Jason Hartman welcomes Captain Gary Pinkerton to the show. Gary shares the most important lessons he has learned about income property investing and describes how he used a life insurance policy to fund his investments. Later in the show, Jason and Gary discuss self-managing income properties and finding the best property management company.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
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 on now. here’s your host, Jason Hartman with the company leet solution for real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth Show Episode Number 858 858. Thank you so much for joining me today. I’ve got Captain Gary Pinkerton, with us today to talk to us about a bunch of things real estate wise, answer a few listener questions. But most importantly, tell us something we don’t know about one of these three things, operating a nuclear submarine operating a nuclear reactor or launching missiles. Now, Gary, I’m sure you’re not going to give us any classified information here. But Welcome to the show. And how would you like me putting you on the spot like that?
Gary Pinkerton 1:44
Oh, thanks. Well, I love it. And thanks for inviting me back. Always a pleasure. I won’t tell you then classified either because I don’t really want to go to prison. But yeah, so I think that most people don’t appreciate that drive. In a submarine or a submarine drives in the water just like an airplane drives in the air. There’s a couple minor differences, but they both have, you know, essentially planes on you know, somewhere forward and they have planes in the back on a submarine. It’s the the big planes are back on the back and you operate those just like you do wings. You you call them planes, not wings. Why is that? Yeah, we call them planes. Yeah, plane surfaces. I mean that an airplane would call it a plane surface as well, but they call it wings for some reason, right? But But we basically change depth and maintain depth on a submarine changing depth with the big planes on the back, like the big tail of a dolphin, if you will, it points the submarine in a different you know, an upward down elevation and then our attitude and then it moves, you know, changes depth that way. But the thing that’s different with the airplane is that you know, water is many times more dense than air. Yeah, for sure. So, you know, so when you change you go from the surface of the earth to space outerspace, you know, that’s 14 pounds of pressure. And in the ocean, it’s 44 pounds per hundred feet. So Wow, we can’t allow, you know, what you do in a in a, an airplane is you have to actually pressurize the inside of the compartment of the cabin. Because otherwise it’ll crash like an aluminum can even just in that little change we can imagine underwater. So these submarines are, you know, an inch or, or too thick, and they don’t compress them really very much at all. So a little bit different that way you don’t your ears, they’ll pop like they do, you know, in an airplane.
Jason Hartman 3:31
Very interesting, Gary, when I hear when I’m watching a movie, and there’s a submarine involved, they say 30 degrees down bubble. Why do they say that? What does that mean? Down bubble? I mean, I mean, I guess they’re going down. That’s what I interpret but but down bubble like what do they mean by that?
Gary Pinkerton 3:48
Yeah. So you know, those, those Carpenter’s levels where there’s a little air bubble and it you know, you can tell whether it’s real or not, of course, yeah. So, so the old school submarines I mean, up until like, five years ago, all of our seven And maybe 10 years had those same kinds of incline amateurs or an air bubble and water or like some liquid. And it would, it would tell you what the attitude of the submarine is. Because when you get, you know, if you point down five degrees and then get stabilized there, sometimes it’s hard to tell exactly what angle you are at. So, so that bubble, you know, it had a 30 degree marker on it. And so the plains men would, would use those big that big tail or the big planes back there to adjust the submarine. So it’s pointing down at a 30 degree angle. And that’s a big one, by the way. That’s the one that you see when they jump out of the ocean, testing the emergency blow systems. That’s the angle that they’re pulling there. It’s pretty, pretty empty.
Jason Hartman 4:36
So 30 degrees is really steep. Right? It is
Gary Pinkerton 4:39
very steep. Yeah. Wow.
Jason Hartman 4:41
Interesting. You know, I remember I think it was the first time I met you at meet the Masters in Irvine, California. And I remember standing in the room, I believe it was the first time we met with you and you told me you you were with the Navy. You’re so humble. You didn’t bother to say you were a captain of a nuclear submarine, which is kind of a big deal. You But that’s interesting. And you’re and you’re retired now just doing real estate investing, right?
Gary Pinkerton 5:06
I am. Yeah. And loving it. absolutely loving it.
Jason Hartman 5:09
Good stuff. Good stuff. So I mentioned on the show on Monday that you and sue your wife now just got up to your I think your 20th property right. Very close used all your Fannie Mae, Freddie Mac 10 loans each and now you’re just waiting for Trump to increase the limit. Right?
Gary Pinkerton 5:29
That’s right. That’s right. We to be exactly correct about it. We’re, they’re all spoken for under contract. Some of them are new construction still being built. But yeah, by the end of the year or early next year, we hope to be there and very proud of that fact.
