s it’s different everywhere. And then what I what I’ve seen is how people the news media sometimes I just want to turn it off because it’s just so negative. But you know, there’s so many different areas out there and and a lot of people say, well, who would want to live in your rental house and let I know you’ve talked about it before. It’s the people that almost every one of our rentals that i’ve you know, aware of who’s in it, you know, some of the ones I have no idea who the tenant is because the property manager does it but people have experienced a loss of their own home. And they sometimes they get to move in the same size house they moved from their 3000 square foot house they owned at one time with a 30 $500 house payment. Now they’re down to another 3000 square foot house. It only has a $2,000 rental payment. So people just kind of shift down to a different class of house and You know, I’m providing a service. I’ve argued with a few of my more liberal friends. I’m upset that I don’t get more of a tax break because I’m actually putting people to work when I buy a house in Indianapolis. And I go put out you know, $15,000 in rehab costs, I’m putting people to work. And if you would give me more of my money to play with, I would put more people to work I’m creating jobs doing what I’m doing, and and a lot of people have thought I’m an evil person, because I’ve taken advantage of somebody but every one of my houses I have somebody living in that needs a house. Yeah, right. Exactly. There’s no construction going on right now. So you’re gonna have a housing shortage. And I know on a you know, several episodes ago, the the gentleman mentioned that a 1% reduction in the homeownership rate is like a million renters. You know, my son who graduated from college, you know, who’s still at home is looking for a job. And he’s here eventually he’ll go out and you’re going to have more renters that come online, especially as the economy picks Except slowly, I think you’re going to have people that are sharing a house or living with their parents, they’ll move out and it creates more demand. But the thing is these markets that you’ve recommended, and I will say, working with you, since 2008, I’ve seen you do what you say where once a market doesn’t work, or vendor doesn’t work, you’ll switch to another market. And I don’t think you have any favorites. If the market doesn’t work, you switch to another market. That does make sense. Yeah,
Jason Hartman 51:26
that it’s not that’s not exactly great for my business relationships. But I think my customers love me for it. And I’m in business for the customer. I you know, I’m really like, I have a libertarian viewpoint about things and I really think, yeah, I don’t know, I’ve just always been in favor of kind of the underdog or the little guy and rather than support these other businesses, our affiliates, our vendors, or our property management affiliates, I want to support my customers. That’s who pays us we can find another vendor customers are hard to find customers are the most valuable thing Customers number one. So the fact that we have no physical presence, or we haven’t really spent any real money, of any significance in any one market, unlike national real estate firms or even other real estate clubs, you know, like, there’s one competing podcast, I won’t mention their name. But I know some of you guys listen to it, because I hear you tell me that sometimes. And they have groups in three different cities. And you know, it makes them beholden to those those markets. And we’re just in and out of things. When they make sense. We try to be there and when they don’t make sense, heck, we get out and we still have a contract or an agreement with that local market specialist in that market. We’re just not referring business to them. Because we just don’t think that it makes sense at that given time. You know, we want to go where customers are going to have good experiences, and it’s going to be easy for them to invest and do business and the numbers are going to be good and all of that type of stuff.
Patrick 52:53
Yeah. And in the markets, I think there’s, you know, maybe two types of investors when you do an Indianapolis home and you have to be there. rehab yourself, it’s a little, you know, there’s more risk, that maybe the rewards are a little better. But I know you have a lot of markets where you could go in and buy like the one I did. In Atlanta, it was fully rehabbed, it was very simple. And it didn’t take a lot of work. So the thing I think that that people need to understand is, when it doesn’t work, you’re going to move out but you still are supportive. I know when I have an issue, I can call Sarah and she’ll do whatever she can. And and the nice thing about working with you, which at first I you know, there’s different real estate clubs, like you mentioned, I’m buying the house directly from the person in that area, and I’m not relying on you’re not taking part of my profit, or I’m not giving you a fee to do this. So to me, I know it’s on my own. And, you know, if I just take the numbers you’ve given me and I do a little research, I can validate those numbers. And I would say I’m a repeat customer. I mean, we’re in the process of buying a house or an escrow right now. We’re hoping to close here in the next week or so. But if the numbers Didn’t work, I wouldn’t come back. Yeah,
Jason Hartman 54:02
yeah. Well, one of the things is we’re attached to the outcome. Unlike someone who’s on an infomercial or selling an expensive coaching program or something, we actually supply the goods, we supply the inventory, not directly through our affiliations, as, as you mentioned, through our local market specialists that we contract with, but what we say on the show, it’s gonna happen in real life, or we’re not gonna stay in business for very long.
Patrick 54:27
Yeah, and it’s not always perfect either. I mean, I the one thing I do say is a, with all this technology, you know, we have caller ID now. So anytime I see one of my property managers come up on my phone, they’re not usually calling to tell me ask you, if I’m having a great day, there’s usually something wrong and you just got to deal with it. That’s why you have those reserves. But I’ve had bought a house that we do inspections, and then two weeks later, the heater goes out and it’s you know, 1000 or 1500 dollars, and you just got to account for that and deal with it. And most of my properties fortunately, we We’ve had him rented, you know, within a few weeks, you know, so it’s, but that’s when it’s everything works great. But sometimes you just got to plan for, hey, it could take a month or six weeks to get it rented.
Jason Hartman 55:09
Yeah. So you know, that’s why you have at least 4% of the value of each property in cash reserves. That’s very important because you never want to be forced to do anything rash. You always want to be able to stay in the game, and that’s why you have cash reserves. Let’s talk a little bit about what the original idea of this show was. I appreciate you sharing those experiences. But you have a daughter going off to college, and I know that you kind of perked up and were interested in some of the remarks I made several episodes ago about college and about student loan debt, not being dischargeable in bankruptcy, which is something I didn’t know till recently. And the world has changed so much around us and planning for retirement planning for the future planning for financial success, financial independence. What are your thoughts on some of this stuff?
Patrick 55:55
Well, yeah, I originally had talked to Sarah and why because I had I had kind of Live some similar experiences where I in 1986 I finished, like an associate’s degree in electronics. And then when I went into the industry, I got married, I had a job, I was making good money and working overtime and didn’t really want to go back to school. I kind of did, but it was expensive and time consuming. And then I got promoted within my organization and to the point where we’ll be back in just
Jason Hartman 56:23
a minute.
Patrick 56:26
Did you know that we offer one on one coaching? This includes six months of one on one coaching For more information go to Jason hartman.com
Patrick 56:39
I should have it and you know, starting to be judged and I didn’t have it. So a few years back I
Jason Hartman 56:43
have it You mean your degree right by
Patrick 56:45
my bachelor’s? Okay. And a few years back, I mean, and while I was really struggling with this on a you know, it’s more of a you know, maybe you don’t feel good enough for you, you should have tried harder. But you know, everybody around me would say, hey, you’re doing a great job. Don’t worry. about it, but unfortunately, sometimes it does matter. So I went back to school, it was really tough. I mean, I gave up probably two years of weekends or spend time with my family or watching their sporting events because I was doing schoolwork every weekend. But in the end, I think you have to ask the question is, you know, why are you going to school? What do you want to do if you want to be a doctor, obviously you need to go to school. If you wanted to be an engineer, or you’re designing something, they’re gonna want you to have certain you know, education, but I think if you’re in business for yourself, there’s other ways where you could you know, learn and I think what happens what I’ve seen even with people that I know that have graduated, they get out of school thinking that everything is just gonna be handed to them and really, what’s what I think is the day I graduated from school back in 1986, I really just didn’t know anything. And that’s the day you start learning is when you graduate, you know, school just give you some basic fundamentals. But, you know, we should look at life as a continuous process of learning and I’ve invested a lot of time learning about the real estate market. And I’m currently took all the tests for my broker’s license that I’m going to eventually study and take that, but it’s a, you know, a continuous learning to understand. But with, nowadays, people just go to school for maybe some of the wrong reasons, or they get a degree that’s not going to do anything for them. And then they’re, they’re left with 100,000 in debt, I mean, essentially, to go to any, you know, average school these days with the roof aboard. It’s about 20,000 a year plus, you know, ancillary, you know, money that you have to spend for them to go out and do things. So, you know, my daughter’s going and I want her to have that experience. But I want her to also look at fields where she’s gonna be able to, to get a job, hopefully. And I think the one thing that that we don’t teach in high school or maybe even colleges, how do you become an entrepreneur or how do you how do you take somebody that’s not motivated and make them motivated? So there’s a what i what i see lately with people that are graduating is they feel everything just will be given to them. And that’s not the way life works. And also what I’ve seen also, which, to me this not paying your mortgage to me, there’s kind of a moral hazard. And I’ve seen a lot of people. It’s almost like a business model where they’re just gonna not pay. And it seems to be okay. We’re
Jason Hartman 59:17
like the business people that he talked about a lot of these real estate gurus, they file bankruptcy every seven years. It’s just part of the business plan.
Patrick 59:25
Right? Yeah. So yeah, but it’s to me. What I’ve discovered, though, is I know a lot of people that are, you know, have higher degrees and stuff. And I think my passion for like the real estate or listening to what you’re doing, you know, runs deeper. And I don’t know how, why it is, but the how do we get people excited about taking care of themselves. What I think we’ve done is we’ve created a society of homeless where people feel you know, we’ve trained him to be factory workers where they can just go in, and if you get this job, you’ll get this retirement. You’ll get medical The whole like school union mentality where you don’t really have to perform, you just have to be there the longest. And that’s an old fashioned mentality. It doesn’t. It doesn’t play anymore in today’s world doesn’t, right. But what I, you know, to me when I go to work every day, I really try to over deliver, do the best job I can because I feel I’m not guaranteed my job. If I don’t do a good job, somebody else could do it for me. And I think I think a lot of the younger people, we, you know, they’ve lived, my kids included, have lived in a world where nothing really Bad’s ever happened. You know, when you look at other countries, people don’t have enough to eat here. We have, you know, too much of everything, you know. So nowadays, the new phone comes out, everybody wants a new phone, even though their phone works just fine. But
Jason Hartman 1:00:41
well, that’s an interesting point that you just bring up because I was talking to one of our clients about this just a few days ago. Everybody’s talking about how we’re in such bad economic times and everybody’s suffering so much and I know that there are people out there genuinely suffering I understand that for sure. However, by and large, you look around and a lot of the people People that have been unemployed for a while they’re still buying the newest iPhone. They’ve got a house full of gadgets and they live in a decent area and they’ve got a car that’s newer than 10 years old. That family, they’ve got two, maybe three cars, folks, we got to just keep this in perspective. I mean, you look at the people lining up for soup or selling pencils on the street corner in the Great Depression, things are better nowadays. There’s no question about it. They’re a lot better. But just keeping it in perspective, being grateful for what we have, and never deciding that we’ve done enough always wanting to earn our keep every single day. That’s a recipe for success. And never feeling complacent. You know, Napoleon said the most dangerous moment comes with victory. So if you have a victory, stop for a short celebration and get right back to it and get your nose to the grindstone. That’s what you should be doing. It’s good character. It’s character building. It’s good for you.
Patrick 1:01:53
Right. And I think a lot of people they they, they enter a job or something and they feel that that something’s owed to them. And they there’s this mentality that, well, I want a brand new car right now and I don’t want to pay for it. I want all these great things. And it’s, if you really think about it, we kind of set ourselves up for failure, even sometimes with our own kids, where we give them everything. And when they get out of school, what else could they have ever wanted? You know, they had nice cars, a nice place to live plasma TVs. And this goes back to where I know people are always like beating up on Walmart, for example. But Walmart offers cheap products to a lot of people. And I think it’s improved. People that don’t have a lot of money. It’s improved their life. And everybody complains about Walmart. But I always every time I go there, I would see a lot of people in Walmart, so I know what’s up. Must be doing.
Jason Hartman 1:02:39
Right. Exactly. I know. I know. I mean, look, I’m not a parent. I would love to be a parent. I’ve thought I would have had kids by now definitely. But just have it hasn’t happened for me yet. Maybe I’m working too much. That’s probably part of it. But let your kids have a little hardship, let them work and suffer a little bit. It’s good for him. It’ll make them stronger people you know, when I look back at all the hardships I’ve had in my life at the time, they seemed so difficult. But looking back on them, they seem like nothing. And it’s like, the world throws something at me now and it’s like, you can hardly faze me because I’ve been through it. You know,
Patrick 1:03:15
my daughter I bought her a used car that wasn’t really great. It was like, you know, $4,000 and she she was upset at me that I she knows I can afford it. And I think at the time I was choosing to buy another house versus buying her a better car.
Jason Hartman 1:03:27
Well, my first car my first car, I paid for all by myself cash it was $700. And it was a piece of junk
Patrick 1:03:34
that I had a $400 station wagon I brought from my brother and we use the pull up of MC brake because the brakes didn’t work, you know. So
Jason Hartman 1:03:42
and and, you know, Patrick, I walked to school, and it was uphill both ways.
Patrick 1:03:48
Yeah. But yeah, but my daughter and I like I’m not going to be on this planet forever. And if I could leave my kids 10 or 15 houses, and when they’re older when they’re 40 or 50 years. Old they see what what they have that that’s what it really benefit of if I would have bought her one car that you know, she’ll get scratched up or you know, it gets wrecked in the parking lot. What good is that do them when they’re older
Jason Hartman 1:04:12
now you’re absolutely right, you’re giving them something strong, something that’s powerful, something that’s an asset that will help them for many, many years to come. So very good point. Well, on the college note, just so people know where I’m coming from on that. I think college is great. I just think it’s just massively overpriced. And it’s the government’s fault, largely because the government has promoted student loans and financial aid programs. And the universities in turn, just raise the price because the money is there to pay for it. The universities don’t have to compete in a free market, where if there were no student loans, college would be priced. reasonably it would have to be the universities would figure it out. They would just somehow figure out how to offer college for one half the cost Or one quarter of the cost. And when my mom went to school, you know, she went to Berkeley, okay, a great renowned school, one of the best colleges in the country really. And, and she worked her way through college, no one paid for it. She didn’t get student loans. She just paid for it as she went by having jobs. And kids can’t do that anymore. It’s so
Patrick 1:05:18
expensive. The funny thing is, all the schools are protesting that the kids shouldn’t have to pay their student loans. But yeah, they could just lower their rates. You know, they could just say, Hey, we’re not going to charge you $50,000 a year to go to school, and then that’ll help the actual students, but they won’t do that. But these these universities are a bloated bureaucracy. They’re just like, they’re just hugely bloated with all sorts of pensions and all kinds of people that they really don’t need to have there. And it’s just a bloated system. It’s totally inefficient. It’s Yeah, I went to it was dry. It’s to technology now. It’s called the right University when you know, back in the 80s, and it was like, basically You know, in a industrial area, because if they didn’t have the money, it was they’re there to teach you and it was their business. So they have to be efficient. You know, they have to compete with, you know, the universities to get a lot of government subsidies. And I will say like, but they get it, they get it, they get into grants and loans and everything too. But the funny thing is, like these junior colleges and stuff, they just suck the money from the community, but they don’t even really produce anything because there’s they don’t have to, you know, they could just choose what classes they want to offer without really having any structure. I mean, how many people really graduate from junior colleges that actually go in there? I mean, the numbers are pretty low,
Jason Hartman 1:06:39
folks, if you’re if your kids are going to college, do not let them get a useless liberal arts degree. Let them get a degree they can actually use in the real world, okay. Something that will that will pay them that the world needs, not these sort of airy fairy things that just you there’s no employment for half of these degrees that are out there. It’s It’s ridiculous.
Patrick 1:07:00
Yeah, I think if you’re gonna work in a corporate setting, you have to go to school and get your degree, because that’s the, that’s the gatekeeper that determines, you know, what you’re going to get paid and how much advancement you get. And I’ve seen in several different industries, that they say, hey, if you don’t have your bachelor’s degree, you’re gonna be capped at this much salary. But you know, if you’re going to go into business for yourself, you could get your education, other ways, and you’d probably be more successful. You know, I do work with people that have master’s degrees and PhD that they’re, they’re just not I don’t want to say, Well, I guess I will say that there’s sometimes they’re lazy and they think it’s owed to them. They don’t produce anything. They say that, hey, I went to school and I have this degree so I don’t have to perform. And that’s not the way society is going to work in the future. I think it kind of works that way now, but I think that’s changing. It is changing. It’s changing quickly. Well, folks, everybody needs housing, stock up on some rental properties, stock up on some very long low fixed rate mortgages, and you’ll Be a happy camper. What else do you want to just conclude with about, you know, investments and planning for the future Pap, I just think it’s never too late to start. I mean, I’ve been talking to a few people that are 50 years old or 55. And they really don’t have a financial plan and they’re getting ready to retire and I go, it’s not really planning. It’s more like triage at that stage. I think it’s never too late to get started. And I think the real thing is a call to action is even you know, myself, I do a lot of things productive. I think that I also waste a lot of time watching TV. But if people would just take an hour today to kind of learn some of this stuff and spend time and develop their investment portfolio. It’s it’s not it’s not a big investment, but it’s gonna pay off in the future. And I think the real thing is taking action. I mean, I mean, too many people out there complain and say what’s wrong with the world but don’t take action in their own personal lives. To make it better. I mean, the the, to me, the only thing I can do, I can’t control politics and what’s going on I can only control my myself right now. And and I’m trying to use the things that government does with a tax strategies to use for my benefit in the future. And right now, if interest I don’t agree with what Freddie, Freddie and Fannie are doing with these ridiculously low interest rate loans, but if they’re going to do it, I’ll try to use them to my benefit, because I am providing a house for somebody to live in. So
Jason Hartman 1:09:20
yeah, well, it’s not a time to be an optimist. It’s a time to be an opportunity to exploit the opportunities out there. And there are a lot of them. They are great, good stuff. Well, Pat, thank you so much for joining us today. Appreciate it. And I guess I will see you at meet the Masters in March, right.
Patrick 1:09:35
Yeah, I’ve already signed up and set my money or my credit card and I’m ready to go. And once again, I enjoy going by meeting the people and also I think it’s just a good refresher. You know, when you’re listen to it again, and I will say the first few times I didn’t always get it, but now, you know, you’ve been going for this many times I’ve been I keep learning more and more each time because it sinks in a little different or you see it from a different perspective and you I’ve used Mark Kohler to set up an LLC and use some of the other folks that you have. And you know, I think it’s just a great how you get all these people together. And then the cost to me is insignificant for all the knowledge you get considering what some of these other real estate investment companies will charge to send you to a similar type education.
Jason Hartman 1:10:18
Yeah, that’s for sure. Well, thanks again for supporting us. I’m so glad that you’re involved with us and we appreciate your business. And appreciate having you on the show today. Thanks so much. All right. Thank you.
Announcer 1:10:32
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Jason Hartman 1:11:10
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Jason Hartman welcomes client and venture Alliance member Elisabeth Embry. They talk about their new podcast, Women Investing Network, which focuses on unique opportunities for women investors from a woman’s point of view. They also discuss cash-on-cash return, loan to investment ratios, the Trump presidency’s tax plan, and the Seattle market.
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the company cleat solution for real estate investors.
Jason Hartman 1:04
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Welcome to the creating wealth Show Episode Number 820. Seven, eight to seven. Thank you so much for joining me today. This is your host, Jason Hartman. And I’ve got a returning guest with me today. And that is our client and venture Alliance member, Elizabeth. And maybe we’ll talk about a little client case study with her again, we did one on that before, but really, we want to talk about some other things, as well as the new podcast that Elizabeth is co hosting with me, Elizabeth, welcome back. How are you?
Elisabeth Embry 2:26
I’m terrific, Jason. Thank you.
Jason Hartman 2:28
Good. Good. It’s good to have you. So since I mentioned the new podcast, why don’t we just get that out of the way mentioned it now. And it’s all about the when right w i am what does that stand for?
Elisabeth Embry 2:40
It’s the women investing network and I couldn’t be more excited. We’re helping women win, in investing and in life. The types of guests that we have our focus on strengths and strategies around career corporate entrepreneur, business, family communication. health, wellness, longevity. There’s a wide variety of things. But also, there’s the element of real estate investing. That is the cornerstone of the show. And it’s turning out really well. I’m super excited about it.
Jason Hartman 3:13
Good stuff. Good to hear. And by the way, I didn’t mention you are coming to us today from beautiful Seattle on the Pacific Northwest. So I just want to make sure our listeners knew that
Elisabeth Embry 3:23
You say beautiful, but we’re going between we’re vacillating between downpours and sunny skies
Jason Hartman 3:28
So well, when it’s when it’s sunny. Seattle’s beautiful. Of course, you and your husband, Neal were kind enough to co host us when we brought the venture Alliance mastermind to Seattle. That was what three trips ago. They’re all running together. Now. We’ve done so many trips together
Elisabeth Embry 3:43
So much and there is so much fun. But you know, that trip was great because we really lucked out with kind of perfect skies and later September early.
Jason Hartman 3:52
Yeah. Yeah. Really nice. Good stuff. Well, good stuff. Well, hey, Elizabeth. We want to dive into a few topics today. You know that Last week, I discussed crap rate on the show. And, and it’s not really that bad, I just kind of thought of that off the top of my head there. And what I meant by that is not crap rate, but cap rate, okay? And how cap rate is not a very good metric. Again, it’s used a lot in commercial real estate. But it really shouldn’t be used in residential that much, because it doesn’t tell the whole story. And we want to know more, we want to tell a more complete story when we talk about real estate investing. And today, why don’t we talk a little bit about a better metric than crap rate or cap rate. And that is cash on cash return, although that doesn’t really tell the full story either. But I think it’s a little better than cap rate. But you know, talk to us about that if you would, because you’re you discussed this on the wind show. And so that’s why I wanted to bring it up.
