Today’s guest is a listener of the podcast, Ian Kimbal. He asks Jason Hartman about owning apartments versus single-family homes, protecting yourself from liability when you’re young, and the best ways to screen property management companies. They also talk about real-estate specific resume and having a bank account for real estate activities.
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walk the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:48
Welcome to the creating wealth show. This is your host Jason Hartman. This is episode number 529 529. We’ve got a good listener q&a show for you today. Our listener Ian is calling in with some questions. We’ll be with him in a moment. But first couple of notes on upcoming episodes. Wednesday will be a 10th show and we will have the world famous Bob Proctor, author of few great books very big on the speaking circuit was also in the very famous little short film called The secret. And you’ve all heard of that. His latest book is the ABCs of Success. He’s also author of you were born to be rich, so he’ll be on on Wednesday. And for flashback Friday we’re going to talk about multi generational wealth preservation with Katherine McBean, author of get rich stay rich pass it on Monday Next week, we’ll have yours truly talking about something or other I haven’t exactly decided what. And then the following Wednesday for Episode 533. The famous economist Laurence Kotlikoff is back on the show with us to discuss Social Security, how you can maximize that. And it’s kind of amazing, you know, this is not something I think about at all. I’m really just knowing that Social Security won’t be there for any of us in any legitimate way. I know. We have to kind of think that way because it is so mismanaged along with our government in general. You know, he’s got a New York Times bestselling book right now on maximizing Social Security, there really are some interesting tricks of the trade on that, that I was certainly not aware of, I don’t think much about it at all. Because I think God, if I actually need Social Security, when I eventually, someday do qualify for it, I am not doing very well. I plan to be extremely wealthy by then not having to think about Social Security, but interesting point. And he’s also of course, going to be with us. He’s done the most extensive studies really, on the 200 and $10 trillion time bomb. So he’s going to talk about that. And then the following Friday for Episode 534. We’re going to talk about some interesting Wall Street stuff, the collapse of Bear Stearns, look forward to those shows.
But as we dive in today, first of all, I am not broadcasting from my closet, the place with great sound with padded clothing everywhere. That makes the sound really good. I am broadcasting from my guest bedroom. How does it sound today, I’m not on my good microphone. So of course, it won’t be as good in that respect. But I think the acoustics in this room are fairly good. Given that I am sitting on top of the unmade guest bed with those a great, a great memory foam. So that’s got to be fairly decent for sound even though I’m not using a good microphone for this one. I was going to record this introduction last night. And I just wanted to kind of sleep on it and process my thoughts and emotions a little bit. And I just got to tell you, we finish last night or yesterday afternoon really our inaugural kickoff for the venture Alliance mastermind group. And I am just I just got to tell you, I’m so honored and I am so moved by the people that we had attend this last weekend. It was really just a phenomenal, phenomenal weekend. And what was interesting about it and I you know I I never really do events like this where it was a really just a very intimate event. It was a very interactive event. It was not the usual thing where I’m giving a presentation. This one was much more interactive. Of course I presented a few times on a few things, a few different investment deals. We had our Analysts come up with the analyst Oliver for the venture Alliance who is analyzing deals and looking at them. We had hot seats, that was really one of the highlights, people, investors come up and talk about whether they want to get out of the corporate world, or they want to increase that real estate portfolio size, or how to manage their real estate portfolio better. A couple of them even talked about starting a business, so that they could supplement that with their real estate portfolio. And really, we just, we just went over some very interesting ideas. We had a guest speaker come in, really our very first, I think our very first paid speaker at any event, who did a really interactive exercise to help everybody get to know each other better with with some very, some very telling questions. And, and that was really good. Friday evening, really, before all of that we ate dinner at a just a fantastic restaurant that is 50 years old. It’s called Mr. A’s. And it’s at the top of a high rise building in San Diego. And it’s just, it was amazing. You know, of course, all of us real estate investors were thinking, well, this, this restaurant is a tenant, on the top of this building, it’s been there for five decades, five decades. And that building, obviously has been there more than five decades, couldn’t be less, right, because the restaurants been at the top.