Jason Hartman 5:41
How long did it take you to do it? How long have you been invest? Gosh,
Gary Pinkerton 5:44
yeah, so we started bought the first one at the very beginning of 2012. And, you know, so a little over five years and there was a pause in there as I was transitioning out of the military, and obviously my w two income got interrupted and so we trans Addition over to Suze, but also building a little downpayment capital. He knows there was a time to refill the well, if you will.
Jason Hartman 6:06
Yeah. Fantastic. So what are some of the things that you’ve learned as an investor over the years? I mean, I’m sure you’ve had some bumps in the road. You know, this is certainly not all rosy. Just share any of that with the listeners, if you would, I mean, we got a bunch of stuff we got to cover, but I just am asking a general question to start. And, you know, just any great tips, any things you’ve learned problems you’ve had or metrics you want to share on your portfolio?
Gary Pinkerton 6:30
Sure, absolutely. So I think some of the stuff I’m going to say is common and and that you have heard from others, but it’s good to kind of get it reinforced from somebody, I guess that’s down in the trenches still fairly early in their investing. The team on the ground, extremely important, the manager makes the most difference of everything. And, to me, the most important lesson learned and we talked about this Jason in a previous podcasts a month or two ago, is that it’s most important that you’re interested And the managers interest are aligned and I think that’s, that’s super important. And I, you know, I, I think cash flow, for most of us is about staying power. We talked about that in Oklahoma City last weekend, it’s about staying power, if you have a positive cash flow or a very close to zero cash flow are better. You have the ability to ride out good times and bad times, you know, tended to evictions and, and other you know, damages or failed equipment. You know, with reserves and that fairly close to zero or positive cash flow, I think you’re in good shape. And I’ve also learned over time, and this was surprising to me that a majority of the return on investment comes from, you know, just being able to get good prudent leverage on an asset and hedge yourself against inflation and, and have the tenant pay down your mortgage. Those two things are really the biggest parts. Cash Flow is really again, just about staying power.
Jason Hartman 7:54
It’s kind of interesting that you say that because since you started investing in 2012 I He said there hasn’t been much inflation. I mean, there certainly, it’s certainly more than the government has told us. Okay, we all know that, that the government numbers are completely understated. But, you know, it’s not like it’s been a severe inflationary time in in the regular world. But in terms of assets, there’s been tons of asset inflation, massive, massive asset inflation, which, you know, I’ve talked about how, how does that play out in 10 years, because many people aren’t because of that asset inflation able to enter what I call the investor class. And I think that’s a big deal. I think that really is bad for society. But I think it’s good for us as landlords because, you know, that means more renters overall, but,
Gary Pinkerton 8:50
yeah, what are your thoughts? Yeah, no, I agree with you. And I think, you know, the big bubble in assets is not necessarily you know, single family homes, in you know, in linear Markets No, it’s definitely not that.
Jason Hartman 9:01
But single family homes and other types of real estate in cyclical markets have inflated dramatically and the stock market’s way up. And, you know, cryptocurrencies are way up gold has done like nothing,
Gary Pinkerton 9:16
pretty much we should do a whole podcast or something on on the you know, that idea. And this came to me on the idea of, you know, leveraging prudent debt and getting getting credit for all of the the appreciation that occurs even the boring 4% a year appreciation or something in a linear market, getting credit for all of that most of which the lender funded really makes a big difference, you know, it’s a 20% return on investment. So just in a very boring market is pretty impressive. And that’s one of the things that I’ve learned, and it’s really kind of surprised me The other thing I learned and I think many of your listeners are this way, Gary, before you
Jason Hartman 9:52
go on, I just would like you to drill down on that and explain sure that you throughout the number 4% then you throughout the number 20 percent. Yeah. And I think some people might be listening thinking What is he talking about? Sure. You’re talking about leveraged return on investment. And you’re not even including tax benefits cash flow, inflation and doorstep destruction. Just live right. That’s it, but go right.
Gary Pinkerton 10:13
Yeah, debt debt pay down or any of that, right. So, okay, so let’s say that you have $100,000 house, and you’re going to have $20,000 of your money. So a 20% down payment, and there’s a little bit for closing costs, but I’ll leave that out of the picture here for easy math. And so if you took that hundred thousand dollar house and broken into five parts, five Pi pieces, that would be 20,000 each, and the bank has agreed to fund put the money in for four of those five Pi pieces. Well, each one of those pieces, each one of those $20,000 components is gonna go up by you know, by 4%. And And so since I get the credit for the the appreciation of his part, the banks part, even though they put all the money in, I get credit for that. So what’s really happening is this hundred thousand dollar house goes up by $4,000. But I’ve only got 20 in the property. So if you take 4000 and divide it by 20, you see that I actually got a 20% return from that not 4%. And it’s because I got to use all five pieces worth of the increase. Does that help?
