Housing Bubbles, Income Needed To Rent, Creative Destruction with Gary Pinkerton

In this episode, Jason Hartman hosts the show with Gary. They reviewed an article about how a tower crane can indicate a real estate bubble and how a sharing economy can make life better for consumers. Gary also explains how to borrow money from your insurance policy to buy income properties.

Announcer 0:02
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 0:53
So you’ve heard my rants about how our financial system is rigged, and I’ve interviewed hundreds of experts to back up those claims and help you align your investments with the most powerful forces in the world governments and central banks. I’m also using a perpetual wealth strategy with my income property investments that you should check out. It has enhanced the security of my liquid assets, boosted overall ROI and shifted money away from the banksters. My friend Pat Donahoe, who’s one of our venture Alliance members, runs paradigm life and he has a free report that you can download at be your bank.com that’s B your bank.com check it out today. Welcome to the creating wealth show. This is your host, Jason Hartman. And I am talking to you live, not live. See, that’s not even true. I’m talking to you from Europe. No, that’s not true either. Because I’m recording this before I go to Europe. But by the time you hear this, hopefully I will be In Croatia laying in the sun, how’s that sound? I don’t know where I’ll be, but we’ll see. Anyway, it’s Episode 866. Thank you so much for joining me today. And I’ve got Gary back to join us. He’s one of our clients, venture Alliance members. And he’s been really active lately and contributing some good stuff to the podcast. So, Gary, it’s great to have you back.

Gary Pinkerton 2:23
Thank you. I’m, I’m thinking I’m getting the hang of this. And I really am enjoying it. It’s a it’s always an honor. Jason.

Jason Hartman 2:29
Well, it’s my pleasure. So there’s a few articles that we’ve been looking at Elizabeth, who’s, you know, in the venture Alliance, of course, and has been on the podcast before she posted this really interesting article about cranes. And one of the jokes I used to make years ago in my creating wealth seminars about how my mom went on this China trip, and she just couldn’t believe it. And I’ve never been to 81 countries but I’ve actually never been to mainland China, only Hong Kong and So I gotta get there. But you know, it’s big trip. And I want to go see the Great Wall and all that stuff. But one of the things my mom said is when she landed in China, she would saw from a plane, like the cities were ginormous. It’s like New York City times seven, right? They’re just these incredibly giant cities with amazing numbers of people, right, the main Chinese cities. And when when she got on the ground, and looked up, it’s like the national bird of China was the crane. And that is an interesting sign. And I’m not sure exactly what it means, but some people have postulated that really, really tall record breaking skyscrapers is the sign of a bubble, right? You know, when when people are initiating these giant high rise projects all around the world. That’s the sign there’s too much money flowing into the market, right? And so the cranes, though interesting From Elizabeth’s article, do you notice a common thread about were the cranes? Are you looking at the map? Gary? I am. I am. Yeah, it’s every place where you do not focus on properties. That’s that’s the common thread, because they’re almost exclusively cyclical markets. There are three hybrid markets, Phoenix, Denver, and Austin and they’re okay. And all the rest of them are very much cyclical markets. Well, actually, I’m sorry. Chicago is in there. And that is a high British market, but where the cranes are in Chicago is the cyclical part. That’s downtown.

Gary Pinkerton 4:47
Okay. We just saw that. Yeah,

Jason Hartman 4:48
we were. We were on the 96th floor of the signature room for the venture Alliance mastermind group. And that was an incredible view, Gary, I took one of the best pictures of my life from that. Building. I mean that

Gary Pinkerton 5:01
that sunset was incredible.

Jason Hartman 5:02
The the photo I took with just the iPhone is amazing. Like it’s shocking how beautiful that photo is. Yeah, it’s really incredible. But But yeah, so that’s the cyclical part. So you see how you can even refer to Chicago and say, it’s linear, cyclical or hybrid? Because the outlying areas of Chicago, we’re where we like to invest, you know, those are pretty solid and linear with a slight, you know, a little bit of high Britishness to them. So, yeah, interestingly, yeah, very interesting about the grains. So what do you think? Do you think that that’s the sign of a market that’s too frothy?

