In this episode, Jason Hartman shares what’s happening with the home builder stocks. He explains why the rising rates are not as impactful as a lot of people think. Afterward, Jason plays a recording of Adam providing a portfolio review. These are actual profit and loss numbers that are from properties bought through the network.
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 multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11, states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:52
Welcome to Episode 1663 1663. And one other way to judge the housing market? Well, there are many ways, but one way is to look at home builder stocks and interest rates, of course, because these are very sensitive, just as the housing market is to interest rates in general. But you have heard my enormously gutsy and neat I say brilliant prediction about what will happen with interest rates? No, it’s not the same bad prediction I made on interest rates 1617 years ago, no, this is a different kind of interest rate prediction, my bad prediction years ago, which I freely admit, I was wrong. Wrong. Wrong. Wrong. Jason, you were wrong. Yep, bad, bad work. That prediction was that interest rates would be higher. And yet, they have only gone lower. But we did have to severe economic crises in there to push those interest rates down. You never know it’s so hard to tell. Interest rates are a tough thing to predict. But But this prediction, as you will recall, is simply this interest rates will go up, because now there’s almost nowhere else for them to go. Right. That’s the first prediction. And it will cause people with these incredible mortgages, the 10s of millions of people that have either refinance, or purchase, it will cause them to hodl like the Bitcoin people that don’t sell right, that that funny word that they made up, it will cause them to hold on to those properties. Not because they love the property so much, but because they love the mortgage so much. That mortgage asset will be duplicatable. It will be impossible to replicate, like the Mona Lisa, which is overrated. Until I watched a video over the weekend and I gained a new appreciation for the Mona Lisa. Do you know Leonardo da Vinci studied the facial structure of the human body. He went and looked at cadavers and studied them to see how the bones and the muscles around the smile work? Yes. That is why there is such controversy over the Mona Lisa smile. I never knew I went to the loop several times, I saw the Mona Lisa. And I thought, What’s the big deal? What’s so great about this, there actually is a lot of great stuff about it. I did not appreciate until over the weekend, when I watched a lesson learn more about it. You appreciate things more when you know more about them a lot of times, and that is the same truth that applies to the housing market, and the economy and the marketplace. You appreciate it so much more when you have a deeper understanding. And so that’s what we hope to share with you here on the show.
So from investopedia got their little newsletter and it says here, home builder stocks, underrated by interest rates, investors bought up shares of state street’s home builder index ETF x h B is the symbol today sending it to new highs. Meanwhile, interest rates climbed to yet a another high today as well. Now that you know compared to what is always the right question, because that high is still very low in the overall scheme of things. And remember, people are going to hole these super cheap mortgages they’re not going to sell their properties. That’s my prediction. This is going to further constrain inventory. See most people are thinking of this wrongly, wrongly. if they’re thinking of it wrongly they’re not going to win big lee that’s how trump would say it and scott adams the dilbert creator wrote a book called winning bigley which was all about trump another story there we won’t go down that rabbit hole but anyway it’s kind of funny when bigley they will hold these properties and they will further constrain housing supply versus everybody out there saying oh when interest rates go up the markets going to crash i know we’ve heard it all over and over again and they’re not completely wrong but they have to understand there is nuance to this they think that when rates go up well the market’s going to crash because people will be priced out housing affordability will decline that’s all true they’re right about that but they’re only looking at the demand side of the equation not the supply side and i say and i’m gonna be right about this if i’m wrong just come back and throw a pie in my face now just so you know i actually prefer pumpkin pie because of pumpkin pie a slice of pumpkin pie in the fall with a scoop of vanilla ice cream hmm that’s good stuff and i don’t even love ice cream that much but you know with the pumpkin pie it’s great maybe warm the pumpkin pie up a little bit after you take it out of the refrigerator and have a little scoop of vanilla ice cream oh that is so good so when you throw the pie in my face make it a pumpkin pie because that’s my favorite other than that um chocolate all day long but that would mostly be in the form of something else not a pie anyway so interest rates up right and what this article is saying the 10 year treasury right that’s the bellwether rate right the 10 year treasury has been climbing strongly since the start of the year creating a steeper you know what i’m gonna say yield curve we’ve talked all about the yield curve and what it means and when it becomes inverted what that means right you know we talked about that is that like is there a recession coming it’s been a good indicator and you’d have the dice that went up to because there is a recession in some parts of the economy certainly not in the housing market definitely on my forehead there’s a recession yeah i noticed that my forehead keeps getting a little bigger and the hair keeps retreating and right there’s a recession i’m telling you it’s a recession all right that is a steeper yield curve in the markets have seen in many years all right now