Jason Hartman talks on how much he hates seeing people being ripped off in Las Vegas casinos and how casinos hurts the local economy more than helps it. He also does a case study with his long time client Joe Gocalves from Los Angeles. Joe has accumulated over 90 properties in five different markets and he shares to the audience why he chose real estate to achieve financial independence.
Key Takeaways:
[1:50] Every time a casino opens in an area, the divorce, suicide and poverty rate increases.
[8:15] Jason describes derivatives as ‘the thing about the thing’.
[12:15] According to the National Association of Realtors, prices will be increasing.
[17:20] Jason introduces Joe and investment counselor Sara to the show.
[21:30] Joe heard Jason’s podcast, loved it, and he bought two properties on the spot with him.
[26:30] Joe purchased a section 8 home and it’s been the easiest property to manage so far.
[27:25] Sara shares her opinion on section 8 homes.
[33:20] Jason used to think investing in a lot of different cities was good, but now he only recommends being in 3-5 markets instead.
[36:15] Jason is not happy with Affinity Group Management and talks about why.
[42:00] Joe invested in stocks before he invested in real estate and lost money in the 2000 crash.
Mentioned In This Episode:
JasonHartman.com/
Tweetables:
“Derivatives are the thing about the thing.”
“It’s very important for investors to take an active role even if they have property managers.”
Transcript
Jason Hartman:
Welcome to the Creating Wealth show. This is your host Jason Hartman. This is episode 523, 523. Well, I’m back home from Lost Wages, Nevada, that’s Las Vegas, pardon the joke there. I was at the conference there for the last three days and, gosh, I’ll tell ya, that city is, you know, in some ways, of course, it’s cool. I don’t need to tell you the cool things about it.
Everybody goes there for great shows and in terms of the man made environment, I think the architecture is pretty awesome of a lot of these new hotels, but I’m not a person for any more laws. You know that about me, right, as a libertarian, I don’t want to see the government making any more laws, but I got to tell ya, it’s so depressing to see the way these casinos are ruining people’s lives.
My friend was telling me there that he read an report about how every time a casino opens in an area, the divorce increases, the suicide rate increases, poverty rate increases, and just tons of social problems. He says that the increase is not minor, it’s dramatic. I remember I get up fairly early most of the time.
The first day I was there I was down and ready to go, our conference started at 8am, so I was down in the casino, I’m not a gambler, I wasn’t gambler, but I was just looking for a place to eat breakfast at 6:30am and I saw people who were sitting at slot machines, bunch of bad habits, of course, smoking cigarettes, sitting at slot machines; this was at Planet Hollywood, by the way. 6:30 in the morning! It’s like misery. It’s terrible what these casinos are doing to people. So, between that and the Wall Street crooks and the pharmaceutical industry and the government, we got a lot to watch out for, don’t we? A lot to watch out for sure.
Anyway, I’ve had some technical problems with my microphone lately, so I decided to record this episode, and by the way, before I tell you where I am, save the jokes, because I know, you know, you could easily make a joke about this, okay, I get it. I am recording this episode in my closet. Yes, in my closet, because the sound is pretty good here, you know, when you’ve got a bunch of padded clothing all around you, it really is good for audio quality.
Speaking of audio quality, That kind of leads me into another topic and I guess I will formally announce what I announced at the Memphis property tour a few weeks ago and that is I am actually moving. Yes, I am moving to the socialist republic of California, moving back after four years in Arizona and it has been a fantastic four years here. I really do like Arizona. I’ve been in denial about this move. I have not wanted to do it.
I have been putting it off, but here’s the story just in case you didn’t catch it from a prior episode that I did in, I believe, January when I was in La Jolla that is my account last October, I filed my tax returns on the very last day you possibly could and my accountant says to me, Jason, you do realize that you have a $738,000 tax write off you haven’t taken and I said, no, I did not know this, what are you talking about?
He goes on to say, well, you took the write off at the federal level, but you have an accumulated write-off in California that you have not taken and the state of California will give it to you, but because you moved during your audit, you don’t live anymore so there’s no way for them to actually give you the write-off, because you don’t earn money in their state and I thought, oh my God, this is the biggest irony of the world.
The person who sort of famously left California complaining and grousing about paying too much tax, you know, you had in to the two major costs, right, taxes are the single largest expense any of us will have in our life and what’s the largest the other largest expense? It’s our housing expense, right, so living in California when I left California and moved to Arizona four years ago, I probably saved pretty easily about $300,000 a year in taxes and housing expense.
