Double Rent Arbitrage and RV Ratios Worldwide

Jason Hartman opens the show with listener questions. He looks at when you should rent your personal residence. Then he explains how rent to value ratios work and compares different RV ratios around the world. Lastly, he discusses how to unwind depreciation and get out of real-estate as you get older.

Jason Hartman 0:00
We are now on Alexa. So if you have an Alexa device, you can get my real estate update on Alexa as part of your daily flash briefing, so be sure to check it out in the Alexa store and add the skill for Jason Hartman’s Real Estate Minute.

Investor 0:17
You’re gonna laugh, but because of your podcast, we’re positioned well, so I don’t know how else to thank you, but thank you, your podcast and your services are amazing. And I wish I could do more as far as working with you guys, but I haven’t really but um, maybe in the future, obviously. But once again, our family is grateful to you and your services, and your information is priceless. Thank you so much. Take care.

Announcer 0:48
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. 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. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 1:38
Welcome listeners from 165 countries worldwide. This is your host Jason Hartman with Episode 1020 to one zero to two. Thank you so much for joining me today. And we are finally I apologize. I know. We’re a little late in getting to some of these listener questions but you know what they say? Better Nate than ever There’s my attempt at humor folks, that’s about as good as it gets. So don’t count on any humor, but you will get some good information from our show. So let’s go ahead and dive in and go over some of those. I’ve got my boy, he’s here kind of often on the show lately, isn’t he? Carrie Lutz, my guest co host, Gary, what’s up?

Gary 2:21
Hey, Jason, becoming a bad habit, I guess.

Jason Hartman 2:23
Yeah. Well, you know, you do know how to do a radio show. So it’s good to have you here with me. Thanks for joining me today, you know, last time, and we’re doing two consecutive shows in a row here. Last time, you know, we didn’t get a chance to talk about everything. But before we get to a couple of these q&a things, you know, people should have a right to take a job without being forced to join a union. I call it pro choice. What do you think of that, Gary, in the Supreme Court ruling? I think we mentioned it last night, but I do I’m still excited

Gary 2:54
about this. I don’t think it’s what the liberals quite have in mind when they mentioned the words pro choice. Pro choice for the things that they want, not for the things that you want. Well,

Jason Hartman 3:04
that’s the way it works, you know, but I’m so excited that the Supreme Court has put a they just punched the unions in the stomach. And really the public employee unions look unions in the private sector. I’m not as upset with them. But public employee unions Think about it. The government and I’ve said this before, the government is, in theory, the arbiter of fairness. So the idea that when you work for the government, you should have a union to lobby against the taxpayers is completely absurd, because think about it. on the government side, there’s really no self interest. If it’s a private company, there is self interest and that self interest will be adversarial to the union, right? Because you know, that company ownership wants the lowest cost labor, and the labor wants the most money so they can duke it out. And that’s a fair debate. But when it’s a public employee union, you know, the people want more More money, the union members want more money. And the government bureaucrats who run this division of the government, it’s not their money. So they just hand it over. It’s pretty good gig if you can get it. But not anymore maybe right?

Gary 4:14
And in return, the politicians that have received generous contributions from the unions, both in terms of cash to their campaigns and payments, so called payments in kind, meaning they get the union slugs to go man the phones to do all the phone campaigns to go knock on doors to hand up to propaganda at train stations, etc. So I guess potentially that’s going to change

Jason Hartman 4:41
hashtag government corruption, hashtag government corruption. You know, I interviewed I and you know, to, I interviewed Adam, Angie Nevsky on my show today, he’s a returning guest second time on He’s the founder of open the books calm and so that show will be coming up soon. And he talks about oh my god. All this insane government waste. It’s just crazy, crazy, crazy stuff. And I mentioned it last time on the show, but the changing demographics of home buyers and home renters. And this is something folks we’ve never seen it before. So as real estate investors, we got to think about this stuff. I mentioned the article in the Wall Street Journal the rise of the older single female homebuyer, unmarried women over 55 is now one of the largest fastest growing demographics of homebuyers with longer lifespans and careers. Many look for homes with and this is what the subtitle the article says. No bad memories. So, you know, that means that probably a divorce and they don’t want to, you know, live in the same house, whatever. Right? Some interesting changes. What we’ve never seen before also is this. These empty nesters these older and not that old in some cases by today’s standards but empty nester baby boomer Moving out of the house selling the family home, obviously the empty nest. And a lot of times they would move down to they buy a condo or a townhouse, right? lower maintenance, you know, a little more freedom of lifestyle to travel a bit, whatever. But now what they’re doing carry and this is interesting, they are renting, and they’re fine with renting. No, you know, look, folks, I will admit that I, in the old days, turned up my nose and had a bit of a snobby attitude about the difference between two classes of people, renters and homeowners. And, you know, I think that stigma has just largely gone in what I call our portable society, the world being more mobile than it’s ever been. And especially with the millennial generation growing up on the sharing economy. Just a different deal