Jason Hartman 11:17
Yeah, that that really is one of the amazing things. It’s it’s deceptively simple, but incredibly powerful, is that when you’re saying like the lender, you know, they they loan the money on the property, and the property still produces positive cash flow, but you get all the credit. In other words, you get the benefit. They don’t get to participate in the appreciation of the property. But interestingly, you think, Well, you know, you’ll hear people say, well leveraged is a two edged sword. And I’ve argued not really actually because if it goes the other way and say everything goes to hell in a handbasket, and, you know, we got 30 degree down bubble in the market crashes, okay. You know, people just Walk away. Right? So right. So it’s, it’s like, what do you know, it’s the best of both worlds. I mean, admittedly, that’s kind of the nuclear option. That’s you don’t want to walk away from your properties. But, you know, millions of people made that decision in the last great recession. About 12 million people actually, and, and the people who didn’t walk away, you know, they did short sales, they did workouts, they got loan modifications, where they reduced interest rates. I mean, I got those on a bunch of my properties. And it really is better either way. You know, now you got to use it somewhat responsibly. But yeah, super powerful. Okay, I interrupted you on that tangent. Do you remember what else we were going to say after the leverage discussion?
Gary Pinkerton 12:43
I do. I was certainly I was going on my own little bit of a shift and tangent and, and that was to say that one of the other things that I learned, I got into this, you know, after 26 years, 25 years in the Navy and and you know, I’d loved my time in the submarine force. But it was challenging on the family, you know, time and time again, you know, dragging my family around the country and this is not unique to my job many people have to go through this very long hours moving people around and asking them to you know, one more time take one for the team, putting my career kind of above the family, and it was my you know, and things were getting rough and so it was my impression that the job was doing it to me and I needed to replace this w two income with passive income right and so that, you know, that was the focus and I blamed it on the job of course, it was me making those decisions, those are wrong decisions but about you know, priorities, but but nonetheless, I think many people out there because really resonates. I talked to people all the time like this about this and, and, you know, they say the same thing. They’re like the moment that my passive income from real estate can exceed my w two, I’m out, you know,
Jason Hartman 13:50
well, yes. Kiyosaki says that’s what he calls getting out of the rat race
Gary Pinkerton 13:54
right out of the rat race or Fernando’s Financial Freedom Day, right, right. And when I found when I found out Financial Freedom, what I realized was I didn’t actually want to stop working, I want to produce, I want to add value to the world and you get paid for doing that. Yep. And I’m in a completely different field. Now, what I wanted was the ability to continue going to work there or anywhere else on my terms, right? And so that’s what people really want options. They don’t really want to stop producing No, no, it’s,
Jason Hartman 14:18
you know, like, this whole concept of retirement is just stupid. If you ask me like I and I have, it’s not healthy. It’s not good if humans were meant to be engaged in the world, and we’re meant to be contributing to the world. And that’s what gives us a sense of meaning and purpose. And, and you know, it’s good for us. It’s good for other people. It’s a win win thing. I mean, you know, the idea of sitting on a beach in Belize, which is a shithole, but that’s another discussion. You know, or buying property there to same thing. You know, it’s just so unattractive to me, like I would, I can’t imagine myself ever actually wanting to do that. But hey, you know, different strokes for different folks.
Gary Pinkerton 15:00
Yeah, you know, I’m with you. I’ve traveled many times outside the US as you have. And every time I come back, I kind of, you know, stop myself from literally kissing the ground. I mean, we have so I’m not saying it’s the greatest country in the world, but I am saying that it’s very close. The lights always come on.
Jason Hartman 15:17
I know. That’s amazing. Yeah. My friend is in Ukraine now. And I was there with him about a month and a half ago, I met up with a buddy over there and, and he was out on a date. And he sent me a voxer message. And he’s at this restaurant. And they couldn’t, they wouldn’t they were holding him and his date hostage, because their power went out. And they couldn’t run his credit card for $19. And they said, you have to stay here until the power comes back on. Can you believe what glimpsing? I mean? That’s
Gary Pinkerton 15:53
just absurd. Wow, unbelievable. Yeah, that’s crazy. So we make kind of our litigious society here, but just Just knowing that they’d get sued for doing that makes us you know, very free people over here.
Jason Hartman 16:04
It does, you know, lawyers serve a purpose. They do. Okay, go ahead, tell us more.