I just love that, I mean, when you live in a lower cost place, you can accumulate wealth so much more quickly. Really, really think about these things you spend money on in your life that I sort of didn’t think about for years, why do I have an $11,000 mortgage payment living in Orange Country California. That’s outrageous.
It would have been such a better deal to just rent an expensive property, of course, because I could have rented that same property for $4,500 a month and had all the same, in fact, more enjoyment out of it, because I wouldn’t have to take care of it and be responsible for the repairs. You know, of course, the whole show is about real estate investing, so I love owning lots of properties and the metric is, by the way, you know, we’ve talked about this in the past.
But the metric is, if you live in a house that is worth over a $150 or over $200,000 then it’s time to consider, because the rent to value to ratio will be very much in your favorite and the higher price that house, the more favorable it becomes, then it’s time to consider, you know, should I be a renter of the personal residence and an owner as many investment properties as I can buy, because I want to own things that have favorable rent to value ratios for me, the owner or the land lord and I want to rent things that have favorable rent to value ratios for me the investor/owner/landlord – did I say, I might have mixed that up.
You get it right, as a tenant, you want to rent when it’s a higher-end property and as an investor, you want to have lower-end properties, probably now given the time of this recording about $100,000 give or take that you rent to other people, because that’s the way you arbitrage. Remember, arbitrage is really just exploiting the differences in things, that’s my elementary school definition for arbitrage.
Remember, I do have some funny definitions for things. I call derivatives, those sophisticated financial instruments that should make us all run for the hills and scared to death that Wall Street may collapse our economy.
I call derivatives, here’s my definition, you ready? You’ve heard me say this before on the show, but not for a long time. The definition of derivatives, you know, maybe someone can just go and enter this in Wikipedia and cite me, this is Jason Hartman’s derivative definition, ‘The thing about the thing’. Yes, derivatives are the thing about the thing. So, anyway, arbitrage, exploiting the differences and things, you know, really elementary definitions here, but that’s really what they are. I mean, my definitions are accurate.
So, yes, I am moving to San Diego here very shortly, so there is my formal announcement. I got a really nice place. It’s almost 2,000 square feet. It’s only two blocks from the beach. It’s got an ocean view. It’s a little bit obstructive, it’s not like a panoramic ocean view. I wish it were a little better, but it’s pretty good. Nice walkable areas.
So, I’m really, I’m really of excited about it, look, government, the state of California is basically paying me to live in California, so I can live there for free for about a year, maybe two years, and learn how it all pencils out and that’s not a bad deal. I would love to get something from the state of California. I have certainty them enough over the many, many years that I loved there.
So, guess what the price of that price is that I got? Well, you know what, maybe I just won’t say it, okay, because I rented and I think it was a much better detail than buying. The realtor that helped me kept saying why don’t you buy something and I said, because it doesn’t work! The numbers don’t work. It doesn’t make sense to buy anything.
Today, our guest will be a client and we’re going to do a case study, another case study and folks listening, we would love to have you come on the show and tell your story. Case studies are great. Again, we know, and our listeners are mature people, sophisticated people, they know that income property is not perfect, it’s just better than everything else.
So, before we get to our case study, I’ll just share with you real quickly here an article. For what it’s worth and I kind of say for what it’s worth, because, you know, everybody is always pitching their own thing, of course, right, and we’ve got to be on guard for that and the spin doctoring. I am sure there are some who think I do it too. I try not to, but you know, we all fall in love with our own ideas, right, it’s just part of our nature, so the Realtors Association, yes, NAR, the National Association of Realtors, the trade group that is allegedly the trade lobbying organization in the world, I’ve heard. I don’t know, I’m kind of wondering if that’s true.
When you look at like teacher unions, they are pretty big, unfortunately. The NEA, the National Education Association, who Steve Forbes, who of course has been on the show, Steve Forbes called them the ‘National Extortion Association’ and I would agree. Teachers are great, love teachers, but all the bureaucracy that’s been built around our public school system and what a total scam that is and, of course, the leftist solution is let’s just throw some more money at the problem.
No, let’s not throw more money at the problem. That’s throw less money at the problem and make them more innovative. The price of education should be dropping dramatically, because of all the technology available. I mean, you want to get educated, go to the Khan Academy website. I donate to the Khan Academy or I should say my charitable foundation donates to the Khan Academy. If you have an extra seven minutes, you can learn about quantum physics, organic chemistry or trigonometry or you know, differential equations or whatever you want. There’s some great stuff in there and guess what the price is? Free! Not bad.
