Jason Hartman is joined by Investment Counselor Sara at the beginning of this episode, where she shares her experience closing on three properties in Memphis. Jason and Sara talk about the competitiveness of the real estate market, rate locks, and the commodities that make up a house that is independent of any currency. Afterward, Jason interviews Dr. David D’Ambrosio. He talks about his experiences with the 1031 Exchange on properties in the Orlando and Indianapolis markets. David asks Jason if it’s feasible to do a cash-out refinance if you can get a sizable amount of cash, then they proceed to discuss the deferred down payment option and equity stripping.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
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 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 on now. here’s your host, Jason Hartman with the complete solution. For real estate investors,
Jason Hartman 1:03
Welcome to the creating wealth show. And thank you so much for joining me. This is your host Jason Hartman with episode number 738 738. Again, thank you so much for joining us listeners from around the world. We are going to give you a client case study today. We love it when our clients come on the show. And here one of our many doctor clients is on the show, talking about his investing journey, the past, present and future. And we’ll talk a little bit about equity stripping. We’ll talk a little bit about 1031 exchanges. We’ll talk a little bit about the investing mentality with Wall Street with other investments with doctors and other professionals, and just a whole gamut of things. So I think that’ll be interesting to you. But first, for the intro portion. I invited David who is our client case study today Dr. David D’Ambrosio. I invited his investment counselor in two Talk with me a little bit about him and help introduce him. Sarah, welcome. How are you?
Sara 2:04
Hey, Jason. Great. Thanks for having me. It’s good to have you back on the show. And you
Jason Hartman 2:08
just closed on three properties of your own, I think, right?
Sara 2:12
I did. Yeah, I went with properties in Memphis this time around, and I was super excited and eager to get them closed. I want to get them leased up before the holiday season comes around and things are looking promising there. So, yeah, I bought two with one provider and one with a different one. So I’m going to try out two different property managers so I can compare and contrast and, you know, keep them honest.
Jason Hartman 2:38
That’s good. That’s a good plan. Yeah. We always like to try and have that customer experience. You know, I purchased a couple properties in Memphis last year, a couple more this year. You know, we’re we’re practicing what we preach and having those same experiences that you’re having. Interestingly, you would think and this is oddly to me. You know, it’s just sort of interesting that this doesn’t really seem to be true. You know, you would think we are insiders, Sara, you and I would get like special treatment from these local market specialists. I don’t think we do unless, I don’t know. It seems like a pretty normal experience. You know, I don’t think they they bend over backwards for me. They probably consider me to be a pain in the ass. Oh, I said the word the a word. Yeah.
Sara 3:30
Well, it’s funny because I feel the same way. In fact, we probably get a little less attention because they expect that we know what we’re doing. So it’s kind of like you’re signing the contract, you’re on your own. counsel yourself, you know, but, you know, funny enough when I was, you know, ready to pull the trigger and I had my financing lined up and I was starting to look at inventory. I was looking at a few different markets and it really my decision just came down to what was available, and I actually lost out on two properties to my own clients because I didn’t pull the trigger fast enough. You know, someone came in from under me and asked for the contract before before I did. So, yeah, I would definitely didn’t get any special treatment. If anything, I learned how to make a quick decision.
Jason Hartman 4:15
Yeah, your your shame on you, Sarah, that your clients are more decisive than you
Sara 4:22
are maybe, you know, maybe they just saw the deal before I did. I you know, I don’t know. But the third one that I that I finally got. I remember seeing it hit our website in the morning. And I hadn’t even gotten out of bed yet. You know, I’m, I’m notorious I, I don’t follow the rules. And I you know, check my email first thing in the morning, which I know you’re not supposed to do that. Right. I do that. So yeah. Guilty. So I was checking my email and I saw this awesome house. And I’m like, oh, I’ll just call you know, I’ll just call the LMS. local market specialist, after I take my kids to school. And then I thought, you know what, I bet you This one’s gonna sell so I call them right away. I hadn’t even got out of my PJs yet. And sure enough, right after I asked for the contract he got an email from somebody else that was interested. So you know, it’s it’s a little competitive right now to you know to find that that great deal.
Jason Hartman 5:15
No question. It definitely is in listeners. That’s maybe one of the biggest things you learn from this episode today. Did you catch it? What Sarah just said, Sarah Where’s PJ’s to bed? That’s the big that’s the big takeaway from today’s episode, PJ’s?
Sara 5:32
Is that is that a problem?
Jason Hartman 5:34
Yeah, I don’t know. You know, whatever. But we want you to post a picture of your PJs on the Jason hartman.com blog. Okay. Wait, we should put it in the show notes. Because you know, who really says PJ’s anymore. That’s not a kid or a parent talking to a kid. I guess you’re a mom. So okay, that’s
Sara 5:56
if you’re lucky enough to be one of our venture Alliance members. You might me walking around the halls in my PJs searching for a water bottle.
