Jason Hartman talks with investment counselor, Sara, about investor psychology, overcoming obstacles and getting out of our own way. The smoke-and-mirrors propaganda perpetuated by mainstream media (lamestream media as Sarah Palin says) in reporting the new high in the Dow Jones Industrial Average (DJIA). They almost always fail to distinguish between nominal dollars and real
Female Voice: Welcome to Creating Wealth with Jason Hartman. During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness then you ever thought possible. Jason is a genuine, self made multi-millionaire who not only talks the talk but walks the walk.
He’s been a successful investor for twenty years and currently owns properties in eleven states and seventeen cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman: Welcome to the Creating Wealth Show. This is your host, Jason Hartman and this is episode number 304, three hundred and four. Glad you joined us today on this historic day. Why is it a historic day? Because when I turned on television today, and started making my coffee and my cereal and you know, I watch about maybe ten minutes of television per day, I almost never watch TV, and there it was all the people on CNN, the communist news network, talking about the historic new high and the Dow which folks, I’m going to debunk that. It is not true. They were telling a complete falsehood as they dribbled on and on about it for, I don’t know, ten minutes. It was beyond ridiculous. So, I’ll debunk that for you in just a moment with some real facts, some real numbers and we’ll examine the real truth of it. But I wanted to tell you that I have Sarah, our investment counselor here with me. You’ve heard her on prior episodes and we want to talk about a few things, not the least of which is our upcoming Memphis Creating Wealth Boot Camp and property tour, a change in the podcast system and some clients and one of them are — Sarah welcome. How are you?
Sarah: Good. Thanks for having me back.
Jason Hartman: Good. Well hey, glad to have you back. Last time you were on was our episode 302 just two episodes age with Steve Forbes, as he talked about the Freedom Manifesto. So, he was a great guest. We’ve done a lot of great feedback on that — on that episode. But folks, go back to some of the old shows. If you’re a newer listener, make sure your entire back catalog, as it’s called, because we’ve got Peter Shift, Pat Buchanan. We’ve now had two presidential candidates on the show, Pat Buchanan and Steve Forbes and we’ve had G. Edward Griffin on a couple of times. We just got so many great guests. Be sure you’re listening to those old episodes as well. But Sarah first gosh, where shall we start today? Do you want me to go over this Dow thing? Do you want to talk about clients and some of the times how they get in their own way or do you want to talk about markets? I’ll let you take the lead here.
Sarah: Yeah well, I was — I was actually just listening to podcast 303 with Carl Richards and I had a client email me on that this morning as well, asking you know, which market — which market is Jason talking about? You know, I would just jump on it and we kind of hash it out a little bit, but it — it was interesting because my perspective changed a little bit after listening to —
Jason Hartman: Carl Richards, right. Yeah, um hmm.
Sarah: — Carl Richards, and how you know, we can be our own worst enemy sometimes. And so, you know maybe we should give them a little bit — the listeners, a little bit of background here on this market, and the market of St. Louis.
Jason Hartman: There you go. Yeah, I know you were all waiting with bated breath. I didn’t want to say the market last time, but it is St. Louis and we’ve got some very happy clients in St. Louis, but we’ve had a few little incidents. We’ve certainly had delays in construction and we’ve talked about that in prior episodes and when I say construction I mean rehab of the properties. But Sarah, you were in this every day. You’re talking to clients every single day about their experiences. So, what say you?
Sarah: Well, I mean, we’ve had a few red flags about you know, the delays with construction and I’ve had a couple complaints with property management, which we have you know switched to another property manager and I’m also researching a couple of others. So you know we have a back up plan but the most recent red flag was from a client who, you know also attended Meet the Masters event, and she went out and did a walk through. She did her inspection. You know, on —
Jason Hartman: Which is — which is honestly, somewhat rare that a client actually visits the property or at least before they buy it and we always recommend it folks. We — we recommend that you do that, but the fact is very few people actually do.
I’m going — by the way, Sarah, I’d love to get your estimate on this. I’m going to estimate that’s maybe three or four percent of the clients go to the property?
Sarah: Yeah, I mean I think that number is increasing, but I would say, you know less than five percent if I had to guess, yeah.
Jason Hartman: It’s a pretty small number and some people go after they buy two and —
Jason Hartman: — you know, if — if you’re — if you’re a new listener listening to this show, you might think oh gosh, these people are nuts. What are they talking about? I would never buy a property without seeing it folks. I purchased a lot of properties without seeing them. I’ve still never seen them. I’ve owned them for years. I’ve had tenants in there I’ve never met, I’ve never spoken to and I’m making money. So again, like I always say, geography is less meaningful than it’s ever been in human history. It’s still meaningful, it’s just less meaningful than ever before in human history. With the tools we’ve got now days, the online tools and so forth, and — and the network that my company offers. And you can find out more about that by listening to the old episodes and reading the blog at jasonhartman.com, but go ahead.
Jason Hartman: You know it’s — folks, I got to tell you, I have a big challenge here in doing this show. It’s really rather difficult because I’ve got to speak to a brand new listener that might be listening to this episode for their first time and that’s a listener that I obviously, as the show’s host, I want to get your attention. I want you to dive in and listen to the prior 303 episodes and understand our very unique and frankly, to pat myself on the back and our whole team on the back, highly acclaimed investment philosophy. Just read the reviews on iTunes. I mean, I was reading them last night. One of our clients said, you’ve got to read this review and I thought, oh God should I be worried? So, I got out of bed because I — I checked my email on my iPhone and I read the review and it wasn’t that bad. They just said, oh, Jason’s a conservative hack, which is better than a liberal hack, but he’s still a hack. So, I read your comment there. Yeah.
Sarah: Does it say who that was from?
Jason Hartman: It was from Gloria Kramer. Hi Gloria. And — and I just got to let you know, I’m not a conservative hack, I’m a libertarian hack. There’s a – there’s a difference. Okay. But anyway, let’s —
Sarah: Well, let’s — let’s — let’s move on from this tangent.
Jason Hartman: All right.
Sarah: So, back to the client and her — her walk through the inspection, and so she called me with — with some real concerns on — on this inspection and I’m pretty quick to — to defend our clients and to jump in and — and help them resolve issues and — and so forth, and so —
Jason Hartman: Yeah, yeah you know, I — I got to mention something on that, and at the risk of another tangent, but you know we are — we are — we are not on the side of our vendors most of the time. We — we ride them pretty hard. I mean, we — it’s like the customer is number one, and we will get on that. I mean listen Sarah, you’ve been copied on some of these emails that get a little ridiculous, where I will just call them on the carpet if they are not doing their job and I’ll tell them look, we’re going to yank our business. You’re probably making a million dollars a year or more from our referrals. Do you want to lose our account? I use that leverage and I mean, that’s what our clients — that’s the benefit they get. That’s what we bring them, is we bring them that leverage of our bulk buying power. The same way Walmart frankly, uh oh, a risk of another tangent one in here um, the same way — the same way Walmart has been criticized for — for beating up its vendors, and — and making them take lower prices and make better products and take returns. Because you know when you return something at a retail store, most of the time from what I understand, the — the store doesn’t take the hit, it’s the vendor — the manufacturer that takes the hit. So, you return a pair of shoes to Nordstrom, Nordstrom isn’t taking a hit. They’re sending those shoes back to Ferragamo or whoever made them and that’s who’s — who’s taking the loss there. But I — I remember I heard the CEO of Walmart on CNBC once in an interview saying you know, they said, look how do you respond to this criticism? They — you just beat up your vendors that you — that Walmart is like this impossible to deal with company? And he says, look, we are the agent for the customer. We want to bring our customers the best products at the lowest possible prices, and that’s how I feel. I’m the agent for the customer. That’s what my company is.
Sarah: Well, let me —
Jason Hartman: Okay.
Sarah: — let me just interject here with my own tangent and you know, tell everybody what makes my job harder now that they’ve heard what makes your job hard. I’m dealing with both the client, which like I said, I — I — I tend to be on the side of the client, but I’m also working with these local market specialists every day and I’ve seen some of the incredible deals that they’ve provided. I see how hard they’re working, you know and they’ve done some great things for us. So, yes we do call them out but you know, it’s — it’s kind of case by case and so you know, we have to be careful not to step on — on shoes and not to step on shoes, as they say?
Jason Hartman: Well, step on toes — well, you know.
Sarah: Is that an edit?
Jason Hartman: No, it’s not an edit. Let’s just you know, let’s just be real here. Many times shoes have toes in them. So, I think people get the idea.
Sarah: So — so anyway, you know sometimes I’m — I’m kind of stuck in the middle and — and I have to clean a point out the good and bad for both the client and that local market specialists and so in this case I’m — I’m concerned that I may have jumped the gun and you know, we’re not — we haven’t totally gotten through this one issue, so I’m not sure you know, how — how it will work out, but what I found out is that you know we hadn’t — the — the client hadn’t given the market specialist a chance to go through the inspection report with them and rectify you know, the issues that came up. So that’s where we’re at now. We’re going to go through that. They’re — they’re going through that inspection report.
Most of the time, what I advise the client to do is to give them the chance to fix the problems. If it’s too big of an issue and they’re not going to agree to fix that problem, then you know, they have the right to back out of the deal.
Jason Hartman: So, nothing — nothing lost okay. But the — the important thing is here as a reminder, and I know at the risk of repeating myself, and that is this is part of the embracing the fragmentation folks. That’s what you’ve got to do, because all of these little bumps in the road that you feel, these little hassles here and there, number one, many of them don’t cost you any money, occasionally they do but keep perspective and know that your return because it’s so high to start with it, if it meets performer — even if it doesn’t you’re still doing extremely well and then the question to also ask yourself is compared to what? What else can you do that’s any better? That’s the — that’s the other issue and — and then also is that fragmentation is what keeps the big institutional investors out. Those are just things to remember to keep it in perspective.
Sarah: Well, and — and just one more thing to mention, you know and — and this kind of goes back to the conversation. I’m — I’m – I’m well aware that you know a lot of our clients you know they attend our Meet the Masters events or property tours and sometimes they exchange email addresses, and I — I’ve been told, and not just from the most recent event but from several events over the years that there’s these different kinds of email chains, which is great. It’s great to share information. It’s great to network, to share the good, the bad and the ugly.