Elisabeth Embry 4:53
Yeah, absolutely. It’s it’s interesting because everybody, every time I interact with a different provider, a different You know, Real Estate Group with different finance group, they always calculate everything differently. And so one of the things that I really like is in your property tracker tool, you’ve got the in the pro forma, you’ve got a very consistent way of showing the cash on cash return. And so for me cash on cash return is a great way of at a glance, determining if this is the good next potential investment for you. So it’s the cash on cash return is a calculation of all of your expenses and the generate the actual cash flow that you’re going to get and divide that by the initial years, all in monies. And so, so that includes not only the amount of money that you’re putting down, but the money that you’re that you’re using as your closing to get the total number. What is that the numerator or the denominator, the money, the number that you’re dividing, and then the cash flow that you’re getting? You need to be thinking about not only the the rent that you’re going to be getting, but you need to be thinking about your vacancy rate. You also need to be thinking about your your expenses, such as your property management expenses, and your maintenance fees and your insurance and your taxes. And that generates your all in operating. Profit net profit.
Jason Hartman 6:21
Okay, so here’s the thing about cash on cash return, if the property goes down in value, which I don’t think it’s going to happen anytime soon, given the market conditions, they’re just nuts. But you know, hey, there are cycles, right? But again, we’re into the linear markets where you don’t have those big swings, but you do have a little minor swings, not versus the cyclical markets where they really do swing and it can get really ugly. So if the if the value of the property goes down, but you as the investor are able to maintain the same income and expense ratio, then your cash on cash return will be consistent. Okay, sometimes in a down market, the value can actually decline. But as I talked about in the three dimensions of real estate concept, which we’ve done on many other shows, the rents will actually increase because the people are not going, you know, motivated. The the renters are not motivated to jump into the housing market, when prices are going down, which actually, they ought to be contrarians. And that’s exactly what they probably should do at that time. Right, but they don’t. So you can actually see the rental market strengthen, as you see prices drop. So your cash on cash return could get better in a down market. And so could your cap rate basically, too, and that’s the interesting thing. It doesn’t include appreciation. Okay. And, but it does include leverage cap rate doesn’t include leverage, right? Mm hmm. Yeah. Okay. So what else do you what what metric Do you like to go by? And why?
Elisabeth Embry 8:02
Well, for me I like to look at, because I’m, I’m lucky enough, I guess that I that I no longer can get Fannie Mae loans. And so I’m having to do commercial lending. And so I’m just looking for what the actual percentage of cash flow that I’m going to be getting over my mortgage. So I don’t know what you would call that. But basically, what’s my net? What’s my net cash flow compared to the total price and so I don’t know if that’s a specific calculation, but I, but I have a literally a 46 column spreadsheet that I do to try to not only look at opportunities, but track how my properties are flowing. And, and so really, I’m looking for cash flow over total money outlay, but not in year one, I’m looking at the actuals that I’m getting after there’s a true pattern established. And so for me that first year, it’s anybody Guess it’s after really seeing how the the true track rate, if you will, of the properties are performing over years. And what I’m really surprised with is even though I’m buying in linear markets, Jason,
Jason Hartman 9:16
you know, the appreciation in linear markets use
Elisabeth Embry 9:19
linear market. there’s a there’s a, there’s a good deal of appreciation that I’ve been able to realize over the last, you know, just since 2012. That’s really when I started investing, I think, and the amount of appreciation that I’ve been able to see to see the true ROI is kind of exciting. Yeah,
Jason Hartman 9:38
yeah, it really is. It really is. Well, welcome to the most historically proven asset class in the entire world. And that’s income property, right. By the way, how many properties Do you have now, Elizabeth?
Elisabeth Embry 9:49
So we have 50. We’ve got another three coming online soon.
Jason Hartman 9:55
So you’ll be up to 53 right? That’s correct. That’s right. And actually, we should In the interest of full disclosure, we are on the verge of making you and a couple of other key people that some of our listeners know when they’ve heard on the show before shareholders in the company, minority shareholders. So I know you’re liquidating a couple of properties to do that deal, right?
Elisabeth Embry 10:15
That’s correct. That’s correct. And that’s what’s that. See, that’s what’s really cool about this portfolio is, even though I’ve only had it for a short period of time, and this is why I’m so intimately familiar with the amount of depreciation that’s that’s occurred, I can actually liquidate and even though you know, normally when you sell a property, oh, gosh, you know, I’m gonna have to pay closing costs, I’m having to pay, you know, back the tax some of the tax depreciation that I was able to write off before I’m having to, you know, pay fees to fix it up and even so, the portfolio is performed well enough that the for the properties that I’m selling, you know, I’m able to retain just a chunk of money beyond my initial investment. So I’m pretty excited about that. And I’m excited about the opportunity of, you know, becoming a shareholder in this company. It’s, you know, it’s obviously a great company I, I think quite highly of it. And it’s, it’s done well by me for sure.
Jason Hartman 11:11
Yeah, good, good stuff. Well, we appreciate your business and appreciate you being a client and appreciate you being a venture Alliance member, and the guest on the show today as well. So that was interesting about, about the cash on cash return, folks, I think that is a better metric than cap rate. But again, the metric I favor is just the overall return on investment. So I like looking at the rent to value ratio. That’s my quick rule of thumb, as I go in, you know, am I getting that 1% rent to value ratio, that I get it, okay, or somewhere in that neighborhood? That’s the first that’s the first cut. And then just looking as you look at Jason Hartman calm and you click on the property section, you can see those performances and the overall return on investment, the projected overall return on investment is in bold, because I think that is the most accurate thing. And as I mentioned on last week’s show, when I went off on my rant about crap rate, you know, I talked about how even that overall return on investment does not include some very significant benefits. So it’s really, potentially much higher than that. And what I said back then, just to refresh your memories, because it’s been a week, is I said that it doesn’t include the advantage of owning and rebalancing that portfolio over the course of your life. So that you can do a 1031 tax deferred exchange, and reinvest all of those dollars, not the post tax dollars, not paying Uncle Sam not paying the government first. You get to reinvest at all. You don’t get to do that with stocks, with businesses with bonds with anything else. It’s special in real estate or income property. Now, actually, I shouldn’t say you don’t get to do it with anything else. That’s actually not true. There are some 1031 exchange opportunities with things like air airplanes. But the problem is those actually really do depreciate your real estate, hopefully appreciate. So, you know, you have depreciation there and it’s real in the real estate, you know, it’s hopefully not real. And then also, I think you can do it with cattle and stuff like that, but I don’t own any cattle. So, you know, I don’t know about cows and stuff like that. So
Elisabeth Embry 13:27
that’s funny.
Jason Hartman 13:29
But anyway, that’s that. Okay, so let’s talk about a couple of other things. First of all, I wanted to ask you, Elizabeth, about just kind of generally, you know, and I gotta say this, I’m gonna put you on the spot a little bit here. When Trump won, you were bummed out. I mean, you were bumped. Elizabeth is like one of my liberal friends. Okay. And she she has said she’s given it up and now she’s a libertarian. So welcome to the Libertarian Party, Elizabeth.
Elisabeth Embry 13:55
Thank you, Jason. And thank you for putting me on the spot.
Jason Hartman 13:59
You didn’t know I was gonna bring this up did Yes. Okay, but but I wanted to ask you, because you know you were just like devastated when Trump won. I know you’re not a fan and I’m the jury’s out for me. Honestly, I know people probably think I’m a Trump fan, but that guy worries me. He’s reckless. Okay. Yeah, you know, he could start world war three on his frickin Twitter account. Okay. I don’t know about him.
Elisabeth Embry 14:22
Literally, literally.
Jason Hartman 14:24
Yeah, the jury is out on Trump. If you asked me, you know, whatever.
Elisabeth Embry 14:29
I’m slightly encouraged by the tax. Now. I haven’t seen any details yet. But, you know, the conversations around the tax laws that he’s talking about. They potentially could be really beneficial for
Jason Hartman 14:42
phenomenal if the tax rate for small companies goes from 39% to 15%. Oh my god. Do you know what’s gonna happen? It’s gonna be insane. You don’t be
Elisabeth Embry 15:00
But certainly companies can put more money into r&d, they can afford to hire more people and take bigger risks. And I think that that’s the bigger risk than the RND parts, I think are the most exciting for me, because that’s when we’re going to get true innovation starting to occur right now people are having to, you know, because they’re giving away 35 40% of their money to, you know, to taxes, right? So they have, they have to be really conservative about the decisions that they’re making, even for large corporations. But you know, you get 20% back and all of a sudden, now you have the money to really start expanding people, you know, on the more liberal side of things might be going, they’re just gonna, you know, stockpile all their profits. companies don’t actually work on just stockpiling profits, although Apple might be the exception to that, right. They’re seeing a lot of cash. But most companies actually need want and need to spend them the large portion of their monies. In r&d, so that they can determine what is going to be the next product that’s going to just really hit
Jason Hartman 16:07
mine that might change the world. Right, you know? Yeah, there’s no question that look, you know, it’s always a decision of you give it to the the entrepreneurs, the citizens, the people, or you give it to the government, and who do you think is going to manage that money better? Well, I think we all know, regardless of what side of the political aisle we’re on, you know, that individuals, individual people, and individual businesses are probably gonna manage it better. Not always. But you know, it’s I just don’t think, you know, sending that money to Washington DC is a very good way to go. And you know, people are saying, well with it with a Trump tax proposal, you know, it’s going to increase the deficit now. Maybe it will, maybe it won’t, maybe it will for a time and then it’ll change and of course, this is the old Laffer Curve supply side economics trickle down economics. reaganomics type discussion, right of, you know, increasing economic activity by lowering tax rates and look at even if it doesn’t, I mean, this may sound really irresponsible and kind of against my anti Keynesian philosophy. But you know what, even if we just run more deficits, it’s like we are so beyond the beyond already, with these with with deficits and debt in this country. As long as we can keep the biggest military in the world, the biggest brand, you know, and all the other advantages we have in the US. I think we’re gonna be fine. I mean, you know, it’s like, the question you always got to ask yourself is compared to what I mean, America, yeah, it’s all messed up and we’re running it into the ground but compared to what, it’s all just a game of relativity. It’s it’s not it. There’s no absolute in this. There’s only a comparison of here’s the US versus country. A B. See the and I think, you know, the US is going to keep its reserve currency status for a long, long time, and probably prosper for a long, long time. So I’m not that overly concerned about deficits. And I normally wouldn’t say that, but it’s only because we’re so beyond ridiculous already that there’s no way we can pay it back. We’re just gonna have to inflate our way out of it, you know, it’s the way it’s gonna be.
Elisabeth Embry 18:27
Well, I think the point that you’re bringing up is you’ve got to work within the process in order to change the process and then order for you to realize traction, if you will. And so taking advantage of real estate tax opportunities makes real estate the right income that drives the action for people to invest more in real estate, which then provides housing for you know, for a very large population, right.
Jason Hartman 18:53
Then that is why it is the sacred cow of the tax code. Yeah, people are worried that you know, Under every new administration, right, you know, well could they might want to say take this benefit away or that benefit away? I guarantee you Well, I can’t guarantee you this, but I bet you, I won’t guarantee you but I will bet you that even if they take one, perk away in real estate tax code, they will add another and you know, say for example, 1031 exchange goes away. Okay, well, there will be an adjustment in the market for that, right? Everything equalizes. It does take a few years for to happen, though. That’s the part that kills people. But I bet they’ll give us something else. I mean, look, if they took the 1031 tax deferred exchange away and lowered the mortgage interest deduction for homeowners. Hey, I would love it, Elizabeth, if they would take away the mortgage deduction for homeowners, because that would make them all much more likely to rent. And guess what? I’m a landlord. So that’s fine with me. You see, things always equalize. Right?
Elisabeth Embry 19:58
Yeah, absolutely. Absolutely.
Jason Hartman 20:01
So but what is your The thing I was I was bugging you about, like being bummed out about the Trump win. But what is your sentiment? Now, if I can ask you because, you know, you were pretty, like gloomy there for a couple of months, I
Elisabeth Embry 20:16
would actually say was going through a true depression, much like massage, much like country, and not necessarily like you like many of your closest friends. Right? I realize you have a lot, a lot of friends on both sides of the aisle. So that’s not necessarily a fair statement. But, you know, there was the fear of the Elisabeth Embry, right, there was a lot of the fear of the Elisabeth Embry and quite frankly, the rhetoric that that Trump and to a lesser degree Pence, you know, spewed during our sorry, communicated during the campaign.
Jason Hartman 20:51
Spirit is okay. You know,
Elisabeth Embry 20:52
honestly, it was is really scary. And I think that everything is Trump. I don’t know what the quote was the other day. was something like, I didn’t realize it was gonna be this hard.
Jason Hartman 21:04
Right? Right. He’s getting here you’ve got the guy with possibly the biggest ego on the planet, right? Donald Trump. And you know, he’s kind of getting a little humble. I think this was good for him. Yeah.
Elisabeth Embry 21:17
And you know, honestly with Kellyanne Conway and and once the Nazi guy O’Bannon
Elisabeth Embry 21:28
Stepping away
Jason Hartman 21:30
Oh my god people you heard that Nazi guy. Yeah.
Elisabeth Embry 21:37
I The thing is what I’m really what I believe is Trump is realizing that the job is a lot harder than he thought, even if with the whole, you know, a house and senate on his side in theory. You know, he is realizing that politics are a little more challenging than he expected them to be. I think that he’s still trying to drive forward his promises. And for me, I’m not seeing a whole lot of traction on the good ones or the bad ones. I’m honestly hopeful about the tax promise, but the rest of them about, you know, put up a wall immediately. There’s these all of these
Elisabeth Embry 22:18
these lawsuits that are getting thrown up and I find it
Jason Hartman 22:21
this is the thing, folks, isn’t it? Great. I mean, you know, a couple great things about it. Elizabeth, this is a bit of a tangent. So please hold your thought there. Remember, we were going to say, but you know, the first thing and I said this at the meet the Masters event, of course, you were there. Yeah. That was what I started with is is so inspiring, really to see, regardless of your political spectrum and your beliefs, to see Trump and Obama walking together, you know, during the inauguration and, you know, Trump waving Obama off in the helicopter and so forth. I mean, the orderly transfer of power you we should all be so grateful that we you know, it We live in a western country, right where you have that you should all be so grateful that there’s no military coup there. No, there’s no bloodshed. You know, it’s all just, that’s just so impressive. And then the other part of it is that, you know, even with Trump’s rhetoric and all this stuff that you didn’t like, okay, and many people didn’t like about half the country, it’s about equal. About half the country hated them, half the country loved them, or at least liked him enough to vote for him. You know, he can’t get he can’t he’s not a dictator. Okay. You know, we’ve got three branches of government, we’ve got all kinds of people people have to be accountable to you can’t just do what he wants, which is good. Yeah.
Elisabeth Embry 23:40
Yeah. You know, I was surprised at how quickly they they pulled out the VP breaking the ties and, you know, the nuclear option when it came to the Supreme Court. But even so, things are moving a lot slower than he’d expected, which gives me hope, and the reason why gives me hope says it’s giving him time to reflect and really understand. So yes, people wanted to vote an outsider and they wanted to change the system, but you have to understand the system enough in order to change it. And so now he’s getting some, you know, some learnings, you know, some opportunity to figure it out. Hopefully he’ll be, you know, smarter, wiser through the end, like, let’s face it, the guy’s a great business person, like no matter how much support how many people have really authored, you know, or been the ghostwriter for, you know, his books or what have you. He’s been smart enough to get this far in business at this point. And so I’m sure he’s gonna have to, he realizes he’s got to adjust change that political leaders are different than business leaders. And so I’m encouraged and like you said, the system is there to
Jason Hartman 24:53
honestly just to keep him in check. You can just do what he wants
Elisabeth Embry 24:55
to keep status quo to right so the rule of eminence domain, you know, where people want to bust up the land between Mexico and Texas or Mexico and California, what have you, you know, all those land owners are immediately throwing up red flags and saying Absolutely not. Right. And so it’s a very long legal process, you know that we’re going to be speaking about 25 years from now, but right that
Jason Hartman 25:24
possibly, possibly. Yeah. Interesting stuff. Interesting stuff. Okay. So that’s just an interesting whole thing about that the Trump perspective, but what I mean, are you optimistic now? I mean, do you see that, like the real estate market, the economy, they’re just booming. I mean, it’s insane. What’s going on? Like, I’m just super optimistic about the Trump economy. I know not
Elisabeth Embry 25:49
a counterpoint. I’m very optimistic that the that the positive direction that Obama
Jason Hartman 25:58
Obama credit
Elisabeth Embry 26:00
Continuing. But I mean, let’s face it, Seattle has been on a massive upswing even in 2008, where we had a sharp decline from the housing market. Right. It’s it’s started to push again through the roof and it’s gone well past its 2008 norms in the housing markets. I think that there’s the last report, I thought there was 60 major cranes, you know, like, like large scale development cranes employed in the us right now. 32 of them are in the Seattle area. Wow. I know. It’s not crazy. Yeah.
Jason Hartman 26:32
So whenever you whenever you go to a place where the national bird is a crane, okay. That is the sign that a bubble is coming. I don’t know exactly when it’ll be there. But, you know, it’s just there’s like too much development, right, there’s just this overbuilding and you just know it all. It always goes in that cycle. So you are probably selling your personal residence at the right time in Seattle, or, I don’t know maybe it’ll be a year or two early but it would be to say at some level You know that bubble is there, right?
Elisabeth Embry 27:01
Oh, absolutely. I mean, for me, I’m I’m fiscally conservative, and now’s the right time a, I’ve seen the 10 year cycles, you know, time and time again, having worked in, you know, in banking at Washington Mutual before the, you know, the spike in the boom and the bust. And you know, having been in the Seattle area since the late 80s. And it’s coming in now. How is that gonna play out on what the rest of the rest of the nation? I don’t know. It’s something interesting. Part of the reason why the Seattle market is so pushed up, is because the Chinese investor is getting pushed out of out of Canada, they’re getting an increased tax.
Jason Hartman 27:48
Vancouver, Vancouver was a big a big Chinese market, but what’s going on with the increased tax? We’re going to say there,
Elisabeth Embry 27:55
oh, yeah. So um, so in Canada They’re there they agreed to implement or they’re talking about implementing an additional 15% tax for out of country investors in like Vancouver and Victoria, which means that that Chinese investor will really shift even more so from that expensive market where they’re all there. They’re taking massive hits from their profit and deploying that more into the US.
Jason Hartman 28:27
Yeah, that’s gonna cause a money flight out of Canada. No question about that.
Elisabeth Embry 28:32
Well, and this is why people ask me, Well, why don’t I invest locally? Why am I not a local landlord. And the reality is, my cash flow is so much higher my exposure is so much lower on when I invest in these linear markets, you know, through companies like you right, where I’m getting a great, a great portfolio of opportunities at a great price. And again, using the 1% rental value Looking at the cash on cash, but really calculating the overarching ROI, and for me also looking at the cash flow after all expenses to make sure that I can make a living. And I so it’s good.
Jason Hartman 29:11
Yeah. Yeah, I mean, you know, when I talk about the risk evaluator model, which by the way, you know, that’s always something good to review, go to Jason hartman.com. and type in Hartman risk evaluator, and listen to some of the podcasts I’ve done on that topic, but it’s just amazing how much lower the risk is, when you buy in these linear markets that are the you know, the cash flow oriented low land value, you know, in other words, they have good LTI or land to improvement ratios. Again, when you buy a property, two major components, one is the land, the other is the improvement or the house or the apartment building sitting on the land right. So LTI, meaning land to improvement ratio, I coined that term. Kind of dovetailing on the concept of LTV, loan to value ratio. that most people have heard of. And it’s amazing. If you look at like your place in Seattle, your personal residence, by the way, do you know offhand? Or can you just calculate it real quickly? While I’m yapping? What the cost per square foot is at your lowest price, Elizabeth?
Elisabeth Embry 30:15
Sure. Oh, yeah, I’ll calculate it because I don’t know. I mean, we’re not some of the market yet. So it’s not that
Jason Hartman 30:23
I know but just at the price, you’re going to list it out. And and so you really see that your risk is so much lower investing in these good solid linear markets we recommend and you can see all those markets at Jason hartman.com. Click on properties. And you’ll see the eight or so markets that we’re mostly active in. We do have some other markets we do a little bit of business and but those I think eight or nine that you see there are the most active right now. And it’s really hard to lose your shirt in those markets. If if the trend reverses and things go the other way. Two reasons, you know, this is all about sustainable investing, not just one reason, but two reasons. The first one being the LTI ratio being very favorable land to improvement ratio, when that construction cost is high as a ratio to the land value that puts a floor on any potential losses. It’s like a stop loss, if you will, right in the stock market, a stop loss. And then the other part of it is that the cash flow is so good, that you know, even if the property goes down in value, you know, you can just maintain it, you can you’re never in a position, hopefully, where you’re ever forced to sell a property at the wrong time. That’s what sustainable investing is all about my philosophy of sustainable investing. Never be forced to sell a property at an inopportune time. Did you have that square footage
Elisabeth Embry 31:56
depending on how we price it between probably like two 65 to 300
Jason Hartman 32:02
Yeah, per square foot. Okay, so your house to rebuild your house now it would be more expensive in Seattle, I would venture to guess that the cost of construction to rebuild your house would be somewhere around $125 a foot in Seattle. So you can see that you’ve got a lot of land value in that property. Okay. Yeah. You’re saying that is not a good market to be in? Well,
Elisabeth Embry 32:25
quite frankly, the market is appreciating 1% per month. That’s insane.
Elisabeth Embry 32:31
And so I’m calculating now my, one of my Memphis properties.
Jason Hartman 32:35
So you’ve got properties in Memphis, Indianapolis. I think you have Atlanta
Elisabeth Embry 32:39
to $60 $62
Jason Hartman 32:43
Isn’t that incredible? Yeah, surprise. Memphis.
