In this episode, Jason Hartman answers some investor questions with Naresh. They define what a commercial and residential property is and if renting is a waste of money. Jason also explains how housing is never outsourced to another country and how the oil surplus is affecting US oil towns. They talk about deflation and the importance of looking into real estate properties on a market-by-market basis. Jason stresses the importance of having a comprehensive network of investors and local market specialists in place before you trust them with your money.
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 0:12
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 complete solution for we estate investors.
Jason Hartman 1:02
Welcome to the creating wealth show. This is your host Jason Hartman. This is episode number 634 634. Thank you so much for joining me. And pardon the background noise. We are in a restaurant here. We are in Dubai. Yes in the United Arab Emirates, the UAE. We’ve been here with the venture Alliance group, otherwise known as the ad venture Alliance because we go on adventures for weekends per year. We do some great adventures. There have been a group of 15 of the US here we had a great speaker dwad Mia has been on the podcast now twice. And he spoke to us and opened the meeting on Saturday, and I am here with one of our longtime clients, Mr. Gary Pinkerton. And he has not been on the show yet. But he was one of our very first venture Alliance members, and I twisted his arm today offered to buy him a beer by the pool here which we will be out by the pool in just a moment. But Gary, how are you?
Gary Pinkerton 1:58
I’m great. It’s a true honor to be on this podcast with you for the first time and hopefully it’s the first of many. I look forward to it.
Jason Hartman 2:05
But I’ve been kind of bugging you about coming on for a while
Gary Pinkerton 2:07
Yeah, you have. You know, to learn and experience. Growth.
Jason Hartman 2:10
Good stuff. Well, Gary, just tell the audience a little bit about your story as an investor real quickly. What got you interested in real estate investing? You know, before we get to our guests today, just do a little intro here.
Gary Pinkerton 2:21
Sure. It’s, you know, like many people I read Robert Kiyosaki books and I was trying to get rid of my w two job and you know, and I followed in Fernando’s footsteps a little bit slower than Fernando but my goal is that is passive investing, but I’m also learning and our trip here to Dubai, that I’m inspired by great architecture. So I love buildings, I love classical buildings. So really just a just a way to apply that and to get passive investing and move from an employee to business owner and investor.
Jason Hartman 2:52
You want to move around that Cash Flow Quadrant is Robert Kiyosaki talks about. Excellent. So when did you first find my podcast? The creating wealth show.
Gary Pinkerton 3:02
It was in late 2011. And the first event that I attended was St. Louis, your first I think maybe your second area tour of St. Louis. I bought my first properties through Jason Hartman, you know, platinum properties there in St. Louis. And then I bought one in Memphis since then, and I’m looking to continue in Memphis in Orlando. I have a couple in Texas that I bought before starting with the group in 2011. So I have about eight properties right now.
Jason Hartman 3:25
Fantastic, good stuff. So what is the thing about real estate investing that attracted you? Of course, you said you read some of Kiyosaki books. And those inspired a lot of people to, you know, get to move up in that Cash Flow Quadrant into the investor class into the investor category. Well, what’s really the thing that has got you so interested? I mean, there are other investments out there.
Gary Pinkerton 3:46
Sure. Sure. So I you know, I grew up on a farm. I actually am probably a little unusual for most of the clients of Jason Hartman are for the Empowered Investor group and that I actually do like to kind of swing hammers every once in a while. I’ve thought about doing that. Kind of rehabbing or working on my own properties. I work on some of mine in St. Louis at times. But I just like being involved with it. But for me, it was initially it was a way to get not necessarily just the passive investing side, but the the consistent increase in cash flow or the consistent increase in net worth. I like cash flow investing, of course, and I’m not really a speculator with real estate, but what I wanted to do is get out of the rollercoaster ride of the stock market. So I moved, you know, a majority of my wealth from mutual funds and stocks into real estate because what I realized was that, you know, if you take the top or the peaks of each one of the stock market moves, my wealth was going up, but it was basically going up by what I was putting in every year. So I wanted to get something that would move predictably in one direction.