Gary Pinkerton 16:11
So, yeah, so you know, I wanted options and and so once I got those options, then it really opened up my mind to like, what else can I do in this world. And it’s funny that kind of along the way, man, I knew that that I had already kind of made decisions to, to leave the military and kind of step aside from that, because I was I was at this point where sign up for becoming an admiral or you know, in flag officer, while it was really an exciting, enticing idea. It meant many, many more years in a row, and that just wasn’t in the cards for my family. So, but not having to go off and hustle and get a job allowed me to just open my mind and say, you know, what does inspire me Where do I think I could add the most value? And I’m very, you know, humbled and happy to have come across Pat Donahoe, back when I was with paradigm life back Back when I was getting my first properties, and stumbled on to, you know, the idea of being able to, you know, increase the efficiency of my properties by, you know, finding them in a different way. And it added, you know, lots of safety and security. So, I, you know,
Jason Hartman 17:15
the first place, the first place I ever heard about this technique, and, you know, I’m using it myself now, but it was back in maybe 2004. When I read Doug Andrews book, I think it was called, I can’t remember the name of the book now. But do you know, you know him? Right? He was kind of a big deal in this. Yeah.
Gary Pinkerton 17:36
Yeah. I can’t think of his book either.
Jason Hartman 17:38
And I and I tell you, I his book was like, divided into two parts. And I loved the first part. And the second part, I just thought was totally overrated. But you guys have kind of moved the needle on this whole thing. So yeah,
Gary Pinkerton 17:51
tell us how you came on to that and you know, what it meant to you and then let’s get to some listener questions. Perfect. So I you know, To go back to the end of 2011, I was waiting for this new construction four Plex that I was having built and was in escrow on, I was, you know, just waiting for that to get finished. And I had a couple of months. And I was looking for ways to optimize my portfolio that I was kind of designing and thinking about when I was going to buy my properties and get those at the time, you know, for finance properties that I was allowed. And I was in I was trying to figure out well, how is there a way in which I can not have my own dollars in the property? Is there a way that I can, you know, kind of increase the velocity of my money, I read Robert Kiyosaki his books, and he talked about that a lot. And, you know, I came across an advertisement that Patrick was was doing with the real estate guys. And I went and took a look at all of the, you know, that kind of stuff with Patrick. And at the same time, I was learning about Jason Hartman’s network and realizing that that was the best place, you know, to go with my properties. And so I knew where I was going to get the properties. And then I started learning from Patrick about how to get the properties and And how to fund the you know, the down payments with them and allow my money to continue working while I use somebody else’s money and as the downpayment and the beauty is that it also satisfies the requirements of Fannie Mae, which you wouldn’t think would be true, right? That’s interesting. Yeah. Right. Yeah. One of the things with Fannie Mae is that they, you know, that they’re worried about you borrowing the downpayment, because that has somehow been linked to concerns about 2008 and 2009. Although I’m not exactly sure, that connection, but why I
Jason Hartman 19:27
can tell you, I mean, basically, there were these various downpayment loan programs out there and even some of them were charitable, they were just basically trying to help people, you know, like low income people buy a house, right? But you know, the reality of life is Gary, when people don’t have skin in the game, they don’t act responsibly, that’s just the way it is.
Gary Pinkerton 19:50
Right? So in this case, you really do because you’re pledging your own dollars as collateral for money to borrow from the insurance company but if you think about like a home equity line of credit, you No, those have been abused over time. But one of the beautiful things about a HELOC or a home equity line of credit, is that let’s say that you have $100,000 credit line, and you use 20,000 of it. And then at some point, you have money coming from a cash flowing asset and you put 5000 of that back. Well, that 5000, you know, comes off the 20. Now, there’s only 15,000 borrowed and that 5000 is immediately available to borrow again. And so this works exactly like that. So as my tenant is paying down this loan from the insurance company for me, that money’s you know, immediately available again to go after the next property. So in the first you asked me, How long had it had I been investing those first couple years, I invested in a couple properties and then had to wait had to kind of pause. But now what Sue and I see is that we have several loans you know out for each of these properties, money flowing in from all of the tenants. It only takes a month or two. And there’s enough You know, for the next down payment and then the next down payment. So it’s really pretty fascinating to see this snowball start to roll And it’s made a huge change. And so as I was, you know, as I mentioned, I was coming out of the military and I know I had reached my financial freedom. But I decided I didn’t really want to quit working. And if that’s true, what do I want to do? And I decided that the thing that inspired me as much as real estate and more than anything else out there was, you know, the vision and when what Patrick had done for my family’s life, and and our finances and our just comfort, and I wanted to kind of spread them.
