Today’s topic is about opportunities presented by crises. Jason Hartman shares his thoughts on Elon Musk’s latest Bitcoin move, the crumbling institutions, central banks, and the government printing press. Then, he does a client case study with Chad Hewitt. Chad shares his real estate story and how he was inspired by Rich Dad, Poor Dad. They talk about the similarity of a scaffolding business to a short-term rental property and the several reasons why real estate is a wise investment.
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 0:53
Welcome to Episode 1645 1645. Today, our main part of the show, well, you judge what the main part of the show is today, because I have some important things to share with you. We have a client case study another another new client case study that I think you will really enjoy. But first, I must comment. Are you amazed? I’m amazed, we are seeing some seemingly terrible things occur in the world. But at the same time, as the Chinese say, crisis is an opportunity riding the dangerous wind. I’ve been sharing that with you for many, many years. And it is an opportunity riding the dangerous wind. We have seen massive question marks about our last Well, can I say it Elysee te IO and you can’t say it anymore, because you might be censored. They installed. That’s the right word by the way installed, they meaning the powers that be installed a new administration. Now, nobody trust the system. And then we have seen this massive money creation. In fact, so much money was created out of thin air currency. I should say of course, of course, you know, you can correct me listeners. currency is the proper word not money. Money has intrinsic value currency does not. But admittedly the two things are kind of used interchangeably and hopefully everybody gets the difference. Hopefully they do. We saw so much currency creation last year. And we’re about to see so much more this year. That it absolutely boggles the mind.
Now today, well, maybe it wasn’t today, but it’s in the news today. Our friend Elon Musk, possibly one of the most famous people on planet Earth. Good old Ilan purchased one and a half billion dollars worth of Bitcoin cryptocurrency. Why does that matter? It does not matter. Because you want to become a cryptocurrency speculator, I hope you don’t. That is a very volatile, risky asset class. I own some, and you know, I’m doing a few bets here and there. I think it’s okay to speculate with a small portion of your net worth, but you better be prepared to lose it. Be prepared, be prepared to lose it. But on the other hand, you know, it’s a gamble, and it could be a big win. Nobody knows. Nobody knows. But what does that say about the systems? What does it say about the institution’s? Well, according to yours truly, what it says is that we are literally witnessing right now, at this time in history. Aren’t you glad to be here for it? You have a front row seat, ladies and gentlemen. Just like the cardboard cutouts at the Super Bowl yesterday. They had a front row seat do? Well, I don’t know maybe they don’t give the cardboard cutouts the front seat. You know, I was talking with Ashley last night about the massive amount of environmental damage the pandemic has caused. I mean, think about it. Do they really need to waste all that cardboard to make it look like these venues are full of fake people? I mean, this is like another example of desperate crumbling institutions. That the the idea that they would, first of all, cut down a whole bunch of trees, damage the environment, create a whole Bunch of pollution by making those cardboard cutouts by shipping them there by setting it up. absolutely absurd, right? If they want to social distance, why don’t they just have every other or every, you know, other to, you know, seats empty, big deal. We all get it. We all know that there’s a pandemic going on. And they’ve got to make it look like like our goody two shoes moron president, you know, always wearing his mask. He’s sitting there at the Oval Office, there’s nobody in the even in the Oval Office yet he’s got his mask on. I’m a goody goody two shoes, I’m sorting by your example. You know, right, whatever. This is the the last desperate gasp of so many big institutions. And it is a slap in the face to them. nobody trusts the media anymore. nobody in their right mind right or left on the political spectrum does not matter. We all know it’s fake. We all know, big tech is a scam. We all know social media companies are disgusting, pathetic, and awful and evil, no matter what side we’re on, you know, even those on the left, who benefited from it cannot be stupid enough to see that what is going on is wrong.