Jason Hartman 4:46
Right without you know, rising in income property. So great because it’s of course, a multi dimensional asset class is we’ve talked about so many times. Good stuff, good stuff. So just curious about the venture Alliance. You know, you attended our very first meeting and Sandy your very first venture Alliance weekend, and you’ve been, you know, on this one in Dubai, our first international trip and Newport, Rhode Island, and what do you think of the group?
Gary Pinkerton 5:08
I love it, you know, it’s, it’s not natural to me to, you know, try to seek out and expand my my group. But I have learned on this and several other events that I’ve done in the last three or four years, that surrounding yourself with the best out there or surrounding yourself with others who have taken a big leap financially and timewise is more rewarding than anything else I could do. So, for me, it’s about sitting around the 15 other people or 20 other people and learning from them, what they’re investing in their businesses, and just hearing their inspirational, you know, elite performance that I that I see and all these people that I’m around so it’s it’s a true pleasure. And I’ve learned a ton from everyone.
Jason Hartman 5:48
A lot of the great motivational speakers and authors over the years have said things like, I know Jim Rohn says your income will be the average of the five people you spend most of your time with and you know, a lot of people say you’re Net Worth won’t be the average of those people spend your time with. And you know, that is so true. It’s funny, Gary, that there’s something that just about not necessarily reading a book by some famous author, or going to a seminar with some well known speaker, but just hanging around people in a very informal environment. you comment on that in lunch today when we were at the Dubai Mall, and we were having lunch at that restaurant. And I guess there were six of us there. And the group kind of split up some other people did some other stuff today. You know, you mentioned that, again, you reiterated that concept of how important it is to just be hanging out with people that are going in the direction you want to go. And the funny thing is, that life doesn’t work that way. We have to, like, really make an effort to consciously choose our peers. I think when we’re, when we’re younger, we just sort of take whatever happens to fall in our environment. But as we get older, we kind of realize, you know, I got to make a conscious effort to choose who I want to spend my time Whoo, I want to, you know, be in my peer group. Right,
Gary Pinkerton 7:03
Right. Right now I agree that there’s different ways to do it. But it’s really about accountability to I mean, you want to the others that are around you inspire you to do more, because they’re doing more. Also we get together quarterly. So it’s kind of an accountability thing, like you want to follow through on what you said your goals were, or what, you know, the challenges, we do these hot seats that are just awesome. But part of the hot seat is people giving you feedback on things maybe you should do. And then you want to, you know, kind of be you know, prove that you have taken some action. So there’s accountability that way, you could do it with a coach probably as well. But in this environment in the venture Alliance, there’s like 20 coaches with me, so I really like that plus, we travel to go places.
Jason Hartman 7:39
Yeah, so we do venture Alliance imply as it as the name would imply, as you know, doing deals together and doing business together. But the adventure Alliance, which is kind of a funny name, we knocked off, you know, we have some fun together and some great shared experiences. So that’s, that’s awesome. I’m so glad that you joined the group so early on. So that’s I really appreciate that and appreciate You being a client, any tips you want to share with people listening before we get to our show today, or any, you know, advice or maybe a challenge you’ve overcome as a real estate investor or maybe just, you know, not necessarily in the act of real estate investing but in your own mindset or anything, you know, just whatever before we get to our show today.
Gary Pinkerton 8:18
I just, say a couple things like most of the mistakes that I’ve made, and I’ve made some expensive ones and quite a few but the biggest lesson learned I’ve taken is and you say this all the time on the show is, is to, I guess really two things, the investors lament that is an awesome luck to other real estate investors. Yeah, right. So I mean, that when you just you just have to move forward and the mistakes I don’t regret any of the mistakes I’ve made because they’ve taught me things and earlier than if I had just sat around and tried to learn them from someone else. But the to consolidate I guess the best lesson I’ve learned in my mistakes, is to not get creative, you know, meaning that I’ve done things that were maybe higher than market rent or guaranteed rent or anything like that. And the most important thing is that when you’re looking at an investment property, look at it solely based on market rent. And if you get something better than that for a couple years, that’s awesome. But you always want that exit strategy, which is just to continue to rent the thing. So you know, being in a good market, a market that’s going to have employment for, for, you know, the foreseeable future. If you get appreciation, if you get some better than market rent, because it’s a model home or something that’s awesome. But the mistakes that I’ve made, the ones that I’ve regretted, or when I’ve gone down a path that was other than market rent, and it didn’t support market rent, then it was this was no reason to do that. Because there’s dozens of houses that you could buy right now on Jason’s website or many other places that can do it at 1% rental value on market rent, so there’s just no reason to go there.