Jason Hartman 21:27
Yeah. And so the neat thing about it is also there’s the asset protection component, and honestly, that was one of my primary motivators initially is that I just loved having, you know, I, like, you know, hide money in this little box over here and over there having some diversification of some things, but the problem is if you do that, as far as the way the Wall Street cartel interprets it, you’re just gonna, you know, you’re just never gonna make any money because It’s all you know, I mean, conceptually, diversification perpetuates wealth and concentration creates wealth. Okay. So that’s the, you know, the basic philosophical underpinning. But, you know, once you’ve got some money, you’ve got some wealth, then you you become more conservative because you want to protect it. Because Hey, you’re looking back and you’re thinking, Hey, I spent, you know, 1020 years, maybe 34 years, maybe 50 years earning it and I don’t want to lose it. I don’t have time to, to earn it again. And I’m just too tired. You know what? Yeah.
Gary Pinkerton 22:34
So.
Jason Hartman 22:36
So you want to get things in some little cubby holes. And so there’s some good asset protection component as well. So yeah,
Gary Pinkerton 22:43
yes, yes. So the money, the money inside that product inside that inside your personal bank or your life insurance policy is protected from most lawsuits and things like that. Yeah, that’s that’s a good point. And it also, you know, also there’s the life insurance side, and that was really important for me at the time that we were doing In this, if you remember I said that, you know, I had, you know, things were kind of Rocky for us. And I had done all this studying on real estate. And I was certainly sold on the idea, and I certainly still am. But Susan was in a different place, she was studying to become a nurse, she was working her career off, and she knew nothing about real estate. And here, I had, you know, really bought into the idea that I wanted to have as much fixed rate debt as I could get, you know, 30 year fixed debt. And so, but but, you know, to have a million or so of debt, and not understand real estate was not that comfortable, you know, phrases. So, if I did get, you know, hit by the proverbial bus, you know, the fact that my banking system also bought life insurance, and that that would have completely paid off all that debt for her and she’d have, you know, debt free cash flowing assets that she could then decide to get rid of, but would certainly provide a lot of cash flow if if she chose not to.
Jason Hartman 23:51
Yeah, and so some of my skepticisms have been, well, don’t you pay a big fat handling fee to the insurance company for doing that and then also So, you know, Could these companies go out of business? Right and not be able to pay claims or loan money on the terms? Discuss? And then, you know, will inflation basically reduce the value of that policy? So, you guys kind of move the needle on some of this stuff. I mean, I’m not saying it’s like, the greatest thing in the world, but I think it’s a good, it’s a good strategy. You know, it’s a neat strategy. I mean, I think you’re, you’re more into it than I am,
Gary Pinkerton 24:27
obviously, but, but, you know,
Jason Hartman 24:30
just address those for a moment. And then let’s go on to some of these questions.
Gary Pinkerton 24:34
Of course. So,
Gary Pinkerton 24:37
you know, you that you’d commented, you know, are you paying a lot for the insurance like a handling fee? Yeah,
Jason Hartman 24:43
you know, yeah, they handle handling fee to do stuff. Right.
Gary Pinkerton 24:45
Right. And so one of the Yeah, one of the beautiful things that that you know, we do when we’re designing them this way is we reduce down the insurance focus and increase the cash focus of it as much as possible and most of the time Handling fees or the mortality charges, if you will, are in that base insurance policy, that main portion, the insurance part, and we minimize that, you know, on just about a, you know, a factor of four, maybe five, and it has a huge reduction in impact. Some of the other, you know, concern sometimes is that your money is not accessible early on will impact the way we weigh I do in web design it for real estate investors, you know, there’s on the order of 90%, nine, zero percent of the money available on day one, you know, to go to go use. So that kind of, you know, certainly removes that, you know, as far as inflation goes, you know, these companies are, you know, they’re in putting this money to work in the economy, they’re not sticking in the stock market, they’re putting into work in the economy, and they are, you know, getting long term commitments from stable companies. And so they’re really investing in these hard assets, which makes it more difficult for one of these companies to go out of business. Then you know, let’s say a variable life insurance policy. That is all invested in the stock market you know, it’s so for them to go out of business means that the you know that Coca Cola and Caterpillar and General Electric have defaulted on loans to them, which means that probably the US dollar is not that helpful anyway at that moment, right, I mean, we’re probably in a complete reset. So, you know, similar to in real estate, where I try to invest in hard assets. I, you know, my policy, my insurance policy is investing in hard assets in reality. And and then I guess the other thing I would say is there’s no track record past performance is no indication of forward look, right? But, but when you look at companies that have been around for 150 years, have been paying profits, they’ve been profitable every year for 110. And then you look at like the great depression or 2000 and 2008. Banks failing across America, and these guys are paying profits. So I’m not saying it’s going to always work forward. But one of the great things about this industry is that they are they are controlled, audited by the states. And so it’s you know, it’s not a federally controlled thing. It’s a much more I think intensive look from a state level. And then the rating agencies are fairly rough on them. So you can get a pretty good feel for how capitalized they are, you know. And so, I think I think with that we should get on to your listener questions.