Jason Hartman: Well Sarah, what you’re saying is that so many people fall victim to listening to the armchair quarterbacks. The people that either aren’t doing it at all, they’re the, you know spectators in life, or they’re doing it but they’re doing it poorly. You’ve got to listen to someone who’s doing it well, and sometimes the person doing it well is — isn’t — I mean, are they making money or are they the type of person who’s maybe doing it well because they’re paying attention to every little detail, but by doing that, they’re getting in their own way and they’re shooting themselves in the foot, or in your case, shooting themselves in the shoe, which hopefully at least they have a shoe on before they you know accidentally shoot themselves in the foot. But what I wanted to say is that compared to what question? That’s one of the acronyms they kept saying on CNN this morning and it’s — the acronym is called Tina, T-i-n-a, and it’s there is no alternative. As though there — they were talking about — oh, well the Dow is now at a new record high and saying, well there is no alternative. The stock market is the only thing to do. Are you kidding me? I mean obviously who advertises on these — these stations, especially CNBC, that’s the worst but CNN’s not a financial station per say, but all of them, they’re all part of the vast Wall Street conspiracy that there is no alternative. Are you kidding?
People are making fortunes in income property right now. I mean what — how can you say there’s no alternative to the stock market. That’s a mind boggling lie. Anyway — so, anything more on the whole listening to arm chair quarterbacks that don’t know what they’re talking about half the time? But sometimes they do. You know, not — not all critics are — are bad. Some critics are right, some critics are correct. Look, I’m–– I’m a critic of Wall — of Wall Street, okay, and I’m correct, but —
Sarah: I mean, I would just say to these you know different email chains going on and — and things like that is — is don’t forget, if you’re on an email chain with ten — fifteen people, we have hundreds of clients and you know a lot of our clients — and a lot of our St. Louis clients are on their second, third deal. They’re — they’re happy with their deals and — and they’re repeat buyers, and you know others are frustrated with the bump in the road of you know, rehabs and things like that. So —
Jason Hartman: Yeah. Well actually Sarah, we have thousands of clients, but you have hundreds, yes. You — you as one investment counselor for the company but in terms of the history, we have thousands of clients. So yeah — so, you know you always get that one negative voice that makes you doubt things and that’s just part of life. It’s true in everything and — and that’s just part of a — the thing.
Hey but you want to hear about this Dow thing now days. So, this — this is unbelievable. So, just Google inflation calculator and unfortunately, I couldn’t find a calculator for inflation that does it by the month, and of course I can’t find a calculator that does it by the real rate of inflation. I can only find one using the official statistics. There are calculators out there where you can plug in the numbers, but the problem with those is that you can’t plug them in for each year or month by month, and so this is a rough estimate, and what I want to say to you is that the numbers I’m about to tell you are quite a bit more in the favor of my example than — than the calculator would imply, because of those reasons I just mentioned and of course the government maligns inflation and under reports it through the three major things waiting, substitution and hedonics. The pleasure index, so to speak, the Hedonic Index. And if you don’t know what that is, go back and listen to prior episodes. We talk about it extensively, but here’s the deal. The Dow in 2007, okay at its last high before the big crash, before the financial crisis, okay, was at fourteen thousand one hundred sixty five. That was the number. Now, back then at that time, and this is — Steve posted an article from one of the great websites, zero hedge, that I really enjoy, a lot of great data there, they — they said — and — and their commentary on it was this morning, mission accomplished.
With CNBC now lost for the countdown able targets through twenty thousand targets, is — is — the twenty thousand is so close, we leave it to none other than Jim Kramer talking about where we stand in terms of the market, okay. And — and — and here is the contrast. It’s really mind boggling, okay. So, the Dow Jones industrial average then, fourteen thousand one hundred sixty five I’m rounding here slightly, now it’s fourteen thousand one hundred sixty five, I — I guess – and I — it — it may be up a little bit by now or down, but he did this article right at the time it hit that other peak, but here’s the difference. Think about what has happened in terms of the cost of living. A — a gallon of regular gas back then was two dollars seventy five cents. Now it’s three dollars seventy three cents, almost a dollar more. That’s about a twenty — what’s that about a twenty five percent increase approximately, so a very significant difference.
GDP then — and these are the government stats of course, GDP then was positive at two point five percent. Now it’s positive at only one point six percent. And by the way, GDP, the gross domestic product, is a total misnomer because they’ve got — you’ve got to — to understand that properly, you’ve got to adjust for population increases and you’ve got to adjust for inflation, which they usually don’t do. A number of Americans in the labor force who are unemployed, and of course this is totally maligned, go listen to my episode with John Williams, the founder of Shadowstats.com about this one, but then it was only six point seven million people unemployed, now it’s thirteen point two million and that’s basically double.
Americans on food stamps back then it was twenty six point nine million. Now it’s forty eight million, the size of the Fed’s balance sheet back then was a mere point eighty nine trillion. Now it’s three point one trillion. And get this one, Sarah, mind boggling number here. U.S. debt, the Country’s debt as a percentage of GDP, back then it was about thirty eight percent and now it is seventy four point two percent.
Jason Hartman: That is insane. We are only talking about 2007 until now, February of 2013. That’s not much time and household debt then, thirteen point five trillion now, actually lower, and if you adjust for inflation, a lot lower. People have gotten themselves out of debt okay at twelve point eight seven trillion doing the right thing, which is what the government doesn’t want because they want you spending money. You know, remember George Bush, go out and spend some money. Consumer confidence, mind blowing number here though back then it was ninety nine point five percent. The Consumer Confidence Index, now it’s only sixty nine point six percent. It — it’s — it’s just mind boggling how much things have changed since then.
And if you look at gold, which I think is a rather mediocha “investment”, I think it’s just a savings account, not an investment at all. We talked about that many times in last shows — prior shows, but then it was seven hundred forty eight dollars an ounce, now one thousand five hundred eighty three dollars, down from an even higher point recently, but that’s a measure of inflation and I think that’s why you know, it’s worth discussing but not as an investment.
But look at this now. Okay, so I went through this inflation calculator and I punched in fourteen thousand one hundred sixty five, which is the value of the Dow at its peak then and what passed at least for a little while this morning. Now today, they — they all say, oh well the stock market’s going through the roof. It’s a total lie. Today, that same Dow adjusted for the official under stated rates of inflation, needs to be at fifteen thousand six hundred seventy two dollars, to be equivalent by non-real, understated inflation statistics. You need to be at fifteen thousand six hundred thirty one dollars to have any real gain in the value of your stock portfolio. So again, a total and complete bold faced lie.
The vast majority of Americans are just too dumb to figure it out. They don’t understand how things work. They don’t understand the difference between real and nominal value of things. Oh and by the way as I speak, the Dow is at fourteen thousand two hundred fifty seven dollars, so up one hundred twenty nine points on the day. Okay. So still, we are still behind. That’s my point. We are still behind. In fact, if you had your money in and you left it in and you went through the down cycle and you didn’t take it out, the value of that money when we hit that same historic peak today, was only twelve thousand seven hundred forty eight dollars. So in other words, by the official and understated statistics, based on inflation, you have lost money. You’ve lost money, and most people, they don’t know how to keep score so they think they’re winning in the stock market when they’re really losing. You’re going backwards. You’re not even treading water. You’re not even keeping pace. You’re losing ground. Your wealth is being eroded by that insidious hidden tax called inflation. So, that’s my take on the Dow. I wish the mainstream or lamestream media would tell the truth, but I doubt that’s going to happen.
Hey, let’s move on Sarah. We’ve got two more things to talk about. We do have — not a guest today, but we are going to play a paneled discussion from our last Meet the Masters event and it’s a lender panel discussion. So, people can hear what lenders are saying. We’ve got a panel of three lenders and we recorded it. We’ve got a lot of audience participation and questions here and so we’re going to play that here in just a moment for our listeners. That’ll be today’s — in place of guests, we have — we have three guests. We have a panel of mortgage experts. So, that’s what we’re talking about.
But I wanted people to know, we are about to make a big change in our podcasting system. So with changes, sometimes we would pray that there’s no technical problems, but if there are any technical problems and for some reason you don’t get the podcast in your feed, go to the Jasonhartman.com website. Just know that we’re still here. We’re still podcasting. We do this regularly, you know once or twice, or maybe three or four times a week sometimes we get a show out to you. So, just understand that we hope there’s no problems with this changeover, but I wanted to just put that out there and let everybody know we are making a change in the system and it’s going to be better, but we always take a risk at changing things when we do that, and there can be technical problems. Okay.
For some reason you don’t see the show on iTunes or you don’t see it showing up on whatever podcast or aggravation platform you’re using, know that we’re not going away. We’ll be podcasting. We’ll have — you know, we’ll eventually get to episode one thousand. So, keep listening and always look for us, for some reason you lost us. Okay.
And then — and I know Sarah, you think this is great news. We finally booked our Memphis property tour and Creating Wealth Boot Camp. Aren’t you happy about that?
Sarah: I am super excited. I’ve been talking it up for the past two months.
Jason Hartman: And these hotels, it’s complicated to book these things. You’ve got to book the hotel, you’ve got to get the good room rate deal for all the guests which is one hundred fourteen dollars per night, on our room blocks. We’ve got a great deal and we’re at the Hilton in Memphis okay, which is a beautiful hotel. We like to stay at the classier, swankier places. That’s where we are, and the dates — should we give the dates, Sarah? Are we ready to do that?
Sarah: Drum roll.
Jason Hartman: Okay. Drum roll please. This will be at the end of April, and the dates will be April 26th, 27th, and 28th for the Memphis Creating Wealth Boot Camp and Property Tour and it’s at the Hilton Hotel in Memphis, which is a great location for everything we want to do on the tour, and we’ll probably have Elvis come by and speak for a few minutes because a trip to Memphis would not be complete without Elvis. So um —
Sarah: I thought you were dressing up as Elvis?
Jason Hartman: Oh, I don’t know about that. You know, I’ve never dressed up as Elvis. I know that’s a popular Halloween costume, but never — I’ve never done it.