Jason Hartman 9:43
Right, right. Yeah. Yeah, so kinda like trying to trying to do something two out of the box. Sometimes we get in the right way and shoot ourselves in the shoe, is Sarah would say.
Gary Pinkerton 9:53
You haven’t brought that up in a while. That’s awesome.
Jason Hartman 9:54
She’s probably gonna listen to this podcast and hear that and laugh, as we’re teasing her from Dubai here, but Good stuff. Well, thank you so much for jumping on with me and helping record this intro and happy investing to you.
Gary Pinkerton 10:07
Awesome. Thanks so much, Jason.
Jason Hartman 10:08
All right, listeners .Hang on a moment, we’ll get to our show. You won’t hear all this background noise. Here we go with a main portion of the show. And let’s listen in.
Welcome to the creating wealth show. This is your host, Jason Hartman, thank you so much for joining me today. I’ve gotten a rush here with some more questions, investor questions and let’s dive in and talk about them. nourish welcome. How you doing?
Naresh 10:31
Great to be back on Jason. since our last episode, I have a lot more questions because I really do want to become a real estate investor. So let’s dive right in.
Jason Hartman 10:41
Every question leads to another question. All right, what’s your first question fire away.
Naresh 10:47
So before we get into actual investing into real estate, I’ve been hearing this same kind of mantra which is I want to buy a property to live in because Don’t because rent money is going to waste, just basically pissing away money. And I read a couple of articles. you’ve interviewed both people, James all teacher and Mark Ford, who have actually broken down the math of owning a property to live in versus renting a property or live in. So when I hear people say that, and of course, these are just everyday people, they’re not investors by any means. They don’t know really a whole lot about real estate. But when I people when I hear people say that I kind of cringe. So I want to hear your take on renting versus owning a property to live in. When does it make sense? When does it not make sense?
Jason Hartman 11:40
This is an age old question or rash and it is fraught with misconceptions. So I’m going to answer that question at the start with another question for you in the listeners. So the question is, is renting a waste of money, basically, and is the money just going down the drain so he My question is buying food to eat a waste of money is having a car that you pay a lease or a financing payment on, or renting a car when you go to another city is that a waste of money? is paying for your kids, school tuition a waste of money is buying a television a waste of money. You know, you see where I’m going with this, right? So, in that sense, maybe it’s a waste of money.
Jason Hartman 12:39
But the point being, that having a place in which to live is unnecessary expense of life. So then the question becomes, what is the most economical way to have a place to live? Is it more economical to own it or to rent it? And the answer that we’ve talked On many times for and I don’t want to make this a huge long answer because I don’t want to bore the listeners to this but but I know that so many people even after hearing me talk about it still don’t get it because the question keeps coming up in the rush. I know you listen, you know, you booked so many guests for the shows like you mentioned James altucher and Mark Ford. Otherwise known as Michael Masterson, his nom de plume his pen name, you listen to most of the shows, and this still is a remaining question with you and many, many listeners. So just quickly, my metric is if the property is worth more than $250,000 it’s probably better to rent it than own it in almost every single case, because you can take that $250,000 worth of property value, and you could buy two $125,000 houses for rental for investment and you could work Those four probably 1250 per month each getting you an income of 20 $500. Yet, the $250,000 house in which you live, I would venture to say that you can probably rent that for maybe 1600 dollars, or maybe even less, you know, if you can rent for a lot less than 1% of the value per month, and you can use that capital to acquire other properties that you rent to other less informed people, for somewhere in the neighborhood of 1% per month, you are arbitraging that value and that living expense, so you’re better off renting than owning. Now, if it’s a cheaper house, the rent to value ratio falls in line much better. And if you were to live in $125,000 house, I would say you should own it. Because you know, you you you’ll probably Pay about the same and rent that you could rent it for if you bought it as an investment property. So that’s the basic math of this make sense?