Real estate is just so wonderfully stable. That building has been sitting there producing income for five decades for its owner. Just think about that, you know, these these rental properties. They are such a stable, wonderful, historically proven asset class, the most historically proven asset class in the world. So that was really great, really nice, beautiful view of San Diego, San Diego Harbor, the city lights etc. You know, Saturday, we had our presentations that I already talked about, I’m kind of jumping around here. Saturday afternoon, we had a couple hours of free time, people went shopping, hung out by the pool, whatever. And then Saturday evening, we met and we got on a beautiful brand new I mean, you know, not completely brand new, we weren’t the first people to ride in it brand new, but pretty much a brand new, beautiful sailing yacht, a 50 foot beautiful yacht, we had some food delivered by a professional caterer. We ate and we drank and we talked, and we cruised around San Diego harbor where there was almost no wind, just very, very dead. But we did actually have the sails out and we motored for a little bit of it and sailed for a little bit of it. Then we went out in the famous Gaslamp district did a little bar hopping. That was fun. And then Sunday morning, we met again, had breakfast together, did some presentations, I talked about a few different things. We did a couple of hot seats, and we weren’t going to go paragliding. But once again, the same thing with sailing, there wasn’t enough wind. So instead of doing that, we went for a Segway race, you know the the famous segway scooter. We rode around La Jolla, beautiful La Jolla on those. And then we went and we had lunch at George’s which is the Georges ocean terrace. Just a spectacular view of La Jolla and La Jolla Village and the harbor and then the ocean. That was great. Then we walked down to the park, did a couple more hot seats, and shared some great ideas. And then talked about our next meeting for the venture Alliance, which is tentatively or thinking of tentatively the last weekend of September for that. And we were talking about different places we might go and different locations for the venture lions meeting. And so I am just honored and moved, you know, the people are, are the ones who make it work. And we have such wonderful clients. You know, they’re so bright. They’ve got so many great ideas. They’ve just got so much to share their such sharing, giving hopeful, wonderful people.
So I just want to thank everybody who attended for being married was a fantastic kickoff. I really couldn’t have been better, except for the weather. You know, San Diego and it’s June Gloom. That could have been better, I would say. But otherwise, it was just a spectacular, phenomenal. Excellent, wonderful weekend. So thank you to everybody who attended and made it happen. If you’re thinking about the venture Alliance, check it out. We do have a formal application that we finally created. Go to venture Alliance mastermind and check out what we have to offer there. Maybe we’ll see you in September at the next meeting. So zoom Bob way, you know Zimbabwe Of course, the poster child for bad central banking and government. Well, their exchange rate now is 35 quadrillion Zimbabwe dollars to one US dollar. That’s how bad their inflation was. Now remember, the Zimbabwe dollar and the US dollar when it began were near parity. They weren’t far off from parity, which means you could exchange one Zimbabwe dollar for one US dollar, and now it’s 35. quadrillion. Okay, that’s quadrillion. I don’t exactly know how much that is. But is that 1000 trillion? Is that what a quadrillion is? It’s a big number. Okay. Amazing. That’s what happens with bad governance, and with bad central banking, an amazing story there and get ready, because we are eventually going to have some real inflation here in the US. I’m looking at a 2009 article that I posted in one of our groups. It is from 2009. From the Wall Street Journal, it’s got a picture of a helicopter Ben, our former Federal Reserve Chair Ben Bernanke. The article is entitled back in 2009, six years ago, get ready for inflation and higher interest rates. Now, we certainly had some inflation since 2009, no question about it. But it got relatively tame the last couple years, so but it’s just we all know, it’s just got to be baked into the equation. And as prudent real estate investors, we’re going to profit handsomely from that, from what I call inflation induced debt destruction. And in addition to the inflation induced destruction, we are going to profit from the packaged commodities investing aspect as well, or the assembled commodities investing aspect, which I also talk about. So, income property, being a multi dimensional asset class, provides so many wonderful opportunities for that. Without further ado, let’s get to our listener today, who’s got a few great questions that I tackled with him. And let’s go to Ian and then Wednesday, I will look forward to talking with you as we have Bob Proctor on for a 10th episode show where we talk about a general success and better living topic, not specifically about real estate, but a general better living topics. So that’ll be Wednesday. Let’s get to our listener with a call in and some good questions here. And let’s talk to Ian. Here we go.
This is Ian Kimble show listener calling in with some real estate investing questions. Ian, welcome. How are you?
Thanks, Jason. I’m doing great. Doing great. How are you?
Jason Hartman 13:03
Good. Good. It’s good to have you on the show. Thanks for sharing your questions with listeners, what we always find is that, you know, when one person has the question, usually a whole bunch of other people do too. So I appreciate you being willing to put your questions out there. And, you know, we can educate our broader group of people to so
fire away. Absolutely. I mean, the biggest struggle I would say I’ve been having lately as you listen to another couple podcasts recently by by Kevin Buffini had one person on his show, I forget the name offhand. But he essentially said, you know, rather than jump right into, you know, real estate feet first with whatever it is that you can afford, just for the sake of getting a deal done, you know, it’s better to wait a year or two and really, you know, secure that deal. It’s going to make a big impact on your life and kind of give you that initial leg up. So we kind of use the analogy of instead of, you know, buying maybe that single family property for the 15 or 20 or $25,000. downpayment, you know, you should be looking at a, you know, even 12 bucks or 20 unit and I know, for some people, it’s Oh, yeah,
Jason Hartman 14:15
okay, so Whoa, that’s a that’s a great question. Okay. So first of all, I before I answer that question, I want to give the listeners a little background. So you heard me on another show, you heard me being interviewed on Kevin show, and then you’ve been kind of you said, binge listening to my podcast, right. And, and really learning a lot from that. So that’s great. Thank you for listening. Gosh, I think that, you know, I thought you were going to say, it was a question of, you know, do I buy my first single family home as an income property now, or do I wait and keep looking for a better deal? Okay, now, that question, I think, would have been a little harder to answer than the actual question, which is, you got this advice from someone, or you heard this other guy talking on the show saying, you know, don’t do a single family home, just search around, save some more money and wait and try and buy a you know, like a 24 unit apartment complex in status. Is that the question basically?
