In this Flashback Friday episode, Jason Hartman interviews a 26-year-old real estate investor who acquired three good rental properties that produce around $3,000 per month. Then, he talks to Drew about buying a home versus renting a home while purchasing income property. They also share their thoughts on home-based businesses.
The markets were buying in a robust markets, their population is stable and growing, and the values are stable and growing. It’s not like we’re just buying residential anywhere. We’re buying in good market. Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason is handpicked to help you today in the present, and propel you into the future. Enjoy.
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities, this program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:20
Welcome to the creating wealth show. This is your host, Jason Hartman. And this is episode number 234 234. Wow, a lot of episodes behind us and a lot of episodes ahead of us looking forward to continuing to report to you on financial, economic and real estate investment matters from around the world. And today, we will be doing a case study a case study with one of our young ambitious clients. And I think you’ll get a lot out of this and you’ll see how the rent to buy analysis plays out in today’s world a little bit differently than it used to. And what I mean there is renting versus owning, owning your own home whether or not that makes sense versus renting your own home and buying investment properties instead. So this should be a very insightful interview. First of all, I should say I hope everybody had a very Merry Christmas talk to you right before Christmas. And now it’s right after Christmas to start the new year off right 2012. I hope you’re all planning to join us on January 7 here in Arizona and lovely Arizona. The weather is gorgeous out here. It is just stunning. I mean, what a beautiful Christmas Day. But a beautiful day after Christmas gets a little chilly at night. But for those of you in the Midwest and back east, I think you’ll feel that it’s warm air actually, but the days are just gorgeous, sunny and bright. And we don’t change our clocks here in Arizona so it stays light longer. And that’s really nice, too. Anyway, we are at the Hyatt place Hotel in Tempe, which is right near the very famous Mill Avenue. It’s a very colorful and eclectic kind of scene, think you may want to go out on Mill Avenue, it’s just a very short cab ride. Probably take it to maybe three minutes from the hotel or you can take the hotel shuttle for free. They do have a shuttle to Mill Avenue at your convenience and just a really cool scene. You know, a lot of very colorful eclectic restaurants and bars, nightclubs, bands, live music and so forth. It’s kind of like Sixth Street is in Austin, Texas, or the French Quarter in New Orleans. In fact, there are some French Quarter looking buildings on Mill Avenue in Tempe, Arizona, and it’s right by ASU. So again, a really fun area kind of eclectic, if you’d like a more upscale type thing, Scottsdale, Old Town Scottsdale is very close by and they’re just there’s just a plethora of wonderful restaurants in Old Town, but also some good ones right near the hotel on Mill Avenue as well. So a lot of choices that will be a great event. And all day Saturday, January 7, we will have creating wealth in today’s economy boot camp. Again, this is our fundamental seminar. It is the one that 1000s of people have attended over the years. I’ve been giving that one for a long time on behalf of different companies actually, and been a guest at different events as well. And it’s very well received I have probably an I kid you not to banker’s boxes, those portable file boxes of evaluations from that seminar, and literally all but out of those 1000s of evaluations, I would say maybe there are three sort of negative ones in there. And you know, you can’t please all the people all the time, folks, as much as you may try. I do tend to bash Wall Street a bit. So I’m certain that I’ve made some enemies out there. And I have this terrible tendency to use a little too much candor at time. So maybe that’s the reason a couple people gave me some bad evaluations but by and large, all of them are extremely positive and just glowing evaluations for the creating wealth in today’s economy, boot camp or seminar and again, we have not done that one in over a year.
We’ve done meet the Masters events. Of course you can purchase creating wealth in today’s economy as a home study course on the website at Jason hartman.com. But again, common see a live and then Sunday morning. We’ll do a tour of Phoenix market. And I think you’ll really enjoy both of those things. And you know, Saturday night, we’ll probably get a little informal dinner together as well and all go out to dinner together should be a really fun time and a very educational and very valuable time to help you start the new year off, right. And again, the cost of the event is it’s just nominal, especially in depreciating dollars, right. So anyway, register for that at Jason urban calm, and we look forward to seeing you there. We’ve got a special room block rate at the Hyatt. And it’s only at $9 per night, they’ve got a free shuttle from the airport. So you don’t even need a rental car. It’s just minutes from the airport. So very convenient all around the hotel was recently remodeled. It’s gorgeous. It’s not a big giant Hyatt Regency Hotel. These are Hyatt place, hotels, smaller scale, but I chose it based on location and just convenience, location wise to the airport, and to Mill Avenue and the excitement and entertainment value there as well. I spoke with a good old buddy of mine, who lives in Seattle today and called to say Merry Christmas, etc. And I got to talking with him. And I said why aren’t you investing in more rental properties. And he says to me, Jason, if you can help me get out of the two I have in the Seattle area, I will be happy to start investing with you like crazy. And I said forget it, I don’t want to talk about the two bad ones, I only want to talk about how much money you have now and what you’re doing with it. And so he goes on to say I’ve got about a quarter of a million dollars. Some of its tied up some of its in 401k. And retirement money and about 100,000 is liquid and I said where’s that 100,000. And my good old friend says in the bank. So I did a little analysis. And I did this before recording the show long after the phone conversation ended. So maybe the first time my friend will be hearing it is here on the show and listen to this analysis because I think you’ll find it really valuable before we go to our guest today. In our case study, it compares three things, it compares the cost. And I want to look at the opportunity cost of this $100,000. And I want to look at it three different ways I want to look at that money in the bank where it is now, I want to look at it in private lending or hard money lending. And as you know, I am very much a fan right now of that short term private money lending.