Elisabeth Embry 32:48
Yeah, Memphis property. And again, it’s the replacement property that we’re paste. The replacement cost of materials is pretty static. It’s the labor that really, I think drives A lot of fluctuation Okay, so
Jason Hartman 33:02
so you’ve got the Seattle property at $300 a square foot, you’ve got the Memphis property at $62 per square foot. If that Memphis property burnt down today, it would probably cost you 75 or $80 per square foot to rebuild it, okay? If the Seattle property burned down, it costs you $125 to rebuild it, but you’d have or you know, somewhere in that ballpark, but you’d have an expensive lot And yeah, it folks this philosophy makes sense invest in these boring linear markets that you don’t hear about on the news you know, all the all the markets at Jason Hartman calm slash properties, and you’re just much less volatility, much better cash flow, and you can diversify geographically be in several markets. So Elizabeth, I think you and Neil are making a good decision selling your house. I hope it doesn’t double in value after you sell it. Otherwise, you’re gonna then you’re gonna think No, that wasn’t so good, but Well,
Elisabeth Embry 33:59
honestly. We can look at my the price of my Amazon stock after I sold it, which is now I think at almost $1,000 a share.
Jason Hartman 34:08
So, you know, I used to work at Amazon, by the way. Yes, absolutely
Elisabeth Embry 34:11
work there for four years and I work there. relatively early in the company’s history. They worked there for four years. I,
Jason Hartman 34:20
what was your position at Amazon, by the way?
Elisabeth Embry 34:23
Oh, so I was a senior manager for product and program management. So I worked in two different groups. And so I had a team of Gosh, I don’t know like 20 ish people. And I my first position I was in the ordering, flow, or manage all of the programs. So basically, the whole of the Amazon e commerce engine sat on the work that my team did for everything. And the second decision I had was it was in a product line and it was It was a fascinating role that I learned a lot but it’s
Elisabeth Embry 35:05
the role today I think would be equivalent of a director at most companies.
Jason Hartman 35:10
Good stuff. Good stuff. Yeah. So just wanted to kind of I mean, your your backgrounds in tech and software and project management and you had a big team at T Mobile that you manage. What a couple hundred people or something.
Elisabeth Embry 35:21
Yeah, yeah, about 200 people and you know, it was funny because I think a stress was the same. They were very different types of stresses. You know, their products were, were really exciting. And Amazon a, I really enjoyed that time.
Jason Hartman 35:37
Good stuff. Well, hey, Elizabeth, we’ve got to wrap it up. But thank you for joining us today. And the women investing network podcast is out there so you can find it on iTunes or any podcast platform, just newly launched please go listen, rate review, subscribe to that show, and of course to this show as well and we will talk to you on the Next episode.
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out 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 welcomes Gary Pinkerton back to the show. Gary talks about his tenant turnover experiences and how he reduces “tenant turn” without spending a lot of money. Then, Jason and Gary discuss the benefits of two-year leases with built-in rent increases and how a service like Home Advisor is an inexpensive way to self-manage. They also talk about investor culture and why immersing yourself can make you the best investor you can be.
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This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the company LEED solution for real estate investors.
Jason Hartman 1:04
I want to take just a moment to tell you about renter’s warehouse and award winning property management company that services over 13,000 investors with over 18,000 properties nationwide. They are the only residential property manager rated by Morningstar. Their centralized model with local staff provide trustworthy support across multiple markets. These experts track all aspects of your property and never try to profit from maintenance repairs. Plus you’ll enjoy flat rate pricing and warrantied tenants up to 18 months. Check this out for a free three month property management trial. exclusive to Jason Hartman listeners visit renters warehouse.com slash Jason again that’s renters warehouse comm slash Jason Welcome to the creating wealth show. This is your host Jason Hartman with episode number 836 836. Thank you so much for joining me today, as I am happy to be back in the good old US of A Yes, I have left the land of scarcity and lack and that is the European continent. I know. It may be a surprise to some of you that I say that but, you know, from an economic only standpoint, I am only talking about economic and standard of living. I am not talking about culture and history and lifestyle, but only from the economic standard of living kind of kind of point of view. America is the land of abundance and Europe, where I was born, is the land of scarcity. You know, it’s like every time you walk into a hotel room, you got to put that stupid card and the light switch to get the electricity to go on. Every day. You know, the cars are small, the houses are small thing is little, you know, like you take a shower and the little water heater that heats the shower water runs out. It’s just the land of lack. You know, folks, if you live in the US, or Canada would be included in this, or, you know, many other countries, of course, you just, you just don’t know how lucky you are, you know, it blows my mind, again, that the Obama and Bernie Sanders crowd wants to make America more like Europe. I just don’t get it. It blows my mind. I mean, look, I was born in Europe. I’ve been to Europe a zillion times. I love going there. But America is the land of abundance. Now, of course, the waistline of Americans is too abundant. And in the end, you know, that’s there. There are problems with it. It’s not all good. But I just tell you the free market, the abundance thinking is such a important part of your success as a real estate investor and as a person in life in general. Today, I want to welcome back to the show, our client and venture Alliance member, Mr. Gary Pinkerton, former nuclear submarine Captain Gary, welcome. How are you? Thanks. Thanks, Jason. I really appreciate it. This has been two or three times I’ve been on but and it’s always humbling, but I you know, I feel like it’s a it’s an awesome experience. So thank you for inviting me back. Well, thank you for joining us. And yeah, so you retired from the Navy? What about a year ago now?
Gary Pinkerton 4:29
Pretty close. Yeah, I stopped. Stop working. And officially it was August 1, but almost exactly a year ago when I finished in uniform.
Jason Hartman 4:36
Well, during the Great Recession, you know, we heard a lot about people being underwater. You used to be underwater too.
Gary Pinkerton 4:42
I did. I did, but it wasn’t an accident. That was on purpose.
Jason Hartman 4:45
That was on purpose in that submarine. I that’s just such an amazing thing. You know, Gary, I tell you, we have got to line this up as a venture Alliance weekend trip. You got to take people onto a submarine sometime we got to make that work. Somehow,
Gary Pinkerton 5:01
yeah, you know what I could, I think we could totally do that just as a tour and I could guide the tour who would the whoever’s on duty on the ship would probably appreciate me doing it instead of them doing it. But, you know, it would be a great opportunity to kind of add just some personal insight to it, I think it might be great to or anytime that we line this up near one of the coasts, we could do that.
Jason Hartman 5:20
I definitely want to do that. And, and you know, what we’ve got to do, as part of our this would be a great venture Alliance mastermind photo op, is if we could, you know, have one of our venture Alliance members stand in one of those keys. And another one you see at one of the keys, you know, in the movies, how you turn the key to launch the nuclear missiles, can we launch a couple nuclear missiles just for fun? No. And in fact, we’re
Gary Pinkerton 5:43
not even gonna get that photo, I don’t think but it’s a good idea.
Jason Hartman 5:46
Well, they do it in the movies. It looks pretty neat how they do it, you know? Is it really like that, by the way, is like the you gotta turn two keys are a key. It’s probably not like that anymore. It’s pretty
Gary Pinkerton 5:57
close, because there certainly is a whole lot of redundancy. And backup and more than one person involved, which many of you think about it as it now I’m a private citizen with some with a family here. And I’m really happy the fact that there’s a whole lot of backup before, you know, before we make those kinds of decisions. So yeah, it’s pretty similar.
Jason Hartman 6:13
Yeah, well, interesting, very interesting stuff. Well, hey, Gary, you said something to me today that I thought was really important. You know, we were we were using boxer and boxing back and forth. The best way to communicate ever invented in human history. voxer. We were doing that this morning before we started recording the show. And you said that you wanted to talk about something that’s really I think, super important to real estate investors. borrow a phrase from poker thinking of Keith, our venture Alliance member who’s a professional poker player, and it’s called the turn the turn. Okay. Anyway, that’s important to a real estate investor, because this is the area where yet you just lose money and it’s on the tenant turn. So it We’ve talked a lot about this over the years, of course, but it begs the question, what can we do to number one, keep our tenants longer. Number two, make those turns between tenants. I’m talking about the time between the tenant when you may have to do a make ready to get the property ready for the new tenant. This is something that can really eat up, you know, eat up a lot of your return on investment, and, and the turn is vitally important. So the first thing on the turn, I think we want to say to our listeners and investors is don’t have the turn. Okay? Sorry. So, try to avoid the turn completely the tenant turnover and keep the tenants there, but don’t do that. At the risk of being one of these dumb landlords that doesn’t maximize yield, there’s a balance between these two, right. You want to increase rents, but not enough to motivate the tenant to move Obviously, so maybe, let’s talk about that. But then let’s also talk about what can we do to make our properties more bulletproof. So that it’s cheaper so that you don’t have to spend a bunch of money on the turn. And the other thing is we have this constant issue, Gary, of the property managers if you’re not self managing your properties, okay? Now, this is something that if you’re self managing, you’re not going to run into it as much, as long as you’re not wimpy with your tenant. Don’t be wimpy with your tenant, okay? You know, be a business person and have expectations for them and make them live up to it. And here I’m talking about security deposits, okay. But with property managers, we have this inherent conflict of interest. You know, there’s an old saying you can’t serve two masters, right. And property managers kind of do serve Well, two masters and then themselves. So they serve the owner. That’s truly their client. Okay, that they have the fiduciary obligation to, hopefully that’s a fiduciary obligation. I don’t know if it truly is in every state, but it’s an obligation because the owner is the one paying, right and that’s who the contract is with. And but then they also have the tenant. And, you know, they don’t want their name all over Yelp, and all these complaints sites, when they are aggressive, or maybe not even aggressive, but force, they’re the tenants to uphold their part of the bargain. So if they, you know, if they damage the property, the property manager can be reluctant to charge the tenant for repair items. Okay. And this is one of the reasons I really like self management, one of the many reasons I do like it, you know, and maybe whatever else you want to talk about. And of course, you’re a very experienced investor, you’ve got many properties that you’ve purchased through our network. And you know, you’ve been investing with us for years. So tell us about some of your thoughts and experiences on the turn.
Gary Pinkerton 9:58
Yeah, so I’ve had quite a few recent experiences. I’ve also had a lot of conversations with Fernando and everyone I think is very familiar with Fernando and he and I, it’s really funny. My hat is off to that guy because he and I went to the venture or excuse me, the meet the Masters in 2012. And we were both basically starting right there. I went a little bit different direction with a couple investments, syndicated things that I participated in, I wish I hadn’t, I didn’t lose a lot. But you know, kind of long story short, and then I’ll get back to the property management, Fernando went directly in the properties and has, you know, quite a few more. And so he’s seen this a lot more than I have. And but I’m starting to see quite a bit of the term as well. And I think to kind of generalize things, what seems to happen when you get a recent rehab property and a B class kind of neighborhood, whether it be a you know, a four Plex, or a duplex or even a single family is that there’s this churn at the very beginning, because you don’t always have the best tenants in there. But the thing is that when you do get that really good, dependable tenant, eventually it may take the second or third time. Then when you get that tenant, you got to recognize that you have that time And you don’t really want to lose the tenant. And they will typically stick around on their own because that makes them a good tenant. And, and so there’s a lot of churn at the very beginning on a property it seems. And then you settle into I had somebody for five years, and then I had somebody for two years, and then, you know, maybe was another one year one, but then I jump back in and I get a three or five. So it’s really important to find that person, and then do things that is necessary to hold on to them. But also, as you pointed out, don’t be wimpy. Don’t be a bad business person. So, for example, I have a class a building in San Antonio that I bought before, you know, I joined the network several years ago, I had a tenant there, that was really good. But the market had, you know, she was there for two years and this spring it came due for her to renew her lease and she said, Listen, I just haven’t been keeping up with the rental increases. So I actually lowered her rent not raised but lowered it by $50. that put us about 150 under market, but it’s a class a building. So that’s not a large percentage. It’s like less than 10% and I let her renewable That year but we did a two year lease so the next year was higher. And and so that helped me not have to have a 1500 dollar turn. It helped her not have to spend money to move and most importantly, I had been to the property recently. I knew she was taking care of it well, so it was it was a win win for everyone if you go to like uh, you know, I have a property in St. in Memphis for example. And you know, I have several properties there and this is a bad egg but I have several good eggs. This one I got in October and put a 24 month lease on and so now we’re approaching six months in the
Jason Hartman 12:33
tenant right right there is one way to decrease the turn is to destroy your leases. Okay, it works right? Well, yeah, it does nothing, hey, nothing always works. Okay. But just as a general rule, I believe you should try and do two year leases on your properties. Okay. And if you want to, you can build an escalation into that contract. It doesn’t mean you’re leasing for you know, say the property is leasing for thousand dollars a month doesn’t mean you’re committed to $1,000 a month for two years. You just say the first year is $1,000 per month and in the second year is $1,030 per month. Okay. And that’s pretty easy to do, you know, to have an escalation built in. That’s maybe, you know, 3%, right. 30 bucks. So yeah, go ahead. So two year leases first first first rule. Yeah.
Gary Pinkerton 13:24
Right. And I like the idea, right. And this isn’t a new idea, but I like and have had good experience with the concept that you always want to and you’ve said this a lot, Jason that you always want to have your clients with the understanding that rent will go up each year when it’s renewed because the market economy inflation is going to go up in most areas, right. So a small right your tenants or tenants
Jason Hartman 13:45
and, and get them that’s a very good Gary, get them used to that like you’re training them, okay? Even though it’s just a minimal increase. You’re putting it in their mind right, planting that seed That’s just normal. That’s what happens rents go up. Okay.
Gary Pinkerton 14:04
Right. And this one property 24 month lease, recently rehabbed. I mean, it was newly rehabbed in October, and the tenant never wants paid on time, right? So we knew from the beginning, my wife, Sue does, you know the books for this, and she kept telling me, Hey, we’re not gonna want to keep this tenant around. But the other thing, she said, this was really insightful. She said, that, hey, the management company, in this case, and this is not uncommon, the management company is keeping all of the all of the late fees, which is fairly standard. But again, it goes against this idea of the manager and the owner having our interests aligned, because what’s his
Jason Hartman 14:45
conflict of interest? I hate that part of it. And we’ve spoken out about that a lot, you know, and what we mean there, folks, is that when the management company keeps 100% of the late fee, well, you know, Follow the money, right? What’s their motivation gonna be? It’s gonna be to, to make the tenant pay late fees and that makes them predatory on the tenant. Okay? It’s like incentivizing them to have this bad relationship with a tenant. Now tenants are late, okay? I mean, that happens. But you don’t, you know, you don’t want that to be such a high profit motivator for the management company, you know, $50 late fees every month 5% of say $1,000 rent, right? You know that. That’s a big difference, when the management fee is only 100 bucks a month, for example, or 90 bucks, and they get a $50 late fee. Well, you know, they’re gonna almost encourage that they’re gonna train them to be late. And then the tenant feels like they’re getting ripped off. You don’t want the tenant the tenant ultimately, you you’ve mentioned it, but like is you’re not really your client. But you said client and they are your customer. Okay? So you want to have that relationship good. You don’t want the tenant to feel like you’re getting ripped off every month.
Gary Pinkerton 16:04
Right, exactly. And so and Sue even mentioned, he’s like this guy is paying later and later every month. And so he would scrape together 150 $200. And 100 of it would go or 75 of it would go to the management fee. And then he would leave there dejected, and you know, upset that he has scraped that together, and it didn’t pay off even half of what I owe this month. And so you could just see it happen. Well, eventually here in the beginning of May, we get a notice from the the property manager, and this was our first indication that that the place was raking said, Hey, your property’s vacant. Here’s your make ready, and make ready was 20 $300. And the place just got rehabbed in in October. Now there’s some contributing things to that. One of them is that they made the client as sorry I said it again. They made the tenant the customer very upset every time he had an experience with them and he did no favors and trying to keep that property in good shape. But But also, you know, there were some mistakes on the rehab that, you know, should have been things that should have been done that were fixed in this round. And it was a fresh set of eyes from the management company didn’t happen to be the same company that did the rehab. So, you know, some of that 2500, I will admit is, you know, stuff that needed to be done at the beginning, but about 1500 of it really wasn’t. So if we go Jason, back to where you were, you know, we were talking about what incentivizes the management company, they, you know, they placed the first tenant got paid for that, they got a ton of late fees, they’re going to get a really nice, you know, 15% markup on all of the make readies. They’re going to get to place another tenant. So, you know, that’s fairly tough. And I think the way around that, again, some of this when you get a new property, you just have to keep working and making sure that you know, maybe you get involved and who they place there and ask them questions. I do that often. So I think, you know, you just turn through but but how do we prevent that from being expensive, I think is one of the things I want to talk about, right that that term? Yeah,
Jason Hartman 17:59
yeah, no question. about it. Okay, so did you know I want to make a comparison as you were speaking, Gary, about your experience with the property managers in the late fees? Do you know what some of these property managers are? They’re kind of doing they’re basically running almost like a payday loan business. Yeah. Or a payday check cashing business that’s not, you know, cashing your check in a bank, right? Where these fees are just exorbitant, and these people live hand to mouth, you know, a lot of them and there are a bunch of very expensive financing options, you know, that the term predatory lending comes to mind because almost what it is where, you know, these, these people are not financially sophisticated, and they’re just trying to get by and, you know, you put them in a position where your tenant is basically spending five to 10% extra per month, just because they’re late on the rent and is this vicious cycle, you know, I almost sound a little bit Like a socialist here, you know, but but it’s really it’s not fair. You know, it’s not fair, I’m gonna stick up for the tenants. It’s not fair to the tenants. So one of the principles that we constantly talk about here on the show and in all of our teachings is you’ve got to have an alignment of interest, okay? And if you if you don’t get control of the relationship, and you do decide to have property managers, which is fine, there are some great property managers out there. And there are some bad ones too, no question like anything. But if you don’t get control of that relationship, either by self managing or just controlling the property management agreement and relationship there, and making sure things are in alignment, you know, your interest and your tenants interests, and your managers interest should be in alignment as much as possible. I won’t go into that because we’ve talked about that deeply could take you know, another hour, but you know, in past episodes Did they or go to Jason hartman.com? You can search terms like that property management, flat feed property management alignment of interest. You there’s lots of discussions about that on prior episodes. But But yeah, how can we minimize cost of that, that tenant turnover when you have it?
Gary Pinkerton 20:17
Well, I think first, you know, the customer’s always right, right? And you can’t always say the tenant, give the tenant whatever they want. That’s not really what I mean. From the managers perspective, the owner is a customer and the tenant is a customer, as you commented, they kind of work for two people. So I try to prevent the vacancy if I can do that to begin with as an example, and then I’ll get to how do we minimize the cost, but I have a property in St. Louis, a very good tenant, and they’d been there on a two year original lease, paid always on time, very, very good tenant, taking Nice, nice care of the property, but it had a roof issue. So over water damage over time. Some door hinges need to be fixed and You know, some other pretty, you know, minor things re cocking the bathtubs. And so they basically said, Hey, we’ll sign another lease, we’d rather not increase because there’s problems here in the property. And I said, Well, I if I, if you don’t sign again, then I’ll be able to fix all those properties and raise the rents substantially quite a bit above what they’ve paid. And, and so we kind of came to basically an agreement, they said, Well, we can’t afford to raise it, you know, to the market rent right now. So instead of me paying 2000 to 2500, to do a turn on a property that it’s been quite a while, so it would probably cost that. I said, Hey, I’ll take care of the highest priority items for you kind of a mini turn cost. And then they went up partway in the rent, and I got to retain a really good renter, so that that book is not yet published, but I’m hoping that that’s how it comes out. It seems like that’s where it’s going, as far as you know, as far as what can we do you guys have already Jason, you’ve already talked to you and Elizabeth both about some really good options and I’m starting to put those into place. You know, so the the wood laminate floor is a great option. I even had a property there in St. Louis where we were gonna put that in but that extra expensive 1500 dollars my property manager said, Hey, you know the guy who does that make readies for us just recommended that we just pull the carpet and we paint it because that’s standard for the properties where we are here in this location. So I think being able to you know, having a good conversation with a manager that that you trust and that you have good rapport with. They will save you a lot of money because they know the area they know what’s expected when the tenant the potential tenant comes in looking to rent your property.
Jason Hartman 22:33
Yeah, okay, so that’s all very good stuff. So you want to make the property the physical condition of the property as bulletproof as possible. And you’re referring to our our client and venture Alliance member has been on the show Elizabeth Embry, who by the way is hosting a another show the women investing network, so check that out as well and fast
Gary Pinkerton 22:51
as possible.
Jason Hartman 22:53
Yeah. And she’s doing a great job with that. But Elizabeth talked about the you know, the laminate floors that the flooring. I mean, you know, it’s an amazing time to be alive, right? new material sciences, better flooring that’s much cheaper to maintain over the long haul. It’ll cost you a little more than carpet in the initial part, but in the long run, it will be a lot less expensive. So I did one of my houses in San Antonio, you know it came up it was like six, seven years I owned it and never replace the carpet or anything and it was finally just time to do it. Once this last tenant moved out. It was about $1,000 more and I did the entire house in the wood laminate, and that house has now got bulletproof flooring, okay, you know if there’s a tear in that flooring, it’s really easy to fix it and replace it. I don’t think you should do the dark flooring. I think you should do kind of a middle tone. Okay, color is an issue. Of course you know when it’s dark. Number one, it shows all the dust and number two makes the rooms look smaller because darker rooms look smaller, of course, and lighter rooms look larger. And then the other thing that I’m a huge fan of is on the paint, you either do low sheen paint, or you do you know, the more like enamel ish paint, okay, eggshell is the name of the finish, not the color, there’s a shell is a color, but it’s also a finish. Okay, so low sheen or eggshell finished paint and rather than flat paint on the walls which scratches and in just any little thing looks awful, okay, on the flat paint you do the low sheen throughout the house, you know, on the walls and the scuffs and scratches and fingerprints, they just wipe right off, you know you can just clean or any household cleaner, you can just wipe it off. And those walls become very durable. And I just think back to one of my own houses in which I lived the last wall actually the last house I lived in that I owned back in Orange County, California, which I I talked about when I teach people about the LTI ratio and the Hartman risk evaluator. That’s the house okay. I lived in that house for seven years and I put a shell finish paint on it and that paint looks good for seven years and I was not easy on it. Okay. So you know make the walls bulletproof and the flooring bulletproof by doing those two things, okay? That will really reduce your your long term costs. So you got to spec that out, you know if you’re, if you’re buying a property today and that local market specialist in our network that you’re buying from, you know, they do different types of rehabs right? And they always want to deliver you the house at the lowest price, but you may want to tell them look, I would like to spec this house at a higher level I want to, I want to spend, you know, 200 bucks more and I want low sheen paint throughout. Okay, and I don’t know what the exact cost will be but you know, it’ll be a little more and I want to do the laminate flooring, the sort of wood looking laminate flooring throughout in Have any carpet and make it a lot less expensive. So I think those two things are very valuable.