Jason Hartman 27:15
All right. Sounds good, Gary. So we have had this contest going and you can enter at Jason hartman.com slash contest. And we will pick a winner here very soon. And I think we’ll pick the winner and we’ll announce the winner next week. How’s that sound? And these are for the apple EarPods. I love these things. They’re one of my favorite products. I use them all the time because I love to listen to podcasts and audiobooks. Right. So, so that’s good stuff. So Sarah had a question. She said, and Sarah, I, I’m gonna tell you before I even read your question. I wish I could answer this one for you, but I can’t. There’s a couple reasons. Number one is I don’t know, number two is I don’t want my competitors to know, I and number three is we don’t want to announce it until we have something really solidified. Okay. But she asked, you know, what are the new markets? You’re getting into and why? And, you know, we are constantly looking for new markets. And, you know, it’s not really a question of new markets as we I think we talked about that earlier in this episode. It’s a question of new or good quality teams. Because the whole thing lives or dies on the team of people you have. Like I’ve said many times, I’d rather have an a team and a B market than an a market and a B team because the team is just more important than the market. Okay, it really is. And Gary, I think on this episode, you said that just a little while ago, right when you talk about the whole thing lives or dies on the manager and
Gary Pinkerton 28:58
yeah, absolutely. I That is 100% the issue.
Jason Hartman 29:01
Yeah. Now do you self? I’ve meant to ask you back then. Are you self managing any of your properties? Or have you ever tried it?
Gary Pinkerton 29:07
Yeah, great question. Very, very timely. I like
Jason Hartman 29:10
self management. I’m a fan.
Gary Pinkerton 29:12
Yeah. So I have a four, four unit building my first one, it was new construction. So it’s kind of a class a four unit. And it’s down in San Antonio and I am self managing that I have been self managing it for about two years, the thing that was challenging for me was just setting up the whole dynamics of showing the thing I know you can do I know you can do that separately, but then there was also the term that you know, the turning the property. So I have made a decision to try out a new property manager down there as I get more busy working with Pat. And, and so what I’m doing is I’m I’m giving them a unit as the unit becomes available, and I’ve done that with one unit, and I have another one coming due. So I’m going to do it with that one. But I’m also considering this, this new new construction property I just purchased. You know, one of the challenges with new construction nowadays is that it doesn’t cash flow quite as well. Sometimes at all, and it’s expensive,
Jason Hartman 30:03
you’re paying a premium price is right. And the markets gone, you know, prices have gone right. So it’s hard. So there’s, you know,
Gary Pinkerton 30:10
one of the things I’m considering is, well, if it’s new construction and there’s a, you know, a class, a single family, renter in there, you know, with a good white collar job, maybe that’s a property that I can look to self manage and save a couple hundred dollars.
Jason Hartman 30:25
Okay, so let me let me address that to what you’re saying because I mentioned this when we were in Oklahoma City, on our property tour. And, you know, the, I mean, look, this is all individual case by case basis with real estate everything is but the I think the best type of tenant is when you get a good quality property and a good quality area, and they will fight to stay in that area. Ideally, it’s like a family where they want to keep their kids in a school district and You know, those tenants are pretty darn stable. Okay, they’re,
Gary Pinkerton 31:03
they’re awesome. And one of the things I learned with this four unit and the reason I took it over again back to that interest not aligned with your manager, is that my managers interest were too, they didn’t care at all about the tenants. And they were fairly rude to them. And I had one tenant say that they stopped answering the phone once I signed the lease and moved in. And and so, you know, there was not a good manager clearly, I’m not trying to say all managers are like this, but but I took over that building because I knew I could be kind of my tenants, and they loved me. And the only ones that have moved are actually physically moving out of state because of their jobs. So yeah, I think I think the same thing would be repeated in you know, a new construction single family home.