Gary Pinkerton 5:41
Well, it’s the market, but it’s also you know, I think is also just the the money bubble, you know, the the credit bubble that’s out there, you know, the money is sloshing around the entire economy, the entire world, not just not just those local markets. So I think it’s a combination Personally, I think you know, when there’s Millions and millions of dollars looking for a place to, you know be put to work similar to China where they built all the concrete cities, they’re just trying to put money to work. They’re here, it’s probably the same and it’s much easier to do it when you can. I mean, it’s expensive, I’m sure to get these giant skyscraper cranes, these massive buildings. So there’s an easy way to put a lot of money to work doing that. So I think is that but also, you know, I’m sure it is the market overheated, you know, every time you know, we have a correction, we’re not doing any building, but we need to in our overbuilding with apartments, and pretty soon we’ll have you know, a large bubble of those in many markets. So yeah, I think it’s a combination.

Jason Hartman 6:38
Yeah, we’ll we’ll see. Now if the shadow demand comes out of the market, meaning the Gen Y millennials that live with their parents who and they’re, you know, 28 to 30 years old, which you know, by American lifestyle, you should not be living with your parents when you’re that age, right. And the parents would Welcome, you’re leaving probably too, if you would move out, because they might like to have their life back too. So, you know, when that starts to get out into the housing market, and that’s what a lot of these apartment developers have banked on, and they’ve been right so far, but you are right, they probably will see a correction cycle in the, you know, in the high density, apartment type, you know, housing that has really built for that millennial type of person. So that’s interesting, but just to rattle off some numbers here, Seattle, and we’re only talking about big giant cranes, obviously not small cranes. Seattle has 58 cranes. It’s number one in the US, right? Boston, on the other hand, has seven washington dc 20, Chicago, 34, Los Angeles, 36, San Francisco 22. And Phoenix has five of them. Portland has 32, though. That’s actually Probably the most surprising number there 32 ginormous cranes in

Gary Pinkerton 8:06
Portland. Yeah. So do you remember, you know, another venture Alliance episode in when we were in Phoenix? We had, you know, wonderful speech from Kenny McElroy and a talk with him. And he was great.

Jason Hartman 8:18
He was so gracious and, you know, he just hung out, went to lunch with us. You know, I think we were drinking beers at lunch. I can’t remember. But, you know, that was really cool hanging out with him. It was awesome.

Gary Pinkerton 8:30
Yeah. Yeah. And he, you know, he commented that both Portland and Seattle are things that are just really kind of out of reach for the, you know, the individual who’s coming in to try to buy, you know, the inexpensive properties and add value to them residential. But and he said, you know, that the economies that are really driving upward and he didn’t see any change in that, and I don’t remember the details, he did give a good justification for it. I don’t think I could speak to it, but I’m sure sure. Elizabeth and Neil could because you They got a literation now. Yeah, before they became renters

Jason Hartman 9:03
Yeah. And they just sold their home in Seattle got way more money than they thought they’d get. So, Neil and Elizabeth, you’re, if you’re listening, congratulations. They are our first venture Alliance members. And, you know, they’re they’re just gonna do really well with that. I mean, that was that was probably a very good decision. And I just, you know, if these houses continue to go up in value, which they will may look at, you can never time the market perfectly. So don’t get too greedy, because that’s what everybody does. It’s human nature, right? We think you should have waited to sell. And then if we went the other way, you’ll say, Oh, I’m glad we sold.

Gary Pinkerton 9:41
Right, right. So

Jason Hartman 9:42
yeah, it’s really true. Well, good stuff. Um, okay. So other articles in here. Let me get back to that. Gary, hang on. There were a couple others you wanted to talk about? What were they?

Gary Pinkerton 9:54
Uh, one was about the you know, the the unaffordability of even just renting a little one or two bedroom apartment. But this is this is, this is

Jason Hartman 10:01
shocking, it really is Yeah.

Gary Pinkerton 10:03
100,200 20,000 to buy, you know, for a two bedroom in Los Angeles and I was just talking to a client of mine, his daughter graduated college in New York City, and, and got an offer for a really good job in New York. And as a as a professional, and she can’t find a place to live that she can even afford to, you know, say and you had mentioned that, you know, some, you know, some people in their 30s and 40s that, you know, there are some friends comment that, you know, no one’s got a bank account here, right? Well, she can’t even my New York City. I talked about that on the show. My friend Stephanie in New York City said, no one’s got a savings account. It’s just not something people do. Like it’s shocking if you have a savings account. Isn’t that scary? That’s scary. It is. Yeah. And and so I mean, she can’t even find a place where the where she would even break even, you know, so that’s a problem for these cities. And I know Google is is is challenged with that and many of the others in you know In that in the tech sector are trying to figure out in San Francisco, how can we still have keep our businesses here? Right? they’re considering moving businesses because the people can afford to live there even that are making a quarter million a year as a software engineer.