Anyway, where was I going? National Association of Realtors article. Tangent alert. They are predicting that prices will increase slightly faster than in the last 12 months coming up in the next 12 months. So, they’re saying prices are going to increase more quickly. We’ll see if that’s true, you know, I’m not really doubting that. I kind of think NAR is probably right this time.
We’ll see how it works out, but what’s interesting is they’ve got a little interactive map here that I’m looking at and it says the map below shows the median expected change in the next two months for each state based on February 2015 to April 2015 surveys. Realtor respondence from Colorado had the most upbeat price expectation, now wait, calm down, before you go saying, Jason, why aren’t you talking about the Colorado market?
Look, we have properties in Colorado. We haven’t really done much business there. Many of you listening have purchased through our network in Colorado and by the way, I love Colorado and maybe that’s, I don’t know, because I’m such a big John Denver fan. Colorado is a beautiful, beautiful state.The problem is, the prices are too high. They don’t work, you know? Colorado, it’s, well, I shouldn’t say Colorado, I should say Denver metropolitan area. It just got too expense. Same thing happened in many markets. Phoenix where I am right now in my closet, that market got too expensive as well.
So, again, we are area agnostic, when something makes sense, we’ll be recommending it, when it doesn’t make sense, we’re going to recommend something else that does. If you have a property in one of these markets like Phoenix, like Denver, hold on, you’ve got to stabilized property. You’re doing great. You’ve made some money, congratulations. Thank you for being our client and just sit tight, keep your properties rented and just manage your managers, get your nice return every year, you’re probably making a good 35-40% annually on your investment.
All things in, you can go to JasonHartman.com and look in the property section and look at those pro formas. Well, many of those pro formas have been dramatically exceeded in many of our markets over the past several things. Everything has worked out better than we thought in some of these markets and sometimes it works out worse, you know. Everything is individual. It’s funny too when I talk to people, they ask me questions, well, you know, what’s your average for this and that.
You know, how’s this going to work and unfortunately I can’t answer a lot of those questions because everything is so individual. Every property is individual, every circumstance is individual, every tenant is individual. It’s a very fragmented business as you well know,because we talk about that a lot here on the show.
Anyway, so the medium price expected growth at 6% followed by Washington, DC, the capital of free government bail outs. Boy, that has done wonders for that market. Obamism has done wonders for property owners in Washington, DC and it has hurt property buyers in Washington, Dc and when you start throwing out government money and every person, every business person on the planet is flying in to DC to get their share of the government pie, that’s the kind of thing that happens okay, but again, you can’t get good rent to value ratios in Denver, certainty you can’t get them in Washington, DC, you’d do better in Denver. You know, a lot of these markets just don’t work, okay.
Price expectations were also upbeat in Washington, Oregon, Nevada, Florida, Georgia, Michigan, Hawaii, and New Hampshire with the median price expected to be 4-5%. With oil prices still at a slump, realtors expected a price increases more modestly at a median price growth of 2-3% in North Dakota, Oklahoma, Wyoming, Louisiana. In Texas where the economy is more diversified, the median expected growth and prices over the next 12 months is about 4%.
So, there you go, there you have it from the realtors and you know what, I have no love for the National Association of Realtors. I criticize them often. We’ve had their chief economist Lawrence Yun on the show before. I got a couple of pieces of hate mail on that one. One guy wrote in, Jason, why did you have this tool on your show. They are promoting their own thing, obviously, so you know, anyway it’s whatever.
It is what it is, but this time I think this is probably a fairly reasonable estimate of what will happen over the next 12 months, but overall it’s going to increase and it’s going to increase at a faster pace than it did over the last year according to the National Association of Realtors. Well, I had a couple of more things to share with you, but as usual, I’ve gone long, let’s get to our guest today, our client Joe has purchased, I believe, nine properties from us. He’s been with us for years and we’ve got him and Sara, the investment counselor, Sara, who you’ve, of course, heard on the show before in this segment. So, let’s dive in and hear what they have to say.
Hey, it’s my pleasure to welcome one of our clients to the show. It’s Joe Goncalves and his investment counselor, Sara are with us and we just want to hear a little bit about his case study, the good, the bad, and the ugly and he’s got I believe eight or nine properties now and has continued down the path of real estate investing and retirement and financial independence through real estate. So, Joe, welcome, how are you?