So anyway, this will very shortly — it’s not as we speak as we record. It’s not up on the website, but it may be by the time you listen at Jasonhartman.com under the event section and early bird pricing at two hundred forty seven dollars. That will go up quickly as the tour starts to fill. So, book early. Make sure you get on the one hundred fourteen dollar room block option and Sarah, how about if we talk about the schedule. So, it will start on Friday evening at 7:00 p.m., with a welcome dinner that we’re hosting. Keep your wallet in your pocket and don’t pull it out because we’re hosting that. And so, we’ll have a welcome dinner Friday evening, and that will be April 26th at 7:00 p.m. in Memphis at — at the Hilton Hotel, and then Saturday, all day from 9:00 a.m. to 6:00 p.m., we’ll be doing the Creating Wealth in Today’s Economy Boot Camp, the one I have given for thousands and thousands of people and you know, even if you’re not interested in Memphis as a market by any chance, come and just go to the Boot Camp and — and hear that. I mean, people love that seminar. So, that will be a full day, nine hour day from 9:00 to 6:00 p.m., and then we’ll have a dinner, everybody together Saturday evening, and then Sunday morning, we’ll have breakfast and we will board the bus and we will look at distressed properties. We’ll look at foreclosures. We’ll look at properties before and after the rehab process and you’ll get a sense of what our local market specialists do in terms of rehab, and by the way Sarah, this is kind of unique, we did this once before in Phoenix, but we have two local market specialists hosting this tour with us. Not one, but two. So, you’re going to see some different types of properties from different prospectives, some different operations, frankly. Any thoughts on that?
Sarah: Yeah, I really like both of our providers, which is why we’re having two. I mean it was — it would have been too tough of a decision to leave one out. So, we like them both. Property management is — is solid with both. I mean, we’re really got two great teams in Memphis, and — and there are a lot of providers in Memphis that we turned away just because we like these two systems.
Jason Hartman: Oh yeah.
Sarah: I haven’t had any complaints, so —
Jason Hartman: Well, we’ve — we’ve been — you know, and I said, when we — when we introduced Memphis on the show, many, many episodes ago, but you know when I said that, I said that we’ve been avoiding this market for several years. I mean, I was getting a call once every couple of weeks for a long time. And for your — your investors to Memphis, and what finally convinced me was a couple of clients and I think one of them at least was your client, and I think one was another investment counselor’s client calling me and talking to me about their experiences in Memphis, not buying through our network, buying through another provider, going directly, and they had mentioned that they were very happy with the providers. So, we started really looking at that market in a little more depth and screening different providers. There — there are many providers that do Memphis. There’s a lot of — a lot of rehabbers in Memphis. It’s a big area for that.
Sarah: And I’d like to just chime in on that there. I have heard good and bad about some of the other providers, which is you know, part of the reason that we stayed clear from some. So you know, there are some providers that I’ve heard are under hot water in Memphis so you know again, do your due diligence. Um, we’ve found a couple of great teams so we’d love to have you all on our tour.
Jason Hartman: You know what I’m sort of noticing about you, Sarah. As long as I’ve known you and that’s many years now, you sort of — you kind of change old sayings. You say they’re under hot water instead of in hot water.
Sarah: In hot water. You’re right.
Jason Hartman: Yeah, we don’t want to sell anyone’s shoes.
Sarah: Yeah, I like to put my own twist on — on mistakes, so —
Jason Hartman: Yeah, you do. You really remake these old sayings. Okay, good. Anything else before we go to our panel discussion?
Sarah: Oh no. I’m definitely not going to listen to this podcast.
Jason Hartman: Hey, we’ve got to have a little fun and be a little bit corny here and there. Okay, everybody hey, thanks for listening and happy investing. We are going to go to our panel discussion and we’re going to talk about mortgage financing. You know, we don’t do that enough on the show and I think you’ll really enjoy this panel. And it was very well attended at our Meet the Masters event, which was at the Hyatt Regency in Irvine, California in January and just about a month and a half ago. So, I think you’ll really enjoy this and we’ll be back with the panel discussion in just about sixty seconds. Thanks for joining me, Sarah.
Sarah: Thanks so much.
Female Voice: Now, you can get Jason’s Creating Wealth in Today’s Economy Home Study Course. All the knowledge and education revealed in a nine hour day of the Creating Wealth Boot Camp, created in a home study course for you to dive into at your convenience. For more details, go to Jasonhartman.com.
Jason Hartman: Let’s invite our mortgage experts up here. Come on up. So, first of all, I’d like to go — now this is the time where you should be asking a lot of questions. This is a much more open forum, this particular thing. What we found with mortgage speakers is that everybody would hear one thing from one mortgage person and a different from another one. So, I want to put them all up here once and — and we’ll see if they agree, okay. All right.
But first of all, give us a little two minute elevator speech, if you would. Tell us who you are, where you’re located, what company you’re with, how long you’ve been in the business, anything you want to say that’s unique like that.
Steve Gillhouse: Steve Gillhouse with Guild Mortgage. I’ve been in the business about twenty five years. So, I’m one of the old timers. Fifteen years of that was spent in banking where I ran a real estate department for a bank. I decided to make that move out of banking because I could actually make more money being an L.O., then I could a V.P. at a bank. So, it made sense for me to do that.
We’re head quartered — the company I’m with Guild Mortgage. We’re head quartered out of San Diego. I work out of the Lynnwood office, which is just about twenty minutes north of Seattle.
Chaley Ridge: Hi. My name is Chaley Ridge. For those of you that — that I know already, you know how that’s spelled, and I’m wondering first off, does anybody want to take a crack at the pronunciation, which we — maybe we should say it together. Should we try it one time? It looks like Chaley for those of you that have seen it. Let’s do it. Okay, one, two, three, Chaley. That’ll — that’ll be on the test later.
Hi you guys. I’m so excited to be here. This is my first Meet the Masters. I’m down from Portland, Oregon, that’s where my office is. We have corporate offices in Los Angeles. Quickly, about Ridge Lending, we are a second generation company. I’m the second generation. My father founded it. I’ve been in the industry for about fifteen years. I’m an investor myself. At the height of the last cycle, I own forty two properties collectively. So, I come with a unique prospective, I think, that I can add to the education which is a big part of what we do to our clients, our investors and having that background, that experience, I think adds — it’s a value add I think that we can help support the goals and the financial strategies.
I find that the financing piece is — is very intimidating for most people, so we really try to do a good job in taking you through the process, trying to get you to understand it in giving you the tools and the education necessary to go from A to Z, depending on what that looks like for you, and supporting that with the financing and making sure that your positioned properly.
Uh, we’re nation wide, and um, we have fantastic products that exceed past the ten barometer that you guys have heard about conventionally. We can do four more after that. It sounds like we don’t have a lot of time so I’ll go into that in more detail in a one-on-one basis, and I’m super excited to get to know each of you and — and talk about what your goals are for investing and how we can help support that. Thanks.
Aaron Chapman: I’m Aaron Chapman. I’m also — spent some time in the industry, 16 years, came into the industry from the mines in New Mexico. So I was working underground with explosives, that kind of thing. So, it’s an interesting transition.
Chaley Ridge: Not so different from what you’re doing now, right?
Aaron Chapman: Exactly. It’s the same — it’s very — it’s a lot dirtier now than what I do compared to the — the other. But — um — so that kind of adds a little bit different spin on it, going from heavy equipment operating the mines and somehow I forced my way into this. It’s been very successful. This sixteen years, it’s not easy, it’s definitely not easy and you know what I found also investing all kinds — all kinds of different parts that I was involved in and then the mess that’s happened is that it’s really a people thing and that if we don’t get along and you and I don’t have a basis or a relationship to continue to do business just based upon how we — we speak to one another, than really — there’s really no reason to continue to move forward on this particular transaction, because it will be miserable.
No matter who you pick on this panel to work with, or somebody outside of this, it’s not going to be fun. So, I would just let you know that up front. And it’s nothing against you, it’s just part of — part of the deal. So, we need to build a relationship right up front, is really the main thing. As far as personal life, wife, three children, we — my wife and I both are technical rescuers for the sheriff’s department. That’s where we spend our extra time outside of the office.
Jason Hartman: And I’ll tell you, Aaron, I live in Phoenix, as does Aaron and he was on the news. He made a big rescue — a guy like fell down a cliff and I — I saw that on — on the news. So then he was the guy who actually rescued him. So — yeah.
Aaron Chapman: There’s — some bay jumpers who decided to jump off of an eight hundred foot cliff on the front of the — on the face and superstitions on leap day last year last year, and I was the lucky one that got chosen to get sent down the — the cliff to go get him. It was really, really cool.
Jason Hartman: He — he likes to risk his life, that’s why he got into lending in mortgages. First of all maybe if you want to pass back to Steve here, I wanted to ask you all, what is the sentiment you’re hearing from investors? What is your — what is the feedback, what is the — your take on the market right now? I just wanted to get — kind of get your thoughts on the — the market, the real estate market, the economy in general, maybe any feelings about where interest rates are going and so forth, and just kind of a — a minute on that one and you know, we’ll just get everybody’s — and we’ll go into some specific lending stuff after that.
Steve Gillhouse: Right now we’re in — we’re in record lows as far as rates, and you know, it could — it could really go either way and that is as far as going up or down. Now I think what we’re going to see, we’re going to see the rates start to — you know, start to stay down.
A lot of the investors that do come to me and they’ve had experience with other lenders, good and bad, and you know, my job is really to you know just kind of help them through it, because it’s — let’s fact it, the lending — you know, lending arena right now we’re back how it was twenty years ago. I mean they’re looking at everything and so it’s — it’s important to have somebody that’s got some experience, can foresee some of the problems up front. You — you know, nobody likes getting that — getting that call saying thirty — forty five days into the process that you don’t qualify if something happens. So again, it’s really, really important. And the complexity in what — what the investors are — are trying to do right now is you get those people that get up in the ten properties. They want to get to twenty, they want to get to thirty. How do you get them there?
Years back when I was in banking what we used to do and that was we used to bundle them, commercial loans, have them form a corporation, do it that way there. And you know the banks lost a lot of their appetites for the — you know, for the real — real estate investing. Now we’re going to see some of that come back. I’m talking to a couple of lenders right now that I want to be able to refer over to, refer my clients to in that and you know, that’s just kind of where I see things going.
Jason Hartman: So, you think rates will stay low, in other words, right?
Steve Gillhouse: Yeah, that’s correct.
