ANNOUNCER: 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 than you ever thought possible. Jason is a genuine self-made multi-millionaire who not only talks the talk but walks the walk. He has been a successful investor for 20 years and currently owns properties in 11 states and 17 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 #327 and today’s guess, we will have on will be Jerome Corsi. You’ve probably heard his name. He’s written many, many books. He is quite a scholar on several subjects so I think you will enjoy that interview and if we have a time, we’ll have a caller on as well but first I’ve got Michael here to join me for the intro portion of the show. And we wanna talk about some tips for investors. Michael, welcome. How are you?
MICHAEL: I’m doing great today Jason. How are doing?
JASON HARTMAN: Good, good. On your Facebook this morning, you said that Newport Beach was like Hawaii. It looked and felt like Hawaii. What did you mean by that? Is it hot and humid?
MICHAEL: Yeah, It was. I was going to Toastmaster’s at 6:30 in the morning and it was kind of cloudy, extremely humid so most people would see that and think man, it must really beautiful but it just, it’s more like one of those tropical storm that comes in and I think you’re probably getting hit by that monsoon type weather as well right now, right?
JASON HARTMAN: let me tell you something, last night, it was amazing. I, I it was about 10:00, maybe 10:30 and for the first time in my whole life, I got an alert on my IPhone. I, I, it never happens. I don’t know how it’s generated or maybe the national weather service or some emergency alert service thing. Anyway, it said dust storm, dust storm warning and so you know we get these dust storms in Arizona. They’re not too great but there are not as bad as it might seem, and you know, as long as your windows are closed so, you know, about a half hour, I thought, that’s really weird. In about a half hour after, that is sure enough. There is this incredible dust storm and keep in mind, I live like 300 feet above the ground and it’s the tallest all residential building in the state of Arizona. And now, if you’re listening in New York City, 300 feet, no big deal, right? [LAUGHING] But you know, we hear that’s not a high rise and, you know, I have floor to ceiling glass almost throughout my penthouse. There is very little wall space. I have a lot of pictures from my last house that I don’t have any place to hang because the wall space is virtually a glass, and this storm starts, and I don’t know how fast the winds were blowing but it felt like they were going about a zillion miles an hour and I, I went outside and the, the dog would bark out on the decks and it, it was just crazy out there. I mean, it was crazy last night. Now, I’ve been in these storms before and in our last Creating Wealth Seminar, I showed one that I filmed last summer and it was in a daytime so you could really see it, at night, you know you can really make [INDISCERNIBLE] of it but these storms, they called them haboob and that’s the Middle Eastern name for these sandstorms that happened on the desert and it, the pictures were phenomenal. I showed them at our Memphis Creating Wealth Seminar and Property Tour a couple of months ago and wow! They, they’re just nuts – but this one, the different thing about this one is it was a long, I mean it lasted, I don’t know. I think over an hour and I finally just, I was so tired. I just went to bed and I woke up uh, about an hour and a half later and it was, it was gone [LAUGHING] but it was crazy I mean, the storm was crazy. It was loud and windy and dusty and things were flying all over the place and wow, I am, and I couldn’t believe that, people were driving around on the streets and there were some cars out. People were driving a little bit but [LAUGHING] it was mess.
MICHAEL: I’m picturing like the Scorpion King when the giant, I think it was that movie when the giant brown cloud of sands start tumbling in and everybody disappears. I, I don’t know if it’s, I’m sure it’s a little more sensationalized in Hollywood.
JASON HARTMAN: That sounds like some cheap Japanese horror movie –
MICHAEL: [LAUGHING]
JASON HARTMAN: Like Godzilla or something. I don’t know about this Scorpion King, what’s that? I don’t know what’s that.
MICHAEL: It was with the Rock and something in like the Middle East. I don’t think I even said all the things, just a part of it but you know that’s a common, a common scene in, in movies I feel like of the crazy Arabian Desert and sandstorm –
JASON HARTMAN: Yeah.
MICHAEL: That comes in and suddenly, you know, they are drinking tea and have a nice little tent set up, then everything gets blown to bits.
JASON HARTMAN: [LAUGHING] That wouldn’t surprise me. Yeah, I get, I get a little worried that like the windows could break here or something but they’re so thick. I mean, they like an inch thick. They’re probably bullet proof. I don’t know, probably not but anyway, so, yeah now with some crazy weather here in the summer time, ah also, of course, it’s hot. So, any way, you’ve got some questions that investors commonly have and you want me to answer them on the show, right?
MICHAEL: Yeah, I just thought, let’s skip current events today and investors want to pick your brain and I think, you know, it would be nice to get some more of this content going and just a comment, I, I first made. So, let’s go back to show 323 with Sarah and you were talking about her boat.
JASON HARTMAN: Yeah.
MICHAEL: Sarah.
JASON HARTMAN: I was giving her a hard time about that, wasn’t I? [LAUGHING]. If you didn’t, folks if you didn’t listen to this show, Sarah, yeah, is a successful investment counselor. She has been working with me for several years and she bought a boat and I was teasing her about spending her money, spending too much money, you know, and I was giving her hard time about that and Michael, I think you really made a good point that I, maybe I should have balanced that out a little bit. So, what is your point?
MICHAEL: My point was, Sarah practices what she preaches. You practice what you preach. She owns investment property and so, in our internal Facebook group, that we use, I said, you know, in reality, it’s probably Sarah’s tenants that are paying for that boat, not Sarah.
JASON HARTMAN: And you were right.
MICHAEL: Should remind all of our investors and clients out there that all these investments are a phenomenal way to pay for things that are not investments. So –
JASON HARTMAN: Absolutely, and you know what? You were completely right and I probably sounded like –
MICHAEL: [LAUGHING]
JASON HARTMAN: I’m just getting too frugal in my old age, but I’m really not, I mean the whole point of this, the whole point of getting rich in real estate is so you can enjoy your money and have the lifestyle that you want to have and you are absolutely right Michael in bringing that up. So, Robert Kiyosaki’s philosophy is pretty good. You know, he calls things like boats, and fancy cars, and a second home, and things like that. He calls them doodads, rich dad doodads, so it’s kind of a funny thing, but what his deal is, is this, I think, in one of his books, he talked about how he was saying to his wife, Kim, that he wanted to go buy a new Ferrari and she said, well okay, if you want a new Ferrari, go buy another apartment building and just make sure that the income from the apartment building can pay for the cost of the Ferrari and you know, that’s exactly right. If you want to buy a doodad just make sure that you first buy some asset that creates income first to pay for the doodad. The whole point here is to get out of [INAUDIBLE]. So that we’re living on passive income, not active income, and there is no truly passive investment on my opinion. But real estate is pretty close to a passive investment. It’s not truly passive, nothing really is. In a practical sense, I’m not talking about, about like the IRS’s definition of the passive investment or active investment. I’m just talking about the practical aspect. You have to pay attention to every investment you have. So, you want to buy a Ferrari or boat, get another couple of properties that would pay for that. Very good point. Completely great.