Joe Goncalves:
Good, Jason. How are you?
Jason:
Good, good. It’s good to have you and we’ve got Sara here too. Sara, are you with us?
Sara:
Yep, I’m here, thanks for having me.
Jason:
Great, great. Joe, tell us a little bit about your story. You originally I think heard about us on the radio on maybe KBC possibly? A Los Angeles radio station?
Joe:
Yes, KBC. I don’t know about if you were on (#18:10?) also, but either one of those two and that made it easy for me. You were advertising on people that I trusted, so.
Jason:
Yep, there you go and so you live in the Los Angeles area, is that correct?
Joe:
Yes, I do.
Jason:
Good stuff and you had a long career with the Stater Brothers organization and then what got you interested in real estate investing?
Joe:
Well, I’ve always want to do real estate, but I just didn’t want to deal with tenants and all the phone calls, so I just never got into it and then when the market really went down in 2008, that’s when I started listening to radio and I heard you on radio and that’s when I decided to do it, because your method works with where I don’t have to deal with tenants and that issues that come up. Even though I do deal with it, it’s not the same.
Jason:
Yeah, right, so do you know invest locally before you came to know us and, you know, that’s how you knew tenants were a bit of a hassle or did you know someone else who did?
Joe:
I have plenty of friends who did them, my dad also did, that’s why I knew.
Jason:
Yeah, good stuff. So, basically our system, our slogan is the complete solution for real estate investors and so, you know, having the managers that were pre-screened and having them manage your tenants and that kind of stuff, that’s really what attracted you, right?
Joe:
Correct, correct, and the lower prices in California.
Jason:
Well, definitely. You can’t do anything that makes sense from a cash flow perspective and amazingly it’s not just Los Angeles, it’s just anywhere in California that it’s that way. It’s really mind boggling. I mean, like I said on the show before over the years, you know, even Bakersfield and Fresno and these like fourth tier cities, even those don’t work. It’s amazing to me. You know? You just can’t even make that work.
Sara:
Well, it’s so funny when I first met you, Jason, you know, I had never even thought of going outside of California. It just never crossed my mind. We thought about (#20:10?) areas, because the prices were lower, but what about you, Joe. Did you ever even think of investing out of California before you met, Jason?
Joe:
Well, I didn’t, because I didn’t think it was a possible thing to do. It didn’t even cross my mind, how would you do this so far away? So, I never crossed my mind to do that.
Jason:
Yeah, you know, it was really about 12 years ago that I even first started thinking about investing outside of California and what I didn’t realize after so many years is that, of all the properties I purchased and owned and rented in California over the years, I really wasn’t an investor, I was a speculator and most of the time I got lucky, but it was really just luck, it wasn’t any extremely good market knowledge, because you’re investing for appreciation and I just never met anybody that can really predict appreciation or depreciation in any reliable fashion, you know, so yeah. Tell us Joe more about your story, like you heard us on the radio, do you come to one of our live events then or start listening to the podcast or what was next?
Joe:
When I heard about you, I listened to your podcast and I think you were still in the tens, so I must listen two or three times and then that’s when I emailed your company and one of your investment counselors, he emailed me back, so I drove out to, was it New Port that you were at?
Jason:
Yeah, we used to be in New Port Beach, years ago.
Joe:
I think because I was able to sit down face to face with them and see who he was and he seemed very honest, I pretty much on the spot decided to buy two properties.
Jason:
Good and where were your first two?
Joe:
My first two was a condo in Ohio, Columbus, and then dollar run Indianapolis, (#22:02?).
Jason:
Good stuff, so those were your first two long distance experiences, did you go out and look at those properties first or did you just buy them? It sounds like you just bought them, right?
Joe:
I just bought them. No, I went there years and years later to look at those. I actually bought a few more, so I – to look at four different properties out in the area, but that was like four years after I bought them.
Jason:
Right, right. We have, like, people ask the question do your clients look at these properties and mostly before they buy them, they don’t look at them. We would actually like them to, because you know, they all understand what they’re doing better, but you know, some don’t even after they buy them. I mean, it was four years before you went and looked at them. Did they perform okay? Like, what happened on those first couple of properties?