Right? It’s wrong, right? Yeah, that’s kind of how you got to look at it. So the institutions are not trusted. And now you’ve got all these multiple, this is like eating away at the banking system, at the central banking cartel at the treasuries and governments and you’ve got this whole population that is not tied to any geography. Think about it. Think about how it used to be in the old days, right? In the old days, you know, if you had a certain skill, and you were a factory worker, you might keep that factory job for your entire career. You know, back in the day when the US used to actually manufacturing things. Now we just outsource them to coal burning China, the biggest polluter on earth? Because somehow, all of the folks who are running the world seem to have forgotten what famous Democrat, john F. Kennedy said years ago, what did he say? We all breathe the same air. That’s what he said, we all breathe the same air. But somehow, it’s okay to pollute China, because the wind won’t blow that pollution around the world, I guess, you whatever. Absolutely. You can this stuff is so stupid, you can’t even make it up. But as we notice the institution’s crumble, we are witnessing a time when people can just vote with their feet so easily. Now, granted, it’s not as easy as it was before the cerveza sickness began. But it’s easy enough. And people are taking advantage of it. They are geo arbitrage, in the US on a state level in a city level. And then around the world. Some people are still even now even doing it with other countries. If you had a certain skill, you were an auto worker in Detroit, you couldn’t just move anywhere, you know, yes, when you move, you take the skill with you, for sure. But it wasn’t the mainstream thinking back then that you would just move. But even then, you could only go to a place that manufactured the thing that you had a skill in pretty much right, you weren’t just gonna, you know, get out of the automotive industry and go into another industry. And if you were a company, or a business, most of the time, you had a physical plant of some sort, you had equipment, you couldn’t just, you know, shut your laptop screen and move. Now you can.
So we’re seeing the institutions of socialistic, poorly run disaster areas like my home for most of my life, the Socialist Republic of California, and the Socialist Republic of New York and, and many others, both in the in the country and around the world. We’re seeing them crumble, people can talk all they want, in fact, they can vote all they want. But at the end of the day, everybody knows that the most important vote is where people choose to locate and how they choose to spend their money. And whether they’re spending their money on consumer goods, or housing, or taxes. Right. That is the most important vote. It’s not the vote that they’re making for the politicians. So That is a very important thing to see. Make sure you notice this week, today, tomorrow, every day, the whole month, the whole year, forever. Just notice how the credibility of institutions is just getting just decimated the university debt enslavement complex. college tuition ripoffs just decimated. disasterous Public Schools decimated the credibility of the pharmaceutical industry, decimated, just scam after scam after scam. We all now know the cat is out of the bag. Pandora is out of the box. We know that we cannot trust anybody. Resume notwithstanding, we know that wall street is a complete scam. We know that the new administration has been basically sold off to BlackRock it’s like a corporate takeover. That’s basically what the new administration is. It’s a corporate takeover of America. And nobody can trust the corporatocracy. So notice the crumbling institutions. But what does that mean to us as real estate investors? Oh, it means a lot. Because people are voting with their feet and their guess what they’re moving to the areas that we’ve been recommending that you invest in for many, many years now. And those of you who have listened, have benefited greatly. So Congratulations, congratulations. Now, let’s talk about the central banks. And the government printing press, not just the US it’s central banks all around the world. The ECB, the European Central Bank is in trouble. The Federal Reserve is a Ponzi scheme. Okay? I mean, look, folks, you can’t hide this stuff anymore. It’s so ridiculous. That it just we all know it doesn’t work. And now Elan Musk has basically slapped that system in the face and said, You know what, I don’t really trust keeping all of my corporate Treasury in dollars, or even in stocks, or other assets of whatever kind. I want to slap that system in the face. And I want to put $1.5 billion with a B billion dollars into a decentralized, uncontrolled trustless asset. That’s a pretty big statement against the institutions. So just keep watching them. crumble, crumble, crumble. crumble, crumble crumble. Yep, that’s what they’re doing.
Okay, before we get to our case study, and by the way, if I didn’t make that connection well enough, maybe let me just make one more part of that connection. elans move is a move saying he is very worried about Guess what? What word do you think I’m about to say? I’ll give you a hint. It starts with an AI. Not like I like I am saying it. The word starts with AI. The word is, of course, inflation. That’s the word. He is worried about inflation. And we as income property investors have aligned our interest with the forces who create inflation. And by the way, in all my rant about the institutions I didn’t even miss mentioned, the whole Robin Hood scam, GameStop issues and that whole thing from last week and Google deleting over 100,000 negative reviews, Google decided they were going to censor the negative reviews against Robin Hood. Because God forbid, Google doesn’t want the truth out there. I mean, folks, we are witnessing a massive shift in history right now. And it’s ugly, but it’s also positive in many ways. Okay, I have been meaning to play a whole bunch of messages that I have been saving for you for so so long. And I just haven’t had the chance to. So let me get a couple of these out of the way. Now. They’re random. There are a variety of different topics, but I think you’ll want to hear them. And we got to get through more of these maybe on Wednesday’s episode, and then we will get to our guests today. But let’s get through Have a few of these messages.