And by the way, several of you contacted since I mentioned that on a prior show. And I wanted to say send me an email, I can hook you up with the right people you may not be eligible for this depends on what state you live in, and so on and so forth. And again, I don’t know all the regulations, but shoot me an email Jason at Jason hartman.com, if you’re interested, but please do include your phone number in that email. And I will cc you with the various parties. And you can talk with him directly. And I’ll just make the introduction for you. But comparing it to short term private lending or hard money lending on real estate, I want to do that as the second comparison. And the third comparison, of course, is my all time favorite. And that is income property. So when we compare these three, I’m going to take into account that $100,000 and how it performs in the bank, how it performs after taxes, how it performs after inflation, what the net is, and what the potential opportunity cost is every single day by doing nothing. And this folks, this is the great urgent, urgent urgency. How do you like that the urgent, urgent urgency? This is the great urgency of making sure that your money just like your employees, just like your contractors, just like your children, making sure that they are working for you making sure that everything you have is working, making sure that there is as little opportunity cost in your life as possible. Another big opportunity cost and I have mentioned this before, but not for a long time. And that is the opportunity cost of credit. In other words, what I mean is unused credit, having a high credit score, and not using it. Because I asked my friend who I’m about to do this comparison for I asked him, what’s your credit score? And he said it’s excellent. Well over 740. Now, folks, I think in this kind of interesting in the paradigm of our last show where I interviewed the guy from the lawyer from you walkaway.com where we were talking about how and then Katherine Austin Fitz set it to how credit score, it ain’t what it used to be. And you know, I think the banks largely have to look at that as a bell curve. And there may be times and this is a very hard call to make, but it’s a judgment that each of us have to make individually. Or you have to ask yourself, how much is that credit score worth? While I’d say if the score is good and you’re not using it, it’s costing you a fortune. It’s worth hundreds of 1000s of dollars in borrowing ability. assuming of course you have the other part of the ability to borrow You need not just credit or credit score, but you obviously need income as well. Right, because you can’t qualify, at least not anymore because we live in a much more sane world nowadays, this is post subprime mortgage meltdown, you cannot qualify without actual income. And you know, nowadays, they generally tend not to make that up like they used to, in the stated income world of the past the what I call the liar’s loans.
So if you have income, and this person has a good corporate job, W two income, the kind lenders most liked to see, and you have a high score and you’re not using it, and then you have cash. Boy, that is really a shame, because there’s a huge opportunity cost here. So let me go through a little example comparing these three options, okay, these three investment options. And since we’re not doing this visually, I’ll try and describe it as best I can. And if you’re sitting down right now, it would make sense to pull out a pen and paper and just jot these numbers down. But even if you’re not if you’re on your iPod if you’re at the gym, and I know a lot of you are because a lot of you say you listen to me, when you work out, I probably should start playing some really good jazzy music for you to work out to. But anyway, we’ll just we’re working out the mind to not just the body, right, but if you’re in the car you’re working out or taking the dog for a walk or whatever, this example will still be understandable to you. So here it is, my friends $100,000 in the bank earning about point two 5%. That means $100,000 only earns $250 a year 200 and a measly $250 a year on $100,000. Isn’t that a shame? A total shame. Terrible. But it gets worse. Yes, it gets worse. Because after taxes now, I have to make some assumptions here for purposes of illustration. So I’m going to assume that my friend’s tax rate is 40%. Now granted, lives in Washington State, there’s no state income tax doesn’t live in the Socialist Republic of California, where you have state and federal taxes that are very high both together. But just for simplicity sake, I’m going to assume the combined and you know, it depends where you live, the combined state and federal tax rate is 40%. just for simplicity sake, if it’s a little lower, or a little higher, doesn’t matter. It’s close enough for government work as they say. So if you take the $250 that this $100,000 earns in the bank that the measly $250 and you take 40% away from it, you lose another $100. So now, after taxes, you’re down to $100,000 100 gs 100 grand, only earning 150 bucks a year. Isn’t that sad? That is terrible, awful, awful, awful. So now, the total return we have now is our $100,000. One year later, we’ve got 100,000 comma, or 100 comma $150. So less than $101,000 $100,150 only. That’s it. Now the inflation rate is 9%. Okay, and I think it’s about nine and a half to 10%. On officially, but let’s just go with 9% as the number, if you think it’s lower, higher, plug in your own numbers, I’m just using 9%. Because I think that’s a very reasonable realistic number. Now for most of us, then inflation is going to take away 9014 of those dollars. So at the end of the year in real dollars, my friends $100,000 has now devalued to $91,139. You have definitely lost money by through your inaction by leaving that money in the bank it has cost you a fortune. Now, if you don’t think that’s that very significant, listen to this, because here’s what good old sales trainer, Tom Hopkins used to call it but this is in reverse. He used to call it the reduction to the ridiculous now this is in reverse because this is the cost per day per week and per month of this money. This is how real it is for my friend $24.70 a day is the opportunity cost the money that is being lost here.
Now actually, that’s not the opportunity cost. That’s just the cost from taxes and inflation. The opportunity cost is what could have been earned. Okay, so I actually said that incorrectly. So this is costing just inflation and taxes is costing $24.70 a day. $173.35 per week or $751.17 per month. Now folks, I don’t know about you, but $751.17 per month can buy you a nice high end car, you can go get a BMW 535 ai and you can lease that car for about 750 bucks a month. For loaded, I think, okay, haven’t checked lately. But if you want a really nice car, you can definitely get a nice car for $751 a month, or better yet, you could get a rental property, you could get a few rental properties with that money. So here we go. Now let’s look at the short term private or hard money loan. Now that one, I’m taking a return here of 12.125%. So that means that $100,000 on an annual basis, earns $12,125 taxes, the government will come along and basically steal about 40% of that. So you’ll give 40 $850 to the government. So you’ll give 48 almost $5,000 to the government, but you’re still doing pretty well your net is 70 $275. And before inflation comes you now have $107,275 inflation is going to come along though the robber and the thief that few people understand or see who slowly steals your money without actually having to mug you or stick a gun in your ribs or pickpocket you. Inflation comes along. And it steals because it does steal money from interest income, it’ll steal about 90 $655. And at the end of the year, in real dollars, my friend would have $97,620 not terrific, but a heck of a lot better off than he would have putting that money in the bank. Right. So here we’re comparing 91,001 39 by keeping it in the bank and not doing anything to $97,620 by taking some action here. Now let’s look at column number three. Let’s look at income property, we looked at the bank, we looked at a short term private loan or a hard money loan. Now let’s look at income property. Now I know that all of you realize this, that income property can produce well over 20% ROI annually return on investment. But I’m going to be a little more conservative here. Now if you want to see specific performance, especially if you’re new listener, and you think oh, this guy’s saying a bunch of hype, he’s, he’s crazy. This is just too good to be true. This guy’s another one of those late night TV scam artists, guys, 18%, who gets 18% on their real estate?
