Jason Hartman thanks all the participants and speakers, congratulating them on a successful Meet the Masters of Income Property 2018. He discusses the power of the network and plays a few clips for a variety of speakers, including Brian Smith (founder of Ugg Boots), Gary Pinkerton, the Moneyball Economist Andrew Zatlin, lender Aaron, a lender panel with Aaron and Joe, an investment counselor panel, and a Q&A with Jason’s mom and aunt!
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 0:52
The biggest shame is for someone to you know, have that ability inside them and not share With the world, you know, the world is truly denied a victory when that happens. And if you you know, take it back to the concept of music all of the the talented, incredibly talented musicians, for example, that never become famous never become known. And all the many of them that give up, you know, but in any field of endeavor, it’s certainly not just music. I mean, Ken McElroy, his friend, Mark Victor Hansen, I was with him at Ken McElroy, his house a couple months ago at a Halloween party, and he got Chicken Soup for the Soul got rejected, I think 39 times by various book publishers, right. And then went on to sell almost half a billion books in that franchise that series right? How many times have we heard these stories of people that just get rejected, rejected rejected over and over again. And you know, that’s That’s really the key to success in life is just saying that when you have that, that thing you want to share with the world to just decide, I will not be denied. Right? Whatever it is, whether it’s building a big real estate portfolio, and you have this problem, that problem, you know, many of the problems are a the property management screwed me over, you know, they, they overcharged me or something like that, right? You know, but the the person who makes the difference either in their own life or the life of their family, or in them, you know, in a public life like musicians and so forth. They are the ones who say, I will not be denied. I will not be denied. They’re the ones that when obstacles come at them in life. They just say, look, me Over because I’m coming through
Guest Speaker 3:09
the theme of you can’t give birth to adults is a theme that will be in all of your life. You’ll never, it doesn’t matter how sophisticated you are in business, you’ll start even if you have 20 or 30 employees, you want to bring a new system into the company or something, you’re going to get hit with that. You know, the resistance of infancy and you just got to work your way through it. So
Guest Speaker 3:35
that would have been a good time to stop. What do you reckon?
Guest Speaker 3:39
28 pairs. I’m gonna tell you what I call my my my Ted Poe story. I couldn’t stop. I had 480 pairs of boots left in the third bedroom, and all the investors money was tied up there. So I was like stuck dog went and got another job. And so now I started getting to swap meets and flea markets and, and street fairs and but the best venue I had was the back of my van in Malibu, right? And I had a full set of sizes and colors and everything there. And even if the surf was crappy or not even non existent, I would still have to go every day because people were coming expecting me to be there. And that was a great outlet for that a very small outlet. You know, I think I’ve finished up that season with $5,000 worth of sales. And so I figured Okay, next next year, I’m going to advertise and so got a spare job through the snow didn’t I? I went three years getting summer jobs by the way to try and get this company going. And sort of the next fall I I hired these models, guy to go on beautiful hair and clothing and the boots front and center in the advertisement and post them down at you know, wind and sea beach in La Jolla. And Aranda. adds in the sales went to like $10,000. And I couldn’t believe it should have been much more than that. So another summer job the next year, I got better looking models and more expensive photographer, pose them on the beta window and say, you know, they got the perfect boots in the front and center, the ad and, and the sunsets perfect and everything sells for like $20,000. And I couldn’t figure out what’s going wrong. And I was having a beer with one of my buddies at the surf shop here in Ocean Beach. And he said, Brian, shut up. And he calls out to the back. He said, you guys come out here and all these, you know, 1213 year old grommets come out. And he says, What do you guys think of og? And I, every one of them. Just went Oh, those dogs, man. They’re so fake. Have you seen those ads, those models they can’t surf. And instantly I knew I’m sending the wrong message to My target market I felt so stupid. I’ve been doing it for two or three years. And and very quickly, I pivoted again. And I called up a buddy in Orange County who is running a national scholastic surface Association. And I said, Pete, you got any young young kids who are going to turn pro soon because I got no money, but our payment outbursts, you know, and, and he gave me the name of Ted Parsons and Mike Robin. Yeah, Mike Parsons and Ted Robinson. And so I started instead of hiring expensive photographer, I got my little canon shooter shot and we just went surfing. But I chose two specific spots. One was black speech in La Jolla, because it’s a mile long walk down and seems like two miles back, and trestles, which is another mile long walk up in Santa Fe, and these were classic surf walks. And so I ran the ads big knowing that that I just wanted to keep To the essence of what it would be like to go surfing with these guys. And as soon as I started running these ads for that for sales went to $240,000. Why? Because I figured out that you don’t advertise your product. This is a, if you’re in a product business, on the side, you never advertise your product, you advertise the benefit of your product. you advertise if you can get a feeling going, that’s critical. The more emotional you can make the ad, the better it is. You look at all these car ads, you know, there’s never anybody in them. They want you in the driver’s seat. You know, it’s amazing how they’ve mastered it. So the bottom line is when I started running those ads and that was the day I began to fall in love with math. marketing and advertising. And that’s one of the big reasons that og became a global brand is because I, From then on, just advertise the feeling. Like if you have a piece of software in the software industry and you create a fantastic piece of software, you don’t run a photo of your software package, right? If it’s a time saving software, you’re running out of a guy in the Bahamas, drinking a martini, with all the time he saving on your program. So that’s a really good lesson to learn.
