Jason Hartman starts this Flashback Friday episode by discussing The Future of the Mind, a book by Michio Kaku, and what he has learned from it. Afterward, he is joined by one of his clients, Fernando, where they talk about his background and his journey to financial freedom.
This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com. Welcome to the flashback Friday edition of the creating wealth show with Jason Hartman. As he rapidly approaches 1000 episodes of this podcast, he has hand picked individual episodes that he feels is going to be good review for you to prepare you for the future by listening to the past. Let’s dive in.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants Get involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:19
Today we have a another client case study. Yes, we have Fernando coming on with us today. This one’s kind of long waited, because he’s been a client for about three years. And I started bugging him maybe almost a year ago now to come on the show. And he said, I will I will in time and and so he finally did it. So I’m really happy about that. And, and both David Porter and Fernando and the other guests that we’ve had client case studies that we’ve had on the show, over the years have done just a great job investing and they’ve been very good managers of their portfolio and, and managers of their property managers. I just love what I do. One reason it is a great thing to do is because I learned so much from you, I learned so much from our clients. And I look at it as a big part of my my job is to kind of gather and assimilate all of this learning that I learned from our thousands of clients, thousands of transactions that they’ve done in building their portfolios. And in some of the best practices. I really learned from them. You know, it’s not like I made all this stuff up or figured all this stuff out. And so today, again, just like on the last episode, that’s what we’re going to do. We’re going to learn from Fernando, and learn about how he acquired 50 properties that are 70 units, so 70 doors or units in those 50 different properties. And I met him about three years ago, shortly after he discovered the podcast and we just had a game plan and went to it and he’s just been doing a great job. So you’ll hear his story. Today, and he will also be at the meet the Masters event. And I think I’ve talked him into speaking at the event as well and sharing some more of this detail with you. So that’ll be a great thing. So you get some today on the podcast, but also, of course at meet the Masters with so many of our other good things. And by the way, we just confirmed one of my own attorneys to speak at the event and he is coming. He’ll be speaking on Sunday. He has just done a phenomenal job with IRA investing. He actually wrote the book on it. One of the best books on the topic about IRA investing and asset protection. He is speaking on Sunday at meet the Masters January 11. It’s the 10th and the 11th. you’re really gonna like what he has to say, as well as all the other fantastic speakers and I’m looking through a land contract deal that I’m actually doing myself I’ve been looking through that for the past oh three days or so, and kind of poking holes in it looking for potential. pitfalls, you know, kind of what, what are some of the possible problem areas? When we talked about all the stuff on the podcast several episodes ago where we talked about land contract investing, that was episode number 454. So I’m gonna bring that knowledge to you as well. And I sent an email to the seller of this land contract. It was really interesting yesterday to calculating my return because the face value of a land contract. I think on this deal, it was 9%. The overall return though, assuming the land contract performs, as the contract has stated, looks like it will be around 14%. But if they default, the land contract deal could actually provide a better return. So you know, it’s just funny how things work. When you set up and structure your deals properly. Regardless of the scenario you can win. You know, you can win if it goes well, and if it goes, seemingly what most people would be, would consider to be poorly, you can actually win more. And we’ll talk about that and meet the Masters in great detail. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday. So be sure to register for that at Jason Hartman calm. We do have a few seats left unbelievably, I thought they’d all be sold out by now, but we’re doing this one kind of earlier than usual. So seats are left to go to Jason Hartman calm and take advantage of that and we’ll look forward to seeing you there. Now before we get to Fernando’s interview, I want to ask you do you want to know an interesting fact? Something I learned a few months ago I’ve been meaning to share with you and it has very little to do with real estate, but it does have to do with the incredible gifts we’ve all been given. I finished a book by Michio Kaku, And I know that’s tough name to pronounce. I want to get him on the show in the future. And he is just a really interesting futurist scientist, all kinds of things and he’s got many books out there. This one’s called the future of the mind. And one of the amazing things I learned about what he says, and I believe it, it’s probably very true, is the most amazing discovery ever and that is the human mind. And can you believe it? You already own one of those free and clear, that amazingly powerful entity, the human mind, we all own one free and clear, cool, cool concept there, isn’t it? So we own this great thing free and clear and we own a bunch of other things, you know, are in our body free and clear, which is fantastic. But the eyes Wow, the eyes are really an extension of the brain. Because they’re they’re basically brain cells in the eyes and the the largest nerve from the sensory organ to the brain is the optic nerve. So, you know, most of our data and perception is visual. And you know I’m not that’s not from the book that’s just what I’m saying there, but and from other readings and learnings I’ve done over the past but here’s the amazing thing from Michio Kaku, his book, The future of the mind, the scientific quest to understand, enhance and empower the mind. Did you know that your eyes, you think you’re seeing everything with your eyes, but you’re actually not. Here’s what I mean by it. All of our eyes actually have a small blind spot in them. Where you think you’re seeing we think I shouldn’t say we think we’re seeing an entire picture of what we’re looking at. But actually our mind is generating some of that it is fake, we’re not really seeing everything we think we’re seeing. So here’s what I mean. It is a physiological fact that the eye does not see everything in front of it, there is a small blind spot in it. So what our brains do is they actually create that image out of what it saw when the eye moved into that area, you know, as it’s moving around so quickly, and the brain actually creates that image on a computer. I think they call this rasterizing how the computer will rasterize the image that could be the wrong word, but I think that’s the word and put it up on the screen for us on the monitor for us to see it right. And amazingly, our eyes are not seeing everything that we perceive a small portion of that in each have our eyes and our visual field is blind, it is not seeable. Our mind creates it. That if you just think about that one, that’s a pretty amazing thing. So again, not much to do with income property investing there, but I just wanted to share it with you. Because I just keep thinking about how fascinating that idea is that our mind literally generates the image to fill in the blind spot. Wow. And you own that free and clear already. Amazing, right? Amazing. Sometimes we got to really appreciate that, you know, thanksgiving wasn’t that long ago, and talk about something to be thankful for the most amazing computer that can outdo any computer that has ever been created. We already own one of those free and clear pretty darn cool. Well, hey, let’s get to our interview our client case study with Fernando and you’ll hear about how he acquired his 50 properties and they total 70 units because He’s got some flexes in there. Here we go, Hey, I want to do a case study with one of our clients. And I’ve been asking him to come on the show for a while, and he said, He’s not ready yet. But then, to my delight, I saw that he requested a time to be on the show. And that is someone I’ve talked about before. And he was on just briefly a couple of months ago, when we were at a conference and that is Fernando Fernando. Welcome. How are you?
