COVID-19 is affecting the US housing market in ways you didn’t expect. Jason Hartman hosts an investment counselor, Adam Schroeder, to discuss the changes. They look at returns on specific properties and emphasize the boring linear markets that make sense from day one. Then Jason discusses the concept of Refi-Til-Ya-Die and how to utilize this strategy. He ends the show on why he started PropertyCast.
I kept reading and listening and then went forward in the podcast that I went to your website. And I looked at the site see half of the different properties and the numbers. I started learning about the numbers and what they meant. And being the skeptic I am and being a techie, actually with a program to go and scrape your website and other people’s websites and redo the calculations just so I could prove it out myself. And eventually, I came to the conclusion that real estate is a great deal.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in Thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:18
Welcome to Episode 13 at 81388. Adam is here with me today we have a variety of important things to talk about for real estate investors. And the first one is the housing market versus the coronavirus. Yeah hear a lot about this Corona virus in the news and Adam. I have to just throw up my two cents on this before we even get into this housing market and coronavirus stuff. You know, this is a bit like Chicken Little right you know, the sky is always falling. Maybe this is really as scary as tragic as the news media is making it out to be, but maybe it’s just more if it bleeds, it leads sensationalism. I don’t know. And probably nobody listening knows unless we have some infectious disease, people that work at the CDC listening or something like that. I know we have a lot of doctors as listeners and clients. But is this over done? I mean, you know, we heard about SARS. We heard about swine flu. We heard about mad cow disease. You know, what’s new? They all knew all these things. You know, we heard about y2k. You know, we’ve been hearing about the next recession for the last 10 years. How bad is it, Adam? How bad is it? And what does it mean to the housing market? That’s the question.
Adam Schroeder 2:47
Yeah. Well, the question of How bad is it is, it doesn’t matter how bad it is because the Chinese government is cracking down. So I mean, we can think it’s not that bad. But you know, China has pretty much shut down a big part of their economy. for it, I think they may have opened it recently where they had to shut it down for at least two weeks. So I mean, even if it is Chicken Little The sky is falling. What What does that mean? They’ve shut down a big part of it, or they’ve called people they’ve told people don’t come to work, stay home, don’t do anything. You know, we, it’s kind of like when the plague came through, and people just hit in their homes and didn’t come out. You know, they’ve just, they’ve said, Unless you’re kind of running skeleton crews, unless your essential personnel, stay home and, you know, don’t come in. And so
Jason Hartman 3:31
that I know that in one Chinese city, I was reading an article about it. They have cameras, and the cameras do facial recognition to verify that people are actually wearing face mask. And if they’re not wearing a face mask, you know, of course, the Chinese government and their cameras and their social scoring system
Adam Schroeder 3:51
goes way down.
Jason Hartman 3:51
Yeah, the social score goes way down. And in this case, you have it’s almost an irony the way that is because this is a very social does. Obviously, so I’ve read about that. And I know that major US airlines have canceled their travel to China. They’ve canceled all their flights. So the limit there is a cruise ship quarantined in Japan, I believe. And several people are infected. I read an article yesterday about that and how people on the cruise ship are quarantined, and they have to stay in their state rooms, except for brief times when they’re allowed to go out on the deck, but they cannot get off the ship. The crew members, you know, bring them food and towels and everything they need. But they’re stuck. And it’s for two weeks, I believe, after they noticed the first infected person. So yeah, there’s no question this is a serious concern. And probably the biggest threat to humanity, by the way, which is somewhat related is antibiotic resistance. That may well be the biggest threat to humanity. You know, everybody’s talking about climate change, but antibiotic resistance is very likely the biggest threat humanity faces. So our listeners are probably saying, Jason Adam, why do I care about this? The big the big reason is, as many of you all probably know, in the cyclical markets, some of what props up all those values Chinese investors.