Gary Pinkerton 26:07
I agree I agree and the only other thing I the two other I guess quick things again kind of market dependent, but I have a couple markets San Antonio and and for whatever reasons St. Louis, there are areas where the air conditioners every year have substantial problems, air conditioners and heating systems. And so I’ve gotten into a routine where I pay for that I’m sure everyone has experienced where some local either your property manager or if you’ve ever used a heating service, that then they contact you but they offer this you know this come check it out at the beginning of the season very nominal fee of $75 or $100 or something. I’m using that now because the when when your conditioner fails or when your heating system fails, it’s when the when Mother Nature has tested it and it’s tested every other one in the area too. So you will pay out the nose your tenants will be extremely unhappy because they It’ll be delayed in getting response because they’re busy with every other house that just got tested. So I do that now. And I’ve gotten good experience and haven’t had the crises that I had every year before that. And then the other thing I would say is don’t be hesitant to use a service, something like home advisor, I love home advisor. I’m self managing a property in San Antonio, Texas from New Jersey. And I use homeadvisor all the time. And it’s incredibly inexpensive. Tell us how you use it. What do I use it for appliances, a stove broke a dishwasher broke. I’ve used it to have a gentleman work on replace, you know, the control valves in a bathroom. So just really for any maintenance service. I simply just put in what the problem is and the zip code and you can choose whether you want people to call you immediately. That’s typically what I do and three different people providers will give me a call a couple of them then we’ll head out to the property. There’s no sometimes there’s no visit charge. So it’s not a big commercial about them but there’s there’s other stuff services available. But don’t be hesitant even with the sure there are
Jason Hartman 28:03
no and of course, Angie’s List is one of them. The problem with Angie’s List, at least last time I was using it, I don’t really use it anymore. It was all localized by zip code, you know, and we’re, we’re nationwide investors. So, you know, we’d have to join Angie’s List in each of our markets where we own properties. And and that’s, you know, Gary, that’s one of the great things too nowadays, you can do this with a couple clicks of the mouse, right? You can, you can basically run your real estate Empire, you know, nationwide, yourself, and there’s so much transparency now that was not there. Think of all I want everybody listening to think of all of the 10s of millions of real estate investors over the last few decades that have made fortunes investing in buy and hold rental properties. And they didn’t have this kind of ease of use and transparency that we have today. It is an amazing time to be a real estate investor. You don’t need to rely on, you know, some estimate from a property manager or a contractor. You can easily compare things. No one can be su anymore about the cost of a garbage disposal or a cost of whatever, because you can go to Home Depot’s website and you can find out yourself.
Gary Pinkerton 29:22
Yeah, exactly. And that’s what I was going to say, Jason is that I would not hesitate with those services available like that. And the great experience that I’ve relayed to you that I have every time with this, I wouldn’t hesitate just, you know, checking you’re doing this even when you have a property manager, for example, in that property that went vacant early. One of the things on the make ready was that the dishwasher scene seems to be broken, probably needs replaced. And when I asked them, could you explain that? They said, Well, we couldn’t get the door open. And so their estimate was $450 plus 15% markup and I said that’s okay. That’s okay. I’ll take care of that myself right now and I haven’t yet achieved That the persons coming next week, but what I fully expect is that the door was stuck, you know? Or even if not, it’s still going to be far less expensive for me to put a brand new one in, then have them go do that. So it was simple. Again, it was a click of a mouse. So just another thought on how you can reduce turn by just a little bit of personal involvement that took me 10 minutes.
Jason Hartman 30:18
Yeah, and yeah, you know, it man, I might even take you less than 10 minutes to you know, it’s really, really amazing. Just have the discipline and the initiative to do some of this stuff. And at the very least, it is going to, you know, we’re all about the empowered investor, right, giving you the tools, whether they be the software tools that you can find it like real estate tools.com Okay. The software company Fernando and I purchased a couple years ago. So you know, great tools there. The other tools you can find at Jason Hartman, calm and helping you be the empowered investor. And one of the things you do even if you don’t actually take any of these To the finish line, if it’s just an email, in, here’s an example of how it plays out, you get an email from your property manager or your tenant. And it says this and that and a lot of your tenants, if you’re self managing, you’ll find your tenant to be incredibly helpful to you, where they will do a lot of the legwork for you. It’s amazing to me how well that works. You know, the tenant, a lot of times, you know, they’ll say, Hey, I already called someone and, and they’re coming over to look at this, you know, this repair item, right? And the property manager might say, Hey, we got a complaint from the tenant, you know, we need to fix this and you know, then they have someone go out and take a look at it. If you simply go to Home advisor or you go to, you know, the Home Depot or the Lowe’s website, and you look up this item and just copy the link and paste it into the email and say, Well, I checked the Home Depot website, it looks like we can get this part for you know, $52 and 36 cents, right there. The property manager or the tenant are going to be, wow, this guy’s on the ball, okay? And even. And here’s a little secret, even if you’re not on the ball, you want to fake it till you make it. You know, you want to make them think you’re on the ball, that you are a sophisticated investor who’s not going to put up with a bunch of crap and overcharges and you’re not going to pay through the nose, you’re not lazy, you’re gonna click your mouse a few times, and do a search or two on whatever it is, and you’re going to be the empowered investor. Okay? Simply by sending that one email that you will change the nature of the relationship that you know that email that shows Look, you’re not just taking their word for it, you’re checking things, okay. And that’s gonna make you a much more successful investor.
Gary Pinkerton 32:55
Absolutely. So I promised to the audience that I will keep checking in This I mean, reducing the turn is kind of becoming a passion for me because I think it’s important, you know, very simple numbers if you were making, you know, nets $250 a month on a property. And you were in this process where where it was because it was the property managers best interest to turn it every year, not even offer a renewal, you know, then then you would be, you know, setting up to to make $3,000 a year, right? Well, if your turn is 2000, every time because you haven’t thought, you know, closely about how to reduce that. That’s not a very good profit. And there’s a lot of other dimensions to real estate that make it very valuable. But that one cash flow would not be a good one in that scenario. So we have to figure out how do we extend this out to two or three years between turns? And how do we get that turned down to 1000? Maybe 1500. I think it makes a huge difference.
Jason Hartman 33:46
Yeah, very, very good point. Well, Gary, I know we were going to talk about a couple other things today, but we have run out of time, as as, as usual, but I think this is an important topic and thank you for sharing your opinion. Case Study as a as a client, with our audience again, we really appreciate it. And we’re gonna have you back on soon. We’ve got a couple of news items we want to talk about about the, the disappearing middle class about Mr. Zuckerberg, the biggest invader of privacy in human history besides the folks at Google. And what he thinks I, you know, I think he’s got political aspirations. I can see a Zuckerberg presidential candidate. And he’s, I want to I want to talk about his universal income stuff. You sent me an article on that. That’s fascinating. And we like to talk on the show about the macro and the micro things, okay? Because they’re both important, you know, the big picture stuff, societal government, political, and then the detailed tactical stuff like reducing the cost of tenant turnover. But Gary, before we go, you know, I just want to ask you about some educational stuff real quickly, and maybe share your thoughts on investor education with people Because you, like so many of our clients have been really just very motivated about sort of being in the culture, if you will, staying in the loop, coming to events and being really involved in and we’ve got two events coming up and you’re coming to both of them. We’ve got our our venture Alliance mastermind event and, and you were like, I think our third member of the venture Alliance that’s coming up in Chicago in June. So it’s, what about three weeks away, I think. And then we’ve got our Oklahoma City, Jason Hartman University, Jq and property tour combination coming up, first weekend of July. What are your thoughts about those two events?
Gary Pinkerton 35:40
Well, venture Alliance has been a really, really stretching process for me, you know, from all aspects, you know, I mean, it’s not inexpensive and you did that on purpose to stretch people and it’s certainly you know, worked in my case, you know, especially three years ago when we started this are two years ago and so it has caused me to stretch it’s caused me to raise my The game and, and the people have gotten around have been far more what I’ve learned from them and shared and the experiences has been far more than you know, any monetary cost, it’s meant for me and I think everyone else who tries this would would experience the same thing. So I certainly invite everyone to come join us in the bigger our group gets the more value that gets added to every one of us. So I’m one of the most motivated people out there. You know, trying to tell others about it get people to join us because I’d love to have a bigger group even I’m learning a ton here and getting a lot of value, but it would be better. You know, if I just think about Keith and and Chad, you know, Keith being our, you know, our poker player and Chad, one of our local market specialists the most the two most recent and john, I mean, my gosh, some great people that I’ve learned a ton from so venture Alliance, really awesome. On kind of on the other side, more on the basics, go to school stuff with JJ University, and the area tour there in Oklahoma City. Very excited to go back to that. But for me, you know, repetition is the mother of success. And, you know, Zig Ziglar had a quote and I know you his, you may know his quotes better than me. But it was something like you can change your world or you can change your results by what you put into your mind. And so I go to those kinds of events to conferences to education events that you put on Jason, for two reasons, one, because for that, quote, by what I put in my mind, so if I’m, if I’m continuously putting that information in my mind, thinking about it going over how it why this process makes sense, then it keeps me focused on that. And it kind of keeps me on target. But it also you know, refreshes things that I’ve forgotten in the past or, you know, paths I wanted to go down but kind of got distracted. But then the other quote about you are the sum total of the five people you spend the most time around Well, I want to spend Yeah, that’s right. I want to spend my time around guys like you and adventure Alliance, but also people who are long term investment, wealth creation minded and everyone in that rooms like that. So for me, it’s amazing. It’s rejuvenating for me, but it’s also That repetition of learning. You know,
Jason Hartman 38:02
when we had our venture Alliance mastermind weekend on Jekyll Island, Georgia, the the birthplace of the Federal Reserve and so we had G. Edward Griffin speak at our last meet the Masters event. He’s been on the show several times as well. They the author of the creature from Jekyll Island book, but I’ll tell you one of the things that my mom said my mom came to that event. I think that’s the only venture Alliance event she’s been to. But she said she said to me afterwards, she said, Jason, you know, this group you have is so stimulating. They’re constantly like reading books and going to conferences and learning things and, and they’re just, they’re just so engaged in life and she just said she couldn’t believe how stimulating that that was to to sit around the boardroom table. But interestingly, in the room, where they founded the federal reserve the Federal Reserve room at the Jekyll Island Hotel and resort or resort in club or whatever it’s called, where we stayed. And she said, her mind was just expanded from that, that meeting. And that’s what the venture Alliance is all about. So, you know, up your game, I mean, you know, get take it to the next level, check out venture Alliance mastermind.com for that, or, or just go to Jason hartman.com. Click on events, you can find information in both places. And we’d love to have you involved in that you can always come as a guest to those events on a one time basis. Of course, the property tour and Jason Hartman University event for the weekend in the first weekend of July on Saturday and Sunday, are in Oklahoma City this time so you’ll see properties properties are in short supply. inventory is very scarce.
Gary Pinkerton 39:46
That’s for sure. Certainly for true. That’s certainly true.
Jason Hartman 39:50
No question about it. But we’d love to have you join us for both of those events, folks. So check those out. Jason hartman.com and venture lions mastermind calm and in Gary. Thank you so much. for joining us today appreciate having you on the show and appreciate you being so giving and willing to share your your personal experiences and your your case study as a client. We appreciate that. So thank you.
Gary Pinkerton 40:11
Absolutely. Thanks so much. I look forward to round two when we finish up what we’re going to talk about.
Jason Hartman 40:15
Alright everybody, we’ll talk to you on the next episode and happy investing. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice of any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to To make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
Jason Hartman and Investment Counselor Oliver are on the podcast to talk about current market conditions, the importance of attending live events, and a solid foundation of linear markets. They break down the benefits and gave an example of how to get rich with linear market properties. They also discuss why it’s good to have a portfolio that includes a smart mix of linear and hybrid market properties to continue to grow your wealth no matter the economic climate.
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 your host Jason Hartman with episode number 845 845. Thank you so much for joining us today, listeners from around the world in 164 countries. We’re always glad to have you and we appreciate you following the show, referring people to the show rating and reviewing the show on whatever podcast platform on which you’re listening. That is much appreciated. So it is a hot hot day here in the no income tax state of Nevada. I’m here back in Las Vegas from my whirlwind trip in New York City. And that was a busy busy week in New York City. I’ll tell you a lot of interesting things I did there. And one of the things I was talking about when I was talking about my visit to the Tony Awards, it’s just so interesting how how like hypocritical this whole Hollywood crowd is and you know how this kind of elitist mentality of everybody else should do all this stuff. But you know, we we the elite class, we’re not gonna follow any of this stuff. So it’s just kind of ridiculous. And, you know, all of you listeners are smart. And you know, you get it, you know, but you get an outsider occasionally that listens to the show. And, you know, they pop in for the first time, and they don’t just know what they’re talking about. And so they, why do you say that? That’s ridiculous, you know, but it’s not ridiculous, folks. It’s, you know, there’s this old concept, lead by example, practice what you preach. And that’s what we try to do here. When it comes to real estate investing. You know, we’re very transparent about what’s going on in the company, what’s going on? what I’m doing with my personal investment portfolio. I talk about that all the time. And it’s just really I think the way to be I think it’s the way to live. You know, Abraham Lincoln, I remember I think it was Abraham Lincoln, maybe Miss attributing this quote, a long time ago, he talked about how, if you always tell the truth, you don’t need Have good memory. And the older I get the worst my memories getting. So you know, there you go. It’s just interesting. So back from New York back in Las Vegas, but it is so hot here I there’s a heat advisory this weekend’s gonna be like 115 degrees. But pay, you know, with all the money you save in taxes, you can afford a lot of air conditioning and a lot of trips to cooler places. So that is one of the big things that I really recommend if you can do it, if you can plan your life out, maybe you can’t do it now. But in a few years, see if you can get yourself living in a no income tax state. The lower tax jurisdiction makes a huge difference. The lower or zero tax jurisdiction makes a huge difference in your overall wealth accumulation. You know, you do that for 510 years, and the compounding effect. Remember Einstein called compound interest, the eighth wonder of the world of not paying taxes because You know, income property, of course, is the most tax favored asset class in America. But also if you can set up your, your jurisdiction, as such, it can really, really help you grow your wealth a lot faster. And that’s what we’re all about. So today, I thought I’d bring one of our investment counselors back on the show. And that is all of our Oliver. Are you there?
Oliver 4:20
Oh, you bet. I’m here, Jason. It is fantastic. Great to be back on the show. I know. It’s been a little while.
Jason Hartman 4:25
Yes, it has been a little while. So I’m glad to have you back. And I just thought I’d ask what is going on in your world, give our listeners some insight into the real estate investment marketplace. What I want to do is just give people some, you know, sort of firsthand on the ground, no boots on the ground type of feedback because you are talking with clients every single day. You’re helping them find good quality investment properties in all of the different markets in which we work and recommend. And you know, you’ve got your finger on Paul says all of our investment counselors do kind of what are people saying out there? How’s it going? Let’s just kind of dive into some of those topics.
Oliver 5:08
Well, Jason, it’s been a very, very busy year. So far, clients have just been very hungry for properties. They’re very excited about the markets that we’re into. And what I’ve noticed is there’s a definitely a snowballing effect. But I’ve seen as that as the client start to roll in and maybe pick up one or two properties, when they start to really see this happening. When they’re accumulating that cash flow every month. They see those monthly deposits come in and they start to get excited. They see it, they start to get excited, they see this really happening. And that’s the biggest thing is that some of them may have come into it. non believers or maybe just a little skeptical, they decide to you know, maybe put their toe in the water, try it out with one or two properties. Once they see it’s working. They just dive right in. And I’ve got some fantastic clients that have really taken a dive, really taking the plunge. Now one client His name is Adam, he’s in Connecticut. I’ve been working with him for only nine months now. And he is already on his 11th property and cash flowing over 30 $500 a month.
Jason Hartman 6:11
That’s fantastic. You know, you come into this as either a believer, a non believer, or maybe you’re just kind of agnostic, you’re not sure, but you’ll try it out. So you buy your first property, and hopefully it all works out. Well, this is far from perfect. Be the first to say that there are problems and and you know, hopefully you don’t, you know, that’s the thing. When you get those problems, right in the beginning, rather than waiting five years to have your first like bad tenant, for example, or surprise repair bill that can really derail your plan. You’re gonna have problems, okay. That’s why we have reserves. You know, I say that at least 4% of the value of your portfolio should be cash in the bank reserves. So if you have $1 million worth of properties, you should have 40,000 dollars in the bank as reserves for vacancies and eviction, surprise repair bill, whatever it is, but it does become very addictive. And it’s amazing because it’s a multi dimensional asset class, the returns you can earn now, what you said there for your client in Connecticut that has now purchased 11 properties and, you know, we’ve got people one or two properties in the beginning, you know, some come right into it and say, I want to buy two dozen properties, some people, you know, buy a lot more than that, okay. But 30 $500, you know, people to the to the uneducated listener, who may be just popped in and is hearing the show for the first time they might be saying, well, 30 $500 11 properties big deal. How are you going to get rich doing that? I make 15,000 a month in my day job. Well, there’s more to it than that. Okay? Because, like the iceberg that sank the Titanic. There are A lot of it is underwater, you don’t see it. It’s not readily obvious. You’re simply talking right now about cash on cash return. That’s it. There’s more dimensional return from the investment than that. There are tax benefits. There’s equity pay down. There’s inflation induced debt destruction. You know, there’s the power of leverage because with to create that 30 $500 a month in positive cash flow. And you probably don’t know this number offhand, Oliver, so you’re not gonna probably be able to answer it, maybe you do. But how much do they he actually have to put into that portfolio to buy those properties. And that, I want you to make the point of what you said to me before we started recording from our Memphis property to her recently, you talked about how the downpayment is not money you’ve lost. So anyway, tie those two together because I think those are instructive.
Oliver 8:56
Definitely. In terms of my client, he’s had to put in Anywhere between off the top of my head, I think it’s about 150 to about $200,000 or So somewhere in that ballpark.
Jason Hartman 9:06
Again, no one’s gonna be impressed hearing this now, because a 30 $500 a month $150,000 in really big deal. What’s great about real estate,
Oliver 9:18
there definitely will be people that will say that there’s no doubt about it. The most important thing, this is something that really came to light after speaking to one of our lenders at the Memphis event. one really important thing to notice, and let’s use the example of a house that’s $100,000. All that a lender is required right now 20% down payment, plus the closing costs. So I want to give the example of that $20,000 that’s going towards the downpayment, plus, let’s say $5,000, in closing costs, what I’m really want to make apparent to the listeners is that $20,000 you put into the property that doesn’t ever go away, that stays that that’s part of the equity that you now own in the home. What you are essentially paying for these houses is that $5,000 closing cost these that that’s pretty much what you’re doing to acquire this house.
Jason Hartman 10:09
The rest of the rest of it is money in the bank so to speak, right? It’s just exactly that that’s the savings account, because that’s equity. But I do want to kind of correct you on one thing. You said that that downpayment on the property never goes away. Now, it can go away, because the market can, you know, depreciate and that equity can evaporate, however, the likelihood is that it won’t happen. And even if it does happen for a period of time, it will come back in even greater quantity as history has proven over and over and over again.
Oliver 10:46
Exactly. Jason. So with that said, there’s such a drastic difference between the linear markets that we’re in where even if the market did take a pretty big hit and went down, let’s say 10% compared that to the coastal cities where the average price of the home like that In California, in San Diego, the average price of the home is $750,000. If that went down 10%, that’s 75 grand, that’s a lot of money. Not just that, but the rents here don’t make any sense. Whereas the big difference is that in these linear markets that we’re in, even though the prices may go down a little bit, you’re still going to be renting the house for almost the same amount that you were renting at the previous year. And even if it did go down a little bit, you may take a small hit on your overall cash flow. But that’ll go up as the years progress. And as you hold on to that property, the only time that you’ll actually lose is when you sell that asset. If it’s if it’s not cash flowing, you know, it’s a different story, but these will still be cash flowing, even if they did take a 10% hit.
Jason Hartman 11:40
Yeah, no question about it. So the linear markets much safer. Our plan is a very conservative plan as a, you know, regular listeners now, and that’s a that’s a very good point. Okay, so, so the only real cost of acquisition when someone buys a property are the closing costs because those are a cost of The transaction, so you lose those, your down payment is not an actual cost. And that’s a, that’s a good way to look at it. That’s simply savings. So if you’ve got money in the bank Now, let’s say you’ve got $200,000 in the bank, and you put that $200,000 into properties and you buy eight properties with it, for example, then the only part of that money you’re going to spend on those properties, and I say spend in quotes is the closing costs, the downpayment is not an expense, that is just moving the savings from the bank account to the equity account in the properties. So very important. It’s a capital account as it were in the financial, you know, parlance. Okay. So, God was looking for a word there, you know, and
Oliver 12:52
the other the other good thing too there, Jason, to remember is those closing costs are depreciable. Right?
Jason Hartman 12:58
Well, some of them and you Write a lot of them off, but that’s a complicated discussion. Okay. So talk to us about some of your clients and like what they’re doing. So that’s one.