Well, folks, a whole lot of people get 18% on their real estate, not real estate, actually, I’m calling it by the wrong name, income property that is the right name. And if you don’t believe me, just go look at the very detailed performance at Jason hartman.com and the properties section. And you will see how you can easily and realistically get well over 18% on your properties in terms of total ROI. So here we go, we’ve got that $100,000. And now we’ve used that to buy several income properties. Because remember, we can control maybe $500,000 worth of income property with only $100,000 in capital, and maybe even more than that. But let’s just take that as a as a round number possibility. But look at even if we didn’t do that, even if we paid cash for an income property, we can get cash on cash returns very commonly, of 11 to 13%. Sometimes, and you can see these properties right now, Jason hartman.com, you’ll see income properties, cash on cash return of 18%, or 18,000 per year. So we wouldn’t even necessarily have to use leverage to get this return. Just sit with that for a moment. Because when we use leverage, the return could be dramatically higher than 18%. All right, none of that. Let’s just go with the 18% number. Look at the details, Chase and hartman.com. So we’ve got the income property and produced $18,000 annually on our $100,000 investment. Now taxes, I really can’t even calculate the taxes for you, I’m going to assume that this person would qualify for the tax benefits offered through passive losses, or depreciation, which are the best kind of tax benefit of all, why? Because they’re a non cash write off. They’re a phantom write off. In other words, look, folks, if you were I want to get a tax break for an independent contractor or we own our own business or we’re self employed, we have to take and we have to spend some money. If we spend some money, we can get a tax deduction, or if we take some money, maybe we don’t have our own business, so we can’t really spend money on anything that’ll be deductible. So the other thing we could do is we could do something nice. It’s the holiday season. It’s the time of giving. We could donate money to charity, right? If we We donate money to charity, we get a tax deduction. That’s all well and good.
But the problem with both of those plans is that we have to actually spend money, we have to actually write a check in order to get a deduction. With income property, though, as long as we can qualify for all of the tax benefits, not all of us can. So check with your CPA or your tax professional about the details on that some of us can qualify for some of the benefits, not all of them, some of us can’t qualify for any of them. Some of us can change our plan and our approach a little bit so we can make ourselves qualify for these benefits. So again, that’s a complex discussion, we have had previous shows on that subject where I’ve interviewed some CPAs on the show, and we’ve spent an hour solely on that subject of taking all your tax deductions on your income property. But just remember this one thing is for sure income property is without exception, the most tax favored asset in America, bar none. Income property rules the roost when it comes to tax benefits. So here we go, we’ve got our $18,000 return on our $100,000 investment. Here, we’re actually going to add money for taxes. No, we’re not going to take money away, like we did when we loaned money, or when we put money in the bank and earn interest on it, we’re going to get money from the government, because we’ve created more tax benefits through the most tax favored asset class in America. So here, what I’m doing is I I ran a little very simple depreciation schedule, and I showed that just a $100,000 property, in other words, paying cash for a $100,000 property, not using any leverage at all, no leverage would generate about 2900. Well, the number I wrote down is 2909 annually in tax benefits. Now what if we use leverage? What if we got $500,000 worth of property and we qualify for all the tax benefits? We could multiply that number times five.
Jason Hartman 22:14
Wow, the most tax favored asset class in America, bar none. Again, my disclaimer, I’m not a tax professional, I’m not qualified to give tax advice. I’m not a lawyer, I’m not an accountant, check with the appropriate professional always, but I’m giving you the concepts. So you can go to your tax preparer and talk about depreciation and ask questions about it. Ask about becoming a real estate professional, ask about ways that you can obtain your full tax benefits, and you may be able to, and if you can’t do it, your spouse may be able to one of the advantages being married, right there is that you can get your spouse to become the real estate professional has nothing to do with selling real estate. It’s just an IRS classification. You don’t need a real estate license or anything like that long story. Check. The prior shows more details on that. So now our $18,000 in return on the 100,000 has turned into $120,929. Now inflation comes along. And the question here is, does inflation detract from the return on investment of income property? Or does it add to it? I would argue that it adds to it in not one but two ways. Of course, if we’ve leveraged the property, we’re in a position where we have what I call and this is my own great famous little term inflation induced debt destruction, inflation and do stet destruction, hey, that say that 10 times fast. So that is where our debt is actually being paid off by inflation and inflation is benefiting us. But in addition to that, it gets better. Why? Because we are a packaged commodities investor, we purchased the building materials or the construction materials for that house, that apartment building and we purchased it hopefully with borrowed money. But if we didn’t, we purchased it with cash. Either ways, fine, borrowed is better. But even with cash nowadays, it’s good enough. It’s pretty great, actually. So here we’ve got commodities, what do commodities do? In an inflationary environment? What happens to the cost of concrete, lumber, glass, steel, petroleum products, copper, wire, labor, energy cost, all of those things increase in nominal price, not necessarily in real dollars, although historically for real estate they have remember when I interviewed that PhD on the show a long time ago who was talking about how real estate generally outperforms Inflation by about 3% annually. Hmm, I say inflation benefits real estate investors in two giant ways. But let’s assume that it doesn’t. Let’s assume that like the bank, em like the lending, that the real estate actually is hurt by inflation. So we’re going to take 9% inflation, and we’re going to take that out of the value of our, our return that year, how much was that?