MICHAEL: Yeah. Yeah, I see people that pay cash for cars and I think, man if you just took that cash and bought an investment property or a couple, you could either pay for lease payments on that car or the equivalent for the rest of your life or you could pay for the loan payments and still be trying to put money into your pocket at the end of the month.
JASON HARTMAN: You are absolutely right. So, Tim Ferriss, who wrote the four hour work week which I, I think was a pretty good book and I kind of want to qualify that by saying not because it was a great book but just because the book made me change my thinking about some stuff and I consider that to be a great accomplishment. A lot of the things in there he says like really, you know, I don’t know, maybe.
MICHAEL: Yeah.
JASON HARTMAN: They are. But I didn’t like go out and apply all those things and he’s giving out web sites left and right, and I didn’t look all that stuff up, but conceptually, the book just made me change my thinking a bit and one of the things he talks about is that, you know, one of his goals was to have an Aston Martin and I think an Aston Martin is like the most beautiful car on earth besides the now defunct Fisker, which the Fisker car was a beautiful car too, literally, a rolling work of art, right? Well, you know, an Aston Martin, is that really so far out of reach to have an Aston Martin, and he calculated the payments on an Aston Martin and they were like $2200 a month, probably, plus insurance, which is probably pretty high in a car like that. So, it’s not that hard, five, six, little residential properties would probably produce $2200 a month for you. So, if you want an Aston Martin, go out and generate $2200 a month in income property, relatively passive investment income and heck, go drive around and really [INDISCERNIBLE] Aston Martin. It’s going to depreciate like crazy. Fine with me. I’m mean, I don’t think it’s the best use of your money but everybody wants a few luxuries and really cool material things in their life. Think about your goals that way. I think that’s just fine, no problem.
MICHAEL: It’s kind of like in dieting, a nutritionist that I follow, a real smart guy, says there is nothing you shouldn’t eat, just better times to eat things, so you should eat carbs after you have been at the gym or immediately before, so this is kind of like, you shouldn’t necessarily go and spend all your money on these things but there is a better way to buy it and that is with assets that all pay to buy these other items that will depreciate but then these assets will appreciate and generate income for a lifetime if you hold on.
JASON HARTMAN: You got it. That’s exactly the plan, so very good point, so we got, we got to do, to have something, we have come to have some balance on that, right, and instead of me just teasing Sarah about her boat and listen, I used to have a 48-foot boat and let me tell you that thing was such an expense. There are old sayings about a hole in the water you throw money into, it is true with a boat for sure. The other one is that two happiest days of a boater’s life is when you buy it and when you sell it. That is also true [LAUGHING] so anyway, just a little balance on that but try to keep your spending on that kind of stuff in check. Ultimately, the goal is create wealth and buy things that will create wealth for you rather than things that give the appearances of wealth. If you don’t save and you, you don’t form capital so you can buy assets that produce income then you can never afford the appearances of wealth and you want to be able to afford this comfortably when you have big giant cushions and well, they’re not going to break the bank and become a stressor to you. The important thing is to keep money and material things as the servant where you are master and they are the servant, not let them run your life, not let them own you, right.
MICHAEL: Yep.
JASON HARTMAN: Good. Okay, so let’s talk about some investor tips and questions.
MICHAEL: Ah, we will take a couple, these are the questions I hear from people constantly. They want to know what Jason says so let’s, I’ll take three of these that I posted. Let’s get started, what would you do, Jason, if knowing what you know today, if you were a brand new investor, try to give us the quick and the dirty of what you would do to get going and to get from novice to your first property as quickly as possible?
JASON HARTMAN: Okay, so first of all, that’s a great question Michael. First of all, understand that we have clients that are all over the board. Some of them are just trying to get their first property and get it rented out and turn it into a good semi-passive investment, and some people are buying dozens and dozens and dozens of properties and some people are wanting to buy big apartment buildings and things like that so we’ve got people all over the board and I love that because the beginning investors keep you in touch with a certain kind of thinking and the sophisticated investors that are purchasing many, many, many properties keep you in touch with this kind of thinking and we’ve got everything in between, so if I were just starting out, you know, was a total novice investor who was just looking to buy my first property, first of all, I’d have to know that I’ve got to save up enough money and do enough capital formation to acquire that first property, to save up for the down payment on that first property and then, after that, I’ve got to put myself in a position where I’m doing things right. Okay, I’m going to make sure that I’m also preparing my credit and managing my credit score and doing that in advance of that first purchase, so there are certain things that you can do, and we’ve done shows on this in the past, that you can do to improve your credit score and improve your likeability to a bank and make sure that you look like a good barrower, so that’s something that you have to do. Once you have done those two things, then, all you have to do really to be a very good investor in large part is simply follow my 10 commandments of successful investing. We have done shows on that. I [INDISCERNIBLE] one or two commandments usually on every show pretty much but you need to buy a property that makes sense the day you buy it so that’s commandment number 5, Thou shalt not gamble. Don’t be a gambler. If you live in a gambling oriented place and what I mean by that is a state like California or New York City mostly or any sort of expensive urban area, Boston would be one of them, several areas in the North East would qualify. Many, many, many places in the state of California qualify for that. Don’t be investing in places like that. You’ve got it, those are places where you can get in trouble too easily. You’ve got to be investing in properties that make sense the day you buy them, so what qualifies as making sense? Well, cash flow. Does the property produce income based on a reasonable down payment from day one? That is what makes sense. Is the RV ratio, the rent value ratio, a sensible number that can get you about one percent every single month out of that property? Well that’s the first thing I would do and even before that, when you say investing, we’re assuming that someone wants to invest in real estate and income property. So the first thing I’d say even before that is commandment #3, invest in something that you own and you have direct control over. Be a direct investor so that you don’t get ripped off, so you don’t get some manager of the deal taking a bunch of your money, skimming the profits off the top, be a direct investor. So that’s all really embodied in my 10 commandments of successful investing, if you’re new to the show type that in the little search engine on our website at jasonhartman.com. There is a little Google search box there that allows you to search all of the stuff on our site and that will help you a whole bunch.