Jason Hartman: And by the way, I agree and Doug mentioned that earlier, remember what low rates mean that people buy properties, not on the price, they buy it on the payment. So, if someone can get a loan and rates are low that means price pressure is definitely upward.
Chaley Ridge: Well, can I — can I comment on the rate thing? So, I don’t know how much you guys spend on figuring out what your payments are going to be. It’s probably a lot per property, right? And then the price points that we’re finding are in the market right now and — and having been through the last cycle, I mean the suite spots are what, on average, eighty to one hundred twenty – one hundred thirty single family residence. Would everybody agree to that?
So, let’s figure an eighty percent mortgage on that purchase price, do you guys know the difference between a four percent interest rate and let’s say five, six percent interest rate? It’s negligible and it’s — in the big picture if you’re looking into the future, the difference even if rates did go up a little bit, which I agree with Steve that that’s probably not likely. I don’t like to predict past — what time is it? You know what I mean? It’s — it’s very difficult. There’s so many different variables that go into how the — the rates are going to go from one day to the next. They change daily, sometimes a few times a day. So, I would advise my recommendation and I used to get really hung up on interest rates, is I wouldn’t focus so much on that number. I think that it’s a lot less important than the actual process in kind of understanding financing and how to position yourself through education and hopefully that’s what we’re here to do for you guys, so that you know how to take one property of ten if that’s your goal, and make sure that you can still qualify in the process. It’s — it can be tricky.
Jason Hartman: Right. Just so you know, what I was kind of getting at there is the investor urgency issue because when rates are this low, I mean we’ve seen prices in Phoenix, they’re up about thirty four percent off the bottom. I mean, prices are rising in pretty much every city now. That’s the thing that’s — that’s cause — that needs to create urgency with all of us, to buy up more properties, is that — that issue of the low rates.
Now, it’s — it’s kind of an odd thing that we have right now, because we have very, very low rates, which usually — and so, housing affordability is the best it’s ever been. Okay. Since NAR national association of realtors started keeping statistics, however, people can’t get the loans, a lot of them, so it’s kind of like a — a real quandary here where you know you’ve got these incredibly good interest rates but it’s also still, at the same time, hard to get the actual loans. Aaron, any thoughts?
Aaron Chapman: I think that actually — because — those — one exists because of the other because the rates are supply and demand of money. If you’re not tearing at that supply, of course the — the cost stays low. So, because of the fact that we’re preventing so many people from getting these loans, that’s what I think is contributing to it. I wouldn’t say it’s the total — the total reason, but it’s a definite contribution.
Uh, when we’re talking about financing piece, what a person needs to do is be pre-emptive with this. Take the time to sit with somebody, whether it be one of us or somebody and figure out your financial profile well ahead of time. You’ve spend the last ten, fifteen, twenty, thirty years setting up your financial situation. We are giving a matter of moments to dissect it and tell you whether or not we can get something done, and a lot of times things can creep up in the process that we don’t find until we really dig deep, and that process can eat up into you escrow time.
Take the time ahead of time to get that figured because it’s not a science any more, it’s a moving freaking target, is what it is.
Chaley Ridge: Freaking target.
Aaron Chapman: I’m trying to — yeah, I’m trying to —
Chaley Ridge: It’s true.
Aaron Chapman: It — it is, it’s a mess. So that being the situation, let’s sit down, let’s go through everything in great detail well ahead of time before you want to waste your time. Don’t be paperwork apprehensive. That’s the biggest problem we have, at least I have. I don’t know about you guys, but people are very paperwork apprehensive. They like to say, well this is my private information. I don’t want to hand it in right away. We’re going to need it. You’re going to have to get — I mean, you’re going to have to expose yourself, literally. Yes, and what if we say — you do have to do all this, unfortunately, and one thing you also have to know, please, we don’t — we don’t want to see it anymore than you want to give it, so if you give it to me, I got to read it and I don’t like reading, just to be honest with you. We have a question back here, Jason. If you’re asking me personally, there’s not a money issue that we’re talking about because if I’m working with one of you guys one time, I’m working with you three, four, five times.
So, I’m not worried about one price fund being low, personally, but we do — the banks do have limits. With the institutions I work with, it’s depending upon which — whether you’re the first four loans or the five to ten loans or higher, it’s forty thousand dollars for one and fifty thousand dollars for the other, that’s just where their break even points are, because their —
Chaley Ridge: Fifty thousand, minimum.
Jason Hartman: So that’s — that’s — remember, that’s fifty thousand dollar loan amounts —
Chaley Ridge: That’s right.
Jason Hartman: — not property price.
Aaron Chapman: Exactly.
Jason Hartman: That’s the minimum loan amount they’ll do. Because think about it, they don’t want to hassle with these small loans. They’re not very lucrative for them. You know fifty thousand dollars if you live in Orange county, is a car loan. Okay. You know, so —
Chaley Ridge: Just to add to that —
Aaron Chapman: Those are for lower income people.
Jason Hartman: Yes. True.
Chaley Ridge: — just to add to that —
Jason Hartman: Microphone, microphone.
Chaley Ridge: Oh, sorry. Just to add to that sentiment, the fifty thousand dollar loan amounts too, there’s something now um, the powers that be decided that the high cost limits, loan limits, it becomes very problematic to make any kind of money on the smaller loan amounts, and be able to — to have compensations. So, there’s Fannie Mae tests that you either fail or pass and most often those fifty thousand dollar loan amounts you’re failing and so, what you think you’re making one thousand bucks or whatever, is really more like half that it — it gets complicated. So, fifty thousand dollars is our minimum. Do you have a minimum?
Aaron Chapman: I’ve been — for my –some of my investors do that, because I have a tough time turning somebody away that wants to buy a property for fifty five thousand dollars, and they were going to put twenty five percent down — I mean I’ll look at the loan.
My branch manager Randy over here, is not really thrilled with the idea, but I’ve done a — I’ve done a loss —
Chaley Ridge: [Inaudible].
Aaron Chapman: — right over here. So —
Jason Hartman: He doesn’t look thrilled.
Aaron Chapman: You know, I’ve got — I’ve been thirty thousand dollars for the customer. You talk about the high costs.
Male Voice: [Inaudible] in your pocket.
Aaron Chapman: You know we — we can do — well basically — but I charge you for it, okay. You know, what you’re going to do is — my rate caps out of four and three quarters, four point eight, that’s where you’re going to end up. You’re going — the highest rate I’ve got on my rate sheet, that’s where you’re going to end up. I’m going to hit you. I’m going to charge you back, because we get hit for the loan size. You’re going to pay that. I’m not – and — and I’ll charge you one percent a loan fee.
So, we get back in that, basically even with the high cost [inaudible] in that, that one and one quarter I charge you for being under fifty five thousand dollars that absorbs the majority of that. So, I do make a little bit of money but at the same time, I don’t look at the — the customers coming back. If you’re going to — if you’re telling me you’re going to bring me five or six thirty thousand dollar loans, we’re going to have a talk, because I’m just not going to do that.
Jason Hartman: Because he doesn’t want to do — but isn’t it interesting what they’re saying about this. Remember the command — the second next ten commandments this morning, it’s the same thing as a landlord. You don’t want to deal with super low quality, super low end property, because if they have to hit the lender — not they, but you know their actual ultimate lender has to foreclose on that property as a service, it’s not worth it if it’s too cheap of a property. That’s why there’s ultra cheap properties, you can’t finance them. There’s just no fi — no bank wants to do it.
Chaley Ridge: If you — if you have a need for that smaller loan amount, usually what I’ll tell my clients is find the on the ground smaller bank in the area that the property’s located —
Jason Hartman: In Detroit?
Chaley Ridge: — invariably, yeah they’ll be able to do it for you. They — they could do it. Yeah. Right.
Jason Hartman: If they haven’t left the city yet. Anyway — okay, so next question. So the question is, how do I know you know, when I’m getting a loan that I’m not being nickel and dimmed to death. You are. Okay, next.
Male Voice: That’s exactly what you’re say —
Jason Hartman: Do you hate me now?
Chaley Ridge: No, it’s true.
Jason Hartman: Yeah.
Aaron Chapman: We’re in — we’re not the ones trying to nickel and dime you. It’s more or less, we’re getting hit with it. We’ve got to pass it on. The end result is, you’re going to have certain charges. If we can minimize it, we’d love to because believe me, we don’t want to hear that question. We don’t want to have to answer that question, but I’ve gotten very good at answering that question.
Actually now after my career, I’m easily — I can just put on a black suit, go to hospitals and tell people their Mom just died on the operating table, because I have no feelings left.
Jason Hartman: Okay, pass the mike over. Steve — Steve, at least you’re compassionate. Go.
Steve Gillhouse: You know, the uh —
Jason Hartman: But you don’t rescue people when they fall off a cliff.
Steve Gillhouse: No, I — I do not.
Male Voice: Steve would charge them, actually.
Jason Hartman: When you get down there, you’re on the helicopter, you know and you have somebody sign over your house. I have no equity, it’s up side down.
Steve Gillhouse: You know, you talk — you talk about the fees and I — a lot of the fees that we have and irregardless – you know you go here, you go there, you’re going to get charged. Now the — the thing with the fees, I understand too that a lot of — a lot of the third party fees like your credit report, your appraisal fees, title and escrow and that, those are fees in that they’re you know, as — as lenders, we can’t make money on. So, if we get charged eighteen dollars, you get charge eighteen dollars.
Jason Hartman: It’s — it might be a different kind of credit report.
Steve Gillhouse: It’s a vendor.
Aaron Chapman: Let me —
Jason Hartman: But it also might be a different type of credit report.
Steve Gillhouse: With that particular situation many times I know, because people ask me that same question. I’ve gotten that many times, recently. With us, we have to verify so many things with the types of loans that we’re doing. You have to update many — a bunch of your accounts. Update all your mortgages and if you’re an investor it’s got several mortgages on there, you’ve got to update them to the most recent payment. So, we have to have our credit report agency call your mortgage company, update and make sure your current up to the very day that we’re doing the loan, and many times you’re going to be on a conference call with them, and you’re going to be saying, now I’m wasting my time. I’ve been sitting on a freaking conference for an hour talking to people about the stuff I already know, because I made the payment myself. But that’s what it is and they charge for that.