Adam Schroeder 5:19
Yep. But these foreign investors, most of the time actually come over and look at the properties before they buy them. They’re not like us buying or single family properties that for the most part
Jason Hartman 5:29
are we know we’re buying much, they’re buying much more expensive properties. So if they can hear but let me just outline that scenario for a minute. Adam, it is a very common scenario for foreign investors of any type Russia, Middle Eastern, Chinese, Japanese, whatever, okay, Australian. Now the Australian investors and the New Zealand investors aren’t doing as much in the US in the past several years, you know, currency changes and, you know, investment opportunities domestically, and Always influenced that stuff. But it is a very common for us and let’s use a Chinese investor to buy inexpensive, high rise condo type property and literally leave it vacant, or just use it when they vacation or when their family vacations in the States. So they might buy a million dollar condo in Miami, or a $2 million condo in New York, and just leave it vacant. That’s why you see these these high rise condo complexes. And you know, at nighttime, there’s hardly any lights on. It’s a pretty amazing thing. It’s a terrible way to invest. But what they’re really doing is they’re simply getting money out of their country into a safer country where there’s better rule of law. And America has always been known as the Brinks Truck of the world. Because they can feel that even if they make a so so or bad real estate investment. They’re just banking the money there. And maybe it’s not the best investment ever, they do much better investing with us, where they have good rent to value ratios, etc, etc. But they were just looking to park money
Adam Schroeder 7:10
anyway, go ahead and they’re of the mindset for the most part that you know, the cyclical markets are going to go up, up, up, and even when they burst, they’re still going to get better returns than a linear market, which we know is
Jason Hartman 7:22
absolutely false. You know, there’s a certain concept of people wanting trophy properties, and also the gambler mentality, and certainly, the gambler mentality is very prevalent in the Chinese real estate markets.
Adam Schroeder 7:38
We also have to remember you know, if they’re buying these properties for when they come to the United States, no offense to our markets, but people aren’t likely to come in from overseas to go spend time in Jackson, Mississippi, or Memphis, Tennessee.
Adam Schroeder 7:53
Jason Hartman 7:53
we do not have properties in sexy city so sorry about that. And we do not have sexy properties. They just have great returns great return on investment. But yeah, they’re they’re kind of boring for sure.
Adam Schroeder 8:05
Yeah. So the thing is, they can’t come to the United States right now. And whenever they are able to come to the United States in a while, they may not have the same amount of money, because they’re expecting this slowdown in China. It’s a potentially impact worldwide GDP by I think I heard between three and 5% this year. So I mean, there’s just not going to be as much money coming over and investing in cyclical markets here. So you know, we’ve seen it softening. We’ve talked about it in the past. But if this comes in, we could be seen a plunge not a softening in these areas as the money’s just not there to prop it up. You know, you’re suddenly the greater fool theory. There’s no fool to sell to, even though he’s willing. He’s over across those seas, even if he’s willing. He can’t,
Jason Hartman 8:52
he can’t do it. So and Adam, just to explain, for those of you who don’t know, I want to remind you of the greater fool theory of real estate investing. And basically it goes like this, no matter how much I pay for a property, some greater fool will come along and pay more after me. So that theory is basically the game of musical chairs. And eventually the music stops and you’re left standing and you got no chair. So, do not go by the greater fool theory. It is a very dangerous strategy. We would never recommend that. Okay, so us housing markets. good old days came to an end thanks to coronavirus. That’s, of course the cyclical markets where you’ve got Chinese investors, Chinese investors have played a key role in propping up the market. Definitely not the case in any of our markets. But hey, if you’re in a flagship City, New York, San Francisco, Vancouver, Seattle, Los Angeles, Miami, that is very much true, but
Adam Schroeder 9:57
it’s also good news because you have the whole buyers in the markets were looking at, if they see bubbles bursting in the cyclical markets, even though their market might make sense, it’s more likely to scare them off and from from buying, so even if it’s not in their market, and even if our market stays linear, it’s the whole mental game. You know, they’re gonna be seeing these bubbles bursting and think, Oh my gosh, I remember 10 years ago, 12 years ago, is it happening again?