Jason Hartman 6:05
There you go. Yes. As Alliance members, we’re kind of a more intimate group for sure. That’s no question about that. But that’s what I love about it too. It’s great. Good stuff. Well, hey, Sarah, you wanted to share a an opinion that you have on rate locks on when someone should lock in their mortgage? Or if they should at all right, when they when In other words, when they apply for a loan to buy a property? Should they lock the rate? Or should they let the rate float and you had something you want to share on that? Right?
Sara 6:35
I do because I had some clients come up against this and then it happened to me and and the problem was, so I put the properties under contract before the rehab was done, and that’s happening more and more these days. And so the property was still being renovated and the lender said, you know, when do you expect these to close? Okay, you know, the rate locks good for 30 days. So based on the closed date, you know, they lock the rates. I said, you know, that’s Fine. Well, what ended up happening was that, you know, and this happens all the time, the rehab took, you know, just a little bit longer and, you know, you have to schedule your inspection and then and then things come up on the inspection report and then you got to send the construction crews back and then you got to send the inspector back out. And that all adds time to your, your, your closing process. So, so that happened to me and I was pushing up against that rate lock exploration, which kind of forced me into a situation where I was like rushing to close and it made me like a little uncomfortable with my closing because I ended up having to get the local market specialists just to put in writing that, you know, they’re going to provide me with a clean inspection report after I close. Ideally, you want to clean inspection report before you close. So it just I think it just caused a little unnecessary rushing around and stress to the process. And what I learned is that if I would have just not locked the rates, I probably would have Still gotten the same rate, if it only closed a few days later, I probably would have ended up closing, you know, maybe one week later that I did, and everything would have been fine.
Jason Hartman 8:09
So of course, of course, the risk though is if rates are climbing, you could end up paying a higher rate. If you don’t lock right.
Sara 8:17
You could but but you could also be paying extension fees on the rate lock. That’s what I you know, they charge like a daily rate. So, you know, you get the, you get the lower rate, but then you’re paying a fee and I, you know, I take the time to like, do the math and figure out what’s the, you know, what the best way to go because the rates didn’t go up anyways for me, but yeah, that is the risk, the risk is, you know, your rate might go up a little bit. They go up and down a little bit every day. So right.
Jason Hartman 8:45
And then basically what’s interesting about what Sarah just said, is that you see how in essence, when you pay for a rate lock, you’re in essence renting the money, or you’re optioning that money because that money has has to be available at that rate. And that’s why you pay for it, you know, you pay a certain amount, and then you pay a daily rate for extending it after that interesting. Yeah, just wanting to have you know, and really, that goes to kind of my broader point. And we’ve talked about this on past episodes, listeners, but the concept of, you know, money just like anything else, and it shouldn’t even be called money. In our case, it’s currency. Right? But it’s just a commodity. It’s just like coffee beans or soy beans or copper or anything, any or lumber, you know, everything’s just a commodity, okay? And that’s how I want you to look at the world and just understand that all those commodities have a price and those prices fluctuate and there’s a certain amount of demand for those commodities and there’s, there’s a whole supply and demand market for them and, and when I talk about commodities that are the ingredients to a house, or an apartment building, copper wire, glass, steel, lumber, concrete, petroleum products, etc, etc, etc. You know, these are not they’re independent of any specific currency, whether it be the dollar, or the Euro, or the yen, or the real or whatever, right? They have intrinsic value. And we think that’s a good thing. So just lest we get off on a tangent, but I just wanted to kind of bring that up again. And, and by the way, I think this next episode for flashback Friday is going to be the Donald Trump episode. There’s so much controversy about that guy. Right now. I think I’m gonna do the Donald Trump episode on the next flashback Friday. Okay, so listeners Be sure to catch that one.
Sara 10:36
Do you know how many times I’ve like typed on my Facebook and then just deleted my comment is that you just can’t even
Jason Hartman 10:45
it’s kind of not worth all the hate, you know. So anyway, but I’m Gary Gary Johnson is looking awfully good. The Libertarian candidate, folks, if if we’re ever going to have a third party, I know everybody’s always concerned. I’m gonna wait motorboat you know, but we got to do it. Someone’s got to do it at some point. Okay, we you know this two party system is just a total scam I mean look at both of these clowns we have running It’s crazy. But one one’s worse than the other and I would happen to say that that’s the clinton clown. But they’re both. They’re both Yeah, they’re both pretty cloudy for sure. All right, so in addition to rate locks and politics and commodities, and PJ’s, anything else before we get to your client and share this case study, Sarah?
Sara 11:37
Oh, well do i do i go on another rant about Obamacare. I mean, I took my son to the urgent care yesterday and I didn’t even stay and get him seen. I couldn’t get it a same day appointment. So I went to urgent care. I cannot believe how overcrowded and understaffed Kaiser was. It was unbelievable. And that was the rant that I took. And then I just said, You know what, forget it.