Remember, it was $120,929, we’re going to go ahead and we’re going to take 9% of that, which is $10,884. And at the end of the year, here is our comparison, the income property, even with inflation, without any benefits of inflation only with negatives from it has reduced our return our total at the end of the year we have left in real dollars, is $110,045. We’ve still performed better than the other two. So just to recap, three columns, three investment comparison here, the bank, we’ve got $91,139, the loan, we’ve got 97, where we loaned out money as a hard money loan or a private loan, we were the lender, we got $97,620. And with the income property, we got $110,045. Remember, if my friend lets this money sit in the bank, it’s costing him essentially 25 bucks a day, $174 per week, or $751 per month, folks, herein lies the urgency 2012 is upon us, it is time to make sure as much if not all of our money is working for us. Okay, if you own a business, then you want your employees working. You don’t want them dilly dallying around by the watercooler surfing the internet, doing Facebook or Twitter or whatever they’re doing unless it’s for business you want them working? Why would it be any different for your money, your money has got to work for you all the time, you’ve got to have your money working. If it is not working, it is costing you 25 bucks a day, you know, you could have a darn nice lunch for $25 a day. In fact, you could have a decent lunch and take a friend. This is real money. It is diminishing our wealth if we don’t put it to work. Enough of this. We’ll see you on January 7 Hyatt place in Tempe Arizona. It’ll be a great event. Register now at Jason hartman.com. And let’s go to our case study today with our young investor drew as he talks about what he has done compared to his friends, we’re going to talk a little bit about monetary and fiscal policy and Ron Paul and some other interesting sort of political things here too, and home business. And anyway, I think you’ll enjoy this interview. It’s kind of an interesting conversation with one of our actual clients who’s doing a good job with his investment portfolio. So we’ll be back with that case study in just less than 60 seconds.
Are you interested in a property outside of our network? Do you need a second opinion, no problem, let Jason’s experts evaluate the deal. For more information, go to Jason hartman.com.
Jason Hartman 28:23
Now, it’s my pleasure to welcome one of our clients to the show, he is doing an amazing job at accumulating income properties at a very young age. And well, all of his friends are following the traditional plan of buy your first condo or buy your first house, he’s taken a different tack. And it’s really, really paying off for him. He’s also very aware of politics and the economic environment, so forth. He listens to lots and lots of different podcasts and audiobooks about these subjects. And we constantly talk about them. So I thought we should just get him on the show. Because the other day I was listening to his story. And I thought you probably want to hear this as a listener. Anyway, let’s welcome Drew. How are you?
Hey, Jason, thanks for welcoming me on the show.
Jason Hartman 29:06
Well, good to have you.
You know, it’s funny that you told me he was he said that I’m I’m follow politics closely. Because my whole mantra in politics is just is very simple as far as people say, Are you left? Or are you right? I always just say, I’m the Leave me alone party, just Just leave me alone.
Jason Hartman 29:24
I guess I’m in the same party you are because my whole mantra about politics is when it comes to there’s an old saying when it comes to architecture and interior design, less is more and graphic design too. And when I say when it comes to politics, less is more because that’s the Leave me alone mantra too. I want to talk about your plan, and what you’re doing for your own financial health and wealth and compare that to what your friends are doing. But before we get into that, let’s talk about kind of the the political and economic environment. What’s going on out there. I guess I’ll just ask you drew, what are your thoughts?
Well, you know, I was really interested Following all the debates closely in 2007, when there was kind of that split with who was going to be the next one to take the office, and the thing wasn’t the only one that made any sense to me was Ron Paul. I didn’t even know who he was. I had no I had not seen him ever before. And he was the only one just standing up there saying, Is everybody crazy? Like, you know, you had mitt romney saying, we want to send lawyers over to, you know, Iraq to figure everything out. And he’s like, we have the Constitution. And so it’s funny when you talk about less is more that’s, that’s what Ron Paul had to say was that, you know, a lot of people said, well, you want to go into the White House and not do anything. And his whole thing is, yeah, less is more like, you know, there’s a lot of power in not doing stuff. I mean, and that’s Apple success, their whole thing is not including stuff not doing stuff. That’s how they’re successful.
Jason Hartman 30:51
Well, let’s elaborate on that a little bit. You mentioned Apple, and unfortunately, Steve Jobs passed away fairly recently, a couple months ago, when it comes to Apple. I mean, I think what you’re talking about is simplicity and design. Right? Well, yeah, I mean, like Apple, Apple was the first company to exclude floppy disk drives,
they didn’t, they took that out, and it made a lot of people mad. And so they’ve just done a lot of things, you know, seeing what the next road is ahead. But I mean, as far as what the government goes, the the road ahead is going to be far worse than the way it is now. I mean, different meanings, it’s going to get worse. So
Jason Hartman 31:26
I couldn’t agree more. It’s it’s just amazing how far we have strayed from the original intent of the founding fathers and and the Constitution of the United States to where we become this busy body country that is in every body’s business around the world. And you know what, I guess that’s fine. If we decide that we’re the moral authority, and we know better, and we should just go be everybody’s parent and police force and social engineer. That’s one philosophy. But whether that’s true or not, are good or bad. The fact is, we can’t afford it. We cannot afford to have military bases in something like 170 countries. This is insanity. What is going on?
Well, yeah, it’s funny, because back in the last debate, Ron Paul was saying that we were building a marine base in Iraq, that was the size of the Vatican. As far as our military presence being completely gone, I know, Obama’s, you know, repositioning troops, and some people say, that’s kind of a political move in order to get reelected, but we’ll see what happens. But yeah, we can’t slay every dragon. And we can’t go after every fight. You know, I mean, we’re just we don’t have the money. And you know, and that’s the thing is, there’s a lot of, there’s a lot of unintended consequences if you try to do that. Well, you certainly certainly make a lot of people hate you. Oh, yeah. I mean, that’s why we got attacked on 911. A lot of people say because of the thing called blowback, we had a military base on the Saudi peninsula. And we were killing people in that country, or killing people outside that country with through the military base, launching mesh missiles and stuff, and got a lot of people, a lot of people pissed. And that was the whole, like, reason that Osama bin Laden came after us was he said, this is like a deadly sin that the Americans have done and will do whatever it takes for them to get out of our country. So what we what did we do we doubled down and went everywhere, right?