Jason Hartman 11:10
Yeah, yeah. It’s really shocking. Okay, so the article is you need to make $109,000 per year to afford a two bedroom apartment in LA. And, you know, I’m sure that’s not in a great area of La Look, I grew up in Los Angeles. And that’s not a place I would want to live. Yeah, you know, it’s just everything in Los Angeles is so high on the hassle factor. La rent, now averages 20 $566 per month for a two bedroom apartment. And you know, the properties there are old, they’re crowded, there’s no parking. Everything’s expensive is just super high on the hassle factor. So yeah, that’s just unbelievable, really.

Gary Pinkerton 11:57
So one that I thought was really good. Jason was was the one that’s that’s right above that, and I, I cut this one out, but it was from Bloomberg. And it says what a London cabbie taught me about Uber. And so that the article is really good. It just talks about how industries they oppose, change, right? You think of Uber and the taxi world and you think of Airbnb and all the big hotels. And but it was really interesting that the industry, the taxi industry, at least in the profession, at least in England, has really modernized as a result of having to keep up with with Uber and and I remember here in the US in major cities that you know, you didn’t have great service, right? The cabbies smell. Yeah. And they would show up late and, you know, give you a rough ride and overcharge you if you if they could get away with it. And in this article, they talk about how well you know Uber is not that way, right? It’s an extremely convenient, you get updates you can call the individual and get updates from them. Same with Pay pay with credit cards, right? I mean, everyone understands Uber and Lyft. I mean, they’re awesome. And it has caused these cabbies to or the cab companies to provide, you know, comparable service. And I really loved the last comment it says And once again, the consumer benefits.

Jason Hartman 13:15
Yeah, absolutely. And look at the next thing. I want to talk to you about how Zillow and Amazon are making an attempt to disrupt real estate. This is what the economist Joseph Schumpeter called creative destruction. And it’s really a wonderful thing. And, folks, this is why you should never believe in or vote for big government and regulation and this and that, just let the market do its thing. It’s not perfect. It’s just better than everything else. Okay. You know, right now, I’m listening to this audio book. By the way, folks, we’re gonna get into smart specific real estate stuff here in a moment, but you know, we go back and forth on the show, we talked about economics and big broad macro things and then we talked about specific tactical things. So We’ll get to that in a moment with some of your questions. But this book is called the new human rights movement, reinventing the economy to end oppression by Peter Joseph. And I can tell that Peter Joseph is a total left wing guy, and he’s really bugging me, I’m starting to yell at him through my air pods. As I’m looking, but you know, I listen to this stuff, because first of all, I want to know what the idiots are thinking. But second of all, you know, it makes me think I try to really listen to like, opposing viewpoints that I don’t I know, I don’t agree with right. And, you know, it’s like, he makes the case, but it’s like a half baked argument. And he’s obviously a very intellectual guy, you know, I’m gonna invite him on the show, and I can argue with him, so all you listeners can hear it, and we’ll see if we get them booked on the show. But, you know, it’s kind of like, he makes the argument that, you know, here’s why the free market fails because this is Matt, but he never looks beyond that to the bigger argument. Like he’s talking about the financial crisis, right, the great, the great recession. And he says, well see, you know, there wasn’t enough regulation, right. And that’s why all these companies did all these scummy things. He’s right. But that’s not the whole picture. There’s way more to the picture than that. Because the question he never asked is, how did those companies ever get in the position to be able to do that in the first place? And what I mean by that, is, how did those companies ever get so big? Right? How do they get so big regulation made them big? Because a regulation helps entrenched players hold on to monopolistic positions. That’s what happens every time. And Gary, I’ll tell you something. If that wasn’t true, if you wanted to let more people play in the game, then D regulate the market. And guess what? There’ll be all kinds of new players The winter. Why is it that in this time of massive creative destruction with taxi cabs with hotels through Airbnb, and VR, VR, Bo, and, you know, all these businesses are being just massively disrupted, the private jet industry is being disrupted by all these innovative new companies that are using up excess supply, like a jet smarter, for example. You know, and there’s just all of the sharing economy stuff and it’s brilliant. It’s just frickin brilliant. But why do we have all of this creative destruction, this wonderful creative destruction where the consumer is benefiting? And we don’t have that on Wall Street? Why not? Because Wall Street is highly regulated. Okay. There is no new competitor rising up anywhere to compete with Goldman Sachs, Merrill Lynch. You know, JP Morgan, or anybody why Why? Because it’s the regulation you can’t get through the regulation. It’s so insane. I mean, you know, why is it so hard to take your company public and to go to the public markets? Now, that’s been one of the great things Obama did, by the way is he signed the JOBS Act, right, which changed the structure of, of capital. I mean, it didn’t completely change it, but you know, it, it’s a it’s a light, right? And that was through crowdfunding and, you know, easing up on all this stuff that’s been around and the securities laws since 1933. Just ridiculous, right. And so hopefully, we’ll see that trend continue. But that’s the question like, you know, you can’t hear the dogs that don’t bark. And that’s exactly. You know, that’s exactly the problem with this myopic thinking, you know, it’s like, three steps into it, but they they miss the fourth step. Right,

