Jason Hartman starts the show by talking about market cycle predictions and business cycles. He also shares using debt as leverage when purchasing real estate income properties then outsourcing debt to tenants while enjoying the tax advantages. Afterward, he is joined by Naresh, who asked basic but necessary questions to help soon-to-be real estate income, property investors.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:02
Welcome to the creating wealth show listeners from 164 countries worldwide spanning the globe. It’s great to have you here. Thank you for listening. This is your host, Jason Hartman. And this is episode number 622 622. We wanted to do a little more QA, and I’ve got an arrest here with me and he attended our Orlando property tour. What was that maybe two months ago now. He was formulating some questions kind of sitting in the audience thinking, you know, what if I was a new investor, what would I be asking? What if I was an experienced investor? What would I be asking? What if I was a do it yourselfer? versus someone who wanted to be a more passive investor and have it done for me? Or have it done with me? What if I’m those different types of investors? What would my questions be? So Naresh, welcome. How are you?
Naresh 1:51
Thanks, Jason. It’s great to be on. And your Orlando property tour really opened up a new worldview for me, because I’m not a real estate investor yet. But I’m trying to learn
Jason Hartman 2:04
While you’re young, there’s still time.
Naresh 2:06
Yeah. But after going to your tour, I it really got me thinking and I got all sorts of questions because I do want to get started. I just don’t know if now is a time or I should wait or, you know, just just simple questions like that. I want to ask you some of those, because I’m sure many of your listeners, especially your newer ones have the same questions.
Jason Hartman 2:29
Yeah. Okay, good. Well, let’s dive in.
Naresh 2:3
Okay, well, the first question has to do with timing. And right now, as you know, the the Federal Reserve just a little bit just just recently, increased rates by a little bit. I don’t know what impact that’s gonna have on on real estate as a whole on home prices, on property values. But I had a friend of mine told me a couple of weeks ago, say, you know, you should just buy real estate as soon as you can, you shouldn’t put it off, because what if properties keep going up in value. Just do it as soon as you can. And I wasn’t really sure about that. I’ve always believed in investments. As you know, buy low, sell high. Now, I’m not saying I want to sell my real estate down the road. But I still think you should get in at a low price. Well, what do you think?
Jason Hartman 3:18
Well, the first thing I think, is good luck trying to time the market, you’ll need it. Because I have never met anybody, myself included, who’s been doing this a darn long time and been, you know, been involved in 1000s of deals literally, the who can time the market? I mean, it’s just very hard to do, you know, you know, frankly, it wouldn’t be so difficult to time market cycles in stocks, bonds, real estate, whatever, if we didn’t have this outside interference from government and central banks, you know, you really could look at I mean, the profession of being an economist, was created to make astrology look credible. And, and so, you know, predicting these things is very difficult. But if you didn’t have all these outside forces, like governments and central banks interfering in the marketplaces, regardless of what market it is, if you had a truly free market, you really could look at patterns and probably do a decent job in making predictions. But when you have the US outside forces that don’t act logically, that basically govern, whether it be regulations, you know, laws and tax laws and incentivizing people to do certain things like Cash for Clunkers or the gozone tax write off, you know, that changes the dynamics of the market, right? The the bank bailouts and the pressure that they put on the banks to do workouts and that that really is aligned to the rental market for quite a while during the Great Recession. So if you didn’t have all these forces and things acted logically, you probably could do a pretty decent job of making predictions. But since we have these forces interfering in the market, and interfering with what, you know, someone trying to predict, hey, look at, if interest rates go up, and that creates less affordability, then of course, it’s going to help dampen price appreciation. But at the same time, it should put upward pressure on rents. As long as there’s not a lot of new supply being created, new homes being built, and the population is still increasing, right, that would be a logical thing to conclude. But that’s not exactly how it works. Because you get the government in there, and they start doling out more money in section eight, or they start telling the banks you got to be more conservative with your lending or more liberal with your lending. And even in a higher interest rate environment as we had in past years, certainly much higher rates. You know, we saw housing prices go crazy, because even though the rates were higher, the lending was very liberal. And the banks were making loans to people who couldn’t afford their houses. Obviously, this is, you know, this is the, the basis for the global Great Recession, we just start theoretically out of, I’m not gonna say we are for sure. At least that’s what the politicians want us to believe. That’s why timing the market is a fool’s game. So I go back to that old saying, don’t wait to buy real estate, buy real estate, and then wait, don’t wait to buy real estate, buy real estate, and then wait.