I’m doing great, Jason. Thanks. Thanks for having the time to talk with
Jason Hartman 10:28
me. Well, it’s good to have you on and you’ve got quite an impressive story. And I think the clients will really, or the listeners and clients of ours will really benefit from hearing your story. So so thank you for sharing it. Maybe we’ll go back and kind of take a big high level overview here of how you became interested in real estate and maybe even in your childhood growing up in another country, talking about what you saw in terms of inflation and parents business and so forth, and we’ll lead right up to The present day and how you build your portfolio. So sure, Does that sound good?
Yeah. Sounds Sounds like you plan.
Jason Hartman 11:05
So you grew up in, in Brazil. Right?
Right. Yeah, I was born in San Paulo, Brazil in the late 60s. So although my parents are from European descent, I lived in Brazil, you know, when I was there, my childhood and, and as a teenager, and I actually lived through a period in Brazil, where high inflation was really making its mark there was there was a lot of people that were hurt by inflation in Brazil and some people that were making quite a bit of money with inflation at the time, we had annual rates that were over 100%. So it was it was kind of an interesting time. So
Jason Hartman 11:43
inflation rates of over 100% annually. Yeah, that is just crippling. I mean, what a way to do that just destroy, to destroy people’s savings, destroy their stock investments.
Most people living there, even at a young age myself understood that money Left unused, either in the bank or even in their wallet would lose it as purchase power. Literally on a daily basis prices would be nothing for prices to go up by 1020 30% at a shot. I even remember living through a change of currency where the government decided or decreed that we would be using a new currency and they had to remove three zeros from the old currency because it was getting out of hand. You’d be 1000 Crusaders at the tire for a pack of gum. Yeah, it was that bad. Unbelievable.
Jason Hartman 12:30
Yeah, so if the currency was a crusade at attack, crusade crusade Oh, okay, and so 1000 of those for a pack of gum, but what was it before I mean, give us a comparison of how we should relate.
Well, it went from being 1000 to one they took three zeros out of the currency and created a new currency with a new name. Until that, you know, it became more seen you wouldn’t be carrying millions of currency with you with just, you know, I carry a lot last It was amazing my father at the time he owned he was a shopkeeper. He want to bake pre daily. And I used to help him by working there and I was a kid and teenager at the time. And I remember vendors coming in just to you know to stock up and sell goods like cheese and ham and then they would tell him that you know, by the way, Mr. Aries the prices just went up by 20%. You know, my father he would have to pay for for these these products with money from his previous sales. But due to inflation, all these these price hikes he had to come up with this new 20% money to pay for products that he hasn’t sold yet. He was just getting into the business. And I saw this cycle repeating itself numerous times. It was just it was just sad to see. He was getting to a point where the net effect of his businesses you will never catch up. He was always behind the curve, always trying to come up with new money to pay for Other basic goods that he needed. He got to a point where he needed more and more money. He started boring money and get this Jason at a rate of 5% a month 5% interest per month
Jason Hartman 14:12
when you compound that, I mean that’s that’s just insane.
Wow. Yeah, yeah, I took a look at some of his I did a spreadsheet with him back when, when I when I went back to Brazil to visit after living in the US and it just made no sense. It was absolutely crazy to live like that. But on the flip side, you know, this is this is an example of, of my dad was really struggling with inflation, but I had an uncle who was it was talking it’s always
Jason Hartman 14:40
say I know it’s always you know, that’s so funny because I recently listened to the interview that I did with my aunt Joan. And of course, you know, Uncle john, but he wasn’t there, but I did it with Pantone. And it’s always a rich uncle, right?
Yeah, I don’t know how that one. But anyway, I had an uncle in he he was actually a business partner, my father and the only The butcher shop and they own you know, various different things and we lived in Brazil through the same time period went through the same inflationary issues. But that was one crucial difference. He managed during that time to buy a couple of commercial buildings and rent them out.
Jason Hartman 15:18
Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday.
I remember that he used to live upstairs, it was a true story building one of them. He lived upstairs and rented the lower side of the building to a business and the rents would keep up with inflation. As a matter of fact, he would he would raise the prices of rents higher than inflation at times because the the, the the steps were quite big it’d be 20 to 30 to 40% change in, in price hikes. You know, you can you can you can definitely put a little bit more in you know, towards your your rent. Increase in go ahead of inflation. So he was able to make money and save enough money and ended up purchasing a small business in Europe, you know, move away from Brazil, before hyperinflation really took off, you know, this in the, in the 80s. You know, it went from hundreds to thousands of percent a year, it just became insane. So he, he basically left Brazil and then was able to continue with a decent, decent life in Europe. And that really, really stayed with me that learning the, you know, the way to get ahead and to get wealthy was what my uncle did, essentially, that is just amazing. So, when you were a kid, and you saw this type of inflation, I mean, you talked about what it did to your dad’s business and how it put him just behind the eight ball forever where he was just always trying to catch up. How did you feel how did other people feel around you that you knew, I mean, that’s just I mean to see this kind of ravaging of the currency devaluation firsthand is it’s just gotta be just amazing. I mean, it just changes your whole psychology doesn’t it? He doesn’t, he doesn’t. Because when you’re living in a situation like that on a day to day basis, you just thought that and you know, as a kid, I felt that that’s how the world was, you know, it was just prices kept going up and if you don’t keep up and if you you know, if you don’t do the right moves you you you’re gonna fall behind. And it’s just, it’s just the life that you live in. You don’t put too much thought into it. It’s just catching up trying to survive and but the net effect is a lot of people worked very hard and saw their life savings just going down being eaten up by inflation.