Jason Hi, good morning is Johnny from Arlington, Virginia. The weather is beautiful there 75 degrees.
Jason Hartman 15:12
By the way, this is an old message. So the weather report doesn’t doesn’t, doesn’t follow.
I was watching or I was listening to the show Thursday, and I gotta tell you, Jason I, when it comes to Bitcoin, I was listening to the guy. I tried to learn about Bitcoin for two years, to understand how it works, the value proposition of investing, I just still don’t get it, I don’t get how this can be treated as money, or an alternative form of money. I love the idea and concept and decentralized. Like, even if even if someone does go on, like Coinbase, or something like that, and buy bitcoin is still here. But these cases where people spend millions on Bitcoin, and then they get hacked, someone takes it, and then it’s gone. Or it’s on some laptop, and some 20 year old throws it away, and doesn’t realize that bitcoins on laptop, and then it’s in some landfill somewhere. And they hear about stories like that. And I just, I just don’t see how it’s any different than investing in some other speculative investment. And to your point, I know that that that your guest was talking about, Oh, don’t worry as much about the Federal Reserve fitting it down, but the Federal Reserve is a powerful force. And if they don’t want Bitcoin in the United States, they will make sure that Bitcoin does not in the United States, if they if the US government can physically compensate gold. By by forces law, certainly they can, they can turn off the lights for Bitcoin. So my impression, I just, I just don’t get it. I’d rather invest in physical things like real estate, where there’s title, there’s a building, there’s at least a plan of land that the one thing that I do worry about in the long run. People like AOC come into office more and more, or whatever like minded politician, they would be, if there’s a lot of agencies and the government wants to prevent them from increasing property taxes to confiscatory levels 345 percent, and saying, Hey, you guys can hold on to this property, but you got to keep paying taxes. Well, if we can’t afford to pay the taxes, and they start seizing houses, and boom, the federal government has basically nationalized housing stock and landowners are a problem. Property owners are the largest marginalised peasants. That’s not unlikely, but things are unlikely that have happened. So I don’t know, I guess is the one thing that I get concerned about. We’d love to know your thoughts on that. One, a flag off. Also, yesterday showed a flashback Friday was awesome. I really got a lot out of listening to that out of hearing something that you had published from 2008 I need to go back and listen to more older episodes. Because it kind of crystallizes thought from that period that maybe we forget about. Things that we had to think through as as, as investors from 2008 that you know, 2017, when the economy’s hot, we kind of forget that we had to think in those ways. It really was a good exercise. So just wanted to tell you, if anything, Thursday’s episode where the garrison or the more thankful that I’m investing in real estate, thanks.
Jason Hartman 19:08
Okay, so that was a big message with a lot of stuff. And I don’t really have time to dive down that rabbit hole today. But I will say is it since we are kind of talking about the cryptocurrencies and Elon Musk, big move, you know, I think there are problems and opportunities with it. And I just for for my main thing, you know, I think the income property is far and away the best asset class, the most historically proven asset class in the entire world. Because it’s multi dimensional, and for so many other reasons. It has such a big lobby behind it, but I just would love to be wrong about the crypto thing. And Ilan big move was pretty amazing. And it’s just a slap in the face to the institutions. So I think we all have to think about that. Just remember the main product of any Government. And of course, central bank is the currency they create. And like any business, look, you’re in business, you create a product. You know, even if you don’t have your own business, you work for a business, and they create a product. And nobody loves competition, okay for their product. So just always remember that motivation, you know, bet conservatively, if you’re going to bet on this kind of stuff. Alright, so tonight, by the way, I must say, we are revving up, I am so proud of our team. Lately, we’ve been just doing great stuff to property tracker, it has this beautiful knowledge base component that we’ve just been expanding and expanding for many, many months now. And it offers so so much. So be sure you check out property tracker, if you are not using property tracker, you’re really missing out, especially all of the educational components that we’ve added to it. And if you are not part of our unpowered, investor, inner circle, you are also missing out, because we’re having another one of our monthly meetings tonight. And we’re talking about a another technology tool. You know, I run those zoom meetings myself, everybody just says such great things about them. And also we have created a whole library that’s included in that membership of just fantastic video content. And we are really just just expanding that all the time. You know, there’s a lot of content that we create that we do not use on the podcast that you don’t hear on the podcast. So be sure you’re taking advantage of some of our other stuff, like the empowered investor network, empowered investor inner circle, I should say, and the the property tracker software as well. Alright, without further ado, let’s get to our guest and let’s talk about another client case study.