Jason Hartman 12:02
Not gonna post it’s only it’s only gonna get worse. I mean, my insurance cost has gone up about 35% since Obamacare, look at if you if you regulate or tax something more and you know, in this case regulation but regulation is just a form of tax, okay? Because it’s a burden, right? If you burden something more, you’re gonna get less of it. And so this means we’re going to have a lower supply of healthcare in all its forms, whether it be equipment, pharmaceuticals, actual practitioners, you know, doctors and so forth. And it’s interesting, we’re interviewing a doctor right you know, he’s gonna have a lot of opinions about this our case study today. It’s Obamacare is it’s it ain’t gonna work, folks, even even even good old slick Willie, Bill Clinton said Obamacare was a mess, so that I thought that was interesting coming from the same side of the aisle, even Bill Clinton so what do you Sir,
Sara 13:00
I just said that it’s just my one of my biggest fears is you know, the healthcare industry and it’s it’s a scary it’s a scary thing. You know, when you take your, your kid into the ER, I mean this was last year I remember taking Alissa into the ER with shortness of breath, and she has a history of asthma. But back in the day, when you take a child into the ER, and they have shortness of breath, they get seen right away to decide, you know, if, if they needed urgent care that moment, or they can wait 20 minutes, I had to wait 30 minutes just for the initial, you know, triage I guess they call it. So it’s really like, it’s really scary to me with, you know, with kids and a family and I’m sure it’s scary for a lot of other people. But what does this have to do with real estate? I don’t know. I just,
Jason Hartman 13:44
you know, it has to do with the cost and political issues and, and people that say politics, you know, I get these, like I got this review. I thought this was funny. By the way, Mr. reviewer, I’m sure you’re listening, who posted a review on iTunes and said Fox News for real estate investing. I thought that was totally creative. So, thank you for the review. You know, it’s kind of a half hearted compliment. I understand that. But you know, this is not I mean, I don’t I’m not a fox news guy. I don’t even have TV. So number one, I don’t watch Fox News. Except when I’m maybe in a hotel room I watch mostly cnn because that’s what they have political stuff, you know, influences. It’s a big part of real estate investing, folks. So, you know, this is not irrelevant stuff. I know, most of you understand that. It’s relevant. But a few people think it’s irrelevant, and it’s not. It’s very relevant. Obviously, it’s an election time right now. So we won’t always be talking about it that much. But, you know, it matters. It’s something that definitely matters. So anyway, without further ado, let’s get on with our show here and shut up and quit rambling before people write me more. More reviews about Fox News for real estate investors was hilarious. And that was very creative, I must say. Very creative. Check out Jason hartman.com we’ve got the new website up, it does have several bugs it launched just yesterday, the property section, we’re going to dramatically improve that, by the way, that’s on our roadmap here, and dramatically improving a bunch of other things and functionality and so forth. And doing a lot of things with the website. So look forward to that. We’ve got a really good web development company helping us nowadays. Check out the educational products in the store there or at Hartman education COMM And then we’ve got another venture Alliance meeting coming up at the beginning of December. So check out venture Alliance mastermind comm we’re pretty sure that’s gonna be located right here in beautiful Scottsdale, Arizona. So that’s an easy easy trip for most people. I know a lot of you out there have been asking me about the venture Alliance mastermind group and, and considering joining and I tell you, it just keeps getting better and better. The comments from our last meeting in Seattle, people said to me, Jason, you really up leveled this one. The speakers were great. We Had some awesome speakers come in and, and we’re just gonna keep trying to make it better and better. There are some really big names in real estate here in in the Greater Phoenix metro area. So for our Scottsdale event, I’m going to try and get a couple of them to come in and talk with us. These are people who have been on the show who you’ve heard of, you’ve probably read their books. They’re quite famous. And nobody is confirmed yet. So I can’t mention any names, but I just tell you, I’m working on it. Okay, folks, I’m working on it. All right. So Sarah, thank you for joining me for the intro. Let’s get to our case study and talk to your client, David, and hear about his investing journey.
Sara 16:36
Yep. Thanks, Jason.
Jason Hartman 16:39
It’s my pleasure to welcome one of our clients to the show. It’s David D’Ambrosio and he is located in New Jersey, and has an interesting story about his journey as an investor and some of his next plans and talk a little bit about his recent 1031 exchange and so forth. David, welcome. How are you?
Dr. David D’Ambrosio 16:58
Great, Jason. Thanks for having me on. Good. Hey, thanks for coming on.
Jason Hartman 17:01
It’s great. How long have you been listening to the podcast?