Oliver 13:09
That’s one. I’ve got another couple of clients are a great couple, Michelle and Michael, they are now on their 14 property. I’ve been working with them for about a year and a half and they’re doing excellent, awesome. I’ve got a few other clients. His name is Frank, and he’s in Pennsylvania. He bought his first property with us about two months ago. He was so excited after the close of his first one, he waited about a month or two, he got us some cash flow. He’s so excited to move forward again. He bought two more, right away. I’ve got another few clients in the Colorado Springs area, and they I’ve got a few military clients and their captains, and they’re making some good income and a lot of savings. And they’re just moving forward with it. They see it, they understand it, and they just move forward with it. They’re the engineering types of the lot more the analytical type What I’ve noticed is there, they look at the numbers, they aren’t as tied to the emotional aspect to it. And they look at the numbers. They say this makes sense. Let’s do this all over. And we just, you know, we went ahead and move forward and I’ve got a few clients over there. they’ve purchased four properties. I’ve got a couple, they bought two properties in Tennessee. In addition to that, I’ve got one I’ve been working with one of our clients set then he did an intro for us a few months ago. From Yeah,
Jason Hartman 14:26
it was great to have him on the podcast and he also chauffeured us a very long distance trip. And that was very cool.
Oliver 14:33
Yeah, that was really nice a year we really intense
Jason Hartman 14:36
happens happens at doctors I recall. Yeah,
Oliver 14:37
that’s right. He is a doctor. He’s got a very, very busy schedule. So for him as soon as I start to explain all of this, he came to our meet the Masters event, and then he came to our Memphis event, and he’s also already signed up for our Oklahoma City Tour event. Oh, hey, we’ll see him in Oklahoma City again. Yeah, coming in. A couple weeks, few weeks, exactly, just two more weeks. So there’s still tickets available. And make sure to Find out a little plug that says
Jason Hartman 15:01
three weeks, actually. About three weeks. Yeah, right after Fourth of July. Yeah, we’ll look forward to seeing you there. And you can go listeners to Jason hartman.com. Click on events and get tickets for our Oklahoma City. Jay Chou live Jason Hartman University live event, good educational event where we dive into the deep numbers and we’re gonna have some panel discussions. Then of course, we’ll have a property tour of Oklahoma City as well and a bunch of great meals together and a lot of fun. Those are really fun events. So yeah, good, good stuff. Okay. So tell us more.
Oliver 15:32
So one more thing I want to stress. The second is that he is a doctor, he’s super busy all the time. And when he understood the concept, I mean, he’s only he’s already put six properties under contract and close on half of them already in the last four or five months now. And he understands that his time is incredibly valuable and he wants to make that harder and capital work for him. So he’s just dove right in and I’m you know, that’s just he’s done a fantastic job. Yeah, that’s great. Another few clients, I’ve got Craig and Sara over and Idaho, they’ve already they jumped in as well they put three properties under contract. And we just closed on two out of those three. So congratulations. And Brandon. He’s a, he’s a, he’s up in the northern county of San Diego area. And he came to our Phoenix event last year, he was the lucky winner of the contest came to the event. And then he just followed up right after the head, came to our meet the masters and to the Memphis tour and he’s already closed on his fourth property.
Jason Hartman 16:33
Fantastic. Yeah.
Oliver 16:34
All these clients are just doing fantastic, fantastic work here. And then congratulations. Yeah, that
Jason Hartman 16:39
is this becomes very addictive, you know, income property, the most historically proven asset class in the entire world. And it’s really amazing how, after just a few short years, you can really start to see a real difference in in how you grow your wealth. So yeah, that’s fantastic. Congratulations to all of those clients. And we of course, we have many more. That’s just a few of them all over. I don’t know if you want to mention anybody else. Just one more.
Oliver 17:04
There’s one individual. He came down. He was in the San Diego area. He called me up. He was very skeptical about all of this. He told his wife about us. And she was very skeptical as well. I said, Listen, you guys are gonna be in San Diego, let’s meet for coffee. I met with them. I don’t usually do that very much with clients just because everyone is across the, across the country in the world right across the world. Really. That’s true. And so I met with him his wife, and he had three kids with them as well. They’re doing a whole coastal tour, met with him, I showed him some properties. He decided to go ahead and dive right in and he purchased one property already with us. And he’s just sort of on the sidelines waiting for the cash flow to come in. And then he’s really excited to move forward with the second and third property here shortly. So sometimes, you know, getting that face to face is great because it allows the client to put that face name to a face and just really be okay with it and move forward with
Jason Hartman 17:57
this fantastic good stuff. Well, that’s Great, talk to us a little bit about like market conditions, and kind of what you’re sensing out there when you’re working with all of our different local market specialists, and in all of the different markets around the country, where we do business, you know, give us give us a feel for what, what challenges are going on with you, with our clients, with the inventory providers, the local market specialist, just kind of an overview of what’s happening out there.
Oliver 18:24
Overview is that, again, you’ve heard this repeated over again on the show, inventory is tight, it’s tight across the board. We’re working incredibly hard at getting more inventory opening up some new markets. That’s generally the the big thing is it’s almost a it’s a bit of a race to the website. I’ve got some of my clients they’re checking on the website maybe five or six times a day sometimes. And they’re just looking for our inventory seen what it is that we have available. I’ve got some clients I brought in for example, like the Florida market, they were really happy with their with the returns and at the moment We just don’t have much inventory there. And again, this is a common theme that I’m seeing is sometimes we’re in markets when it makes sense to buy in, and the property’s cash flow. Fantastic. But then, you know, if the prices appreciate to the extent where doesn’t make as much sense anymore, you know, we’ll take a bit of a break from that area. And then in terms of other problems, what I want to say is, listeners and clients do not get discouraged. Whenever you see an expense come up on your property, don’t get discouraged, know that you’ve allotted a certain amount to cover those expenses during that year. So if you see an expense for maybe two or $300, don’t worry about it. It’s, it’s okay, you’ve allotted a certain amount for this per year. Obviously, if it’s an expense that you think is questionable, feel free to touch base with your investment counselor, ask us about it, see if it’s a reasonable cost. If it’s not, you know, then we’ll definitely bring it up with the local market specialist. But overall, that’s generally What it is that what I’m seeing right now in terms of, you know, potential issues. It’s just the overall market condition being quite tight right now.
Jason Hartman 20:09
Yeah, it definitely is one of the things that I think people should know about overcoming adversity and the challenges sometimes is right out of the gate. Nowadays, a lot of people have this huge issue and discouragement, and that is that they can’t get a property, it’s just very hard to actually buy a property, you know, you’d think, hey, I’ve got money on the customer here, you know, sell me a property. I want that one. I want that one. I want that one. But you may not be lucky enough to actually get the property is it’s, it’s, it’s difficult. And it reminds me of when back when I was a traditional real estate agent. There There are people in the traditional real estate business that Do you know, different types of work and one one type is what’s called expired listings. So just give an example And I’ll tie this into buying a property, right? Because when a when someone has their house for sale and the listing expires, certainly this is very rare in this type of market where everything selling with multiple offers and so forth. But, you know, depending on the market cycle, you’ll have a lot of expired listings. And there are some real estate agents that just really go after this. And it’s like their specialty, you know, they go after expired listings. So they see them expire in the multiple listing service. And then they call up the owner and say, Hey, you know, your old agent sucks. Why don’t you list with me? Well, hopefully they don’t say that. That’s not too professional. But, but you know, they talk about why why don’t you list with me I can sell your property, blah, blah, blah, you know, this whole the whole sales pitch. But here’s the problem. Sometimes it is very difficult to actually find that owner and find their phone number and and get in touch with him so that you can try and get them to list with you right and here’s your The thing you always notice, occasionally the phone numbers just in the multiple listing service, because that’s the phone number that all of the real estate agents use to call that owner to say, hey, I want to, I want to show your home to a prospective buyer. That’s when it’s on the market. And sometimes, the listing agent just leaves the number in there. After the listing expires. And the owner, the seller is getting a million phone calls the next day, right. But sometimes, the agent is smart, they take the number out. And you know, it’s very hard the owners totally unlisted. The only way to find them is go over knock on the door, they may not be home, whatever, right? here’s the here’s the lesson. Okay? And this is how it ties into buying investment property, the harder it is to buy to find that owner, okay, the fewer people who are calling them, right, the fewer agents you’re competing with, if it’s that way for the real estate agent, right? So the same is true When you deal with anything as a real estate investor, you know, the higher the bar, the higher the barrier barrier to entry, the harder it is, you know, the harder it is to qualify for the loan to buy the property, you know, maybe you’ve got to pick multiple properties and you’re going to lose a few before you get one. And you’ve got to jump through a whole bunch of hoops to qualify for the loan. Well, all of those barriers, all of those difficulties that we perceive as difficulties as real estate investors actually preserve the opportunity for those who are more persistent. You know, there’s, there’s a couple old sayings here, right one is the meek shall inherit the earth. We’ve all heard that old biblical saying, right, but the other one is, things may come to those who wait, but only the things that are left over by those who hustle,
Oliver 23:53
okay.
Jason Hartman 23:55
Thank you. Things may come to those who wait and patience is certainly a virtue, but only Other things that are left over by the ones who hustle. So you know, this does take a bit of work, it’s much easier to go in and give $500,000 and just write a check to a guy at Charles Schwab or Merrill Lynch or Ameriprise or any of these financial services firms. But they’re their whole offer just it’s lousy. Okay? You just don’t hear of anybody who has created, who’s not an insider who’s created any significant wealth. taking the easy road of doing that, yes, you have money. And I get that, you know, when you have money, you feel like you should be in the position of power in the catbird seat in the driver’s seat. You’re the one with the money, who has the gold makes the rules As the old saying goes right? And, yeah, it’s not always so easy to deploy that money. And the harder it is to deploy it, the fewer people are willing to make the effort and go the extra mile. So my advice here in the lesson This little kind of tangent rant here is is that you combine money, you combine capital, with persistence, okay? And you put those two things together and boom, magic happens. Because one barrier to entry is you got to have the capital to invest, right. And so that excludes a lot of the world. A lot of the people that don’t have the capital, but the other barrier is you’re not just going to be lazy about it. Like the masses, the masses of people will just go give their capital to the financial advisor, and you’ll be put into those lousy Wall Street investments where the insiders get rich and everybody else gets like a mediocre return. Right? So the other barrier is persistence, tenacity, you know, being willing to jump through some hoops to get the properties and to qualify for the loans. And then to do With the occasional issues that come up afterwards, so you combine these two things, capital plus effort, and the effort isn’t really that big, it’s just bigger than these very mediocre investments on Wall Street. So, so that’s a distinction. I mean, all over. Have you had any clients who just kind of say to you, hey, look, this is, this is hard, you know, I’m just gonna give up. I mean, I got all this money to invest. It’s burning a hole in my pocket. But then, you know, they’re like, this just too difficult to try and buy properties. Jason, I’ve got a couple of examples for you in that realm. So first, number one, as you mentioned, persistence, I’ve got one client, his name is James who then he’s in the San Diego area as well. He’s, he’s recently closed. Well, as you can
Oliver 26:53
see, he’s helping his father in law, pick up some properties, and we’re gonna have a conference call this weekend. And I just want to just emphasize the whole idea that right now, if the property does not have an exact 1%, rent to value ratio, I mean, this one has like a point nine, five or something like that, but the house is gonna be undergoing a roughly 25 to $30,000 rehab. So I just want to emphasize that there’s, it’s, it’s more than just the price of the home and just more and more than the overall rent to value ratio. As important as that is, it’s more than just that. It’s going to be undergoing, you know, tons of work. So just want to emphasize that, and when you’re talking about going to the bank, giving the financial planner, your half million dollars in cash to invest. You’re definitely right, Jason, that’s one of the easiest things you can do. Whereas on the opposite side, if you were to start picking up properties, maybe you review your monthly statement, every you know, maybe takes you 20 minutes every month, based on the number of properties that you have. You know that that does require a bit of time at work. Your overall returns are going to be so much higher. I mean, I’ve got one client She recently or should not, it shouldn’t become a client, she decided to just go ahead and use the funds, which was almost $300,000 that she was going to get from the sale of her primary home and put them all into the stock market. And I probably spent 15 hours with her over the phone going over all the different scenarios. And yet, she still just did not want to do it. And that just blows my mind when people do that.
Jason Hartman 28:28
Well, I think I think one of the myths is that there is a such thing as a passive investment. And if you’re investing in the Wall Street assets that stocks, bonds and mutual funds, first of all, you’re probably doing it at a huge peak of the market. Now, I know, some might be saying, Well, isn’t that true in real estate, too? I don’t know. I think it’s true in the cyclical markets in the California markets, the South Florida markets, the expensive Northeastern markets. Yeah, I think there’s definitely a bubble. I’ve talked about that many, many times. And Who knows how long the bubble can keep going. But we’re definitely in bubble territory. There’s no question about it. At some point, it will pop, but not in the linear markets. I mean, these linear markets, you know, what you just said was very telling Oliver point nine five rent to value ratio. Really, that’s phenomenal. I mean, the fact the fact that you can get even close to point one means that we are still on solid ground, the fundamentals of good quality, linear market, conservative real estate, buy and hold real estate investments. Make sense? Hands down, you know, here, here’s how, you know, you’ll know if you’re, if those markets ever get into bubble territory, when those rent to value ratios get below point seven, meaning that that hundred thousand dollar house only rents for $700 or 650 per month. Yeah, as an example. And it probably means the house has 200,000. And it rents for 1300 per month is what I really should have said, because the house appreciates, but the rent doesn’t in that example, then we are getting to bubble territory, okay, but we’re not even close to that rent to value ratios are still very good. We have very sound funtom fundamentals in the markets we recommend. Now granted, the cyclical markets are way out of whack. Okay, I wouldn’t touch them with a 10 foot pole. Granted, and even though we don’t recommend these markets in this type of investing, but if you listen to some of my old podcasts, and you’re listening to all the flashback Friday episodes, where you just go back into my back catalogue and you got 844 episodes you can listen to, you’ll hear me talk about in 2010 how gosh, you know, it’s pretty tempting to be buying a property in Southern California. And those those prices have skyrocketed. Okay. So, you know, it’s, yeah, it’s, um, the fundamentals are still good. I mean, what’s like the worst rent to value ratio you’re seeing on any of the properties we have all over. I think
Oliver 31:11
the worst one is probably, it’s probably about a point seven, five. And that’s predominantly because it’s new construction. And it’s expensive.
Jason Hartman 31:22
Yeah. And it’s and new construction, you’re paying a premium for the new construction, expensive, new construction properties. And, you know, but they’re, you’re kind of buying something else. Because when you’re buying a new construction, even if you’re in a linear market, the new construction property is more likely to act like a hybrid. So it’s not just the market. It’s also the property type the property class. In a new construction property, you know, you’re getting a class a property that is likely to appreciate better than a Class C property, but Class C property will have better cash flow. So You know, what is the answer? Well, the answer is to have a mix in your portfolio. Okay? Not a mix of, you know, don’t be thinking you’re an investor in these crazy, outlandish, overvalued markets, but have a mix of properties in good linear and hybrid markets that are maybe some a class, you know, new construction type properties. And those aren’t going to have the good cash flow, but they’re going to have a better appreciation potential, and certainly lower maintenance costs. And then you blend those with B and C type properties that offer much better cash flow. And I think that’s a really good strategy. And then you diversify geographically into three, at least three, but not more than five of our linear and hybrid markets nationwide. And you’re going to be in good shape. You know, it’s part of the 10 commandments of successful investing.
Oliver 32:53
Those are excellent commandments. By the way, we should do another flashback Friday. I know you’ve already done a bunch of them on there, but they’re very, very good reminder. Yes,
Jason Hartman 33:01
yeah, yeah, they are that that’s the thing that really keeps you on track, you know, is the 10 commandments of successful investing. So good stuff. Well, hey, Oliver, we got to wrap it up. I know you’ve got to go, you got to pick up your wife at the airport. And I just want to say join us for our Oklahoma City event GHQ live Jason Hartman University live and a property tour in Oklahoma City. I think you’ll really enjoy that. That’s coming up right after Fourth of July the first weekend. And you can go to Jason Hartman, calm slash events for that one. And then also join us for the venture Alliance group. I know it’s short notice we’re just a few days away from that by the time you’ll hear this, but we are meeting in Chicago, we’ve got our biggest venture Alliance planned in terms of attendance so far, and that’s going to be a fantastic weekend event in Chicago. Those are our kind of our high end mastermind events. And by the way, Oliver, I just want to give a shout out to this great book. I just finished Everyone’s heard of Napoleon Hill, right? You know, he’s the very famous author who wrote, Think and Grow Rich right back in like the 30s. I think it was, well, his other book that I just finished it was released as a something he wrote, like 70 some odd years ago, but it just was released in 2011, sort of narrated by Sharon lechter. Okay, who’s been on the show several times, and she’s one of the co authors of the rich dad series. This is by Napoleon Hill. It’s called outwitting the devil. The secret of freedom is the secret to freedom and success. I just finished that on audio today. It’s excellent. I couldn’t believe how good it was. outwitting the devil by Napoleon Hill. It is a relatively new book by a guy who passed away a long time ago. And it’s just it’s phenomenal. I love the audio version because it has Sharon’s voice. It has another narrators voice. It’s just really well done outwitting the devil He talks over and over, he repeatedly mentions the power of a mastermind, you must be in a mastermind, you must choose by design, your friendships and your associations in life that is so critically important. Like Jim Rohn said, and I’ve said it before, we’re the average of the five people we spend the most of our time with our income will be the average of those people’s income. And it just happens and that’s why you need to be in a mastermind group. So check out venture Alliance mastermind calm on short notice if you can join us in Chicago. We got room for I don’t know, two, three more people we could still fit in probably check that out. Venture Alliance mastermind COMM And also on Jason hartman.com in the events section as well. Oliver, thanks for joining us. any
Oliver 35:48
last comments before you go? Definitely. If you’re out there, you’re sitting on the sidelines. And I spoken to you before maybe he’s spoken to another investment counselor, get a hold of us stop making Money sit there for you. Get rid of that lazy money and start making it work for you get a hold of us. We’d be happy to strategize on coming up with a plan on helping you do so. Otherwise happy investing for sure. all over the country and all over the world.
Jason Hartman 36:18
Excellent point, Oliver. Well, thank you. Yep, happy investing to all listening. Thank you so much for joining us today and we will talk to you on Wednesday just a couple days away.
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This episode of the Creating Wealth podcast was recorded during the Oklahoma City JHU Live event. Jason Hartman talks to new income-property investors, David & Gina Nelson. They share how they built their wealth by investing in income properties. They also discuss the value of understanding the linear, hybrid, and cyclical markets. Lastly, they convey their appreciation for the transparency and support they have received from the Jason Hartman Investment Counselors.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the company leet solution for real estate investors.
Jason Hartman 1:04
Welcome to the creating wealth show. This is your host Jason Hartman with episode number 854. And I am doing something I have never done before. One time on a prior episode, I was on the plane recording an entire episode on Southwest Airlines. And now I’m doing something different today. We are actually at the jQ Jason Hartman University live event in Oklahoma City. And I am walking back with a couple of our wonderful attendees. They agreed to come on the podcast last night when we were at dinner. So let’s introduce yourselves and tell us where you’re from.
David/Gina Nelson 1:39
I’m David Nelson. I live in Folsom, California, currently,
Jason Hartman 1:44
right by Folsom Prison where Johnny Cash did his famous concert right?
David/Gina Nelson 1:49
Exactly, yes, fabulous place.
David/Gina Nelson 1:51
Okay, and Gina Nelson and why for 21 years here. He forgot to mention that I was married to him.
Jason Hartman 1:59
There you go. Good stuff. Well, we are walking along here walking back from lunch to the hotel to continue the day. What got you interested in real estate investing?
David/Gina Nelson 2:09
Yeah. So, Jay and I have been looking at doing something different after becoming entrepreneurs in the business side.
David/Gina Nelson 2:17
And because we began to
David/Gina Nelson 2:18
realize that the the societal norm of working 40 hours a week for 40 years, and putting all your money into an IRA, which you’d have very little control of, didn’t make any sense to us anymore. So we decided we needed to take more control of our lives and in the form of investing in real estate and do something different wealth building. And it’s it’s not something that we would have done even a year earlier. So the timing was perfect for us.
David/Gina Nelson 2:46
When when Khan introduced us to it, and
David/Gina Nelson 2:48
then we bought our first property in Atlanta, Georgia, and that’s worked out great. We bought several in Memphis and we have a couple in Ohio. But anyway, it’s
Jason Hartman 2:55
the first one. The first
David/Gina Nelson 2:57
one we bought April 2016. Yeah, and that was that was great. And so it really, like I said, and what’s really, really critical is that I loved I found out that I really, I really love the business side, I really love the analysis of looking at real estate, and making those decisions and running the numbers and keeping track and, and about to use property tracker for that. And it but that I found out that that was really something I was passionate about. It’s it’s I haven’t been really passionate about something work, you know, income related in years. So this has been a really different, different mindset shift for us.
Jason Hartman 3:40
That’s fantastic. Well, you know, since you’re a couple, do you sort of divide up the work? Do you have different areas of interests when it comes to real estate investing?
David/Gina Nelson 3:48
Hi, well, David’s really been kind of spearheading all of the real estate. I’ve learned a lot just from him, but I got to come out to Ohio to Ohio property tour and that’s when I got to actually go beyond just listen to your body. And actually see you in person and and really learned
Jason Hartman 4:02
so much more. Well don’t forget the highlight you met Coco. That’s correct. That’s the dog.
David/Gina Nelson 4:07
And you know, we just fell in love with the area with the property managers. And then the trust of being able to, to look at this as a as an idea of investing became so much more of a real reality for us. Again, we both were corporate rats, we’re, you know, got master’s degrees and have done what our parents taught us to do, which was invest in put more than 75% of our assets, and, you know, IRAs and in the stock market. And as we started reading books and educating yourself and listening to Jason’s podcasts, we realized that that wasn’t necessarily going to get us where we wanted to go, we were watching our investments just completely go the opposite direction. And so this became much more exciting, and it kind of opened the lid of what was possible for retiring earlier and being able to just really have a portfolio that’s completely different than I’d say, 90% of the folks that have been in our life. I mean, they they think we’re crazy. They don’t even can’t get their heads around this concept of what we’re doing,
Jason Hartman 5:04
because they’re all putting all their money into their 401k. And just doing that traditional Wall Street thing that we’ve all been conned into doing, right? Yeah, good stuff. So in terms of investing, and you know how you feel good about it now? Do you feel really good that you have more control over your life now? Does it feel that way?