So, if you’re talking ten dollar credit report, actually it’s fifteen bucks. We get charged five bucks for every — for every repository. So, we’ve got Equifax, Trans Union and Experien, so that’s fifteen bucks there plus being charged for every time they got to make a call, every time we have to do a supplement and update one of your accounts, any time you have something on there we need to verify. So sixty five bucks, it gets ramped up to that pretty darn quick.
Jason Hartman: So, that’s the difference — that’s what’s call a tri merge report when it’s all three. Okay. I believe you were next. I’m not sure but — okay so the question is can you offer some options on investors trying to get more than ten loans?
Charley Ridge: Yes. I — I can’t speak for them but our portfolio product allows us to do another four. After you’ve reached that ten threshold we can do another four. You have up to twenty finance properties, but this particular investor for us will let us do four of those.
Jason Hartman: And what kind of rates?
Charley Ridge: Very good question. The terms of this particular loan are as follows, and one of the — the bigger I think deterrents that I’m finding and I can’t get them to budge on it, the minimum loan amount for them is one hundred thousand dollars. So, you’re looking at, I think — and the LTV maximum, you’re going to lose some leverage on this at sixty five. So, I believe I’ve done the math one hundred fifty four thousand dollar purchase price is what you would be at a minimum to qualify for this particular product. Six and a half percent interest rate, this is a thirty year fixed.
Male Voice: Not bad.
Charley Ridge: Not bad at all. The only other thing that I’d like to mention as a bullet point is this particular product has a three year hard pre-payment penalty, so what that means to you is that for three years thirty six months, it’s — really doesn’t mean much, but you should be aware, it’s a three, two, one. So in year one, if you go to sell or refinance that property, which isn’t going to happen, you’re going to pay three percent of your existing balance, as a penalty. So, if you owe one hundred thousand dollars, you’re paying three thousand the first year. Second year is two percent, two thousand. Third year is one percent one thousand, but you’re not going to be doing anything refinancing or selling that property in the first thirty six months, almost guaranteed.
Jason Hartman: Thirty five percent.
Ms. Ridge: Yeah, sixty five percent LTV thirty five percent down.
Jason Hartman: LTV means —
Carey Ridge: Sorry.
Jason Hartman: — loan to value ratio.
Charley Ridge: Loan to value.
Jason Hartman: Yeah. Okay, wait, not you yet. We have one over here. Yeah, you may not know this because probably none of you listen to the podcast like you should. Okay. So — so, mortgage sequencing. So what I’ve talked about on the show several times is something I gave it the name mortgage sequencing, meaning when you’re trying to execute a plan and buy you know a whole bunch of properties, it’s how you sequence the mortgages and the advantage there may be if you know, if you could only get ten regular Fannie Mae loans, you want to buy more expensive properties like plexus.
So for example, you know, you want to get as much — since they go by loan — number of loans rather than loan amount, it might be better to buy ten fourplexes and get forty units, than it would be — and you know, maybe those are more expensive than buy ten single family homes and only get ten units. You still have only ten loans. You see what I mean? So you know, we talked about that and then — and they really can’t necessarily address this, although they can have that in a moment, but the reason that mostly came up is because we had some special financing at the time, which has now run out so far as I know. Maybe Sarah, Steve or Ari can address this.
In Dallas — and with that lender doing these — it was a small community bank, they didn’t care how many finance properties you had. So, the first thing you want to do is run out and get your 10 Fannie Mae finance properties and not buy in Dallas first. You want to buy after that, okay because you don’t want to have other financed properties where they — the — Fannie Mae would say, well you’ve got four, you can only do six more.
So, that was kind of the mortgage sequencing thing. You guys may have some stuff to say about that and I’m sure you do, but that’s where — why he’s asking the question, I think? Right?
Steve Gillhouse: Well, it is — it is a common question as how do you get past ten, and — and it’s a — it’s — right now is tough. I mean, it really is, but the solution is, and that is it — you have to get out of the mindset of thinking yourself as a single family you know real estate investor, and quit thinking Fannie Mae, because once you go past ten, you’re really into the commercial realm. And it’s really the mindset that you have to put yourself in.
Ten years ago, I started working with a guy for foreclosure options in Seattle. He came to me — he had — he had half dozen restaurants he was working, he wanted to buy a bunch of properties. So, we got him to ten, banks at that point in time, and what they would do is like I took into a community bank that I had some relations with and what they would do and as they went ahead, they — they bundled them together, he formed an S corporation, he dumped them into there. We started the cycle over again. Six years later he owns forty four houses.
Now, he’s not going to get the same terms, just absolutely not. You’re not —
Jason Hartman: Those are definitely not as good.
Steve Gillhouse: — you’re not going to find thirty year money. If you’re dealing with some of the —
Jason Hartman: Seven to ten years.
Steve Gillhouse: — smaller community banks you have seven to ten years and they’re going to re-price.
Jason Hartman: And — and I want to give a shout out to — to Zack Henderson over there of St. Robert, in the corner, because he’s got an excellent community bank and Joel has taken advantage of that, I think you have, but — I — I think so where he can do some commercial financing on non-commercial properties, which of course, isn’t as good as the Fannie — Fannie Mae thing is the best. It’s subsidized by the stupid government. Take advantage of socialism. Real estate here has always been subsidized by the government, since the depressions — that’s the thing, but your mortgage — you have some comments?
Chaley Ridge: Yeah, I have some comments, but quickly, are you guys — is anyone aware of how many countries in — in the world that actually offer a thirty year fixed mortgage?
Jason Hartman: I think one in the United States. Yeah.
Chaley Ridge: There might be one other in — in one of the European countries, but I’m not remembering which one it is, but everybody else’s is — ten years is a long time.
Jason Hartman: Oh even — or any mortgage at all.
Chaley Ridge: Right.
Jason Hartman: I mean I — you know I’ve said this on the show, folks, exactly what Chaley was saying. I’ve been to sixty four countries and I’ve looked at real estate, I have gone around with real estate brokers — a lot of them aren’t licensed, they just — I’m a real estate broker, and I’ve gone around and looked. I’ve been all over Eastern Europe, Central America, South America, and mortgages are like a totally foreign concept to them, even any mortgage at all.
Chaley Ridge: So, we’re very lucky to have an opportunity. I mean, think about what the difference between a fifteen year mortgage and a thirty year fixed mortgage is. It’s huge to have that amortization at thirty years, makes a big difference to what we’re talking about today, a huge difference. It’s the difference between three hundred dollars a month in cash flow and — and maybe one hundred dollars. It’s a big deal. So, I just —
Jason Hartman: And the massive amount of inflation that will take place in that second — six — fifteen years.
Chaley Ridge: Right. But just to go back to your question about sequencing, that’s a fantastic question and a lot of what we do — I was touching on earlier about the education, sequencing is actually pretty important. So, let’s just assume that the scenario is is we have a — an investor that wants to get to ten and they have a primary residence and that’s all they have to start with. They’re a clean slate, they’re new to this. The first thing we’re going to do is we’re going to take your blood type and some DNA samples and get you pre-qualified, right. We’re going to go through all of that.
We require what most might consider an enormity amount of information up front. We do a tremendous amount of due diligence on the front end so that hopefully in the middle and the end, it’s a little less painful. So we go through that and then we spend some time talking to you about what your strategy is, giving you the information about where your qualification is today so that when we talk about that sequencing, the first four — let me give you just a quick — if anyone wants to write this down, this may be important for those that don’t know.
Properties one through four financed, and that is one to four units. It includes your primary residence. It does not include commercial or bare land. You can leverage as an investor to eighty percent loan to value on a single family residence. So, which properties do you want to get in spots one, two, three and four if you can leverage to eighty, the most expensive exactly. You want to get the highest end property in those first four spots if you can. Then you’ve got five through ten, properties five though ten and you’re going to lose five percent of leverage. You’re at seventy five percent. Again, we’re talking single family residence. These numbers are different per plexus.
So, it’s — it’s really important to — to work with somebody that really understands the non or occupied model, because if you just go to your B of A loan officer that’s sitting there counting paper clips, he or she is probably not going to be able to help you strategize this.
The other thing I want to mention to you guys real quickly and I’ll turn it over to somebody else, one of the things I want to mention to you guys, and this is a pretty big deal, and if you want to take notes, great, we can talk about it one on one. qualification. The acquisition here is very simple. When you’re calculating a debt to income ratio specific to the rental income that we can use to offset that debt to income ratio — and this is the little off — off topic, but it’s very important. In the acquisition year of purchasing property, the formula for calculating the rental income is a very simple seventy five percent of your rents. You take your rental income, the gross rental income and multiply it times seventy five percent, then you take that number and subtract it from your PITI, principle, interest, tax and insurance. It’s very simple, right.
What happens though when those properties hit your Schedule E of your tax return? Very different, very complicated. These guys can probably speak to those financial formulas that is going to potentially inhibit you from getting to that number ten goal. So it’s very important that working with someone that knows what they’re doing related to none or occupied so that they can set up that appropriate strategy.
So for example, we’re in the beginning of 2013. Okay. You bought three — four properties last year. We want to look at a draft copy of that tax return before it’s filed to make sure that those losses that you’re going to be taking — because you’re going to take your depreciation. There’s going to be some maintenance. Let’s say that those properties went un-rented for two months last year, you’re going to have less income to offset those things. We want to look at that draft copy to make sure that before it’s filed, once that bell is rung, that’s it, it’s done. But we want to make sure that you’re positioned in that debt to income ratio to be able to achieve what goals you have planned for this year. So, that’s a really important piece and it kind of plays into the sequencing.
Steve Gillhouse: So — so, to repeat the question, sorry, she asked if you were on the forth property — you have four properties already going onto the fifth and you’re going to buy another primary or are you stuck with that twenty five percent down, and the answer is no. You fall under the primary guide lines no matter how many properties you have.
You could have forty properties and the primary is still your primary. You can still get away with five percent down, ten percent down, whatever your intentions are.
Jason Hartman: So, the primary residence loan is much more desirable than your investment property loans and it’s the same regardless of the sequence is what he’s saying, right?
Steve Gillhouse: Exactly. It does fall into that.
Jason Hartman: Does everybody else agree with that one? Do we need to — okay, great.
