What does it mean that will to have the lowest interest rates in history? Jason chats with investment counselor, Sara, about new properties. They both discuss new real estate market trends and continue to reiterate that you should not try and time the market. They encourage investors to focus on creating and understanding their income property strategy.
Jason Hartman 0:00
What attracted me to Jason is really that he’s a successful investor. He’s a successful businessman. But if you really listen to him, he’s a teacher at heart. And what he teaches makes so much sense. And it makes sense and that it helps us grow our wealth and serve the community by providing housing, helping others, and really creating a nest egg and a place where we can build wealth in a very healthy productive way. And he offers us a way of doing that unique among anything I’ve ever explored.
Announcer 0:33
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer, and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:25
Welcome to Episode 1403. Thanks for joining us today. Our investment counselor Sarah is here with me today. And we want to talk to you about several things, not the least of which is a couple of properties that you could have purchased for less money years ago. But that’s always going to be the case. Sorry, Sarah, welcome. How you doing? Great. Thanks for having me back. Isn’t that the way to start something off? You could have bought it for less money years ago. I tell you I am a terrible Terrible salesman. Wow, that’s bad.
Sara 2:03
That’s bad. That’s why people like listening to you, Jason because you’re you’re a terrible salesperson. But you tell the truth.
Jason Hartman 2:09
You know, bad salespeople have skinny kids, but I don’t have any kids. So there you go there. I don’t have to worry about them starving, I guess so that’s okay. Right. I can be a bad salesman. That’s pretty funny. I can afford to be a bad salesman. So, um, what would you like to talk about first? First, let’s talk about the low interest rates, the lower interest rates, the lower and lower and lower interest rates and it looks like the Fed is actually going to cut again, coming up here very soon. We are moving into the territory of the lowest rates in history. Now, when that is said and I’ve read that in the media, I’m not exactly sure what it means. But there are actually interest rate studies going back and if you listen to the flashback Friday episode, just A couple of days ago, I was talking about that fantastic book and I want to get the author on the show debt. The first 5000 years, there are interest rate studies going back a long, long, long time before the US of A before the Enlightenment, okay, like a long way back. There are studies of interest rates. So I don’t know when they say it’s the lowest interest rates in history exactly what that means. But boy, they are low. And not only are they low, you may be able to compensate for mortgage insurance. Now, you’re thinking, Well, I was put 20 or 25% down on my properties. And of course, many of you know, you don’t have PMI otherwise known as private mortgage insurance PMI on any loan that has less than And 80% LTV or loan to value ratio. But Sarah, you’ve got something unique, don’t you?
Sara 4:08
Yeah. So we were and when I say we, client and I, Sean, we, you know, we’re comparing some different loan possibilities. And it came up that we could do 15% down on investor financing. So we had one of our lenders do a side by side comparison, at 15%, down, which would require the private mortgage insurance and then 20% down. And the first thing we notice is that the interest rate was the same, we were expecting a higher interest rate for 15% down, and it was exactly the same as the 20% down assumption. And typically when you go from 20 to 25%,
Jason Hartman 4:48
lower rate,
Sara 4:49
slightly lower rate. We didn’t find that in this quote, again, I can’t you know, the quotes will vary for each individual investor. But this is just one example from last week,
Jason Hartman 4:58
right? There’s there’s In other words, the Winners building in a risk premium, because you don’t have as much skin in the game. Got
Sara 5:05
it, right. And so what we found, and this was a, this was on a property brand new construction for $215,000. And what we found was that for $50 in PMI, so $50 more in the monthly payment with 5%, less down payment money. So 15% down, he was going to save $10,000 in out of pocket expenses for just $50 more a month. So when
Jason Hartman 5:29
we ran through that deal, great deal.
Sara 5:32
So when we ran those two side by side, we really favored the 15% download. Now, again, that’ll vary depending on you know, purchase price, right? So this was a higher loan balance. It might work out slightly different, you know, on a smaller purchase price,
Jason Hartman 5:49
right, right. Yeah, right. Yeah, good stuff. Good stuff. Now, we’ve taught our investors over the years on the show here, how to analyze a buy down by down Interest rates, this is not a buy down. This is simply putting 5% less down, getting an 85% loan versus an 80% loan or even a 75% loan. And you do have to pay the mortgage insurance the PMI, but that comes off once you reach that 80% loan to value ratio that at 20 and you have 20% equity in it, then the risk goes down to the lender. And I think there might be, even if that equity is there, or you know, if it’s there already upon purchasing it, or if it’s there in six months or a year. I think the lender depending on the lender, they vary on this. Even then they still may have a waiting period of like two years, but at $50 a month, that’s $600 a year for two years. You pay 1200 dollars, but you get in with 5% less money down and that’s a great deal. Get more leverage on the purchase. So that’s fantastic. I like that deal.