David/Gina Nelson 5:24
Yeah, I think so. Definitely. But before there was no end to the corporate race for us, it was just keep working, keep working. And if we hit 65, and we’re healthy enough, hopefully we have enough to retire on. And that was putting all the trust in somebody else. And so being able to be around like minded people, see how they were investing, see the tax benefits, all the things that we’ve learned, I mean, absolutely have hundred percent more control than we used to have.
Jason Hartman 5:50
Yeah, this is what it’s all about, folks, be a direct investor. commandment number three, thou shalt maintain control. It’s a very, very powerful if for no other reason than it It just feels good. If if the returns were as low and crappy as they were on Wall Street, I’d still rather be in the real estate investment business because you know, at least you’re in control and you don’t feel like you’ve relinquished your future to somebody else with a with an ulterior motive. So what what other things would you like to tell people about your investments or your your philosophy or approach to real estate investing?
David/Gina Nelson 6:23
Yes, I’d love to hit that one. Um, what I’ve learned is you like to mention be area agnostic is one of your commandments in that I love that. I like to look at this is also be when it comes to real estate investing, be age agnostic, who cares what age you are, you can start doing this in 19, like you did, you could start doing this in 20s you can start doing in your 50s.
Jason Hartman 6:46
I started my 50s. I’ll tell you our oldest client is 86 years old when he started so now he’s got to be about 93. And man, he’s a retired doctor and just wanted to build a portfolio for his grandchildren. I mean, I wish I had a grandfather like that, but Oh, well. But yeah, you know, it’s never too late to start. And the deals, of course, are never as good as they were in the past. You know, you always have to buy something that has good value, and wait for it to play out. But that’s, I love what you said about the age thing. It was very good.
David/Gina Nelson 7:19
Yeah, um, and I, you know, it’s, it’s really, it’s really kind of morphed into our children starting to pay a lot more attention. My son at 99. You know, he’s starting to listen, actually, my son started listening to your podcast. And he’s 19. And he, like, bought his first vehicle with cash. He’s, he and I explained to him about how, you know, he listened to you. He knows what good debt is. Now consumer debt bad. Yeah, you know, but so he’s, I, you know, he’s on his road. I said, if you get out if you get in your 20s, with your first property, kind of like Brandon’s doing.
Jason Hartman 7:54
Brandon is one of our venture Alliance members and clients who’s here at the event,
David/Gina Nelson 7:59
right, and he’s in military guy to and he’s
Jason Hartman 8:01
now 30 and he’s got I think seven properties. Yeah,
David/Gina Nelson 8:04
if you do that you he’ll be I told him, you’d be a multimillionaire you’ll have a million several million dollars in assets by the time you’re in your 30s and doing it methodically and doing the daily disciplines and doing it and never not quitting and, and learning and actually learning. Like us. You said Jason is, you know, we didn’t have analysis, paralysis or paralysis of analysis, I should say. When we started this process, we I listened to podcasts for about a month and I said what the heck I started learning on my first job was Sarah, she was awesome. Investment counselor Sarah Lisicki. She was phenomenal and and then like Michelle Hawkins and people like that we met and Steven Lockwood and those guys they they helped us open our eyes to you know, taking money out of our actually putting less money on our for our coat for one case where the company matches only to that benefit and putting the rest aside for buying real estate. So that’s what we’ve done. It’s been fantastic.
Jason Hartman 9:04
Excellent, excellent story. Okay, so now we are on northeast Second Street here in Oklahoma City. Which way do we go to get back to the aloft hotel where, where we have to finish up the afternoon. By the way, I’ll just tell you, I’ll sort of interrupt the flow of the your story in your case study for just a moment and say that at lunch here today, we played the portfolio builder game that we do with the Jay Chou events. Let’s cross the street here. And how do you like this, folks, this is a very homespun podcast we’re talking about crossing the street. On the show. The portfolio builder game requires people to break into teams and take a batch of properties 10 properties, it gives them a budget of in this case today, we play it different each time. But today, it was $150,000 and a limit of five, Fannie Mae Freddie Mac, conventional loans, and then you have to optimize it for different things. For example, buying the most real estate, right? The biggest portfolio, you have to optimize it for the best cash flow, optimize it for geographical diversification, for ease of management. So there are several optimization strategies. And that’s one of the one of the sort of frustrating questions I get asked over the years all the time, as you know, well just tell me the best properties to buy and buy them. Right. But you can’t do it that simply because it depends what you’re looking for as an investor and what you want to optimize for. Right. So yeah, what other thoughts? Do you have just anything you want to share?
David/Gina Nelson 10:34
I just wanted to say one thing before Gina grabs up.
David/Gina Nelson 10:38
She let me tell you how critical This is, is having some support system not including Jason Hartman University folks, but my mice, my amazing spouse has been the biggest supporter of mine and biggest encourager, and I wouldn’t been able to do without her. So she is by barn on the biggest impact in my life. So
David/Gina Nelson 10:57
well, to kind of piggyback on that, I just was gonna say that The whole idea of the support team is huge because we didn’t know anything about real estate. We were not realtors, we just, you know, we were just homeowners. And so the whole idea of investing was really foreign to us. And so you know, even to sit with this group that we’ve been with today and do this project over lunch, which was really eye opening to have different minds kind of putting their input in and telling us, oh, no, we got a look at this variable or no, let’s look at this variable instead. And all of that was just really very helpful for me to kind of look at the portfolios and go Okay, now now, what are we looking for in the next five properties?
Jason Hartman 11:32
Excellent. So as we board the elevator, this is like a, we’re giving you the visual tour here, as we push the up button on the elevator, and that’s what this is about moving up in life. So it’s a good metaphor, you know, we’re Upward Bound with real estate investments. But yeah, you know, the point of that portfolio builder game is there’s not really a right or wrong answer. It just makes everybody think, and I think that’s that’s the point of it. So it’ll be interesting when we get back in the room to have everybody Talk about each team leader will present which properties they chose and why. So both of you are believers in higher education? Well, I think you are, at least you did the higher education route, you both have master’s degrees. You’ve heard me criticize the college conspiracy a lot on the show, of course, because and I don’t think education is bad by any means. I think it’s wonderful. I just think it’s massively overpriced. But there is a way to combat that. And using income property investments to fund higher education for your kids, right? Tell us what you both do for your occupation. And then talk about that strategy if you would.
David/Gina Nelson 12:38
I’m a clinical social worker. I worked for Kaiser and the pallet as a palliative care social worker. And on the side, I have a side business and I’m a health coach.
Jason Hartman 12:46
Fantastic. So you probably see some, some pretty difficult experiences in your business and palliative care, I bet.
David/Gina Nelson 12:54
And it’s, you know, and it’s like everything like every corporate job. It’s a commute every day and a long day. I’m emotionally and the mindset is very different in that environment than when I’m around people that are investors and are really looking at building wealth for themselves in the future,
Jason Hartman 13:10
more a more positive environment,
David/Gina Nelson 13:12
a more positive, a, you know, a lot more exciting and people don’t understand when I say I’m gonna retire at 45 next year, they go, what do you mean by that? I said, Well, you know, we have a plan, we have a plan. You know, I believe in higher education. Absolutely. I’ve got my master’s degree and I want our kids to go to school, but at the same time, we have some so many friends whose kids have come out and had $200,000 in student loans and, and we needed to have a solution and a plan for how we were going to help pay for that. So they didn’t end up like that. That is excellent. That is excellent. Okay,
David/Gina Nelson 13:40
what do you do? I’m actually in the computer science field. I got a computer science degree back in the 80s. And I you know, but to piggyback on what Gina was saying, I’ve been an IT supervisor for years in the healthcare field. But you know, and was planning on doing that into my 60s and and living off our great 401 K’s. God knows what those would have done. But now what we’re really looking hard at is with Gina was saying with so many people graduating with literally six figures in debt and higher than mid six figure, it’s crazy. We said, we are not going to allow that to happen to our youngest daughter. So what we’ve decided to do was we’ve been building our portfolio and looking not looking at cash flow really, probably harder than maybe some of the other metrics. Although we look at cash on cash we look at, we look at ROI, but we’re really looking at that, as we will get 10 doors and have $36,000 in cash flow for the year an annual obviously, and that will pay for my daughter’s college. So that that was that was our that’s our plan right now. And we’re well on our way to doing that.
Jason Hartman 14:49
Congratulations. That is awesome. That is totally awesome. Good for you guys. That that’s fantastic. You know, one of the things that’s been, I think interesting to people here is that we you know, we talk about income property and how it produces a multi dimensional return on investment. Unlike many other assets that are either one or two dimensional at the most income property is multi dimensional. And a lot of this return on investment is sort of like the iceberg. It’s below the surface of the water and you don’t necessarily see it unless you know how to really think about it and analyze it. And I think that’s been I don’t know if that was an aha moment for you this weekend. But it has been for other people I know because they’ve told me and you mentioned that cash flow is just one of them. So you know, it’s there. There are many metrics you need to look at and understand as a real estate investor. What do you think about that? iceberg concept, like most of the iceberg being below the water when it applies to income property?
David/Gina Nelson 15:42
You know, I learned well, I’ve always learned something at one of these events. But um, but I think for me, you know, again, the, it’s changing the mindset of the corporate, you know, you’re just gonna go one way and you know, we were getting killed in taxes being six digit salary, folks, you know, on the W twos, we just had no other way. to diversify and and, and find, you know, other options so so being able to have the property and learn about depreciation and inflation, deflation, all these things. I mean, it’s it’s been really mind boggling to me to see how valuable it has been for us as we’ve collected more properties and really diversified our portfolio. It’s changed our financial situation drastically.
Jason Hartman 16:21
Yeah, that that is excellent that it has but it is. It’s so true that typical corporate thing, it’ll just leave you for it. So sort of simplistic do this basket of stocks, your 401k blah, blah, blah, and it’s so unfair to because earned income, you know, you’ve both got six figures plus salaries, and earned income is taxed at the highest rate, and it’s the hardest job to write to do the typical corporate job. It’s unfair from two perspective so you know, breaking free of that is definitely what we’re here to help people do and I love how you have a plan and you’re really talking about like, you know, like Fernando said before, the financial Independence Day. Right, right.
David/Gina Nelson 17:01
Well, you know, what was gonna say just also, I forgot to say, and we live in California. So we live in a very cyclical market. And so, you know, one of the things that’s been the greatest value for us being exposed to Jason Hartman has been, just to understand what a linear versus a cyclical market looks like. And for, you know, some of our friends that flip houses and try to time the market and all that, you know, that was something that we never were, you know, we weren’t real estate people, we have a clue how to do that, or to actually do that well. And, um, so having something in the, you know, more, you know, linear environment has been very helpful for us to be able to pick those things up and diversify and not feel like we had to come out with, you know, $400,000 to buy a house because some of the other areas have been more affordable for us, and yet, they’re all producing positive cash flow, which has been amazing.
Jason Hartman 17:44
Yeah, so just for those of you who don’t know, Folsom, where they live is up by Sacramento, California. Very hot real estate market, very cyclical, very expensive now at this part of the cycle, but that’ll change I promise. There’s always a cycle and you You know, you could you could risk it all on one flip. I mean, you know, because the properties are so expensive. And you know, like you said, having to put $400,000 down to buy a property. That’s just a real risky deal. If you time that flip wrong, that could ruin your right. Yeah. So yeah.
David/Gina Nelson 18:15
So I did piggyback on that we, I mean, it’s like, an example that we had a $500,000 house that was not fixed up in our neighborhood, a three to 1700 square foot.
David/Gina Nelson 18:27
I mean, what it’d be where’s that where’s the basis for that supporting that value? It’s, it’s, it’s there isn’t one so
David/Gina Nelson 18:34
so that that’s why we were and what what we’re doing now, by building this wealth in real estate is we’re also decreasing our exposure in the stock market at the same time because I took a look at this in February of 2016. And I said 80 over 80% of Jean, my, our personal wealth was in real estate market. I said stock market, sorry, sorry, stock market. Thank you for that was in the stock market. And I said we have very little control over that, and thou shalt maintain control. So we’ve really been working hard this past year to responsibly divest ourselves of that where we can. And so, you know, I took one of my previous employer pensions, cashed it in and bought two houses with it. And it’s like that because I have control of that asset and not looking at some fund manager who wants to make his bonus and doesn’t care what happens to us being at the mercy of them so yeah,
Jason Hartman 19:28
and and since the subject of timing came up, you probably either by accident or on purpose or timing that fairly well because the stock market is looking very overvalued at the moment.
David/Gina Nelson 19:39
Absolutely. And what I you know, and there are corporate related 401 K’s we can’t really can’t do a whole lot about right now. We’re doing everything we can to maximize it without throwing any more money than we have to in it. But I’ve moved like a quarter like a bunch of my money into guaranteed returns because I know the crash is coming. Everybody else says it is we just don’t know when. So I’m going to minimize the damage that can happen there. And then when I can get at it, I’m going to take that money and it’s going to go into real estate.
Jason Hartman 20:10
Excellent point. Excellent point. Well, we got to wrap it up in case the listeners haven’t noticed we’re back in the room where where people are meeting and you’re probably hearing some chitchat and laughter in the background as we come back from lunch here and reconvene but just any final thoughts you know, maybe just a final thought from either of you. Thank you so much for being on the show today really appreciate it. It’s always listeners love hearing these stories of real people that are doing it rather than me talking about it in theory, you know, right. I mean, my knees practice too, but it’s so nice when you hear different perspectives, you know, certainly so so we’ll just wrap it up with any final thought I give a quick
David/Gina Nelson 20:45
one here. And if if you’re you know, out there and you’re you don’t know where to start, get a mentor. Every every bit of success I’ve had in business and in corporate, I’ve found a mentor. Jason Hartman is an amazing mentor. He’s transparent Everybody I’ve met through his organization has been transparent and honest and ethical in it, you, I, they, they, they tell you about the exposures upfront, you know, it’s, it’s on you, you’re gonna have to learn how to do this, there’s going to be things that can happen that you can’t control. But finding that mentor is crucial. And we’ve found, we found it here. And we’re, we plan on being this for very many years to come.
David/Gina Nelson 21:22
Well, and just for us, I mean, it’s it’s listening to podcast, educating yourself and not getting stuck so much in the details of all the education because at some point, you have to pull the trigger and take a little bit of a risk, which was, you know, kind of out of our comfort zone. But when you do that in an environment with a whole, you know, with the team, like Jason has you feel much more comfortable with it, the risk seems less than it would be of us just being completely on our own. And it’s been just an amazing journey of growth, personal growth for us, you know, to really kind of open the lid, what’s possible.
Jason Hartman 21:51
Excellent. Well, thank you so much for joining us. I will just wrap it up with a quote. Well, two of my favorite quotes, the one I shared this morning is that Zen saying to know What not to do is to not yet now, like you said, you have to pull the trigger and you just got to do things and figure it out as you go and iterate and change course as you go. But the other one, I thought was a really great quote too. And it’s I hope I don’t mess this up but because it’s just from memory, but it basically goes something like successful people make decisions quickly, as as soon as all the facts are available and change them very slowly, if ever unsuccessful people make decisions very slowly and change them often. And I think that’s just critical. You know, those two quotes are exactly what you said. One more thing I want to mention for you listeners, go to Jason Hartman comm slash contests. This is a new thing. So listen up. Jason hartman.com slash contest. There is one product that I think is probably the best product Apple has come out with in the last five years. And that is the apple EarPods those little wireless earphones and I absolutely love those things. There’s like a six week wait to get them. I bought For myself waited six weeks for it to come. They came. I’ve been using them for a couple of months now. And I’ll tell you, you talk about education a lot. If you want to be able to listen to more podcasts and education more easily, those air pods are phenomenal. It’s amazing when you cut the cord how convenient it becomes. And so I bought one of those to give to our audience. So Jason hartman.com slash contest, enter the contest there and just answer a couple quick questions and we’ll put your name in and we will raffle those off to one lucky listener. So that’s it for now and we will talk to you on Wednesday for the next episode. Thanks for listening and happy investing.
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In this episode, Jason Hartman talks to Drew Baker about essential topics to income property investors. They discuss how the IRS’s tax code does not correctly account for inflation. Jason’ explains Inflation-induced debt destruction, his ultimate investing equation. Later we hear from Andrew Baker about his experience with investing in income property.
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
So you’ve heard my rants about how our financial system is rigged, and I’ve interviewed hundreds of experts to back up those claims and help you align your investments with the most powerful forces in the world, governments and central banks. I’m also using a perpetual wealth strategy with my income property investments that you should check out. It has enhanced the security of my liquid assets, boosted overall ROI and shifted money away from the banksters my friend Pat Donahoe, who’s one of our venture Alliance members, runs paradigm life and he has a free report that you can download at be your bank.com that’s B your bank comm check it out today. Welcome to the creating wealth show, episode number 875 875. This is your host, Jason Hartman. And I want to say welcome and thank you To our listeners in 164 countries worldwide, yes, 164 countries someday maybe the entire globe will be listening to the show. I don’t know probably the folks in North Korea won’t be listening anytime soon. And maybe not the people in Myanmar, formerly Burma. Probably we don’t have any listeners in Cuba, I suppose. But yeah, 164 countries. That’s pretty darn cool. And you know, this is the most amazing time to be alive as I say, right? Because Never before have we had it where so many people can talk to so many people and the exchange of ideas in this very vibrant time in which we live is just nothing, nothing short of amazing. But at the very same time, I don’t know if any of you saw the the movie I think it was called idiocracy. That was kind of a funny one, but a bit sad at the same time. at the very same time, we have this sort of class of people who are just sort of feasting off the system leeching off the system, not very motivated to improve themselves not very motivated to grow just sort of getting by, you know, luxury is the call to apathy. As the old saying goes, I originally heard that at age 17, from Dr. Denis waitley, one of my early mentors. It’s it’s kind of a real dichotomy that we live under nowadays, but maybe we’ll talk about that a little bit on today’s show and talk about some, of course, real estate investing ideas arbitrage, some other things, house prices in in different things, not just in dollars, or euros or whatever currency in which you happen to be most acquainted with, but also maybe in precious metals like gold, and some other stuff like that. But I want to also announce the winner of our Amazon Echo contest. Alexa, what time is it?
‘Alexa’ 4:03
The time is 2:30pm.
Jason Hartman 4:05
I don’t know if you can hear that. But Alexa said it was 2:30pm. And that is on Sunday afternoon. So, the winner of our Amazon Echo not Alexa. contest is Jake Blair. Jake Blair, you are the winner of the Amazon Echo. And thanks to all of you who entered, we appreciate that. And we’re gonna keep running these cute little contest. I know, they’re just a little sideline, but you know what they do? You give us such great questions and such great feedback and things like that. So I hope to get a little time to share some of those questions and feedback from the entries. today. We also have a new thing we’re doing, I have been studying. And I haven’t talked too much about it on this show. But on one of my other podcast I have done several shows on this topic. But I have been studying the world of short term rentals for many years. And I want to study this a little more deeply. You know, I consider myself to be a rather careful and sometimes over analytical person, and I’m trying to overcome myself. You know, there’s a great quote, I think it was by jack Paar who said, life is one long obstacle course. With me, as the chief obstacle, we’re all our biggest obstacle sometimes, you know, that’s the way I am sometimes I overanalyze things. Well, mostly I overanalyze things and agonize too much and worry too much and do all of that kind of stuff. So anyway, this is a topic I’ve been studying for years. And that’s the topic of short term rentals. Many of our clients have asked us about them. We have many clients that you know, do the long term rental thing and you know, they have a short term rental or two on the side. And they’re, you know, doing business on Airbnb or VR Bo or any other short term rental sites out there. So what we want to do is Get together a little Council. Yes, a council of people who are in the short term rental business, and we will for you volunteering so graciously for our little Council. We will offer you some cool things. We will offer you some exclusive access to things at our events, maybe dinners lunches, that not everybody’s invited to and you know, give you some recognition, maybe do some panel discussions, have you on the podcast, whatever. So here’s what you do. If you have experience with short term rental properties, go to Jason hartman.com. Slash str. Doesn’t that sound cool? We gave it an acronym str short term rental, go there and apply to be on our little Council. And tell us about your experience with short term rental properties. Now, this isn’t for anybody who’s interested. It’s only for people who are experienced. The idea is We want to have this counsel impart their experience to those of you who are interested. Okay. And what I always say is, some of the greatest learning that I ever get is learning from you, our clients and our listeners. That is the greatest learning of all. So we’ve got one of those people on the show today to help me with today’s show. And he was just on and he’s back, because he’s a friend of mine, and he’s a client, and just an all around interesting guy. And that is Mr. Drew Baker. Andrew, welcome back. How are you?
Andrew Baker 7:35
Hey, thanks for having me.
Jason Hartman 7:36
Yeah. Again. I listened to me ramble for quite a while there before I introduced you. Yeah, you forgot you forgot I
Andrew Baker 7:43
was online.
Jason Hartman 7:46
Yeah, I know sometimes I got so much going on.