MICHAEL: I think that’s episode 216.
JASON HARTMAN: Ah, oh gosh no, 216 was a rehash but there was the original –
MICHAEL: Oh okay.
JASON HARTMAN: Episode of the 10 commandments on there somewhere probably like episode number 15 or 18 way back –
MICHAEL: Okay.
JASON HARTMAN: In the beginning. Anyway, we’ve talked about them through the course of the last 326 shows as well but you know, I’m just saying where they’re all embodied in one place.
MICHAEL: Okay. Let’s say you are, you figured out what market you want to go to, there are two houses that your investment counselors sent to you, how are you going to pick between the two houses?
JASON HARTMAN: Um, yeah good question. So that, I don’t know [LAUGHING]
MICHAEL: [LAUGHING].
JASON HARTMAN: No, I do know actually but I’m going to say I don’t know because I’m not looking at specific houses. First of all, I’d say that don’t be putting yourself in a position where you agonize over the deal to the point that where you don’t do anything, okay. You got to do something, wisdom and action [INDISCERNIBLE] right, but assuming you’re going to really do something and you’re not going to let the deal pass you by, if you’re looking at two properties, you obviously are looking at the numbers. We format all our data in the same exact way. So when you look at the properties at jasonhartman.com/properties all of those have the same format, so if you learn how to read that single page, you do not have to be a detective, you can see all of the numbers, and we just did a members’ only call last week, actually, on how to read a proforma and how to analyze the numbers in the metrics on a deal. So if you’re not a member, please become one for about 120 bucks a year, okay, and you can get it on the member’s site. You can hear the recording of these, these member only calls that we do, but if there is the same numbers, why, say for example, one property has a projected return on investment of 30% annually and so that’s the other property, well then you look at things like, go to Google Maps and look at the satellite view of property and look at the street view of the property if it is available. Most of the time it is easy to see which street looks like a better neighborhood. We did a show couple a years ago where one of our clients who was buying many, many properties in the Indianapolis market, David was his name and he was looking at what we called the free lunch metric and we kind of joked with him and made a game out of it, you know, if there were a lot of free lunches in the school district of that property then he didn’t like it as much. He likes a low level of free lunches that the government is giving out, these free lunch vouchers, because to him, it meant that it was a not a higher income area.
MICHAEL: But then, we kind of debunked that one, right, or somebody did. They just said a lot of people realized that they could get a free lunch so they jumped on the bandwagon and it may mean that metric is a little less telling of the true economic status of the area.
JASON HARTMAN: Fair, fair enough, it could be, look at everything –
MICHAEL: Listen to the podcast.
JASON HARTMAN: Everything could kind of be debunked here and there, okay and some people love like Section 8, government assisted rentals and some people hate them. There are just different strokes for different folks type thing, you know. The great thing about government rental assistance with, like the Section 8 program, is that you know you’re going get paid every month, right. The government’s a pretty reliable payer even if the money is in depreciated dollars, so there is something like that, but which house simply looks better, which house has, you know, a better neighborhood, which house is newer, which house is older, those are some things and this is why this can’t be done by a computer. It’s not an airline ticket, it’s not a stock, it’s not a ticket to a concert, a lot of that stuff can be done by a computer but with income property, because every house is a little bit different, you actually need to make a judgment call and form an opinion and if I was looking at two specific properties for this question, Michael, I could probably go a little deeper into this but looking at Google Maps, look around the neighborhood, I mean does it look like there’s any adverse thing that might effect the property, maybe a landing strip meaning an airport nearby, maybe a big industrial facility, maybe a railroad track, maybe it’s –
MICHAEL: Maybe a prison [LAUGHING].
JASON HARTMAN: Maybe a prison, maybe it’s in the flight path of a landing strip, right? So, these are things. They are not things that would instantly say no, don’t do the deal, but it would say the price or some mitigating factor needs to be in place to make me want to do the deal.
MICHAEL: Right. Okay. You know, when you talked about self-management before, can you just review some basics on how somebody, some thoughts that they’re gonna have if they’re gonna go down that road of what they’re gonna be getting into and what has made it, that you’ve done, easy for you.
JASON HARTMAN: Yeah.
MICHAEL: You, you have 20 properties. They’re self-managed, is that correct?
JASON HARTMAN: No. No, no, no, no, not that many. So, basically, I like self-managing my properties and I think that it can be done. It’s been amazing to me and I, you know, this is like a one-hour discussion, okay, but look up self-management on the search bar jasonhartman.com and search it because we’ve done shows on that that go into great detail about self-managing your properties and my story is basically this, I have a property that I still own in San Antonio and my property manager, a few years back, he wrote a letter saying “Hey, I’m getting out of the business.” and I had Karen searching around for another property manager for me because we weren’t actively selling in that area at that time and so she was, she was looking around for a new property manager and she found a couple and one that she really liked and, you know, she was just kind of assisting me and otherwise, I wouldn’t have done this myself and I’ve done it myself too and I never got around to signing up with that property manager then suddenly, for this property I had never seen and this tenant that I’ve never met, suddenly, I just did not get around to signing the forms and hiring a new manager and a check arrives in the mail from the tenant with a nice note that says, “Hey, I guess the property manager is out of the business. He said to pay you directly now.” And so, the tenant’s name was Tony and for several years, I just self managed that property and it worked out great. Now, if you had asked me if I could self manage that property that was 2000 miles away from my home, that I had never seen, with a tenant that I have never met occupying it, if that were possible, I would have told you, you are out of your mind, but now that I’ve done it and I’m now doing it with several of my properties, you, you really can do it. The only thing, you definitely need the real estate agent for is to lease the property to a new tenant and handle the walk through when the tenant moves out, and it’s funny you should ask this question, Michael because my property in Athens, Georgia that I self manag, the tenant just moved out literally about two days ago, and last week I hired an agent to lease the property for me. I didn’t sign up for property management. I just signed up for leasing. He is charging me, I believed he is charging me 50% of the first month’s rent due to the lease and he went over, he met the tenant. He took pictures. He sent me the pictures. He said this and that. A couple of things need to be fixed and he is getting quotes to fix them up and he’s gonna send them to me and he’s gonna lease the property to a new tenant but he’s not going to be the property manager. After he does his initial one-time service, handles the walk through with the current tenant. He advises me on how much of the security deposit to keep, if any, how much to give back, if any, and to get the repairs done. Get the property ready for the new tenant. Lease it up to the new tenant. Do the walk through with him. Get all the documents sign. Check your credits. Screen the tenant and so forth. He’s out of the picture. I’m the manager, and you know what, it works pretty darn good. I’ve gotta say, I really like self-management . Now, on the other hand, if I have a great property manager in that area that does a fantastic job and does not mark up the cost of repairs or I feel that they’re doing a good job and they’re not ripping me off here and there, I will keep the property manager. I do it both ways and basically, what decides for me is how good the property manager is. If they are a great manager, I’m going to keep him, like my Austin, Texas, property, I’ve got a fantastic manager. I’m gonna keep him. If I have a bad manager, I’ll get rid of him and I will self-manage.
