Jason Hartman hosts Evan Moffic for a client case study on short-term rental properties. They discuss inflation and the benefits of tax deductions. Jason illustrates how you get paid to borrow with your mortgage and low-interest rate. Evan discusses how human nature doesn’t think long-term and how real estate investment portfolios are long-term. They end looking at Bernie Sanders’ plan for the US.
started listening to the podcast did that you know for probably a couple years before I connected with your investment counselor, she did a great job of kind of holding my hand through the process. I probably one of the more needy clients she worked with, but ended up buying my first property in 2011 in Atlanta, and then waited a couple of few more years until my next one, but 2014 purchased in Memphis. And so that’s where I am at this point.
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 bed involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:19
Welcome to Episode 13 at 91389. I’ve got Rabbi Evan Moffitt, our client here with us. And Evan, you just got a phenomenal deal on a short term rental property you bought through our network. And I thought I would just ask you to share that not only did it appraise for more than expected, but you also got a phenomenal loan on it. Is that correct?
Rabbi Evan Moffic 1:48
Yes, I did. Jason and I just, I mean, I can’t I know we’re going to talk about some substantive things, but I can’t thank you enough. I would have never known about this deal found about this deal had it not been for you and I actually think this one, the could potentially be life changing. I mean, I’m getting this beautiful home with a 3.5% interest rate, I can’t even, I can’t even imagine it myself. And it’s already rented out for months on end. I mean, I look at the schedule, and it appraised for given that you structured the deal. So that essentially, we’re financing the furnishings purchase. So the furnishings cost about $30,000. But they’re included in the purchase price, so we don’t have to lay out cash. And even though the furnishings are included in the purchase price, it still appraised higher than the purchase price,
Jason Hartman 2:35
you get the maximum leverage on that. Evan, do you mind if I play a couple of the messages you left me? I was going to do this on the show without you and did ask you if it’d be okay. You said yes. But I think it’s better if you’re here because you can comment for the listeners on you know what your thoughts were about this property as you were finding out this news is that okay, absolutely.
Rabbi Evan Moffic 2:57
I just want to let you know, just got the amazing And for my short term rental on St. Augustine, I’m so excited about and praise. Okay, minute for 75 we’re paying for 69. Wow. And the genius of how I got cut off again from the phone. You said how you structure these deals is the 469 price that we pay includes all the furnishings. So essentially, if we assume 30,000 for the furnishings, I really paid for 39. And the appraisal came in at 475. That’s awesome.
Jason Hartman 3:29
Well, congratulations. And and that is that is just wonderful to hear. Excellent. And
Rabbi Evan Moffic 3:34
you know, and I also want to thank Doug, I mean, Doug, your investment counselor, I mean, he brought this to my attention. You know, it’s amazing how investment counselors help you think of things you would never think of. I mean, it’s really and help you see things you would never see. Tell us.
Jason Hartman 3:52
Tell us about that conversation with Doug. I mean, did you originally reach out to us to buy a long term rental property and then Doug told you about the short term rental properties or, you know, what was your original? You obviously listen to the podcast, and then you reached out to us. But tell us how that conversation with Doug went down?
Rabbi Evan Moffic 4:12
Well, it was really he Yes, I was on the list for for long term properties. And Doug sent out an email. And he had highlighted this property and said, You know, this is a great deal that came across my desk, take a look at it. I was not looking for short term rentals. I mean, I’d always had in the back of my head, maybe I’ll, you know, eventually get a second home and, you know, want to live in a warm climate at some point. So I always was thinking about it. But then I saw this and I started reading about I said, you know, this checks off all the boxes, it’s in a beautiful area, I know the area, and it’s a perfectly structured for short term rentals. So essentially, I can purchase a second home and have it paid off for me and earn a profit for it at the same time. And, and so all of that kind of came together. So really, I wasn’t looking for one. And then Doug also explained to me how when you were work with local market specialists, you urge them to really figure out ways that we can maximize the leverage. So that that’s the way Doug put it. So we’re putting the least amount of money out of pocket. And that’s not intuitive. That’s not intuitive for most people, but it works well for investment property. So all of that I hadn’t thought of that. Yeah, it was really getting educated our
Jason Hartman 5:22
mandate Dave Ramsey be damned. Oh, he doesn’t know what he’s talking about.
Rabbi Evan Moffic 5:28
He’s great. He’s great for people that are massively in debt. Right. Hey, you know, that’s a blessing.