Andrew Baker 7:50
It’s hard to remember all that stuff. But hey, you and i, you recommended to me a really interesting Peter Schiff interview. our listeners know that I had Peter Schiff on On the show a long time ago, I sort of have a love hate relationship with this guy. I invested with him. And that was a disaster. He lost a fortune of my money. And his people, his advisors didn’t even seem to give a damn. I mean, like, almost antagonistically apathetic, it was pathetic. So I would definitely not invest with him. But man, that guy is super intelligent. He is I call Peter, the master of the sound bite. And he can just ramble on and on forever. And anyway, I was watching this YouTube video with him that you recommended. And Andrew, you know, he brought up a lot of interesting stuff there. Was there anything that was particularly interesting to you that you might think would be interested to or interesting to our listeners today? Well, this, this was, you know, Joe Rogan, the Joe Rogan experience. This is Episode 1002. And Peter came on about three years ago and sort of talked To the audience, and this audience is not really doesn’t get a lot of economists or investor types on. So they’re sort of not exposed to this sort of thing. And Peter came back on and was invited on originally because he went and spoke to all the protesters on Wall Street. You know, the 91% of you have Occupy Wall Street and had a video that was so interesting that Joe Rogan had him on the show. So you know, on this recent show, Joe or Peter and Joe sort of fleshed out things like the minimum wage, the wage gap between men and women and their thoughts on that to the government and housing and, and so it is very interesting how the housing market and you know, Joe kind of doesn’t know all this stuff. So Peters kind of giving him his expos a and I believe Joe is a market guy. He endorsed Ron Paul. So he’s kind of Onboard but has sort of a more liberal influence because he’s in Hollywood, and he has, you know, act or stuff on a show. So it was interesting kind of having Joe see both sides of the field and, and kind of have Peter kind of give him a monologue, which was brilliantly done about, you know, kind of his philosophy and
Jason Hartman 10:21
just really fears ppps people say I’m long winded.
Andrew Baker 10:26
I didn’t know how much energy Peter has on the show is just and how direct he is just
Jason Hartman 10:34
pretty interesting. So So what was so you know, talk to us specifically, though, about, you know, some of the topics I mean, I love that stuff about minimum wage, you know, minimum wage has got to be the stupidest frickin idea ever. And anybody who believes in minimum wage has no understanding of basic economics. It is just a it is a terrible idea. And you know, that’s the Uh, you know, I pick on the left the most on the political aisle I pick on the right to, you know, because I’m definitely not a Republican, I left the Republican Party quite a few years ago. But you know, the left is just so myopic. I mean, I don’t know if they’re like trying to hurt people, you know, it’s this old idea of like, you know, you create a problem. So you can look like the hero and come in and solve it, you know, and ride to the rescue, here comes the cavalry. But never mind that nobody noticed that the cavalry in quotes, created the problem in the first place, so that they could look like the heroes. And that’s the funny thing. You know, when I had steve forbes on the show, he talked about how the government always seems to somehow occupy the moral high ground in life. And that’s so true, but it’s so it’s such a bad belief. It’s so false. It’s just not reality that the government should somehow occupy the moment moral high ground. And this this concept of minimum wage creates massive unemployment. It creates massive crime problems. I mean, I don’t think Peter even talked about this. But you know, if if anybody in the world, you know, if if they’re offered five bucks an hour to do a job, and someone else will pay them $6 an hour, they’re going to go take the $6. Right? Obviously, they’re going to do what’s in their own best interest. And is if there needs to be this other third party that needs to come in the deal and say, No, you can’t pay the guy $5 an hour. That’s just the dumbest idea ever. So now that $5 an hour guy, instead of being hired is replaced by a robot or he’s you know, he’s just not hired at all. And the group’s since we’re, you know, talking so much lately, this country seems to be like addicted to the subject of racism. Which is completely ridiculous. Look up Morgan Freeman. I mean, the first time I’ve ever agreed with Morgan Freeman in a while is his topic on, you know, race relations. He’s absolutely nails it, you know that we got to stop counting people and calling people by their race. You know, he says in this interview, he says, I’m not Morgan. I’m not a black man on Morgan Freeman, you know? Exactly. You know, everybody should be judged as an individual. And the smallest minority on earth is the individual right? Like iron. Rand says,
Andrew Baker 13:31
exactly. That’s he beat me to the chase. Yeah, if you’re not going to protect minorities can’t starting with an individual, then you certainly can’t protect, you know, minorities on the whole, because the minority of one trumps everything. So
Jason Hartman 13:47
it absolutely does. Yeah,
Andrew Baker 13:49
yeah. I think Peter talked about on this on this podcast, which I encourage your guests or your people listeners to take a listen to it was just how you’re right. It’s his mandate in unemployment. If somebody comes to the table and doesn’t have any skills, they should not be paid a living wage because they don’t have the money, because they haven’t come with the skills to sustain that. So, you know, like with me and I lived at home, I got a job, I walked to my first job, saved enough money to get a car, then I was there because I want to get a job that was higher pain. And, you know, I discriminated my employer, I said, Okay, I don’t want you know, you’re not going to pay me enough. I don’t like my manager, I’m going to leave. Whereas, you know, and Peter talked about how businesses don’t have those sort of rights, that you know, politicians have stripped that away. So the employer can basically never sue the employee and how unfair it is to you know, that he talks about how discriminating, you know, you discriminate with your relationships with other people. And, you know, the idea is some if some business wants to discriminate, and they want to endorse it Terrible idea, the first person that should protest it is the one who wants to protect, you know, protect the rights of others. So if somebody wants to make a bad decision, they’re going to pay the consequences in the marketplace. And it shouldn’t be from a politician trying to you know, so it was really interesting. And he talked about how there’s so much skepticism with the businessman and the decisions that he makes, but no one wants to ever scrutinize the politician and his wanting to get rich off politics, and how the whole system is totally been manipulated to make people’s outlook be so skeptical of the entrepreneur who’s trying to you know, add value to something whereas the politician comes in and takes $1 in and gives 10 cents out the other side. So it just gets tied up in their little, you know, maze of, you know, handshake doors. Yeah, absolutely.
Jason Hartman 15:55
You know, I want I want everybody to consider this. This is one of the concepts That changed my life. As a real estate investor as a person, it is just critical to understand. And that’s the difference between context and content. And this speaks to your point, but as usual, it’s going to be roundabout so get ready, okay? But the concept is that, you know, people who are brainwashed, don’t know they’re brainwashed, and I, I will freely admit that we’re all brainwashed including yours truly, in some way. There’s no question about it. Okay, we all have our bias and prejudice and, you know, our thoughts and we think we’re right, and we, you know, look for con what’s called confirmation bias to we find all the things and sift them out in the world that support our viewpoint, and then we parrot them back to other people and keep believing them even more. Right. So, you know, this is something humans do, okay? It’s probably a old survival skill. And and you know, but the content text content is that you know, fish, they don’t know they live in water necessarily. I don’t think I don’t maybe they do, but they don’t think much about the water probably, because the water is just there all the time. That’s the context of their environment. And, you know, last night I was watching reruns of that show Criminal Minds, okay, on Netflix and, and the Criminal Minds show and I used to be a huge fan of 24 I used to love that show, and binge watch it and I, you know, stay up till four in the morning because I had to see the next episode. It was crazy. It was like a total addiction. And you know, in all these shows, always they portray the government is the hero. Okay, now, granted, you know, I’m certainly glad we have police and SWAT teams and, and the, you know, behavioral analysis, you know, that is at the FBI to catch criminals and so forth. But it’s just funny like nothing is ever You know, in the vast majority of any show you’re going to watch is about how the government has biases and does bad things. Because it’s just a bunch of people. That’s all it is. And you know how they mess things up. It’s always them with unlimited resources coming to the rescue, to solve all of our problems and save the day. And you know, where else this has done extensively in in movies and TV is in the business of law. And your your wife is a lawyer, so maybe you want to speak to this one Drew. She works for the public defender, and you know, like, courtroom dramas, and they all they all make it look so good. And like, you know, in the vast majority of relationships I’ve had with the legal system and lawyers has been pretty lame. Actually, I’ve been pretty unimpressed. It’s like the worst service I get of anything in my life of anything that I buy is legal
Andrew Baker 18:58
service. expensive.
Jason Hartman 19:00
Yeah, it’s it’s outrageous. Yeah. It’s probably because it’s over regulated by this infrastructure of the court system. And it’s just so overcomplicated and the government is not the hero folks. They’re portrayed like that.
Andrew Baker 19:15
It is funny because when, when people ask what my what my wife does, and I tell her, she’s an attorney, I mean, we have to hold that back a lot of times, because if we’re just having conversation with someone, it’s instantly a chilling effect, because people because everything is so over litigated, and we’re just the culture of suing over frivolous stuff, just because the the harassment of just the suit require the outcome because it’s so costly just to litigate that the penalty is done at the time that the suit happens.
Jason Hartman 19:50
Imagine, imagine if lawyers if that field were unregulated, okay, now, everybody might be freaking out right now and thinking Are you nuts? What if people do didn’t have to go to law school. What if you could just hire your best friend who was really good at debate, and really good at, you know, proving something to go into court for you and be your advocate and say, Hey, Your Honor, you know, this person did this and that, and it’s wrong, and we should win the case. But instead, it’s this highly over technical, highly over regulated environment where really almost nobody is winning. The lawyers aren’t winning. I like people think the lawyers are winning, but most lawyers I know don’t like their job very much. And they it’s not like they’re making a fortune. And certainly the clients don’t seem to like the system. It’s an industry that’s just ripe for disruption. And again, you see, like during the financial crisis, right, everybody on the left said, Well, we got to regulate these companies more. No, we need to regulate them less. We need to regulate the financial companies less The reason the financial Companies became too big to fail is because the government gave them a monopoly. The same way through regulation of say, for example, and I know this is a far out idea, and some people are gonna freak out and think I’m crazy. Drugs, okay, drugs, right? Look at what’s happened with these you have these massive amount of killings, this massive amount of crime and these drug cartels that are the most vicious, violent, disgusting things, because the government regulates the drugs and the illegal drugs and gives them a monopoly the same way. I’d like you to try and see it this way. The same way they give the criminals on Wall Street, a monopoly through regulation. Okay, that’s the that’s exactly what happened. You’re not going to start a new bank and compete with Goldman Sachs or the criminals at Wells Fargo. I mean, I was just listening to Left wing marketplace, you know, episode about what Wells Fargo and gamble. Wells Fargo has got to be the most crooked frickin bank out there right now. during the crisis. It was BFA and then Chase and and now it seems to be wells. I mean, it’s just like scandal after scandal, these criminals, and nobody ever goes to jail. The company gets fined. But all you’re really doing when you find the company is punishing its shareholders. They didn’t do it. They didn’t do anything wrong. You know, it’s it’s the people who run it. They don’t get fined individually. They just take their shareholders down, not down the whole wisdom. You know, what we’re going to say about Wells Fargo?
Andrew Baker 22:44
Well, I mean, I think the issue there is, you know, blaming over regulation, it’s actually both things because the business you know, the business has an influence on the politics of these big corporations. So they manipulate the laws to benefit them. And then through lobbyists
Andrew Baker 23:00
Yeah,
Andrew Baker 23:00
yeah. And then, you know, a certain outcome happens because the government colludes with these corrupt, you know, these businesses that corrupt them through the money and the power that they, you know, the politicians assume and, you know, that manifests itself in its donor. So, I mean, the problem is, is really the way to solve this is by just making the power of the government smaller, because, you know, it’s, it’s, you know, power corrupts, I guess so. And absolute power corrupts absolutely.
Jason Hartman 23:31
It’s the same. No question about it, no question about it. Hey, Drew, let’s take a couple of Q and A’s from the contest real quickly. I just want to get a couple of these done, because we’ve got quite a stack of questions that are needing answers from our contest that we’ve been holding the last two months. So Kevin Wilson, said, you know, when, when asked, What’s the favorite thing about my investing philosophy, just started listening to Jason’s podcast. Enjoy content so far. The other question was, what advice would you give yourself? back in? 2008? Okay, and I picked 2008. Because a good question, because, you know, that was right in the midst of the financial crisis. Right. And, you know, what advice would you give your 2008 self? Right. And Kevin said, focus on income producing properties. And, you know, that’s sort of a general answer, but very, very true. Julie bat said, paper thing about my investing philosophy, investing in deals that make financial sense today, not based on speculation in the future. Oh, thank you, Julie. That’s commandment number five, Thou shalt not gamble. So don’t invest for appreciation, invest for solid fundamentals and those come down to cash flow. Her advice for her 2008 self would be starting an Amazon FBA business and invest the profits in real estate. Drew you’re in the Amazon business so
Andrew Baker 25:00
I that’s Amazon FBA is very familiar to me. Yeah.
Jason Hartman 25:06
Good stuff. Tim Keeley says favorite thing about my investing philosophy. Let me see his his instant gratification when you get property that cash flows. It makes sense the day you buy it. So same kind of thing. Julie said commandment number five, a financial education and tax policy class wrapped into it in entertainment package how tricky? Yeah, I try to make it entertaining. So thank you, Tim. And then advice for 2008 self Oh yeah. This is one of our providers that we had problems with in Chicago and that is Mac Mac industries. Do not invest with Mac after 2017 and buy as many properties as you can where it makes sense. Don’t be chicken to look at remote properties across the country. I think that’s all great advice. don’t invest with Mac. They were good for a while and then they then They went bankrupt. So they turned bad on us. And
Andrew Baker 26:03
were they builders, what were what were they?
Jason Hartman 26:05
They were rehabbers. They were rehabbing properties in Chicago and doing management and the the property management just went to hell in a handbasket. We started to see some early signs of that and stopped recommending clients. And then shortly thereafter, it was in the news that they declared bankruptcy on a reorganization basis, which isn’t necessarily bad, but I think they were probably doing some unethical things. So we had a conference call for all our clients who purchase through them and you know, have been trying to help them through it and you know, it seems to be working out. Now. That’s the thing about income property investing folks. Remember, you’re a direct investor. So you notice the bumps in the road. When you invest in a fund in a you know, a mutual fund or a stock or a bond. You don’t see the bumps. On the road most of the time unless they’re hugely significant, for example, if you invested in Samsung, okay, which is like one six of South Korea’s economy, I think I just heard that. It’s huge. If you invested in Samsung, and then they got sued by Apple, not once but I think twice and they I think they lost both times Apple just killed them got a giant couple of giant judgments against them. And and that was in the news, that’s a bump, you would feel you would know it right, because it’s a big bump. And you know, if you were a shareholder, I’m sure that affected your stock value. But there’s all kinds of little small bumps You don’t even know about, you know, lawsuits, sexual harassment, patent infringement, little things. competitive landscape, that that changes in that investment that you just don’t even you’re not even aware of, but it gets treated. for you as the investor in, you know, mediocre or even terrible returns on your investment, and that’s a bad deal when you’re a direct investor when you follow commandment number three, you know, you’re you’re investing directly. And so those bumps you feel them. And one of the important things about being an investor and Drew, you’ve certainly felt bumps in your investments we’ve talked about them many times over the years is to control your own mindset, your own emotions, so that you don’t let them get the best of you and you keep focused on the long term. I’ll remember years ago when I was having when I owned a traditional real estate company in Irvine, California that I later sold to Coldwell Banker. It was like every bad thing that could have possibly ever happened happened to me It felt like I mean, it was just the worst experience of my life. That company So I bought it in 1997 started to turn it around took a huge risk and tripled the size of the office. And you know, went from class C to class, a office space, very expensive move. And then guess what happened? The franchise or decided to sell the company and the whole franchise network fell apart. So everybody was wondering, well, what’s the what’s the brand of the company going to be? You know, what’s going to happen? Are you going to change the name of the company? Are you going to go with a different franchise like everybody else? Nobody wanted to work there. And when you’re in a real estate brokerage business, the business you’re really in is recruiting agents who are good agents who can sell properties and have a good client list right? It’s not really selling properties directly. You know, they do that you Your job is to recruit them. And and then, shortly after the hat, guess what else happened? 911 mean you And we moved into this incredibly expensive new office 911 happened. Nobody wanted to come to work. Nobody wanted to buy properties. It was terrible. I mean, it was like, but I, I remember my friend Jay, I said, What should I do? You know, he said, these words, he said, Keep your eye on the ball. Keep your eye on the ball. And I’ll never forget that. And I just put my nose to the grindstone as the saying goes, and I kept working. And you know, a few years later, Coldwell Banker bought the company, and it was a pretty good deal. So, but I could have easily given up and I could have not kept my eye on the ball, and been overcome by all my problems, and that wouldn’t have been a good deal. So
Andrew Baker 30:44
why would you Why would you have back to their previous question? Did we answer the what would you do 10 years ago to give yourself advice is it is it just because I have a couple thoughts? I don’t know. Well, that’s,
Jason Hartman 30:55
that’s not an answer. He it’s just their statement. So this So, everybody you didn’t enter the contest Did you? drew? No, I don’t see your name on here. Sorry, you didn’t enter? Do you already have an Amazon Echo?
Andrew Baker 31:08
I don’t. But I I see him on sale all the time on Amazon. So I probably should buy one.
Jason Hartman 31:13
You gotta get one. They’re great. I have three of them in my house. I love it. But yeah, it’s just a statement. You know, don’t invest with Mac, buy as many properties as you can. where it makes sense. And don’t be chicken to look at remote properties across the country. So that’s good. Tim, you’re being area agnostic, and that’s the great stuff. Okay. Michael Gerber bossy, is that how you say that? My favorite philosophy of his is refi till you die refi till you die. And we’ve talked about that on other shows before. And his advice to his 2008 self would be you can write out a bad market if you have a positive cash flow, and enough money in reserves. Yeah, great advice. So yeah, I only add to that positive mindset, being willing to delay gratification, and then of course positive cash flow and good reserves. Okay, last one here, Drew and then we will move on. Jonathan Lindsey says his favorite philosophy of mine that he likes is the straightforwardness of Jason Hartman his 10 commandments of successful investing. They’re easy to understand and follow the underlying slps standard operating procedures think for success. And then his advice to his 2008 self would be educate yourself sooner on real estate and by slash invest in multifamily property ASAP for a kickstart. Now situations are different in my life limiting my options for investments due to marriage, family primary residence. These factors limit willingness to move back into apartment style living, even if I own it. Hey, you don’t want to be the name Bring your tenant anyway, Jonathan. So I think what you’re saying is like the old idea of like, buy a duplex and live in one and rent the other, right? I don’t know. I’m not sure exactly what you mean by that. But you don’t want to live next to your tenants. Anyway, don’t do that. If that’s what you’re saying, so, good stuff. Well, Jake Blair, you’re the winner, contact your investment counselor, and we’ll get your addressing your address and ship out the Amazon Echo. And we’ve got a whole bunch more questions. We will share on an upcoming episode. Drew. What else did you want to talk about? Maybe on the shift video or anything in general, you know what you were talking to me about? off air is you were just in Laguna Beach today Laguna Beach, California, beautiful place. And you were talking about the price of a house in gold?
Andrew Baker 33:48
Yeah, you know, well, first of all, I was going down to Laguna on Sunday, and you know, colleges started back up because I live in a little college town in England. And so I thought it would be a great time to go but apparently everybody was Going to the beach. So it was just so packed and crowded. And, and it’s I guess there’s a heat wave over here. But yeah, I was I was on the front, I was on the drive talking to a friend and I was just telling them how it seems like, since the government just manipulate the money supply and how in the last, you know, 50 years they’ve hijacked the money money used to be based on gold. And, you know, it was the the constitution it says that, you know, that the government can only mint you know, gold and silver, you know, so money was represented by gold, and how they’ve transitioned that’s a little tender and and what the consequences of that are. So I was telling him, a friend of mine, I said, you know, it’s funny, if you bought a house for $100,000, and then in 10 years, you end up selling it for $200,000. Well, you’re talking about money here. What is that in a more static asset? So it’s, you know, like, let’s say, I know gold is you talking to you’re talking about currency currency rather than Ronnie
Jason Hartman 35:00
Yeah And let me just distinguish that for the listeners for a second. So, currency you know whenever when you look in your wallet and you see those dollars you should not call them money, they are not money they are currency okay currency is a you know a made up construct money the concept of money is that has intrinsic value. Currency never has intrinsic value, it only has value by force because the government basically has, you know, guns more guns than you do. And they say this is something you will be required to trade in. If you open a business and you say, you know, I have a bakery and I’m only going to sell my you know, my bakery sell, you know, coffee cake. I’m only going to sell it to people who want to pay me and gold. You will go to jail because the legal tender laws say that you have to accept dollars okay? And so money and currency are very different things. Just understand that distinction. But go ahead.
Andrew Baker 36:06
Yeah. So, to the analogy, if you buy a house for hundred thousand dollars, and you sell it for 200,010 years later, if you’re basing that in $1, the government is controlling that transaction completely. And so what’s the real price of the house? What is it really done? Is it that the government has debased the money by by 50%? Or by 40%? Or what how does it relate to something that’s more static? So if you take the full picture, and you sell the house for $200,000, the government, you know, basically rubs its chin and says, Look, there’s $100,000 of profit here that’s been gained. But if you’re basing it on the dollar, and you have to pay capital gains, the reason that has gone up in value is because they have debase the currency. If this were a business, they would go to jail for fraud because they are debasing the money and then taking the back end of the of a chunk of the appreciation which was caused by them debasing the currency. So, right.
Jason Hartman 37:05
Isn’t that a great system? They Yeah, no way. But wait, But wait, there’s more. Wait till the IRS comes along. Go ahead.
Andrew Baker 37:13
Yeah, exactly. jail or something. So,
Jason Hartman 37:16
yeah, so they No, no, no, no, that’s not what I’m talking about. I’m talking about, you know, we’ve had Dan Ammerman on the show many times and probably need to get him back. It’s been a while. But Dan Ammerman does a really good job at illustrating some of these concepts. Remember what I’ve said to all of you listeners before and Drew, I’ll let you kind of finish and make a point on this. But just to tee it up a little bit. is is that the IRS, the tax code does not properly account for inflation. In some, in most ways, this hurts people. Okay, and the IRS Come on, they know exactly what they’re doing. Because in Drew’s example, you buy the house for $100,000. You sell it for $200,000 and then your cash capital gains tax if you don’t do a 1031. tax deferred exchange is based on the hundred thousand dollar gain. So that sucks because the value of the money has declined. And that’s why the value, not that we shouldn’t even use the word value, it’s not value. It’s the number, that arbitrary price is there’s a difference between price and value. It’s the price, the price went up, but the value didn’t necessarily go up or it maybe it went up to a smaller degree than the price, but you get taxed on the price. You see how the IRS just totally screwed you. But sometimes it works for you. Okay, the fact that the IRS doesn’t know how to account for inflation, or they do but they didn’t figure it out in every way. But drew Go ahead.