MICHAEL: Okay. Do we have time for –
JASON HARTMAN: How about one more.
MICHAEL: One last?
JASON HARTMAN: Yeah, let’s do one more.
MICHAEL: Okay. Let’s just, what question should people be asking property managers when they’re, now they’ve got the house they want and, I’m talking to the local market specialist who is probably the property manager. What should I be concerned with?
JASON HARTMAN: Who may or may not be the property manager. Well, first of all, you’ve got to, when you get your property management agreement, you’ve got to actually read it folks and you’ve got to understand what this manager is proposing here. Are they reasonable? Are they charging 10% per month plus an entire one month fee to lease it up? If there is there is a late fee involved, do they keep the late fee? Do they split the late fee with you and that means when the tenant pays the rent late and there’s a late fee. What happens with these things? Do they mark up the cost of repairs or do they do the repairs, manage them at cost, and what I mean there is if someone has to go out and they have to call a contractor to replace the garbage disposal on a property, do they say, they just pass that through at cost or do they charge you a 15% markup, so if that’s a 200 dollar cost, you’re gonna pay 230 dollars. Now, I don’t object to that outright. Here’s what I object to, when all of the fees are high, if they want a 10% management plus a one month lease up plus they keep all the late fees plus they mark up the cost for repairs, plus this and plus that, that’s sounds unreasonable to me. But on the other hand, if they only charge me 8% management and they only charge me 50% lease up fee, and they pay all of the advertising cost, and they split the late fee with me if the tenant’s late, then it gets a little more reasonable, you, you see what I mean there. So, you have to look at the whole picture. It’s not one thing or the other. It’s, what does the holistic view of my relationship with this property manager, what does it look like? The other thing is, and now that’s probably, that manager is probably the person that we referred you to which may or may not be the local market specialist that sold you the property. Well, you should always check with another property manager and do some of your own, due diligence. Check with the completely outside property manager and compare these things and also get a sense of how the properties are re-leasing, how quickly they’re re-leasing, understanding of that market from an outside source who’s not affiliated with us. Now you can use whoever you want to manage your properties. You can do it yourself. You can use the manager that you, you find. You can use the manager that we refer. It’s your property. You’re a direct investor so you get to make the decisions, which is a really great luxury, however, the one thing I must mention to you is that when you use the manager that we refer you to, then you’ve got the ability to have leverage over them and that leverage is very powerful. See, we refer these managers dozens, if not hundreds, of accounts and you might follow my, one of my 10 commandments that says ‘thou shalt diversify’ and you’re buying maybe two properties in each market or a one in each market. So you don’t represent a big account to that manager if you go outside and you use your own manager, the one we didn’t refer, then you don’t represent a big account to that manager and you don’t have leverage over them but through us, through my company, you have leverage over that manager because we refer them a lot of business. So if you have problem with him in the future, if the service isn’t good enough, if they’re trying to stick you with a little extra here or there, just call Michael, call Sarah, call Steve, call Ari, call your investment counselor, or call Dave at our company, or email them and say, hey, this doesn’t seem right with the manager and we’ll email that manager. We’ll get on the phone with that manager and we will help you sort through it and get better service as if you had a lot of leverage because of the volume of business. We send that manager and that really, really is a big help to investors. It’s probably one of the biggest benefits we offer.
MICHAEL: Absolutely. So, just for our audience, we’re gonna be really expanding all these topics in the member section so it’s on the agenda, you know we encourage people to sign up to get some really deeper level look at some of these topics.
JASON HARTMAN: Hey, for 10 bucks a month, it’s about the best deal going. But listen, you don’t have to become a member. You get all the services from our investment counselors regardless of whether you sign up membership or not, that we offer at jasonhartman.com but there are just some additional resources there for you, and not the least of which, I wanna mention this again, a couple of years ago, I did a show with Gareth Sutton who is the author of, I think, now two of the Robert Kiyosaki’s Rich Dad books about asset protection and making sure you’re getting all your tax advantages. He is a great lawyer that has written some great stuff on this topic and his interview is in the member section and I mean just that alone is a phenomenal resource for you. It can save you an absolute fortune in terms of how to structure your entities, if you’re doing any entities, why you should do them, what’s involved? And you know, we’ll touch on that on the show as well but you know again, he is the attorney. We’re not attorneys, okay. None of us are attorneys. None of us are CPAs so there’re, there’re some great additional resources like that in there. So join. Get membership and get full advantage and Michael, was there anything else before we go to our guest? I don’t think we have time.
MICHAEL: Okay.
JASON HARTMAN: You wanted to do a current event, right?
MICHAEL: No, I was gonna hit a property but it’s –
JASON HARTMAN: Oh, yeah, no. We’ve always got time for property. Let’s just do it really quickly. Where is this one?
MICHAEL: This is in Memphis and it’s, it’s in the lower end. It’s only 46, 900 purchase price.