Jason Hartman 33:23
Let’s kind of take this into what we’re talking about on the show, which, which is how to create wealth, and have investment success. what this all means to us is that the government is obviously insolvent. But the problem is, most governments around the world are it’s not just us. We can we can yell and scream about how the US is a disaster. All we want. But the fact is, so is everybody else. So I guess it’s just pure pressure. Water seeks its own level, I say that the US is the nicest house in a really bad neighborhood of irresponsible tenants. tenants, right? Yeah. What were you saying? Got it.
I got a D on my test. But my neighbor got an F. I’m feeling pretty good.
Jason Hartman 34:06
Yeah, it’s a bell curve. It’s a bell curve. Right? So what what this obviously leads to and regular listeners to the show your regular listener, and most people are regulars, listening as it just leads to inflation. And during the time Obama has been in office, we have increased our national debt by like 50%. You can say george bush was a spendthrift and he certainly was, but wow, he was nothing compared to Obama. And so we’re in a situation now where there’s only I’ve identified six ways out of the mass, but but I think the most likely way out of the mess is to just create more money out of thin air, and tell us how that influences your investment decisions. And then I want to talk about what you’ve done and contrast it with what most people your age are doing. And by the way, are you 27. Now Drew, just turned 2820 year 2828 it’s such an old guy.
I keep forgetting it changes every year. So
Jason Hartman 35:05
you got to update your clock, right?
Yeah, exactly. Yeah. Well,
Jason Hartman 35:09
I remember I got this one sort of note from a listener once that said, stick to real estate, stop talking about all this government stuff. And I’m like, how can you do that? You would that would be that would be like thinking and talking in a vacuum. The government policy, monetary and fiscal policy have a massive impact on investment strategy.
Whenever you’re talking about what the government’s doing and how that all works? And what are everyone’s role is in the government. I mean, I think it comes down to the American dream. And I think a lot of people would say it’s kind of cliche. And I think a lot of people would say the American Dream is owning your home, which I think is a bit of a bit of a distraction, and isn’t necessarily true. It used to be what the American dream was, was creating your own business. That’s a lost art. Now, I mean, and more people are wealthy, because they start their own business than anything else. There’s more millionaires because of the people starting their own small business than anything else. And so I think what the government’s done is they’ve stepped in and tried to manufacture a different American Dream by doing this social engineering and tempting to incentivize certain things and tax other things in order to kind of manipulate the way they want the things want the things to work.
Jason Hartman 36:22
A couple comments here just for a moment, and sorry to interrupt you. First of all, I’m not so sure that more people have become wealthy in their own business than anything else. The distinction I’ll make is this, I think more people become wealthy by investing in real estate than anything else. But a lot of times, those two go hand in hand, because sometimes real estate is their own business number one, or their own business gives them the freedom and, and the money to play at a higher level sometimes, but the pure start your own business statistics, like if you look at the SBA website, Small Business Administration, they’re not good. Lots of businesses fail. They say most 97% of businesses fail in the first year, a whole bunch more fail in the first three years. And if you make it five years, you’re probably going to make it that’s sort of the traditional thinking. But now I want to add on to that, too. And I’m sure you’ll have some comments about this. The thing is nowadays, though, a lot of that was more in the typical traditional idea of your own business of opening up a shop being the shopkeeper nowadays, you can have an online business, a virtual business, and the risk is much lower if if you know what to do. And if you play your cards, right. So just a couple of thoughts to muddy the waters there. Sorry,
yeah, no, I would. And that’s how I make my living. Because I sell stuff online. I mean, and I find people online, and I now connect the dots. I mean, I’d be petrified if I had to put down 10 grand, secure lease to then pay a lease and then have a retail location. I’m just too much of a niche. I mean, that’s to be honest. I mean, I don’t have the sort of clients that would be required in a city or you know, in like a small, liberal goona beach. So there’s not enough clients here to support me. So you know, I have to reach to a more global level, so that the internet saved me.
Jason Hartman 38:16
Yeah, it did. And so what you what you rent, your only big rental obligation is some storage units to inventory your your products and so forth.
Well, you’ll like this, I lived about 10 miles inland. And I had about three storage units 310 by 20s, salads, I was renting those. And I was driving for what was pretty much an hour to go inland to gather inventory and drive back. So I said this is this, this thing, I got to do something else. So I went looked online, and people are actually renting their garages here in Laguna as a form of storage. And so I rented a guy’s 20 by 20 Garage, that is partitioned in half, and I’m renting one unit. And it’s the same price as what my storage unit it was in England. And what’s the best part is it has an ocean view storage unit with an ocean view.
Jason Hartman 39:13
California. That’s pretty cool. So,
Mike, yeah, I don’t I don’t have an ocean view. But my but my storage unit does well,
Jason Hartman 39:19
you can you can always hang out there. So that leads to a good point. Let’s talk about your own plan. We’ll get back to the government stuff, maybe in a moment and the broader picture, but you asked me a few years ago, I think we’ve known each other for maybe four years now about Yeah, four or five years, four or five years. It was it was 2006 or seven, something like that. And we met through Andrew Snyder, one of one of my former employees, great guy and still friends with him. You both of us are and he introduced us in when I was talking to you back maybe I don’t know, three or four years ago, you had asked me several times. I want to move out of my parents house. You were probably 24 at the time, maybe and You know, I want to move out, should I buy a condo? Should I buy my first condo in Orange County, California? And I said no way. Don’t do it. And, and that’s what some of your friends were doing. And I think you were sort of feeling like you were left out a little bit because you saw other people doing that in your peer group. Right?