Guest Speaker 8:35
So john Galt taught me some stuff in this book, and he really, really fired me up. And what he taught me was that a nest egg never gets you to safety, secure, and prosperous, which is what I was going for. You couldn’t get there. See, I’ll go with it. So on the left hand side over here, or the right hand side, left hand side for you. I thought that that nest egg was it and when I was Leaving when I was going to the Naval Academy, I thought if I can just figure out some way to make $50,000 I’m set for life. And then, and then as I was graduating from the Naval Academy, I thought, okay, 500,000 I’m single, I don’t need a lot. I’m good. That’s my number. Remember the number from IMG commercials. That number was big enough. And then we got married and hadn’t had our first child yet. But I was like, well, everybody’s saying a million. This dude’s carrying over a million, that must be enough. And then I was halfway through my career and the conversation with Sue. And I think, you know, I got to stick with the Sure thing. Because 5 million i think is what’s really going to make it work for me because I’m kind of pinching pennies still with his goal of a million being achievable. And what I realized in all of that is that the number never makes you safe. My father in law, retired just after the.com or email@example.com. He was a perfect launch from work. He was working for a company that the stock had runway up. His pension was in that stock. He had over $5 million. All he had all the money to do with golf. All he had to do was take $200,000 a year, which is twice what he needed from the thing and he would never run out of money. Right? his nest egg had made him safe. I still thought that was the right answer. He met the wrong guy. And within two years that it all changed. All it took was putting the nest egg in the wrong place. And so now he’s like most baby boomers out there. He’s trying to make things last to the end. But if you look on the right hand side, these people were prosperous. Henry Ford belted the entire globe with cars. He let people on the East Coast finally meet their family on the west coast. Thomas Edison lit up the entire globe. Bill Gates put a computer on every Americans desk. Steve Jobs put the entire world’s knowledge in his hands. Gandhi, Mother Teresa Gandhi took a billion people to freedom from the British Empire without force, Mother Teresa gave care to millions. And then the guy on the right hand side, well, Disney, he created vision and made all the kids in America dream and he’s still doing it. hundreds of billions of dollars of income every year in that company. And that guy was only able to create Disneyland. Which ones in California disneyland, disneyland he was only the first one he was only able to create Disneyland because he borrowed money from the only guy that believed in him. He tried to borrow from numerous people. He borrowed money from his life insurance policy, by the way, that was just a little bit of a shameless commercial. We all find these roads every once in a while. I love Robert Frost poem, right? There’s the path that we’re all on. And some of us know it’s the wrong path. And sometimes we start to listen to our gut or things happen in our lives. That force us to make a decision. And that was true for me. The path that we teach people to go down at paradigm life and that Patrick taught me and that six years later I’ve joined him to do is not a difficult path. It’s just really, really uncommon. And I would ask you raise your hand if you’ve ever had a meeting with me at paradigm life. Okay, so just please, that’s awesome to have you all in the audience. Thank you. But please look around these individuals ask them, I’m not going to get into the details. Sorry, Felix. I think he thinks Felix stuck around so that I can finally explain it. I’m not going to do that up here. Because I’ve tried that before. It makes a mess. It makes a huge mess. So I’m not going to do that. But But Jaden will gladly set us up for a meeting together and I would be very honored. The other path is a really well worn path, and it’s the one I was on and so one that most of America is on, you know, and there’s the favorite words of it is on that path and that seems like the easy path. And when people come talk to me, and then they go talk to their friends. They stop answering the phone sometimes because they This is what you see all around you, right?