Yeah, yeah, more more or less? That’s easy.
Jason Hartman 15:24
That’s a terrible idea. I mean, that is a terrible idea. Talk about Have you ever heard the expression Baptism by fire? I have. That’s exactly what that will be. Okay, you know, listen, I started out with what I started out with a condo, a little crappy one bedroom condo. That’s how I got started when I was 20 years old, my first property. And I’ve told the story on my show many times, so I won’t, like bore everybody with it. But suffice it to say, you know, it was kind of a bad experience, in a way, my first deal because I had to evict the, the crummy tenants that I had in there. And, you know, I didn’t know anything and know how to do it, then. And I just kind of, you know, I kind of learned by on the job training, if you will, but had I gone into and I’d say, I waited till I was 26. Okay, and I purchased a 16 unit, little apartment complex or something, or even a four Plex, you know, I would have missed out on all that inexpensive education. What I mean is that, you know, your, the size of your mistake is limited on a on a single property, the size of the mistake can be really big on an apartment. And the other thing I would say about and you know, not only that the opportunity cost of missing the return on investment, I would have made on you know, those single family properties I did earlier in my career in my investing career. apartments are complicated. I mean, they are a different animal. And I actually did a an episode, I’ve talked about that subject many times. But I did a full episode on it, where I was actually interviewed on someone else’s show, but I played it on my show on the creating wealth show, where we compared single family homes to apartment buildings, and believe me, you can make money in both of them. But the apartments are like running a business, they are complicated. There’s just a million little moving parts, you know, there’s just a lot more to it. Okay, good old, single family home was a pretty simple concept. And it’s a pretty reliable investment. You know, of course, you know, you got to buy it, right, you got to buy it in the right area, you got to you know, you gotta know what you’re doing a little bit. But, I mean, does that make sense? What I’m saying so far?
It does, it does, you know, and that’s kind of the the struggle admin you’re faced with is to, you know, obviously, with the bigger units, you can get economies of scale. And you know, if you have 25 doors to, you know, a single bigger apartment building, that’s only one roof, you have to replace every 30 years versus 25 roofs you have to replace, they know you talk Yeah,
Jason Hartman 18:11
but that one roof is a bigger roof, and it’ll cost you a lot of money. Okay? It’s not that simple. See, one of the things you got to remember when you’re thinking about apartments, and listen, I like apartments, I’ve made a lot of money and apartments too. Okay, I’ve got a lot more experience in single family, maybe, maybe that’s why I kind of like it better. I don’t know, the thing you got to remember in apartments is you’re running a business. And every business has a reputation. And, you know, your apartment building has a reputation. You know, people will go online and they’ll write reviews on Yelp about your apartment complex, right? In a single family home, nobody does that. Okay? They’re not gonna say, I live at 123 Elm Street. And I think the manager is a jerk, you know, it doesn’t happen. But your apartment is like a complicated enterprise. Okay, it’s, you know, you’ve got all these people that are right next door to each other, and they’re talking to each other, and they’re talking about the management, and they can do rent strikes. And, you know, they can like kind of gang up on you, you know, it’s a different animal. It’s a really different dynamic and an apartment, okay? And they’re there. They’re just, you know, the laws that protect you in the world of single family home because you’re when you’re when you’re one to four units, which is what our government considers to be. And, and a commercial property is anything four units or four units and above or above four units, I should say five units and above. And, and residential is four units and under. And when you’re in residential, you’re not expected to be an expert. You’re not expected to know what you’re doing. You know if you get into a problem on campus, commercial property, hey, you’re a businessman grow up, you know, it’s like, the judge will not care, he will not listen to your sob story. But in a residential property, you’ve just got a lot more rights, there’s a lot more disclosure obligations. You know, it’s it’s just a really a much simpler type of investment. Okay.
Makes sense? Yeah, absolutely.
Jason Hartman 20:24
Now, now, can we rephrase your question? Because here’s what I thought you were going to ask me when you started to talk, I thought you were gonna say, Well, sure, I’ve got the money to buy my first property today. Should I buy it? Or should I wait until I can find a better deal or wait until I can save a little more money or wait until I can get a little more educated? And here’s the way I was gonna answer that question is, number one, I can’t really determine how educated you are. But if you have the money to buy your first property, and you have at least 4% of the value of the property and cash reserves that you’re not going to touch, that’s your emergency fund, okay? You don’t use that to, you know, cover a little things, you’re gonna keep it in the bank, not spend it on, you know, paying for something in your regular personal life. You know, you’re you’re ready to go. I mean, I wouldn’t, I wouldn’t wait. Because when you Wait, you’re you’re making a prediction on what’s going to happen, you know, will prices go up? Will they go down? Will interest rates go up? or down? Will rents go up or down? And the likelihood is, you’re going to get left out on the cold without that debate? Okay. So that’s what I thought you were going to ask me when you start.