Jason Hartman 5:33
Dave. Listen, Dave Ramsey is great for like the lower middle class. Yeah, he really does help those people that get themselves into credit card debt. They, you know, they spend money on the appearances of wealth, that new car in the driveway as he talks about, you know, and he’s great for that. But when it comes to investing, he’s just clueless like, it’s so it’s so shameful, how bad his advice is. You know, when you have income property being such a wonderful debt friendly asset class. And you can use that, that really cheap, long term fixed rate debt that you basically get paid to borrow now, Evan, let’s talk about that for a moment. You know, we’ve heard a lot in the news about negative interest rates. Yeah. Okay. And you locked in on that short term rental property Not only did you get it appraised for what what’s that 35,000 more than you pay right, essentially. Okay, so your your appraisal is $35,000 above your purchase price. And again, some appraisals go the opposite way folks, right is a market where appraisers are really finding it hard because properties in many markets are appreciating quickly and it’s hard to find comparables. This I was worried that
Rabbi Evan Moffic 6:48
I was weird. My my mortgage broker was I was on his case, he was getting annoyed with me but it worked out. Yeah,
Jason Hartman 6:55
yeah. Okay, so so that but then you were excited because you locked in 3.5% more 3.503 point 5.5 Okay, 3.5 let’s do a little little analysis on that for a moment. Okay, the feds target inflation rate is 2%. Okay. And that is their stated goal to have 2% inflation, okay. Now, we all know that the government maligns the numbers through waiting substitution and hedonic indexing, okay. And I’ve talked about that extensively in the past, then they have something called the core rate, where they malign again, because they basically take out food and energy, saying that food and energy are too volatile. So they shouldn’t be used in the core rate when you hear them refer to the core rate or that or what they call core inflation. Okay? That’s what they mean. That’s stripping out food and energy. Okay. So, look, there are different CPI is and there’s this, that and the other thing and there’s a lot of ways to slice and dice. But I’ll just read you something right from the US Bureau of Labor Statistics right now. Okay. Consumer Price Index 2019. Year in Review, from 2018 to 2019. consumer prices for all items Rose 2.3%. Now, this is the official number. You don’t believe it’s understated, dramatically go to shadow stats, calm look for my episode with a founder of shadow stats calm by going to Jason Hartman calm and just searching shadow stats in john Williams. Right john Williams. Yeah. And he calculates the real rate of inflation. It’s definitely higher than the government says, but whatever. For this discussion, we’ll just use the official rate which is understated, okay, and it’s gonna make your loan still look awesome. Okay. So over that period, food prices increased 1.8% a start Slightly larger percentage increase than the 12 month increase of 1.6% in 2018. food at home prices. So in other words versus eating out, I guess, right, increased point 7% in 2019, continuing the trend of modest increases, blah, blah, blah. So basically, what they’re saying is that the number is 2.3%. Inflation, the official number, Shadow stats, I haven’t checked it lately, but john Williams, their shadow stats calm will probably tell you that the rate of inflation is somewhere around six or 7%. I’m just guessing from knowing him. Okay. So you’ve borrowed the money at 3.5%. Now your interest is tax deductible as you know, right greatest it because this is a second home as a short term rental. Okay. And you know, we mostly have long term rental properties, but we have You know, a small amount of short term rental properties we offer as well. I do want to give my cautionary statement again. Airbnb has yet to go through a recession, it has never seen a recession. It’s a young company, this huge boom in short term rentals, you know, that could be that could change when we go into a recession, which we eventually let
Rabbi Evan Moffic 10:22
me say something else about that. Because if, if you are if one of the listeners here is inclined to buy a short term rental, you must go through the Jason Hartman You must go because what I learned in purchasing this property is, you know, St. Augustine has a lot of Airbnb ease and short term rentals, but a lot of certain areas are zoned differently, so you may have to pay an HOA in a certain part St. Augustine beach, they only give 100 short term rental licenses right when you work with a local market specialist that you found. They know exactly where the best returning short term rentals are. With the lowest exec, no Hoa costs, and where you can easily get it set up in a tax favored area. So don’t just go buy it on your own, I learned that Oh yeah, you go, you gotta be
Jason Hartman 11:11