Guest Speaker 13:06
So I took that other path Finally, because I was forced to do it. And I finally started listening to myself. And this is Gary’s dumbed down version of Maslow’s hierarchy. If you’ve ever watched you’ve ever read his he’s got words on there, I don’t understand. But in my world, what I needed to do, what I realized is that everyone wants to get higher on this pyramid. And if you don’t pay attention, you don’t put the right things in place, you could fall off the bottom of the pyramid, and that’s called living under a bridge. Right? And I didn’t want to do that. Maybe there’s an overpass under a bridge might be bad. So things on the bottom prevent you from falling off the pyramid. And once you’ve achieved and gotten beyond those, like all of the insurances that you have in your life, the other protections that prevent your money from loss, asset protection, things that Garrett Sutton talks about those things, Patrick and others that were that we are affiliated with helped me get beyond that point. And then I met guys like Jason Hartman, which helped me create passive income. And why that’s important is because it frees up your time. The bottom one makes you safe. But the passive income makes you gets you back the one thing that we’re all lacking, and that’s enough time.
Guest Speaker 14:23
You will never sit on an earnings call for any publicly traded company and haven’t talked about hiring. And yet, that’s the poker tail. That’s the place you go to find out if they really are expecting to expand. Did you hire more people? Because if you did, then you really do believe that you’re expanding. So what I did is I found a way to look at hiring and reverse engineer what revenue expectations are. This is for this is a short story, some charts but I want to show you some charts for home builders to see are they walking the walk just like they’re talking to talk. So this for example, is a Delta Airlines. My data is the red line. The blue line is the expectation what the folks On Wall Street expect to see happen in terms of revenue growth, you can see my numbers up and to the right a little bit higher. My data saying Delta’s hiring a lot more people than they would be to hit this revenue target, they must be hitting a higher revenue target or they can afford to. And so what happens is sure enough, delta, by the way, released earnings, and it was just a celebration, they beat my numbers were right. But what I do is I take that, and there’s some companies some funds that want that, you know, they’re trading Delta, you have, this is a wall street game. Today we’re talking, managing your portfolios for properties, but think in terms of Wall Street for a second. They’re trying to predict our company’s going up, are they going down? In this case, delta suddenly is on fire, but then I can take it across all transportation companies. Now you can trade that in the stock market and what’s called an ETF. Okay, boring stuff up to a point. But this is where, for example, my clients are making their money, because I’m able to predict every month who you should invest in and who you shouldn’t, in terms of an ETF should you go after transportation, industrial semiconductors Ever since we did this, starting last year, I’ve been beating the stock market hands down every frickin month for nine months, with two exceptions every month, and now I’ve got the hedge funds going, how are you doing this? And I’m saying it’s just not that hard. This is Moneyball economics. I’m looking at the frickin obvious. Are companies hiring more or not? If a company is hiring more than its peers, then that’s where you want to put your money? Because the odds are there going to be some upside surprises, or at least good news, at least no bad news. And so all of a sudden, you start to see Moneyball economics is really just about taking the frickin obvious. Looking at what the data says, and just saying, Well, then let’s apply it. So I’ve got 20 minutes, which is perfect, cuz I want to stop talking about my successes, and talk about your successes. At the end of the day, I’ve got a theory. And I came into this weekend with the following theory and that is, jobs matter. Jobs matter in terms of where, what cities you’re going to look at buying properties and I’m going to throw some Some things out here that might not sit well with some of the players here some of the cities you’re from. And I want to get in a dialogue about that. Because again, I’m coming from a wall street world, which says, I want to invest in in these cash cows I want to invest in in everything but a dog. So what’s going to tell me what a dog is go back to the Moneyball thing? What’s that? Driving statistics that I want to see that’s going to tell me that’s where the money is. That’s where the money isn’t. And I want to get there before everyone else. So in this case, for me, my premise was that job growth, it’s an extension of economic growth, jobs, pull people in, they start to put down roots. And there’s this whole if you’re in the commercial market, you know, if you’ve got business activity, rents are going to start to go up, but they’re going to bring in people and it just has that whole great, wonderful multiplier effect that you’d want to leverage. To man, can they can they rent? Well, if there’s more activity, you’ve got more people with who can probably afford the rental fees. But also it could start to move up the rents themselves. So now you get to a place where you can start raising your rents faster or higher than you thought, and families putting down roots and so on. So what I did is I took that data that I showed you a minute ago, where I said, let me take this jobs data that I have that I pull. And now let me see if I can take a look, first of all, at what home builders are thinking, right, go back to what I said, if if a home builder, for example, is saying things are great as a great market, then we should see that in their hiring, right because they’re expecting the revenues to continue to be strong, and they’re gonna have to hire to meet that need. Alright, so what a home builders think, a bunch of charts six charts, d h is h you know, Lenore, KB homes, Toll Brothers. Now, you’re going to see some disparity, for example, Dr. Horton might again the red lines always be Oh my god, they’re hiring is way higher than what the market thinks their revenue should be. And then you come over here to NVR Ooh, they’re fading what’s interesting is when I, when I looked at these companies, it dawned on me that what you’ve got here is a regional pattern. The Northeast, and the Mid Atlantic is struggling. And that’s where, for example, NVR not doing well. Dr. Horton, aren’t they more of a California, Midwest kind of company? And we’re doing great out there. So the first thing I want to throw out there is is it’s just like property, location, location, location. You can’t say the housing market in America. There are variations. Same thing with home builders. And what you’re seeing is that the home builders are starting to reflect, you know, Lenore, great. You’re starting to see the regional variations even among the homebuilders. I would suggest you want to follow where the home builders are thinking if they think this is a great market to be in as a home seller. Maybe you don’t want to go there, right.