Yeah, absolutely. And that totally makes sense, man, I’ve seen things in the news that suggest, you know, reads could be getting higher again, and the not so distant future. And, you know, obviously, money is pretty, pretty cheap to borrow for, for the time being. And, you know, so I definitely had been looking at some properties on the site, you’re in kind of the Memphis and Little Rock region in, you know, anywhere from 80 to 150,000. region. There don’t think maybe you don’t always open to to any class, but I’m sure it’d be easier to start in kind of A or B class, out of the gate, but definitely, you know, makes makes a lot of sense. I guess from, you know, the way that people typically, structure and there’s been a lot of podcasts that talked about, you know, setting up entities or LLC, or just having umbrella coverage, and I had been calling around to a couple, you know, insurance companies and a brokerage company I’ve worked with in the past, I think for you know, $150,000 property in Memphis with like a $1 million liability policy, they quoted me a 1300 and 1400 a year. All in including the obviously the property insurance. But yeah,
Jason Hartman 23:04
right. Right. Right. And, you know, the real question is, do you even need that much liability insurance? I bet you could kick that bill down to, you know, seven or $800 per year. I mean, I haven’t shopped for an insurance there. Well, I actually have I just bought two properties in Memphis, what am I talking about? See, this is what happens when you get so busy that you don’t even remember what you did two months ago, yes, two months ago, I bought a couple of properties in Memphis, but I don’t honestly remember what my insurance cost was on them. But, you know, this is another thing that I kind of find, I think you might be falling into this, like, caught. It’s kind of a trap. You know, frankly, Ian, where, you know, everybody’s like telling you, oh, well, you know, you got to set up a couple of LLCs. And, you know, you’ve got to get all this insurance. And I mean, you’re a young guy, right? Aren’t you in your 20s? Did you tell me that?
I’m 28? Yeah. 28. Okay.
Jason Hartman 24:03
So, you know, you probably I don’t know, I could be wrong. You could be you know, you know, the founder of Facebook? Well, I know you’re not but you know, but you could have a ton of money, right? But probably your age, you don’t have that much to protect yet. Okay. And granted, what I just said there is kind of a specious argument anyway. So I want to point out the error in my own statement, and that is that, you know, if you got a judgment against you, it goes into the future. Okay. So you don’t want to get a judgment against you. Okay. I, I have a personal experience with this. And I’m kind of fighting a battle like that right now over a developer that I sued, actually and lost the first round and I’m fighting with them what’s on appeal now, but that’s another complicated story for another show. And so you don’t want that to happen. But I will tell you that look, I in this business for well over 20 years, okay, and everybody talks about, oh, you know, the slip and fall off suit, right where the tenant slips and falls, and they sue you, I have never heard of that actually happening in real life, ever, like no client of ours has ever told me, you know, the tenant is suing me really over anything. I mean, I’ve never had that happen to me, you know, they’re only really, if you have good insurance, and you make sure that your insurance doesn’t lapse. In other words, the policy doesn’t expire. And, you know, you forget to renew it, right? There are really only as far as I can tell, and like, I’m not a lawyer, I have to make that disclaimer, I’m not an attorney. So I don’t know, every little in and out of the law. But, you know, just from my own experience, and from what I hear from clients, there are really only two major areas where you could really create liability for yourself owning properties, outside of, you know, outside of the stuff you can easily insure around. Okay, here they are, as I see them. Okay, this is my own opinion, you know, there could be something else I’m not thinking of, but here’s the here’s what, how I see it. Number one is discrimination. Of course, we have fair housing laws in the United States, and you cannot discriminate against people, there are what’s called protected classes of people. You know, there are things like race, age, family structure, sexual orientation, you know, things like this, all the stuff that’s kind of obvious, right, that most people wouldn’t discriminate anyway. Hopefully, they wouldn’t. And, you know, discrimination is something that occasionally landlords get sued for. And, you know, if you’re using a property manager, you’re one step further removed from that kind of liability, okay, and you’ve got to use a reputable manager. Okay. So that’s one area. Now the other area, if there is a safety or security concern on that property, so let me give you an example. If the tenant says, My door lock broke, and I can’t lock the door, and if you just kind of ignore that, and you don’t do anything about it, and someone walks into that house, and Rob’s your tenant, or you know, assaults your tenant, heck, you’re gonna have a problem, okay? Because Because you were negligent in your duty as a landlord to provide a safe, secure property. Okay, you’ve got to respond within a reasonable amount of time and take care of business. And that’s reasonable, right? So, you know, just do those things. And you’ll be okay. Yeah, yeah. Hey, I wanted to mention something before I forget that. I think I found the episode where I talked extensively about single family, residential property investing, versus apartments. And that’s at Jason hartman.com. It’s Episode Number 362, of the creating wealth show. So Episode 362. And I’m pretty sure that’s the episode where I talked quite extensively on that topic. Okay. 362.