Jason Hartman 10:25
Let’s look at this citing data from National Association of Realtors. NAR, they say that Chinese buyers spent $13.4 billion to buy homes on US soil just from April 2018 to may 2019. Now I don’t know why they picked up funny time period. Why don’t they just say 12 months instead of 13. But interesting. Okay, but this was already 56% lower than the same period a year ago when Chinese investors pumped in over 30 billion dollars into the US housing market. Wow, that that is quite a stark difference. And what if that goes to? Just a couple billion dollars? Right? That’s very significant. very significant. No,
Adam Schroeder 11:12
that’s a lot of money not coming in. Yeah.
Jason Hartman 11:15
Yeah. Wow. Okay. Let’s talk about some prudent properties, Adam. Some properties that actually makes sense not these properties in high rise condos, the Chinese and other foreign buyers are buying Well, I guess they’re not buying so many anymore, but they used to, and let’s talk about properties that make sense the day you buy them?
Adam Schroeder 11:32
Yes. So we’ve got one in Hammond, Indiana and I wanted to highlight this because it’s an area that we don’t get a ton of inventory and but there’s a couple came in just
Jason Hartman 11:42
yesterday, so I wanted to highlight them because they’re ready. They’re there for you. And this property is three bed, one bath built in 1960. It’s $125,000. It rents for $1,350 and with an 8% vacancy rate The 10% management fee and an 8% maintenance, we are expecting it to cash flow $249. Okay, so just note disclaimer, those are all projected numbers. Of course, even I want you to understand that even a property that is already rented, it is still a projection, because as landlords, we all know, the idea of the tenant paying the rent the next month is not guaranteed. Okay. Now, most of the time, they do pay, but hey, sometimes they don’t. Yeah, so those are all projected numbers. Now, what is the projection on the overall return on investment on that property?
Adam Schroeder 12:41
So the total return on investment we’re expecting 31% with an 8% cash on cash return.
Jason Hartman 12:47
Wow, that is phenomenal. And what is the crap rate just for curiosity 7.1 day so the crap utilization rate is 7.1. That is familiar. absolutely phenomenal. I want to remind listeners, of course, you’ve heard me bash the cap rate, I call it the crap rate, because it just doesn’t tell enough of the story. The one Adam mentioned cash on cash is much better even that one, of course doesn’t tell the entire story. And even the overall return on investment performance at 31% does not tell the entire story, because there’s an additional couple of things that happen. Number one, of course, is inflation induced death destruction which will add to that overall return on investment, assuming inflation happens, right? You have to have it happen for it to add, but the other part of it is the returns associated with a long holding period in a portfolio philosophy. What I mean by that is that I was speaking Last week in Sarasota, at a large mastermind group, and I talked about refi till you die. And we have a short clip to play about refi to die today. And we’ve talked about this subject before, of course, but with the ability to do 1031, exchanges, and to refi till you die, this adds a whole new dimension of return over a longer stretch of time in that really goes into your entire life, and the way you manage your real estate portfolio over the years, and why it is the most historically proven wealth creator in the entire world. So Adam, this might be a good time to play this little clip. Sounds good. Sounds good. Here we go. This is a very, very short clip. And one of our clients actually produced this for us years ago. A shout out to Michelle Hawkins who did this for us. You may remember a few years ago at meet the masters. Another video that she made for us won the contest for the best five year plan contest. Anyway, here is a short clip from a video that she did for us on refi till you die. Let’s talk about one of the game plans that we have talked about for many years, which is the concept of Wi Fi till you die. Okay, you’ve heard of the rule 72 is right. And that just means that things double. Okay, we’ll see how they doubled. So in
Adam Schroeder 15:37
this example, let’s talk about a property portfolio where you purchase 10 properties in diverse markets and saying the properties for $100,000 each. So you’ve got 10 $100,000 properties, buy them 20% down is $200,000. And then you’ve got closing costs, that’s about 35,000. And then you’ve got reserves, remember did say 4% 4% is 40 to $275,000 total. And here’s how it works.