Naresh 6:47
That’s a good one. But predictions aside, wouldn’t you know when you’re in an up market or a down market? So here in Florida, for example, I feel like it’s been nothing but up for the past four or five years or so. And right now, I look at some of the valuations on condos, apartments, homes, and I just feel like it’s due for a decline correction.
Naresh 7:15
And you’ll know, you know, people know when these corrections happen, I feel that’s going to be the right time to start looking at property. Am I incorrect on that?
Jason Hartman 7:25
Well, let me ask you this, you say that that market has been going up, up up for what, four or five years now? Yes, I mean, I’m asking you. I mean, I I know I have my opinion. But I think it’s been going up for about seven years. You say four or five years. So it’s been going up, up and up. Okay.
Naresh 7:41
Yeah, maybe six, maybe six or seven years? Yeah.
Jason Hartman 7:44
So So here’s the question, though. How do you know it can’t go up for the next 36 and a half years? How do you know it can go up for the next three years? Or, seven years? Or 15 years? How do you know when it stops going up?
Naresh 8:01
Exactly. No, you’re you’re you’re absolutely right. In that, I guess the only way to, I hate to use the word predict because you just you just said that it’s essentially a waste of time to try to predict. But if you look at history,
Jason Hartman 8:14
Well, you can try.
Naresh 8:16
You can try. But I guess if you were to look at a chart of I guess real estate or real estate ETF, which which I used to own, and you can take a look over the years, you know, the ups and downs, and then you can get a good picture of, you know, once every 10 years or so there is some kind of of pullback or correction or whatever you want to call it.
Jason Hartman 8:38
Yeah, that’s kind of true. That’s kind of true. So, you know, there, there are so many factors, okay. And that’s why it’s just very hard to predict these things. I mean, even if we didn’t have government and central bank interference in the market, okay, and the market was free, we would still be subject to things like the business cycle. If listeners don’t know what the business cycle is, it’s a very broad economic concept. But it certainly is true in the business cycle affects real estate, it affects employment at Aflac affects businesses, and, and you know, what they do they build up their cash, then they build up their inventories, you know, and this whole cycle goes back and forth, right? And it always happens, it just repeats itself. Okay. But even then, the only basis you really have for thinking that the Florida market is overvalued, for example. And the example you gave is looking in the rearview mirror, you can say, well, it was a lot cheaper a few years ago. And then you can also say, I tracked this ETF, which by the way, wouldn’t tell you anything because the ETF wouldn’t be, you know, it’d be probably national. You know, every local market is very different. Like I always say, in a country as large and diverse as the United States. There’s no such thing as a national real estate market. There are about four 100 local markets, okay, so you can only do that by looking in the rearview mirror. And let me just share something with you. And you know, I actually want to read the whole thing, that great, awesome poem, The Reluctant investors lament. Many years ago. I read it on the show. I haven’t done it since then. Can I share that with with the audience? Do you mind? Yeah, of course. Okay. Can I can I read it, it’ll take a couple minutes for me to read