Dr. David D’Ambrosio 17:04
Probably a little bit over a year. So I’ve listened. I went back, though, when I listened to the older, the older ones that I could get my hands on as well. So I’ve probably listened to me, I would say probably about 300. Wow.
Jason Hartman 17:19
And you’re not sick of me yet. Well, thank you. That’s great. Good stuff, good stuff. Give us a little bit of your your background and, you know, tell the listeners what you do for a living and kind of let’s just dive into your journey as an investor. Sure,
Dr. David D’Ambrosio 17:34
sure. So, I am a physician, I’m a I’m an oncologist, a radiation oncologist specifically, and I’m the son of an immigrant. So I feel like I’m living the American dream, or as long as that’s gonna last who knows, but I always have had an interest in investing in general and educating myself about different types of investing. And I’ve always kind of come back to real estate in general because of all the things We, we discuss on your podcasts all the time. And I read you know a lot of real estate books and I think a lot of people probably talk about that Rich Dad Poor Dad book which opened up some some new thoughts in my head especially the actually the 1031 exchange they mentioned in that book. And my medical partner, Jolla, Tansy is the one that actually turned me on to your network because he, he had invested with you. And that’s how I came specifically to see your podcast. I spent a lot of time educating myself before diving in. And
Jason Hartman 18:40
the method that I hadn’t started my investing with you was was through this 1031 exchange. So you were interested in investing and you had a great immigrant story. I love that and, and by the way, just to comment on your American dream as long as it last comment, I think we all unfortunately and it really is no laughing matter. Seeing the country taking the road direction in so many ways. But, you know, at the end of the day, it’s all a game of comparison. Right? It’s not a question of whether America has gotten better or worse. Yeah, you know, that’s that’s part of it. But it’s just, you know, compared to what is always the question. It’s always a relative thing. Where’s your family from, by the way?
Dr. David D’Ambrosio 19:17
So we’re all we’re from New York City. Originally, my father, my father came over on a boat into Brooklyn. And then I grew up in Queens, and I live in Jersey now.
Jason Hartman 19:28
Yeah, but we were originally like you say the immigrant story. That’s why I asked
Dr. David D’Ambrosio 19:32
what part what part of Italy My father was from a little town north of Naples.
Jason Hartman 19:36
Good stuff. Well, fast forward. Now. You You learned a lot about investing and listened to 300 of my shows or so. So thank you for that. And you did a 1031 exchange now. So what did you sell and what did you buy in that
Dr. David D’Ambrosio 19:51
exchange? Sure. So so that story, the story with that was that actually the house that I had grown up and my parents had retired A few years ago, and they were looking to sell the house. And my original plan was they were selling it to me. Obviously, I was getting a son discount. But my plan was actually to keep that house and rent it in New York City. And I would have had maybe a little little bit of cash flow, if I had done that. But that’s when my eyes were opened, kind of at the same time, I was listening to your podcasts. And I realized that if instead of renting out long term, if I sold it and did a 1031 exchange, that I would, I would greatly improve my cash flow. And also my overall investment by instead of just having one switching that over to multiple properties.
Jason Hartman 20:43
So so you sold that property, and when did you sell it
Dr. David D’Ambrosio 20:47
the end of last year, towards the end of last year,
Jason Hartman 20:50
and you did a 1031 exchange on
Dr. David D’Ambrosio 20:52
that, right? Correct. So I transferred that into four properties in Orlando that I bought with You know, the the cash that I got out of that and put into those four new houses was enough that I was able to put even more than 25% down. So it was really it was really a very good deal for me. Obviously not having to pay the tax on it was a big thing too. Right right. Yeah,
Jason Hartman 21:23
good good stuff. So all in Orlando now, it’s interesting you didn’t you didn’t want to split those up and get like get into two different markets there. I know you’ve got some other properties. Where else do you own or did you feel you were diversified enough already? You
Dr. David D’Ambrosio 21:37
know, I have I have four properties in Indianapolis as well. I really, really like the Orlando market because I feel like they’re we’re in a unique situation there that the value is so good for for cash flowing. And I think there’s a lot of upside potential. For appreciation. I ascribe to your philosophy I’m not an appreciation investor, but thought that it was a good idea for me to try to split split myself up by putting more more of my portfolio there. I think I’d like to get into one more market. But I’m things are still settling down with that. But that was my thought process with Orlando was, seemed to be a nice, a nice combination of good cash flow, but also the potential for some appreciation down the line.
Jason Hartman 22:25
Right. Absolutely. And I think that’s a good decision. You know, one more market get into three total, you just be super nicely diversified. So yeah, that’s definitely a good idea.
Dr. David D’Ambrosio 22:36
The other you know, the other issue with that, too, is these 1031 exchanges, when you’re doing in general are a little complicated, but when you’re trying to go from one property to multiple properties, it can get pretty, it can get pretty hairy. And if I was trying to if I was trying to make sure that I had placed the setup in more than one more than one location, I think I really would have complicated things for me with all the deadlines that are involved.