very careful because the short term, you know, cities and homeowners associations attack these things like crazy. So you could be really left holding the bag if you if you don’t, yeah, you know, if you’re not careful with where you’re buying a short term rental property, for sure. So, look at you’ve got long term rentals in your portfolio, we view that as the core of anybody’s portfolio. But hey, you know, we’ve got some good short term rentals. So go to Jason Hartman, calm reach out to your investment counselor, one 800 Hartman, and we’ll be happy to help you with long term rentals or short term rentals or a mix of both for your portfolio. Going back to this this beautiful mortgage, you got a beautiful, beautiful mortgage. I sound like Trump. It’s a fantastic it’s a beautiful mortgage. We’ll talk. So, so weird. his vocal style, but you 2.3% inflation and the interest is tax deductible. So everybody’s tax brackets a little different. And they’re, you know, it’s based on adjusted gross income, of course, but let’s just call someone’s tax bracket 40%. Okay, combined state and federal tax bracket of 40%. Okay, so now if you live in California, yeah, if you live in California, you’re going to be close to 50%. Okay, probably, yeah. So So here’s the deal. Okay. What we’re going to do is we’re going to take 3.5 this is what I’m doing in my calculator, and I’m going to take times 40% that is 1.4%. Okay. So in other words, 1.4% of that interest is your deduction. Okay, you gotta go. You get to write that off. And if inflation Is 2.3 Now I’m going to take 1.4 plus 2.3. This is really heavy math folks keep up with me. That is 3.7%. Okay, now you borrow the money at 3.5. I want the listeners to realize if you never rent that property out, if that property sits vacant, and maybe you just use it for a family vacation once or twice a year, and it sits vacant the rest of the time and earns us zero income. It is very likely. Okay. I mean, I don’t even want to say it’s very likely it’s absolutely true. I think I can say that safely. That you are literally getting paid to borrow that money. You’re getting paid the borrow, the interest rate is 3.5%. And inflation plus tax deduction is 3.7%.
Rabbi Evan Moffic 14:00
Why doesn’t everyone invest in income property?
Jason Hartman 14:03
This is the question puzzles me they don’t understand. They don’t understand them the absolute beauty of it, it really, really is incredible. Any other thoughts on that? And let’s talk about our, our friend, Bernie Sanders.
Rabbi Evan Moffic 14:18
I mean, you know, my main thought is, you just got to take action. And I’ll tell you, I mean, I got nervous, even through the whole process, and in part of buying a new construction, which this is, is, you know, it’s it’s a long waiting period, right? And of course, you know, we’re human beings, we get nervous, and I did there were times I’m like, Oh, am I doing a good thing? And, you know, you just have to have a kind of bias for action. And I think I just asked that rhetorical question, why don’t more people invest in income property, because it takes a little bit more thinking outside the box. You know, your normal retirement plan will just put you in these mutual funds and you know, soso investments, whereas you actually have to think for yourself to invest in income property. But the rewards are so much better, right? That I really hope that more and more people do it. I mean, we’re kind of on a mission,
Jason Hartman 15:08
that we are on a mission. It is the most historically proven asset class in the world. It’s the most tax favored asset class in America. It’s the most debt favored asset class in America. This is self liquidating debt. You’re basically doing a leveraged buyout. And as you can see, in Evans example, getting paid to borrow the money. Now, when you add in income to that property, it just gets phenomenally better. But even if you never have a penny of income for three decades, you paid to borrow the money. Okay? Yeah. Oh, yeah. In Think about it. Let’s just do that math. Let’s do one more thing with that math. Okay. Let’s say that the real rate of inflation is not 2.3% but it’s 6%. So now I’m doing six plus 1.4. Remember, that was the text action. Okay. That is 7.4. Okay, minus 3.5, which is the interest rate, that means you’re getting paid, paid 3.9% to borrow the money. The bank is paying you every month. Well, the bank inflation, the government, the IRS is essentially paying you to borrow that money. Even if you never earn a stitch of income from it. It’s just incredible. You know, that’s how you can even justify the way that the Chinese and the Russian investors and the Middle Eastern investors from around the world with money park their money in these terrible real estate investments in the US. A lot of them I was talking about that yesterday on the show, you know, they’ll buy a crappy high rise condo and they’ll just leave it vacant. And they you know, they just look at it as a place to park some money offshore in a safer political environment like the United States. So it is yeah, it’s something
Rabbi Evan Moffic 16:57
I was trying. I was thinking yesterday. why more people don’t invest in income property. And I think, you know, there are multiple reasons, but one of the key reasons is we are not built to be long term thinkers. And I think that it’s in our DNA, you know that we would save our life in the short term because we didn’t know what happened next, you know, we could be attacked by a saber toothed tiger, right. And it’s so much easier when we’re surrounded by CNBC and constant, you know, stock market do this stock market did that. That’s how we know we think, yeah, that’s what
Jason Hartman 17:27
you can just write a check to one of those firms. It’s they make it so easy to take your money, but Wall Street, Wall Street’s major job is to separate the middle class from their money, you know, where are all the clients yachts?