this. So this was written by a guy named Donald Weil, and one of our clients David, he is a collector of used books. And at a seminar that I did in Irvine, California last year, he came up to me, and he handed me an entire book by Donald wheel. Okay. It was great. There’s all kinds of great poems in there. The guy was a real estate broker, a real estate investor and a poet. So maybe he’s out of Billy Joel, song piano, man, you know, what was it? Paul is a real estate novelist who never had time for a wife. He’s talking with Davey, who’s still in the Navy, and probably will be for life has great lyrics. I love that song. But what is a real estate novelist? write novels about real estate. Well, this guy writes poetry about real estate. And this is awesome. Because the perspective it gives is from 1977. Okay, and you got a bunch of other questions stacked up. So I don’t want to spend too long on just the prediction angle, because I need to get a bunch of other great questions. But I mean, this is so telling listeners, you got to listen to this because in 1978, I would venture to say that the median price single family home in America was probably around $40,000. Okay, maybe 30 $40,000 in 1978. Okay, and people are sorry, 1977. This is 1977. Okay, it’s probably somewhere around there, check my you know, Google it, you’ll find out I don’t have the number off the top of my head. I’m just kind of guessing, but I bet you I’m pretty close. Okay. So everybody back then in 1977. thought the market was overpriced. It just couldn’t go any higher. Okay. And here’s the poem, written in 1977 by Donald Weil, and I’ve abridged it a little bit to make it a little shorter. Okay, so I’ll read the abridged version my abridging. Okay. He says, I hesitate to make a list of all the countless deals I’ve missed, Bonanzas that were in my grip. I watched them through my fingers slip. The windfalls which I should have bought or lost because I overthought. I thought of this. I thought of that. I could have sworn I smelled a rat. And well, I thought things over twice another grabbed them at the price. It seems I always hesitate, then make up my mind much too late. A very cautious man am I and that is why I never buy when Tucson was cheap desert land. I could have had a heap of sand. When Phoenix was the place to buy. I thought the climate was much too dry. Invest in Dallas, that’s the spot but my six cents warned me I should not and that is why I never buy how NASA how Safa grew North Jersey, Staten Island to what others called those sprawling farms and welcome deals with open arms, a corner here 10 acres they’re compounding values year by year. I chose to think and as I thought they bought the deals I should have bought the golden chances I had then are lost and will not come again. today. I cannot be enticed for everything in 1977 is so overpriced wow that’s really good. Not done yet. Oh hang on it’s almost finished. The deals of yesteryear are dead the markets soft and sews my head at time a teardrop crowns my eye for the deals I had but did not buy. And now life satis words I pan. If only If only I’d invested back then. Now that is a lesson isn’t it.
Naresh 14:22
Wow. And this is is this a classic real estate poem or
Jason Hartman 14:28
It’s called The Reluctant investors lament and it’s awesome. I mean, I love it. This guy. You know, I wonder if Donald Weill is still around. Naresh, can you see if you can find that guy and book him on the show. I love this guy.
Naresh 14:39
Yeah.
Jason Hartman 14:40
He’s awesome.
Naresh 14:41
I’m gonna Yeah, this is it. This is pretty good. Wow.