Guest Speaker 19:53
The reason you have these is as a reminder when you run into problems because problems are going to arise You don’t have to go after this the conventional way, you have a tool to remind you that you can come at it from a different angle. And more than likely make your way through it. To me that is a big issue that a lot of people don’t don’t quite realize they have the power to do is come after a problem from a different angle. A lot of times you take it, you see it, and you end up laying down as a result. Something that I found through life is I feel like I’m constantly trying out run that big foot trying to kick my ass every single day. And now and again, I get caught by it. But when I get caught by it, it catapults me up just a little bit higher. But only if I stand up to take a look. If you stay laying down, you’re going to end up laying down, you’re not going to continue to move, you have now stepped into a world that can be one of the hardest and worst experiences of your life in that one transaction. And that one transaction may stop you from the next 10 that’s going to get you to your end goal. So when you pick up that Zippo I think they’re in zippos. Because if I wouldn’t do that quick enough for us, or you pick up that razor knife or that roll of duct tape that bottle whiskey, which most of them probably empty by lunch, it’s going to remind you that don’t lay down. Don’t take what life hands you. You continue to add your pressure against it to life bends to what you want. Because it will bend. I would tell everybody, you don’t have to be the fastest. You don’t have to be the smartest. You don’t have to be the sexiest you just have to outlast the other bastards. See, the only thing that’s kept me here is if I stayed down every time I got knocked on my face. still be hunting further for a job that would pay me $10 an hour.
Guest Speaker 21:49
What do you get with a turnkey purchase? Scream it out. Cash Flow, business business. There’s a there’s one that you don’t hear very often when I here most of the time is a rehab property, ready to rent, rent ready tenant occupied. And when you get into the world, we talked i don’t know if i really hit on it much before. But, you know, 72%, as I understand of the US GDP is made up of consumption. Danielle up here said, and this is an alarming number to me 19% of the world’s economy is us consumption. Right? So you’re thinking about a consumer, what are consumers thinking? They’re spending money and going into debt. This is a big, big, big, big deal. And that’s why the first questions traditionally is what your rates what your cost, because that’s what they want to know. What am I spending and how, what’s this whole debt situation going to cost me? You know, so I look at this a little bit differently.
Guest Speaker 22:46
Guest Speaker 22:47
So my answers that I’m looking at this whole thing is you’re actually getting a cash flowing business, for the market value of its sole asset. Let that sink in for a second for just a second. Let’s just say You graduate medical school, you got your house at a certain area, you’re thinking I would like to start a practice within that geographic area, open up the map, you start looking around, like that’s the perfect corner. You drive over and there’s already a medical office there. So you go online, you figure out exactly what that building is worth. You walk inside, look around, you start figuring out what all the equipment’s worth, the computers, the printers, all the filing cabinets, the desks, the personnel, all these different things and you total it all up, you walk into the doctor, you make an offer and say this is what all your stuff is worth. says, Wait a minute, you’re offering me this. I’ve had this 20 years, I’ve developed a cash flow a clientele base, it’s worth here. Now you have to divert did you have to debate on what the value is you have to figure that out? Well, in this situation, you actually purchase a cash flowing business with an Operations Division and a finance division for really the market value of the sticks and bricks piled on that piece of dirt that anybody can purchase for that price. There’s three guys associated with the property, market value cash value and replacement value. If you look on most of your appraisals that have that, you’ll see the market value is the lowest. So when you consider this particular scenario, and you’re able to buy this business that cheap, it really has a lot more power, and you’re buying it for 20 cents on the dollar. How is that possible? It’s possible because I bring a business partner to you, who’s willing to put up 80% of the capital for your business. But do they get 80% of the ownership? No, they get maybe 5% of the 80% in 12 installments every year and they leave you alone. Do you even pay them back in those installments? No, if you got the right Operations Division, they have somebody else paying them back for you. And you get to write it off as if you did some amazing power in all these steps. Then you got that experience tenured Operations Division I was talking about and when you really think about that you get their services for free. And you get expanded experience tenured finance division to help you making decisions as the CEO is how you would drive your business. And you get incalculable returns with the multiple benefits.