JASON HARTMAN: That’s one of the least expensive properties we ever have in that range. Yeah, well.
MICHAEL: So the pro forma, um, actually puts it as a cash purchase because the loan amount would be 35,000 which actually, I think we can, I have talked to a lender that would go down that low and it makes the numbers a bit better but even as is –
JASON HARTMAN: No, not many lenders will because, it’s just too small loan amount.
MICHAEL: Yeah.
JASON HARTMAN: When you, when the loan amount is like $36,000 that’s like a car loan.
MICHAEL: [LAUGHING].
JASON HARTMAN: Okay, it’s smaller than a car loan.
MICHAEL: Yeah. So, this is a $36 per square foot and it’s mostly brick which is pretty amazing and let’s just get to these numbers, 1304 square feet. It’s a two bed, two and a half bath, and the cash on cash, even being purchased cash is 10% which I think is absolutely phenomenal.
JASON HARTMAN: What’s the projected when you look the pro forma there? What’s the projected overall return?
MICHAEL: So, it’s only 16 because it’s the cash –
JASON HARTMAN: Because we’re buying with cash, yeah. If you leverage, that it would probably be like 40%.
MICHAEL: Yeah, with the, with leverage, it’s 41%.
JASON HARTMAN: Hey, that was a pretty good guess on my part, wasn’t it? Wow!
MICHAEL: [LAUGHING].
JASON HARTMAN: Wow. [LAUGHING].
MICHAEL: So, yeah, that it’s, they’re tremendous numbers, if you wanted to try to explore it with financing, talk to your investment counselor, we’ll be happy to see if we could make that work. If you’re looking, if you have about 50,000 cash and you just want [INAUDIBLE] this is right there in that range and –
JASON HARTMAN: So, if you, If you already got 10 properties, and you’ve used up all your Fannie Mae loans loans and you’ve gone above that limit. Well, spouses can each get 10, okay so that’s 20 properties, but if you done that and you’re just now paying cash for all your properties [INDISCERNIBLE] first hand properties, then a little inexpensive property like this is great because they wouldn’t consume too much of your capital and Michael, what is the [INDISCERNIBLE] on that property, I’m curious.
MICHAEL: It’s a 10-1/2.
JASON HARTMAN: 10-1/2 cap. I was telling Steve on an intro I recorded with him that I looked at the Sam’s club deal today, you know, I’m on the list for all these commercial real estate brokers. They send a Sam’s Club and this is what your brother-in-law does, is the retail properties like this. It was $18,000,000 and it was a 6 cap. A 6% cap rate, I mean that’s just terrible.
MICHAEL: I thought she had a pretty good cap.
JASON HARTMAN: Well, for 18, –
MICHAEL: An 18,000,000 investment but obviously –
JASON HARTMAN: I know but the point is it’s kind of like counter-intuitive, people think if you got a bunch of money and you can do big deals that you are going to get a better deal like a better cap rate. It’s actually counter intuitive. The cap rates go down on these bigger properties. Our little cheap investment properties, they’re great. I mean, they get, the returns are so much higher on our little single family homes than on their bigger apartment complex or Sam’s Club, you know, or any kind of big commercial property. Just, this is, this is why the opportunity is here for the small investor. The, the numbers are better on our deals than they are on the deals the big institutional players get. I, I love it. It’s just awesome. It’s totally awesome. Michael, is that awesome?
MICHAEL: I, it is phenomenal. The little guy gets the win.
JASON HARTMAN: Yeah, you really do and this is the way you can win with direct investment and in good income properties that follow my 10 commandment rules, they’re diversified and make sense the day you buy them, you’re a direct investor. You maintain control and you know, it’s the most tax favored asset in America. It’s the most debt favored asset in America, meaning you can get the most leverage on it and unless, it’s $35,000 loan amount. You may not be able to get a loan that’s small but some phenomenal stuff here. Let me mention our next show is with Senator Byron Dorgan and then episode 329 with James Altucher, 330 with Robert Green who wrote all those great books like the 48 Laws of Power, Seduction, some great stuff, 331 we’ve got Meredith Whitney, she called the banking crisis before anybody else did, we got Les Leopold for 332, talking about some [INDISCERNIBLE] cookery that’s really interesting. So, really some fantastic shows coming up, so a lot to look forward to but hey, let’s go to Jerome Corsi here Michael, and thank you again for the questions today and we’ll keep doing some stuff like this and answer some more investor’s questions on the shows. So, and if we have time after Jerome Corsi, we’ll take a caller as well. We will be back with Jerome Corsi in just about 60 seconds.
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JASON HARTMAN: Hey, it’s my pleasure to have Jerome Corsi with us for just a moment here, just, just talk about a single quick issue and that is Obama’s plan to take away or take control of people’s 401K. We’ve talked a lot about this on prior shows and Jerry has been on some other shows talking about some other topics and books that he’s written and it’s great to have him on to talk about this. Jerry, welcome! How are you?
JEROME CORSI: I’m doing great, Jason. Good to be with you again. Thank you.
JASON HARTMAN: It’s good to have you back and I know this is just a quick discussion here, but what are your thoughts on the possible power grab of our 401ks’ and IRAs’ and, and retirement funds in this country?
JEROME CORSI: Well, I just warn people that this is a huge pot of money. It’s sitting there, typically sitting in banks or investments and the government can see it. Now, the Obama administration has made various overtures. They’ve held hearings, they’ve had the Department of Labor look into it, public hearings, and they’ve kind of been around the edges of the topic which is well, maybe we should require a portion of this piece to go into a government-created annuity that would have you return the money to treasury with an IOU to copay something in the future for that money. The, the reason I’m concerned about is as soon as the government like the United States under the Obama administration will triple or our debt is now 16 going to 17 trillion from 10 trillion when George W. Bush took over, so we’re about to double at some point or other during the Obama administration. It looks like the trend continues, our national debt, and let say eight years. That kind of an alarming increase in national debt. Usually—at some point, it’s gonna force the government—we can’t just keep, you know, buying our own debt into this quantitative easing program that the Federal Reserve, the balance sheet won’t absorb this much debt at some point or other. So, the concern I’ve got is that other countries, like Argentina, have actually gone in and nationalized retirement accounts, one way or the other, they have effectively taken the money. Maybe they’ve left IOUs or guarantees which may or may not have gotten fulfilled and it alarmed me [INDISCERNIBLE] in Cyprus when Cyprus was faced with having to get yet another government bailout, organized by the International Monetary Fund and the EU and basically, the international bankers just confiscated a portion of the savings deposits. Now, if this can happen in a western democracy belonging to the EU then who’s to say anybody’s deposits are really safe and again it’s not that—I’m saying the Obama administration is breathing down your neck and it’s gonna take your 401(k) tomorrow. I’m just saying it’s something to think about and to watch very carefully because the overtures have already been made by the Obama administration and I take effect the overtures have been made and it’s a serious event.