Jason Hartman 17:42
It would encourage people to spend sooner rather than later I would assume I mean, it you know it that’s really bad for an economy when you don’t have a way to encourage people to save money, and you don’t reward them to save money because if you don’t have capital formation That really limits progress. Big things are done with capital formation. They’re not done if you don’t form capital,
there was very little credit available at the time. Like I said money was was so crazy. Inflation was so high it was, it was the credit was virtually non existent. So you saw a lot of hard money loans at these crazy rates. And people just being desperate to try to catch up and
Jason Hartman 18:24
most never did. That would be a very dangerous time to be a lender because one of the things I teach is how inflation transfers wealth from lenders to borrowers, and borrowers and are enriched by inflation and lenders are hurt. Amazingly, we don’t have more inflation in the US, which is I don’t know how long they can keep defying gravity, Fernando but they for the past year, they seem to be doing pretty well before that, you know, for the last couple of years. We’ve had some real inflation and you know, the government statistics are always understating it. Which by the way back to Brazil. I don’t even know if you paid attention to it. Certainly as a teenager, I didn’t but did you You notice anything about the way the government acted? Or do they understate inflation like we do here in the US? Or, you know, was there any awareness of that?
I don’t think that they had, it was so obvious that I don’t think there was any way to to play these games. it you know, it’s just so high that people see it every day. And you know, it’s crazy, and it doesn’t really matter if it’s 130 or 150% a
Jason Hartman 19:26
year. It’s still just really, really high. Exactly. Well, amazing. Okay, so, what got you interested in real estate investing? When did that first happened?
Well, as I said, You know, I was, I was learning as a child, what, what inflation would do and I saw how real estate helped my ankle. And, you know, basically, I guess I have to take a step back and give you a little bit of background of, of some of the deep realizations that I had while working. That led me to real estate in a more direct way as I was working in corporate America, you know, a few years ago I, I went through, I guess awakening deep realization that I was not going to become financially independent at the rate that I was going. My investments were basically tied to the stock market stock market and honestly, they’re mostly treading water. I tried to, you know, make a big, becoming financially independent from stock options by working on on startups. And I had to two tries to different startups that I that I worked for, but it didn’t quite work out. I didn’t make enough money to make me financially independent, but instead, it was certainly enough to trigger a huge tax payments to Uncle Sam. You know, I saw though 40 to 50% of my earnings being taken up by taxes. You know, literally there were hundreds of thousands of dollars in taxes to the federal government state of California. For the years where I got lucky enough to have options that were above water that actually made money on stock options, stock options. Right,
Jason Hartman 21:09
right, right. And we should say that you’re an engineer, a chip designer, you live in Santa Cruz. And so your career has been spent in the Silicon Valley area. Right.
Right. Let me let me give you a little bit of background that I came to the US, I guess for, for permanently in 1984. I was an exchange student through the Rotary Club. It’s a service club, and I went to live in New York State. I attended high school there. And when I was in high school, I played soccer and I caught the eye of a soccer coach. There was a nearby State University of New York campus and the soccer coach offered me a small scholarship to study classical engineering computer graphics at the State University in New York. And after I graduated, I was offered a job with a company that no longer exists. It’s It was called Digital Equipment Corporation. And at At the time, it was a huge company it was I think IBM was the biggest one in the in the 80s. And digital was was second. Although like 15 times smaller than IBM is so big difference but it was a great company it had it had the top but technology. And I ended up going to work near Boston, Massachusetts in actually Hudson, Massachusetts to design computer chips. I don’t know if you recall their Vax line of computers. And then I went on to to work on their alpha computer chip blind is all with Digital Equipment Corporation. And in 1993, digital decided to open a design center in Palo Alto, California. This is where the when I moved to California moved to Palo Alto, the end of 1993. There was a design Santa that digital opened up. And in Palo Alto, they were actually designing chips for a project that Apple was developing called the Newton.
Jason Hartman 22:55
You might have heard that that it was I do remember that you do that Uh, but you know, if Apple didn’t have the Newton flop, we probably we might not have the iPhone if you ask me. But
anyway, it was a predecessor, it was kind of a PDA and a personal assistant that it had some handwriting recognition software. But it was just before its time it was it was a commercial disappointment, to say the least. But I work for digital in that project through 1995. And that’s when I tried my luck with a startup. You know, being in Silicon Valley, I had to, I had to try at least one startup and I knew that this was one way to become financially independent. So I tried going to work for a company called Next Gen. In 1995. Next Gen. It was basically designing computer chip CPUs. It was a competitor of Intel, along with many other companies, that actually struggled quite a bit since Intel was a virtual monopoly for for the PC World at the time. So next gen. I was bought by Advanced Micro Devices, which is a much bigger company and was also a competitor of Intel. And they paid quite a bit for for the startup that I was in a paid $1 billion in 1996. And even though that was a great price, bottom line for me is I made very little money on the deal. I think I made less than 100,000. I didn’t have enough shares, and I didn’t have enough vesting,
Jason Hartman 24:26
and the government took all the money in taxes, right?