what does that all mean well the article goes on to say as i’m just skipping down here it will be interesting to see if this dynamic continues even if mortgage rates which are typically tied to the tenure note the 10 year treasury the bellwether rate continue to rise this would spell a bullish move in that sector however it would be extremely unusual and the article says the bottom line as interest rates rise right along with homebuilding stock prices investors are signaling that they expect demand to continue even if the cost of borrowing increases it would seem to be a bullish indication for the market in general but some companies might find it challenging to manage the balance between supply and demand let me just interpret that for you here’s what so many people miss they don’t get it they don’t get it they’re not too smart when they miss this here’s what it is they assume that there is a certain kind of a parity between a particular house and a particular buyer of that house but that is just wrong wrong wrong why is that wrong the article says they think they’ll see demand continue even if the cost of borrowing increases well yes it will be demand but not from the same person or the same family buying the house you know you commonly get this question with this sort of very shallow thinking that look our brain takes a lot of energy and i get it thinking is hard work you know i think it’s been said that of your whole body right all the stuff that your body uses energy for that instrument, the most incredible instrument in the universe, between your ears consumes about 20% of all of the energy in your body, you wouldn’t think that thinking would be such hard work, such energy consuming work, but it is, it is really, really hard work to think. So, we will typically ration our energy. And we won’t push ourselves to think think think it’s the most productive work, it’s the most rewarding work. But it also really does consume a lot of energy. So people have shallow thinking a lot of times they don’t think about this stuff. And in this example, what they’re not thinking about the thing that is the the unseen, right, the unseen thing that they’re not thinking about is there’s not a parity with one house one buyer. So for example, today, you’ve got someone out there looking at a $200,000 house, maybe they’re a couple, and they got two kids, right, you know, the typical nuclear family. And so they’re looking at this $200,000 house, but then interest rates tick up 1%, making that $200,000 house, basically 10% more expensive.
Okay, so what do they do? Are they still a buyer for that house, maybe they can no longer qualify for it. So they still have to look for a another house, but they will no longer be able to afford the same house with the extra bells and whistles that the old one they could have afforded had because interest rates went up and affordability declined. That’s the thing that few people really pay attention to. They somehow assume there’s this parity, if you look at the socio economic ladder, and you’ve got, say two ladders side by side, when I do live conferences, for those of you who’ve seen me speaking live, you may have seen me draw this on the whiteboard. You know, there’s these two ladders side by side. Well, people move up and down the socio economic ladder, and houses move up and down the other ladder in terms of what can be purchased at what price. So the fact is, when rates rise, and if supply, demand is still out of balance, causing prices to either hold or continue to rise, even in a rising rate environment, which certainly has happened many times throughout history. If that happens, it simply means something has to give what has to give for the homebuyer, well, standard of living, the standard of living has to decline, they’re just not going to get as much as they were going to get in the past. And that’s the way it works. So there’s no parity between the same consistent homebuyer, in the same consistent home. Those things are both dynamic. They’re both moving targets, and they change all the time. But if you want more money, and you want access to more money, here’s what you need to do. And we just did a survey on this. Last year, just about a year ago, this time, we offered a live webinar. And we’re doing it again, because we got some very nice comments on our survey. We had a whole bunch of clients sign up for this program. We did a survey and ask them what they thought about it. There are more results probably trickled in since I looked last time, because we just sent it out last week, but the comments were really positive. And so we thought we should do this, again, we’re doing another live webinar showing you tomorrow, how you can obtain up to 50 to even up to $250,000 in extra funding. Now, what could that buy you? Well, that could be a few more down payments on a few more properties. And it can be arranged as business credit. So it doesn’t even show up on your credit report. A whole bunch of our clients signed up for this. And now that we have the survey results back, a whole bunch of our clients loved it. So we’re gonna do a live webinar tomorrow. And then we’re going to do it again one more time this week. You just go to Jason hartman.com slash fund. This is brand new, it’s a live webinar, the founder of the company will be there to answer questions live. I did say that enough, right? That it’s live. Okay, you got that. And we got a couple different times for you. So just go to Jason hartman.com slash fund Join us for that webinar, you will really like it. And you’ll like how you can very easily obtain some extra funding for whatever you want. But hey, I would say you might want to buy a couple extra properties with that funding. But if not, you can buy something else. You can buy whatever you want. There’s no requirement on how you spend that extra funding. And if you learn how to work it, and work that system that they’re going to teach you on the webinar, you can make that interest free funding. It’s pretty darn cool. PB see pretty darn cool. PDC Yep. So join us Jason hartman.com slash fund.