Andrew Baker 38:51
Well, I’m curious how is it that they how is it that they don’t know with regards to the you know, how is it How is it that them not accounting for Inflation helps the individual would this just be was low interest rates or what?
Jason Hartman 39:04
It no it helps on on the the concept with interest rates as many times will literally be in a negative interest rate environment. And depending on what you think the rate of the rate of real inflation is, okay, not the government quoted official, manipulated statistic, okay. understates to stick with real inflation is 5%. And you can borrow money at four and a half percent, you’re already making a half a percent before anything else happens, because you’re borrowing it at a negative interest rate below the rate of real inflation. But also, when I talk about my inflation induced debt destruction concept, that’s beautiful, because the IRS doesn’t account for that, and neither do most people. So in the example you gave 10 years go by you buy the house for $100,000 you sell the house for $200,000. And if the debt on that house has been debased by inflation to safe man, you know, I’m these are obviously real numbers, they’re just off the top of my head, but $50,000 in real value is now the loan balance. Okay, so now you’re you’re really making $150,000 Okay, in paper, but if you do a 1031 tax deferred exchange, and you roll that money into another property that’s maybe in an area that has a better chance to appreciate more, or in you know, you turn it into two houses instead of one. So you get a better cash flow obviously, right? Then you are you are beating them at their own game. Okay. And And what if you borrowed that money at a negative interest rate or even at par? Meaning, you know, the real inflation rate was four and a half percent and you borrowed it four and a half percent, but you outsource the debt obligation to a third party called a tenant, you didn’t even pay your own debts. Okay? This is where it gets into what I call the ultimate investing equation where you have so many multi dimensional things we didn’t even talk about the tax benefits you got along the way. We didn’t talk about positive cash flow or anything else.
Andrew Baker 41:26
Yeah, it was great. I got my got my taxes done and it’s it’s amazing how that depreciation is a gift that when when you get your taxes done because any profit that you have gets very closely to be matched by the by what the depreciation is. I mean, I know that’s not true for everything but it is funny how the tax code really is beneficial to those that want to invest in real estate. And you know, I took my first shot at buying some stocks and I did pretty well because the timing but I think You know, anybody that had invested right before Trump became president would do all right. But, but then I ended up selling it because I knew that the prices were going to change. And it was amazing how once I did the math, how much risk I took, and how on board factor and yeah, once you factor in the, the, what you gave to the government, you realize, oh, gosh, why did I take all this risk? You know, whereas if you invest in real estate, it’s like the tortoise and the hare, you know, it’s probably better to be slow and steady and, and methodical about what you do than to gamble,
Jason Hartman 42:35
no question about it. And that’s the unfortunate thing about the system in which we live. The government has basically pushed people into high risk investments, that no would not be there because they can’t earn any yield off their savings in real dollars. If you put your money in a CD, you know, with older conservative people should be able to buy bonds and put their money in You know, a laddered cd portfolio right in the bank certificate of deposit. But with with real inflation and the artificially low rates we have there, they get killed, they can’t do it. And so they pushed all kinds of people into this. But the one point I wanted to make is that when you have a big gain in something like a stock, just remember the government hasn’t collected their share of that yet, and it’s very significant. But also, when you have a bump in the road, and you get hurt on a real estate deal, and you think, Oh my god, this is terrible. My property’s been vacant. My tenant, you know, beat up the house and I got to spend this money to make it rent ready again. And you know, look at folks, real estate or income property is not immune to problems. It definitely has problems. I deal with them constantly and I hear about them constantly. But what you aren’t remembering about the problem you’re having trying to get you to look at it from both sides is that the government is also your partner on the downside. Okay, so if you have a, you know, a $3,000 disaster, and you’re all depressed and sad about it with your property, but you know, remember when tax time comes around, the government’s gonna cover about 40% of that depending on your tax bracket and what state you live in, if you, you know, this is where it’s actually good to live in a place like the Socialist Republic of California that taxes you to death because you get a bigger deduction. Not that that’s a good reason to live there, but
Andrew Baker 44:34
I feel so much better now.
Jason Hartman 44:36
Yeah. Didn’t they make you feel better? I just wanted to cheer you up.
Andrew Baker 44:39
Yeah. Thanks, boy. Great. Now, let me get my checkbook out.
Jason Hartman 44:43
Yeah, that’s right. Right. It’s it’s just not as bad as you think because the government is there to be your partner through good times and bad it’s like a marriage right?
Andrew Baker 44:53
Through Glade is funny because you know, the thing I found with the, you know, the properties I had is just, it’s really a three legged stool. You have to have a good deal what you bought, you have to have a good tenant, that’s going to pay the bill. And you’re going to have to have somebody good that can manage it. And MIT, maybe that’s you, maybe that’s a property manager. But, you know, you have to realize that you also have to manage your property manager. So, you know, and hopefully, if you get a good one, that job is less intense. But I have really seen a turnaround in certain markets that I’ve changed property management companies where now I’m getting, you know, 20% more in rent, I’m getting a better quality tenant. And, you know, we’re partnered together, whereas I think some property management companies, and you’ve mentioned this on previous shows, the incentives are so skewed, that they have an incentive to do a bad job. If they get a bad tenant. You know, they get a big rent, you know, they get a portion of the rehab, you know, and they get a big lease up there, right.
Jason Hartman 45:56
Brand new lease out of alignment. A lot of times that’s the problem. Yeah. Sometimes these lease fees are more than they’ll collect in the entire year in their, in their, you know, percentage commission for managing the property. So this is why we have talked extensively about self management, it’s something that’s definitely worth considering, like I said before, if you have a good property manager, just leave it alone, you got a good one, but some of them, you know, they’re good for a while, and then maybe they’re bad later, or vice versa, you know, and you just get rid of them and try it. Just try self management. And you know, but don’t do it without an education. Okay, got to listen to my episodes where I’ve talked about it and learn about it. And you’ve got to have some experience I would not do it as a new investor, a new investor should not do self management. Although that’s all I ever did. I mean, when I bought my first property when I was 20 years old, I self managed and you know, with nationwide investing when you’re remote and you’re not near the property, You definitely need a an agent or property manager to do the lease up for you in the transition between tenants, but you don’t necessarily need them to collect the rent every month, you know, you can self manage that part of it pretty easily.
Andrew Baker 47:13
Yeah, the self management thing I’ve never quite wrapped my head around. I mean, I think it’s a good idea if you could give it a shot. And if you can find the, you know, the magic Mojo to make it happen. And I think what’s the benefit of it is that, you know, the tenant is less likely to call the landlord with these chronic, constant nagging, because it’s, you know, like someone constantly complaining to their boss or something, it’s gonna eventually look bad on you, but if there’s an intermediary between you and the owner, you’re gonna you’re gonna you’re gonna everything this light bulb burnt out, you know, that type of thing, I think is the strongest argument for self management. I think with me, I just don’t have enough time. I you know, And I think the Jason Hartman family style of doing everything yourself is admirable. But I don’t know that I would be the best property manager, you know, and I think you know, I’m better at dealing with my business and getting that to be more efficient than trying to reinvent the wheel remotely. And so I think for certain people, you know, maybe you’re retired, maybe you have more free time, or, you know, or maybe you’re just more of a hands on person and you need to have that satisfaction. I don’t know, what are your thoughts on that? I totally get it. But
Jason Hartman 48:34
I wanna, I wanna, I want to say something to you with that. Okay. That was my thinking, too. Okay. And it was the thinking of Fernando, who’s been on the podcast many times and many of you were at our meet the Masters a couple years ago, when the jaws dropped of everybody in the room when Fernando, who has 70 units said that he’s got I think, he said like, 25 of them are self managed and I was interviewing him on stage and, and he said that, you know, we were talking about how much time it takes to deal with the different properties, how do you manage a portfolio that large etc, etc. And he said the self manage properties take less time I was there than I probably manager. Were there. Yeah.
Andrew Baker 49:18
Okay. Yeah. And he ran the numbers.
Jason Hartman 49:20
The room got really quiet for a moment when he said that, and I think the property managers in the room were a little upset about it. Didn’t want him to say that. But But you know, that’s the look at folks. Think about this in any area of your life. Okay. There are things that it makes sense to delegate and things that are just better to do yourself sometimes. And sometimes having a intermediary a third party in there, just slows the whole process down, makes it more expensive and less efficient. And it puts things out of alignment. Okay. You know, They’re there. They’re older and I hate to make this an age thing. Okay. But, you know, look, it’s kind of a common stereotype, okay? Sometimes I’ll go into an office of a, you know, very seasoned executive in an older person who’s, you know, already made it many times over in their career, and they’re, they’re a big shot. And there’s, there’s no computer on their desk. Like, really? In 2017, you don’t have a computer on your desk, and I’ll ask about it as Oh, no, I have a secretary. Oh, my God. Are you kidding me? Like, seriously? That’s just a ridiculous mentality to me. Isn’t that Warren Buffett? Doesn’t he do that? I think that’s that’s something wouldn’t surprise me. But he also doesn’t pay a secretary enough because she has a higher tax rate than him apparently, which is not actually true. People have debunked that myth. Many times. It’s more because Warren Buffett is cheating
Andrew Baker 50:59
you He’s not cheating, actually. But he’s just using the loopholes. You know, you know, Warren Buffett just left wing hypocrite, okay, but but I like his investing philosophy of value. I mean, I love Warren Buffett in some ways, even though I’m giving him a hard time here, the value investing philosophy is a good one. And it’s my philosophy, I just do it with a real estate with income properties. So I agree with that, you know, it’s just easier to do a lot of stuff yourself, you know, yeah, when he talks about how, you know, money managers just take most of the profit. And, you know, a lot of times these index funds if you just invested in the index fund, and you didn’t have the, you know, the, the monkeys throwing darts at the, at the newspaper trying to pick stocks, you do much better just if you invested in an index fund, because, you know, they have, you know, if you pick a money manager, they take one, two, sometimes even 2%, whereas if you’re picking an index fund, they take a fraction of 1% but I think the problem is, is that, like you said, you just don’t have as much control. And to me, I think why I had such hesitation for such a long time invested in the stock market is like, I don’t feel like I really own anything. I mean, maybe I do I own like a piece of paper or some small, I own this small part of a company, maybe, and I’ve no say over anything. And, you know, and so thinking about just owning a house, you have a lot of say over what you want to do, I have say over what I want the flooring to look like. And you know, you know, and sometimes the property managers might say, Hey, this is a bad idea. I wouldn’t do this. And you can hear they’re here in the mouth and say, Man, I think you’re wrong. I don’t want to pay you to replace the carpet every year. So I’m going to go this direction instead. And try it out on one of your properties and then make a value decision for the next thing but with your friend talking about earlier, the question about what would you do differently in the last 10 you know, if you knew in the 10 years, I think the mistakes I make I’m glad I made them. I mean, some of them, you know, yeah, I guess it could have worked out better. But
Jason Hartman 53:05
yeah, I’m glad but but I really look back Yeah.
Andrew Baker 53:08
More assets I accumulate those smaller decisions or smaller mistakes I made in the past would be much more magnified if I hadn’t learned that lesson in the future when I’m dealing with more money. So I don’t very good way to think very good way to think. Yeah, I agree. So yeah, that’s, you know, like, I remember when I was younger, I collected baseball cards when I was in elementary school, and I think I’m so thankful I wasted money in that direction. You know, or, you know, in the Beanie Baby type. I didn’t do that. But I’m saying that type of mentality of those fads because getting wrapped up in that type of thing and spending all that money in that way. If I do that, when I’m in elementary school, well, what are we talking about here? A couple hundred dollars, if I’m doing that as an adult, and there’s a lot of adults that invested in baseball cards in the 90s or whatever, think about how much more of an impact it made on their finances. You know, I spend 50% of my money when I’m you know, making $100 a month versus, you know, maybe more money you know, the ticket number obviously, the lesson was learned at a much cheaper price.
Jason Hartman 54:22
And it was also learned at a time that the lesson couldn’t sink your ship. So you know this also that’s for some reason you made me think of dating when I was listening to you talk about this you know, when you’re young as long as you don’t do anything that will be a permanent mistake. You know, there’s there’s always this you know, single guys always say this, why do these women like these losers women always like losers? Well, they like the bad boy right? You know, the James Dean bad boy type, right? That there’s a certain traction right? And, you know, look at your daughter can afford to go out with that guy when she’s young as long as she doesn’t make a big permanent mistake, right, like marriage or pregnant Yeah, but you know, you got to learn some things and have some experiences and do it when it can’t ruin your life, you know, and
Andrew Baker 55:09
I think that’s a great point. And there’s a philosophy guy named Sam Harris, who is kind of a complete different end of the spectrum for me, he’s this atheist, you know, philosopher, and kind of, kind of looks at the world differently than I do. But I respect him because of his thoughtfulness when he approaches stuff. And he talked about how the decisions of life most decisions are not permanent. And I think when you’re younger, you approach things thinking, like, Oh my gosh, this is gonna have such a ramification in the future. When you because you’re looking at the past. And really, most of life decisions are reversible or aren’t as big of a decision in terms of you try to get out of it than you think if you get a bad if you buy a bad house and you know, or whatever. Maybe that’ll have a bigger impact on your you know, On your portfolio, but you know, you can sell it, you could, you know, fix the problem, you can wait it out. And so I thought that was real interesting that a lot of times the hesitation and like you were saying the hurdles are yourself. And really, I think my biggest thing is that I didn’t take more risks. I was too conservative, and I think you kind of echoed that same sentiment. So,
Jason Hartman 56:26
you know, because I think it’s better to make a decision and be wrong than to be right. Never making the decision. Right. So yeah, right, right. Right. Better to do something imperfectly than nothing flawlessly, you know, the people, the people that get on in the world and the people that become the biggest successes, you just notice that over time, are the people that fail fast fail forward, but they’re not afraid to fail. They, you know, they cultivate what I call and I coined this term, so far as I know, rational recklessness, and, you know, I teach this Because I need to learn it myself. I’m pretty conservative. And I find that my being conservative really hurts me in a lot of ways. I need to just be a little more reckless and I’m, I’m just not that way by nature. And so when I say cultivate rational recklessness, the reason I’m saying it is because I need to learn it. And there’s a great book I had him on the show. His real name is Mark Ford, but his pen name is Michael Masterson. And he wrote a book called ready fire aim. It’s phenomenal. read that book. Ready fire aim. It’s, you know, great book and and watch the movie with Jim Carrey. Yes, man. And that’s really about the same thing, you know, cultivate rational recklessness. I just find that the deals I sit on and think about and agonize over the wording in the contract. It would have been better if I just did the frickin beyond you know, got a little reckless some You know, the deal would have just been better.
Andrew Baker 58:02
Well, it’s funny when you look when you look at the deals you did in the past I think you scrutinize that like with me, I’m scrutinizing the the ratios, and the prices and all that stuff. And I am looking at at in today’s dollars, and you go back and you’re like, well, geez, if I had bought anything in 2003, if I bought one of the worst deals ever, I mean, I’d be doing great. People would be saying, Wow, you’re the smartest, you know, to exploit this
Jason Hartman 58:29
guy in the room.
Andrew Baker 58:31
I mean, doing something that might be a couple degrees off, and not in your favor, quickly that gap gets filled in by, you know, time. And, you know, so I think that’s what I sort of learned. And I think another thing too, is just not getting a cheap haircut. You know, I don’t want a cheap haircut and buying something that might be the best what what does that mean? What do you what do you mean when you say that? Yeah, so I use that as kind of Have a cheeky way of saying that like trying to get the best price for something is not going to always benefit you. So, you know, if I go try to find the cheapest way to get a haircut, it’s probably not going to work out in my favor. You know, you probably want to spend a little bit more and get something that will, you know, obviously benefit you. It’s
Jason Hartman 59:20
It’s funny you say that because I just did that myself, you know, ever since I got my haircut. No, no, no. Well, I cut my hair a little bit one time. That didn’t work out too well. But, uh, I ever since I in when I lived in Newport Beach, you know, in Orange County, I had an expensive haircut place and I actually took you there one time. And yeah, and and I used to go and pay, you know, 3540 bucks for a haircut right. And then when I moved to Arizona, I didn’t have any place. So I went to I started going to Great Clips and I loved it because that app I could just get my $13 haircut. It was great. But I actually when I got back from Europe, I needed another haircut I was you know going for like a month. I went online and I found the best place supposedly in Las Vegas. And I went to it right the number one rated like salon by Elle Magazine, and I went there and I paid 40 bucks for a haircut and you know, it really was better. So, yeah,
Andrew Baker 1:00:18
you know, yeah, getting a $20 haircut is different than getting a $7 haircut. I guess that’s, you know, the, maybe the point. But, but yeah, you know, one of the places that maybe the numbers were better for where I bought and, you know, paying maybe 30% more for a nicer house kind of seemed to me out of, you know, out of sorts because of just how much more money that was going to tie up. But you think about those jewels that are in your portfolio of either homes or what and the things you usually overpaid a tiny bit for, I think ended up kind of being your more favored assets being the things that you know, you’re more proud of and you You know, sometimes, you know, the cheaper deals do make more sense. But, you know, I hear you talking about,
Jason Hartman 1:01:08
like, when you started investing with us, when was the first year you bought from us like was that 2009 or 2008?
Andrew Baker 1:01:15
It was 2009 or 10. I looked in 2008 actually to buy a place with you guys. And I, you know, we were friends for a couple years before I ended up. And I’ve always, you know, before I met you, I was very interested in that, but, you know, by the time buying property became accessible to me after college, it was 2006 you know, 2007 So, by the time I came to the market to buy something, I just threw my hands up and said, heck, no. And you know, I had friends where all their parents chipped in and four people bought a house together at the height of the market condo in Costa Mesa. Yeah, basically, and just the whole thing imploded, and I had friends that wanted to have me going on deals with them and I just said, I’m This is amazing. And you know, and then right when the bubble was starting to pop, I was looking at places and the prices just kept going lower and lower and lower. So I think the first place I bought was in you know, you bought a Indianapolis
Jason Hartman 1:02:11
Yeah, yeah. And so so you were buying initially you were buying like Class C properties. You were buying the cheap stuff from us. And then yeah, you’ve upgraded your, your you’re buying more Class A type stuff now. Right?
Andrew Baker 1:02:24
Yeah. So when I first started, you know, I think, I think some of the deals that I bought, were based more on price than on quality. And so, you know, I, a lot of these neighborhoods that I bought in were, everything was built at the height of the market. So anyone who bought in that neighborhood bought at a bad time. So the whole entire neighborhood was on fire, metaphorically speaking, in terms of bailing out so some of these neighborhoods didn’t do as well as others. So some of them managed to recover and others you know, basically failed. So, two of the places I bought there were more in the BCS zone. And you know, I had to, and and those do well, I mean, they do are right, but the ones I’m more proud of are the ones that paid a little bit more for that were in the nicer area, you know, a newer home building track, not every place went underwater, and they were all built in like 2000 you know, like, I think 2004 so there were some people that didn’t get caught up in you know, walking away. But um, but yeah, they, they’ve done, they’ve done great and I’ve noticed recently that the rent values have gone up dramatically and I and at first I attributed this to having good management and picking good people. But I’ve noticed that some of the newer homes that I’ve leased up, Kenny more than the ones that for the tenants that have been in there for a couple of years, I mean, I’m getting a couple 100 $150 more maybe 10% more in rent, so I have noticed as price They’re become less affordable. The rents have just gotten so much stronger. I don’t know if you’re seeing that. But in certain market rents are definitely stronger. But Drew, the rents are not keeping up with the prices. It always goes that way. It’s always the prices lead and the rents follow and a couple years from to catch up, Drew, you know what we got to go on for an hour and five minutes now, this episode is getting way too long. So I gotta just
Jason Hartman 1:04:25
have you back. Can you remember where we are? You want to make a final point. Let’s wrap it up.
Andrew Baker 1:04:29
I’ll let y’all like I would leave your listeners to rest for here. So we’ll, we’ll come back to the table. Maybe in a couple of weeks or so.
Jason Hartman 1:04:37
Good deal, good deal. Hey, everybody, go to Jason hartman.com. And click on the events section and join us for our upcoming meet the Masters event we have never had ever and I think this is like our 19th meet the Masters now. We used to do it twice a year now we only do it once a year. We have never had such strong ticket sales. So early. Because one of the reasons that we got some phenomenal early bird pricing so Jason Hartman calm in the event section, take advantage of the early bird pricing on meet the masters of income property our big event and this will be our biggest ever it’s a beautiful property in La Jolla, California San Diego area in January Get your tickets now so you can save on the price and this is going to be the biggest and best meet the Masters we’ve ever had. We have some paid speakers really good paid speakers this time as well as our teams and property management people flying in from around the country as well. So
Andrew Baker 1:05:39
yeah, it’s a great event I I love going to them when I get a chance. Just the ability to network and meet some of your vendors meet some of the people and shake their hand that you’re doing business with. Definitely gives you more in the long run and and and there’s people that I’ve had a chance to own and other ones In the same markets that I do, where we can kind of compare notes and talk about what we’ve learned and putting a price on that. I mean, you really can because it’s definitely been helpful.
Jason Hartman 1:06:10
Good stuff. Yeah. No, thank you drew. And the other thing is meeting our clients and hearing their experiences, the good, the bad, and the ugly, you know, sitting sitting at lunch and, and talking to our clients who’ve been doing it a while, you know, learning from them sharing experiences, that’s just really, really helpful. That’s why we do live events. We don’t just have a podcast, you know, we, we do many live events, and this is our biggest one. So meet the masters of income property in January early bird pricing, Jason hartman.com. Click on events and get your tickets today. Drew, thanks again for joining me and talking about all these random topics. And we will be back and have you back on the show in the future.
Andrew Baker 1:06:51
My wife’s tired of hearing about this. I got it. I got a bed somewhere.
Jason Hartman 1:06:56
Good stuff.
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