Hey, it’s my pleasure to welcome another client to the show. And everybody always loves these client case studies. This is Chad Hewitt. And he lives in the Seattle area. Actually, I think Everett, Washington, I believe, outside of Seattle. And Chad, it’s great to have you on. Thanks for joining us.
Chad Hewitt 22:13
Yes, great. Thanks for having me.
Jason Hartman 22:15
It’s good stuff. So you own a construction scaffolding company. Right?
Chad Hewitt 22:20
Correct. Yep, was taken down. And it’s kind of like having little rental rental properties, as well as projects being built to charge rental for the equipment. So it’s kind of like having, you know, little apartment buildings that we’re renting all over Seattle, but I’m just on the scaffold.
Jason Hartman 22:34
That’s cool. That’s interesting way to look at it. I I like the way you you look at that just like a real estate investor would. So that’s, that’s awesome. That’s awesome. Well, you and your wife, were interested in triple net leases on commercial property. And, you know, I guess you were looking at like a common one is a drugstore or Walgreens. And you were looking at that deal. And just for people who don’t know, a lot of times investors will buy these triple net properties. And triple net simply means that all the expenses pass through to the tenant. So these are liked by some people, because they’re sort of considered the most sort of hands off form of real estate investing, where you just make everything the tenants responsibility. You own the property, of course, but the yields are pretty low on most of these, you know that people people trade simplicity for low yield. And what I would think is that on the Walgreens, CVS type model, because all of those triple net lease type deals is and I didn’t say this to you before when we were talking off air, Chad, but I think they’re over built. And I think Amazon is just going to pillage that business with their they purchased a prescription company recently. And I think that’s the next wave is Amazon zation didn’t say it right. And I think that’s really going to hurt these these drugstores. And I think they’re already pretty overbuilt. I mean, you know, you go down any city in America and it’s like you go a couple of main streets. And you got a Walgreens on one corner, diagonally across. There’s a CVS like do we need this many drugstores? I don’t think so. But tell us what got you interested in that. And your your story about getting in real estate? You read Rich Dad, Poor Dad, and I guess that inspired it right there. So I’ll let you talk.