Jason Hartman 14:43
Isn’t that awesome? I abridged it a little bit. But I mean, it’s, it’s brilliant. You know, look at I got into the business a long time ago, I was just 20 years old. Okay. And I remember when I got into the business, I got in at a time where the market was starting To recover, and things were going up, and you know, about three years into the business, everybody thought it could, you know, two, three it really two, three years into the business. Everybody thought, That’s it, we’re done. Nothing will ever go up higher than this. And and for about two three more years It sure did go up higher than that. And then California specifically experienced its recession. But around the country. It was some markets were doing great. You know, you’d, you’d you’d sell your home. I remember one client I had his name was Glenn O’Brien. I distinctly remember many of my 1000s of clients over the years. I sold Glenn and Leslie, I remember them. Glenn worked at a company called Tellabs and I sold their home in wynwood townhomes in Irvine, California. And as I recall, they were moving to Colorado, I think. And they were selling in California, as I recall, at the time, when you know, the market was just super hot, you put a house on the market, and it would sell in, you know, a couple hours. That would be it was super fast, it was incredible, multiple offers crazy time. And he was selling in the hot market, and then buying in a market that wasn’t so hot. Now, people have done that the other way too, you know, where they’ll sell in the weak market and move to the more expensive market mean, you know, these were homeowners, they’re not investors. But still, even a homeowner views their home as an investment most of the time. You know, it’s it’s relative. And in a country as large and diverse as the US there is no national real estate market, that’s the first thing to understand. The second thing to understand is, over time prices just go up. Okay. I mean, you know, they they may have downward cycles. But this is why we want people to invest in linear cash flow oriented markets. If you’ve got markets with good rent to value ratios, where you can rent a property for, say, somewhere in the neighborhood of 1% of the value per month, then even if the price of the property crashes and goes down, your cash flows probably going to hold up pretty well. In fact, without government interference, your cash flow would likely improve. Because as the market goes down in price, then nobody’s buying and as long as the population is increasing, that’s going to put upward pressure on rents. Okay, so it’s a it’s a counter cyclical, you know, these are like non correlating indicators, right? There, the values and the rents. So, yeah, I just don’t, don’t be too greedy and trying time, the market. That’s the lesson here. And of course, everybody wants to time the market, but show me a successful market timer. I don’t know if one exists. I mean, they all they all do for a while, like, there’s an old saying, everybody’s a genius in a bull market, you know, oh, yeah, I bought my property and you know, it went way up in value, okay, well, then, go buy it, buy a few more and watch them go way down in value, you know, everybody’s a genius until they’re wrong. Okay, and then they’re just gonna be wrong some day and give it all back.
Naresh 18:19
Okay. Gotcha. So, when it comes to timing, and all that your, your recommendation is just get started and buying the real estate.
Jason Hartman 18:27
As long as you’re buying in markets that have good rent to value ratios. Okay. I would not say to do that in, in Southern California, or anywhere in California, or in South Florida, or in the expensive markets in the northeast Washington, DC, New York, Massachusetts, you know, those kind of markets, you know, no way, okay? But in a market, where cash flow is your guide, and you’re not investing for appreciation, and you just look at appreciation as the icing on the cake, hey, if it happens, I can spend it as well as the next guy. I’ll love it. But I’m not going to count on it. What I’m going to count on is his income, I’m going to count on a good rent-to-value ratio.
Naresh 19:13
Got it? Okay. So now let’s say I want to. Now that you told me that I want to get started and actually looking at properties and buying properties. Now I’m not a real estate expert by any means, but I know you in your companies are. So would you recommend that beginner investors go with a company like you to handle all that vetting and to walk people through that process? Or to do something else because I I know you well, I know your companies and I just feel safer knowing that you and your team I can work with you and your team to identify properties and take care of that process.