Well, it was weird, because a lot of my friends, you know, we’re getting help from their parents, you know, their parents were co signing on loans for them. And I mean, I didn’t have that option available to me. But at the time, I was making more money than all my friends. And so it seemed like I just wanted to escape from my, you know, from my parents house, which actually plenty I moved to Arizona then and went out there and just saw the insanity at the time. Do you know the market as the market being crazy in Arizona, right? Oh, it was crazy. Yeah, I had a friend that bought a house bought a place out there. And one of these narrow three story townhomes and paid 265 for it. And now they probably can’t get 100. So it’s crazy. So, you know, so I had saved up a pretty decent amount of money. And I didn’t know what to do, because I knew that the government was going to inflate it away, you know, because interest rates were so low. And I just thought, boy, they have to raise interest rates. I mean, that just makes the most sense. But from then to now the interest rates have still been so low and either lower probably well, thinking for the first problem is thinking that the government will do what actually makes sense. Is it dangerous bad? Yeah, it really is. Now, I should start thinking whether it’s not what makes the least sense because that seems to be what it always tries to run after. But certainly I could save that for pretty, pretty decent amount of money. And I didn’t know what to do. And the problem was is that there was so much you know, government reckless spending, but I was just afraid that all my savings was just going to float away and so I kind of was a bit antsy and not sure exactly what to do. So I started looking around and you know, I kind of took your advice and said that you know, real estate is kind of a local market and you don’t have to buy in Orange County you
Jason Hartman 42:03
can look elsewhere. And so what what my advice was just to be clear on this as I said, if you want to move out go and rent a place in an upscale area because you can rent it for such a favorable RV ratio for the tenant rent to value ratio is in favor of the tenants. So well, you you bought some investment properties first, but what you ultimately found as a rental is in Laguna Beach, California, which is a very high end area and I think you’re paying What about 2100 a month or something like that.
Now, this is actually funny I what I ended up buying two houses pretty much back to back in August 2010. So it wasn’t too long ago about a year ago. Now these were these are when you say houses, those were income properties you purchase through your computer England properties in Indianapolis, and I found two foreclosures and since I was a cash buyer, so it’s funny because the two houses that I bought as investments, I had enough money to pay my rent here in Laguna Beach. So when I moved there, literally when I moved out of my parents house, the first month’s rent that I got from you know, a check for my you know, agent, I put in on my first month’s rent here in Laguna Beach, so it actually paid me some money and I netted $100 a month, so I didn’t have to do anything.
Jason Hartman 43:29
So let’s compare that to the situation. You could have been in those two rental properties that you purchased through our network in Indianapolis cost about 100 110,000 for both of them, I think right?
Yeah, yeah. Maybe like 120 but yeah,
Jason Hartman 43:43
so about 60,000 each on average. Okay, so 120,000 and those were producing income of probably what 2000 a month. Yeah, that’s pretty close. And you could have been the that was that was the the smart option the way you did it was exactly right. But the way most of your friends are probably doing it and just most people in general are probably doing it is they would have purchased a 300 or $350,000 little crummy condo in Orange County and they would have been in debt because remember your house is a liability. It is not an asset. Anything that costs you money is a liability. I love what Robert Kiyosaki his wife Kim says to him, she says, look, you can buy a liability if you want, but you have to buy an asset to counter the liability. So he wanted to go buy a Ferrari. And she said, well go buy an apartment complex to make up for it. You know, and I think that’s a pretty good philosophy Because see, most of your friends are most people just in general in your peer group would have saddled themselves with a property that first of all in Orange County is going down in value. The market outlook not being good, but you looked 1600 2000 miles away in Indianapolis, and you You purchase two properties that were assets that produce income that had rent to value ratios, exceeding probably 1.3, or 1.4% of the price. Yeah, you had to pay 1.5%. That’s phenomenal. You had to pay cash, which would have been even better if you could finance them and get the leverage, but still even paying cash. That was a great deal. You could have taken that money and made it a down payment. On an expensive condo, you wouldn’t be living in Laguna Beach, either you’d be living in Aliso Viejo, or something less desirable than Laguna Beach. And it makes perfect sense what you did
well, yeah, it’s funny because a lot of friends now are licking their chops thinking now’s the best time to buy. And, you know, maybe they’re right, I don’t really care. Because to me, it makes way more sense to rent here than to buy. But I mean, we have a friend that bought in a very nice neighborhood, in a suburb in the suburbs in LA. And it’s funny, because what they put down was equivalent to the three properties I now own and paid cash for. So the down payment that they had was how much was how much they put down just for their home there. And I have three homes in India producing income for me. And it’s funny, because the amount of income I’m getting in from my investments is equivalent to roughly how much they’re putting out every month to live in their home.
Jason Hartman 46:23
Amazing, amazing. So in other words, that’s their down payment was probably about $180,000. Right on that housing away. And when you say we, that’s you and your fiance, congratulations, by the way, I know you recently got engaged. And so that’s 180,000, they put down and plus they have a payment that is probably 3000 a month. But you have 180,000 into the three properties in Indianapolis, but you have income of $3,000 a month. I mean, folks, look at this equation, a house is a liability, investment properties, income properties are an asset because they produce as the name would imply income.
Yeah, so it’s really given me a lot of flexibility and kind of security. I mean, I work from home. So now I just don’t have to worry about getting a certain amount of income every month to pay off my pay off my rent, because it’s just covered. It’s covered with just two of my properties. And I only have to have a vacancy rate of I can have one vacant the whole time and still have my head above water. So you know, I’m not sure where I’m going to throw the for the chips. Next. I’m debating on the next market to invest in because I don’t want to put all my eggs in the same basket.
Jason Hartman 47:36
But the thing is, I told you diversify. What do you say about Indy? Go ahead.
I said Indy just had such a strong rent to value ratio. I just, it’s hard to it’s like a drug addict, man, it’s hard to leave.
Jason Hartman 47:49
You’re addicted to the good RV ratio? Well, you know, as we talked the other day, Phoenix and Atlanta, those are probably the two I consider pretty strongly for for your situation and what you like right at the moment, let me take a brief pause. We’ll be back in just a minute.
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 or a losing game for most people. The typical scenario is you make a little you lose a little and spin your wheels for decades.
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Jason Hartman 50:22
But yeah, that is a great plan you, you have definitely achieved it. And congratulations, I What’s your goal?