Chad Hewitt 24:27
Yeah. So yeah, I was inspired. The rich dad poor dad read that book when I was in my early 20s. And, and the light bulb went on about, you know, using leverage and other people’s money and the type of gains that you can the minimum gains you can expect versus what you can expect on Wall Street. And then it just didn’t make any sense to me to start pursuing a 401k or anything like that. So as I began to build my staffing company, the goal was a cash flow vehicle to have money to buy real estate. So my wife and I had acquired a number of small properties locally. But then what I found is my wife is very hands on very frugal, she likes to go and do the move and move out, cleans the toilets broken, she wants to go fix the toilet. So that was fun. But that gets kind of old fast if your salary is spent, you know, changing washers and dryers and unplugging toilets, it’s really a bit of a downer, right? Yeah, oh, then I started looking at a different vehicle, that would be the most hands off form of real estate, from the Rich Dad Poor Dad angle, they don’t really have a big, you know, they’re not a big, really big fans of single family homes or more shouldn’t be drafted for multifamily. So for a lot of years, I was looking at, potentially, how would you get into a big apartment building. But that seemed kind of daunting, because I wanted it out of our area. So basically, that it would be it would be forced to be a hands off investment, like I intended real estate to be. And then the idea of having movements and moves out on fun, 50 different units, that became a little bit daunting. So that then led me to the triple net arena, where the thought of just buying a big box and being able to get good financing on it, the down side of being that typically, the average down payment on a triple net from what I was looking at was about 30 to 35%. So a considerable amount of money, and then they will only guarantee that loan, or you can only lock that loan in for five, seven, maximum 10 years. So then when I started to think about it and weigh the risks, the rewards what you’re talking about, you know, are there a lot of benefit are they over built at the end of that lease period, I’m been negotiating with a large company that I am just a fly on the wall to they’ll squash me like a bug if they want to squeeze me or break me down. And that just didn’t seem like you know, the safety factor wasn’t there. And then I told you that I heard you on the George gammon podcast, and you’re kind of expounding on the single family investment. And I started to relook at that in a completely different light. And I realized that was the best the safest place to park money of any place in real estate. And the idea that I used to have this thing that if you have a single family house, someone moves out, you’re 100% making but if you own 100 of them, it’s so different than owning 100 unit apartment building into someone lives in an apartment building, they’re always waiting for the next step to be able to get that house and because I think America is becoming a, you know, a nation of renter’s right, they’re going to be moving towards a rental house. And there’s, you know, no time more time tested asset, you said again, and again, in real estate, and yeah, so I ended up purchasing, I talked to the wife about dipping my feet in the pool, and we would just buy one property with you. And I started talking to Evan, my investment counselor and one turned into five or 611, which turned into 15. So I love it.
Jason Hartman 27:50
I’m doing sound effects for that. So you were just gonna buy one of our single family homes through our network, and you decided to buy 11 That’s great.
Chad Hewitt 28:02
Because, you know, I told my wife, I said, one is not going to move the needle forward, you know, because another big thing was when I realized that you could also do cost segregations on these properties. You know, I looked at my tax situation and realized that in order to basically, I needed to buy a certain amount of properties, certain amount of value. And that’s where we ended up at the number that we ended up at.
Jason Hartman 28:25
Right? Yeah, yeah, no, I agree. That’s great. And I’m really glad you didn’t pursue the triple net stuff. And you went with a single family homes instead. Because, you know, it’s very hard to disrupt the housing market. First off, as you know, being involved with the construction industry. And we’re going to talk about something you said to me before we started about the cost and the regulations and so forth. But you know, it’s very hard to make new cheap product, which would disrupt the investment, right. And it’s it’s very hard to build that it’s a disrupter. You know, nobody is outsourcing housing. They’re outsourcing retail, they’re outsourcing office space, they’re outsourcing manufacturing, but you can’t outsource housing, it needs to be where it is. And there’s a there’s a huge shortage of it. So I think he made a very, very good decision. And I’m glad he made that decision to do the simple, proven humble, but very profitable, single family homes. And that is if you have asked me
Chad Hewitt 29:31
by the time that I had identified these properties, and I’m buying all new construction properties, just as a side note, this is the direction I want to go in and like the least amount of problems possible. So I figured that buying brand new can’t go wrong with that. Also it helps in the cost segregation into things I think to buy a new property, but the market is so strong and so crazy. I mean, those properties all approved by the time that I had bought them at say 218,000 to the time that I got loans on them, they were all worth 240,000 It’s just you’re seeing all this money printing show up in, in hard assets.
Jason Hartman 30:05
Right? Yeah, I know. It’s absolutely amazing. And the hardest, it’s it’s a good time to be long on hard assets, especially income property. You know, it’s interesting through all of this, Chad, you know, gold, I mean, everybody’s talking about it, but it just hasn’t been, like anything that impressive. And you can’t leverage it. You can’t rent it out. It doesn’t produce income, it has terrible tax treatment. It’s just, you know, it’s and now it’s got a big competitor, which is cryptocurrencies. And, you know, those are so speculative and volatile. Yes, there have been some, some big moves, and some people have made money. But remember the other side of all those people that made money or people that lost money. So there, there’s a counterparty and every one of those up swings, okay.
