Jason welcomes back Steve, an old co-host. Steve is currently working with HomeVestors as a house flipper and shares his experience on the show. Jason reminds the audience that what Steve does is actually a full-time business that you have to manage, which may not appeal to his more passive investor audience. We also learn from Steve on what the real estate market is like in Utah and if it’s worth investing in it or not.

Key Takeaways:

[1:30] Jason welcomes back his old co-host, Steve.

[6:00] When you become a house flipper, you also become a legal aid and social worker.

[8:00] Steve shares a story about a house he flipped.

[19:30] Buying homes at a discount is an art.

[23:00] Jason and Steve talk about hypocritical celebrities.

[28:30] House flipping is a business. What Jason does is an investment.

[32:00] What’s the real estate market like in Utah right now?

[38:00] If you’re located in Magna, Utah, please email Jason.

Mentioned In This Episode:

The Big Short by Michael Lewis

Tweetables:

When you get into house flipping, you also become a part time legal aid and a part time social worker.

House flipping requires a huge commitment on your part, because it’s a numbers game.

House flipping isn’t something you’re just going to pop into and make an extra $250 a year.

Transcript

Jason Hartman:

Hey, welcome to the Creating Wealth show. This is your host Jason Hartman episode number 533. 533. I’ve got one of our old co-hosts back with me today. I am so excited. He’s a great guy. Many of you have asked about him and he’s come out of hiding and that is Steve from Utah, Steve, how are you doing?

Steve:

Hey, I’m back by popular demand.

Jason:

You are. It is popular demand.

Steve:

Yeah, I got letters and all kinds of posts. Steve, come back, come back. That’s true right?

Jason:

Well, I’ll put it this way, you’re back by semi-popular demand.

Steve:

Semi-popular demand.

Jason:

I mean, there was no one that said they didn’t want you back, I’ll put it that way, but I can’t say everybody said, ‘bring Steve back.’

Steve:

You said it’s a possibility, so now you’re going to hear hey, we didn’t. You’re going to get flooded with emails.

Jason:

We didn’t want him back, no. Everybody wanted you back, yeah.

Steve:

Well, I am back, so deal with it people that didn’t want me back!

Jason:

That’s right. Well, tell the listeners what the heck you’ve been up to? I mean, you are an investment counselor with us, but you’ve been on hiatus and we’d love to have you back working with our clients, but you’ve been busy with HomeVestors – We Buy Ugly Houses.

Steve:

Yeah.

Jason:

That’s their slogan. I love that slogan by the way.

Steve:

Yeah, I still got my license over there at the brokerage and you’ve been very kind to let me know that I can come back anytime and help people buy more properties, which I miss all my clients. Hey guys, hope you’re doing well. I dealt with lots of great people when I was active as an investment counselor, but yeah, I’ve been doing the flip thing that lots of people think they want to do and it’s been doing that for about a year. I had some experience with it in the past. So, here in Utah been flipping some houses and use that Home Vestor model for it. I don’t know how much I can say about their model, because it’s a franchise and there’s things you can and can’t say.

Jason:

Right, right, but the flipping thing. I mean, that’s a business. I mean, Steve, you’re running a business. It’s  not an investment right? It’s a business you’re running?

Steve:

Oh, absolutely. People think they’re going to be a “real estate investor” and you’re are buying and selling a product, right. Any business is by the widget for price X and then sell it for price Y and that’s what you do. It’s a business. If I stop marketing or stop doing anything the spigot turns off and I’m done, right. So, you’ve got to keep going and that’s why if you’ve got the personality for flipping, if you’ve got some very specific characteristics, capital; that’s a big one too.

Jason:

Having money is helpful.

Steve:

Yeah, what do you know?

Jason

Imagine that.

Steve:

These people want money for their houses. So, you got it.

Jason:

Yeah, they don’t give them to you for free.

Steve:

That’s right.

Jason:

Ha. Imagine that. You know, they obviously don’t know that you expect things for free, because you voted for Obama, right?

Steve:

You’re under the impression that I voted for Obama?

Jason:

No, I’m not.

Steve:

I don’t know how I could have gone wrong there. I thought I had been pretty clear that did not happen.

Jason:

Did you get a free phone?

Steve:

My Obama phone?

Jason:

Yeah, no Obama phone?

Steve:

Our buddy in Cleveland, Obama phone.

Jason:

That’s right. Okay, there we go off into politics again.

Steve:

We did it, we did it. My daughter, she’s really anti-Obama. She’s seven. So, we’ve raised her right, but I was talking to…

Jason:

I love that.