Jason Hartman 19:54
Well, of course you know answering this question is going to sound, sound self-serving. Of course, I’m going to promote my own business. That’s right, obviously. But, But you know, it’s, it’s, I mean, look, you can do this yourself. You don’t need us. Everybody has access to the real estate market, you can just go online, you can drive around a neighborhood and see a sign and buy a property. Okay? The distinction is, and it’s pretty, pretty giant as a distinction on on the first part on the front end, number one, we are area agnostic. So we do want you to buy properties, because that’s how we make a living. But it doesn’t matter where you buy him, okay, because we’ve got lots of different choices. Now, as we put you, as the client is we put you in contact with our different local market specialist. They are not area agnostic, they want you to buy in their market. You know, if we put you in touch with our person in Atlanta, they’re gonna say, hey, buy Atlanta, it’s the greatest place, we put you in touch with our person in Houston, they’re gonna say buy used, and it’s the greatest place, if the person is in Memphis, or Indianapolis, or San Antonio, or, or wherever they are, you know, they’re gonna say, Hey, I got the best market buy here, right. But that’s why we act as our investment counselors act as a gatekeeper, helping you with a nationwide broader perspective, in saying, look, you know, with with your plan, with your interest, with your risk tolerance, with your time horizon, and the softest part of all with your personality, okay, we’re going to match you up with the right markets, and the right teams in those markets that are going to help you invest, and you can look at them, and there’s no obligation, there’s no cost for any of this stuff. And, you know, if you like their properties, and what their what they have to offer you can buy from them, we’re gonna recommend that you diversify into three markets. So if you’re buying, say, six properties overall by two in each of three different markets, and no more than five markets, okay, three is the minimum diversification and no more than five. So if you’re just starting out, and you’re only buying one property, like say, it’s a really young person, like yourself, right, and you’ve only got the money to buy one property. So you pick a market you buy there. And then you know, a year later or two years later, you do your second one, and maybe you’ll do your second one in another market. Okay? If you have good experiences with that one, maybe double down, but ultimately, as you build a real portfolio over time, and we want you to get you know, a dozen properties, or a couple dozen properties, or maybe even a lot more, okay, we want you to be in at least three markets. So you’re geographically diversified, you take the most historically proven asset class, but you diversify geographically into different markets. The other big, I mean, there are many reasons that you don’t want to do this yourself that you want to do it with us. Okay. Number one, of course, you know, in that last example, you may not live in the right market in which to invest. And it’s very hard to invest remotely without a specialist who can help you do it. Okay. But number two, other than expertise and being area agnostic, and we we can help you exert a lot of leverage over the local market specialists in that market from whom you buy the properties. Because we give them a high volume of business, we don’t do one off deals. I mean, I don’t want to say we never do one off deals on a big deal like an apartment complex, or a mobile home park, we you know, we’re we do a one off deal. But on single family homes, we don’t do one off deals, every thing we we sell through our network is a relationship type of arrangement. So we sign a contract without local market specialists that has some requirements in it that they have to fulfill on behalf of our clients. And we signed a contract with him. And they are always looking at that carrot that we’re dangling in front of them, more business, more business coming from Jason’s team. And that helps you as an investor, get a much better buy, get much better service, get a better quality property, better quality management, and just you just have a much better experience because you have the leverage of our buying power, which is pretty darn significant. Okay. And that’s how we can really, really help you. Okay, so go ahead with your next question. I just want to make sure I mean, there are many reasons, but those are a couple of primary big reasons. But I want to make sure that listeners know
Naresh 24:53
These local market specialists, how did you vet them? How did you meet them and start doing business with them?
Jason Hartman 25:00
Well, in the old days, you know, I’ve been doing this for 11 years now. Okay, this this type of real estate business. In the old days, it was much harder. But nowadays, I just know everybody, you know, I mean, not everybody, but a, you know, it’s a figure a speech, obviously. But I know who the players are out there. I know their reputations. And, you know, I have friends that have worked with them. I have clients that have purchased from them. It when we take on someone new, almost without a doubt, somebody we’re working with already knows them. Okay knows that company that local market specialists. So that’s the best check that we do on them is the is the the informal network, the grapevine, okay? Well, you know, we also search them on the internet, not to say things you read on the internet are totally accurate by any means. But they do give you an indicator, you know, if someone’s got a zillion complaints against them, we know there’s probably a problem here, right? Okay. And we’re not going to work with them. And then, you know, one of our clients at some point will be the first client to buy from that vendor, that local market specialists. And at the beginning of the relationship, we monitor this like a hawk. And we really see how they’re treating our clients. And if it’s bad, we just divert that business to a better provider that provides a better experience for the client.
Naresh 26:28
All right, good. So I guess the last topic we can talk about on this episode is financing. So I find a property through your network that I’m interested in buying or a couple of properties, you get me in touch with the local market specialists. How much money will I need upfront, and what’s the best way to go about getting the lowest possible interest loan, in order to make this happen?