Gary Pinkerton 17:54
you know, right, go ahead. I was just gonna say that, you know, regulation certainly does crowd out Innovation and competition and competition as you know, as the the Uber and taxi article comments, you know, we see it all around us, but it is it is always good competition is always good in the free market.

Jason Hartman 18:13
Yeah, absolutely. It’s a great thing not perfect, just better than the other choice. Okay. Hey, Gary, thank you for sharing that. And that innovation is great. Let’s talk about some questions here. Okay. Perfect. Okay, this is from the contest for the air pods. And I think we’ve announced a winner by now but we’re still getting through some of the questions. You guys submitted some great questions. So let’s take a few of them. So Stephen did not have a question. But his comment was, it’s regarding the podcasts, the creating wealth show. It’s a wonderful source of information and his network. That’s my network. Jason’s network of local market specialists can help you confidently by cash flowing income properties. Thank you, Steven, appreciate it. Derek asked, and Derek has kind of a comp Question. I have a differ I have deferred comp money and California real estate that I’d like to use to buy out of state single family residences. Otherwise known as SF Rs. Their real estate is cash flowing nicely but Los Angeles rent control slash section eight is pathetic. I’m sure it is. in which order? Would you recommend me moving the assets to out of state investing out of state single family residences? Use deferred comp funds first. Okay. So it’s hard to know exactly. Like I’d have Derek, I’d have to ask you a few questions. But since I don’t have the ability to do that, let’s take a stab at this one, Gary. So the deferred comp like if you have a self directed IRA, and I think that’s what you mean, but you didn’t say that Derek. So Gary, do That’s what he means.

Gary Pinkerton 20:01
It’s similar, I think, I’m sure there are some minor differences, but basically he has pre tax dollars or at least dollars that even if they’re a Roth, you know, where they’ve where he’s already paid the taxes and I think with deferred comp, it’s all pre tax, but basically, he’s got retirement dollars that that he can use as long as he stays within the fairly restrictive requirements on, you know, on using it for investment.