You know, as far as next? Well, the problem is, is that I just no one will run me any money. So I have to just because I’m self employed, I mean, it’s totally, it’s totally counter to what the way it used to be. I mean, it used to be that funny because the government was in charge of giving out money. So I mean, back then it was people, instead of people looking for money, there was money looking for people. And so people like me that were self employed would just have a, we would tell them what our income is. And we wouldn’t have to prove it up with every number. Because you know, being self employed, you get to take deductions that people that aren’t self employed, don’t get to take and so I can’t buy anything, I can’t get a loan. So but now with this investment property, I’m starting to get monthly income, so I can show income there. And so I’m just going to try to build up my monthly income through investment properties until I can get a nice size loan. And then I’m thinking about buying like a next would be like a four Plex or something in Arizona, I think that’s the next step. But you know, I have to get my feet wet a little bit with that market. You know, I mean, I like Arizona, I’ve lived there for about a year and a half, you know, it’s a lot different price wise now than when I was there. So I mean, I’m amazed at some of the deals. And the I think I saw a four Plex for like 130, which is crazy. And we have those on Jason hartman.com. And those will generally produce around $2,000 a month in income. So pretty, pretty phenomenal.
Jason Hartman 51:56
We sold a bunch of four plexes out here in the Phoenix area. But there are lots of different opportunities. And I don’t want to talk too, specifically. But you know, one of the things you mentioned about having your own business and about the deductions, this is why anybody listening, if you have a job, W two job that provides just traditional salary type income, you must open a little business on the side, a home based business, because that home based business, even if it doesn’t make much money, you get to take a whole new set of great tax deductions that traditional salaried corporate type employees don’t get to take your expenses are filtered through the business before you’re taxed on them. Whereas with an employee, you pay taxes and then you spend money. It’s a terrible equation. You want to filter them out of business first.
Oh, yeah, right. Right. Now I’m right now I’m sitting on my, on my desk in my house, which the government is going to hurt, you know, I get the deduction of an office. And I’m sitting on my computer, which is a work computer, and I’m talking on the phone. So you know, a lot of that stuff when I would be paying for anyways, if I didn’t have that. Yeah, yeah.
Jason Hartman 53:07
So it basically you take a whole set of expenses out of your life. And basically, you get the government to pick up the tab for maybe, depending on your tax bracket, about 40% of the cost. So you’re only paying 60%. So it’s a great deal, folks, you got to have your own business no matter what. Okay, even if it’s a little side business Drew, let’s just kind of close up and talk a little bit more about the government situation if we can, any other thoughts that you have about economics, taxation, monetary policy, Federal Reserve, you know, we’ve had these discussions for hours on end over the years, but I just thought I’d ask you what other thoughts you have on those?
Well, I kinda want to ask you some questions. Actually. I think it’s, I think, I mean, you know, a lot of people like Ron Paul, kind of want to go towards the gold standard, which I think doesn’t really work. Because I think there’s too much. I mean, there’s too much money that would, you know, there’s not enough gold to cover all the money. I think maybe his counterpoint would be competition and currency.
Jason Hartman 54:07
Right. Well, competition and currency. Yeah, that’s great. Well, did you have a question there? Sorry. Oh, yeah.
So basically, I mean, what would I mean, obviously, I think what’s interesting with that is that there’s more debt than there is money. But you know, how you detangle that mess? I mean, as far as and I know, Ron Paul gets a lot of cheers when he talks about the gold standard. But, you know, I don’t know how you implement that. I don’t think that’s kind of a dream.
Jason Hartman 54:33
I think it is a dream, too. I agree with you. I I don’t think we’ve just gone too far afield. I mean, we’ve created far too much currency or fiat money and currency and money are not the same thing. By the way, folks, those are different currencies. fake money is real. So a gold standard probably wouldn’t work. A silver standard could potentially work. But you know, what, if we just had a balanced budget amendment, if we just had that, that would be huge. But then again, as much as we hate this stuff philosophically, we know how the listeners of the creating wealth show, know how to exploit it, and and use it for their benefit. And that is, you know, to follow my ultimate investing equation.
So I don’t think a gold standard is practical either he I’m, I’m kind of I think it’s interesting when people are Well, I mean, and I think as far as gold and silver, I’m skeptical on that. I mean, that’s a wealth, I think, a wealth preserver, but as far as like an investment when people you know, want to purchase gold coins or purchase silver coins, assuming the government doesn’t confiscate them, and they think that’s a form of investment. But I think maybe that’s slightly a wealth preserver. But to me, I think having an active investments like working in my business, buying and selling things, and having an income properties produces income.
Jason Hartman 55:54
Yeah, I agree with you, I think the golden silver, the gold bugs, that is just a defensive strategy, what we do with income property investments is an offensive strategy. And, yes, listen, I would rather have gold coins than dollar bills, because the dollar bills, they have no intrinsic value, they’re just Fiat paper in ink, but the gold coins, they do have a tradition of intrinsic value for sure. It’s a 5000 year old tradition. But again, it’s a defensive strategy, it’s nothing more than a hedge against inflation. Whereas active investments like income property, because they’re multi dimensional, they offer an offensive strategy. And, of course, they’re the most historically proven wealth Creator of all,
yeah, and it’s interesting as far as kind of creating wealth, because I, I sort of saw with all my friends that if they went to, you know, the route that their parents went, they pretty much lost their shirts, I mean, from investing in the stock market, to putting a down payment on the first house, and a lot of my friends that, you know, went after, what their parents did, and what worked for their parents, they got their clocks clean, and they didn’t, they, they lost their shirts. So it’s interesting how the game is changing. And I think what you have to do is be proactive in order to counter what the government’s doing. And if you’re not, you’re just gonna put your money under your mattress, and the government’s gonna, you’re gonna wake up one day and the money is going to be all gone. Yeah, the The interesting thing about that, you know, if you put the money in the bank or under your mattress, or whatever, is that nobody has to actually physically steal it from you to steal it from you. In other words, they can just destroy the value of it. Because it’s a it’s a it’s just a notional value.