Yeah, go ahead. Definitely be checking that out. So I’m on the topic of, you know, safety or security issues, then if, obviously, seems like you’re a big proponent of third party management companies. And I can certainly buy into that. I mean, I guess, in terms of who, you know, would would then bear the brunt of that liability issue. If a tenant did make a case about some sort of security issue. You know, and the property manager didn’t handle it as they should have been, without absolve you of some liabilities as a landlord that that still traces back to you.
Jason Hartman 28:54
That’s a great question. I’m glad you asked. There’s something called and again, I’m not an attorney, but this is what I know. Okay. There’s something called the law of agency. Okay. And your property manager would be acting as your agent. And I just learned this in real estate school, you know, many, many years ago. And the, the law says that the principal, in other words, the owner is responsible for the actions of the agent. So ultimately, yeah, you could be liable. And that’s why you want to use reputable agents, okay? Because if you have a really stupid agent, or a really reckless agent, or a really fly by night agent, they might not care and they say, heck, I don’t like purple people, you know, or, you know, I, you know, whatever, and they could get you into trouble. But the likelihood is you’re going to have a reputable agent, the likelihood is they’re going to not want to lose their license, which they could for something like that. They’re they have a business that they want to run, they don’t want to get sued, they’re gonna get sued too In that case, right? They’re gonna get sued first, and you’re gonna get named as well, and that lawsuit probably. And, you know, there, you’re just, you’re just not going to have that problem, you’re going to make it a little more arm’s length from you. So even though technically, you have that law of agency issue, I think, and I, you know, I’ve never litigated a case like this. So I don’t know. But, you know, I think you you do push that liability on to that agent to some extent, but, you know, ask a good lawyer.
Right. Absolutely. Cool. So, you know, I, you know, certainly another question I’ve been facing is, when it comes to, you know, I’m from are from New Hampshire area, but you know, working in sort of the Greater Boston Market, and obviously ruled out buying property up here a long time ago. So certainly do see a lot of value in the whole rent to value ratios and some of the more untapped markets that you’ve mentioned, such as, you know, the Memphis and a little rock in Indianapolis region. So when it comes to working from the sort of long distance relationship, do you typically secure, you know, say, insurance or financing from a lot of local brokers or banks in the area? And, you know, for someone like myself, who’s just starting out, do you have any recommendations when it comes to kind of establishing that trust or getting them to take that leap of faith in you, and you maybe don’t have the initial track record of half a dozen properties to kind of put in front of them and say, Hey, have I’ve done this before, you know, been successful and turned, you know, a profit or cash flow each month to, you know, to pay my debt services?
Jason Hartman 31:49
Is that for a lender, you’re asking, in terms of getting financed?
Yeah, primarily for a lender? And then I guess even for back to the topic of insurance. And then to to kind of full the third question is that, you know, if you’re talking about multiple properties, would you recommend, and I’ve heard, you know, even going as far as open up a different bank account, for each property that you buy to, you know, certainly make it easier to keep track of,
Jason Hartman 32:13
I don’t know that you need to, you could, if you will, you know, it’s all that’s all kind of personal opinion, how you want to organize yourself, right. But I would have, I would recommend a separate bank account for all of your real estate investing activities. Now, maybe you’ll have three properties, or 20 properties, and you’ll manage them all out of that same bank account, I would not commingle your property stuff with your personal stuff. It’s just a, there’s no law saying you can’t do that. I mean, in terms of your checking account, okay, you do have to keep things separate on your tax returns. But it’ll just make it easier when you go to do your taxes. And, of course, income property is the most tax favored asset in America, it’ll make it easier when you do your tax returns to kind of manage that and see the expenses. Right. So. So that’s one reason. Now, of course, if you if you do ultimately set up an entity, and you have, you know, one LLC that owns one property or a few properties, okay, if you do that, you’ll be in a position where you have to have separate bank accounts, because every entity needs to have its own separate bank account. Okay. So that’s that question. Now, your other question before that was about, I think it was a lender question about, you know, having a resume, if you will, in order to get financing. Was that your question? It seems sort of convoluted.
Yeah. Yeah. Basically, along those lines of, you know, even if you you have the cash and the credit score, you know, kind of coming to them with that blank slate still, even if we are talking about, you know, only $100,000 property.