Yeah, they took a lot of any taxes. And I was I was really, I was really lucky in a way but unlucky enough to not really make money out of the deal. So I worked for AMD, since they bought the startup. I wrote for AMD as a chip designer from I think 96 to 2004. And during that time, we went through the.com bubble and AMD stock actually reached its peak, it was over 40 bucks, and you know riding that bubble, but overall For for the time that I worked at AMD was about eight years. During these eight years, I was able to make a few hundred thousand dollars from stock options and I put some away some of it away as investments in the stock market. I worked after AMD for another startup since the first one, you know, didn’t really get me to financial independence, I went to another startup co pa Sammy, and PA Sammy was a startup that produced a line of power efficient CPUs. And this was quite revolutionary at the time. And it was to be used for gaming consoles and routers, internet routers, and that sort of thing. And, you know, I worked there for them through 2004 what I do remember even though I didn’t didn’t quite make it big with the startups is the work in the startup was very demanding. You know, I was having some difficulty seeing enough of my kids and family. You know, during the times I was working in the In a startup it was it was quite difficult. Fast forward a little bit, if you would,
Jason Hartman 26:04
to your work at Apple and how that came about, and then how you got interested in real estate.
So Pac Man was acquired by Apple in 2008. They paid almost 300 million for for the deal. And honestly, for the four years that I worked there, the start off, I made about 350,000, probably from the sale, but the government again took over 100,000 in taxes, you know, in the interesting thing is in in California, the money that I made, and that money that I made from all of these years was not enough to even put down as a down payment for a decent house. Houses in Silicon Valley, you know, a million dollars is is common for a house here and then I couldn’t even put it down for I mean off down for a downpayment, it was said, but Apple did offer me a nice package, you know, as I joined them, but it required a four year vesting period. You know, you have to wait for your stock options to fail. And, you know, restricted stocks too vast, so we had to, you know, put your time through in order to reap any rewards. And I worked for Apple as a senior manager there getting doing chip design, doing program management and working on their intellectual property hardware. Yeah.
Jason Hartman 27:16
So we’re, we’re so now you’re working at Apple, and Apple, you know, Apple makes great products, obviously, we all love them, or most people do. But, you know, that’s hard work, isn’t it?
It was hard work. And you know, as I as I mentioned, when I was going through some, some enlightenment or realization internally and in becoming disillusioned with, with, with how fast I was progressing towards financial independence, and especially the my stock market investments, you know, I went through the subprime and the financial crisis, you know, 2007 through 2009 that really took a dent on on my savings in I remember paying thousands of dollars for a financial analyst and an investment counselor Charles Schwab and Morgan Stanley, but my returns are absolutely terrible. It was just
Jason Hartman 28:07
come to Wall Street.
Depending on the home on, you know, how I how I measure which account I used I, I lost 20 to 40% of my savings that, you know, my investments that I have worked on for many years, you know, that would mean mean that it would have to go up by 40 to 80%. For me, just to be back up to where I was, it was just, it was just sad.
Jason Hartman 28:30
You just don’t get anywhere you spin your wheels on Wall Street and the stock investments because even if you make a return on the deal, the government takes so much of the game. It’s just not a tax favored investment. Income property is the most tax favored investment in America. So how did you get interested? I mean, what did you do what you started searching for podcasts or what was your start?
Oh, yeah, sure. So it was kind of an interesting story. Before I got to the podcast in Things 2011 I was watching late night TV at a lake in New York State. And I was there with my American family. And I saw a program from from a TV network called America auction network and TV. And they were sort of sounding newer homes in southwestern Florida in Lee County. This is where Fort Myers, Cape Coral Lehigh acres are, you probably know. And these new homes in their homes were built in 2006 2007. And there were $60,000 $70,000 in here being rent rented out for 750 dollars $850 a month. These were nice three bedroom, two bath, two car garage, 1500 square feet and higher. They were renovated, ready to rent. The guys that were selling them on the network were showing returns on investments are wise available. 13% I just could not believe it. I, you know, I, I could not believe the amount, you know, the prices for the season and the returns that you could get it was just a completely new idea for me. Although there were some caveats. You had to pay cash for the houses, you know, we had to close within a couple weeks. There were no contingency on inspection. And so one. And I think the network also made 10% off of the sale. But But still, it was it was a great deal for me living in Silicon Valley. As I mentioned, it’s not uncommon for you to find a house cost a million dollars there needs some work, and these homes in Florida were being sold in their entirety for less than a typical downpayment. For me, well, I studied it quite a bit. I put a spreadsheet together I analyzes and compare different properties that are being sold on the network for months and I thought about going to Florida during this time, and I think I spent in about three months doing this just just kind of trying to get over my fear of actually purchasing something in a market that I wasn’t familiar with, but I did decide to go to Florida and buy properties in his early 2012. I ended up buying a couple properties in Collier County, not not in Lee County. I found a real estate agent who was a colleague of a colleague and the agent knew some contractors handyman that couldn’t
Jason Hartman 31:27
So here it’s all fragmented and you’re just bouncing around. Yeah,
exactly. Yeah. I actually had my dad go down to Florida for three weeks to get the house ready for rent. Oh, he helped fix it up. It was a hot hodgepodge of of items that I had to go through. In as of today I self managed, I still have the property itself manage it. And it was definitely not turnkey and I had quite a bit of difficulty finding support services around the area. That’s exactly what I found and so many of our clients have found Fernando is that they Just, you know, there just wasn’t any way to properly and prudently invest on a nationwide basis. So after that, you know, this was in early 2012. This is when I found your podcast, I found that creating wealth podcasts with with you. And I got to give you a little bit of background. I’ve always loved podcasts. So I, I searched and I listened to many different financial and real estate related podcasts, and especially a lot of these in early 2012. As I was getting into buying property, I had bought a couple properties in Florida. But honestly, almost all the podcasts and webinars and education out there had very little content that could make a difference in my life. There was it’s just lots of talk about the current real estate market and interest rates and a bunch of guesses on where things are headed. It was actually a real board. It was just very repetitive. There were some that were offering flipping, you know, buy how to buy cheap and do rehabs. But honestly, they sounded like a lot of work. Work Yeah. In most of them require you to be present in the city where the properties war, you had to scrub news, newspapers and county auctions to find the right do the right property and then you gotta go find a contractor to fix them up. I remember one of them. It taught you how to become something called a bird dog. You probably know that term, right? Yeah, sure. And, you know, it was just it was just so much work. I think what I was was was learning from from that process is, despite what they were telling you, being a bird dog or flipper, it’s it’s not as quick and easy for the novice guy that really doesn’t know the area or, or the contractors to get economies of scale. So you wouldn’t become the next, Donald Trump doing this. I think most of the successful ones, they spent years or maybe decades working around real estate and they develop their instincts about what properties to buy and so on. So I didn’t think it was that easy.