Chad Hewitt 30:55
Definitely, I’ve been I’ve been gold investors who I keep a small part of my portfolio in gold. And that was just from the vibrations of Robert Kiyosaki. But it hasn’t really reacted the way that other hard assets have been. And that can be a conversation for a different show. But yeah, I’ve been, I’ve been disappointed with, with gold, I thought it was gonna break through 2000 and go to the moon. And that never happened,
Jason Hartman 31:20
you know, a lot. There. There are those very logical arguments for it, but they just never seem to really happen. You know, the only time that really ever happened was in the 70s. I mean, it had a run in the last decade. But, again, it, frankly, wasn’t that significant compared to what happened in the 70s. And the fact that you can’t leverage it doesn’t have a good tax treatment, can’t rent it out, doesn’t produce income, etc. It’s just you know, and it is manipulated. You know, I would encourage anybody listening who wants to know about gold manipulation, and other precious metals, price manipulation, to check out gadda, the gold antitrust action committee? And you know, they, they are the ones pursuing this, but they’re not going to stop it. You know, it’s just, yeah, it’s, it’s too big for any of us do. The one thing we can do is income property.
Chad Hewitt 32:10
Yeah, absolutely. And that’s what I like about it is it’s so scalable, based on whatever situation you find yourself in, I mean, your properties that I was looking at it in Memphis, although they’re not new properties, you know, they’re decent, they’ve got a roof over their head, they cash flow, they’re $80,000, you get into one of those for 20%, down $16,000. I mean, anybody that has a decent paying job can save $16,000 it’s not the barrier to entry isn’t like, eat 1,000,005 to get into a Walgreens or something. So it’s right scalable for anybody, no matter where you’re at. I feel like in your investing career,
Jason Hartman 32:44
I agree. Or you can ramp it up. Like we’ve got one client who closed on a big portfolio last week, and he wants to have 500 units. So you know, he’s on his way. He’s, he’s doing big stuff. And it’s really fun to see, see these people grow? What kind of goals do you have with it? I mean, you’re up to the 11 properties now. Plus, you probably have your own home. Anything else?
Chad Hewitt 33:06
Well, I mean, I have an overall portfolio right now that’s worth about $12 million. My complete portfolio, I’ve got some different properties got a big commercial property. I’ve got a VR Real Property why that I literally think I just sold before we got on the air here that I got rid of just because I was listening to you, I’m thinking, this thing’s worth about as much as it’s going to be worth and the VR market has dropped off. Everyone’s cutting each other’s throats to get those things rented now and equity tied up, they can go somewhere else. So my, you know, goals are always changing, too, right? We want to get to 10. That was the first goal to get to a $10 million portfolio. I got there. And then the next goal for me, is a $20 million portfolio. And I think I can get there with just continuing to add single family homes, you know, to what I already have.
Jason Hartman 33:50
Good for you. Good for you. That’s awesome. So you wanted to talk about cost segregation, I think a little bit Oh, but before we do that, actually, Chad, which markets are you in which markets Did you buy him?
Chad Hewitt 34:00
So I mean, Memphis, I’m in Huntsville, Alabama, and I’m in three different places in Florida and in Ocala. And Northport and in Port Charlotte.
Jason Hartman 34:12
Okay, good. Good stuff. So you got the Florida market covered. Got Alabama so you got the commercialization of space working for you. And Memphis which is just great cash cow logistics. So you’ve got a nice variety there. Now don’t over diversify. Okay. Oh, no, I
Chad Hewitt 34:28
think I’m pretty good with this, just because the cash on cash return was higher. The appreciation isn’t really there. I’m still I feel like it’s a little bit of both and I think Florida overall probably has the over the long haul is probably the highest potential to appreciate. That’s my own personal opinion, just based on supply and demand. But either which way I bought them not for appreciation. I bought them for cash flow. They’re all rented or and as soon as they’re built within a week or 10 days they will have tenants. Mm hmm. Excellent, good stuff.
Jason Hartman 35:00
Good stuff. So I would encourage you to kind of double down in those markets for the new ones that you buy for your next round and, and just get more in those same markets for ease of management, because you’ve got some decent diversification already. So cost segregation. What questions or thoughts Did you have about that?