Jason Hartman 25:08
So, let’s get some more lender questions answered, especially technical questions. You know, Aaron talked a lot about philosophical things, and that’s great. And, you know, both are important, the macro and the micro. So let’s talk a little bit more about the micro maybe about some underwriting stuff. You know, we had a discussion with the local market specialist about appraisals yesterday, you guys kind of chimed in on that from from the back, but what are some of the common questions, Joe that you get that maybe our group would like answered here,
Guest Speaker 25:41
where’s Bolin your bone. So ball and I have been speaking over the weekend. And, you know, one of the points that he brought to me that he feels is important to discuss with everybody is the ability to take a loan from your 401k as an acceptable source of funds for downpayment on an investment property, totally separate from a self directed IRA, which is a different vehicle altogether. But you do have the ability to access your some funds from your 401k to assist and it’s an acceptable source of downpayment. So, in a sense, you can finance 100% of your investment property. You can put the 20% down but borrowed against your own 401k, pay yourself back and then take the 80% from Fannie Mae. So, that’s an important thing that I bought and asked me to share with you guys as one more technical aspect of financing
Jason Hartman 26:37
when you say 401 K, are you meaning to say self directed IRA to or is this no
Guest Speaker 26:44
separate just from an acceptable source of downpayment as opposed to you know, liquidating money? Well,
Jason Hartman 26:49
this is downpayment that’s not buying inside a plan
Guest Speaker 26:52
from a source of funds towards down payment. Okay,
Jason Hartman 26:55
so what are other speaking of down payments, what are other people’s places that are acceptable places to get downpayment money from obviously saving money but will traditional way, save up some money and have a down payment. But um, things have really got a season in someone’s bank account and seasoning By the way, you know, we throw these terms around and a lot of people, you know, this is not your life, you don’t know what that means. seasoning just means it needs to spend time in that bank account. Okay? That’s all seasoning is just when it needs seasoning applies to payments. You know, it’s a payment history throughout six months or a year
Guest Speaker 27:31
and that seasoning meaning we just need to not see that deposit within the two month window we’re staring at. Yeah, so when we get those two consecutive bank statements if there’s a deposit on there, we just source where it came from. It’s easy to source payroll because we have a copy of your paycheck or it says payroll on it. But if it says counter credit or it says cash deposit, then we’re gonna have to chase it down to figure out where that came from.
Guest Speaker 27:56
And source of funds with regard to seasoning is very important to and you guys Let’s say married couples are planning the strategy of baby financing 10 in the husband’s name and 10 and your wife’s name, gift funds are not allowed on an investment property. And if let’s say the husband liquidates money from his 401k and puts it into your joint account for his wife to use for downpayment on her property, that money needs to be seasoned in that joint account for 60 days. Otherwise, it’s regarded as a spousal gift and a gift is not allowed for is not an acceptable source for downpayment. So other sources would be a home equity line of credit. Anything with anything secured, any kind of secured debt is acceptable for downpayment. And this is a little bit different on an investment property than it would be, let’s say, for your primary residence, you can go and get a gift from mom and dad for your primary residence, but you cannot do it on an investment property.
Guest Speaker 28:52
And ultimately, the reason that that works when it’s like a line of credit or something to that effect, he says secured debt is because you’re taking it you’re basically pulling Funds out of an asset, your real estate is your asset. Same with borrowing money from your 401k. It’s your money. And especially since you know, you know, you already have a plan in place with your 401k you’re taking so much out of check, you’re paying it back anyway, right? So it’s not like you’re going to experience an actual hit to your debt to income ratio, in most cases, with your 401k being a loan against your 401k. So there’s a lot of different flexibility, the flexibility in that, if it does so happen that and Flossie I hadn’t lost. That’s why it popped in my head, gives you a few thousand dollars on your birthday. We’ll just let it sit there for that for a little while. And so we don’t see it in one of those checking account statements.
Jason Hartman 29:38
One, one thing I don’t know if Ryan mentioned this yesterday, but obviously you guys deal with tax returns and when someone has their own business, they’re deducting a ton of stuff. So I am making sure that this dog is a tax deductible business expense. But you know, I’d probably have the dog anyway. Right? So that’s exactly what happens on tax returns. entrepreneurs, I thought you’d laugh about the dog being tax deductible. But anyway, yeah, you know, she’s going to conferences has to pay admission just like you guys, you know. But But you know, any tip
Guest Speaker 30:15
that’s called laundering moving from one account to another,
Jason Hartman 30:17
so Yeah, exactly. Basically, that’s the way it works on our tax code encourages it’s legal, you know, what, What tips do you have for people who are either, you know, maybe they’re fully self employed, or they have a business on the side, or, you know, and that business remember when we say a business, at least the way I think of it, is, you know, I think of a business that you know, sells widgets or services or something like that, but really your real estate portfolio, your properties are a business to Okay, and you can start running some expenses through them, that you might normally have in life, otherwise, you know, so, you know, do you tell people like look, if you want to buy more stuff. And if you want to qualify for more loans, you got to stop writing everything off. Is that the strategy?