Jason Hartman 20:25
Right, right. Okay, so should you use that first or should you sell or refinance and you didn’t say what you wanted to do with your Los Angeles property? So you know, of course, I’m going to tell you if you’ve listened for any length of time, get out of that Los Angeles property, okay? Because it may be cash flowing, but it’s only cash flowing because you’ve got a huge chunk of equity in it. And look at you have so many risks in LA number one, of course, it’s a cyclical market. Number two, it’s highly overvalued. It’s very frothy, granted. could go on for a few more years, but, and none of us know when the game of musical chairs will end and you might be left standing, right. But we are certainly way past the point of fundamental value in any of these cyclical markets around the US. Okay? The linear markets, not so much. They still make sense. The deals aren’t as good as they used to be, but they’re still pretty good. The hybrid markets geek just can’t make them work anymore. Okay. They’re too expensive and in the cyclical markets are way too expensive. So I would say get out of that property. The other risk factor you have in Los Angeles, and I’m not kidding, this is a risk factor. You know, most people aren’t thinking of it too often. But it’s the big earthquake. You know, I doubt you have earthquake insurance, very few people do. And even if you do have earthquake insurance, earthquakes are different than other natural disasters in the sense that they destroy everything. Okay? If you have a tornado tornadoes are Surgical Yeah, they’re terrible, but they’re surgical. You can have a tornado destroy one house and the house next to it could be fine. Okay. But it could destroy your neighbor’s house. Right. So, the what i what i getting to when I say that is that even if you have earthquake insurance, you don’t know if you’ll ever cover in a claim, you know, I mean, this could wipe out the whole company, right? It could wipe out the government. Okay. I mean, you know, it’s, it’s the big one comes, you know, it could be like the Superman movie with Lex Luthor is planned, you know, make part of California fall into the ocean. I mean, you know, I don’t know, you know, I’m not I’m not crazy saying that. I’m just, you know, none of us are geologists, but it could be devastating. And it will not devastate a small number of homes, this could equal just zillions not an exact number of dollars in damage, okay, and you know, there may be no recovery. So, and then you’ve got this overreaching ridiculous government, like you said, rent control section eight is pathetic, okay? And Derek’s comment, that’s his words, not mine. It is true. I mean, it’s like in in, you know, Gary, as long as I, when I got started employing people in my own actual company in California in 1997 when I bought this real estate company that was 20 years ago, wasn’t it? Wow. It’s a long time. When I bought this real estate company, it was 1997. You know, I swear to you all the years that I employed people in the Socialist Republic of California, I swear to you, they never wanted me to employ anybody. They just they just, it was just a constant struggle, and paperwork, regulations. If you ever have a bad apple and you need to fire them, you’re scared to death to let them go. Because you know what’s coming. It’s the Labor Board. It’s the lawsuits. You know, the way the They do the overtime, you know, they just assume that the employee is always right and the employers always wrong. And it’s just I just hate operating in places with big, liberal left wing governments, and people that vote for that kind of stuff. They haven’t experienced it owning a business before most of the time. Either that or they’re just so rich and such a big business that it doesn’t even matter. You know, it’s like, I call it you can afford to be liberal if you’re a billionaire. Okay. I would be too.

Gary Pinkerton 24:31
Hey, I you know, I agree. I agree that Jason there’s some urgency in in collecting that beautiful appreciation that you’ve gotten. I mean, maybe you didn’t intend to play, to gamble and make money but you did. I mean, you have a lot of money built up in that property. I’ve known so many people who used to invest in California, and the only ones that still are in went through that 2008 crash held on too long and still hadn’t couldn’t get rid of it but people who for some reason knows sold their properties in 2007. Eight, those people change their lives by taking a massive amount of appreciation and plowing it into a bunch of properties in Texas or the Midwest somewhere and change their lives. And so there’s urgency in that I don’t see an urgency in using your deferred comp dollars is not my favorite way to invest in real estate. You know, with with,

Jason Hartman 25:20
it’s okay. It’s just not great. Yeah, it’s okay. Right. I mean, you know, it’s just not great. Because, you know, your deferred comp plan as a tax efficient vehicle, and you’re buying a tax efficient asset within a tax efficient vehicle, and it’s just, it’s not the best thing. It’s okay. You know, it’s better than nothing. Okay. It’s better than putting that money in the stock market, right, where you’re probably gonna lose it as long as you hang on long enough. But you know, Gary, our friend Kenny Rogers, right, he he spells out exactly what you’re saying pretty well. Yeah. And you know what I’m gonna say, right? Yes, I do. What am I gonna sell out your chips? Oh, no, don’t never count your money when you’re sitting at the table. Right? That’s right. Yeah, that’s right. What I was gonna say is you got to know when to hold them and know when to fold them. Ah, good. Another good one. Know when to walk away and know when to run? Yeah,

Gary Pinkerton 26:10
yeah, it’s such a great song. Yeah. And they’re really the same statement, right? Like, don’t say, do you have appreciation as long as it’s still in that property because tomorrow may write to him

Jason Hartman 26:19
every day understand this investors. Every day you don’t sell a property or an asset that you own. You are in essence buying it back from yourself for the next day. Yeah. Okay. So it’s right, that’s okay. When you don’t have overvalued properties and when the properties are in linear markets, and they make sense and they continue to produce a yield and your yield oriented investor rather than a capital appreciation, gambler speculator you know, but every day you don’t sell it, you’re buying it back. And so the my question Derek would be, you know, knowing what you know now,

Gary Pinkerton 26:58
right. Well, you Today

Jason Hartman 27:00
would you buy that property today as a buyer? Would you be the buyer and you’re probably thinking no way I wouldn’t be a buyer because earthquake risk big government section eights pathetic rent control, and it’s massively overvalued.

Gary Pinkerton 27:16
Yeah, that is a great way to look at it kinda like Jim Cramer’s buy, sell or hold. Right. I mean, hold that’s a stupid that shouldn’t be there. Buy or Sell.