Steve:

my baby about that. That Obama phone clip one day and she was listening. We call her the tape recorder, because she will repeat everything she hears.

Jason:

She’s like a parrot.

Steve:

Yeah. So, we come home for the night and she goes back into her room to get dressed for bed and I hear her yell, because we were joking, we were saying, Obama phone and hey, I want my Obama truck and everything was going to come from Obama, right? So, she’s in her room and I hear her yell, hey dad, where’s my Obama shirt?

Jason:

Funny. You know the entitlement mentality is just so destructive, that’s why we’re joking about it folks. In case you’re a new listener to the show, you know, this is a very destructive thing for society. The entitlement mentality. When you buy houses from people, they expect you to pay for them. What a concept, right?

Steve:

Well, they’ll have very, very high opinions of what their crappy house is worth.

Jason:

And the houses you’ve been looking at have been pretty crappy. You’ve told me some stories about that.

Steve:

Oh man. Well, there’s opportunity in that. That’s a saying from Warren Buffett, be fearful when others are greedy and greedy when others are fearful, right. So, you know, if a house has a bad roof and broken windows and a pit bull chained to an old weight set in the front yard, that’s opportunity, right, that’s what you see, but it comes with some hair on it. There’s always something funky going on.

When you get into house flipping, you also, most people don’t know this, you become a part time legal aid and a part time social worker whether you like it or not, because there are situations where somebody might unload their house, quickly for cash, for a big discount, there’s got to be something funky going on and man, does it stack up the stories, because you can’t believe this stuff happening right under your nose all day, everyday.

Jason:

You gotta share some of those with us, like share a couple of stories. I mean, when I was in traditional real estate I felt like I was a social worker. Remind me, I got to get Sara, our investment counselor. She wants to be called investment therapist. I gotta buy her a t-shirt that says investment therapist.

Steve:

Well, sometimes we are the Sara therapist, because the therapist needs a therapist.

Jason:

That’s true. Every therapist does and every coach needs a coach.

Steve:

Hey, when I was an investment counselor, Sara and I would do therapy, because it was, yeah..

Jason:

Mutual therapy.

Steve:

That’s right, that’s right. So, well yeah, you get some really crazy, crazy stuff going on. I think probably the best one, the most entertaining one I had was, it was in a place called Magna, Utah, which Magna is a dive and I don’t have any trouble bagging on Magna on your show. I don’t think there’s anybody in Magna listening to the Creating Wealth show, okay.

Jason:

Okay. You’d be surprised.

Steve:

I’m willing to wager porterhouse at Morton’s next time I see you, okay.

Jason:

Magna listeners. Please write me a complaint letter so I can win a porterhouse steak at, where di you say, Morton’s?

Steve:

Morton’s. Yeah.

Jason:

Okay, alright.

Steve:

You can’t. I’m going to look it up. I can tell if you’re really in Magna, alright?

Jason:

Okay, go ahead, what’s the story?

Steve:

Okay, so I gt this call from this lady, hey, can you come look at my house and Magna and I’m like, oh, alright, fine. It was at the end of a long day. I had a lot of appointments this day. So, anyway, she tells me to come to look at this house in Magna. She doesn’t live there, just meet me at the house, you can see it, and then we’ll go see, we’ll go to my house a couple of miles away after to talk, because you don’t want to talk there. This is something I hear regularly, but I’m thinking oh boy, this should be good, right.

So, I pull onto this street in Magna and these are all like, two bedroom, one bath houses, maybe 700sqft tops and usually I don’t like that kind of a house, but this whole area was that, so I can get comps, I can value the house okay. I can sell it and we pull up in front of this house though and she’s pull up in front of me and I’m looking at the house and you can barely see it. It’s got a little porch and the porch is just stacked with stuff all the way to the rafters. You can’t even get in the front door, there’s so much stuff and in the front yard. This front yard had to be maybe 15ft wide, 10ft deep, but we got mattresses and tables and garbage and I mean, you name it. It is the worst.

So, she says, oh, hey, let’s go see the house and she’s kind of depressed. I can tell she’s going, ‘is this really my life?’, because she looked like a nice lady. She came in hospital scrubs, she was a nurse or something at one of the local hospitals and I’m thinking, you don’t live here. How did you get yourself into this situation.

Jason:

Right, how did you get yourself in this mess, right.

Steve:

Yeah. The wheels are turning, right. What’s going on with this thing? So, we go down the alley, kind of, there’s a side door, maybe like a 5ft wide gap to go down this side and go in the side door of the house and as we’re going down. I see somebody dart from the shadows back behind the detached garage and then another guy. I’m like, what’s going on here? I mean, when I go to Magna I take my assistant Mr. Smith with me, so by now my hand is back towards Mr. Smith, because I’m wondering what, who’s in this house.