Jason Hartman 57:37
It’s a symbol, it’s not real. And and I think what’s real are commodities is a very much a resources and commodities person, everybody needs stuff. Stuff is what makes civilization of course, stuff and ideas, good ideas, I should say, fiat money is a bad idea. But again, we’re here to exploit them, not change it, because I don’t think we can change it. And you know, people need stuff if you if you just go about your daily life, look at the amount of stuff you use, or you’re engaged with. It’s all about things and material items, things have value money does not I should say things are money, currency does not have value. Right? Yeah. I
mean, and that’s, that’s why I mean, I’m telling you about these storage units that I have with inventory in them. And I mean, there’s a lot of security in having those storage units and having that inventory, because I can, you know, I can always sell it and get my money back. And I can always sell it and make a profit. And so I like I’m very comfortable when I don’t have all the cash. And there’s kind of this Balancing Act of, you know, do I want more inventory? Do I want more cash or more inventory more cash, and usually, like, get enough cash saved up, that I can buy another investment property I just been, you know, and have enough for a rainy day fund,
Jason Hartman 58:56
I’ll just throw the money at that. So it’s kind of kind of a balancing act on what I’m going to do. So your whole thing is like, How quickly can I save the next 60 to $80,000, so I can get another property. And that’s exactly what you do. And you’re doing a great job of that I got to congratulate you for being the ripe old age of 28 years old and starting this plan at about 25 I guess it’s been a great plan for you and you’re way ahead of the game, you’re getting 50% more than your monthly housing expense, where you live paid for by your income properties, and you own them free and clear. So it’s just a phenomenal plan income property investing absolutely works. Did you have any other questions for me?
Well, you know, it’s what’s interesting, as far as owning these properties free and clear, because it’s funny how, you know, you can hold title, but the government just essentially taxes you every month for for living there. I mean, it’s it’s funny how the government can get away with owning your property and you still get taxed. I mean, I think it’s funny like when, you know, I think ron paul was at one of the debates and, you know, somebody said, Are you for the flat tax and he said, I’m going to tax rate to be so flat at zero.
Jason Hartman 1:00:07
But what’s funny about what what are you saying? You know, I mean, are you talking about how property taxes represent a perpetual lien on one’s property and we never really own anything. All these people out there are following this terrible plan of like paying off the house in which they live. And I’m a renter now too. And I live in you know, I’ve talked about on the show, I live in this gorgeous penthouse in in Arizona, and it’s brand new. And I’ve owned three houses in Newport coast, California, bunch of houses in Irvine, and I lived in Southern California for pretty much all my adult life. And moving here, everybody says, Well, are you looking to buy something and I’m like, No, I’m involved with a whole lot of rental properties. I’ve got, I’ve got lots of people that are tenants of mine that are producing income for me, and these properties producing income. And I just love being a renter, because the place I’m in the RV ratio is so much in my favor. And even if you own your house free and clear, you never really own it, because the government always has a lien on every piece of property. And that’s almost a worldwide phenomenon. That’s true in most countries as well, not just the US where property taxes just represent a lien. So if you do have property, and you can get financing against it, lever it up and get long term fixed rate financing, because inflation is coming, and you don’t own it anyway. And I’m sure when the time comes, when you can do it, when you stop taking every deduction you can out of your business, and maybe drew gets on the grid, okay.
Instead of off the grid, then you’ll be able to get financing when the financing market eases up, and you can refinance those properties, pull the cash out and buy more. What’s funny, as far as you know, the government having a perpetual lien on your property, we, of course, just to tease that we were sort of looking around at home, homes around here, because we’re thinking about when we get married, we’re thinking about getting married on the beach. So we were walking around and trying to see what the best spot was. And there was an open house. And so we went through the open house, and it was a nice two bedroom house that was on the water. And it was really nice. But we found out that what the purchase price was was, I think 3.7 million here in Laguna Beach, or two bedroom house,
Jason Hartman 1:02:23
and what a two bedroom house for 3.7 million. Wow.
And, you know, I was thinking about that the government gets about $3,000 a month from the person that was there that owns that place. So that’s fun, that’s some people’s, you know, house payment.
Jason Hartman 1:02:40
But here’s the here’s the other reality of it is that if that property were for rent, I bet you could rent it for 10 grand a month. And that would be a much better deal than owning it. And that’s the point is that you’re much better off owning a bunch of income properties in diversified locations, and renting your own home. The only time This isn’t true, is if you live in one of the markets you can find on Jason hartman.com. Okay, and you live in a property that’s priced in that price segment. So if you live in Phoenix, and you live in $110,000 house that makes sense to own it. But if you live in Phoenix and you live in a $500,000 house, it makes more sense, it starts to make more sense to rent that house and own other rental properties. Because think about it $500,000 could produce well over $5,000 a month in rental income for you. And you could probably rent that $500,000 house in the Phoenix market for Oh, you know, I’ll say 20 $500 maybe, and just do the math on that. It’s it’s a phenomenal deal. Any other thoughts or questions, Drew?
You know, I think I think that’s it. I have a few other ideas jogging around in my head, but I don’t want to run around in circles.
Jason Hartman 1:03:59
Yeah, sounds good. Well, hey, thanks so much for joining us on the show today. And thank you for sharing your plan, what you’ve done so far, and what you’re planning to do in the future. And I just think you’re right on track. And I really congratulate you for it. And while all of your friends are struggling to make their house payments, and they’re on this perpetual treadmill or as Robert Kiyosaki calls it the rat race, you’re, you’re free. I mean, you’re basically a free man now where you can you can go you can move to another area where an opportunity might present itself. Yeah, maybe your fiance Katie has offered a job in another location, your mobile, you can move. That’s a great thing. And you’ve got those properties producing income for you, regardless where you go. So it’s just an awesome thing. So congratulations on that. And thanks for joining us today. Drew.
Boy, hey, thanks a lot, Jason for having me on the show. Yeah, I would just recommend anyone to to get a hold of your indie rep and talk to her about getting an investment property out there. I mean, maybe you might recommend other things for different people and what position they’re in. But to me, I mean, my experience was very positive. And since then I’ve referred a couple of my friends and family to purchase out there. And they’ve had pretty positive experiences, too. So I thank you.
Jason Hartman 1:05:16
Excellent. Well, thanks again.
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