Steve Gillhouse: No, that — that — what he said was if you’re – if you’re married and you can both qualify separately, that might be a strategy to look at, and again talk up front with somebody and let’s talk about the goals. Let’s talk about the options. Let’s get the strategy down. Let’s talk about the sequencing.
Too often you guys start seeing the — the dollar sign — signs in your head and you get excited and you start signing contracts like crazy and buying property like crazy without taking the time to look and see what you’re doing. So then it’s left up to us after the fact, and those that you’re working with, whether it be Ari or — or Sarah, whoever you’re working with to sit down and help you strategize with what you already have that’s got closing gates coming up.
So, it’s important to just sit down and get the strategy put together first and decide what your end goal is and how to get there in the smartest way possible and not just start shot gunning property. You start doing that, there’s a lot of opportunity missed. Yes, I’ve got several clients going in tandem like that. As long as you guys aren’t on the — I mean, you may have a different situation. How we — how I — how we’ve done it up to this point, at least how I have done it up to this point, if you guys are completely separate, you’re both separate on your — on your credit reports, filing in — and I’ve actually seen them file jointly — we’ve — we’ve had to file jointly in order to make — make that work, we just have to sep — get all the paperwork. It’s a paperwork nightmare.
So if you’re all about paperwork and you just get off on that kind of thing, you can do it. There’s a cost to getting off on twenty properties and it’s called paperwork. I’ve talked on this subject for — for several years right now, and — and what I tell a married couple, significant others, you’re going to buy separate, you build a wall. I mean that’s exactly what — build a wall. So — and — and when I say that — because what I’ll see is clients, what they’ll do is they’ll come back and they try to get sophisticated — their tax attorney, their accountants tell them to set up an LLC. They do this and the uh, husband is ninety nine — you know, ninety nine point nine percent owner of the LLC, and the wife’s got a tenth of a percent of ownership in the LLC, guess what, you just knocked your wall down because now all of a sudden you tie it back.
And — and I had a gentleman that the — he created a corporation. Good move. Moved all of his properties into the corporation, guess who won the corporation? His trust and so guess what, guess who was on the trust, him and the wife. So you’ve really got to think this thing — really think it through.
The — and what – what — what Fannie Mae has looked at and — and is it — they’re looking at the obligation. They’re looking at seeing who’s obligated on it. Now the other thing that you’ve got to take into consideration in that is if you’ve got a joint mortgage, and that’s one of the things that I look at. Can the spouse qualify with the mortgage and the debt that she has? And if the answer is no, then it’s probably not going to work.
But again, it’s very, very important in that that you create that division between the two of them. Now assets, the majority of the married couples that I deal with, they have joint — joint accounts. And so what we’re doing as we’ll have the non-borrowing spouse sign an access letter that they’ve got access to the funds in the account and then we’re good for — good for the funds. But again, there’s got to be that division. If you’ve got anything that ties the two of you together, we’re probably going to find it because somewhere it’s going to be in your tax returns. There’s going to be a document that’s floating out there that’s going to tie the two together, so you’ve really got to be careful with that.
Aaron Chapman: With him bringing up the asset thing, it brings another thought process into this. That’s not to say, down the road they’re not going to say well you guys have a joint account and you’re making the payments on all twenty properties out of that account. So in — in reality, she does have a steak in it. So yes, we’re going to count that as part of it.
So, they’re getting really picky. And again like I said before, moving target. So, think about that. Even though up to this point I’ve been able to do it with on joint tax returns, it’s a dif — you know, others have a different situation. It doesn’t mean tomorrow. They’re not going to pull the rug out from underneath me because they’ve been doing it on other things. So quite literally, Steve’s advice on build a wall is, build a wall and make that sucker really thick.
Jason Hartman: Back here? Yes.
Aaron Chapman: Over ten? I want to be able to do that. I — I do — and right now I’m in a unique position of I am not affiliated right now. I was with — with a lender and they successfully screwed me out of a lot of things in the last twelve — fifteen days. So, I am — I’m in negotiation with two entities right now and one of the one’s I’m working with we’re — we’re actually working with a fund on twenty. I don’t know if it’s going to come through, but we’re working on it.
So that’s my take on it, it’s something I’m working towards but whether or not I’m going to get there, I can’t say. The ten is still an attainable thing.
Jason Hartman: So in other words, you’re saying in the mortgage sequencing issue, by your primary residence is property number eleven? Is that —
Chaley Ridge: Property number anything.
Male Voice: [Inaudible] primary you’re willing to rent out to buy these last by the [inaudible]?
Jason Hartman: Yeah, right.
Chaley Ridge: I don’t think — for a primary there — there is no limitation to how many that you can own. As long as you still qualify, and that’s something that we would want to look at closely, it’s going to be individual. Did everybody hear his question? I’m bad about that. I’m sorry.
No, the — his question was, at what point do you want to buy — let’s say you’re renting right now, when do you buy the owner occupied? When do you buy the primary residence? Do you buy it first or do you buy it last? I would say you probably want to buy it last because the primary will eat up one of those ten spots. So yeah, number eleven seems like a good spot to me because the four number after the fact for us can go to twenty. So, it wouldn’t — it wouldn’t mess that up.
Jason Hartman: And I’d say, rent your own high end primary and rent lots of low end property to other people, but you’ve already heard that one.
Chaley Ridge: Can you do a 1031 exchange on property eleven? Yeah, if you’re paying cash. Yeah, so you can take let’s say property number ten you mean, right, and sell it and — into a 1031 exchange. You’ve got one spot for conventional financing and the rest of it would be cash or the for — the portfolio.
Jason Hartman: Yeah, the 1031 though really has nothing to do with it. We’re just talking about lending its ten properties. So, what’s the question Elton?
Elton: [Inaudible] DTI [inaudible]?
Jason Hartman: Debt To Income Ratio, DTI.
Aaron Chapman: Well, fifty percent is where we cap. In other words, in that I cannot get — I don’t care how good you are in that. The DU stops at fifty percent.
Jason Hartman: The Desktop Underwriter.
Aaron Chapman: Yeah, Desktop Underwriter —
Jason Hartman: No acronyms folks. Come on.
Aaron Chapman: Fannie Mae’s — Fannie Mae is an automated underwriting system. So fifty percent — if you have fifty point one, I don’t care if you’ve got three million bucks in the bank, you got eight hundred fifty credit score, it is not going to approve it. Okay, right now. Now, that’s not to say it wasn’t going to change, because back in 2007 and 2008, we were doing sixty five. I mean it was — I mean it was just to the point of being stupid, is what it was.
Jason Hartman: Of course obviously, look at the results, yeah.
Aaron Chapman: Yeah, that’s true. The fifty percent, that’s where — that’s where we stop at.
Jason Hartman: Let me take a brief pause. We’ll be back in just a minute.
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Chaley Ridge: I just — I had a comment to your question. I think that what you should do before you file 2012’s is speak to someone and have them look at your Schedule E and calculate the rental income for you. Figure out where you are and how it’s affecting you, and you know, you can make adjustments. You can make adjustments to your tax return before it’s filed.
Jason Hartman: And — and what — I think what she’s saying is that your DTI may be better than you think, if you add up all the Schedule Es and count the income. What’s the limit on how many properties I can acquire? His issue is that it’s not really the limit of ten Fannie Mae, it’s that he’s bumping up the debt to income ratio limit. So, there are different limits.
I got a question I don’t want to forget to ask so, just hang onto that for a second. What about credit repair? A lot of people have done some strategic defaults. Are — are these all scams or do any of them work? Do you have anyone that you want to refer? I mean, I know some of them really work out there credit repair issues. I guess since you got the money [inaudible].
Chaley Ridge: There was word in our industry that for a while there, I don’t know what the — the standing is now, but it was illegal. They were actually calling the credit repair companies — they were driving them out of town faster than you can sneeze.
Jason Hartman: Recently?
Chaley Ridge: This has been some years ago. I’m not sure the status on it right now, but I can just tell you — the guidelines will tell you, if you had issues in the past, I’m one of those, I — I’d be — lost several properties, short sales and things like that. The rule of thumb is, for a short sale, you’ve got twenty four months from the sale of that short sale before your mortgage eligible again. If by chance in that short sale process you went into foreclosure or pre-foreclosure, that two years goes to four. So, if that is the case, just —
Jason Hartman: Okay. So, let’s — let’s just define this a little bit. So, if you do the strategic default and the property went to foreclosure, now here’s where people get confused. The foreclosure actually stays on your credit report for at least seven years, but you can get a new mortgage in four years, even though it shows up on the credit report. Okay. So, people always ask that question. It confuses people. Aaron, you want to address the credit repair?
Aaron Chapman: Just to define one — the foreclosure thing, that’s if you’ve ever made it to — to the point of ninety days delinquent. That’s when they — they go to the point of being able to go into foreclosure. Then they have to walk in and take the property. You just have to be in the position of where they can exercise that how they wanted to. So, if you’re ninety days delinquent, all you’re doing is strategic sale, a short sale or something to that effect, than you are subject to that foreclosure rule.
Now, on the credit repair thing, if you got somebody that can get it done, that’s great because I’ve never seen it happen. I’ve talked to thousands of these guys that come to my office, they send me stuff, I’ve never seen one actually repaired. I’ve seen people spend a lot of money on repair, but they end up with the exact same thing they would have otherwise.
Jason Hartman: Really?
Aaron Chapman: Yes. That’s — that’s my experience. I’ve never seen it happen. Now, the credit repair that I have seen done is stuff that’s just — stuff that should be repaired. They send me the paperwork, I have my credit reporting agency clean it up. It takes five days to do a rescore and we’re done with it. It’s stuff that’s erroneous, but if it’s something that you committed — you know I mean it’s something you literally did, that would — that should be on your credit report, I’ve not seen somebody magically erase it yet.
Steve Gillhouse: I’ve got — I’ve got a credit repair guy that I do work with, but it — but it — let’s face it, if your [inaudible] lights on something, your credit repair guy is going to get it removed, it’s not going to happen. If — if there’s a judgment on your report and it’s valid, they’re not going to remove it. I mean, it’s there. What I’ve utilized my credit repair gentlemen, for and that is for stuff that is erroneously been put on your credit report. I’m working with a lady in Chicago right now, had a judgment and she had a rental property. She was sued by her tenant and she in turn, countersued. So it basically wiped the judgment out, but they still recorded it on her — on her credit report.