Joe:
They were fine. I think actually those first four or five that I had will probably the easiest client. I didn’t have any issues. Lately it’s been a little more different, maybe it’s because I have more, so there’s more chance of things going wrong, but the first few four or five, there wasn’t really many issues. The tenants were long term. Not much of a problem. The first two that I bought were pretty much brand new, so there was nothing to repair. There were very cash flowing, because at the time we were only, you weren’t really offering rehabs. It was all pretty much brand new stuff, so it wasn’t much cash flow, but they took care of themselves.
Jason:
Yeah, good stuff. I mean, what was that got you so interested in real estate though. Why did you think real estate? I know the bad side is you didn’t want to deal with tenants, but what was the positive side? You know, what was your exposure before this?
Joe:
I knew people made money with real estate. It’s been proven. My dad was doing it. Many family friends that I have, they were doing it. I actually got my real estate license years ago, I just, at the time, I didn’t care of it. So, I knew it worked. I just want to have the hitters, which thinking back now, I should have and had the hitters, I would have been even better off, but that was my thinking back then.
Jason:
Yeah, cool, good stuff. So, what happened next? You purchased so more properties in other markets, right?
Joe:
Yeah, Kannapolis, I got one there, then I went to Atlanta. I think I bought one of your $6,000-$5,000 down propers in Atlanta.
Jason:
Don’t we wish we still had those, I tell ya. If we can get those again, we’ll be loving life, believe me.
Joe:
I think that was actually the first time I bought through Sara.
Jason:
And Sara, what did you see as Joe was building his portfolio, well, he and his wife we should say, it wasn’t really just Joe. What did you see as he went along?
Sara:
Well, I just saw him continue to grow his portfolio at a moderate pace. I mean, he’s your everyday Joe. He was a hard worker. I mean, he was working in his career and as was his wife and he just continued to add to his portfolio. He did have some bums in the road. In fact, our conversation today started with another little minor bump in the road in one of the newer markets and, you know, he just continued to manager his managers and check in with us and obviously he’s attended several events since, you know, slow and steady wins the race, right?
Jason:
Yeah, definitely does. Joe, I love what you said to me in January at our Meet the Masters event. Do you remember exactly what you said?
Joe:
I have no idea what you’re going to say.
Jason:
It was about that you retired right?
Joe:
Oh, oh. Yeah, well, yeah. I just retired a couple of months before that, yeah.
Sara:
Oh, no big deal, he’s just retired.
Joe:
Well, no, it was already like eight months ago. That was, you know, I retired, but I didn’t retire. I’m going to do something else eventually. I got tired of working where I was at. I worked at a grocery store for 37 years in the same building. I qualified for my retirements so I took that and as of right now I haven’t done anything else, but I will find something else to do to fill my time and help out with more financial stuff so I can buy more stuff.
Jason:
Yeah, good stuff. So, what happened next with your portfolio building? What else did you do?
Joe:
Well, the last one I bought, I actually bought, which you guys recommended was Checkbook IRA, so I bought that with mine and my wife’s salary. We combined it and we bought I guess a class C house. It’s been the easiest one I’ve had so far, section eight. I get my rent every month and I’ve had the same tenant since I’ve bought it.
Jason:
Wow, good stuff. Yeah. So, do you like those section eight properties better? I mean, you have a blend of both, right?
Joe:
I only have one and that’s right now and it’s the one of the least complaints that I have, so if I had two, maybe it would be a different story, but I have one and I have no issues right now.
Jason:
You know what I’ve said about that on the show, you know, some people love them, some people hate them, it’s just a really different thing.
Joe:
I used to hate them, but this year I think it’s great.
Jason:
Yeah, Sara, what do you find with your wide variety of clients at our firm, you know, with section eight? I gotta think, I don’t know what you’re going to say to this, because we haven’t talked a lot about this, but Sara, you generally like the newer properties, the sort of class A type properties more and I’m assuming you don’t really like section eight kind of stuff.
Sara:
Well, I don’t have any section eight properties myself. I don’t have, honestly, I don’t get very many complaints from clients about them, though, so I’m not opposed to them, I just think that having – it’s more of like a maintenance issue for me. With the newer constriction, you’re less likely to have any maintenance in the first few years and that was my experience with my very first property I purchased years ago in Texas. I bought it brand new. I don’t think I’ve put more than $2,000 into that house and it’s been like eight years.
So, maybe I’ve been lucky. I have had a good long term tenant, you know, but I think with section eight usually those come with older properties and older properties come with more maintenance. So, but you know, here’s the thing. Sometimes the cash flow is so good that it can make sense, you know, as long you’re willing to shop around a little bit on the maintenance items. I just think it’s a little more time intensive. So, it depends on the investor.