Jason Hartman 27:24
Yeah, right. You’re You’re always buying or selling. Yeah, that’s an interesting way to look at it, Gary. Yeah. Okay. Well, that was that was good advice. I hope it helped you, Derek. And, and again, with these questions, you know, we can’t ask clarifying questions. So obviously, there’s always more to it. And that’s why we have a team of investment counselors to help you. Derek’s comment was what he likes about the show is the level of depth in content competency and advice keeps me anticipating looking forward to hear each new show and review past shows. Well, thank you, Derek. I appreciate it. And thank you very much for listening, Gary. Tell us a little bit about how these down payments work, how you can borrow the downpayment to buy a property from an insurance policy. Now I’ve purchased two of these policies so far. And, again, I was skeptical about it at first, but I’ve kind of the you guys have moved the needle you and Pat, and what is the process by which someone borrows money from their policy? And like, what are the terms? And how much interest rate? Do they have to pay them? So they pay it to themselves or to the company? Or how does that work?

Gary Pinkerton 28:30
Yeah, so you’ll hear a lot of people say that you’re paying yourself the interest, and that’s a little bit inaccurate. And to go back to the purpose of why there are loans on on whole life or permanent insurance policies. You go to the early 1900s. And there was this time, you know, the Great Depression era where a lot of people were having to cash in their life insurance policy to get that value that they had created in there that they wanted the insurance but they needed the cash at that moment. And so insurance companies realized because that was the only option then they realized that you know, If we enable them to access the value of that, without cashing the thing in, then both when we have a very low client, their customer that we want to keep, and they want the product, they just can’t afford it at this exact moment. So that evolved into just allowing, you know, the insurance company allowing policyholders to borrow money from them by pledging our own money as collateral and a policy. So, you know, my story is that I took a couple hundred thousand dollars from the stock market and mutual funds after just seeing one too many crashes. And this was in 2011, when there was a flash crash there in 11, if you remember, and so I moved money into policies and and then that became available collateral for investing in properties. And really before I learned this, I was in escrow on a property that was a couple months from completion, and the money was gonna go there. And I realized after learning and educating myself on this and a lot of times tremendous help by my mentor, Pat Donahoe, and you know, that that there was a better way. And so I put my money in the policy, it gets protected, it’s growing tax free. But then I can turn to the insurance company and say, Listen, I have you know, X amount of dollars, I have 100,000 in my policy, I need to borrow 50 or 100,000 from you, they’ll they’ll loan me up to as much as is sitting in my policy as collateral as cash collateral for them, they’ll loan me their dollars. And it comes at what I call I refer to as an unstructured loan. And what I mean by that is, there’s no loan terms. There’s no qualification for it. It’s a you know, a couple minute phone call or a piece of paper, and the money note gets deposited into my account. And and then I use it as if it was my own cash, and I’m paying I’m signing up to pay an interest rate that’s, you know, it is floating on the Moody’s bond index, which really just reflects the cost of money in the economy. That’s That index that it’s tied to, and it hasn’t changed in over 10 years, for example, 4.76, maybe 5%.

Jason Hartman 31:09
That’s pretty reasonable for what is an SS, a second trustee, almost like a second mortgage. Because on a normal second mortgage, if you can even get one, you’d have to pay way more than that. And in essence, this is like you borrow money to pay your down payment on the property. Yeah, 4.6 or 4.7%. That’s phenomenal. Gary, how much can you borrow? Like, say you put $100,000 into into buying one of these policies, how much can you borrow from it?

Gary Pinkerton 31:38
So you can borrow whatever is there and cash value, which really after any significant amount of time is as much or more than you’ve put into it, and that’s generally around four to five years at the very beginning. Depending on how efficiently I design it, and not everyone wants the designer to have the maximum amount of money available right up front but most of my time investor clients and I certainly personally did. So we design it with maximum available upfront if the goal is to use it to invest and and I’ve been successful in getting 90 91% at times, but generally but very easily 85% of the money that goes in is available on day one and I literally use mine for days after In fact I was pushing Patrick along you know you need to speed up because they’re telling me I have to close here soon.

Jason Hartman 32:25
So four to four days after you bought it you use 90% of its what you paid to buy it

Gary Pinkerton 32:32
as a down payment. I really used about 70 of mine but it would have been available I was keeping the rest in there as reserves in a much more efficient way. That was the other thing that I got very frustrated about my money sitting in this checking account needing six months of all this just sitting you know in a checking account and

Jason Hartman 32:48
seasoning right Is that right?