Gary 6:50
nowadays. Oh, yeah. For myself, I fall into that category. Jason. Yeah. You own big expensive homes in Westchester County, New York. I mean, you were a rich new York City Attorney right for 30 plus years, I own my own home. Then I moved to Florida Well, I didn’t want to buy initially, because I wasn’t sure what area I wanted to be in and what my needs were. I looked at houses to buy, I rented two three houses, then I bought a house, then the family existences required that I move closer to an ailing relative, sold that house and I rented another house and you know what I’m about to rent a brand new, beautiful townhouse north of where I am here it will in the northern Palm Beach County area. And the place is brand new, and I didn’t really want to buy it. So I know

Jason Hartman 7:44
I just don’t I don’t see you know, I used to own all these big beautiful homes in Orange County, California. And I just I don’t know, you know, I’ve been looking at houses here in Florida. And I just don’t really feel the urge to own the house in which I live. I own lots of properties. I’m a big believer in owning real estate, but the one you live in he, you know, he can do it either. Right? So, again, that is a changing mindset. And I don’t believe I’m any sort of Rarity there. I think a lot of people feel that way nowadays. Well, it’s borne out by Statistics, they definitely do. So. So that’s interesting. Okay, let’s dive into a couple of these listener questions. Carrie,

Kerry Lutz 8:24
what do you got? All right. So first one here is from Mason, all ba

Jason Hartman 8:29
Mason was the number two winner of the video contest at the meet the Masters event with Ron Paul. So congratulations, and Mason, one of the things he won was a venture Alliance weekend. So he joined us in New York at our last venture Alliance just about a month ago. And the next one is in Hawaii, you know, Hawaii, Hawaii, island of Hawaii. And then we’re having our our profits in paradise conference. Before that, then we’ll do our venture Alliance retreat. Those are almost back to back on the beautiful island of Hawaii first. week of November. Join us.

Kerry Lutz 9:02
Go ahead question. All right. Hi, Jason. I’ve taken your advice and have chosen to be a renter. While renting out investment properties. I actually got really lucky and locked in a good deal this past year because the apartment complex I was moving into had a unit selected and a set rental price. But on my moving date, the unit turn wasn’t ready. So they offered a new unit that had more square footage, washer dryer included a better view. And still at that locked in price about $300 less. So I have a lease renewal coming up in a few months on this unit. and wonder if you have ever tried to negotiate your personal rent successfully. I noticed this commercial type landlord has been raising rents at about 10% and would rather not have to do that and or get defaulted to the actual unit price. How would you keep your price locked in as a tenant at a current price? Any strategy?

Jason Hartman 9:57
Oh, that’s a good question. So So let me just say one more thing about the renting thing before I grab Mason’s question, but I’m glad you brought that up. The point of the rental, my idea of promoting renting the home in which you live is this. If it’s over $250,000 then it starts to make sense to rent the home in which you live. If it’s under $250,000 in value, it makes more sense to buy it because the rent to value ratio, the RV ratio gets way out of sync as you go up in price. Now the best deal of all is renting a really high end home, you know, go rent a 568 million dollar house, it’s a great deal and take that same $8 million worth of real estate and buy, you know a bunch of single family homes and a couple apartment complexes and you will receive way more income in rent from that and you’ll be arbitrage in your favor, renting the high end home for yourself. So that’s my point. You know if your home is valued under 250,000 you should And the idea is rent a high end home for yourself and own a lot of little bread and butter inexpensive homes that you rent to other people because then you get the double rent arbitrage. You know, I talked about the double inflation arbitrage. Well, that’s the double rent arbitrage. Okay, Mason’s question. Look, if you want a good deal on a rental do not rent from an institutional landlord. You call it a commercial landlord, rent from a private party, you will almost always get a better deal from a private party. Now, that must be begging the question. All of you listening are private party investors. And I don’t want you to be this much of a pushover on your rents. Okay. I want your houses to be fixed up nice. And I want you to rent them at good high prices, generally speaking, institutional landlords that own apartment complexes that you know a bunch of boxes, they are good at upping the rents, they’re good at nickel and diming people and I want you frankly as a problem landlord owning single family homes to get better at that too I want you to take the lead of the institutional landlords that are good at squeezing money out of people. And I want you to do that right? I want you to charge pet rent, I want you to charge 25 bucks a month if they have a pet, okay, you know if they have two pets charge them 40 bucks a month right? A lot of our landlord clients are starting to do things like rent appliances to the tenants, okay, you know, rent them the refrigerator, rent them a washer and dryer. You know, why is all this stuff included? One of our clients who’s actually been on the podcast before he’s got a bunch of properties. He’s really into self management now. And he is literally I kid you not carry I know you have one of these at your house. But he is now renting. And this is small potatoes but it’s a good thought experiment. It’s a good concept. He is renting the ring doorbell and the subscription. Yes, I know. It’s kind of fun. But you know you can rent alarm. systems, you can do all sorts of add ons in your houses, okay? Think like an institutional landlord. You know when they have an apartment complex and say they have community laundry, you know, they make money they make that laundry a profit center. There are more profit centers in this for us. One of them that’s easy, easy, easy, Pat ramped. Okay, so just think about that. But you’ll get a better deal from an individual landlord almost always than an institutional landlord.