Naresh 15:08
So let me get this straight number with numbers-wise. I’ll give you my own personal situation. I’m a renter here in Tampa, Florida. And percentage wise I pay in rent per month. less than point 6% of the value of the place that I’m living in and this is a value this value is based on my landlord. I actually asked her what her buying price was or what her selling price was, and she told me the price, which might be a little overvalued but even if he knocked out not knocked it down 10 or $20,000. It comes down to point 6%.
Jason Hartman 15:48
The answer is point six is a pretty good deal for the renter, you’re getting the better end of that deal I say then the landlord is. So enjoy your rental, you need a place to live and if you owned it would be an expense anyway, like Robert Kiyosaki says Your house is not an investment. It’s a doodad. You know, it’s you need a place to live, you need that doodad. You know, you just got to get it in the cheapest possible way.
Naresh 16:13
So I guess that 1% is the key metric when people are deciding whether they’re wasting money on rent or whether they should buy that 1% rent to value ratio that you keep talking about is what?
Jason Hartman 16:24
Absolutely, that’s, that’s the magic number. Okay. So, you know, that’s it. Okay. I don’t want to belabor this one, because we’ve talked about it before, but that’s the basic idea. What is your next question?
Naresh 16:35
All right, now that we’ve put that one to rest, my night.
Jason Hartman 16:39
We haven’t put it to rest, just so you know. People ask again, I promise you, someone will send me a voxer message at j heart at eight. By the way listeners. I know I have a whole bunch of voxer messages to get through on their show. And thank you for interacting with me on voxer and asking your questions on the show and allow to answer them in a conversation format, where I can get more detail, much better way to communicate, and simply sending a voice message and certainly God knows an email. By the way, let me just mention something about that. I want to assert the idea that our Creator did not intend for us to communicate by written text, whether it be email, or texting, or any form of that even letters even letter writing the Lost Art of letter writing. That is not the way our Creator meant us to communicate. Now, you could say, well, isn’t it terrible that the art of letter writing is a lost art and I would certainly agree in some ways that the beautiful formality of written prose and you know, maybe writing a letter with nice penmanship, you know, that’s all kind of neat, but this is not the way to commit Indicate okay. And I’ll tell you, and I think the listeners will concur with this statement I’m about to make years ago, I did not Picture My Life when I became successful. My goal when I was young and and poor was to someday be successful. And guess what? Now I’m successful, right? As the as at least as the world would view, you know, economic and financial success. Certainly every area of my life is not awesome. But it’s, it’s pretty easy.
Jason Hartman 18:30
You know, I did not envision the idea of success being sitting in front of a screen, whether it be a little four and a half inch screen on my smartphone, or a big computer screen at my desk, reading things all day. That was not my idea of success. listeners, was it yours? No, we were meant to communicate by voice. That is what our Creator intended. So voice is the best way to communicate. There’s much more data in a voice communication, like tone, and inflection, and cadence and all sorts of things, right?
Jason Hartman 19:11
There’s much more information in a voice communication than a written communication. And certainly all of us have experienced, lost friendships, over written text. Get away from written text, I’m telling you, okay, it is a dangerous thing. You put something in an email or in a text message and someone misinterprets you and they get mad, you know, and Facebook Yeah. Oh, Facebook all day long. You know, we’ve all argued with someone on Facebook and had our intentions misinterpreted. You know, as Stephen Covey says, we, we judge ourselves by our intentions, but we judge others by their actions. And the the written form of communication is the lowest quality form of communication. It is a low quality method of communicating. Communicating by voice is far superior. So voxer is my solution for that. So, look me up on voxer j Hart 88 ask your questions for the show. I know I’m way behind on those. I will get to them I promise. What’s your next question? No rush in audio form in in oral communication. Okay. Go for it.
Naresh 20:28
You I know you focus mostly on residential real estate. I just wanted to hear about your outlook on commercial real estate because I do have some opinions on on commercial real estate. And also just in general, commercial real estate versus residential real estate.
Jason Hartman 20:45
Okay, good. So first of all, can you define commercial real estate for me? What does that mean to you? It’s, I find this to be a a big misnomer out there. What what exactly is commercial real estate by your by your view.
Naresh 20:59
I consider commercial Real Estate to be a type of real estate meant for retail meant for businesses. So it can be doctors offices, clinics, office buildings, restaurants, stores, etc. I consider residential real estate to be somebody living in, in the location.