You know, I get clients that call and they have a big chunk of money, they want to invest, they want to invest it all at once and they don’t want headaches and so for somebody like that where they don’t want to be involved in the day to day and negotiating maintenance items and things like that, I suggest that they start with newer properties until they – it doesn’t have to be brand new, but just, you know, nicer neighborhoods, newer properties, until they get some experience and once they get the experience of making decisions and they’re comfortable and they can make quick decisions about maintenance items and they have their teams in place and they know some contractors in the areas, then as they get into some of the older neighbors, you know, they have that experience to make quick decisions and they’re not losing income because they are sitting on decisions. I don’t know if that made sense.
Joe:
According to this year’s seminars, I think from what I heard from some of your vendors, it actually depends on the city. Some cities are terrible, some are good. I have a friend here who has section eight here in LA, he wants nothing to do with it anymore, but the one of the things too is maybe they have to be more careful about how they take care of the properties, because they don’t want to get thrown out of the section eight program.
That’s one of my beliefs. I think I have to be a little bit more careful, because you get inspected every year, but they probably got to be careful, because if they’re not careful they’re probably not going to be in section eight any more and that’s a big loss for them.
Jason:
Yeah, for the tenants, you mean, right?
Joe:
Correct.
Jason:
Yeah, yeah, I agree with you. That’s one of the great levers the landlord has over the tenant is that the tenants can lose their section eight status and God forbid they would want to lose their free government handout, you know, so that’s, you know, they are on the dole, but one of the things I wanted to talk about is some of the properties management practices and, you know, I think it’s very important for investors to take an active role even if they have property managers to direct the managers to state what they want and I’m seeing a lot more clients and I think this is a pretty good policy. Demand two year leases from their tenants, because it’s more likely that the tenant will stay longer and then you don’t have any turn over fees, any clean up, any painting, any stuff like that in between, so it can be very helpful. Joe, any thoughts on that or Sara?
Joe:
I like the idea, some of my landlords, property managers are actually doing that already. I don’t know if it’s because the tenant is asking for it, but I got like two or three properties that are two year leases and I think it’s great.
Jason:
You can put a rent increase, you know, if you are concerned about inflation happening in two years or just increasing your yield, you can write that right into the lease, so you can just say, you know, the rent the first year is a $1,000 a month, the rent the second year is a $1,040 per month and lots of tenants will agree to that.
The other practice that I really think investors should try to do is to do hard flooring throughout their house or at least carpet in the bedrooms only and hard flooring everywhere else and then either low-sheen or eggshell paint and eggshell is not a color, it’s the texture of the paint and it makes it just really durable, you know, I’ve had eggshell paint in some of my properties, you know, that’ll last you eight years. I mean, you put flat paint on the walls, you’re going to have to repeat after one tenant cycle maybe just in a couple of years, so I think that’ll really save you money in the long run.
Joe:
It depends on the tenant themselves too.
Jason:
Well, yeah, it certainty does. It always depends on the tenant. Sara, thoughts?
Sara;
Yeah, I really like the idea of a two year lease, but don’t forget to put that rent increase in their, especially in today’s, you know, rental climate. I think rents are on the raise. I’ve been kind of checking on my properties and it seems like rents are starting to trend up, so you definitely don’t want to forget that piece, so that’s great advice.
Jason:
Well, Joe, what are your next plans for your portfolio? What are your goals?
Joe:
Well, I’d like to buy some more – since I’m between jobs, it’s harder for me to qualify for loan, because the income is not the same, so hopefully when it is, then I will like to buy, I’d like to get out of a couple of markets and get into either condense down to less markets like you’re suggesting it now since you’ve changed your mind in the last few years to three or four.
Jason:
I learned my lesson. So, let me just elaborate on that if I can. So, you know, you hear at the intro to the show, you know, 11 states and 17 cities and I used to think that was good, because I was always buying before our clients would be in given areas, right, and now I really think people should be in no more than five markets. I think the big mistake most investors make is they are only in one market and that’s a big mistake, but the other mistake on the other side of that is that they’ll be in too many markets and then you’ve got two many different providers to deal with.