Jason:

Is his last name Wesson?

Steve:

It is. It is. You know him?

Jason:

Yeah, Smith & Wesson. Yeah, I know him.

Steve:

That’s right. He was with me. So, somebody had spray painted on this side door, just ghetto looking spray paint, toxin waste, do not enter.

Jason:

Oh great. So, you have your gun, but you don’t necessarily have a bio-hazard suit, right?

Steve:

Yeah, I don’t have my hazmat suit with me, but the lady who is a nurse just goes right in. She doesn’t care, okay. This must be some meth head, right, trying to keep people out and we go into this house and it is disgusting. Okay, cockroaches, trash everywhere, a foul smell, I see a notice from the health department that the water and the utilities are shut off. That didn’t stop them from springing up a couple of extension cords to the power line, right. They had tapped into the power and there’s a lady in there, living in the house, and she says, hi, how are you?

I’m walking around kind of thinking, I wouldn’t want to be in here, but I’m with the owner, nobody is concerned, we’re okay, and then all over the dry wall in this house, somebody had written with florescent permanent marker these profound deep thoughts that I think their profound and deep when you’re on acid, but when you’re sober, they’re just stupid, okay.

Jason:

Now, how often are you on acid, you good Mormon boy?

Steve:

I’m just speculating that if you were to be on, this might be very, but this was, it was just stupid stuff and just toilets clogged and – imagine the most disgusting thing you can and this was it and then we go in the back and in the back part, there’s an old truck, a garage to the rafters and there’s five people living in this garage, right. There’s a guy grilling up something on a hot plate, scratching his wrists, you know.

Jason:

Is he grilling a possum to eat?

Steve:

No, it was an egg. He actually had an egg that somebody – he had got somewhere, but he could have been a possum. I’m sure that night it was.

Jason:

Folks, we’re talking about ventures in flipping houses here, okay.

Steve:

Yeah, yeah. So, we’re looking at this and this is a 650sqft house. So, actually, this is not as bad as it looks, only so much can be wrong with 650sqft. I wasn’t so much worried about the repairs as I was the unwanted tenants and whether they had rights or not. I mean, we’re not in San Francisco.

Jason:

It’s not total squatter ville in Utah.

Steve:

Yeah, but at the same time, who knows? If it’s going to happen, it’s going to happen in Salt Lake County. You got some communists in Salt Lake County, you never know.

Jason:
A couple of communists, okay.

Steve:

There’s a couple there, yeah. So, I go get into my car and I drive to this lady’s house, her name is Alice and I think we get there and I go, Alice, what is going on? She tells me, a whopper. She says, okay, my dad died, I inherited the house, I’ve got three other brothers and when he died, the University of Utah Medical Center put a lean on the estate for five grand and my brother, who is a drug addict, decides he’s going to move in the house with all of his friends after dad died.

So, he goes in and moves into the house and, of course, this turns into hey, can Bill and Bob come over. Can Susie and Phil come over? And now pretty soon, you know, you’ve got 12 people living in 600sqft and it’s just, they’re living in squalor. So, one of the roommates, I like to call him the director, he decides he’s going to film a porno at the house.

Jason:

Oh my God. Steve, as if this story wasn’t crazy enough!

Steve:

I know, I know. It’s getting better, right? So, he decides he’s going to film one of these at the house, but that he’s not going to check the ID of the actress.

Jason:

Oh, she’s under 18. Oh my God, really?

Steve:

Yeah. Yeah. They film this and then they burn a bunch of DVDs and they ship the DVDs across state lines and a couple of weeks later the FBI kicks in the door and arrests everybody. So, they haul everybody off to the judge and he pretty much lets everybody go, but the brother, because he had a, you know, just a truck load of drugs and, of course, the director, who is going to go away for a long time. So, all of these other minors that the judge let go gradually hitched hiked their way or whatever back to the house and that was what I worked into, right.

So, it was an absolute train wreak. I was actually competing with another investor on a deal. I ended up getting the deal for $19,000 and I just wholesaled it real quick for $40, because it was the cheapest deal in the whole county and investors just went crazy for it.

Jason:

Okay, so, you made 20 grand on that deal and you didn’t have to pull out Smith & Wesson, got pretty horrified, but by the time the IRS comes along, you got about a $12,000 gross by the time the IRS gets their cut. So, you know, okay, that’s pretty good still.

