If you have investment questions, this Flashback Friday episode of the Creating Wealth podcast might help address some of your concerns. Featured is a clip of a live investment counselor panel where Counselors Sarah, Carrie, and Oliver answered various questions about the challenges involved with investment properties.

Before the clip, Jason Hartman also covered a brief history of his experience in the real estate business from a traditional standpoint to his investment journey. He explained how he predicted the Great Recession and what signs to look for in the future.

Live Investment Counselor Panel Introduction

Jason Hartman begins Episode 801 thanking listeners for their time and introducing a live clip from a live investment counselor panel that took place at one of his recent events. He notes that this clip covers different suggestions and client experiences from his team’s end. They are on the front lines communicating with clients, dealing with property managers, local market specialists, and rehab contractors all of the time.

He explains that he and his team learn from their experiences as well as from listeners and clients. Part of the team’s job is to take that learning and share it with the community.

Upcoming Events

Hartman mentions that the Venture Alliance is taking place in Las Vegas over the weekend and advises listeners to try to attend a Venture Alliance event eventually. These events take place quarterly, every three months, and they’re always entertaining. Attendees can come as a guest or as a Venture Alliance member. For more on the Venture Alliance group, visit www.venturealliancemastermind.com.

The Memphis Creating Wealth seminar and property tour is a public event set to take place at the end of March, and it’s almost sold out. Hartman notes that this is his oldest seminar and the first ever CW event took place in Newport Beach.

He adds that recently there were some changes on the website regarding switching shopping carts to improve the user experience, but it was not a good change. The shopping cart has since been switched back.

Hartman states that doing business online is not any simpler than having a physical store. There are a lot of programs and intricate tools to navigate in the online world, and challenges present themselves. People often view online businesses as simple and inexpensive, but that’s a bit of a myth, Hartman says.

Hartman Predicted the Collapse

live investment counselorHe recalls having a big office in Newport that had large glass doors in the building. The office had a big seminar room that could fit between 35-60 people and that room was used for speaking events. During one of Hartman’s events, people were standing outside of the double doors, and the crowd was about eight people deep with the doors open. He notes that he tried to talk loud enough for the people in the back to hear.

Hartman explains that during that time, he was predicting the economic collapse, and ended up being correct in his predictions. He based this prediction on one aspect, which was all of the people that were participating in crazy adjustable-rate mortgages when they didn’t really qualify for them. These loans didn’t require income or qualification, and applicants could have bad credit or be fresh out of prison and they’d be offered a loan. The result of this was payment shock, which was easy to figure out with reverse engineering.

Hartman recalls when the refinancing booms and the financial booms were occurring. There was a massive onslaught of business in mortgages. A large number of loans were granted between 2000-2002, and by 2005, the loans would be adjusting, and people were not going to be able to afford their mortgages. The problems hit in November 2005, and Hartman notes that interestingly, the deal on his business closed on November 10, 2005. Nobody noticed the issues that came arose until February or March 2006.

This is because in the traditional real estate market, activity picks up in the spring, Hartman explains. It was around March when somebody noticed a giant problem, and this was the first part of the Recession, the mortgage meltdown. The second part, Hartman states he didn’t know about and neither did anybody else until it was happening. Wall Street’s massive criminal behavior was in line with a very deep, severe problem.

Hartman warns listeners that if they ever hear Wall Street talk about financial innovation or use the phrase, “this time it’s different,” run for the hills.

Meeting Other Investors

Hartman welcomes listeners to attend one of the live events in order to meet the team and other clients. It’s a good idea to talk to other investors and people in the business, so that you can hear about their experiences firsthand. Asking questions and getting feedback is an excellent way to learn. When learning about the experience, Hartman states that you’ll learn that its no bed of roses, but it’s better than anything else. Income property is the most historically proven asset class in the world.

Live Investment Counselor Panel: Sara, Carrie, and Oliver

Hartman plays a live clip of a live investment counselor panel featuring Counselors Sara, Carrie, and Oliver.

Sara introduces herself and explains that she has worked as an investment counselor since 2007, right during the crash. She did not have a real estate background when she met Jason Hartman, so she attended a Creating Wealth seminar at the Newport Beach office. At the time, she owned only her primary residence, and a lightbulb went off for her during the seminar.

She states that she and her husband were both interested in investing and had ideas to fix and flip homes, but they had no money or investing experience to take on the task. She adds that her husband works in construction, so he had hands-on working experience, and at the time they were both in their twenties.

Sara joined Hartman’s team as a rental coordinator and then obtained her real estate license. She bought her first income property at twenty-four by extracting and using some of the equity from her primary residence. She acquired more properties over the years and currently has three under contract in Memphis.

In her work, she helps clients do the same thing she did. She helps clients with very little income as well as big contractors with large sums of money. Her aim is to assist clients with creating bigger and better portfolios.