Kerry Lutz 13:24
Next question. Well, Jason, just wanted to say big thank you again, for meet the masters and your team. Thanks for featuring the interview I did with Gary Pinkerton. On the show. He is hosting. Also your producer Adam lives only an hour or so away for me in Texas, and is a good guy who I could see myself learning about producing with and potentially help out whatever you need later this year when I have my schedule set.

Jason Hartman 13:52
Good stuff. Thank you, man. Appreciate it, and I’m glad

Kerry Lutz 13:54
it’s valuable to you. Next question is from Jordan Callaway. Jordan has You’re doing

Kerry Lutz 14:00
Jason first. Thanks for your podcast. I find it refreshing educational, entertaining to you. Nobody ever says this to me, Jason. That’s because my podcast

Jason Hartman 14:09
is better than yours.

Kerry Lutz 14:12
You’re entitled to your opinion. I mostly listen in order to keep my real estate goal of buying my first property on my mind. Second, thank you again for the air pods from your contest. They are awesome. Oh, yeah,

Jason Hartman 14:24
we have the air pad. We got to do another contest, folks. The next contest is going to be win free tickets to our Hawaii event. Okay, so get ready. We’re gonna have some kind of contest. We haven’t thought

Kerry Lutz 14:35
about it yet. But we’ll have a nice tease. Okay. My wife is enjoying them thoroughly which makes me happy, happy wife happy life. Are you mentioned in your podcast today? That was Episode 954 that you are considering moving. If you’re looking for a high quality lady, I suggest Northern Virginia. You can find an excellent rental property to stay at and the women here are no joke. They want to Crap from anybody appreciate a good man and our faithful. Full disclosure, VA has state income tax. There are a decent number of Model X drivers on the road to laugh at

Jason Hartman 15:11
Tesla Model X. Yes, yes, perhaps a plus. And things move quickly here. I find that hard to believe, but I get the sense that you can handle that. No problem. Here’s to finding a great long term home, Jordan. Hey, thanks, Jordan. That’s cool. I like the northeastern us. I love that you’ve got all these bright smart people. I mean, it’s interesting, being single in a place like California, Southern California, where you know, the younger crowd and So Cal is usually not that with it. Okay, you know, some of them certainly are, but they’re not as with it as they are in places like, you know, the nice areas of Virginia and Washington DC and stuff like that, you know, that’s a pretty educated population up there for the most part, but hey, I am not living in a place with super cold weather. So thanks anyway, I’ll come and visit.

Kerry Lutz 16:03
And let’s not forget most of the people that live in Virginia, certainly Northern Virginia will work for one person in particular. And that is Uncle Sam. So you got to get your arms around that and we’ll know

Jason Hartman 16:15
Uncle Sam Yeah. Okay. Is there a question in there is from the Hon

Kerry Lutz 16:19
a gal says, I am one of your loyal podcast listeners now working full time at language online solution as an over the phone, interpreter and freelancing at RR Donnelley as a medical translator. Also, I am a one unit landlord here in Northern Ontario of Canada. I used to be a medical doctor, but now my specialty is to provide language services between English and Mandarin, sometimes Cantonese. I am wondering if I can provide service to you on the following aspects as you have mentioned in your podcast interpretation for Mandarin speaking in investors, promotion and development of your business in China translation for all your books and transcripts of your podcast.

Jason Hartman 17:08
You know, that is something that we have definitely thought about. But you know, what we need is a mandarin speaking investment counselor. And I think actually all of our speaks a little bit of Mandarin, we can kind of touch those markets, obviously, China, Chinese investors, huge market, we’d love to have more of that. You know, we certainly have many of them now, we really need a a very fluent, when it comes to any language. We need very fluent investment counselors that are very fluent in that language, because it’s not just about getting the client to get interested and exposed to the materials. Someone’s got to take care of them all the way through. So yeah, thank you for that good idea. And we’ve thought about it for many years.