Jason Hartman 22:58
Yeah, that’s true. Through with the exchange. Did you have any trouble fulfilling your exchange? Were you worried at any point? I mean, the last two I’ve done I did. I did. Well, I did two of them last year. Actually, I shouldn’t say the last three exchanges. I’ve done two of them last year and one this year so far. It’s it’s been kind of difficult. I’ve been worried, you know, coming down to the deadline on those exchanges. I, I did make it on all of them, thankfully. But I was worried that I might not because it was a little bit hard to find properties.
Dr. David D’Ambrosio 23:29
Yeah, I was definitely worried about it. But what I did was you’re allowed to you’re allowed to name I don’t remember the exact rule. I think you’re allowed to name 250% more value of additional properties, not just the ones he takes. So when I’m when I made my list, I picked about 10 properties, six more than the ones that I actually wanted. So in case any of them fell through for whatever reason I could, I could still pick up the other ones so I didn’t have to lose out on any of it.
Jason Hartman 23:56
Yeah, I know. They keep you the IRS won’t let you just hide them. To find the whole world, you know, I wish you could just give them a big list of properties. But they’re, they’re too smart for that they, they only let you I think it’s 200%. Possibly it might be I don’t know, it might be 250, I can’t remember. So in other words, if the value of the exchanges, say $500,000, just to use a semi round number example, then you could identify $1 million worth of property if the rule is 200%. By the way, don’t quote us on that, because neither of us are sure we can remember. And then you only have to close on 500,000. In other words, to to meet your requirement. So in other words, half of the deals could fall through, and you would still meet the requirement and make the exchange without paying any capital gains tax, and you would have that nice deferral in there. So
Dr. David D’Ambrosio 24:48
yeah, right. Because you only have 45 days to do the identification, which you have six months to close so you could cast a wide net and then narrow it down later. Exactly. The other thing, the other thing I did realize about the exchange was I thought that it the cash that you had to reinvest, I thought it was only the capital gains, but it’s actually all the cash that you get from the sale. So I had put some money into renovating that house while I was renting it. And I know that it was a big deal, but I just for your listeners, you you have to spend all the cash, you can’t take any cash out from that sale, you have to spend it all even if it’s not a game, and you have to use at least the same amount of debt that you had on the initial on the initial sale.
Jason Hartman 25:32
Well, it’s pretty awesome tax advantages. What do you see in your profession with with other doctors and so forth? Are they are they really into real estate? You know, this is something that I mean, highly paid professionals like yourself have just got to build real estate portfolios because obviously you have a giant tax problem. And, and, you know, thankfully you have great income, but I see a lot of professionals, doctors, lawyers, well lawyers don’t even make Not much money anymore a lot of times unfortunately for them, but they’re just not really doing this. They’re not they’re not getting tax breaks for themselves and, and given 40 some odd percent of their money away to the government. It’s just tragic, really,
Dr. David D’Ambrosio 26:12
it’s extraordinarily frustrating to try to educate people because it’s, you know, these, these are people, men and women that devotes such a large amount of their time to educating themselves and helping people but they don’t really have any, any real financial IQ. I can’t tell you how many times I hear people talking about, you know, I call my stockbroker, and this market crash, and I just sold a bunch of stock. And, you know, I feel like half the time I’m on a soapbox telling them you have got to invest in real estate at least two or three times a day on talking to people about it, trying to get other people involved, it really, you know, it really is an absolute no brainer with the tax advantages. You know, not to mention, these returns that you’re getting on your cache when you leverage it or just, they’re better than anything else out there. And particularly Okay, sure, yeah.
Jason Hartman 27:01
lever leverage can become very addictive that’s for sure. Yeah, it’s it’s really incredible. Were you one of those people though because you’re your partner in your business the other doctor you work with approached you and said hey, you should be real estate investing. Are you really open to it? Or were you were you one of the skeptical doctors out there?
Dr. David D’Ambrosio 27:20
Oh, I was I was always open to it I just wasn’t sure how to go about it. And he’s really he introduced me to the concept of of your model where you don’t invest locally. I was always thinking I would buy some some houses near me and you can’t cash flow in New Jersey or New York. It’s there the the property taxes here are ridiculous. tell tell us
Jason Hartman 27:42
about that for a moment. Yeah, your taxes in New Jersey are some of the high I think it’s the highest property taxes in the nation, don’t you?
Dr. David D’Ambrosio 27:51
I’m embarrassed to even say how much my property taxes are my property tax on my house that I live in is a mortgage payment on Boy it’s it’s it’s a mortgage payment on probably six, six of my houses all together. Wow. Yeah, yeah, it’s bad. Crazy.