Jason Hartman 21:21
So is a 200 unit apartment complex, a residential or commercial piece of real estate?
Naresh 21:28
The complex as a whole, I guess. that that’s kind of a height that somewhat of a hybrid, I would consider each individual unit to be residential, but if you own the entire complex, that could be commercial.
Jason Hartman 21:40
Okay. That’s an interesting answer. Is a four Plex a property with four units in it. Is that commercial or residential in your eyes?
Naresh 21:48
Who are other people living in it? Or are you having a
Jason Hartman 21:51
Yeah, of course it’s a four Plex where people live
Naresh 21:54
Yeah, I would consider that residential.
Jason Hartman 21:55
So the first way to define commercial versus residential real estate is the way lenders do and the way the real estate law defines it as anything up to four units being considered residential. So the answer on the four Plex, like you said, you know, it’s residential, okay, even though it’s for four different families living in in that building, it’s a four Plex, it’s still considered residential, by lending standards, and by real estate law standards, but you could argue, from a practical standpoint that any property held for investment for rental is a commercial property maybe. So anything over four units is considered commercial property. By the way, the real estate laws work and by the way, the banks and the lenders work, okay, so a five unit building with five, you know, space for five families would be a commercial property. Okay. So that’s the first answer. So as far as all office space. I am not a fan of office space. It is very complex to manage. The leases are incredibly complex. I’ve signed several office leases for my own businesses over the years, and they will be 6070 100 pages long with tiny little print. The offices are usually built out custom, and that’s an activity called doing tenant improvements or T eyes in the industry. And they take a long, long time to negotiate these leases. They have parking considerations. You know, they’re they’re typically three to five years long. They have inflation adjustments, and all sorts of complexity to them. Usually lawyers will negotiate the leases and that will cost you a fortune to have a lawyer do that. To have a lawyer draft your lease document if you’re the owner will cost you a bloody fortune. It is a very complicated affair. The contractors will get into that office space, that suite, and they will tear out walls and there will be construction issues and construction management issues. instances where the landlord, the owner of the property can become liable for the cost of those repairs, or injuries on the property. This is fraught with massive complexity. And I say the returns really aren’t that good at all. Okay, they’re the kind of properties that big insurance companies invest in with your insurance premiums. Now, why Why are their office buildings, you know, why do these buildings even exist if they’re not that good a deal? Well, the reason is, is that large investors institutional investors with a lot of capital to deploy have to put it somewhere. And it’s it’s really just interesting to me that so many of these buildings whether they be you know, big office complexes, apartment complexes, Retail centers, shopping centers, or industrial parks are owned by none other than insurance companies.
Insurance companies seem to love real estate investing. Yet interestingly, they will accept the larger the and it’s kind of counterintuitive, because you would think that if you had a lot of capital to invest, you would have your your pickings of the best deals, and you would be able to get the best deals. But oddly, it, it’s the opposite way. Many times those large investors because it’s somebody else’s money, number one, really generally get lower returns on their investment than little residential investors buying single family homes. Okay, so my answer to this question overall, is that I would certainly buy Housing First, whether it be in the form of a single family home afford Plex are a large apartment complex, because housing cannot be outsourced. Okay, everybody needs a place to live. And as I’ve said, My plan works in pretty much any environment, as long as the population does not decline. If there is a location or an overall large, you know, a small locale or a big locale, where you have population decline, all bets are off. My my philosophy of investing will go down the drain in an era of population decline. So that’s the thing you really need to watch out for declining population. But otherwise, I think my theories will hold up through thick and thin pretty well. Inflation, deflation stagnation. The income property asset class is the best thing going and housing is the best part of that, because the office space can be outsourced to the Philippines or India or any other place where you’ve got cheaper labor. We all know that if we’ve got Hold a call center lately, the call centers for amazon.com are in the Philippines. You know many tech companies have call centers in the Philippines in India and nourished by the way, you know this firsthand your Indian. Okay. So, you know any comments on that?