JASON HARTMAN: Do you, do you think that they will orchestrate a false flag event or there will just be a market crash? I mean, how would they lead into this type of thing, you know, in trying to make it palatable in some way?
JEROME CORSI: Well, I’m not sure a false flag would be created or any event that occurred as a negative event could be jumped on by the administration. I mean, you’ve seen the Obama administration do this. We get the, uh, the Newtown shootings or any school shooting and immediately, the Obama administration pounces on that tragedy to push a gun control agenda. So, any negative, you know, downgrading of the United States, any kind of a pulling out of the Federal Reserve in the amount of quantitative easing, the amount of our treasury debt [INDISCERNIBLE] which willing to buy that could result [INDISCERNIBLE] an increase in interest rates which would make the cost of financing our debt tremendously more expensive. Any of these situations could precipitate the government saying [INDISCERNIBLE] take extra amount of a hundreds of millions, billions, trillion whatever the government decides it wants, somehow or other, other private savings accounts or maybe [INDISCERNIBLE] government annuities or government guarantees to take the cash and use the cash to resolve the financial crisis at hand.
JASON HARTMAN: And it never will [LAUGHING] because—
JEROME CORSI: Well, unfortunately, what the western economies are doing is, you know, this is not a recession. This is not a typical Keynesian post-war downturn. My analysis has been from the beginning that we are in a structural global downturn precipitated by opening up labor markets to underpriced labor on a basis where it’s economical to fire a higher priced labor in the Western economies, which undermines middle income workers and essentially kills the goose that laid the golden egg, the global economy was being fueled by middle class demand, but when, you know, the work went to India and China, eventually, the middle class is gonna run out of spending power and that’s the structure which today stimulates demand within the indefinite pending jobs would be created in China and India. This has been the problem and it’s not going to be solved by deficit spending, problems with the massive welfare state we’ve built. The proportion of the federal debt —federal budget is non-discretionary spending. In other words, entitlement spending is rapidly growing to over 60% of the budget and it will not slow down just because the economy slows down. That’s the problem.
JASON HARTMAN: Yeah, very good points and folks, get control of your retirement plans. At least, make them self-directed if at all possible because I think the government will go for the low-hanging fruit. They all—the easy money to convert is money in brokerage accounts and savings accounts. That’s the easy grab. The harder grab is that self-directed stuff or it could be, you could have some gold, you could have some real estate, some private money lending, you know, who the heck knows? That will be just so hard to quantify and so hard to grab because it’s so fragmented. Any defensive strategy thoughts there?
JEROME CORSI: Well, I think self-directed IRAs are good. Um, diversification may be in some commodities, fairly diversifying the account, so it becomes harder to grab, your entire account, IRA, or 401(k), simply because it’s deposited in banks. Deposited in banks, the CD is easy to grab.
JASON HARTMAN: That’s for sure. So, you want to make it just harder because the low-hanging fruit is what they always go for. Hey, I know you’ve got to go but thank you for some quick insights on that and I appreciate having you. We’ll have you again on soon, okay? Thanks so much for calling, okay.
JEROME CORSI: Okay, Jason. Thank you.
[MUSIC PLAYING]
JASON HARTMAN: Hey, it’s my pleasure to welcome Phil from Dallas to the show. He has a question about entrepreneurship and investments. Phil, how are you?
PHIL: Hey, Jason! How are you doing?
JASON HARTMAN: Good, good. Thanks for calling.
PHIL: Yeah. So, my, my question comes from those of us who are still transitioning and how the desire to move from the “Working on Contract” as I believe you, you’ve called in the past to a more business/passive/investment-type of income, whatever you want to call it, and, and I feel like there’s a gap. There’s a lot of information about what to do once you’ve arrived, you know, when you have a good chunk of change to try to do something with. You know, this is all kinds of people who wanna tell you what to do, um, and there’s a lot of information about the general mindset, you know. You can listen to a Steve Jobs’s speech. Uh, you can listen to a Tony Robbin’s tape, you know. You can—this general, but mindsets, but unactionable ideas and so it’s—you know, I’m interested in getting into the mindset of somebody who went from there to here and where they where at that, that interim period, how, you know, how the sort of where your mindset was, how you sort of are thinking about it, where the drive came from, and then the steps you took, probably some failures leading to some success, to get to the point where, where you’re really investing at a broad scale and living on that income as opposed to working for someone else, and I think it’s probably relevant to a lot of people in my, in my generation, um, or, or just at my stage of life where you’re struggling with that.
JASON HARTMAN: Right, right, yeah, and good—great question and it’s one a lot of people have. So, you know, I hate to bring it up almost, but in Robert Kiyosaki’s Cashflow game, he does a pretty good metaphor. He calls it the rat race and when you escape the rat race, it means that your passive income can pay all of your expenses and most people never get out of the rat race because they never get to the point where they create passive or investment type of income that can pay all their expenses. So, the first thing to do is to not, to not use all your income to live [LAUGHING], okay, because you’ll never get ahead if you don’t live below your means. You—yeah, if you make a million dollars a year or 10 million a year, if you spend 1.2 million or 12 million [LAUGHING], you know, you’re still, you’re still going in the red and that’s not good. So, you’ve got a live on about 70% of your income. You’ve got to figure out a way to do that because then, that other 30% can become investable and this is an, uh, old concept also from the book, The Richest Man in Babylon, which is a very short kind of famous old book and it talks about living on 70% investing, 10% saving, 10%–and giving 10% away. So, that’s the, that’s the paradigm from that book.
PHIL: Yeah. It’s funny you mentioned that. I just finished—I heard, just heard about that book and finished reading it a couple of months ago.