Jason Hartman 28:11
That’s crazy. Yeah, it really is. Anyway what were you saying before I got you on the tax tangent the property tax Tim,
Dr. David D’Ambrosio 28:17
I was just talking about how a lot of you know a lot of physicians are just not educated, educating themselves about finances and you know, I try to I try to talk to friends and colleagues about getting involved in this and all I think you were asking about how I got interested specifically. I was so i was i was saying I was always interested in in real estate but I wasn’t sure how to go about it because you can’t cash flow here. And my partner, my partner Julia Tansy told me you know, check out this Jason Hartman guy so I you know, I started listening to your podcasts and I, I haven’t stopped but the whole you know, go into buying houses in other cities where they make sense Just well first of all I was on I was when I first looked at it, I couldn’t believe how much cheaper it is to live in other parts of the country growing up in New York and living in New Jersey, for the some of the houses that I that I own in Florida would, you know, would probably be four times the amount if they were here.
Jason Hartman 29:17
Yeah, it’s it’s really incredible. I always wonder why doctors have that rap. You know, they, they say doctors are notoriously poor business people. And I think it’s because they’re, you know, is it is it like the science, you’re a scientist? And scientists just don’t think Usually, I mean, some of them do, obviously, like yourself, but they don’t think you know, in the world of finance and money, it’s just a kind of a different it’s kind of a different thought process or something. Right.
Dr. David D’Ambrosio 29:44
Yeah, I think that’s part of it. But I think the other part of it is the whole the whole way. Doctors typically think which is that we, we it’s it goes on, unsaid and understood that we have a fiduciary obligation that we do the right thing for our patients. And I think We assume that people that are trying to quote unquote, help us invest our money are looking out for our best interests. And they don’t have the time or the inclination to really delve into that and educate themselves about it any better than, you know, then they do. Unless they have somebody that turns them on to it.
Jason Hartman 30:18
Yeah, that’s an interesting point and Wall Street, just as such a better job of marketing than the real estate industry does. I mean, my industry is terrible at marketing they have, they have the most historically proven asset class, you know, the real estate people, they’ve got the best asset class, and they’re just lousy at marketing it and Wall Street has a really mediocre to terrible asset class, and they’re fantastic at marketing it. So I think that with professionals and with highly educated people, the Wall Street world kind of it just appeals to them because it’s, you know, you can go see a guy wearing a nice suit and you know, he’s got a degree from a good college. Whereas a lot of real estate people, they didn’t go to college or they’re certainly not dressed professionally A lot of times, and you know, it’s sort of like a mom and pop industry, but it’s, it’s such a good investment. It’s such a good asset class. It’s just a strange part of our society. It’s always baffled me to some extent, you
Dr. David D’Ambrosio 31:16
know, it really, it’s, it’s not, it’s not sexy, like the, you know, the the guy on Wall Street, you know, spending $1,000 on a bottle of champagne. But I bet you if you look at his account versus an account of one of your clients, you’re gonna see a lot more wealth in there,
Jason Hartman 31:30
agree with you, unless the guy buying the thousand dollar bottle of champagne on Wall Street is an insider. Now he probably has a pretty good bank account, and he probably owns a lot of real estate. That’s the irony of it. You know, the irony of these insurance companies that sell annuities and products like that is that they’re all investing in real estate with that money. It’s just it’s just such an irony to me that they take their insurance premiums and buy real estate, you know, especially office buildings, they seem to love it. office buildings, you know, large institutional investors, obviously. And I just thought that was really kind of kind of just a total irony, you know, the way that that works, but it is the way of the world it is the way the world. Do you have any questions for me that maybe you know, some of our listeners might want to want to get answers to as well?
Dr. David D’Ambrosio 32:19
Well, you know, I think a big question for me is, where do I go from here? You know, I’m almost at my limit with traditional mortgages. And I know that there’s some, you know, there’s we always talk about or you always talk about, and I read about how there’s these portfolio lenders that will lend you above 10. But it’s almost like this kind of blackbox where, how bad are the rates when you go above 10? Should I just stop at 10 and wait and just do keep doing 1031 exchanges? That’s kind of what I’m struggling with right now is where to move from here?