Naresh 27:12
Well, so as as you probably know when some of the listeners know I have a couple of businesses and almost everything we do is outsource. We don’t have anyone full time. It’s just partners investors and then a bunch of contractors we outsource to overseas and that’s why I bring up the commercial real estate part because it’s not just the the e commerce space that’s being outsourced but i have i know radiologists who can work from home and I know
Jason Hartman 27:44
They can work from home in Bangalore India, okay. And and they are evaluating radiology charts from US patients, okay, because all of this is just sent digitally now. I mean, it’s much cheaper to hire a writer. radiologist in India, or an accountant or a law firm in India, all sorts of all sorts of stuff that we don’t even realize is being outsourced is being outsourced or offshored. So that lessens the need for office space here in the US. But go ahead, finish your thought on that.
Naresh 28:18
Well, I was gonna say even retail historically, we think, oh, we needed to go to the store to buy clothes or to eat food. But even now that is going digital. I know I buy a lot of clothes online through retail I used to buy through gilt which are online marketplaces, Amazon has clothes as well that I’ve bought that I bought from can then so so it’s not just the physical businesses that are going to need the the office spaces in the future. They probably some of them will, but some of them won’t. So that’s why I wanted to hear your thoughts on the commercial space. And if you saw a decline there,
Jason Hartman 28:54
Well, I’ve never heard of Rue La La what a name. I’m there. Now and and and I guess you have to come in as a member to see the deals it says up to 70% off must have brands interesting interesting stuff interesting stuff. Yeah I buy a lot of clothing on Amazon frankly and and you know I buy from Nordstrom Rack and Nordstrom using the online component more than I use the store. Okay I love Nordstrom Rack by the way. I think it’s awesome. That’s my favorite but but you don’t need to go to that store right. You know they have huge shipping centers that they have nothing to do with the retail locations. So yeah, the internet lessons than banned for a retail and shopping oriented properties. outsourcing of office space to Philippines in India, the two big examples lessens the need for office space in the US. Telling your workers to go work out of the house lessens the need for office space in the US with industrial properties, offshoring to places like China, the workshop of the world lessens the need for us The only thing you can be sure of is people need a place to live. And if they work out of that home, they even need it more. So residential housing all the way is my answer to that question. All right. Did you want to do a follow up question on getting started and how much cash you need and stuff like that?
Naresh 30:16
Yeah. So I know the last time we spoke, we discussed kind of the basics of getting started. But my follow up question is I asked you okay, if I have some money saved up, you You said you know that you would need about 25% in debt. Well, 20% for the downpayment plus an additional I think you said 5%, in reserves for for other things. Now, what if, what if I have no money at all? What if I’m a poor person? I’m desperate, I read, I started listening to your podcasts. I have no money. Is there a way for me to get started?
Jason Hartman 30:54
Yeah, there is. But like I said before, it’s much harder. You have to do a lot more work. You’ll have to go solicit Partners, or you’ll have to find creative deals that are like finding a needle in the haystack. You know, that’s just not what we do. There are gurus out there that do it, the only thing I would say is be careful that you don’t get ripped off. Because a lot of these gurus are really really sleazy. And they will sell you all kinds of stuff that you really don’t need, try and get your education for as close to free as possible. And you can do that nowadays online. Now, you know, there’s lots of ways but yeah, you know, the, the the three f club friends, family and fools, they might invest with you seal an old saying, Okay, if you go out and do the work and find a good deal, you know, they can they can help you potentially. So, you know, there’s certainly lots of creative opportunities. Okay.
Naresh 31:48
Okay. So your recommendation essentially is save up for that 25% initial investment into the property.
Jason Hartman 31:56
Yeah, or really 20% as a down payment. And then you know, another three and a half to 4% in closing cost and, and you can you can kind of work creatively in ways to finance those closing costs into the deal sometimes, and things like that it’s a possibility. I can’t say it’ll always work, but there are there are some options there to to lower that initial expense. Okay. No rush. I gotta ask you a question, though.
Jason Hartman 32:22
Before we wrap up here. What are your thoughts on the general economy and, you know, we’re moving into election season, big time here, the fed the Fed rate increase? You know, I just thought I’d kind of open that up to you. I know you follow this stuff pretty avidly?