Jason Hartman 26:53
Typically, you will need 20% down on each property. So if you buy, you know, $280,000 properties, you’re going to need about $16,000, each for downpayment plus closing costs, and your closing costs will vary by locality. And depending on the type of financing you choose, okay, and the lender you go with, okay, because that’ll vary a little bit too, but you don’t plan on maybe 4% for your closing costs. Okay, so ultimately about 24% of the price of each property, okay, for your total cash in, in terms of getting the best interest rate, have good credit, you should have about 4%, also of the portfolio value of each property’s value in the bank and reserves, that’s the minimum to cover vacancies or repair items that might come up, you don’t ever want to be in a position where you’re forced to liquidate a property, you know, have have 4% minimum or maybe as much as 10%. But I wouldn’t have more than 10%. Because if you have too much cash sitting on the sidelines, it’s not working for you, it’s not earning a return, you know, so you want to get your money invested, because then it can work for you. Right. So, you know, not more than 10% per property. Okay, so you know, $80,000 property, you’ve got $8,000, in reserves in the bank, just to cover contingencies or problems you could have, right? Hopefully you won’t, but it’s, it’s an emergency fund, okay. And to get a low interest rate, the lender will also look at those reserves a little bit, they’ll Of course, look at your credit report, and your job history, then it’s just a matter of shopping around and getting a good lender. And we will make referrals or investment counselors will refer you to a couple of different lenders and you can see who you feel comfortable with and who has the best rates, and you can go with him or you can use your own outside lender.
Naresh 28:51
Okay, great. Now, one of the things I remember Porter Stansberry saying years ago, he was completely against taking on debt regardless, even real estate that which is considered to be good. He was just against debt in general. And he said, just save up and buy that property with cash. Don’t take out a mortgage.
Jason Hartman 29:12
That’s what Dave Ramsey would say too. And that’s idiotic. But go ahead.
Naresh 29:17
Well, I wanted to hear your thoughts on that because I kind of grew up with that. That type of thinking, you know, debt is bad. Don’t ever get into debt, even if you’re gonna buy. Of course for a car, which is depreciating. That’s just dumb debt to take on.
Jason Hartman 29:32
Yeah, that’s consumer debt. That’s terrible. So here, I’m gonna create a new term. I’m gonna call, I’m gonna call these people debt bigots. They’re debt. This is debt racism. Okay. This is like saying all purple people are bad. Okay. You know, if anybody says that, you’d say they’re a racist, right? Well, this is what people are doing with debt. They’re they’re showing their bigotry against debt, because debt is different. Every Every piece of debt should be treated as an individual. Okay, you know, some debt is good and some is bad. There’s no question that some debt is bad I absolutely. It can be a, you know, it’s a four letter word. So is it a good four letter word or a bad one? It depends. Now, generally speaking debt that you have to repay is bad. But debt that you can outsource to a tenant, and get them to repay it for you, and maybe even pay you a little bit extra every month. You know, this is through the rent, obviously, is what I’m talking about. That’s really good debt. And if that debt is fixed rate, and its conservative, and it’s tied to a good property, that’s a great deal. You know, on many of my episodes, I’ve talked about this, this little trademark term that I have, it’s a mouthful inflation induced debt destruction, inflation induced debt destruction. I just was interviewed on another radio show about this topic. And I talked about what I call the double inflation arbitrage, you know, inflation pays off the debt. Now, granted, inflation is pretty tame right now, admittedly, but you know, over time, it’s there, it’s baked in to the equation, you know, it just has to be ultimately. And if you look at the real life example, that I’ve shared on the show before, and in many of my live events, where I show how inflation has made 10s of millions of people wealthy, I mean, it’s not an abstract theory, it’s an absolute fact, I give this example of the person who bought the medium priced single family home in 1972. For $18,000, they put 20%, down, the interest rate was 7.37%. And if they lived in that house for 30 years, for three decades long, they actually got paid to live there. They not only live there for free, but they also got paid to live there due to tax benefits, and inflation induced debt destruction. And what’s interesting about it is this, this is a really interesting point, inflation over