Sara 7:05
Yeah, it was, it was a great deal. And, you know, there are again, you gotta run the numbers with different purchase prices to see what the differences will be. So if you know if anybody wants to reach out to us, we can put you in touch with with a lender, they lend in all 50 states. Also, I want to encourage any of our clients that have purchased within the last, you know, couple years, especially those that purchased maybe five years ago, to get with a lender run all your numbers will do a portfolio review. And let’s see if we can lower some of your your mortgage payments. I mean, one thing is you could pull the cash out and use it to reinvest or if you don’t want to touch your equity and you know, you really just want more cash flow, you may be able to just get your rate lowered and improve the performance. I mean, if you have 10 properties, and you can lower each payment by $50 a month even with these low interest or
Jason Hartman 7:54
dollars. Yeah, yeah, you probably lowered a lot more than that though. So yeah, that’s really good. Be a
Sara 8:00
primary residence to I mean, that’s an even bigger loan more likely from
Jason Hartman 8:04
our clients. So, yeah, absolutely. I mean, these rates are incredibly good. You know, look at there are people out there who think, Well, you know, the economy has been booming for a long time, the real estate markets been an upward trend for a good 10 years now, okay. And they’re thinking, Well, you know, maybe I want to keep my powder dry and in buy when the market declines, but what they’re not thinking about is several elements. Number one, the cost of waiting, the ability to time the market, if they can do it. So that’s number one, and two and number three is the fact that these properties are in linear markets. So the the up and down prices based on the overall housing market or economy aren’t that significant. Okay. They do vary a little bit, but it’s not like a cyclical market where they really vary a lot. But what So the reason that the market would go down is likely because money got more expensive, okay? And see, people are so fixated on the price of the property, and they pay not nearly enough attention to the price of the money. Okay? The money is dirt cheap right now. That’s why the properties have gone up in value. So if you can lock in that incredibly cheap, three decade long, fixed rate mortgage, you’re just doing yourself and your family a huge, huge favor for the future. Because the money is the bargain. Okay. And as we’ve talked about, you know, this month, it may become the best bargain ever. Okay? So, remember, when people look at these price charts, they’re incredibly my OPIC when they look at a price chart of thinking, Oh, well, you know, prices are back to where they were in 2005, for example, you know, they look at a chart and it says something along those lines, but the money is much cheaper than it was in 2005. Okay, so, so the house got cheaper, in a way, because the cost of ownership is much, much, much lower. Fantastic. And then the ability, you go ahead, sir,
Sara 10:32
it really is. And I was just gonna say, you know, I could think of a mutual friend and client that in 2015, was waiting for the recession he didn’t want to buy because he’s just waiting for this recession.
Jason Hartman 10:44
I’m thinking five years past five years of return on investment.
Sara 10:48
It’s incredible. It really is.
Jason Hartman 10:50
Yeah, yeah. So see, that’s the thing. That’s the other cost of waiting First of all, you know, can you accurately time the market and let me tell you something The answer is no. You cannot. Can you get lucky? Maybe Maybe you can. Okay. But it’s, it’s going to be luck more than genius any anytime. Look at I’ve been doing this a long, long time, folks. I’ve been through many cycles. And you know, it’s always more lucky than good. Okay, in terms of timing, the market timing the market is a fool’s errand. Okay, it just does not work. You know, right now you’ve got incredibly cheap money. And the cost of waiting, the opportunity cost of waiting is that that client you just talked about back in 2015. was telling you Well, I think the market is topping out, I’m going to wait to buy. Well, if there were like, we’re looking at two properties here. We’re going to talk to you about these properties, folks. And let me just cite some numbers. We’re looking at two performance for two different properties here. Okay. One has a projected return on investment. This is the overall ROI of 34% Annually, another one has a projected return on investment of 31% annually. Okay? So take that times five years, and that’s just on one property. That client probably would have done what most of our clients do, and purchased a portfolio of properties, maybe a six pack six properties, for example. And if you miss out on 31%, or 34%, return on investment for five years, and that doesn’t even include IDD DD inflation and his debt destruction, which makes that return even higher. You’ve really cheated herself. Okay? The old saying, don’t wait to buy real estate, buy real estate and then wait. Let’s talk about these properties. So you want to take the hundred $19,000 property, it’s hard to find these inexpensive properties now.