Kerry Lutz 17:46
All right, any further question, my rent to value ratio, and you got to keep in mind this is Canada is point 859 percent 1400 over 163,000, which is probably the best I can get in Canada. But the property quality is far from being ideal. Not even close to the listings on your website, built in 1972. It is a semi detached with three plus one bedroom, two bathrooms. I also own some stock in Hong Kong. Because I had worked there for four years, I had been working at Dali in Beijing, Hong Kong and Shenzhen. Now, I’m based at Sudbury, Ontario, Canada. Thank you very much for your each and every insightful episode and I will keep listening. Wonderful work.

Jason Hartman 18:38
Thank you so much. Appreciate it. And yeah, the interesting thing about rent to value ratios is that they apply worldwide. So the rent to value ratio you described really isn’t too bad based on that price range. So yeah, I mean, I’m not surprised. That’s sounds about right.

Kerry Lutz 18:55
All right, next question from Chad golden Jason. How does depreciation get unwound. Say I’m reaching the age where I no longer want to be involved in real estate. So I started to sell some of my properties without doing a 1031 exchange. How does the depreciation work upon sale? Similarly, we moved out of the house, rented it out and have been taking depreciation. But now we may be moving back in was depreciating the house a mistake while it was a rental?

Jason Hartman 19:24
Well, that is a good question. That was from Chad.

Kerry Lutz 19:27
Yes, from Chad. Good. Hey, Chad.

Jason Hartman 19:29
So that was a really good question. Guess what, there’s an old saying, once a real estate investor, always a real estate investor and here’s why. You’re trapped. You are trapped, trapped, trapped? Well, not exactly there is I’m going to give you a couple. I’m going to give you at least one little solution. Look at here’s the way out in terms of unwinding look at if all of these years you’ve owned these properties, and you’ve been getting the best tax benefit in America, the holy grail of tax benefits, because it’s the most Tax favored asset class and American depreciation. If all of these years you’ve been doing that, and then you sell the property that has a appreciated, you are not going to get to take that depreciation benefit. If you sell it outright, you’re going to have to pay tax on depreciation recapture. However, if you 1031 exchange it, of course, you just roll it into the new one and my understanding under current law, and again, I’m not a tax advisor. Okay, so when when it comes to tax and legal stuff, you got to talk to the appropriate professionals. But I’ll give you the concept, you can take it to them for further questions and analysis of your own situation. But you can bury that depreciation into the next property or properties on a 1031 tax deferred exchange. Another reason it’s the most tax favored asset class in America. But if you do, just sell, and you don’t want to be a real estate investor anymore, then you are going to pay tax on it. There’s one thing you can do while they’re actually like two things. There are creative charitable things you can do through vehicles like a CRT, a charitable remainder trust. This is a vehicle usually used by wealthier people. So depending on your position on the socio economic ladder there, you know, you could talk to an advisor about that. You could do some things, I think, with life insurance. So ask our friends at paradigm life, I think they might be able to help you do some things with that. I don’t know exactly what but I’ve heard about it. Talk to Gary or Pat about that. And then the other thing you can do is you can do, I think it’s called an installment sale trust, or deferred sale trust or something like that I have talked about on the show before. And basically all that is, is you essentially carry paper. Like if you sell the property on an installment sale and you don’t take all the money out, you carry the paper, right, then you only get taxed as you go right as you receive that equity back over time. So you slow down the tax liability. for yourself, you can also do this within a separate vehicle that you sort of control a trust vehicle where the trust can sell the properties. And then the trust can do an installment sale to you essentially, just like the buyer might. So there are a couple of options. But essentially, the best thing to do is buy property all your life, have it all your life, and then die and have the basis step up to its current market value. pass it on to your heirs. If you don’t have any children, you can always name me, okay, and I will be happy to accept and honor you on the show for eternity. Boy, that’s something else. So imagine if a listener did that,

Kerry Lutz 22:40
hey, imagine if 10 of them did it. Imagine if 100 I mean, this is all we got to do. We could start a Go Fund Me campaign, just people leaving you their stuff when they’re getting ready to die. I think we got a winner.

Jason Hartman 22:52
A lot of my listeners are younger than I am. So you know, he could help him along.