Jason Hartman 34:15
So Fernando, you started looking for podcasts out there and tell the listeners what you found?
Well, I basically found creating wealth podcast by searching iTunes, and immediately resonated with your message, you know, the great return on investment, significantly significant reduction in taxes, steady income that could eventually replace my corporate job income. Also, what I found very powerful is along with that message, I was impressed by the high caliber of your guests and I remember listening to economist investors, lawyers, authors, basically people who could present their expertise and allow me to judge their response against your message. So as an example, When you talk about inflation, your your your ideas about inflation going up over the next few years, I could vet that message against your guests and, and be sure that what you’re saying made sense. So that was very powerful to me.
Jason Hartman 35:12
Oh, that’s an interesting point. So, in other words, you didn’t have to just take my word for it. You heard the guest, you know, saying, I mean, assuming they agreed, I certainly don’t always agree with the guest or they don’t always agree with me, but
right, not necessarily agree but but understanding their reasoning and seeing how that compares against your reasoning. And if I was to follow your plan for financial independence, would it would it work according to the experts, and not just you? So basically allow me to solidify my understanding of the various facets of real estate income investment and you know, the multi dimensions that he has, and and listen to these top notch experts. So it just, I mean, it was just clear that after I listened to the first few episodes, in this is in early 2012 I went back and I downloaded probably one year’s worth of podcasts. And I went on a listening spree. I was gobbling up, you know, every podcast that I could get my hands on. And then at that point, I knew I was ready to sit down with you and come up with an exact plan on how to achieve my financial independence.
Jason Hartman 36:17
Good. Good. So you took a trip to Phoenix just kind of on your own. Right. I mean, I know that you you talked with a couple of our local market specialist in Phoenix at the time. And then you had contacted me and asked if we could meet. And I remember I remember our first meeting together. I just walked down from my my apartment and met you at a little bar there called canteen Cantina. And we we just had a beer and a bite to eat, right?
Yeah. And you brought cocoa with you if I really Yeah, well, no, actually,
Jason Hartman 36:50
I think that was puppy. I had puppy back then. And you didn’t meet my old dog. So there you go on that meeting.
Yeah, so That meeting was really key because I at that time, I had put together what I called my independence day plan spreadsheet. And this was a lot of my thoughts into what it would take, how much money would they count how many properties I would have to have in order to replace my corporate income. The goal to me was was clear that I wanted within a year to be financially independent. And that would meant that again, I’d have to have enough rental income to match my corporate income. I wanted to quit my corporate job and have the choice of live anywhere that I wanted. If I wanted to live in California I could stay or if I want to relocate, I could stay because I was I was not not tied to an office.
Jason Hartman 37:46
Yeah, I loved I love that you call it Financial Independence Day, and you were so organized. I mean, you know, we went over kind of your different assets that you could use. I know that you sold a bunch of your Apple stock and purchased income properties, with And, you know, we talked about the possibility of using Home Equity and all of the different things. And then you just started, you know, after you have that financial independence day outline, which was a great guide, you were you were extremely organized. Then you started acquiring properties, right. Where did you Where did you start? I can’t remember, you know, well, we
Yeah, we talked about buying in Dallas, Atlanta, Phoenix, St. Louis. We made a plane in you know, at the time, there were different lenders that were offering incentives for different markets. So we made a plan, and I ended up going to Atlanta first. The idea was really to try to to use up my conventional financing spots. As you probably know, there’s a limit of 10 additional financing loans that you can have under under your name. And those are the 30 year fixed interest rate. mortgages that are just great. So we tried to use those 10 spots in Atlanta and and get those done and out of the way so I could purchase more properties with commercial financing after that point.
Jason Hartman 39:12
Right. Okay, so Atlanta was the first market then. Right,
right. Exactly. Yeah, I bought several properties in Atlanta by October 2012. And then a few more by November 2012. In Phoenix, we we looked at some houses, I ended up making a couple of offers, but we didn’t purchase any the inventory was already getting pretty low and Phoenix at
Jason Hartman 39:34
that time, Phoenix Phoenix doesn’t work anymore. So well. So you know, but there will be time on it probably will soften a little bit or the rents will catch up either one. You know, it’s just a it’s just a question of either one, it can happen and once they do, then, you know, you’ll be in good shape to be buying there again, possibly, you know, so
yeah. Okay, good. And then I went to St. Louis, St. Robert, in Missouri. As you know, the St. Louis that specialty there were the multi you know, the duplex is two, you know two unit and four unit buildings. The older buildings you know built 100 years ago I bought several of those also in 2012 and I bought new construction plexes in St. Robert, near the military school in base and that was completed by January of 2013. Okay, I after that I bought a few properties in Austin, Texas. Also, in 2013. I ended up buying a couple properties in Dallas as well. I started using my IRA IRA money for that I opened up self directed IRA. After going to one of your meet the masters. weekends, I learned about self directed IRAs and I opened up one in July 2012 and bought a couple properties under under the IRA as well.