Rabbi Evan Moffic 17:44
So one of your tasks Jason and one things that podcast helps us do is to think more long term, right? You know, I think we can all appreciate how wonderful an investment income property is. But what prevents some people from doing it is this sort of short term focus, so it’s constantly being able to Think long term, right? That’s right makes a huge difference. And you
Jason Hartman 18:03
know, you’re very right. As humans, that’s not our DNA, you know, as we evolved over the aeons. Our point was to survive the day. That’s what that’s how we think is we are just animals, okay? And, you know, our goal is to get something to eat, to get some sleep, you know, maybe to have sex, to procreate for sure to be protected and have shelter, right. That’s essentially how we think. And beyond that, it takes a lot of intelligence to play the long game. And it takes a lot of delaying of gratification. So let’s switch gears because I know you’ve got to wrap it up and you got an appointment. Let’s talk a little bit about Bernie Sanders. Okay, so you can start your you’ve been thinking about Well,
Rabbi Evan Moffic 18:52
I mean, I he’s the front runner right now. And look, he’s very he’s charismatic, but it’s it’s really I do think that we need sort of a an education and that kind of reminding people of how wonderful capitalism is, of course, capitalism has downsides every, you know what? Churchill’s what a Winston Churchill say about democracy. It’s the worst political form of organization except for everything else. Right? You know, and I think, you know, capitalism is difficult, and I think but Bernie, is this. I mean, he’s almost Uh, what’s the right word? Like a populist who is who is trying to rub make people feel miserable? Yeah. So that he can implement some crazy ideology that’s failed everywhere else and where are the thoughtful democrats? Where’s like, you know, somebody saying this is insane. This is insane. I’m plenty of people my congregation liberal conservative, but I want people who are liberal to say, this guy is totally off the rocker. Yeah,
Jason Hartman 19:51
he is. He is. He is a delusional old man. I do. I must say I like the fact though that Bernie Sanders And Elizabeth Warren are out there, because they are drawing some attention to the banksters the criminal banksters and the crooks on Wall Street. And I do like that. I don’t think they have the solution. But I, I supported the Occupy Wall Street movement. Okay. Remember, you know, most of my friends would, you know, they thought what a, you know, liberal or something? No, I’m not. I just like the fact that they are exposing the criminality going on at the highest levels of our our socio economic world. It’s absolutely pathetic. Now, that same kind of criminality is going on with Bernie Sanders and Elizabeth Warren, because, you know, Elizabeth Warren is wealthy, Bernie Sanders could be considered wealthy too. Now. I don’t have three homes. Yeah, he has three houses. He has it. He’s a beautiful home on Lake Pontchartrain. You know, neither of them are populists. Okay. Elizabeth Warren. I just saw a video of her the other day getting off a beautiful private jet. They’re living off the dole of the public’s money. Okay, it’s your money, folks. Nancy Pelosi is like the biggest offender in the world. I mean, she’s
Rabbi Evan Moffic 21:12
she’s extreme. Her husband was in private equity. Right? Yeah.
Jason Hartman 21:16
Yeah. And and in her abuse Use of Military Aircraft Carter round and her bar bill, you know, I mean, it’s just the bee’s knees are just beyond the beyond. That’s
Rabbi Evan Moffic 21:27
absolutely. You know, Jason, what you said before? And I, you said, you’re not an optimist, you’re not a pessimist. You’re an opportunist. Right. And so I think with Bernie, in some ways, let’s just assume he wins, maybe horrible for the future of our country, but some of our investment properties may do very well. There’s probably a lot more inflation. I mean, he’s gonna spend like crazy and if He forgive student loans, you know, a lot of our tenants probably have student loans. I know mine do. You know if those are forgiven, you can raise rents or people may want to buy home so home prices will rise. mean.