Jason Hartman 31:42
Yeah. Okay. Good. Good stuff. Okay. So let’s go back to the contest here. And Sarah, also, thank you for your comment. You said I love Jason’s candidates, his honesty, and the economics education. Alright, Scott didn’t have a question. But he said I’ve listened to many other real estate podcasts, Scott, our other podcasts, they all seem to be. They all seem to be trying to sell their information. Sure they give some generic ideas, but nothing you can sink your teeth into Jason is different exclamation, thank you. He is selling properties with a community around them that makes you successful. He gives the information for free, and it is great direction for the real estate investing world. Thank you, Scott. I appreciate that. One had a question. And one says, How do you find the best property management companies to ensure that your investment cash flows? Well, Gary, you can take that one a little bit too, but I’ll just say it is mostly with us nowadays. It’s word of mouth. Because you know, after doing this for 13 years, you know, we just no more almost everyone in the industry nowadays, right? In the old days, though, you know, back in 2004 2005 when I first got it This sort of nationwide look at real estate investing, it was a lot harder. Because I didn’t know anybody. You know, I was like sitting in Irvine, California and selling my traditional real estate company to Coldwell Banker back then. And, you know, I was trying to do that and, and start this and, you know, it was just a completely a completely much more difficult thing. You know, going out and just meeting people and, you know, a lot of them are crooks. And, you know, we still got a little bit a few crooks now and then through the cracks nowadays, and then, you know, maybe they’re not outright crooks, but they’re just bad operators, you know, or, or the worst thing is this one, they’re good until they’re bad. And they usually get bad when they get too much business. So, you know, it’s like they in when the too much business thing is kind of Napoleon had this great quote that I love. It’s you The most dangerous moment comes with victory. I mean, maybe in the military, you’ve used that, quote, you know, the most dangerous moment comes with victory, because that’s the time you rest on your laurels, you become complacent, you get cocky. You know, maybe you think, and this is what happens to these people will have like this great local market specialist, this great property manager that will send them 100 transactions. And they’re like, you know, they think they walk on water. And it’s like,
Gary Pinkerton 34:25
yeah, it’s hubris. hubris, right. Yeah.
Jason Hartman 34:27
Totally. Terrible. So, any anything to add to the management company thing, though?
Gary Pinkerton 34:33
Yeah. So sizes. A really good point. You know, I think if you have somebody who, you know, I think there’s probably a sweet spot like they’re managing 100 doors, but not managing more than 500 doors or maybe 1000. But that gets pretty big, right? So it’s enough that they have a system. It’s not just two people and a pickup truck. But it’s also big enough that they’re probably not crooks, if they’re managing that many people, but they’re not so big that they get set in their way. I have managers that say, Hey, I have 1600 properties, I can’t take time to email you or tell you everything. It’s just the way we do the business here, you know. So that’s a little a little bit frustrating. So I think it’s, it’s about the right size of the property manager. I would also say that it’s, it’s really important. You know, if you have a group to ask and get word of mouth and referral, I think that’s great. But also to understand that it’s a good fit with a property manager is also about you. It’s about your personality and what what kind of keys you off. For example, we have one property manager who does a decent job, but it drives my wife Sue, who’s doing their books now crazy, because they send they in their books in the middle of the month, you know, and she’s like, Who does that? It’s so frustrating to be able to balance that way. That’s a very small thing, right? But, but when when your property manager is not responsive to you, I think that’s a bad fit. If, if you really get frustrated when they nickel and dime you that’ll that’ll turn you off, right? And so You know, you probably it’s like a good tenant, you’re not going to find your best property manager the first time. But always set yourself up, like Jason said with somebody who’s probably not a crook. Because they have a good reputation and been doing it a while, and also not so big that you’re just going to be a number and then just kind of move from one of those to another. And after a couple, you know, you’ll find someone that’s a good fit for you.
Jason Hartman 36:20
Good, good. Good comments, Gary. Okay, so the first one is I want to not disagree with you, but I just want to add a, you know, kind of a side note to what you said about the size of the company. And that is this one. No rules or laws apply universally. Yeah, including this one. Because, you know, I mean, some companies when they’re big, and they’re scaled up, you know, they’re great. And yes, some companies when they’re big and scaled up, they’re just lame and impersonal. And then you know, it’s it. It all depends, you know, it just depends. And some companies and some companies when they’re small, they’re like the roll up your sleeves personal service. thing, you know, you can have a two person shop and they can do a pretty good job. It just depends. But I will tell you, in the smaller business, when it’s really small, you might get great service. But if they have like an a big, you know, like illness or something like that it could really interfere with things because they have no backup.