Hartman introduces Carrie as an investment counselor who onboards new local market specialists and screens them to figure out which markets the company should be in. He explains that there are some markets he’d like to be in, but he has not been able to find a good team in certain markets. He has had to fire local market specialists in the past or practice the “phone tag” fade-out on them.

Carrie states that she is an investment counselor and area coordinator. She has been working with Jason Hartman for two and a half years. She is looking for more markets and good teams behind them. She explains that she is looking for professionals who are going to answer to the clients. She looks for property managers and determines how well they are going to work based on evaluation and personality examination. She speaks with roughly ten potential teams per week and usually only one gets to the next round.

Oliver explains that he has listened to Jason Hartman’s podcasts for eight years and started picking up properties during that time. He became an investment counselor and helps clients with their entire process, from getting into investing and beyond.

Greatest Challenges for Clients

When asked about where the greatest challenge comes with helping clients, Oliver answers that the property management side is the most challenging. From the time a client closes to the time they acquire the property, people tend to have questions.

Hartman adds that if a client has purchased a property and has owned it for around six months, something might go wrong, and they’ll want to know if the issue is a property management item or something that should have been covered under the rehab warranty.

Oliver states that this happens usually within the first 1-3 months. He gets quite a few emails regarding this issue and he works to ensure communication and understanding on the management side.

Carrie mentions that she used to spend a lot of time with maintenance issues, getting nickel and dimed from the property managers. She now clarifies her expectations up front and finds that she spends less time on maintenance issues. People often hear the word “turnkey” and think they won’t have any problems. At the end of the day, as an investor, if the property needs something, you need to be prepared to care for it.

Hartman states that it’s not very difficult to buy the property, especially if using the website and the data therein. He notes that Sara has sent an email out for a free six-month trial for the property tracker tool.

Carrie mentions that if you’re already a member, Fernando can extend your membership for six months as well.

Aid During the Recession

When asked what challenges were faced during the recession, Sara explains that one of the things people got into a lot of trouble with is over-leveraging. The required down payment used to be 10%, and there were people that came to the seminars that wanted to put a property on their credit card. She states that you can advise people against doing that all day and they may still go for it.

During the recession, investors essentially deferred their down payment, and staying power was important then. She recalls that Hartman had about twenty loan modifications, and she didn’t have any. Sara notes that she was scammed once over loan modification and adds that it’s important to hold onto the deals that make sense. There were investors that were just getting started during the recession.

Hartman states that he often quotes the book, The Greatest Management Principle in the World, when it says that what gets rewarded gets repeated. This works with everything. He refers to when Sara mentioned the issues with loan modification and adds that it isn’t fair.

A Lesson in Leverage

He shares an example of broker Dave who was a client that was buying up a lot of properties years ago. During the recession he got loan modifications on his investment properties and could not get one on his personal home. This was because he had too much equity. The lender never has any concern that they’re going to have to take a property back if there’s equity in it.

People who did the right thing during the recession got into issues, which is why it’s important to align interests with the way things really are. Leverage is a great tool.

Hartman recalls when he was new to real estate, running around his Remax office and old-timers would tell him that leverage was a two-edged sword. He doesn’t believe that anymore, and notes that once you borrow money, you’re in charge, not the lender.

He states that during the recession, the people who got relief were those who had high mortgages. If you owned your home free and clear, you were not offered anything. That’s the way the world is. Hartman advises that listeners align their interests with reality, not the way that things should be.

Live Investement Counselor’s Strategy for Mortgage Sequencing

When asked about mortgage sequencing, Oliver states that as most people are aware, the first four mortgages require 20% down.

Aaron adds that this has changed, and Hartman clarifies that Fanny Mae and Freddy Mac are two large mortgage entities that are government sponsored. He repeats that Oliver says the first four properties need 20% down for investment properties. The maximum that a single person can receive in agency loans is ten, twenty for a married couple. The debate was that you could have six properties with 20% down, but that has gone away.

Oliver adds that with multiplexes, they require an additional 5% down.

Hartman states that when it comes to mortgage sequencing, it’s a good idea to buy the more expensive properties first and get the best financing and leverage. If you purchase a -plex property, you might have an A-rating but you’re going to have a B-tenant. They downgrade a notch in a -plex property. Single-family homes match the rating, A for A, and B for B.

Oliver explains that it’s much easier to go with single-family homes if you’re just getting started because a four-plex is like buying four houses at once.

Sara adds that it’s a catch 22. Though the plexes have better leverage, she agrees with Oliver in the sense that it is more difficult with a -plex and investors might talk themselves out of investing if they start with something too difficult.

Carrie agrees as well, advising that the first investment should be in single-family homes so that the investor is not stuck with a -plex, however, a -plex still only counts for one of your ten agency loans.

Hartman mentions that the tenant quality plummets with apartments. Single-family homes appreciate well, and you do not have to resell them to an investor. They can go to a homebuyer that is interested in buying simply because they like the property.