Jason Hartman 40:56
So tell us what you know some of your biggest challenges we’re in Investing in these different properties. I mean, you would you went to a lot of the markets and really You worked hard at this. I mean, you you were not. You were not unambitious here you, I mean, you really jumped in and you did it. I mean, I gotta tell you, I was impressed.
It’s funny people talk about being lucky and you know, how great your life is at any point, but what they don’t look at is how hard how many hours you put in and how much thought you put into, into the planning. Now, I was lucky enough that I was able to sell some of my Apple stock during the time that happened to be going up in a you know, strong clip. So I was able to reap the benefits from that and putting to the real estate. But the challenges were where I you know, I had a clear plan. As you remember from my financial independence, my independence day spreadsheet, I had a clear goal of becoming independent within a year. And it was very difficult to to accomplish that within that time period. Most of the because of what I call mortgage sequencing you know, it’s it’s it’s one thing to have the money and be ready to buy a lot of properties in, in try to achieve a goal but in reality, you have providers that might not have many properties available at any one time, it might be that they only have one or two crews that are doing rehabs at one time so they just don’t have enough inventory. Even if they have the inventory, they might run into snags where it takes longer to finish the rehab one particular property in you can’t buy what you thought you could buy at a time you wanted to buy. The interesting aspect of marching mortgage is sequencing because of what I just described is, is this the banks they want to take a financial snapshot of the applicant prior to close of escrow. They want to know where you are financially. They don’t want any new contracts, any change to your financial picture during the 30 or 45 days prior to close of escrow once you once you open a contract. You know, in essence, that means that I couldn’t just go down to Dallas, for example, and make an offer to buy a couple houses with one lender, and then go to Atlanta and make an offer and a couple houses from another lender, you know, the lenders, they all want to know about each other. I was at the time, I wasn’t lucky enough to work with a single lender that could take a holistic approach to my plan, and do it across the US and tell me Okay, I get what you want to do. Let’s, you know, let’s put a grand plan together. It was kind of a, it’s kind of an ad hoc type type of approach.
Jason Hartman 43:37
What’s interesting, I want to comment on something you said a moment ago, too, is you talked about how the different local market specialists wouldn’t have enough properties for you to buy. And by the way, just tell the listeners, how many how many properties Do you have now and we’re just talking income properties, not your own home. Are you at 57 properties now?
I got about 50 properties 50 off 70 doors, there’s about 12 plexus, you know,
Jason Hartman 44:00
right. Okay, so you have some plexus. So yeah, how many doors total 7070 doors. Okay, so 70 units and 50 properties. All right, good. And, and so one of the challenges you had is that they just wouldn’t have properties for you to acquire. And, and this, by the way, is why Wall Street has a very difficult time being in our business, which is great because it keeps them out the institutional investors find it frustrating. Okay. Yeah. And, you know, they they want to just be able to go and deploy, you know, a billion dollars with a mouse click and a due diligence report, you know, and it just, they just can’t do it in our business. Can they? Not very easily at least Yeah.
So So as I was saying, I really had a tough time, you know, hitting my goals within one year. I frequently got into a spot where I was getting purchasing two or three properties in and they’re all being rehabbed, getting ready for tenants. And what the Banks, you know, if I was getting the close of all properties to be done at the same time, the banks would want to make me wait until all properties were ready, you know, for their appraisal until we could close on all of them. So if you had one that had troubles rehabbing, it would delay the purchase of all the items, it would then push out the timeline for all the eventual purchases. Bottom line is I had to wait longer for for my independence day, Financial Independence Day, date, and he got pushed out from one year to two years.
Jason Hartman 45:33
Right. Right. So it took twice as long it took two years rather than when you’re ready to get to financial independence. And how did you feel about that? I mean, you know, it was just a problem of, of being able to get the properties, right. You just couldn’t acquire the properties fast enough.
Yeah, it couldn’t be done fast enough. You know, I had to sequence my conventional financing backed by Fannie Freddie, early on and only after those are done Move on to commercial and portable portfolio landing. So even though opportunities were presenting themselves for, for commercial lending, I had to first get get my conventional loans done, because those are so much better terms than then everything else. So it just has, you know, the point is there’s a sequence that you have to follow. And it doesn’t just happen the way you want it to happen even though we might have I had a great credit score, you know, almost 107 87 credit score a great job, you know, paying over $200,000 a year. I mean, I had no problems getting credit financing for for these properties, but it just doesn’t happen as fast as I thought it would.
Jason Hartman 46:41
Yeah, that’s, that’s true. This is a fragmented business and you gotta you got to dive in. So let’s talk about more of the challenges. You know, you talked about some challenges in acquiring the properties Fernando, but what about managing them, you know, how difficult is it and, you know, I just want you to share kind of some of the the pitfalls And the challenges and then some of the good sides to you know, to give people an accurate sure
it’s a you know, there’s bumps in the road, it’s it’s not rosy as as you might think is a passive investment, you have to be involved. As I was purchasing properties in Atlanta, the property manager was indicated by the local market specialist by the providing a planet was was becoming overwhelmed. She just had too many properties that were coming her way too many clients that were coming her way. And she didn’t have enough of a software backbone to her business to handle all these properties. And it became so bad that he got to a point where I fired her and I, I got involved with a new property management company and had to transfer all my leases over and make sure that the tenants were aware of it. So that took quite a bit of time to go through. As a matter of fact, the very first home I purchasing Atlanta we had to evict the tenet This was my first taste of my financial independence the Hey, Blaine started out with a big bump and you know it took took a while was over three months to get that ironed out mostly because the the property manager was was getting overwhelmed and just could not handle it properly wasn’t on top of thing. Okay.