Jason Hartman 16:09
So what that goes on to talk about is what I explained when I did reply to die in the quickest possible way ever. Last week when I delivered that speech that mastermind group is in about six and a half minutes. I went through the numbers which are hard to do here. We’ve done them in more detail on prior episodes. If you want to dive into this topic in depth, go to Jason Hartman calm use the search bar and type refi till Yeah, like why a slang, you die refi till you die or just type in refi and it’ll come up. Basically, it shows how your portfolio value Adam doubles every 12 years based on the rule of 70 twos and a average appreciation rate of six percent annually. And how you extract money in the most efficient possible way from that real estate portfolio, because you are not paying tax on the money you extract from and live on your portfolio, because beautifully, there is no tax on borrowed money. So, it is an absolutely wonderful strategy, and our listeners should definitely avail themselves of it. One thing I do want people to understand though, is that if they do the refi, till you die, they make a decision not to have the big boring idea. Okay? those, those, those that one, those two are mutually exclusive, so you do have to decide one or the other. And the big boring idea being Of course, what we call our oae. Not to be confused with ROI, ROI is return on amortization. Now, if you’re refi till you die cycles, Every 12 years, then you do get the amortization for quite a while you get some good ROI in there. But you will eclipse the really, really big ROI that you start to get a year 15. And after that on that beautiful long term fixed rate, 30 year mortgage,
Adam Schroeder 18:19
SOS resetting your just resetting and over and over, but hey, you know, you can put that money to better use, you know, you can take money out and get, you know, another 31% return on a property then, you know, that’ll beat your ROI, I think in the meet the Masters that was about 15% after 15 years, was that right? Somewhere in there.
Jason Hartman 18:40
I don’t remember the exact numbers but at the meet the Masters we had last year in Newport Beach, California. We did show some numbers and it depended on the year, of course, how much ROI or return on amortization you’re getting. But yeah, it got up there. I mean, interestingly, in fairly early years and that mortgages, I recall You are getting an additional seven to 8%. So let’s go back and look at that Performa, you just went over Adam, where the cash on cash return was projected at 8% annually. And the overall return on investment was projected at 31% annually. Now, that’s the all in return. We’ve got some very conservative assumptions. We have a vacancy rate imputed. We have property management fees imputed. And still, because of this beautiful multi dimensional asset class, you are able to achieve some fantastic returns there at projected 31%. But think about it. It keeps getting better and better as you go on and own that property in a few years down the road. If you add 7% annually, through return on amortization, and the rents don’t either Go up, and nothing good happens. Okay? Nothing good happens, the rent stay the same, you know, eight years, seven years go by you don’t even raise the rent, you’re a terrible landlord, while your tenant probably loves you. But we’re not going to give you any awards for not raising rents, we’re gonna give you awards when you raise them as you should every year, then you’re basically up to now he 38% annual return on investment by doing nothing by sitting there. Now what if you increase your rents, you know, you’re going to bump a couple of percent every year to to that return on investment if you’re raising your rates on a nice schedule, where you’re probably going to be up over 40% annually, just eight years into the deal or so. It’s really pretty incredible. And this is why it just keeps getting better and better as you let time go by
Adam Schroeder 20:55
just what is it Don’t wait to buy real estate buy real estate and wait yesterday. While you wait, collect those written?
Jason Hartman 21:02
Absolutely, absolutely good saying Adam, don’t wait to buy real estate, buy real estate, and then wait. Very good thing. All right. Anything else you want to talk about before we wrap it up today?