Gary Pinkerton 37:22
Right? Exactly. I mean, I have a, I have one manager that has 2500 or so units and they do a tremendous job. Yeah, it just so happens that their philosophy is better in alignment. So I think my second part is more important than the first one. Yeah,
Jason Hartman 37:36
yeah. Good stuff. And then the other thing I just want to say, Gary, is folks consider self management Chuck not if you’re new, this is not for newbies, okay? But if you’ve, you know, if you’ve done this a little while, and you know, you have some experience, okay? Don’t do this when you’re brand new. Okay. But, you know, here’s the myth about self management, the myth I think is that it takes more time. Sometimes it actually takes less time. Because sometimes having that middleman in there, that property manager, it’s like you got to manage them. And then by extension, manage the tenant. And you know, sometimes self management. I mean, he just never like my landlord here where I live. They’re self managing. They never hear from me almost never um, you know, it’s like, and I’m thinking what hassle are they going through? I send the rent like 10 days early every month, you know, I mean, it’s, it’s just great and, and yes, if you’re not a regular listener, I am a renter and I have lots of rental properties that other people rent from me because I think that’s the best deal rent a high end property for yourself and rent low end properties to other people just wanted to throw that in there in case you’re new and you’re thinking what what is this hypocrite he doesn’t even own his own house. No, I don’t lots of houses fan of that. Yeah, I’ve owned lots of expensive houses in places like Newport coast and Irvine. And and No, I’m just I’m not into it. I like I like being a renter. It’s pretty great. Okay, so one’s comment is great knowledge and information sharing. The show is not only informative, but it’s also entertaining. Jason is genuine and not looking to sell anything. Thank you one while I am looking to sell some things. I’m glad I don’t come across as a cheesy salesman. And then one actually had a second question. Maybe we’ll wrap up with this one to take full advantage of tax benefits. How would you suggest setting up my business entity structure? Oh, God, I had to read that question from One. One. We need like two more episodes to answer that question. It’s complicated. As far as taxes, you know, I don’t know if you’re married or not, because that’s not a question we asked. And I don’t know if you work full time or not, or if you have your own business or what your situation is, but go back and listen to some of the episodes. Just go to Jason Hartman calm and search real estate professional. And that is something you should work. toward try and get yourself set up so that the IRS can consider you a real estate professional, it’s not easy to do, I’m just gonna warn you, it’s not easy, but it’s, it could be very worthwhile. But, again, you know, for that to be meaningful and to even qualify for it or consider qualifying for it, I’d say you probably got to have at least 10 properties or more. So that’s, you know, for someone who’s pretty serious about real estate investing, you know, and we have clients with dozens and dozens and dozens of properties. But that’s definitely one thing I would say. And then use property tracker, property tracker comm just got a beautiful makeover. It looks gorgeous. and use that to make sure you’re tracking all your deductions and making your tax filing easy. And, Gary, you’re gonna have something to add to that. I’m sure
Gary Pinkerton 40:52
that I’m not a tax professional. But
Jason Hartman 40:54
yes, that’s our disclaimer for me too. Yeah.
Gary Pinkerton 40:59
So I I have learned a ton from some professional CPAs and tax attorneys out there just in reading their books and stuff that is, has been on your podcast Jason
Jason Hartman 41:10
and one that we’ve had on the show, we would never do business again. So yeah, yeah, right. Right. We both have bad experiences with that guy.
Gary Pinkerton 41:18
Yeah, he actually writes a pretty good book, but but I’m not gonna use their services anymore.
Jason Hartman 41:21
He’s got two books out now, I think and yeah, no, he’s, he was no good. But yeah,
Gary Pinkerton 41:27
yeah. But there’s a difference between an operating business you know, if your income is an operating income from sales or service, and and if it’s, you know, pass through, you know, rental income and that kind of stuff. So, it’s a bit you know, it’s a bit complicated. We can’t actually answer the question without knowing specifically that because my answer to it would be different. It would be the opposite. You know, whether it’s S corp or LLC and those kinds of things, but yeah, I think your advice on real estate professional and tracking your expenses, you know, paying family members if they can do services for you all really good ideas,
Jason Hartman 41:59
child labor. Yes. Child labor.
Gary Pinkerton 42:02
That’s right. They learned a lot.
Jason Hartman 42:03
Yeah. Have you have your kids work in your property sweatshop and, and pay them more than they should get so you can use them as a tax deduction? So that’s Yeah,
Gary Pinkerton 42:13
that’s that’s mine is tried to sue me for paper cuts. But
Jason Hartman 42:16
yeah. Your kids have tried to see you for paper cuts. Yeah. Funny. Oh, gosh. Okay. Well, the show that we recommend violating child labor laws on and abusing your children. Okay. All right. Hey, Gary, we got to wrap it up. Go to Jason Hartman comm slash contest and enter to win the air pods. We’re going to wrap that contest up pretty quick. Gary, thank you so much for joining us. Do you want to say anything else and let’s wrap it up.
Gary Pinkerton 42:43
No absolute pleasure, absolute pleasure. If you want to, you know, learn more about you know what I’m doing and how I do that with with real estate. You know, one good sources, be your bank.com and I would love to talk to anybody about any of these topics, my favorite topic. About his real estate but personal finances really close behind. Thanks, Jason. That was a true pleasure.
Jason Hartman 43:04
All right, Captain Pinkerton. Thanks for joining us. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice of 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.