Jason Hartman 33:55
Right, right, right. Okay. So here’s the thing about that, since the financial crisis since the mortgage meltdown that we had, you know, what, eight years ago now, I can’t believe it’s been that long already. It’s kind of amazing. It’s really the first time that I saw lenders putting kind of a lot of stock in the concept of the owners, or the investors resume. Okay. With that in mind, there’s not much of a resume issue in terms of buying single family homes and getting normal Fannie Mae, Freddie Mac type financing, but you do like if you’re going to buy an apartment building, especially if it’s an out of state apartment building, they’re going to ask for your resume, they’re gonna want to know, have you managed property from a distance before? have you managed an apartment building before? You know what kind of you really they really will ask for your actual resume? You know, you’re thinking, gosh, this is like a job. You know? And the lenders you know, they want to know that the person they’re loaning money to To has some experience and and that’s why it’s it’s good sometimes to partner with people, because when you partner with people, you can either ride on the coattails of their experience. And that’s how you can get your own kind of like having being a protege and having a mentor, right? Or they can write on yours. And you could, you know, you can sort of add to each other and complement each other with kind of your combined experience. Okay,
yeah. Have you? Do you have an opinion on any of the CC Iam courses?
Jason Hartman 35:34
Yeah, I do you don’t worry, I have an opinion on everything. Okay. I’ve been known to be slightly opinionated. So CCM is a series of courses. That is, it stands for certified commercial investment manager. And I, when I was 1920 years old, I actually started down the path of I wanted to get my CCIE. And I started taking courses like that. I remember one of my instructors, I think, his name, gosh, this was a while ago, I think his name was Dennis McKenzie. And he wrote some of the real estate textbooks for CCI em, and some of them for the state of California test prep and in continuing ed, and that was really fascinating to me, I did learn a lot by doing it. But I gotta tell you something, I think it’s just sort of funny commercial real estate. That world has this image of where you, you think that Oh, these commercial real estate brokers and by the way, the CCN courses for brokers, it’s not really for, it’s not really for investors, per se, although investors would learn some stuff from it, you know, it’s a, it’s a designation that you want to get if you’re a broker or a salesperson, okay, selling those properties. And the image you have in as a as an, you know, I was a real estate agent, while I still am. But back then I was, you know, like really aspiring to be a successful real estate agent. And the image you have is, oh, I’m going to do these huge deals, I’m going to be selling giant hotels for $85 million, and huge shopping centers for $46 million. And all this kind of stuff. You know what most of those commercial people really do?
only imagine they show
Jason Hartman 37:24
little crappy office spaces and retail spaces for people to lease. And they really, you know, I mean, a lot of them just don’t make much money at all. I mean, it’s funny, when I lived in Newport Beach, I would say I had about probably 60 friends in the commercial real estate business. Okay. 66 zero, I would say something like that. And a lot of these guys are living on Balboa Peninsula, which is a area in Newport Beach. It’s kind of like the party zone. And they’ve got three roommates, they all drive like Jeep Cherokees, and they’re broke. They’re, you know, it’s like when it comes their turn to buy around the drinks there. You can’t find them anywhere. It’s not what it seems I’ll put it that way. But But um, you know, of course, I mean, that said there are commercial real estate brokers that do do very big deals and make lots of money, but it’s a law of averages, right, the law of the 8020 rule, right, the prayed opens principle.
Cool. So I got a couple remaining questions won’t be in terms of your sort of your recommendations on screening, property management companies, I would imagine some of your investment advisors or, you know, advisors for some of the different cities that you guys work in would have kind of a preset list of their own. But when it comes to, you know, looking at, you know, the vacancy rates of some of these management companies or the clauses that they use in their contracts to make sure that any you know, owed money past a 30 day window becomes their liability and not yours or making sure they don’t sneak in sales commissions into the contract or that they’re, you know, if you’re only paying them on, on kind of the gross collected rent not on, you know, any vacant units, do you have sort of a guideline that you like to work off of when it comes to making sure you can trust the people who really are going to be that that face to your business for a lot of your tenants.