Steve:

Well, you gotta take flipping, plus, you know, there’s the cost of marketing and everything that comes out of your business, but you know, income you make through flipping properties and it’s taxed as ordinary income. So, you’ve got, I don’t want to get into my own details here, but you got to use an S corporation to minimize the self-employment tax and it will save you a lot of money. It’s not going to negate the tax, but it’s going to save you a lot of money. You got to have an S corporate on the back-end of this. That’s something for everybody to talk with their accountant if they’re crazy enough to want to flip properties. I mean, you heard what I just told you.

Jason:

Sure, yeah, that’s crazy. Well, okay. So, we have people that come to us once a while and say, well, let’s flip properties and so forth and, you know, I’ve flipped properties, I’ve made some money by it, but you know, it’s a business. In order for you to get that lead, I mean, you send out mailers. You are in the business of mailing stuff, Steve. Constantly mailing out, what, postcards? What do you send out? How many things do you send?

Steve:

Oh, well, thousands of letters a month. You’ve got to send a lot or you’ve got to have other various off market strategies to be able to do this, because the MLS is – buying properties right off the MLS, the Multiple Listing Service, is just insane right now. The competition is nuts and people are paying just stupid, stupid prices, but even then flipping, with all the ridiculous shows on HGTV and whatever.

Jason:

Everybody has become a flipper, right?

Steve:

Everybody is a flipper right now and I’ve actually been doing more lending over the last couple of months than flipping. I figure, hey, in a gold rush, you know.

Jason:

Sell the picks and the axes and the Levis, don’t go for the gold, right, yeah.

Steve:

Yeah, it’s not all that it’s cracked up to be. You get these flipping shows on HGTV where the guy, it shows, hey, I bought it for $250 and then it shows some drama, oh no, my tile costs more than I thought, oh, never mind and at the end of the day, oh, I bought it for $250 and I put $30 into it and I sold it for $450 and people go, wow, look at that spread and they have no idea that, A) all the work that went into getting that house and B) that spread, that is not that spread.

Your cost of capital is going to chew up a ton of that plus the cost of running your business is all coming out of this, so I mean, I like it because I enjoy it the hunt. I enjoy going out and chasing down the deal and wrestling it to the ground, because it’s hard to do, but I like it and I’m decent at it. Most people aren’t and I’m not saying, well, you’re terrible if you’re not – it just that it requires a very unique skill set and a unique personality and you have to know that you eat what you kill in flipping, right. It’s not like there’s awesome deals with huge equity spreads out there that you can just go pick off of the street.

Jason:

See, after going to, like, eight zillion real estate seminars over the last couple of decades, I’ve been intrigued by, you know, there are many different ways to do flipping and so forth, but I’ve been intrigued by the way you do it, right, which is mailing out the post cards. Those are Home Vestor’s postcards you’re sending out, right?

Steve:

Well, yeah, but anybody can do that. That’s not rocket science.

Jason:

Right, the unaffiliated people though that don’t have one of those franchises, they’ll send out, you know, the yellow postcards with a black print. They’ve got it down to a science which one works and they split tested it, you know.

Steve:

Yeah, exactly. They do that.

Jason:

I’ve been in intrigued by that, I just thought, wow, you know, you spend, I’ve thrown some money at that over the years where I’ve done it, okay. I’ve sent out the mailings. I’ve gone and I’m like, you know, night-time sitting at the kitchen table with these people who can’t make up their mind, who are just, you can see why they’re in the position they’re in and they’ve got themselves in trouble, because they are just not to swift, frankly. You’re in these scummy houses and, I don’t know, I just didn’t like it. I thought it was like a lot of effort for very little reward. Like, anything, if you just massively scale it up, I assume it could be great, right?

Steve:

That’s what you have to do. Yeah, you have to massively scale it up. You have to get really good at it. Buying homes at a discount from private sellers is an art. There’s a way that you talk to them and there are various ways to make money doing it. I mean, you can flip the property. You can sometimes get them to carry the financing and you can get into it with little or nothing done. You can assign the contract, you can wholesale the deal, and there’s a lot of ways to do this, but you’ve got to really, really commit to this. This isn’t something you’re just going to pop into and make an extra $250 a year.

Jason:

Yeah, $250 grand you’re saying, right?

Steve:

That’s right. This requires a huge commitment on your part, because it’s a numbers game. A lot of my mentors with the HomeVestors, they say, it’s a numbers game and a people business, okay, so you have to, you have to know, okay, if you go on a 100 appointments, make a 100 offers, okay. The odds are that you could get 5-10 of those, if you’re really good, maybe more of those offers accepted and you’re going to have some micturition in there, you’re going to have one or two fall out due to whatever reason that may happen, but the thing is I can’t tell you in what statistical order those deals are going to come.