Sara 12:58
Yes. So this is In the Dayton market, hundred 99. And I want to just clarify one thing, I think we really do have to touch on this. We had previously worked with another market specialist in Dayton and Cincinnati, which is where these two properties are. And we no longer work with that particular provider for, you know, several reasons challenges. So this is a different provider, I just want to disclaim that, sure you reach out to your investment counselor and chat with them about that too. So this one is 199. Estimated rent is 1150 a month. So just slightly under 1%. but pretty close. And it’s a three bedroom, one and a half bath. Estimated cash flow on this with 25% down is $223 a month.
Jason Hartman 13:44
That’s fantastic. Okay, so to 23 per month, almost 20 $700 per year projected on this one. You’ve got all the expenses in there, you’ve got a vacancy rate of 8% annually. You’ve got a management fee of 8% per month and a maintenance fee of 8% per month. So that’s, that’s pretty high, actually, hopefully, you’re not going to need much of that maintenance at all in the beginning. And here, again, you’ve got a cap rate. We don’t like the cap rate very much. We’ve talked about that before, but 6.7% cash on cash return projected at 7%. Overall return on investment at 31% annually. Okay, the next property at $9,900. It’ll take you about $28,000 to buy it with closing costs that’s based on 25% down, so you could do less map projected rent 895. What’s the projected cash flow on that one?
Sara 14:42
projected cash flow is 252 a month. Now, just you know, one thing that we should mention in you know, you can see this on the performer but our clients don’t have it in front of them. When we add in the vacancy rate of 8% and the maintenance of 8%. That factors into that cash flow number. Now, you’re not Going to really feel that month a month, you’re going to feel that when you have a maintenance request or a vacancy. So if you add those numbers back in, you know, month over month, you’re really adding back in another, you know, hundred and $40 into the cash flow. So this is, you know, close to $400 a month cash flow. And then of course, you’ll deal with, you know, the vacancy and maintenance as they come. But you could have a couple years with no vacancy if you get a long term tenant, and so you’re getting even more cash flow, possibly,
Jason Hartman 15:28
one of the things we should look at pair is that just in the first year, your principal reduction is on the first property we mentioned $124 per month, or 1483, round to 1500 dollars a year. So that’s what is building your wealth very directly the positive cash flow plus the principal reduction, okay? And you don’t see the principal reduction. Remember, income property can be likened to To an iceberg, a lot of it is under the water and you don’t see all of it immediately you don’t see those tax benefits until you go get your taxes done. You don’t see that principal reduction until you go to sell or refinance. But it’s there, you don’t see the inflation induce debt destruction directly, but it’s always working for you. So yeah, good stuff. So this one’s got a projected cap rate of 7.9%. And cash on cash return at 11%. Overall, return on investment projected at 34% annually. And if you leverage it higher, and you do 20% or 15%, down, you’re going to increase all those returns of course, you’ll decrease your cash flow a little bit because your your debt services higher. Yeah, fantastic. Looking at how incredibly cheap these mortgage payments are is absolutely astonishing, you know, mortgage payment 330 $7 per month on one mortgage payment on this one for 49 per month. Gosh, no, Mike, my car lease is like 1100 and $40 a month, just for a stupid German car. It’s incredible. You know, it really is incredible. Yeah. Okay, good. Anything else you want to talk about before we wrap it up?
Sara 17:22
I know. That’s it. I just, you know, we’ve got plenty of opportunities, some existing properties, some new construction. We’re happy to counsel you on, you know, what would be the best fit for your portfolio. Whether you’re looking to start with one and get your feet wet, or build a larger portfolio of properties, we can really help you strategize and get to building your own income property portfolio.
Jason Hartman 17:45
Now, I know there’s something else you want to tell people but I’m going to tell them first, save the date listeners save the day.
Sara 17:53
I wasn’t sure if you were going to let me
Jason Hartman 17:56
save the date. We don’t have a landing page setup. For this now but meet the Masters will be in beautiful San Diego, may 2 and third may 2 and third beautiful San Diego will have a registration page set up soon with some very brief early bird pricing won’t last long since that events coming up quick but mark your calendars save the date may 2 pin third. And I’ve been auditioning bands Sarah for our Saturday night entertainment. So working on that
Sara 18:30
excited for that. But first you have to tell people what meet the Masters is I mean, you’re assuming all of our clients have attended but we do have a lot of new listeners. You know each and every month that are subscribing so what is meet the Masters?