Kerry Lutz 22:55
Yeah. One other thing because I’ve had personal experience with this. issue. Okay, so it’s called recapture of depreciation appreciation. It’s a killer because you pay tax on every dollar will depreciate. And here’s the reason it’s

Jason Hartman 23:09
a killer, because most people forget that they’ve had all these tax benefits over the last 20 years, or whatever it is. And they forgot that they kept taking this right off in their textbook was so much lower all those years,

Kerry Lutz 23:23
so they gotta pay back. But the good thing is, if it’s investment property, then you happen to lose money on the sale of it. Yeah, all right, it’s a loser it happens, then sell at the bottom of the market. Here’s

Jason Hartman 23:33
the advice, buy high, sell low.

Kerry Lutz 23:36
What do you think? Well, if you lose, you’ll be able to deduct that loss off your income tax under certain circumstances. Other thing is, if you’ve got an asset, around the same time, like bad stocks or whatever that you’ve got, you can use an offset. Yeah, to offset passive income you offset capital losses, right. So you have options, but overall, it’s like giving the kids the key to the Mazda. After the fifth jack daniels, it’s not a good idea.

Jason Hartman 24:03
You know, some of the greatest song lyrics are that old Joe well song, my Maserati does 185 I lost my license. Now I don’t drive. I have a limo right in the back. I lock the doors in case I’m attacked. You know? I make good records. My fans, they can’t wait. They write me letters and tell me I’m great. So I got me in office gold records on the wall. I have accountants pay for it all or how’s it go? It’s funny. The lyrics are so funny.

Kerry Lutz 24:28
Yeah, I don’t know who’s paying for the accountants. But hey, as long as the accountant he’s a rock suckers, okay, he’s a rock, so it doesn’t matter. Yeah.

Jason Hartman 24:35
Like a guy random and play. It’s not his money. One more. Shall we do one

Kerry Lutz 24:38
more. One more. Last question. Jason from Cody Hawkins. Jason, thanks to a successful business. I have the ability to pay cash for houses. I want a solid investment that provides a second income. Now, in that case, is it wise to put 100% down on a property as long as the numbers work? PS, I enjoyed listening to your podcast.

Jason Hartman 25:02
Okay, and who’s that from Cody, Cody Hawkins, Cody, thanks for the question. The answer is no, not unless you have to look at income property is the most tax favored investment in America. It is the most historically proven asset class in the entire world. And it is the most debt favored asset class in America. And you know, this is good debt, it’s positive debt. I say that debt is my favorite four letter word. Okay. You know, it’s good long term fixed rate, conservative investment grade debt, if you can get it, take it, you know, pay cash for a property if you have to. We have clients paying cash for properties, if they’re foreign nationals and can’t get the US financing. We have people paying cash for properties, if they’re buying them inside their IRA or some other qualified plan. Okay, we have people paying cash for properties, if they already got their 10 loans per spouse, and they’re maxed out Or they can’t get financing for whatever reason, then yeah, sure pay cash if you want, but it’s not ideal if you can get financing get it is when it’s this really good long term, cheap fixed rate financing. I mean, even though rates have gone up a little bit, financing is still historically very inexpensive. So when you get 30 year long, cheap fixed rate debt, take it get all you can stock up, the debt is part of the asset. Think about it. If you buy a property today, and you finance it, you will not make the last payment on that mortgage until 2048 2008. Gary, Can you believe that? I mean, how much will the world change in what will the world be like in 2048? There’ll be 100 million more Americans, okay. We’ll be at about 420 want to call them that? Well, yeah, well, whatever. Okay. There’ll be there’ll be that many people here, okay. So there’ll be a lot more demand for properties. We will be autonomous Vehicles flying cars. Who knows what right? I mean, the world will massively change. We might have massive inflation. It’s some point in there. I mean, that’s a high likelihood, somewhere along that 30 year trajectory, you’ll get inflation induced at destruction. I mean, take the debt, if you can get it, the dead is part of the asset.

Kerry Lutz 27:19
And I think Trump will be up on Mount Rushmore.

Jason Hartman 27:24
I kind of doubt it. He’s, he’s hated enough that I don’t think you’ll be out there. I don’t think you’ll be next to Obama. I think we should just kind of leave it at that. I like that. Okay. Thank you, everybody, for listening. And, you know, we went off on a few tangents, but I think we kept our time pretty decent on this one. So thank you for listening, happy investing to all and be sure to go to Jason Hartman calm and check out our Hawaii events. They are going to be awesome. Again, two events. They’re a two day conference on Waikiki Beach with the most iconic Hotel in Waikiki Beach. We got a fantastic room rate on our discount rate. Block there. And then also the venture Alliance retreat. We skip a day in between these two events. Then we go to kawhi for the venture Alliance, so you can do both, and have a great vacation first week in November. All right, happy investing. Thanks for listening. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.

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