Too many different tax collectors and cities and you just don’t get the feel of the climate, so three to five markets are enough and so, let’s kind of play that out for the investor that’s buying nine properties, three properties in each of three markets I think is a great plan if the investor is buying 90 properties, then 30 properties in each of three markets, but if they’re buying that many, you know, they could be in five markets an there they’d have, let’s say we’ll round it off at a 100 and it’s 20 properties in each of five markets, but I really don’t think any body should be more than five markets. So, how many are you in now, Joe? Are you in eight markets, I believe.
Joe:
No, one, two, three, four. I think it’s five.
Jason:
Oh, so you’re in five different cities, but you want to become a little less diversified.
Joe:
I have 90 properties though.
Jason:
Yeah, exactly, but you want to be less diversified, do you want to get it down to three?
Joe:
I would like to get it down to three or four, the only problem is some of your newer markets are really exciting and I don’t want to add anymore like for instance Memphis and Arkansas sound really, really good, but then that’ll be more, so I wouldn’t mind three or four. I think it’ll make a lot less property managers, like you said, less taxes, I think it makes a difference.
Jason:
Yeah, it’s less people you have to deal with. You know what else? Insurance, because insurance is run state by state and we try working with the national insurance company, National Real Estate Insurance Group, they go by the acronym of the first letter of each word and also Affinity Group or Affinity Insurance. They kind of go by both names and I had a bad experience with them and I know a couple of other investors I know had bad experiences with them and I was loving the idea of having one source for my portfolio nation wide. It would have been great, but they didn’t work out so I’m back to, you know, just local brokers one in each state where I have properties and, you know, it makes it easier when you don’t have to deal with that many insurance companies too, right?
Joe:
I have them on one of my last properties about was through Affinity an now I’m not sure after what you just said if I should keep more or not.
Jason:
Oh, yeah, well, I’ll be happy to tell you my story if you want to hear it.
Joe:
Sure.
Jason:
Yeah, I’m pretty upset with those guys. Basically what they did and this is Affinity Group Management or National Real Estate Insurance Group. This was kind of unusual, I mean, this was a surprise happening is I had a property and when we had that polar vortex, you know, the thing that surprised all the global warming people and it got really, really cold.
The property happened to be vacant at the time and I’m not sure this is what happened, but I had a pipe break and I’m not sure if it froze or what and they said they wouldn’t pay the claim and I said, yeah, you have to pay the claim and they said, no, there’s a clause in the insurance policy that says if it’s not occupied that, you know, you have to do certain things and I didn’t do them and so, really, my property manager didn’t do them and so I said, no no. You have to show that the cause of the pipe breaking and the subsequent damage was because of the weather because the pipe froze and they have no proof of that whatsoever and it got even worst, they tried to hide the insurance adjuster’s report.
They said I did not have a right to a copy of it and I so I went and my lawyer found that area of the law that says I have a right and we wrote them a stern letter and they finally turned it over. They tried to suppress that report, which I just thought was completely scummy of them and then I was communicating back and forth with them in an email and I was just, you know, in a very matter fact tone, I was not being rude or difficult, which I completely realize that I am capable of.
Sara:
Which show number is this? I gotta make a mental note.
Jason:
But I wasn’t doing it this time, okay. I was completely civil and I just said, hey, are you going to pay this claim or what? I explained my reasons kind of more elaborately than I just explained now. I mean, I thought I had a very good case and I said, you know, please don’t, something along the lines of, please don’t tell me we have to litigate over this and then shortly after that, they sent me a letter, basically retaliating against me. Saying they are canceling all of my insurance policies, because I was difficult.
Sara:
Wow.
Jason:
Apparently they have a difficult clause that allows them to get out of a deal. Amazingly. So, anyway.
Joe:
Sure by that time, [cuts out] canceling anyway, right?
Jason:
Yeah. My attorney says they can be liable for punitive damages for doing that. What they did was completely wrong, you know, retaliating like that, so I have not entered into litigation with them yet, but I don’t know, I might have to. I’m not sure, hopefully I won’t, but you know, I just, I think that was really, really unethical what they did and I think they deserve to be held accountable for it.
So, yeah, and then we had another client who had another claim. It was a smaller claim, but that one was also denied and the way they do their insurance is that they basically, from what I understand, and I could be wrong about this, okay, but my understanding is that they do the insurance by getting a master policy through I believe Loyds and maybe they have a couple of different vendors for it, I’m not sure.