Jason Hartman 18:42
Oh, come on. Seriously. It’s what everybody’s been bugging me about for the last three months. What’s the date for meet the Masters this year? What’s the date? What’s the date, they’re driving me crazy. Remember on the podcast, like a month ago or so I said you have to stop asking me for a date. When I have one. I’ll tell you now. I’m telling you Meet the Masters is our annual conference of real estate investors where we, we fly in a whole bunch of our favorite property managers, local market specialists, financing experts, speakers on a variety of topics. And we’ll be announcing those as we go here. We’ve been talking to a bunch of people we’ve got a bunch of them lined up already. And it’s it’s just a really great fun event. people arrive Friday night we’ll have a reception Friday evening and you know like a mixer reception we didn’t do that last year I kind of last year I don’t think was her best meet the Masters honestly, but everybody seemed to like it. I didn’t think it was the best one though.
Sara 19:43
It’s my favorite conference. I mean, it’s I don’t think we’ve ever had a bad meet the Masters You know, there’s tons of stuff to learn. You’re so current on, you know, topics that you know, we all learn something new each time and the energy is just always great. So I think laughter was great.
Jason Hartman 20:00
Well, you know, we didn’t have a Friday mixer last year or a luncheon on Saturday or anything. This This time we’re going to do a different. We’ll have a luncheon on Saturday, and we’re working on a Friday evening mixer. And then of course, Saturday evening entertainment last year, we did have fantastic band on Saturday night. Our Rod Stewart tribute band was excellent. I thought that was so much fun. But you know, they they weren’t long enough. So this time in the contract, I’m negotiating with the different bands that we’re auditioning right now. I’m making it a longer concert. So, you know, once you guys start dancing and getting crazy, you want to keep going, I know how you are. I told them to end earlier last time so you don’t get to bed and be fresh the next morning. But you know, I figure you can take it just rest up before the event and you’ll be okay. Yeah, good stuff. So, so look for more information on that and we will look forward to seeing you in business. Beautiful San Diego. That’s gonna be a great event. All right, Sarah, thanks for joining me today and I will talk to you soon. Thanks, Jason.
Schoot 21:10
Five traits of successful investors. Do you have what it takes to be a successful investor? There’s no shortage of guides attempting to define those key characteristics and behaviors that separates successful investors those who build the financial future of their dreams from those who never quite get there. Investing is a kind of entrepreneurship and the key qualities of a successful entrepreneur in any field dovetail nicely with Jason Hartman’s 10 commandments for investors to define what’s most important for running your own venture. willingness to be open and curious. Entrepreneurs of any kind are interested in new opportunities and new avenues to explore the familiar and tried and true don’t interest them. Curiosity drives them to see if they can do more breaking new ground or experience a new city. The What if question is the most important? What would happen if I willingness to take risk, a willingness to take risk in some measure is important to entrepreneurial success. And that doesn’t mean behaving irresponsibly. But it does mean being able to accept the uncertainty of the outcome. Real Estate Investing involves some risk, but using other people’s money in the form of mortgages and refinancing, as Jason advises minimizes that risk in a way that other kinds of investments don’t do. willingness to learn. If your content to stick with what you know, entrepreneurship may not be for you. venturing into the unknown means finding out what you don’t know, as well as what you do know and figuring out what you have to do to get the knowledge you need. One of Jason’s first commandments tells investors to get educated, learn about investing your market and any other skills you may need. willingness to listen. A key part of all of this is listening, talking with experts in relevant fields and hearing what they have to say. as Jason points out, finding good advisors and following the recommendations can prevent ill advised risk and give new investors some expert support for a shorter learning curve then going it alone willingness to take control. Although it may be tempting to leave your investments or your new business in the hands of advisors, brokers or other experts that puts a new investor at the mercy of others. A major reason for learning and listening is to be able to evaluate advice and make successful investing decisions and to dump incompetent or unethical financial experts or other professionals if they aren’t getting the job done. There’s no one size fits all profile of a successful entrepreneur in any field. And the true key to success is having the desire and the discipline to make an endeavor work, but to build wealth through income property, a willingness to follow Jason Hartman’s recommendations is a good first step for Financial Freedom Report. I’m Scott chambers.
Jason Hartman 24:10
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