Naresh 32:38
Yes. So you and I had a debate two years ago, actually, exactly two years ago on the Federal Reserve rates and things like that. I’m kind of I agree with you on a lot of areas, but I still think deflation and I really thought for the past five years or so or since 2008, that deflation has been a huge threat to the United States. Now I was we’re not in deflation right now. So let me make that clear. We’re not, we’re not facing deflation, but I still think it’s a much more major threat than inflation is. And for proof of that, just look at the inflation rate, the latest inflation rate. It was actually negative a couple of months ago. And, and also look at the strength of the US dollar. So I the official stats, you’re right, yes, by the end, look at the rate of change, because I know a lot of people say, well, the stats are reported or they’re not accurate. They, you know, don’t believe the numbers. So just look at the rate of change.
Jason Hartman 33:36
They’re not there. They’re understated in the favor of deflation. Okay. But admittedly, inflation is very tame at the moment. You know, it really got tame about two and a half years ago. So you know, and we had some decent inflation until then. But yeah, I agree. I think though, trying to time the real estate market as we talked about when you were on before is like and, you know trying to time inflation, deflation or stagnation is it’s kind of a fool’s game. It’s it’s like trying to time the real estate market or the precious metals market or the stock market or anything. The point is, you get your money and you get in the game. And in a deflationary environment, everybody is looking for yield, there’s just nothing that will give you yield. And the cash flow component of your income property will give you nice yield in a deflationary environment, okay, or a stagnation airy environment, you know, or a moderate inflation environment, okay, like the one we’re in now. So if you have just 2% inflation, and you have a million dollars in real estate loans, what you don’t see is that you’re getting $20,000 a year, almost $2,000 a month, paid off by very, very moderate inflation. Okay. You’re also getting yield. Because if you go to Jason hartman.com, and you look at the cash on cash return of some of those properties, you know, they’re projected anywhere from nine to 11, maybe 12%. Pretty conservatively, I mean, just check it out and look at the numbers yourself. You’ve got a vacancy rate in there, you’ve got management fees in there, and everything. With that in mind. I mean, where else are you going to get that with the opportunity to have the upside? If and when and it’s not if I mean, if you hold your properties, you know, for I say you should hold them for 27.5 years kind of snarkily because that’s the depreciation schedule, which by the way, I should mention, tie that back into your question about commercial versus residential real estate. Your depreciation tax benefits, assuming you qualify for all of them are about 25% better on residential property than they are in commercial property, okay? 25%. Okay, that’s a very significant difference. Because the depreciation schedule on say, an office building or an industrial park, it’s it’s much longer than it is it’s about 25% longer on that type of property than it is on a residential property. So I just wanted to point that out again. But yeah, I mean, where else you’re gonna get that kind of yield and be in the game for the time, maybe, you know, four or five years from now, when we do have more significant inflation, right. And that’s a prediction predictions are problematic, at best. I’ve been right about many things wrong about a few, certainly wrong about interest rates, but you’re gonna you’re gonna hold that asset class, and that inflation is a homerun, that deflation is let’s just get yield. Okay? And you’re gonna win either way. Interestingly, even in deeply stationary environments. Historically rents have gone up significantly. In deflationary environments. That’s that’s kind of an interesting thing that the rent income component has actually bucked the trend. A lot of times.