Jason Hartman 48:21
All right. So you got that squared away and that took some time. What else what other challenges
challenges in in rehabbing St. Louis was a perfect example. The rehabs in St. Louis are extensive in you’re basically looking at these hundred old properties that needed to be gutted in have new plumbing, new electrical, you know, sometimes they had to remove you know, bad plaster jobs and had to put sheetrock and sometimes had to repair the frame. And it was it was just, it was just a big rehab. It was not a cosmetic type of job. So these took a lot longer than planned. both, both because of this, and also because the provider was also getting overwhelmed with too many clients. And in just trying to do too many things at one time just didn’t have enough contractors and knocking on resources to, to address all of these clients. is it’s interesting that in the boom times there, we had some real challenges
Jason Hartman 49:22
in St. Louis, that was one of our most challenging markets for a time and they’ve mostly iron themselves out now, but it took some time, that’s for sure. Oddly, though, Fernando, as many challenges as we had in St. Louis, people benefited from the most of the time because well, they had huge construction delays and you know, people were anxious to invest the market was going through and so you know, even though it was kind of disappointing, to some, it really overall it had a pretty big financial benefit in a lot of ways. Yeah,
if you look at the building prices now they definitely have gone up. So it’s a it’s a It’s quite interesting.
Jason Hartman 50:02
So, so with these with these 50 properties and 70 units that you have, you’re really good at keeping track of things. I mean, you’re an engineer, you’re a chip designer. So what what kind of gains Have you made? And what kind of returns if you had?
Well, I was just looking at this recently and, you know, when I, when I set out to do my replace, when I set out to replace my corporate income with with with my rental income, I took a snapshot in the beginning of this year, in my corporate income after everything taken into account, all my expenses, all of the normal items that you would, you would see from from just working regularly, I would come up with about 8500 monthly of net corporate income. My net income from real estate rentals is now closer to 10,000.
Jason Hartman 50:56
And the difference is you have a huge tax advantage on rental properties, right?
Right. This is this is already, you know, 15 to 20% more than my corporate income. And, you know, I do have equity building in all of these properties. And I do have the tax benefits going into this property that the nice thing about taxes, when when I look at my situation is I’m getting to a point where I have over 150,000 in depreciation every year. And what this means is I can make this much in cash flow income before I need to pay taxes on the rental income.
Jason Hartman 51:31
Okay, so say that again. So the depreciation for the few that don’t know is the most wonderful tax benefit in America. I mean, it is when you say depreciation, that’s a good thing. The way we’re talking about it now, because that’s what the IRS calls it. But the property could double in value it could appreciate in real life, but according to your tax return, you’re getting a big deduction as though you’re losing money. Yeah. So it’s a great thing because it doesn’t make any sense in a way That’s what’s wonderful about it. Okay, so say Say that again, what what, what are the numbers?
Yeah, so I have over $150,000 in depreciation expenses as
Jason Hartman 52:11
as a tax. Okay? And what this means is I can make this much I can make, you know, 100 up to 150,000 in cash flow before I need before I show any income and therefore need to pay taxes on the rental income because right I can deduct that 150 straight from my income. So it’s just wonderful. Yeah, it’s
Jason Hartman 52:34
just a great tax but if you calculated like your return on investment, you’re pretty good at using property tracker, and and keeping track of things. What does that look like?
Well, I don’t have the actual numbers in front of me but it took a while. For me. I started in 2012 2012, actually 2011 but 2012 was when I when I got gained a lot of traction with you and the properties took a while to get to perform took awhile for the rehabs to be done, etc, etc. So my cash flow was was very little was like 5000, or something like that it was it was not very, very much. This is the reo cash flow where I think a lot of the noise out of the equation in 2013, it was much better the yearly cash flow was 60,000 as the properties came came to perform, and for 2014 the projection is about 120,000. And that’s, that’s where I, I come to the comparison of being able to replace my corporate income. When you look at taxes that you’re paying with your corporate income, you realize that you don’t need as nearly nearly as much rental income to to get to the same point because of the tax benefits. So you know, things will will only get better.
Jason Hartman 53:47
So let’s just talk about that for a moment. I want to make sure people understand that. I mean, if you have $10,000 a month in tax free income, depending on where you live and what your tax brackets are, of course, you know that that’s That’s about $6,000 per month at your corporate job, right, you know, so. So you’re, you’re really, you’re really, if you attended, I should say that the other way, if you have $10,000 in income from your job, you’re really only keeping about 6000 of that these are very rough numbers, okay? And they do depend on, on where you are, you can earn 6000 in, in rental income, if you’re able to take all those depreciation tax benefits and actually earn more. I mean, you know, it’s incredible. It’s just an incredible thing. Taxes are the single largest expense in anybody’s life. And, and we’ve got to learn about them. We’ve got to, we’ve got to manage and position our investments so that we can benefit
in this way rather than being hurt by it. That’s exactly it. It’s interesting that I have you know, you gave your exact example, I can give you my exact example where my gross income with a corporate income was 18,000 a month in This is gross. But my net income was, as I mentioned before 8500 when I look at real estate, my total income it’s 10,000 a month, but my net income is about 10,000 a month because I get the depreciation to write off you know, this this the income that comes in so the comparison at the end of the day is in favor of of the real estate. rental income. It’s so much more powerful because taxes are such a big, big hit on your on your finances.