that three decade period was really pretty mild. The official statistics, on average, were only 5.1% annually. Now, you know, the official statistics say inflation is lower than that now, but they’ve manipulated them a lot more. And I’ve done some shows on that quite a while ago, about how Paul Volcker. And, you know, when he was ending his term as Fed chair, they were really starting to manipulate the inflation numbers, and the government has huge incentives to do that. They do it through three basic things. hedonic weighting and substitution. Okay, which I’ve talked about on prior episodes extensively. But, you know, the government has a huge incentive to make inflation seem lower than it really is. Because all the government wages and entitlements are indexed to inflation, cost of living increases Social Security, government payrolls, okay, which are, you know, 20 some odd percent of the economy now, welcome to socialism, okay, but let’s not get off on that tangent. And then, you know, it just makes the population feel happier if a politician can say, hey, the incumbent, you know, inflation is pretty reasonable, right? You know, so they lie, okay, it was only 5.1%. And people got paid to live in their homes for three decades. So imagine if that’s a rental property, and you’re not even paying your own debt, the tenant is, this equation becomes infinitely better than that. So it really is just, you know, it’s the most historically proven asset class in the world, and the debt makes it so much better. But you know, debt debt is a, a powerful thing. And you know, cars are powerful things, they can be used for good or they can crash into people and kill people. You got to be careful with it. You have to be prudent, obviously, and wise, but use it judiciously. And it’s an incredibly powerful tool.
Naresh 34:03
All right, final question. Because I know we’re running a little over
Jason Hartman 34:07
When do we not run over?
Naresh 34:11
So final question on this topic that has to deal with financing. Let’s say, let’s say I, or let’s say someone has a lot of money saved up, let’s say, like a million dollars from the bank, then would it make sense for them to just spend cash to buy multiple real estate properties? Or would you still recommend finding a two?
Jason Hartman 34:29
Oh, no, I’d absolutely recommend the leverage no matter what. Okay? Leveraging amplifies your returns, okay? It lets you beat inflation by the multiple of leverage you use. Okay? So say for example, the property goes up at 6% annually, okay. You know, many people would pick that as the average nationwide appreciation rate of real estate over the course of, you know, a couple of decades, okay. People would usually say, oh, how much does real estate appreciate Then around 6%, give or take, okay. So if it goes up at 6%, and you put 20% down, you’ve got a five to one leverage ratio. Now, let’s say that the inflation rate is the same as the real estate appreciation rate. So in real dollars, you’re only treading water. If you pay cash for the property, you’re breaking even property goes up at 6%, inflation goes up at 6%, meaning your money loses value at the same rate, the property’s increasing in value. So there’s no real gain, the gain is only nominal in name only. Okay? But if you leverage that real estate, and you put 20% down, the leverage depreciation rate is now five times 6%. So it’s 30%. And the inflation rate is unleveraged. It’s still 6%. So now you’ve arbitrage inflation by 24%. Right. So you are creating wealth much faster than inflation is stealing wealth from you. So this is good, but it gets better. But wait, there’s more as they say, on the infomercial, you get another Ginsu knife when you buy two, okay, But wait, there’s more. So you get inflation and do step destruction, in addition to the leverage, and you don’t pay your own debt, the tenant pays it for you. you outsource your debt responsibility to the tenant. This, and you know, not only that, but you know, hopefully you qualify for the tax benefits. And you have all of these multi dimensional things working to produce return on investment for you. Okay. And you know, over the years, as inflation occurs, your rents will be inflating to, or at least they have historically, I mean, rent today is much higher than rent was 10 2030 years ago, right, obviously, so rents are indexed for inflation as well. It just keeps getting better remember, your payment on a fixed rate loan is fixed for three decades, yet you can raise your rents. I mean, someone who gets a mortgage today won’t have to make the last payment until 2046 2046. Do you know that the United States will add almost 100 million people during that time, almost 100 million more people will live in this country. During that time, you know, what that does to the demand of housing, both for purchase and for rent? I mean, it’s, it’s, it’s amazing