Now, today, this is not your usual client case study. This is Adam, who now is one of our team members. But he was a client at first. And he bought a bunch of properties. And he is going to go over how his return has been produced on his portfolio. And you’re going to hear the good and the bad. And he’s really got specific calculations. So you’re really going to like this, you are really going to like this today. So without further ado, let’s go to Adam. And let’s hear a whole different kind of client case study that is way more specific. And I must tell you also, that since this was recorded this session with Adam, he has purchased a couple of other properties. One of them, he said he reached out to me maybe last week or the week before, and he says, Jason, I think this one deal that I bought through your network could be portfolio changing. It is a portfolio changing deal. It’s so good. So listening, here we go. Remember the webinar, Jason hartman.com slash fund. And here’s Adam.
You ready for the portfolio review?
Jason Hartman 16:59
Yeah, let’s do it. Let’s see what happened to you, Adam.
This is yes, these these are my personal properties, we got all the 2020 numbers, then Now obviously, there could be a repair done, you know, repair could be needed between now and the end of the year. But as of yesterday, or two days ago, when I put this together, these were the actual numbers for 2020 for each of our properties. Okay, so
Jason Hartman 17:22
we’re gonna see, we’re gonna see Adams real portfolio.
Okay, so this is our first one of our properties in Jackson, Mississippi, for the year, so I’ll explain a couple of the numbers. Number one, the cash on cash on the bottom right here that says 77.96. What I started doing in my spreadsheets is I have way too many data figures in my spreadsheets to begin with. But I started thinking, you know, what we look at how our, you know how the money we put into the stock market did in 2020 Why don’t I look at the money that I actually put into my property and 2020 did. So I started putting in all the money for repairs and pi, my total mortgage payment. And I just put my cash flow over it to see what percentage return on the money I actually put into the property got some it was something I did it was curiosity. So this property
Jason Hartman 18:14
Adam, this is this is incredible. So when did you buy this property?
Um, beginning of 2018
Jason Hartman 18:23
maybe Okay, so you’re almost three years old now. Okay. And did you refinance that property yet? No, we haven’t
refinance any of these.
Jason Hartman 18:34
Oh my gosh, it’s gonna get so much better when you refi Do you know your mortgage rate on this?
I’m pulling it up now. We we haven’t had it in the price point and the amount of money we have in it right now. Didn’t make refires the most didn’t make them make sense. At the moment.
Jason Hartman 18:53
Let it make sense now though.
Yeah, so we got so just so people who aren’t watching can see we
Jason Hartman 19:02
have a for the year we had a two watching and see I like that that’s that’s good.