If we look at deals, or offers, 1-10, right, the nice tidy way would be every 9th offer gets accepted, right, but the way that it usually works out is, well, I got nothing for the first 50 and then I got three in a row, right. So, you gotta be able to commit long term to it, because it takes a lot of numbers for the averages to come into play.

Jason:

That’s a good analysis of it. Do you still like to do it or are you getting bored with it yet and you’re ready to come back to work? You heard that right on the show, folks. I asked him that question. See, right on the show!

Steve:

You ask the tough questions, I’ll give you that. I feel like I’m Bill Ayers right now. This is tough.

Jason:

Bill Ayers interview, some people said I was too easy on him. I think I kind of was.

Steve:

I think I told, I remember that after that. I didn’t want to totally hit him over the head. I mean, I still thought he was an idiot, but I didn’t want to just..

Jason:

Steve, he bills himself as a communist with a small c, because if it’s with a capital C, then you’re like a bad communist.

Steve:

Yeah, so does he drive a Yugo?

Jason:

No..well, what is that car they drive? They have two cars in Russia. The Volga and what’s that other one called? I can’t remember the name of it. They both suck, you know.

Steve:

Well, say what you will about her, but the columnist and commentator Ann Coulter has my two favorite quotes on communism and socialism. Number one is, ‘they don’t care if they turn this into Cuba as long as they get to play Castro.’

Jason:

Right. That’s good, yeah.

Steve:

And number two is, ‘socialism is for everybody, but the socialists.’

Jason:

Yeah, very funny.

Steve:

I’m sure Bill got in his 750i and drove home that day.

Jason:

Yes, yes. His nice expensive BMW.

Steve:

That’s right. That’s just what nauseates me about those people.

Jason:

These people always think they’re going to be in the elite class when everybody else gets to, you know, live this little meager life, meager existence. That’s no fun.

Steve:

You need to reduce your carbon footprint, Jason.

Jason:

But Ari Huffington and Al Gore don’t.

Steve:

No, no.

Jason:

And neither does Richard Branson, for that matter. Second trip to Necker Island a couple of, like, two months ago, same deal. I’m thinking, you know, please don’t lecture me on being an environmentalist when you own an airline, you know. I mean, I think Richard Branson is an awesome dude, don’t get me wrong, but you know, isn’t that kind of hypocritical? I mean, okay, forget about say you’re going to own an airline, because maybe the argument there. I’m going to make his argument, right, which if I were him, this is the argument I would make. People are going to fly anyway. I might as well sell them the ticket and sell them the ride on my planes, right?

Steve:

It just destroy your own whole argument, though.

Jason:

Well, if Virgin, say Virgin Atlantic and Virgin America, the airlines and his other Virgin airline brands. If they didn’t exist, would another airline have cropped up to fill the spot or would an existing airline that was there before him have just added more plans and more routes to fill the demand, right? You know, maybe. I don’t know, okay, but certainty having another airline in the market creates a more competitive environment, at least in theory, and more choice, so prices will go down and when prices go down, more people will fly.

I mean, look, flying nowadays has been called the Greyhound bus in the sky. It’s tacky, it’s unpleasant, and the reason it’s that way is because everybody can afford it practically, right? But in the old days, I mean, I remember even when I was a kid and that’s not that long ago, okay, you know, flying was kind of special. I mean, in the real old days, before I was around, flying was the privileged of the upper crust, you know, that was the elite class, only the elites could afford to fly.

So, that’s one thing, but look, forget the airline argument and Steve, maybe you want to comment on that, why do you have parties on Necker Island and invite all these people to fly there. I mean, there are these websites you can go on that analyze people’s carbon footprint and the carbon footprint from flying.

I mean, like a lot of people on the trip I was on there were from Washington, DC area, the greater DC area, you know, Baltimore, DC, those kinds of New Yorker, those kinds of areas, right, and I calculated and I can’t remember, they do it in like tons of carbon spewed into the atmosphere, right and it’s a substantial deal for two people to fly to Virgin Gorda and then go to Necker Island. It’s boats that are terrible polluters, airplanes that are terrible polluters, all of this stuff and listen, I mean, it’s just a – if you really want to be an environmentalist, how about if you just don’t have an event.

How about if you don’t have a party. How about if you don’t invite people to your place then they won’t fly. I mean, I wouldn’t have flown somewhere else if I hadn’t gone to Necker Island. I went there because of that and because Richard Branson such a cool guy and he’s the coolest billionaire, right, and I wanted to meet him again and I thought it was a lot of fun. I had a great time, but I’m just saying, like, you know, I don’t get it! Help me get it, because I don’t get it.