Jason Hartman 39:39
Well, yeah, that’s a that’s a hard one in and look, I will be the first to tell you that property management, it’s the hardest part of this whole thing. Okay. And talked on the podcast before Fernando and I are trying to develop a kind of a software and a system that will help people self manage their properties and you can self managed pretty effectively, you know, for our members that pay a whopping 120 bucks a year, okay, I do a monthly members only call, we got to raise the price of that thing seriously 33 cents a day is a little cheap. Okay. And anyway, we do monthly member calls. And we’ve done a couple of calls, and they’re all archived in the members section at Jason hartman.com. Where I’ve talked about how to self manage your properties. I’ve also talked about it on the podcast a bit too. It really can be done. But the the thing when you are dealing with a manager is number one, read the contract, the one part that bugs the heck out of me, is these discretionary repair issues. Okay, so let me explain that. So, there’s a couple layers to this, Let’s peel back the onion for a minute. Okay, these and by the way, these are great questions. Okay. So the first layer is that you’ve got to understand that a property manager has a responsibility to protect your property. Okay. So if a pipe breaks, and there’s an emergency situation, they do have the right, without, you know, maybe they can’t reach you, maybe they can’t get ahold of you, okay. And they do have the right to call the appropriate professional, in that case, a plumber and say, you know, stop the leak, you know, get everything stabilized. And then, you know, I’ll talk to the owner after that about, you know, how are we going to handle this, okay, and, you know, we’ll file an insurance claim, whatever, right. But you’ve got to understand the property manager always has the right to do emergency stabilization. We’ll call it like that, okay, to stop a leak, etc, right. Beyond that, though, the property managers all have this other discretionary repair clause in their contracts. And that discretionary repair clause can say, you know, we have the right to spend up to $200 per month, or $200 per incident. Okay, now, be careful here, because it could be per incident, or per month, and then the amount will vary. Some of our property managers and I have fought them on this, and I’ve told our clients not to do it. And, you know, they’ve written long emails to me explaining, well, Jason, you just can’t tell the clients not too late. Yeah, I can. Okay, I am on the clients side. Look, we love our vendors, we got to have good relationships with our vendors. But ultimately, the clients are what pay our bills here. Okay. Not the vendors, we can change vendors, but we got to have a loyal clientele. Okay, that loves us. And so, you know, I’m here for the clients. First and foremost, the vendors, after the clients, the clients come first, right. And, and so, you know, they have a clause in there that says they can spend up to $400 per incident. And, um, are you freaking kidding me? I mean, that’s crazy. Now, you got to understand, and this is why I, you know, even a great manager has a bit of a conflict of interest, and here’s why. You know, they’ve got to keep the tenant happy. They’ve got to keep the owner happy, and they got to keep themselves happy. Right? Okay. So the problem you have when you’re a property manager is, many tenants out there feel like they’re getting mistreated? Okay? You know, the Generally, the owner or the manager of the property kind of has the power, okay. So tenants will feel weak, and they’ll feel like they’re being abused sometimes. Okay, even if they’re not, they will just, you know, a lot of them have sort of an entitlement, Obama voter mentality, how do you like how I threw that in? Okay? This is why half the country hates me. Anyway, so they all kind of feel like that. And you know, they’ll go and they’ll write bad things about the management company online. And of course, the management company hates that, because, you know, they don’t want the reputation to suffer. And so to some extent, the management company will kind of sell the owner investor down the road a little bit, because they’ll try to please the tenant. And this is why this is why I kind of just like self management. And in my own portfolio, I do both. I self manage some of my properties, and I have professional managers for other ones. You want to know how I decide. I start with a manager. And then when the manager does something bad, I get rid of the manager and I self manage. I have some really good managers for my properties. And a really good manager is worth their weight in In real estate, I wouldn’t say gold, because gold is not a very good investment, it’s worth their weight in real estate, okay? And, and, and so a good manager can be awesome. And then there are the, you know, mediocre managers and then they’re the bad ones, okay? You got to understand the manager has this natural kind of conflict of interest. And it’s just part of the dynamic of everything, right, they want to make the tenant happy. They want to make the owner happy, sometimes it kind of feels like they want to make the tenant happier than the owner. And, you know, that’s kind of ridiculous. Now, what you find, if you self manage your properties, though, is that the the person, the tenant in your property doesn’t perceive you as some big company with an unlimited budget, and they know that you are a regular human being. And if they’re a decent human being, which most of them are, okay, most, the vast majority of people and tenants are very good people. There’s some bad apples, certainly, but they will feel the pressure of having to maintain a relationship with you. And that’s a good thing, because they will tend not to abuse you and ask for every little thing. But we’ve definitely found when there’s a management company, they ask for more stuff. Okay, you know, it’s just sort of like, this is some big, faceless company, what do I care? I’ve got some ants. So call an exterminator. You know, I’ve got, you know, lightbulb burnt out. I mean, I’m sort of overdramatizing it, okay. Now, you know, call someone to change the light bulb? Where is if they’re dealing with you, a lot of times the tenant will do that stuff themselves.
Yeah, that absolutely. Makes sense. And I guess, along those lines, for me, no. Last question or two to wrap up when it comes to that long distance self management, you know, or for any property, whether it’s self management, or managed by a third property? Will you always recommend still, you know, going out and seeing a property in person? Obviously, I know the importance of getting it inspected beforehand, and and all those other, you know, checklists prior to that, but do you do still recommend seen all of these properties in person before finally, pulling the trigger?