Guest Speaker 31:06
We’re at a perfect time in the year to discuss that. Because what’s coming? What do we just have? We had a turn of a new year. Yeah, we had a giant tax reform. Exactly. So we have, we’re now stepping into a new tax season. So give us an opportunity. You both Joe and I are very seasoned in this, to consult with you about what you’re starting to do with your CPA before you file those taxes. Never, ever file the tax return until you consult with one of us with the draft model for us to look at. Because you’re looking at we can look at this return and say, you know, you’re getting really aggressive here. I understand why, but I get you don’t want to pay extra taxes with sometimes saving four or $5. And I know I’m getting really conservative with that number. But saving those few dollars here. It could be a few thousand cost you 10s of thousands later that year. We would much rather put you in a position where you can acquire and expand your business because that will get you much greater tax. breaks down the road when you’re at a position and at that point to say once I’m on the coast now and then you can start really start using the velocity those write offs. Joe
Guest Speaker 32:09
Yeah, it’s like, you know, most self employed borrowers, you hire a CPA and CPAs job is to reduce your income tax burden, right? So you want to have, like, as we say, in art and jam on both sides of your bread
Jason Hartman 32:23
on both sides of the bread.
Guest Speaker 32:25
Yeah, you get sticky fingers when you do that, guys,
Guest Speaker 32:27
so so what we tend to do and Aaron’s right, if we can see a draft of the returns before you file that’s always very helpful because it allows us to back you into the number that you’re trying to acquire, you know, we were trying to determine your total buying power, right? So if we can see a draft of the returns, we can back into that number and say, Hey, listen, maybe you want to take less of a deduction in this regard with regard to business expenses, so that you create a little bit more income for yourself and create that buying power, which will in turn, yes, you pay a little bit more income tax on that. But it will in turn allow you to buy those investment properties, generate the ROI. Give yourself a bigger income tax deduction by having all those other multiple properties on your schedule E. Or maybe in your LLC tax return where you take the write offs there. But ultimately, taking a little bit of pain by claiming more income benefits you so much more when you can buy five or six investment properties and take all the write offs there.
Jason Hartman 33:32
You know, I’ve been quoted as saying a lot of times that I don’t even like real estate. I mean, I don’t think Real Estate’s honestly that big a deal. Now when I say that I mean it in two ways. One way is the sort of simplistic way people would always say, you know, real estate is a good hedge against inflation. And, you know, they think okay, well if I just buy real estate and I don’t think about the financing and say I pay cash for the properties Well, you know, then you’ll hear people like Jim Cramer lie to you. And you’ll hear people like Robert Shiller Thank you Jason if you need more coffee. I’m Robert Shiller who wrote irrational exuberance and irrational exuberance number two, and you know, he’s behind the Case Shiller index, right, Nobel Prize winning economist that also lies to us and basically talks about how real estate, Jim Cramer, same thing. And you know, they all say it. It’s part of the vast Wall Street conspiracy. That real estate really underperforms the s&p 500. Okay. And the reason it underperforms is because you know, real estate will traditionally depending on what market you’re looking at, and you know what it’s time sample you can slice and dice this stuff forever. Right But you know, generally speaking, residential real estate will perform some more Around 6% annually. Okay, that’s the general school of thought if you look at it over decades, but the stock market, the s&p will outperform real estate it’ll perform at like, you know, eight or 9%. Right? And you’ve all heard this, but you’re not leveraging the stocks usually. Okay, very few people really use leverage with stocks. And if they do, you know, it’s only a 50% margin versus an 80% margin that you get in with investment property. So, you know, it doesn’t look that good, but when you leverage it, it looks phenomenal. So I don’t really care about the real estate. What I really care about is the characteristics that you’re allowed to use with the real estate, the special financing characteristics, the special tax deduction characteristics, these special outsourcing of debt characteristic meaning renting it out to attend characteristic, you know, the leverage the inflation and do stent, destruction, all of that those characteristics make it a really awesome while I the most historically proven asset class in the world. Okay. It’s not the real estate itself, right. Now, there’s another component to that, you know, I talked about the Hartman risk evaluator, right? This is the thing that took me 19 years to discover this. How many of you remember me talking about the Hartman risk evaluator? Right? Okay. So this really needs to become a thing. Okay? Because it’s, it’s so good. It’s so helpful in mitigating risk when we