Naresh 37:14
One of the things that you kind of change the way I think after I, after our last discussion, and that was I fell into the trap of this beginner real estate investor. mindset. Have you look at the the United States as a whole, you look at interest rates as a whole, you look at the real estate market as a whole. But you said no, no, no, you have to look at individual markets, you need to look at individual cities or individual states. And after after you told me that that really changed the way that I look at real estate investing. So for example, we just spoke about deflation and some of the pressures The United States is facing as a whole, but I want to hear your thoughts on something like Oil, for example. So oil hit below, it went below $30 a barrel today, it’s not really showing any signs of rebounding. And as a result, there are several liberal oil cities, cities are heavily dependent on oil for its economy. So I want to hear your thoughts on what you think is going to happen to those cities and those real estate markets. Logic says,
Jason Hartman 38:29
Yeah, yeah, well, there’s, they’re there. They’re not immune to the oil price crash. And here’s where that really comes into play. It comes into play in the exploration. So if you have an economy based on oil exploration, that’s the most tender and delicate part of this equation is the exploration. Because when oil is 30 bucks, you know, or maybe even a couple years from now, maybe it’ll even be cheaper. Who knows? Okay? If it’s cheap exploration, Just dries up. Okay, so that’s that that’s the very delicate component of that equation is the exploration part. So when you look at oil, certainly still in demand, no question about that. But how much of it is the exploration component versus the refining component and the transportation component and so forth. And that’s the tender part. So if you’ve got, say, 15%, of the given economy, that’s built around exploration, and then there’s a trickle down effect of that, right, because there’s a you know, it’s like, throwing a pebble in a pond, so to speak, you know, concentric rings, you know, that’s somewhat significant. Okay. But what if you have an area like North Dakota, where so much more of it is exploration oriented, or the tar sands in Canada or, you know, wherever, right, then you have a real issue that you should be concerned about, you know, you try Avoid any one horse town. Okay, one horse towns are risky. Well, I look at the yellow light warning I issued well over a year ago now I think it was on Houston. Okay. And I didn’t sell my Houston property. But, you know, we are concerned about that a little bit. And they’re starting to show some signs of some issues in Houston. But oddly, not that much. I mean, it just, you know, maybe it’s coming, but not that much. And I’ve talked about some of the layoffs in the oil industry and so forth on the show before but exploration, that’s the most delicate part of that equation. So, good question and a word of caution. Okay.
Naresh 40:39
Yeah, well, I’m from Houston, which is why I bring that up. And I know how,
Jason Hartman 40:44
Oh, that’s right. As I was saying that I forgot. You are from
Naresh 40:48
from Houston grew up around the energy corridor, or just as the energy corridor in Houston was being built, and the amount of layoffs that they’ve had pretty much every oil and gas company Houston has gone through at least two rounds of layoffs since the middle of 2014. And you I’m sure, I don’t know if you were investing if you invested in Houston during the last oil bus in the early 90s, late 80s.
Jason Hartman 41:16
No, that was way before my time. But there there is a funny sign that you used to see around Houston in the 80s. And you can Google it and find this. I’m sure you know it. It said someone rented a billboard and said, well, the last person to leave Houston please turn out the lights. Now that now, you know to its credit, the Houstonian economy is much more diversified nowadays. Thanks. Oh, yes. Oh, yeah. You know, and there’s a lot of medicine in Houston. And that’s a big expanding area. So it’s better than that. But you know, no Russian in growing up there. You probably remember some of that.
Naresh 41:50
I was. I was very, very young. Well, I was affected by it because I was so young that I was not able to go to the public school system where my parents I’d moved into because people actually moved out and the public school system or that area’s public school, schools just kind of went down the drain. So I ended up going to private school. But I heard about it. My dad works in the space. He told me about it kind of the the ghost floors in his in his office building.
Jason Hartman 42:21
Right at the see-through office buildings. You know, we’ve had those in Orange County in Orange County, California. I mean, there were times in that economy when you have the seethrough office building too. So it’s something to watch out for. Definitely. So yeah, what else you want to say on that? We got to wrap up. And I think that’s about it. We went over again. So next time, I’ll have more follow up questions for you when it comes to real estate. Alright, good stuff, listeners, go to Jason hartman.com. And check out our properties there and check out those returns on investment that we talked about on this episode. Go to Hartman education comm if you’d like the meet the Masters Esther’s online course. That is a very nicely designed course. There’s a special price there. Hartman education.com Hartman education COMM And then of course the venture Alliance. Our Dubai trip is coming up. By the way, I want to welcome Mike a new venture Alliance member. He is a big hard money investor. He does a lot of hard money lending and private lending. So it’s going to be great to have Mike in the group. And already a couple of two of our venture Alliance members have done some deals with him and I tell you this venture Alliance thing, join us. My goal is to at the very minimum, make it pay for itself. Go to venture Alliance mastermind comm you can join us in Dubai or just join the group in general Mike won’t be on the Dubai trip. Pretty much everybody else is going I think in the venture Alliance on that trip, you know, consider joining anyway, it’s a fantastic mastermind group for real estate investors and entrepreneurs and venture Alliance mastermind and Hartman education. dot com. Okay, both of those are worth checking out. All right, niresh. Thanks for the questions today. And listeners, thank you so much for joining us, and we will talk to you on the next episode.
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