Jason Hartman 55:28
Yeah, yeah, for sure. That’s it’s just it’s amazingly important thing. It’s amazingly important. Okay, good. Well, just wrapping up here, Fernando, what else would you like people to know? What else should they know about real estate investor?
Oh, there’s a lot to know. I’m always learning. I think it’s a I think there’s there’s different things you can do with real estate. There there are opportunities for using your self directed IRA for some aspects of real estate that provide short term returns that I’m interested in getting into, such as land contracts and notes and that sort of thing. So that’s definitely something for people to think about to tap into their IRA savings. The other point that I want to make is, for people that are thinking of buying many properties, financing is very, very important. Try to get as much financing as possible with the low interest rates that we have now, you know, I’ve financed over 80% of my properties and pretty small tried to, to do refinancing on some of the ones that I paid cash for your returns I just leveraged by so much when you get appreciation of three 6% multiplying by that leverage that financing allows you It really makes your total income be much, much higher than anything else you can do.
Jason Hartman 56:48
Yeah, it sure does. And did you buy into that idea initially, Fernando, because it’s kind of counterintuitive for many people. You know, they think that Oh, I’m too conservative. I don’t want to take on debt, you know, I want to own the properties free and clear kind of that old school mentality. And, you know, once you come around to the fact that the most conservative thing to do, I sort of, ironically, is to have as much financing or as much debt as possible on the property. Yeah. And the the riskiest thing is to own them all free and clear. Yeah. Which is counterintuitive, right? Did you buy into that right away? Well, I
sometime I used to have that same line of thought the old line of thought that, you know, I wanted to pay off a lot of my investments, but I, from my learning over the last three years, and in my real life examples, I would like to leverage as much as possible and push all of the, all that, you know, equity onto the into the lender. And, you know, leverage is is probably one of the most powerful aspects of real estate income. So I’m definitely strongly on the side of leverage as much as you can see, especially with the current rates that we have,
Jason Hartman 57:56
yeah, yeah, good. And just to wrap the story up, What happened? I mean, you achieved your financial freedom day and you retired from Apple. And when did you retire from Apple in May? May May 2000 for a few thousand 14 2004. You know, it’s funny because I heard someone talking on the radio, and they kept talking about 2004. And I kept yelling at the radio the other day. It’s 2014 you’re talking about? We don’t realize it’s lighter than we think.
Exactly. We went to coffee go back 10 years. Yeah, so I retired and I immediately went to Brazil for three months to spend time on the beach with my family and you took the summer off. I took the summer you saw the World Cup and all this other world cup. I was in Brazil, we had a great time. Just I could never even dream of taking that much time off when I was working for any of the tech companies, any of the tech companies that I worked for before. So we spent time there I came back and I absolutely love the freedom I have only my time and if I wanted to go to a conference which I have done with you even and I can do that and I really have the choice, I don’t need to worry about asking permission to go on vacation, or how long I’m going to be out for it interesting enough, you know, after being retired from corporate America, there are lots of opportunities for for me to get involved in I’ve been helping quite a bit of of people with their planes, being a coach and investment consular and trying to, to answer questions for people that work with me to Apple and colleagues that want to do a similar plan as I have done. So it’s just been incredible.
Jason Hartman 59:44
Yeah, yeah. Good. Good for you. That’s so good to hear what a great story and thank you so much for sharing it with all our listeners today. I really appreciate it and you know, what’s next for you, you’re gonna buy more properties. I know you’re looking at notes and land contracts, and I’m really excited about doing more In that world, too. I’ve dabbled in it for many, many years, but I won’t do it in a bigger way. And it’s not as good as the real estate. It’s better to own the actual property. But for simplicity sake and ease, you know, owning the paper is my second favorite,
you know? Yeah, yeah, no, I think my plan right now is, is for me, too, I got enough properties that I need the help in managing the managers and just just some of the day to day tasks, so I’m not going to be buying more. If I can’t get more help to take care of them. I do want to get into contracts and notes. I do have a few properties that would lend themselves nicely to to two land contracts. One of them has an issue with Hoa and I would rather do a land contract with it. Also, with my self directed IRA, I have plenty of opportunities to buy notes. I think he lends itself very nicely to the short term income that notes providers there’s not as many tax benefits as you do with rental income. So I do want to get into that as well. So those are the next few steps that I’m planning on doing
Jason Hartman 1:01:11
it. Good stuff. Well, Fernando, thank you so much for sharing this today and keep up the good work, you are doing an awesome job as an investor. And it’s just really it’s really gratifying and great to hear your story. So thank you.
Thanks to you. I’ve never really thought of Jason as subversive. But I just found out that’s what Wall Street considers him to be. Really now How is that possible at all? Simple. Wall Street believes that real estate investors are dangerous to their schemes? Because the dirty truth about income property is that it actually works in real life. I know I mean, how many people do you know not including insiders who created wealth with stocks, bonds and mutual funds. those options are for people who only want to pretend they’re getting ahead. Stocks and other non direct traded assets are a losing game from Most people, the typical scenario is you make a little, you lose a little and spin your wheels for decades. That’s because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you’re one of them, you will not win. And unluckily for wall street. Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is disappointing. Yep. And that’s why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us. We can pick local markets, untouched by the economic downturn, exploited packaged commodities investing and achieve exceptional returns safely and securely. I like how he teaches you how to protect the equity in your home. before it disappears and how to outsource your debt obligations to the government, and this set of advanced strategies for wealth creation is being offered for only $197. To get your creating wealth encyclopedia book one complete with over 20 hours of audio, go to Jason hartman.com forward slash store. If you want to be able to sit back and collect checks every month, just like a banker, Jason’s creating wealth encyclopedia series is for you.
Jason Hartman 1:03:40
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