Steve:

Well, you had a post on your Facebook page a while ago and I’m only remembering this because I commented on it and then somebody did, it’s weird when somebody comments on your Facebook post from a year ago. It’s like, why are you trolling your old Facebook post, whatever, right.

Jason:

Oh, that’s because, that’s because of that new feature, which I by the way really like, that Facebook memories feature. Every morning I get my memories and I love that! It makes me so nostalgic for the good old days.

Steve:

You get your memories, that’s great. Alright, well, you made a post about Leonardo DiCaprio yacht.

Jason:

Oh, what a freaking hypocrite.

Steve:

I mean, I don’t know..

Jason:

Hey, I’ll say this, at least Richard Branson, he has a beautiful yacht, it’s a catamaran, so it’s under sail most of the time. Now, of course, there’s all kinds of environmental sins that occur in building one of those boats. I mean, c’mon, fiberglass? That can’t be good for the environment, right.

Steve:

Well, we’re going to need a lot more coal power plants to charge all these electric cars too.

Jason:

Yeah, I know, that’s another one.

Steve:

It’s just a neanderthal argument and that’s the problem. I can’t get over it and I don’t know how many people are this way, but the hypocrisy of the people that advocate. That’s why I just role my eyes and I never take it seriously at all. It just bothers me so much how they just want the common folk to, you know, just shut up and take the bus, right. We’ll fly around on our gulf stream, but you take the bus and just stop ruining the world.

Jason:

It makes no sense. It’s just totally hypocritical, but I guess the elite class doesn’t mind their own hypocrisy. They don’t see it, they don’t think they engage in it or they just don’t care. Maybe they just don’t care.

Steve:

We will never know. We just know that we’re very irritated by it.

Jason:

It’s true. I am irritated by it.

Steve:

I like Leo’s movies. There are good movies, but he’s an idiot.

Jason:

He’s a hypocrite, that’s for sure, but you know, I tell you, there is a saying and maybe this is the saying they live by, it’s an old saying and it goes like this, ‘the best revenge is living well.’ So maybe that’s their revenge, you know?

Steve:

They’re getting revenge on us.

Jason:

Well, hey, what else do you see going on in the real estate market?

Steve:

Well, on the retail side, it is pretty much bananas everywhere, because I still teach some of my consulting gigs on the side. We will all go for a weekend and teach a workshop to ten flippers or so. So I do get a good pulse on a lot of different markets and, you know, on my properties here, for example, I’ve got one I’m closing up in the next couple of days. They actually might have to send a mobile notary to me in Puerto Rico. I’m still trying to figure out how to tell my wife that I gotta go downstairs and meet a notary for a minute, babe, because I’m head to Puerto Rico tonight. I don’t think I told you that for my ten year anniversary.

Jason:

Oh, hey, happy anniversary.

Steve:

Yeah, thank you. So, we’re going. We’re getting away from the kids. That’s going to be great. I mean, we could probably go to Moscow or Detroit and be happy because we’re away from the kids.

Jason:

Oh my gosh! Hey, well, happy Father’s Day to you too there.

Steve:

Hey, if you’ve got young kids, you get it. You love them, but what’s that song by Chicago, everybody needs a little time away.

Jason:

Yeah, that’s for sure. That’s true.

Steve:

That’s what’s going on, but it’s crazy because you’ll typically get multiple offers. I can’t say that a lot of people in the last few years have bought houses that shouldn’t have. I think for the most part they’ve been fairly well qualified. They’ve got a job, the debt to income ratio is okay. I’m getting a little nervous. I’ve talked about this on your podcast before, a book called The Big Short by Michael Lewis and one of the fund managers in The Big Short found some of kind metric, I gotta find it, where he could track what is the median house payment in a particular metro area and then what is the median income and he identified a few places. It was like Miami and LA.

Jason:

Well, Steve, you act like that’s something special. That’s called the Housing Affordability Act.

Steve:

He had something. It was some other – I’ll look it up and maybe it is something blatantly obvious thing, who knows.

Jason:

Well, maybe there was a twist on it that he had that was interesting, because that doesn’t tell you everything, you know, but it tells you a lot. It’s a good metric.

Steve:

Well, he was seeing that the median house payment was 50% of – you know, it’s getting to a level where it’s unhealthy, so I go, you know, wages are not increases, but house payments certainty are. They’re going up. You know what these interest rates cramped down to the bottom. They are still going up and I don’t know how long it could do what it’s doing. I don’t foresee something like 2008, but you know, it’s got to slow down at some point, but it is pretty crazy out there right now.