invest. And it basically says that, you know, in any property that you buy, you know, there’ll be two components. There’ll be the house, and then there’ll be the land under the house, right? And that land doesn’t go away. So the IRS doesn’t allow you to depreciate it. It’s just there and it stays there. But the improvement the house or the apartment, building sitting on the land is made up what it’s made of commodities, okay, commodities are a substitute for the most arguably most famous commodity gold okay right the stuff the ingredients out of which the houses built the lumber, the copper wire all of those petroleum products you know the concrete the glass, the steel all of these commodities that are used worldwide not attached to any one particular currency have intrinsic value. The dollar does not have intrinsic value with a euro does not have intrinsic value. But these things were you know, regardless of what money system or you know, currency system we use, people would still want these things they might not want the you know, the German mark and the y Mar Republic, okay, but they will still want lumber to use to build a house Those have intrinsic value that nobody can ever take away, right? So when you invest in these properties, you really are a commodities investor. But on the commodities market, you can’t go buy lumber or copper or any of these things with a characteristics that you get to use with income property. The leverage that financing the inflation into the step destruction, the tax benefits, the outsourcing of debt to the tenant, and getting control over these things do so it’s a beautiful, beautiful thing. So these things are thought of is to be the best performing assets against inflation. The income from your job, medium, I you know, theoretically, you’re supposed to get a what a cost of living increase, right, in your salary, your job, but in reality, Americans have been until well until good old Trump he became president. really haven’t had A real increase in wages in decades. in decades, they haven’t. Okay. So that hasn’t performed very well at all rental income on your houses. Okay? Does rent go up? Sure rent goes up, right? We take it for granted, rent goes up. Everybody just assumes that right? And you know, you you hopefully raise your rents at least in lockstep with inflation. So that’s medium. Okay. What about stocks? Well, stocks have a history of rising based on inflation. That’s true. So those are all medium, cash very low, because cash gets depreciate, excuse me depreciated through inflation. The cash in your bank account becomes worth less as inflation happens. bonds. Bonds are the flip side of a mortgage. Right? When you own bonds, you are a lender instead of a borrower. That’s all a bond is it’s alone. You’re making alone is a bond right? When you buy the Bond, you’re buying a loan, a piece of alone, right? That someone has borrowed somewhere. So bonds are terrible against inflation, awful, awful, awful, pension income, same thing, you know, historically, everybody will say, Well, you know, my pension is not keeping up with inflation. So my lifestyle is getting worse because my cost of living is rising. Okay. Taxes. Taxes are the weirdest thing ever. When it comes to inflation, the IRS does not understand inflation. Or maybe they do. I don’t know. But depending on which tax you’re talking about, interestingly, and remember, taxes are what they are the single largest expense in any of our lives. Let’s just say that together so we really remember it. Taxes are Yeah, okay. So if you’re By taxes, you better get interested. Okay? Because they are the largest expense you will ever have, depending on where you live if you live in the Socialist Republic of New York City, yep. Or the Socialist Republic of California, most of you probably right? Or in any high tax jurisdiction, you are going to give away to the bureaucrats in government that have no incentive to spend your money well, okay. And spend it carefully, you are going to give away somewhere between 40 and 60% of every dollar you ever earn in your life, maybe more, because depending on how you look at it, and you know, there are all these studies that talk about how these taxes layer on top of each other. There’s this one study from years ago that talks about how a loaf of bread is taxed at one level or another 200 times before you buy it at the store. Yeah, look it up. It’s there. But don’t google it because Google is an evil company.
Guest Speaker 42:18
And listening over the last couple days, it sounds like you need time to grow these portfolios. I’m about six years away from retirement. Do I even have time to start this process? Is it will I have enough time to actually grow into something that’s useful to me?
Jason Hartman 42:34
Definitely. Absolutely. You guys answer that question. Oh, yes. I
Guest Speaker 42:37
mean, I’ve got some clients right now that I’m working with, and they’re maybe about 18 months away from full on retirement. And we’ve, I think, in about four months, put five properties under contract and they’re gonna be put on another five and so they’ll be set up with their first 10. And the reason you want to do that before you actually go into retirement is because of the whole WTO it’d be a lot easier to qualify. Once you retire. It’s you can get a lat it gets more difficult to do all of that.