And if you call — if you call the Cook county magistrate’s office, they’ll tell you that a judgment was never entered. So, they give me the — they give me the document, they send it to me. Guess who wouldn’t accept it, the bureaus would — absolutely would not accept it because it was hand written. So now what I did was I talked to my — my credit repair guy and I said — and — and I talked to an attorney and I says, you guys figure it out. I mean, because I — you know, there’s nothing I can do. But that’s where I’m going to utilize your credit repair.
I mean, I’ve seen — I’ve seen a lot of people that are promised the world and they can’t deliver anything. The only thing they do is have you open up your check book and start writing them a bunch of checks.
Jason Hartman: Just so you know, I know there’s a ton of those that are scams out there, but some of our clients have had some success with them. They pay seven hundred or eight hundred dollars and then they do like a one year program where they’re being in the credit report agency, sending the letters, and they have to respond and a lot of times they — well the way it works basically, I’m no expert but, the way it works is if the creditor that put the derogatory thing on the report, doesn’t respond in thirty days, it automatically comes off. And so you know, it’s playing a game. There’s no question about it, but the fact is, they sometimes win.
Aaron Chapman; But again, where I’ve — where I’ve utilized them and that is if there is — if there’s errors on the credit report it shouldn’t be there —
Jason Hartman: Right.
Aaron Chapman: — that’s where I’d use it.
Jason Hartman: Yeah.
Aaron Chapman: I’ve been real successful.
Jason Hartman: Okay, good. Our question was over here.
Aaron Chapman: The typical — the typical rule is two years.
Jason Hartman: The question is, how many months income to qualify for a mortgage. It’s — they average it over two years, right?
Aaron Chapman: Yes, self employed I think they will look at two years, but typically now you’ve got to have two years on your application and that’s what they’re going to look at.
Jason Hartman: Two years of income.
Aaron Chapman: Yeah. Now —
Jason Hartman: So, if you’re just sort of making a bunch of money —
Aaron Chapman: — there’s exceptions to the rule, okay in that you know, you get a kid who just recently graduated and that — from college, okay. So, she’s — she’s got a contract for September, they’ll utilize that. I’ve got a guy who just finished up his — his residency. Now he’s a doctor, he went to an ER — he’s only been an ER doctor for three months. Those are made sense to me —
Jason Hartman: Those — those are pretty secure jobs though.
Aaron Chapman: Well, that’s true.
Jason Hartman: You know, medical you know doctor, dentist, that kind of thing, you know.
Aaron Chapman: But the — but the normal rule is two years.
Jason Hartman: Yeah, right. Oh so, that’s quite a good question. So, to do a cash out refi, how long do you have to have that loan or let it season, that’s the terminology — how long do you have to let the loan season before you can just do a cash out refi? Or, can you even do a cash out refi anymore? Does anyone have any equity due to a cash out refi?
Aaron Chapman: The cash out refi now you’ve got — got to be on title for six months and the other thing is you can not own more than four financed properties. And so that’s very, very important to do. Now, Fannie Mae came out about a year and a half ago and with the — with investors that pay cash for their properties. Now they’ve go a program, it’s called the delayed financing exception, which states that if you pay cash for the property, you can get your original purchase price back plus rolling and closing costs and we can utilize the appraised value to drive that loan to value. You’ve got a six month window to accomplish that.
Jason Hartman: Well, that’s really interesting. So, this is —
Chaley Ridge: But you have to do it right away?
Aaron Chapman: Yes, correct.
Chaley Ridge: You’ve got to do that right away.
Aaron Chapman: Yeah, like I said, you’ve got a six month window to complete it in. Once you go past six months, then it falls in the —
Jason Hartman: Let me explain this for people. So, you buy a property with cash, and I know a lot of you are doing that, and you want to finance it, this is not a refinance, it’s a delayed financing. You’ve acquired the property with cash and then you finance it after the fact and you have up to six months to do this.
Aaron Chapman: Correct.
Jason Hartman: But, is it ten loans, four loans?
Aaron Chapman: You can have up to ten loans and so that’s where the — that’s where the — the variation comes in and that’s the distinction between that and an actual cash out refinance.
Jason Hartman: Okay. And Chaley, it looks like you’ve got something to say about that.
Chaley Ridge: Yeah, I just wanted to clarify the wait time. On the delayed financing rule there is no seasoning — there’s no six months you have to wait or you have ownership for six months and you can actually use the delayed financing rule even if you don’t have more than four financed properties. You could use that for property two or three so that you wouldn’t have to wait. And the rule of thumb is — is that seventy percent loan to value — now let’s say your property appraises for more than what you paid for it, you figure what seventy percent of the appraisal value is, as long as you’re not getting back more than what you put into it originally, you could theoretically get back every penny that you stuck in, if it’s on the HUD.
Jason Hartman: If there is — so, the question was — so the question was, does it —
Chaley Ridge: Sorry.
Jason Hartman: — rehab in the purchase price and yes, if it’s on the HUD and it’s not outside of escrow —
Chaley Ridge: It’s [voice over].
Jason Hartman: — or settlement, is it? Okay. I’ve got a question that I —
Aaron Chapman: There’s one thing, the ridiculous amount of paperwork still applies to that loan. So, just because you own it, for some reason people get the idea that because they already own it, and that it’s worth more than they paid for it, that all of a sudden it lightens the load. No, the load is just as heavy, if not heavier.
Jason Hartman: Now, here’s one that I really want you to address, because I know everybody in this room, you know at one time or another had a challenge with this one. I know our local market specialists are and that is the issue of appraisals. Ah, nobody’s asked this. This one needs to be discussed for sure. So, appraisals are — they’re just tough. It seems like the banks are just — there — they’ve over corrected at the height of the financial stupidity. They were evaluating properties way higher than they should have been and now the pendulum instead of swinging to the middle, it — it’s swaying back completely the other way and property value is there and they won’t even give you an appraisal so you can get the loan.
Chaley Ridge: Yeah, that comes up a lot. Some of the changes to the industry include big changes to the appraisal HVCC, H-V-C-C and —
Jason Hartman: And what does that mean?
Chaley Ridge: Home Valuation —
Jason Hartman: Oh, someone actually knew that. Who said that? Okay are you in the business?
Male Voice: [Inaudible].
Jason Hartman: Oh, okay. Well, you know, no acronyms folks.
Chaley Ridge: — um, so now all — all appraisals are ordered through third parties called AMCs, appraisal management companies, all of them. One of the things that we’ve been able to adopt is, we have our own self managed AMCs in many of the markets that we’re in. So, we have been lucky in being able to do that because what happens is is that we’ve maintained just a little bit extra control.
When you’ve got — the problem I think in a lot of cases with the appraisals coming in low or having issues with that is you’ve got appraisers that are — are first of all, they don’t really understand rental properties, they don’t understand the rehab that goes into it. They’re scared of their own shadow these days because of all the new regulations and maybe they live one hundred miles from the subject property. They don’t know the area, they don’t know the neighborhood. So, it’s — it’s problematic. So, we were able to adopt our own self managed AMC, and in certain markets what we’ve done is, we’ve gone to our vendors and our agents that are on the ground and said, give us five or ten appraisers that you know that are within a ten mile radius that know your work, that know the market, that know the neighborhoods and we put them on our panel. So, it’s still a random selection, but we’ve narrowed the playing field a little bit so that we’re getting — nine times out of ten, we hope good, solid appraisals.
I mean, it still happens but that’s helped us kind of combat that kind of touchy issue. Anybody else?
Aaron Chapman: Lucky to have the same situation. We self managed our own ordering, talk to the people in the market places, find out who is doing a good job in that area. Have them — send those names in, have our appraising lowering department review them, put them on the panel. Again, we can’t pick the exact appraiser, but at least we’d be able to narrow it down to the six, eight people that know what they’re doing in that area.
Chaley Ridge: It’s huge.
Aaron Chapman: That is a huge difference so I haven’t seen a lot of problems with appraisals lately. I don’t know about you guys. I don’t — I’ve — I’ve had one or two in the last five, six months that’s had — that’s come in lower than the — than the purchase price, and I think it’s also the individual selling the homes are getting realistic about what they’re selling it for and the appraisers that we’re choosing are a little bit better than what we had in the past.
Steve Gillhouse: We don’t — we don’t have our own internal AMC. We act — we actually use a company out of Canada called Solidified, but what I’ve — what I’ve done is that every one of the markets that I work in on that, I’ve done basically the same thing. Set up a panel. We put them on the — put them on the approved list and those are the only people. I traveled all my markets. I know all my appraisers and — and they have to understand, because the product that you folks are buying is unique and when — when the — I won’t mention any names here, but when we had some of the other appraisal management companies that were out there, what they would do is, you know, you’d get — an appraiser would go out there and say, okay if you buy it for forty, you put ten into it, it’s only worth fifty and that’s not the case, because a lot of times these banks — you know, these properties are bought from foreclosure options you bought from banks. The banks themselves, now when they sell them, they can’t make a profit, they can only sell it for what’s worth — what the property is owed to them.
So, if they’ve got a property that’s forty that’s worth sixty, there’s a perception or at least some equity that’s in that property that’s not being taken into account. And so I assure that the appraisers that we have in that, you know they recognize that, they — they’ll get the information as far as like the sales history. They’ll see that. If – and — and we’ll get — you know, get some good values.
The other thing that I see right now and that is, I’m seeing a little bit more prevalent and we’ve seen you know, other companies is — is sometimes when they’re charged — you know, they’ll have two appraisals done or maybe they’ll do a desk review.
Now, one of the issues that you have right now is when you send an appraiser — another appraiser’s work over to say like a guest, but he might not see it the same. So, I’ve had a few issues in that area, not a lot of them, but we can still con — continue to see that because an appraisal really is — it’s just an opinion of value.