It’s for only the larger part of the claim and the small claims, they, I believe, and you know, I don’t know this for sure, because it’s not been discovered, but I’m pretty sure this is the way it works. They just self-insure for the small claims. So, just as you, I’m plucking a number out of thin air, but maybe if it’s a $2,500 or lower claim, they are actually paying that money and that’s why they are really quick, my theory, is that’s why they’re really quick to dispute those claims and not pay them, because that’s their money rather than the insurance company’s money. So, I think that’s just problematic and I don’t like it, you know.
Joe:
Can’t stand business like that.
Jason:
Yeah, I heard a few more horror stories. I believe a British woman living in England, she wrote me several big emails about them. She’s not one of our clients, but she just was livid about them denying claims and thought they were just doing all kinds of bad stuff. I can’t remember her name off hand, but yeah, unfortunately local insurance, that’s what I’ve come back to, just regular old insurance, but hat is state by state, so you know, if you have multiple cities in Tennessee or Texas or whatever, you can use one broker and have all of those covered.
Joe:
Yeah, time for me to think about something different.
Jason:
Yeah, definitely is, but what we didn’t finish Joe is your goals for your real estate investments.
Joe:
My goals is maybe get into real estate to also help my friends do what I’ve been able to do. A lot of them are asking me about it and spend more time with my family and hopefully grand kids too. My daughter has been married three years now, so maybe the near future we’ll have a grand kids to take care of.
Jason:
There you go. There you go. Isn’t it nice the freedom you can achieve with, you know, this is the most historically proven asset class. It really does give you a lot of security. Although, what did you do before you were investing in real estate? Were you investing in stocks and stuff like that?
Joe:
You know, I did that eight years ago until the bubble in 2000. I thought I was the smartest self-investor out there, you know, I be checking my stock quotes five times a day and then 2000 came around and it’s like, of the money that I lost, if I put it in the real estate, it would have been in much better shape.
Jason:
A lot of people have thought that same thing themselves, but you know, listen Joe, you don’t have to worry because every time there’s a stock market crash. All of the insiders always get paid really well. You know, the people at Goldman Sachs get their bonus. The CEO of their company, of that company, got his huge salary and his bonuses. You know, it’s just the little investors that get screwed over, you know. I mean, it’s so unfair, isn’t it?
Joe:
Yes, it is. Yeah. I had my kid’s money in there, everything, but oh well, what can you do?
Jason:
It’s the modern version of organized crime as I always say.
Joe:
I tried options. I think I tried everything.
Jason:
Were you just doing good old mutual funds and kind of simple stuff?
Joe:
Yeah, it was mainly mutual funds. I did do some single stocks. I found this little news letter out of Oregon that were four stocks a month and what I found out was it was mailed out every month and because I lived in the west coast, I got my letter the first day and I started noticing after about two or three months, that the by the end of the day, by the time the market closed, all those stocks were quite a bit. The next morning it was, sometime it doubled and so I started doing that. I didn’t care – because they were like two-three-four-five dollar stocks. They were just penny stocks.
I could double my money in 24 hours, but then they went online so, it lost that mail part and everybody got their email at the exact same time, so I couldn’t rely on the post office where they would deliver to the West Coast first and by the time it go to the East Coast, when they started buying their stuff, it drove up the prices of people who had bought, already bought from the West Coast.
Yeah, so I even got a PO box so I could run to the post office every fourth, fifth, or sixth of the month. I’d go there to see if my letter was in there and soon as it was in there, I’d rush home click on my – buy 2-3-4,000 shares of this and that and wait to the next day.
Jason:
Yeah, yeah. Well, you gotta just know that is not sustainable when things are going that well, right.
Joe:
You couldn’t convince me of that back then.
Jason:
Yeah I know, well, I didn’t know you back then, other wise I would have tried, believe me. I love real estate! We all know that. Good stuff. Well good, well Joe, thank you so much for joining us today and just kind of telling your story and congratulations on your retirement and it sounds like, you know, next you’re going to be working as more of a hobby really than a must, than you have to, right.
Joe:
I’m not as well off as Fernando, so I’m no where there, but we’re getting by.
Jason:
Good, good stuff. Well, hey, Fernando is also working for just general stimulation and fund. You know, it takes on a whole new meaning when you’re not really working for the paycheck, when you’re just working because you want to work. It really, it’s just a whole different experience. It’s wonderful when it’s like that, so congratulations to you and keep up your investing and keep building your portfolio and we’re happy to help you and thanks for being our client, we really appreciate it.
Joe:
Thank you, Jason.
Jason:
Sara, thanks for joining us as well. We’ll wrap it up.
Sara:
Yeah! Thanks for having me.