that the demographics coming at the rental market right now are phenomenal. I mean, investors listening to this should just be thinking, How can I acquire more good quality prudent properties, because I don’t know that that the demographics have ever ever been this good. They are nothing short of phenomenal. Again, without going into that, you know, we’ve touched on it on many prior episodes. So just go back and listen to the last 621 episodes, you’ll get all you need, okay. You don’t need to listen to all of them. But I do want to remind listeners and nourishes you know, because you work on the podcast, we have divided up our feed for those podcast episodes, because iTunes will not hold this many episodes, and a lot of the other platforms out there. You know, I don’t know the exact rules, but Stitcher, radio, SoundCloud, many others, where however, you’re getting this podcast, they only hold a certain number of episodes. So we’ve divided the feed up. So if you go back and listen to old episodes, you got to go back onto the platform and subscribe to one of the archive shows to get the whole what’s called back catalogue of old shows. And, you know, the vast majority of those episodes are there for you to listen to. They’re all free. You just don’t need to pay a lot of money for this education nowadays, folks, you don’t need to pay some Guru 40 $50,000 you can get all you need to know for free, use your money to buy properties, okay? That’s my advice. Buy some properties rather than making a real estate guru rich, okay? That’s what you should be doing. So, hey, Naresh, thank you so much for asking these questions and allowing me to ramble on and ramble on and on.
Naresh 39:41
No, it was, it was very, very helpful. And I guess next time we’ll, we’ll pick up where we left off with structuring deals for tax purposes and property management.
Jason Hartman 39:52
Sounds good to me. Hey, listeners, please be sure that you go to Jason hartman.com and check out some These properties that Naresh and I were alluding to Jason urban.com. Click on the property section you can look at the entire Performa there. By the time you listen to this, we may have another event a property tour or an educational event coming up, click on the event second section and check that out. We’ve got a great online course I’ve never announced this on the podcast before, I don’t think because it was only recently developed. And it’s our last meet the masters from just about a little less than a year ago. It’s all online professionally done. It’s really beautiful. They did a great job with this. And you can find that a Hartman education.com so just my name Hartman education comm you can see all the videos there, you can download the audio file version, so it’s portable. If you hear something on the audio, while you’re listening to it in the car, or while walking or working out or whatever on your smartphone, you can go back and reference the video if you want to see the visual aid. So it’s just a great course. That’s at Hartman education Comm. And then of course, the venture Alliance trip to Dubai is coming up. If you want to take it to the next level, join the venture Alliance and check that out adventure Alliance mastermind.com. So Naresh, thanks for joining me, and we’ll talk to you later.
Announcer 41:18
I’ve never really thought of Jason as subversive, but I just found out that’s what Wall Street considers him to be.
Announcer 41:25
Really. Now how is that possible at all?
Announcer 41:28
Simple. Wall Street believes that real estate investors are dangerous to their schemes? Because the dirty truth about income property is that it actually works in real life.
Announcer 41:39
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 wants to pretend they’re getting ahead.
Announcer 41:50
Stocks and other non direct traded assets are losing game for most people. The typical scenario is you make a little you lose a little and spin your wheels for decades.
Announcer 42:01
That’s because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you’re one of them, you will not win.
Announcer 42:11
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Announcer 42:26
Yep. And that’s why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.
Announcer 42:41
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Announcer 42:51
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Announcer 42:59
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Announcer 43:06
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Announcer 43:15
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This show is produced by the Hartman media company All rights reserved for distribution or publication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own. And the host is acting on behalf of Platinum properties, investor network, Inc. exclusively.
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