Adam Schroeder 21:13
No, I think that about sums it up. I mean, I think looking at this, like I said the couple properties, the Hammond area, that whole area is up close to Chicago. I know some of our investors have properties in Chicago. There have been other properties coming in as well. So just, you know, talk to myself, talk to other investment counselors. You know, we’ve got new stuff coming in all the time, subscribe to the property cast. And we’ll put a link to that in the show notes. So you can stay up to date, Adam,
Jason Hartman 21:41
tell them about the property cast a little bit. This is the coolest thing ever. Just Just you pitch it this time I pitched for their second hearing from me, but you gotta subscribe. This is First off, it’s free. Second off, it’s super unique. No one else has this. There will be copycats though. Trust me,
Adam Schroeder 22:00
yeah, I can pitch in this time because I don’t get much love whenever you pitch it. So here’s what happened. Jason had an idea. And he said, Adam, I want to do a podcast where we send people to pro formas. These Facebook groups are telling me it’s not possible. Yep. And my response to him was just, of course, it’s possible. Let’s figure out a way
Adam Schroeder 22:17
you say that
Jason Hartman 22:20
Adam Schroeder 22:22
It was I’m not saying it’s not your idea. I agree. It was your idea.
Jason Hartman 22:26
I’m not I’m not arguing that. I’m just saying. I recall you saying it wasn’t possible. Now. It was not me. It was the Facebook groups that told you it was not possible. In other words, really, there’s always let’s make sure the listeners. Okay, so I went into a couple of techie and marketing and podcast Facebook groups. And I said, hey, can anyone tell me how to do a podcast that sends people PDF files, and everybody said, Oh, it’s not possible. You can’t do that. You can only do audio Or a video on a podcast? I said, No, I know it’s possible. And you know they all told me I was crazy just like they told Walt Disney he was crazy and Einstein and everybody else I’m gonna get in the same try and put myself in the same league
Adam Schroeder 23:16
we’re just shut Yeah, yeah it was worth your also remember you’re talking to like a podcast Facebook group who that you’re even the idea of PDFs is like sacrilege to everything that they, they believe in there. But so anyway, we went in I found out how to do it, it was very simple. I don’t know how these people didn’t think it was possible.
Jason Hartman 23:35
So now the list
Adam Schroeder 23:37
now all you have to do is subscribe when these properties come in. And we download them onto our computer, upload them into the RSS feed and all you have to do is look at your phone hop on the top on your computer and look at it and perform after proforma just listed there we list the bed and bath with a square footage rather than two degenerates and then the PDF is there as well. So, you know, we don’t list like the debt coverage ratio, your appreciation rate, we don’t list that out on the post, but it’s in the PDF that’s attached.
Jason Hartman 24:11
Right, right, right. Oh, I got it. I got it. We only do the hardcore stuff on the post is what you’re saying. That’s the show title in the show description to show notes and everything. Yeah, yeah. But what’s attached to it is instead of an audio file, like you’re hearing now, it’s a PDF file. So you just open it up, it opens up beautifully on your smartphone, on your computer, on your iPad, whatever. And you can really look at the properties in detail and visually get the whole scoop. So all you do, whatever podcast platform, you’re using, iTunes, Stitcher, radio, whatever, doesn’t matter. Just type in Jason Hartman property cast, one word, property and then ca st property cast, and you’ll get these and you can subscribe and it’s just a really handy thing for investors and all of you copycat competitors out there Shame on you for not coming up with your own original ideas if you’re going to copy me I’m sure they will tell you it’s a doggy dog world out there Adam.
Adam Schroeder 25:14
Not the Jason has been a solid firm convictions about this but you
Jason Hartman 25:19
know now I don’t have any big convictions about it. You weasels? Get it? Get your own ideas. Anyway, since here’s form of flattery, right. All right, Adam. Let’s wrap it up for today. You can reach out to any of our investment counselors through the Jason Hartman. com website, or by calling one 800 Hartman again, that’s one 800 h AR t ma n. Or Jason Hartman calm. We’ll be back tomorrow with another episode. And until then, happy investing. 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 shows. 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.