Chad Hewitt 35:18
Well, I know for me, you know, I bought properties, in part, because of the cost segregation with the Trump tax cuts, which I think are sunsetting from not mistaken on the bonus depreciation. So I took that as an opportunity to buy things I was already going to buy and to get, you know, tax incentives to do so. But I’m curious on your thoughts on why someone wouldn’t do a cost segregation on property? No, why would I’m just curious if you have a counter to that?
Jason Hartman 35:46
Yeah, so. So first off, just for those who don’t know, income property is the most tax favored asset in America, because you can depreciate it in depreciation is a good thing, this isn’t a good way, meaning you’re good to take a non cash deduction, or a phantom deduction, as I sometimes refer to it, where you’re not paying for the deduction, you’re not writing a check to take a tax deduction, like if you donated to charity, or spend money on your business. So it’s a really fantastic tax benefit depreciation. And you can depreciate a residential property over 27.5 years and a commercial property over 39 years. So that’s another advantage by the way of residential you get faster depreciation, meaning more tax benefits, but what you can do is you can take some of the components of these properties, and you can itemize them specifically, because they have accelerated depreciation, for example, appliances in the house, or the HV AC unit, or other certain components of the house, you know, the aircon, assurance, the HV AC, or the the furnace, you know, those depreciate at a faster rate. And so you can itemize these, these items, and you can depreciate them over, say five years or seven years, right. And you get a CPA usually to do your cost segregation analysis, or it’s also called cost segue for short. Okay. And so they’ll charge you a little bit of money. And on a single family home, you can get this done now more and more, it used to be cost prohibitive on a single family home. But nowadays, you can get this done for usually between 500 and $1,000 per property. And it will usually save you a lot more than it costs you because you can depreciate these things faster, take faster deductions. So that’s a long explanation. But the reason you wouldn’t want to do it is, I can’t really think of too many reasons not to do it. I guess Chad, you know, the expense, you’re going to have to pay a little bit of money for the cost sake report, okay, so that you can do it. And that’s going to cost you 500 to $1,000 per house. And then also, all you’re really doing with the cost sag is you’re just bringing the future closer to you. And so you are getting the advantage of the time value of money, because I’d rather have a tax deduction today than later. Right. So that’s good. But you’re not changing the tax deal. Overall. You’re just accelerating it. Okay. So, you know, I guess from that component, it’s not like a Grand Slam home run. But I think it is a good deal. And I think it’s good to do, I can’t think of too many reasons not to do it. You know, it takes a little bit of work a little bit of time. But you know, also keep in mind with everything that you do, you there’s not just the economic component, you do learn something from doing it, right. So just by doing these cost StG analysis and reading the report, after you get it back from the CPA, you get to learn something about it. And that’ll be you know, in education, right. But you only need to do a couple of them to learn something right? You don’t need to do if you have 30 houses in your portfolio, you don’t need to do 30 of them. Right? Well, you might want to economically so yeah, that would be my answer.
Chad Hewitt 39:08
Yeah, like I said, it makes no sense for me to do them. But some people I guess, if you sell the property, you have to recapture the game. So it is kicking the can down the road a little bit. Right, right.
Jason Hartman 39:18
But if you do a 1031 exchange, you bury that recapture into the exchange, so you don’t return. I was always worried about it, sold it. And in 1031. You don’t have to do the recapture? No, no, because the recapture is buried into the exchange calculation. And so it just keeps going over to the next property in the next property. And you can do that your whole life. And then when you die under current law, you know, the basis steps up to market value for your heirs. Now, again, we always need to make the disclaimer, we’re not lawyers, we’re not tax experts. You know, consult the appropriate professional disclaimer. Okay. Yeah, so
Chad Hewitt 39:58
I’m just gonna eliminate the 1030 exchange, what kind of rules do you think are gonna affect real estate for the new tax?