Cash Flow on this property we made $4,853.88. And cash on cash for the year was 77.96%. And the lifetime cash on cash. So this includes closing costs. It includes every dollar we’ve ever put into the property is 24.29% and
Jason Hartman 19:31
24.29%. Overall cash on cash for the last three years. cash on cash return. That means the comparison of how much cash you put in to how much cash you got out. cash on cash return is a very simple metric. And that includes every dollar you’ve got into this in cash on cash return this year. 77.96% Adam even I is quite bullish right now not believe you so you got some you got some splaining to do as ricky ricardo would say i love that we got to get a sound effect of ricky ricardo say luzi you got some splaining to to
look at it this way we had 2% maintenance our mortgage payment is about $450 a month and our management fee is $50 our our interest rate on it is 4.75% and what is your rent our rent is $917 wow we’re looking at you’re getting $400 a month cash flow on average on this property and you’re looking at you know 500 $500 a month between mortgage and maintenance and then or mortgage and management and then 2% of that is is maintenance on this property so that’s how you get your 78% cash on cash for the year
Jason Hartman 20:59
yeah that is amazing and that is amazing
that was a note not all of them are this great the other one in jackson didn’t do so hot this one
Jason Hartman 21:07
here we go now we’re going to even it out and average the portfolio so what went wrong here
yeah so we had a tenant who stopped paying and did a lot of damage to the property and then it became vacant right at the start of COVID okay so it was vacant for three months and not an ideal time to go vacant yeah we
Jason Hartman 21:29
had taken two months in the COVID you would have been okay because the lockdowns would have lifted yeah and he would have had someone moving in there but yeah yeah
so maintenance this year with the rent we collected it was 35% now obviously that’s skewed by the fact that we didn’t have rent for four months but the cash flow we lost $2,516.93 it is it was a negative 31.61% cash on cash but lifetime for this property we’ve still got a 4.67% cash on cash return
Jason Hartman 22:04
okay so you definitely outperformed the best cd you could get at the bank by 500% or more but let me ask you a question is that crazy high maintenance number of 35% ouch okay let’s we need a sound effect for that bomb ouch that hurt but with that art is that maintenance or some of that capital improvements i would argue that i’m gonna guess you’re gonna say that some of that is capital improvement cap x that is going to last for many years to come that’s not maintenance only
okay so it’s it’s it’s every dollar that we spent on the property now it was
Jason Hartman 22:47
you spent it just you know did you put in new flooring new paint when we we had
to put new drywall we had to paint the house because they put holes and stuff
Jason Hartman 22:58
where they punched the holes in the wall like put their fist
there were huge chunks of drywall missing from the walls i don’t know what happened adam did
Jason Hartman 23:07
you file an insurance claim that’s an insurance claim
well it wasn’t enough to file an insurance claim but we did file a that we had a judgment against them and we went after him and we got some money back and we came to a settlement with them
Jason Hartman 23:20
Oh wow good and so tell us about that how much was the judgment for and how much did you end up settling for
So the judgment was for about 1500 16 $100
Jason Hartman 23:31
Yeah so they did it before we probably could have gone back to court and gotten a better judgment i think they just did the judgment before the courts closed down honestly and before we knew the total cost of the repairs but we got the judgment there and then all i did was i got the judgment and i googled you know rent collectors or you know collection agents like some agencies in jackson mississippi found one that had decent reviews contacted in their charge was $75 to start it and then 25% of collected money so i thought you know if i get 100 bucks out of it then i break even they went after him and i believe we settled for about half it was like seven or $800 they offered to pay and it wasn’t worth you know continuing the fight to risk not getting that money they said we can pay it today so i said take it okay good good okay so this maintenance also covers the new lease up fee every dollar we put into it
Jason Hartman 24:37
Yeah okay so you’ve still made money on the property but for this year you got some tax write offs there and i’m saying that in a sort of snarky way you don’t want to ever get that type of tax write off but let’s go on to the next property because we’re already almost at an hour here so
little rock this property we had to do some fixes to it to make it to qualify for section eight there are just a couple things that cost a little bit to get that up and ready to go so it’s still positive cash flowed $898.95 we made 11.65% on the cash we put in the property and then the lifetime cash on cash is at 3.15%
Jason Hartman 25:17
okay awesome congratulations so there you’re getting almost 12% annualized cash on cash and remember cash on cash doesn’t include inflation and do step destruction it doesn’t include tax benefits it doesn’t include appreciation okay so his return is considerably higher than that even on the bad property that had problems so you know he’s just doing straight cash on cash you know that’s a one dimensional return rather than the multi dimensional okay go ahead sorry the