Jason Hartman 43:03
It’s hard to get the financing. I mean, hey, you work at a credit union. So you know how financing works, leads to some extent your
Guest Speaker 43:09
your job as an asset right now, because that’s your ability to qualify. So, you know, assuming your W two or 1099 Right, right. Yeah, filing tax returns, that’s helpful.
Jason Hartman 43:18
Basically, most people don’t like being an employee and having you know, W that w two income but lenders love it. Okay. So the reason you have your W two regular traditional employee job is to qualify for loans to buy real estate to become free of that if you want to be okay, so
Guest Speaker 43:36
yeah, good. Sometimes I get the the comment all over. I can’t wait just to get out of you know, just to get my hands like I get leave my job. I want to do it next month. And I say don’t do that. put the brakes on that. Wait till we get your 10 and then, you know, let’s discuss other options.
Guest Speaker 44:00
I’m just curious, both of you have alluded to some challenges that you’ve faced just as a woman in real estate. And I think somebody here had mentioned that we may have the highest attendance of women at any of the events here. So I’m just curious if there’s any advice that you would like to pass on to us women who are now in real estate, I think that
Guest Speaker 44:20
the tenant always thinks the woman is kind of weak. And especially if because I rent up we both do we rent up our properties by ourselves. And so they think it would be a lot of people say, Oh, are you an individual renting your properties? Or do we have to go through a rental agency and they think they can get away with more, you know, if it is, and because I belong to the apartment Owners Association, I run their credit right away. I make them understand we’re going to check w twos, recent paycheck stubs. And but but they do think it’s A weaker easier person than with a regular rental agency. That’s been my experience. Interesting,
Guest Speaker 45:07
Guest Speaker 45:08
I think that Well, after I’ll tell you after going through, out first of all, I have a lengthy lease. And then after going through another four pages of house rules, they sort of think that we’re, we mean business. And and I say, look, if you if you’re gonna comb your hair over the sink, it’s gonna be a matter of time before there’s a call to the plumber. I said, I have a sink as well. That’s right, right. The hair hair is a major item. Yeah. Yeah. And so these people, they sometimes they have jokes about it, and they think it’s funny, but they all know this for real. Yeah,
Jason Hartman 45:55
they get that you’re paying attention. One of the super low tech things. I’ll tell you my aunt Joanie. used to do I don’t know if you still do this, but I remember you would give your tenants a bunch of colored like greeting card envelopes. And then you’d know when your rents come in when you own as many houses you do. That really does matter, right? Yes.
Guest Speaker 46:12
Oh, yes. They always get you always get colored.
Guest Speaker 46:16
rentals, Robin? Yeah, good stuff.
Guest Speaker 46:20
Well, I don’t have to call me up. Some people call me up. I forgot how much I should pay this month. You know, they pay, they pay rent. They pay city utilities, and they pay gardening. And so they lose sight of it sometimes. And so instead of calling them up, the basic figure, sometimes big they’d say, what what address what’s your mailing address? So I hope Sam
Guest Speaker 46:51
makes makes for less calls.
Jason Hartman 46:57
As I make a traditional then you’ve heard before but I always close with the reluctant investors lament this great poem written by Donald Weil in 1977. And you know, I looked this guy up on the internet the other day, and he passed away. I think it was in 2012. But what an amazing guy, he wrote all these real estate poems. They’re really good. So he says, I hesitate to make a list of all the countless deals, I’ve missed, Bonanzas that were in my grip. I watched them through my finger slipped the windfalls, which I should have bought or lost because I overthought. I thought of this. I thought of that I could have sworn I smelled a rat. And well, I thought things over twice another grab them at the price. It seems I always hesitate, then make up my mind when it’s much too late. A very cautious man am I and that is why I never buy when Tucson was cheap desert land. I could have had a heap of sand. Invest in Dallas. That’s Oh, no, no, sorry. When Phoenix was the place to buy, I thought the climate was much too dry. Invest in Dallas. That’s the spot but my six cents warn me I should not and that is why I never buy how Nassau Suffolk grew North Jersey Staten Island to when others called those sprawling farms and welcome deals with open arms. A corner here 10 acres they’re compounding values year by year. I chose to think and as I thought they bought the deals I should have bought the golden chances I had them are lost and will not come again. Today I cannot be enticed for everything in 1977 is so overpriced for everything in 1977 is so overpriced Wow. Hang on, it’s not done yet. The deals of yesteryear are dead the market soft and so is my head at times a teardrop drowns my eye for the deals I had but did not buy and now life satis words I pan if only If only I’d invested back then. Don’t be The Reluctant investor. Thank you all so much for coming. It was a great weekend. Really appreciate all of you. Thank you so much. 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 Hartman. 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 anything. episodes. We look forward to seeing you on the next episode.