That’s why what you do is awesome, because people can buy cash flowing asset in stable markets, because I’m working primarily in the Western US where the cash flow is just terrible, like I wouldn’t do it, but if you go to Memphis or Little Rock or Indi or any of those places where the land is so cheap, that’s where it can make sense and all this noise, all this market nonsense and noise, you just plow right through it, make your return. I think it’s great. I still totally advocate that to people.

Jason:

Yeah, yeah, you know it’s a different thing. I mean, you’re running a business and we’re talking about investing. They are different things, that’s what people have to understand, they’re just different things. So, Steve, I got a question for you. I don’t know really how much or even if you know this at all, we used to do a fair amount of business in Salt Lake City many years ago.

I remember we had a couple local market specialists there and it was pretty good. Give me an example, like, can someone buy a good house there for say, $130,000 or is it going to be $150 and if so, what would the rent be on that? I mean, is it even, is anything in Salt Lake City like that even possible anymore or is it just way too expensive?

Steve:

Remember that flip in Magna I told you about?

Jason:

Yeah, how much was that? Oh God.

Steve:

That probably had a retail of about $80 on it, but that’s the cheapest there is. The land is expensive in Salt Lake City, because look, in the Western US, you’ve got this artificial, the supply and demand is artificially constricted. You’ve either got big giant mountains or an ocean or the BLM is in the way, right.

Jason:

Oh it’s not the BLM, it might be like in California, the coastal commission or anyone of the, you know, Sierra Club or anyone of these other environmental groups.

Steve:

Yeah or the military, even, right. We have a huge bombing range in Utah out in the West desert, but these are in the way and so the land is very, very expensive. In the Midwest you can see it for as far as the eye can see and it’s mostly privately owned and it can be developed as people want it, but here, oh, it’s land, we gotta develop it.

Prices are so herky jerky, they go up and down like that and so in Salt Lake, in the metro area, you’re talking, there’s a little over, we could have 2.5 million people, I think. Ogden is on the North side and Provo is on the South side of the metro with Salt Lake being right in the middle and if you’re in the Ogden area, that’s Weber County, you can buy cheap houses, stuff for around, you probably be all in at $80 or $90 if you bought it on open market and rehabbed it and put a tenant in there. The problem is you’re going to rent it for $600 or $700.

Jason:

Wow, that’s it? That’s amazing. It’s amazing you can’t take a $90,000 house, you can’t get $900 for that?

Steve:

I think if you did it up real nice, you might be able to, but then again, you go, this is like a tier three property.

Jason:

You mean it’s like a C- property or a C property, right?

Steve:

Yeah, You’re not getting the cream of the crop.

Jason:

You know, I think D is a category. Maybe there’s F ones too. Hey, I sold a couple of D properties when I was doing business in like Rialto, San Bernardino, in the old days when I did government repos, you know, yeah.

Steve:

People say, well, how do I know I have a D? You’ll know.

Jason:

You’ll know.

Steve:

You don’t need us to explain it to you.

Jason:

Right, you’ll know. Good point.

Steve:

Yeah, but if you get into Salt Lake County, the prices go up and probably out on the West side, in fact, there’s a hedge fun I know competes regularly with local market specialists called American Homes for Rent and they really hit the West side. Homes built in the 90s and these are homes you can get $1,100-1,200 a month on rent for, but you’re going to be in that stuff for a buck 60, a buck 70.

Jason:

Wow, that’s just crazy. Can’t get anywhere close to really one percent RV ratio.

Steve:

You’ve got to go multifamily. The land, it’s the land. That’s what kills it for you.

Jason:

Yeah, wow. Sure does, boy. That’s amazing, that’s amazing. Well, Steve, anything else you’d like to comment on going on the economy or you know, anything in general, you know, anything investment related, economy related, whatever?

Steve:

Well, I think on the stock market I’m wondering, you’re probably going to crave me up on this, but if you can’t beat them, join em?

Jason:

No, you kidding me? If you can’t beat them, they’re about to get slaughtered, you know. I think everybody, maybe that’s a contrary indicator. Maybe that means it’s wrong, actually, I don’t know. Who the heck knows, but everybody seems to be out there saying that the stock market is just totally overvalued. I don’t know, who the heck knows? You know?

Steve:

It is. I agree, I agree. It’s a mad house, but can you make some money? I’ve been tempted, yeah, hey, I have made some.

Jason:

Interesting. I just think that’s a gambler’s game. It’s a distraction and you just gotta stay focused. Income property, it’s a proven asset class, you know, that’s what I love about it.