JASON HARTMAN: Oh, great! Well, then, you—then you’ve heard it definitely. So, so that’s the first thing you’ve got to do. Your income has got to be ahead of your lifestyle because then you can start to get yourself above water and it, it doesn’t really take that long in the broad scheme of things. Most people are too inpatient because they, want—everybody wants some gratification, but it’s surprising how fast this can start to work out for you in, in the course of just a few years which really isn’t a long time in the broad scheme of things. So, so that’s the first thing and then in terms of, if you have, if you have a day job, if you—if you will, a normal day job, starting a side business will really help in not only the way that it might become a successful business and generate other income for you but it will reduce your tax bill because a lot of the expenses that you have as an employee in a normal everyday job can become deductable as a self-employed person, so that’s why having a business on the side becomes a great little tool. Now, of course, I have to give the disclaimer I’m not a tax professional. Check with your tax advisor on this in terms that legalities and so forth but the whole idea being that if you have your own business, you pay taxes to some extent on your net income rather than your gross income or as an employee you’re taxed at the highest rate because you pay your taxes, then you pay expenses, then you get what’s left over. Much better to have income, pay expenses, and then pay taxes after the fact. So, so that’s a much better deal and that’s what a business can do for you. So, did you have a question in terms of what kind of business or what types of investments? Give me a little more background if you would.
PHIL: Yeah. First, first, I just want to say that’s, that’s great already, I mean, I’ve never heard someone specifically say that and for that reason, I think that’s, that’s an awesome point. Yeah, I mean, like I, I – what I was thinking is that, you know, not everybody is gonna have the same road from here to there so, you know, I wasn’t looking for a formula but, yeah, but I was interested in kind of what you did and if you have anecdotes from other people that, that did certain things that worked as well but I’m just looking for, yeah, maybe a little bit more than just a general but your own experience.
JASON HARTMAN: Sure, sure.
PHIL: What you tried or what’s, you know, did you see it right away or what that was.
JASON HARTMAN: Yeah. Well, my experience was just like this, I mean, I’ve talked about it on the show before but basically, I grew up without much in terms of financial resources and didn’t like that very much when I got to about ninth grade, I realized that money is important and it does matter and it’s better to have it than not and so I got my real estate license when I was in college. I was 19 years old and I hung it with Century 21 and I started selling real estate part time and I did pretty well at it and the reason I got into real estate though was because I wanted to be an investor and I just didn’t know any other way to learn about investing but to just learn the business, yeah, from kind of a typical perspective as a realtor. So, I did that. I started selling real estate and then about six months after I started in the business, one of my clients, a guy name Jim, purchased a condo from me in Huntington Beach, California, and he came back to me and said “I just don’t like this property very much. I had a bad tenant and I want to get rid of it and why don’t you list it for me and put it in the MLS and sell it?” and I thought well, maybe this is the first opportunity to be my first investment property and it was. I ended up buying it from him and I had a, the world would see it as a, “bad experience” it was really actually quite a good experience because I had a bad tenant. The tenant did not pay the rent. It was my very first property and I had to evict these people and I was managing it myself and I remember going over to knock on the door and there was this young couple and they just gave me excuse, after excuse, after excuse. I remember I took one of my realtor buddies over there and he was like a little tougher with them and [LAUGHING] excuse after excuse. I had to evict them and they left the place a total mess. They, they really did leave like a broken down motor cycle in the middle of the living room and I think I actually heard that story from one of those real estate speakers but it actually happened to me too and the place was full of trash when they moved out. So, most people would consider that a bad experience but guess what, it turned out to be a pretty good experience because I put almost nothing down on that property. It was a little easier to structure those deals way back then; nowadays, much harder to do that and then I ended up cleaning up the property and I sold it to another investor and then I bought my second property and by the way, I made a nice profit selling it, okay, even though the tenant experience was bad. I had a pretty decent capital gains experience in terms of a, profit, okay, like $30,000 and then I bought a condo for myself in Irvine, California, and I didn’t really have much money to do it so I borrowed some money from my grandmother and I bought that property. I paid 102,000 for it and a year later, yeah, I just happened to be lucky and catch luck, I sold it to a guy who would later become a real good buddy of mine, Mike. I sold it to him for $160,000 and then I paid my grandmother back and because I borrowed the money from her to buy it, I basically put nothing down so my return was infinite on that property basically and that is when I really, really got excited about real estate and after that, I just started buying out everything I could and I bought several different houses in different areas, all around Southern California though, and you know, it all went well until the market crashed and then I was stuck with one of them for about seven years and it wasn’t so great and that’s when I learned another lesson. And the lesson there is, part of my 10 commandments of successful investing, is number 1, thou shalt diversify, okay? That’s not the first commandment. It’s just one of the lessons I learned from this experience. And number 2, uh, is one of the—also commandments is thou shalt not gamble and what I was really doing with these properties is that they’ve very rarely made sense from a cash flow prospective. In, in California, you’re pretty much a speculative investor most of the time, almost all the time actually. And, and so the properties gotta make sense the day you buy it from a cash flow perspective and if doesn’t, you just don’t but it. But I did get lucky on some and I made some money being a speculator or a gambler, if you will, but you know—and I always say it’s better to be lucky than good and this time around back in the early 2000s, I said to myself, you know, I am not gonna go through that disaster again that happened in the 90s. This time, I’m gonna diversify. I’m gonna have properties in multiple geographical locations. So, if one or two of them go bad, the other two or three might be good. Hopefully, they will be and then, I’ll insulate myself from a potential downside risk.
PHIL: Okay, and so, you, you were then living off of less than your income. You’re putting some away. You made your first investment which, though you had basically the worst case scenario at the beginning, it panned out in the end. And then—so you were working up until, I mean, during the beginning portion, you must have still been working, yeah, so?
JASON HARTMAN: Uh, oh, I’m still working. I mean, I’ve never stop working. I love to work.
PHIL: Oh, I mean, as far as, as far as working for someone else per se, right?
JASON HARTMAN: Yeah. Well, I mean I was working as a realtor. So, when—you know, when you’re a realtor, are you really working for someone else? No. You’re an independent contractor and you set your own hours, you set your own income because you can work hard and make a lot of money or you can be lazy and not make any money. So, you know, I was really always self-employed if you will even though I didn’t own the company or own the business always, but that’s the, that’s the deal.