Jason Hartman 32:55
Yeah. So if you’re at your 10 limit if you’re married and your spouse can qualify If your spouse has to have income and so forth, then you can do 10 more that spouse can do 10 up to 10 more, which is which is great. But whether or not you can do that, and you get to 20 properties that way, there are still some pretty good portfolio loan options out there some community banks that will finance you and I tell you the rates aren’t bad. I just talked to one this morning, actually, that will finance pretty good rates. Now, it’s it’s only fixed for seven years in their case. And I think there’s somewhere in the in the high fours. I mean, I don’t know that’s not bad. Okay. And it’s certainly not as good as 30 year fixed at four and a half percent. I know, but it’s certainly not bad. I mean, have a seven year fixed and maybe by the end you do a 1031 exchange or there’s a refi opportunity or if the rates are insanely high and you have cash, pay it off, you know, what should we you know, I’m not a fan of paying things off, but There are some times when it can potentially make sense. So
Dr. David D’Ambrosio 34:04
well these these local lenders though it’s my impression is that they they really tend to want to lend to local people like would they went, let’s say, for instance, I wanted to buy a property in what is it the Quad Cities there? Would they lend to someone living in New Jersey, but was buying property in the in their state? Well, no,
Jason Hartman 34:22
you’re gonna you’re probably gonna go to the bank in that market. Okay. You were you’re buying Yeah, and these are these local community type banks that make really a lot of some big really sensible loans. You know, they do financing. That’s just logical. It’s not dictated by the government and, and, well, the government sponsored entities Fannie Mae, Freddie Mac, you know, that sort of pseudo governmental entities, I’ll say, it’s not dictated by them. In that sense, you know, they’ll they’ll do some really logical loans with usually 25% down and they’re not going to be 30 year fixed. Because they can’t sell them off on that secondary market, but seven year fixed maybe 10 years if you’re lucky, and the rates very reasonable. I mean, I think this is a very good option. And then after that, you can decide, do you go to a B to R or Lima one, we had a representative from Lima one at our last event in Phoenix, they do some really logical, sensible loans too. They can do some good things for you as well. And there, there are some good options out there you just it takes it takes a little more digging, and they’re a little more fragmented, if you will, in terms of the choices and and making decisions, but but they’re not too bad at all. Not too bad at all. Still still good.
Dr. David D’Ambrosio 35:40
When you say seven year fixed, it’s still a 30 year amortization,
Jason Hartman 35:44
yeah, 30 year amortization and it will become adjustable rate in seven years. And the reason they have to do that is because they’re not selling it off to the secondary market. There. They’re probably keeping it on their books or they’re selling it to a Another investor not rather than this big secondary market, Fannie Mae and Freddie Mac that has very specific guidelines.
Dr. David D’Ambrosio 36:08
So let’s say you did something like that, right? And you wanted to do a refinance of that into a more, can you do something like that where you refinance into a more traditional loan? Are you still constrained by that same 1010 property limit?
Jason Hartman 36:22
Oh, no, because we don’t know what the rule will be in four years, or seven years, or five years or six years or anything in there, right. So the lending climate may become more liberal by then, or it may become more conservative by then. But the nice thing is, you’ve got seven years to watch and evaluate. And you’re hopefully going to get a really nice return on your property for those seven years. You could sell the property, you could refinance anywhere in between there. You know, when in the old days, you could get an unlimited number of Fannie Mae and Freddie Mac loans, but post financial crisis, they first cut it down to four and then they raised to 10. And they’ve stuck with that 10 number for quite a while. But who knows that may become liberalized, you just never know what the future will bring in terms of financing options. And the other you do have a risk, though, obviously, I mean, you know, goes without saying, but I’ll say it, you have interest rate risk, right? So the rates could go up, and then you’ll be paying a higher rate. But if they do, and, again, there’s always lag time in here. But if they do, you’ll probably see substantially higher rents, and lower inventory of new housing being built. The problem is there is an adjustment period, there’s a lag time to this. So for example, if rates spike up tomorrow, it’ll take a couple of years for rents to adjust inventory to decline. And that’s the part that kills investors. And this is why the prudent investor in the long run I believe always wins the game because they can Write out those adjustment periods, those storms were the people that bought high rise condos in Miami or San Diego or overpriced property in California or the Northeast, you know, they don’t have that luxury, that they can ride out that adjustment period that that storm that lag time when everything is adjusting, but but it ultimately always does adjust, it just takes a couple of years to see it happen.