Jason Hartman 40:03
Yeah, good question. You know, we have talked about that on the show, you’ve probably heard us talk about that on the podcast. And it’s a possibility there is some talk of it. But you know, housing and real estate are just kind of, like sacred cow. And it’s very hard to get away with doing anything to hurt real estate. Because, first off, it affects like everybody, you know, it’s not this, this fringe element, that’s not gonna screw up your political career, right? It’s just like everybody’s in real estate in one way or another. Right. And so it has such like, wide ranging effects. And there’s so many people lobbying against any of this, that, I don’t know, even if he wants to it probably, he probably be hard pressed to make it happen. Go ahead if you had something on the tip of your tongue, but I want to ask you about construction costs. Because you said something, what
Chad Hewitt 40:59
I was gonna get into next was just we were talking before we got on recording here about you asked me what how Seattle’s market was, and I noticed a spike of new apartment projects coming in, you know, to get bids on. And I kind of asked around to a developer friend of mine net citizen, you know, what’s going on. And he said, apparently, there’s a new energy code coming in, you know, green New Deal stuff, where the the cost to develop your average apartment building is going to go up something astronomical, so everyone was just racing to try and get their permits in, so that they can build before they have to, you know, comply with the new energy code permit. So that’s just gonna make, you know, they try to make more affordable housing and do anything that the government tries to do, they just end up screwing up because no one’s gonna afford to build these things, or buy them or live in them, or whatever the case may be. So that’s basically, the big thing I see going on in my market is just an influx of people trying to get permits before they have to acquiesce to this new energy code.
Jason Hartman 41:56
Yeah, you know, the government. Yeah, I mean, they, they have created the homelessness problem, not only by shipping the jobs overseas, and you know, not helping the veterans enough, and all of this, but by all of these regulations on housing, they’ve just made it so expensive to comply with the requirements. And especially in places like Seattle and California, you know, I’m talking about Seattle, like it’s a state, it’s obviously just a city. But you know, it’s run like its own little fiefdom. And so it’s just, you know, they’re just making it so hard that, you know, they can’t want either low cost housing, or you just can’t do it.
Chad Hewitt 42:39
Now, the interesting thing about low cost housing, is it’s always built by the government. And if you actually look, when you go to apply to do that job, we’re a non union company, right. So when we go to do one of these low cost housing projects, we have to pay prevailing wage. So everyone gets paid a set amount of money, it’s the highest wage bar that they have. So when you look at the cost of build what they call, quote, unquote, affordable housing in the government run sector, the private sector could have built it for about half as much if they are actually, you know, if they if they let it to the free market. So I’m a free market guy. And I just don’t understand anybody that anything the government touches, they just absolutely, they just destroy it. And they don’t know how many.
Jason Hartman 43:25
Yeah, no, it’s it’s definitely true. I mean, the government, we need a government to do a few things, but let’s just keep it to a minimum. Because, you know, it’s, it’s like Reagan said, you know, the most dangerous words are, I’m, I’m from the government, I’m here to help. run for the hills. Yeah, totally. It’s, it’s just, it’s just the nature of the beast, it really is. But, um, what you were saying, just I don’t know if that point was totally clear, Chad, is that you’re seeing this boom in construction, because all of these developers are rushing to build before they have to comply with these new requirements coming down the pike that will make their cost of construction like 30% higher. So see how that’s distorting the market. It’s causing over building right now in these apartments, right? Yeah. And then later, it will cause a shortage of supply, because no one will want to build.
Chad Hewitt 44:25
Exactly, yeah. Just all racing to get their permits are not going to break down at least to get the permit. And then I think they’ve got 18 months from permit to actually start digging a hole in the ground. Yeah, whatever the case may be, but that’s, that’s there’s definitely things coming down that are gonna distort the market.
Jason Hartman 44:42
Yeah, it just, it doesn’t make any sense. It’s crazy. But um, but hey, you know, I appreciate you sharing your story. And is there anything else we should talk about? You know, questions, thoughts, goals, ideas. Anything you want to run by the audience?
Chad Hewitt 44:59
No, I think I I just wanted to share my experience that, you know, it’s from someone that’s looking at all different angles of real estate, totally bypassing single family coming right back around to that being the best place to park your money, and you guys being probably the best company to deal with it, you know, in order to make that happen. So I just want to share my story. And thank you for the service that you’re putting out there for people and the education that you have on your website and your podcasts and just thank you for me. Hey, well,
Jason Hartman 45:28
thank you for your business. We really appreciate it. And it’s you know, it’s an honor to serve you and other clients like you. And we just wish you super, super success, Chad and that and happy investing and thanks for coming on the show. Really appreciate it.
Chad Hewitt 45:43
Jason Hartman 45:49
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