Gary Pinkerton 32:50
No no not seasoning. The reserves the six months of principal interest tax and insurance that Fannie Mae will will force you to show is available on all of your other property’s not the one you’re buying, oh, you build a bigger portfolio quite a bit of money, you know, sitting around that could otherwise be growing pretty well sitting in here. So I did it that way.

Jason Hartman 33:09
Yeah, right. Right, which is another lesson of why you don’t want to have too much money in reserves, you want to have at least 4% of the value of your portfolio. So, if you have $1 million worth of property, you should have 40 grand on the sidelines for emergencies vacancies whatever you know, surprise repairs, and the rest of it should be in the Performa and you know, you can see those properties obviously Jason Hartman calm in the property section and you’ll see the assumptions are conservative in there and then realistic you also want to have some cash on the sidelines so same concept there yep

Gary Pinkerton 33:42
guy that’s in and so on on those loans. So you have an interest rate but your money that is pledged as collateral does not stop doing its primary job and its primary job was, well, gosh, he was doing a lot of jobs right. He was providing insurance it was it was being protected and private but but the key one when you’re thinking of it Bank is that it was earning guaranteed interest and dividends because it’s a mutual company, and we’re getting all the company profits as policyholders. So my policy was getting maybe four and a half percent at the time. And and I was paying a loan of 4.76. And actually it’s still at that rate of 4.76. So a very small you know, spread and the interest rate but it’s interesting that over time, as your money is compounding there in the savings account side because I didn’t interrupt it like I wouldn’t a savings account of taking it out and using it right and having to rebuild. Here. It just continued to compound year after year. That amount of interest earned is going to far outpace what I’m paying on that amortized bank loan back to the insurance company. But really, for me, the big thing you know, anyone who’s been in real estate knows that there’s a lot of bumps in the road right? Last year I had a tree fall on a property that I just put a brand new roof on six months earlier, it destroyed not the route not just the roof, but it landed in the first floor through the second floor took out a bedroom. Wow, I had to displace the tenants.

Jason Hartman 35:03
One time I had a fire in the house. Yeah, I only had one fire in all my years. But yeah,

Gary Pinkerton 35:08
yeah. And so, you know, there was a complete disruption in cash flow there for quite a while I stopped my policy loan paybacks to the insurance company for several of my loans. And that freed up quite a bit, you know, a couple thousand dollars a month of capital that compensated for, you know, not having that rent coming in. So, you know, that was a huge benefit, and I didn’t get any calls from the insurance company. They don’t really get into that business. And in fact, so much so that we a paradigm life, teach you how to be the banker, and set up your own amortization schedules and repayments and kind of set out your own plan to repay your your own bank back because insurance company’s not going to come foreclose on you. Remember, they’re backed by the cash collateral and my policy. And so they’re in a safe position no matter what I use that money for.

Jason Hartman 35:51
Yeah, right. Right. Yeah, very interesting, very interesting stuff. And, again, it qualifies for the Fannie Mae Freddie Mac type requirement. That it’s the only way that I know of that you can actually kind of borrow the downpayment money and still be okay. So yeah, so and just on that, you know, sometimes it makes it doesn’t make any sense on that that you could actually borrow. But, you know, if again from Fannie Mae’s perspective from any banking institutions perspective, and they have a lot of this bank owned life insurance themselves. And you know, the reason that you can borrow this is because it is backed by cash. So any moment I could wake up, and you know, and say, Listen, I’m not comfortable with the loan on this one property. I’d like to pay that off, and they’ll just take the cash from my policy paid off, right. So it really is backed by your own personal cash, which is why, you know, Fannie Mae is okay with it. You know, very interesting, Gary, people can check that out. You guys ended up sponsoring the show. So I appreciate that. And they can check that out at be your bank.com. And so you’ll hear those announcements once in a while. And hey, let’s wrap it up. Happy investing to all of our listeners, be sure to go to Jason Hartman calm and check out the properties in the property section and all the free resources. If you haven’t checked out the new, newly updated beautified version of property tracker, you can go to the resources section of Jason hartman.com and get a nice discount on that great software tool to organize your real estate portfolio and your investments. We will talk to you all on the next episode. Happy investing.

Jason Hartman 37:29
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