Dr. David D’Ambrosio 38:26
Do you think that it’s prudent or sensible to do a cash out refinance, if you can get significant money out through due to the debt paying off or it appreciates a little bit? If that means you’re going to take away your cash flow on a monthly basis? Or is that more of a personal decision? I guess? Well, I’m
Jason Hartman 38:45
probably gonna say absolutely, yes. But here, here are the questions I would have. What is the rate on that underlying mortgage you’re refinancing, compared to what are the rates today, on the new loan you would be getting You might well get a lower rate or a similar rate. And then I would say definitely take the cash out, because the point is not. And this may sound really odd, and it takes you kind of got to get your head around this listeners, okay, because I know a lot of you are going to say this is imprudent, and it doesn’t make any sense. And what are you talking about? I’ve heard it all before, but in a way, in a way, it’s not really about cash flow. Oddly, what it’s really about is rent to value ratio. Okay. So for example, if someone told you, you could control 100 million dollars of real estate tomorrow, that had very good metrics, very good rent to value ratios, it rented for 1% per month, but because of the financing on it, it was fully encumbered and had zero cash flow. Would you So want to own $100 million worth of real estate? Absolutely, yes, I hope you’d say that right? The reason you’d want to do that is because you have other multi dimensional things that will make you wealthy with that real estate portfolio. You don’t have to get monthly cash flow, what you really want is a good rent to value ratio. And this is going to be a bit of a long answer as my usual answers are I know I’m never been accused of being short winded, but in the old days, when before the Great Recession, you know, some some would say I was imprudent recommending this strategy. But we used to talk about something that I called the deferred down payment, okay. And the reason there would be a deferred down payment is number one, the market was appreciating very quickly, and rents take a while to keep up and adjust to the appreciation there they lag appreciation which always seems to happen faster. And you could buy properties with no money down. Okay, so the question was, and this equation I used to show this at my seminars on a spreadsheet, I use, you know, and I don’t have it in front of me, and I don’t remember the exact example. But the concept is this, that, you know, if you put 25% down, for example, the property could yield you, maybe $300 per month in positive cash flow. But if you put nothing down, you would be zero cash flow, or you might even have negative cash flow. Now, the lenders won’t even let you do this anymore. But in the old days, they would, and a lot of people listening will say, well, Jason, isn’t that the reason we had a crash? Well, not exactly. Not on these types of properties. That wasn’t the reason. The reason was, is that people were using this strategy to buy stupid properties in Southern California or elsewhere. That never made sense. Anyway. Because they had bad rent to value ratios, that’s how you can tell if the deal makes sense not by the cash flow, but by their rent to value ratio. Okay, so the the time horizon on this equation, this deferred down payment equation was that it was basically about nine years. So, if you get your $300 a month, or you get zero per month, in the in the difference in the amount of money you put down if you just kept that money in the bank and drew on it at a rate of $300 per month, and I you know, I don’t remember the exact number. So you may be doing the math and saying, well, Jason, that’s not nine years, but the example I used to show it was nine years based on the interest rates back then, and based on the rent to value ratio back then, and based on the down payment options back then, it was basically a nine year breakeven point. So I would rather have my 25% in the bank. In other words, your cash out reef You have control of that cash, then how that $300 a month in positive cash flow. I mean, that’s an easy decision for me to make in that way. I would rather have the property more leveraged with less cash flow, but more money under my control in in the bank or giving me the ability to buy more and control more real estate. Does that make sense to you? Or do I sound like I’m crazy
Dr. David D’Ambrosio 43:24
now that that makes that makes a ton of sense? Absolutely not answer the question. Sure.
Jason Hartman 43:31
You always really want to lean in favor, and it depends on the climate in the market. So no answer is ever completely simple. But you always want to lean in favor of the idea of equity stripping, pulling the money out of the property, having control of the cash, and still having control and ownership of the property. That’s the beautiful thing about real estate. You can acquire the asset, put some money down to acquire it, and then later get on Hold your money back out in still own and control the asset.
Dr. David D’Ambrosio 44:04
I mean, can you do that?
Jason Hartman 44:06
Yeah, and you don’t have to pay tax on that borrowed money that you took out? It is a absolutely beautiful, beautiful asset class I absolutely love it for for not just that reason, but many others as as you know. So good stuff. So what are your plans? Next, you’re gonna get into the third market. It sounds
Dr. David D’Ambrosio 44:22
like right? Um, yeah, I’m gonna, I’m gonna think about it. I’ve, I listen to the podcast on the Quad Cities. So I’m looking at that a little bit. I’m probably gonna pump the brakes, pump the brakes, since I did so much this year, and maybe, maybe do something early next year, but I don’t want to wait too long because I know the interest rates at some point are going to start going off.
Jason Hartman 44:42
It seems like they would have to doesn’t it? It’s just, it’s just
Dr. David D’Ambrosio 44:46
I’ve been saying that for five years. I’ve been saying it for 10 years.
Jason Hartman 44:49
So I’ve been wrong on my interest rate predictions, but I tell you interest rates are very, very difficult to predict because they’re basically They’re basically set by Fiat, you know, by Federal Reserve and government policy overall, the best place and I want to get them on the show. I don’t know if it’s the best but you know, it’s it’s well known in the world of interest rate and banking is a newsletter called grants interest rate observer. And I want to get a representative from that group on the show. haven’t done it yet, but they seem to have some pretty good insights into interest rates. But again, it’s a roll of the dice. Nobody really knows not even Janet Yellen at the Federal Reserve. She doesn’t even know what she’s gonna do next quarter always so we shall see. But David, thank you so much for being on the show and just sharing your story with our listeners and in your experience, and we appreciate your business and just want to wish you continued success and happy investing.
Dr. David D’Ambrosio 45:47
My pleasure. Thanks for having me on.
Jason Hartman 45:50
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