Steve:

Well, you always say that an income property, you know, people feel the bumps right and your mutual fund portfolio, right, the secretary that sued the SEO for sexual harassment and then the company had to pay out 10 million dollar settlement, that’s a little blip in your stock portfolio and that’s no big deal. The day to day operational nonsense you don’t feel, but tenant evictions and broken air conditioners and that kind of stuff you feel, but that doesn’t mean it doesn’t work.

Jason:

Yeah, it doesn’t mean it’s not happening, like you said, you don’t feel it happening in that company that you invested in, but that company is losing money and that’s affecting your return. You know, so a lot of this is just about controlling ones emotions, you know, and just getting a handle on your own mental state and not getting all flustered. You know, when you get that bill for the air conditioning and whatever and just keep looking at the big picture, you know?

Steve:

Yeah, you can call your investment counselor because sometimes there is a legitimate problem. Sometimes you gotta talk to somebody who has their figure on the pulse of the overall strategy here and you can tell them, here’s what’s going on and they can say, yeah, that’s a problem, and they’ll get on the phone with a local market specialist or whoever and they’ll talk it through with someone and see what they can resolve. Other times they’d say, welcome to the party, sit tight. You know, it’ll get better.

Jason:

Exactly, exactly. Well, cool, well, hey, it was great having you back on the show, man. I hope you come back off your sabbatical sometime soon, okay, we’d love to have you back working with our clients and stuff, but it’s always great talking to you and let’s see who wins that steak dinner here, folks. So, someone from Magna. Magna, Utah, right? That’s where you need them to be from?

Steve:

They’re not listening. There’s nobody from Magna.

Jason:

Send me an email and tell me you heard the show, so that I can forward it to Steve and I can win my steak dinner.

Steve:

It’s not going to happen!! It’s not going to happen. Just like there’s nobody in Kandahar listening to your show.

Jason:

Well, I got someone in Kenya listening, I know that.

Steve:

Oh, Kenya is – you probably have some members of the armed services in Kandahar listening.

Jason:

Maybe, maybe. That’s probably true.

Steve:

I don’t think the Taliban are listening to the show. I mean, we were making fun of them earlier, their feelings are probably hurt.

Jason:

If they are, then I’m on the beheading list, which scares the heck out of me, so let’s just hope not.

Steve:

Well, just keep Mr. Smith near by.

Jason:

There you go, but you can’t bring it with you when you travel, you know.

Steve:

That does cause a problem.

Jason:

The TSA tends to not like Mr. Smith.

Steve:

Oh, freaking TSA. I have that TSA pre and half the time it’s closed.

Jason:

I like that thing though, boy, when, you just go through the line like that, it’s pretty darn handy, but you know, that’s the way it used to be before the government invented this terrorist threat to some extent. I mean, it’s not invented, but to some extent it’s invented, in my humble opinion, yes, I’m a wacko, I know.

Steve:

Yeah, you’re a libertarian hacker, whatever it was, but it’s, I was going through TSA the other day. My bags going through the x-ray. I’m waiting for it to come rolling down the little ram. I put my belt back on, put my life back together, right, and these, the one watching the x-ray screen is just yucking it up with some guy next to her. You could tell she had it bad for this guy and I could have had a bazooka and an assault rifle in my luggage and it would have just sailed right on through.

Jason:

Unbelievable. Isn’t that scary though?

Steve:

I hope they have a software that can say, hey, yeah, that’s an assault rifle, you missed it, you might want to check that.

Jason:

Yeah, the software can identify it without the person.

Steve:

I hope so, but this is the government. I might be a little too optimistic.

Jason:

Yeah, you probably are. Well, Steve, hey, it’s been good talking to you about almost everything under the sun. Thanks for educating our listeners a little bit on flipping and I think the lesson is, you know, just to kind of tie that back in that flipping is a business. What we talk about on the show, by enlarge is investing, which does not consume all your time and is not a business, it’s an investment portfolio. This should not consume all your time, unless, you know, you’re buying 50-60 unites, then that’s a little bit more of a commitment and maybe you want to treat it a little bit more like a business, but other than that, you know, it’s something you do on the side, okay. It’s moonlighting with real estate. There you go.

Steve:

There you go! Thanks for having me back and when you see your listenership take a nose dive, you know, I…

Jason:

We better wrap this up right now anyway! Steve, thanks for joining us, good talking to you.

Steve:

Alright, talk to you later, Jason.

Announcer:

This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

Episode: 533

Guest: Jason & Steve

iTunes: Stream Episode