Chaley Ridge: Sure. The question is he’s getting ready maybe to file his 2012 tax return and I had mentioned earlier that it’s a good idea to have someone — if you’re — if you’re building your strategy for where you want to go with your — your real estate investments, before that tax return is filed, let us take a look at it, because the computation for figuring out that Schedule E rental income is very specific and if we don’t look at it, um, and tell you where you stand, then you may file and be put out of — of the game for — for qualifying this year. Because I — it’s very difficult to file a tax return and then say, oops I want to amend it. I — I probably wouldn’t mess with something like that. You want to — if you want to — if there are going to be changes made, maybe take less of the — the loss last year and forward it over to 2014. If it means that you can continue to invest this year, and that’s the primary goal, then that’s probably what you want to do. And we’re really good about — I mean that’s what we do. We should be able to look at your Schedule E and tell you that.
Um, I would — I would rather talk to you about it just so that we can — we can get — get down to specifics.
Male Voice: Okay.
Chaley Ridge: I’ll — I’ll answer your question —
Male Voice: [Inaudible] two different to try and answer that [inaudible].
Chaley Ridge: Yeah.
Male Voice: [Inaudible].
Chaley Ridge: Well, and — and you know, I’ll — we’ll talk.
Jason Hartman: It sounds like a background deal there.
Steve Gillhouse: That may — ultimately — ultimately that — in that situation your accountant’s trying to get you to pay — in a position to pay the least amount of taxes by having [voice over] —
Jason Hartman: They’re trying to get you to pay more so you can qualify for loans.
Female Voice: Just a little bit more taxes.
Steve Gillhouse: Yeah, trying to get you the most write offs. We’re trying to show you where sometimes those write offs can impede your ability to show income.
Jason Hartman: And that is —
Chaley Ridge: [inaudible].
Jason Hartman: — very legit.
Steve Gillhouse: Well then, let me repeat, why are — why are the rules switching so much? So, when he started on his path to ten at one, two and three, the rules were one way, now as it’s getting closer to ten, it seems like it’s changing. He has to provide things differently. Things are getting more difficult. The reasons being is we have to keep adapting to what’s happening in the market in the sense that we — we’re not adapting, it’s — we’re adapting to Fannie Mae and the rules as much as you guys are. What’s happening is you’ve got fraud schemes, things like that. What I’ve been running into personally was one fraud scheme in a particular area. Some lenders had to buy back and eat some things, so they take a look at it and say where are the elements of all those loans that we had to eat, that several million dollars, we’re going to take whatever element that is and apply it to our guidelines across the board.
Now, is that good strategy for them? I don’t think so but it’s what they’re doing, because what is — one — what is a wounded — a wounded animal do, it backs into a corner and bites everything. That’s what they’re doing right now. It’s a nitric reaction. So, some of these responses you’re going to see. You’re going to see changes that we won’t even know until we get your file into underwriting. It will look perfect. We’re proud of ourselves. We finally got one of these things built because some of you suckers have them that thick, and we send it in to get underwriting and it comes back with more conditions than we — we’ve ever seen. And because of situations like that, they adapt things before we have a chance to even see them, because of the fact that things go south on other loans.
So, they’re constantly evaluating the loans on a — on a minute by minute basis, as they take them back or as they foreclose on them and add those elements into their guidelines and keep adapting them. That’s why I keep saying, it’s a moving target.
Aaron Chapman: Well, the question is — is you guys will leave here with three people’s contacts and how do you go into the multiple different markets that you’re going to go into, and not spread yourself between three different people or four or five, because you think one may be better than the other? What I always tell everybody is it’s a relationship business. It’s going to suck whether you work with me, him or her. Either, it’s just not going to be fun, so pick who you want to deal with. You’ve got to pick somebody because when it comes down to it, you’re both — you’re going to be standing in the ring next to one of us. Our knuckles are going to be up, they’ve going to be bloody, we’re going to be hurting and we’re going to be tired but you’re going to get to the finish line somehow, but pick who you want to be fighting with. That’s what it boils down to. We’re all bound by some rules.
So, do you want to fight with me? Do you — do you want to be in — in the ring with me by your side, her by your side or Steve by your side? It’s up to you. That’s what I say.
Jason Hartman: Let — let me mention something about that. A property tracker that is — by the way, if you go to Jasonhartman.com and you click on resources and you scroll down property tracking and analysis software, that’s where you get property tracker.
It holds your entire 1003 loan application and your schedule of real estate owned. It makes it so much easier. Just use property tracker. I’m telling you, really you need to use it. So Zack, I think was next.
Zack: What about the taxes?
Mr. Chapman: Well, depreciation is — is an item that you can add back. What I’m — what I’m going to do is I’m going to expand upon the — the tax returns so that you know, a lot of times the clients — honestly, I’d — I’d love to see a draft. I don’t get the — you know, I don’t get them and so what I’ll do is I’ll get the finished product.
There’s some tricks that I — I shouldn’t say tricks, but there’s some things that I look at. They go back. First thing I go back is I go back to the depreciation schedule and look at when the property’s placed in service. So, I can have people come, give me a tip and say, you know my lender says you know, I bought it in September that just because it’s on the tax returns, so I’ve go to utilize that figure and that’s not true.
There’s a certain amount of common sense that’s allowed because, let’s face it, my job or our jobs up here are necessary to disqualify you as to try and get you a loan. And my — I guess my — my — my comment to the customer and/or the underwriters is, when I’m looking — is if you bought a property in — in September, I know right off the bat when you had repairs. You probably had some additional costs that you’re not going to accrue one time expenses, and — so you’ve had some added expenses that aren’t going to be the norm.
The other — the other thing that we look at too and that is, is it — if I utilize that figure even if — so, if I’m only utilizing four months, is that really a true representation as far as the property’s ability to cash flow, and the answer is probably, no. It’s probably not. So, in my — in — in my side, what I’ve been able to do, and that is substitute and utilize the rental agreements um, in those situations.
So, there’s a little bit more. I — I don’t — I really don’t feel that when I look at a set of tax returns that I’m looking at somebody that’s my place to tell you how — how your accountant to do your tax returns, because one, I’m not licensed and I’m not — definitely not going to prison for that one.
But you know it’s — so it’s — you know, my expertise is lending. Your accountant — your account, he does your tax returns for you. I’m going to look at it. If it — if it works, it works. Now, can I give my two cents? Absolutely.
Jason Hartman: Okay. I think that’s good on that one. Fernando gets the last question and then we’ve got to adjourn for dinner. Okay. So, the question is basically — investors, if you’re following our plan, and you want to diversify or maybe you want to be — do ten properties in three different markets, that would be kind of a logical amount of diversification, in my opinion. And the question is, if you go with one lender and do three properties and another lender and do four, and another lender and do three, there’s your ten. How do you do the closing order of those? Can you do all those apps at the same time, pick ten this weekend and — and do that? Is — is that what you’re getting at?
Fernando: [Inaudible] do that.
Jason Hartman: Yeah, you’re not — in other words, you’re — you’re going to be in the purchase process in — in — in closing them all over the map, basically. Yeah.
Chaley Ridge: The answer is yes, you can do that. Do I advise that, no. I think that for ease of — of brain damage or — or limiting brain damage for all of us, you probably want to do some due diligence and I believe all of us can lend in all the markets that you’re going to be in. Correct? Yes — yes, we’re — we’re going to be in all those different markets, so what my recommendation would be is, speak to each of us, and/or a few others. Find who you’re comfortable with and that’s where you want to stay.
It comes down to ultimately, you can do this but it’s going to be very challenging for you to do so. Um, I think you’d be opening up a can of worms that I — I don’t — I don’t think you would enjoy that process. It’s already a convoluted process as it is.
Um, the other thing is very important you guys. This is so important disclosure. If you do do this, if you decide you want to buy two from Memphis and I’m going to close those for you and — and two more in Missouri and Steve is going to close them, it is highly important that you disclose to all of us what’s going on, because you could lose deals by not disclosing. That’s really a big deal. Fannie and Freddie have gotten really weird about that. So —
Aaron Chapman: That type of situation, you’re not going to hide it. It’s like, my Mom, she always knew. So, we’re going to find out and then it’s going to slow — it’s going to slow down your process. So really, a worse case scenario, you tell us that you like chocolate, vanilla and strawberry and you’re going to do all three. And so what we’re going to do is, we’re just going to conference call a lot and we’re going to need you to say, hey you guys are open to talk, and we’re going to share information like crazy that way we get them done on time. Otherwise, I find out two weeks later that she’s got a couple, and then two weeks later I find out he’s got a couple, well, I’m delaying the heck out of your loans because I have to keep updating your paperwork. So, if that’s the situation, like you were told, just disclose. If you disclose everything and keep it out in the open and we’re able to do our job because everything’s in the open, then it makes it much easier for you to hit your target date. It’s when we have to start finding this stuff out two weeks later, three weeks later, that it just becomes a madding mess and you start to hate us.
Jason Hartman: Steve, any comments and then we’ll wrap up. This is it.
Steve Gillhouse: Well, it definitely is a headache and yes you can do it. Um —
Jason Hartman: Yeah.
Steve Gillhouse: — you know, I’ve had a couple of situations now where there’s been a couple of states where I’m not licensed in, they try to buy a couple of properties there, they’re doing a couple of properties with me say like in Memphis, and their purchase transaction is when I tell them everything’s got to close at the same time, they just have a cow, and it’s just — and working with another lender, um is not always the easiest thing to do because a lot of times those other lenders — when these two can probably agree with me on this one, a lot of the people out there in the industry just have our level of expertise and just don’t understand how to get this through.
So, purchase transaction, they all have to close at the same time and I get — I know I get a lot of people who come back and say, why is that and I say because really, the only way to paint you — paint that picture of you financially, is to have them all closed. So that means I’ve got to have a settlement statement on — on the ones that you’re closing with the other lender, the first payment lender to be able to calculate the payments.
The other thing that we get into and as you — if you buy property cash. I still need to know about it because I still need to hit you for the taxes and insurance. If you utilize private money — now that’s a little bit different story, so if you’re buying a coup — you know, if you’re buying four properties with private money and they’re spread out, I’ll hit you with the private money payment, I’ll hit you with the taxes on that property and then I can close and my — I can stagger the closes.
Jason Hartman: Good. So, our panel will all be at dinner, so sit next to them. You guys sit far apart so either there’s going to be a crowd around each of you, and now you can pick your flavor. So give them a big hand, okay. All right, thank you guys.
Female Voice: 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 to be 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. (Top image: Flickr | PhotoAtelier)
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Transcribed by Debra