Jason Hartman 22:00
Yeah. Right side. Absolutely. I agree with you look at just align your interests with the powers that be. Look in the evidence. They’re all spenders. Trump is a spender. You know, Bush was a spender. Obama is a spender. Bernie’s a spender, Elizabeth suspender. They’re all spenders. They’re all buying votes to curry favor, and Bernie will spend more. But, you know, they’re all just big spenders. And what does that mean at the end of the day, it means more money creation, more fake fiat money created in the world. And before we wrap it up, I’m looking at a Yahoo Finance article. And we’ll put a link to this in the show notes. of there’s an interesting graph here of what Bernie Sanders big plans will cost. You ready for the seven? I don’t know if you have it in front of you, either, but it’s absolutely insane. listeners. Are you sitting down And are you realizing how much inflation will occur under a spending program like what Bernie Sanders is proposing? He proposes a total of additional spending new spending every single year of get this 4.93 trillion with a T trillion dollars a year, almost $5 trillion a year in new spending. That is unbelievable. I mean, look, what what is it? What is our debt up to now like $23 trillion? Yeah, yes, our deficit is about a trillion a year or something like that. You know, we have unfunded obligations over the next 15 years or so. According to Laurence Kotlikoff, who’s been on the show and has probably done the deal of it. Yeah, it’s been on a few times and have like 220 trillion dollars this month. absolutely cannot be paid. But can you imagine if our deficit every year goes from $1 trillion to $6 trillion a year? Yeah, this is every year,
Rabbi Evan Moffic 24:11
I believe. Unbelievable.
Jason Hartman 24:13
He wants to spend an additional $3.2 trillion on Medicare for All. He wants to spend another trillion on the green New Deal. He wants to wipe out student loan debt and have college for all. Now, the interesting thing is, I don’t understand how this number is in higher because it says 220 billion dollars, but the student loan debt alone is like $1.4 trillion. So I don’t actually expect his numbers to add up. Yeah,
Rabbi Evan Moffic 24:42
it’s insane. Good point. Good point. Yeah. I mean, it’s, as you said, it’s so easy to spend other people’s money right. You know, I see this as a leader when it’s not when it’s not your money. You get a trillion here, trillion there. Yeah. And I mean, this is why would we expect I mean, Medicare is amazing. It does great things for people, but there are lot of problems. I mean, I had an injury recently. And I, you know, had was spent a couple nights in the hospital when I looked at the bill, which forced I didn’t have to pay most of it. It is absolutely insane. Why don’t we do something about those costs? Rather than just spend more money?
Jason Hartman 25:14
I know it’s crazy. And listen, this is no Trump promo okay. But I mean, give him some credit for what he is doing. It’s good like this, this new bill where hospitals have to disclose prices, like da, white horse, white devil, we always had that. It’s crazy that, you know, they can be so opaque with all this stuff. So that is wonderful news. But at the end of the day, look at we just calculated your loan, how you’re getting paid to borrow on that loan, if any kind of spending like Bernie Sanders goes through. This just has inflation written all over it, doesn’t it?
Rabbi Evan Moffic 25:56
Right. Oh, yeah. Oh, yeah. I mean, look, just think back to Roosevelt. I mean, in the you know, of course, we had World War Two there, but you know that the inflation since Franklin Roosevelt is what it’s like 9090 I mean that the dollar lost 95% of its value.
Jason Hartman 26:11
Rabbi Evan Moffic 26:13
So I mean, absolutely. And, you know, the beautiful thing is I, I would characterize myself as an optimist, that America, the, you know, we always survive. I’m not worried about the future of our country. But, you know, why would we make, there are so many things to look forward to, as you talked about, you know, the technology that’s possible in the next 10 years? Why don’t we put our best foot forward instead of going back into, you know, programs that never worked in the past? Yeah,
Jason Hartman 26:39
yeah. No, it’s, it’s crazy. Yeah, you can’t make this stuff up. Like Margaret Thatcher said, the problem with socialism, is that eventually you run out of other people’s money. That’s right. That’s right. All right. Right. Well, Evan, thank you for joining us today. listeners. Thank you for joining us as well and until tomorrow, we want to wish you all happy Investing, go check out Jason hartman.com or call us at one 800 Hartmann and get educated. It’s always it’s always great to have you on the show and hear from you. And we appreciate this client case study along with a little Bernie Sanders commentary. There, Jason. All right. Thanks again. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe. So you do not miss any episodes. We look forward to seeing you on the next episode.