first property we ever purchased through the network okay it is in memphis we had a 4.45% maintenance on the property we had a $3,728.36 cent profit for the year a 70.46% cash on cash return for the year one time cash on cash is 34.67%
Jason Hartman 26:16
awesome that is phenomenal
yeah this this property has been a cash cow for us
Jason Hartman 26:22
and how long ago did you buy that one
four years ago
Jason Hartman 26:26
okay so four years yeah so just so you know adam why don’t you tell them your story how you came to know us and you know came to start investing with us and then you came to work for us you know you’re i mean you’re you’re helping clients you’re part of the team
yes so we were introduced by narration which a lot of people probably know is another one of the investment counselors i started editing the podcasts and i’ve learned about real estate some over the years i used to work at a financial radio station and so we had real estate shows there and i was curious about it and but once i started editing all your podcasts and hearing all your interviews i thought well you know this this could make sense you know i i needed to learn more about it so i started learning more and more about it and then one day aaron and i were my wife we were discussing how we were actually going to make retirement work and you know stock market who knows you know and so we thought you know maybe we’ll we’ll buy a property and so i boxed you late at night one night and you responded and told me you know what you’re invested in the stock market when’s the last time you went and you know checked out their books and visited their their site yeah so then we decided to buy this property said you know what’s the worst the worst case scenario this was a cheap property this property was $53,000 when we
Jason Hartman 27:45
wow $53,000 now if anybody lives in california or new york or you know south florida and they’re looking at the year just incredible yeah
so so we decided you know worst case scenario it burns down to the ground we still haven’t lost a ton of money on it right that obviously would hurt it’s not the worst case
Jason Hartman 28:08
people when they have a disaster like that they make money on their insurance claim so you know it’s it can go down though
yeah we started buying and loved it and started getting good returns and eventually jason and i talked and i thought you know what i want to help other people build their portfolios because i’m really i mean look at these numbers i’m clearly enjoying the returns that we’re getting on the on the money we put in so far so that’s kind of my short and sweet story so our other our second memphis house this one had another vacancy we had to do some some repairs to it i was not this some of this was also like we had replaced a refrigerator on it we had to do some make ready way to do some yard work on it and we then i like i mentioned before we also have our rent our lease up fee included in the maintenance just because that’s i should just put expenses instead of maintenance but so we had an 18.27% expense on the property it’s still cashflow $813.84 we still made 22.76% on the cash we put in in 2020 and lifetime for the property we’re at 8.79% cash on cash
Jason Hartman 29:22
wow you know i mean if you just i even folks let’s not even get greedy here well let’s get greedy we might as well but if you can make 810 12% a year for several years you’re killing it i mean you killing it you don’t have to make 34% like one of adam’s other properties or 76% like the other one you know just eight to 12% you’re gonna do great i mean now that depends on the inflation rate over that time period as well but it’s pretty good yeah congratulations wow do things to adams numbers are great and put a thank you in the comments and any questions for adam sharing this personal stuff so thank you adam
yes our final memphis property this one did pretty well it had a maintenance of point five 9% literally all we paid for was the walkthrough inspection on this property this year cash flow of $3,614.92 a 39.68% cash on cash for the year and a 22.15% lifetime cash on cash but this property since we’ve purchased it has appreciated approximately 40% so it’s been it was in a nice area and it’s appreciated great so all in all for 2020 these six properties got us $11,393.02 and cash flow we made 34.88% on the money we put in and 2020 and we get to depreciate $17,160 on our taxes wow so we lost five and a half $1,000 according to the irs
Jason Hartman 31:07
Okay adam first touching and then and then that is awesome congratulations and thank you so much for sharing that that’s that’s really it’s just great to see and by the way folks i didn’t know what adam was gonna go through when we started this today you know i just sort of leave it to him and you know he that’s the first time i’ve heard him talk about this so that. That is awesome i love it i love it or we’re spontaneous here and and robert says thank you adam so so that’s great and we’re getting some other good comments anything else you wanted to go over adam before we wrap it up do you have any more in your deck there
Nope, that’s it. The next slide is just the thank you.
Jason Hartman 31:58
All right. Well thank you to everybody. We really appreciate you joining us.
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