Jason Hartman 47:17
Yeah, great, great question. So I’m always going to recommend that our clients go and look at the properties before they buy. But here’s what happens in practice, they just don’t do it. Okay, they don’t do it very much, I would say that 95% of our clients just guessing, do not go to look at their properties before they buy them. And you know, when you get past this sort of traditional, local mentality that’s been around forever, you know, as far as real estate before the technological revolution that we’re in, you could kind of understand that, because everybody usually did things in their neighborhood. But the problem is their neighborhood may not be a good place to invest their own city may not be a very good place to invest. And even if it was the best place to invest, they still need to be diversified. Okay. And so most of the clients don’t go and look at their properties. But Heck, when they invested in the stock market, hopefully, they’re not doing that anymore. They didn’t visit the company, either that they were buying stock in. Okay, so it’s really just, you know, it’s just about the numbers, what is that property going to produce versus what you pay. That’s, that’s what this is about. I mean, I don’t much care what the house looks like, I just want it to be a rentable desirable property that is going to perform well. And I can figure that out from a distance, I can go on Google Earth, and I can look at the property from different angles, I can see what’s near the property. And, you know, you should do all of that stuff and deal with reputable people. And you know, you’re, we just haven’t had any big huge problems like that. You know, we’ve had a couple over the years. I mean, we’ve been doing this a long time. So you’re gonna get a couple things. I remember once years ago, a client who kind of was her own worst enemy, frankly, she was upset because she didn’t bother to look at the property on Google Maps. And it was like a block away from a train track. And so there was some train noise. But you know, the fact was, that there were, you know, maybe 100 homes right in that neighborhood. Also close to train tracks, okay. It’s not like people didn’t live there. They even lived closer than her house to the railroad tracks. Okay. Everything will rent at the right price. Okay. It’s not a question of, does that ruin the deal? It might just mean it rents for $50 less per month.
Okay, cool. I mean, I know I could go on for hours and hours and hours with uh, with questions, but those were definitely and
Jason Hartman 49:57
you know, I could do you
Yes, I do. Yes. Yeah,
Jason Hartman 50:03
yeah. Well, we we’ve been on 38 minutes. And these are great questions. By the way, I think I think a ton of people listening had a lot of these very same questions as you did. So they’re, they’re good questions. But, you know, I tell you, I had I not purchased that first property, when I was 20 years old. There’s just something that happens by what we’ll call on the job training. Because you bring a new, you bring a new person, you bring your A game, when your money is at stake, and when your future is part of that deal. So just get your first property going. Heck, if it’s terrible, don’t buy a second one. You know, it’s pretty good. It’s not perfect by any means. There are problems, there are frustrations, it’s just better than everything else. I mean, I just haven’t found anything else that even comes close, you know?
Absolutely. I will believe in that till till the day I die. And yeah, well,
Jason Hartman 51:03
hopefully, you’ll keep believing it after you have your first 10 properties or something. Right, exactly.
It’s gonna say, well, we’ll see if it changes once once. There’s a couple, a couple of houses to my name, but hopefully, hopefully, it stays that way. Good stuff. Wait,
Jason Hartman 51:16
it’s great. When did you become interested in real estate investing? You’re 28 now, and what do you do for a living? Did you mention that?
So I work at a digital advertising agency in the Boston area, and then here for the last four years or so, you know, back to when it first started as kind of a startup but growing up my mom’s side of the family. Her father, you know, when her relatives came over from Europe and you know, built 30 or 40 plus two units, residences in a suburb just outside of Boston and duplexes, right? Yeah, yeah, over the years, they’d sold some off, but you know, even when I was in high school, they probably still had at least 10 in the family. And, you know, every couple weekends, I would be going down with them to help rake leaves or put down vulture you know, paint walls when tenants changed over so it always been been kind of in in my blood and heard some horror stories, but also saw the the checks coming in each month or you know, that the big lump sum when they would find the seller property in an up market. So it’s always kind of been in the back of my mind, and I’ve you know, dabbled in, in the stock market certain these since, you know, since starting a job, but I’m looking for something, certainly something just more, I think, consistent and grounded. And, you know, it’s appealing to say the least,
Jason Hartman 52:39
yeah, it definitely is, it’s the most historically proven asset class in the world. So I am very glad you are discovering it at a young age. And I tell you, 1020 years from now will pass 10 or 20 years will pass in the blink of an eye I warn you, okay, you know, just get going start building your portfolio, get your first property, and then get your second and your third and it is amazing how fast you can grow your own little mini real estate Empire. So just get get started and just do it.
Okay, awesome. Sounds Sounds good to me.
Jason Hartman 53:16
All right. Thanks for the call. He and I’m gonna end the tape now. And we can just start wrap up off tape here. But listeners, I hope you enjoyed this. And that was Ian from we’re in New Hampshire. Yeah.
Yeah. down and down in Boston now.
Jason Hartman 53:27
Yeah, Boston. Okay. Boston. Can you say park the car in Harvard Yard for us. I can do it. Do it in a thick Boston accent. We want to hear it POC, the con hava Yod. Love it. That’s good. Alrighty, and thanks for joining us.
Thanks a lot, Jason, really appreciate it.
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This show is produced by the Hartman media company All rights reserved for distribution or publication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own and the host is acting on behalf of Platinum properties, investors Network, Inc exclusively