PHIL: Okay, so that, so that pretty much then becomes, becomes the path to success as things keep building on each other than—
JASON HARTMAN: Yeah, yeah, definitely. And, and you know, it all really—it was possible because I lived below my income. Now, granted, as a realtor, I had a pretty high income most of the time, you know. I did well at it. I worked very, very hard and I was very successful in real estate. So, again, that’s a, uh, business where there is a good risk reward ratio and if you work hard and you take the risk, you don’t have any security, you can do very well and, and I did, but not all people have that. So, that’s why, say, if, if you don’t wanna give up the security of a job, if you’re in a position of a job now, start a business on the side and have it be diversified, so you’ll have something else going on, creating income for you and nowadays, it’s so easy to start a business. I mean, you just build a website and the world is your oyster, you know what I mean?
PHIL: Absolutely. Yeah, and I was gonna seg—it’s a good segue. So, on one of your last podcasts, you, um, mentioned that people are more entrepreneurial today in today’s generation and that was, that was your observation and um, I was gonna say that a lot of that is probably due to the internet and I think a lot of it is also due to the instability. I mean, 50 years ago, people probably suspected that they could work for a company for their whole life and then retire with some sort of pension or retirement plan and make it okay and nowadays, I don’t think any of us believe that.
JASON HARTMAN: No. Fortunately, fortunately, we’ve all learned that that, that doesn’t work anymore. It is so easy to start a business nowadays. In, in the internet, there certainly lots of options there, but there are even offline options that aren’t internet-related and there’s a great book title that has very good reviews. I have not read this book, but it—I love the title and it’s called, The $100 Startup. Reinvent the way you make a living, doing what you love, and create a new future and that’s by Chris Guillebeau. I guess, I hope I’m pronouncing that correctly. Very good reviews on Amazon.com. I would get that book if I were you. There’s another book that’s very popular as well, it’s called The Lean Startup. How today’s entrepreneurs use continuous innovation to create radically successful businesses, by Eric Ries. Again, you can start a business with very little money nowadays. In the old days, it used to be in a lot more expensive, much bigger barrier to entry than there is nowadays.
PHIL: Absolutely. So, so if the question is how are things changing in today’s landscape, would that change the way you think about anything or just—what, what are the differences in how you think about things in today’s landscape versus, you know, previously?
JASON HARTMAN: Well, let me answer not exactly that question because there’s one more thing I wanted to say about my real estate career and this is, this very important. One lesson that I learned from my mother, I used to manage two small businesses that she owned when I was in high school and college and one of the Pioneer chicken franchises, kinda like Kentucky Fried Chicken. Most people have heard of KFC and it was a competitor to KFC and it was in a very bad area of Los Angeles and I remember how big that investment was for her to own that franchise to buy it. It was $100,000 cash down, a $100,000 in loans, and $75,000 in equipment leases for all the chicken-cooking equipment. And so, that was $275,000 investment, and I just marveled that I went to real estate school, and it cost me $99, and I was 19 years old. And when I got into my real estate office, essentially 21 Academy in Anaheim, California, when, when I started working there, I remember noticing that the people in the office were all sitting around complaining about why the company didn’t do enough for them, why their broker was so bad, and why they didn’t wanna spend any money to pay for anything, they didn’t wanna buy promotional materials like realtors that have their picture on the notepad and stuff like that, and you know, you could buy 1000 notepads back then for like $180. And I just, I just remember thinking, “My gosh! Why are these people complaining?” I mean, the average commission back then maybe was, I don’t know, $5000, okay, or $4000 or $5000 and they’re complaining about spending $200 on their business. They won’t spend any money. No wonder they’re not making any money. No wonder they’re complaining and I thought, I just remembered my mom’s experience with that terrible Pioneer chicken franchise that she had over a quarter-million dollars invested in it. She saved and saved for years to do that and, and you know, people didn’t treat their career with enough respect. So, even though it is inexpensive to start a business nowadays, it still requires reinvesting in the business and, and so, I just wanted to kind of make that distinction between—I guess, it sort of addresses your question between how it was back then and how it is today.
PHIL: Yeah. I mean, leverage is obviously a big, a big part of your formula than as well as now, It would seem and you know, that’s a little bit, a little bit harder. Obviously, things, things are tighter in the credit market and much more stringent.
JASON HARTMAN: In some ways, though, that’s a good wholesome discipline, you know it? Because that, that really makes you think and innovate more. Just throwing money at problem doesn’t solve them. Thinking solves problems better than that.
PHIL: So, that’s what the government thought?
JASON HARTMAN: Yeah, yeah, that’s the government’s problem. They threw it—
they throw a money at things and don’t think [LAUGHING], but, does, does that help? Does that make sense? Does that address your question?
PHIL: Yeah, I think, I think it absolutely does and if I kinda summarize it, I mean, I think a lot of it comes down to the answers that get rich quick people don’t want to talk about which is a lot of it comes down austerity and personal responsibility, and living within your means, and making the right decisions, and then getting out there and experimenting, investing, and learning, all things that are hard, you know, to a lot of people. I don’t really wanna think about it, so.
JASON HARTMAN: Absolutely. And you know, the other thing I would like to say, Phil, about that austerity concept is don’t be too austere. When you have successes, do reward yourself along the way, so that you set up in your mind, you kind of trick your mind into thinking, “Hey, if I do this, if I work hard, there is a reward for it.” So, I don’t believe in like total austerity and I live a pretty nice life, and I, I do like to spend money, I’m definitely a consumer, okay? But spend your money as much as possible on things that actually create wealth instead of things that give the appearances of wealth and that’s the mistake most people are making. Moving almost two years ago to Arizona and living near the ASU Campus has been really enlightening for me to see how a lot of these college kids think because most of them are so anxious to just make money, so they can instantly spend money and, and the problem is that doesn’t create a future. You’ve gotta, you’ve gotta spend money on the things that are investment grade, the things that create wealth. Most people just buy themselves a bunch of expenses and obligations and they do that to, usually to impress other people. They want to buy nice cars that depreciate in value. These things are, are the wealth destroyers. Owning things that produce income, that’s impressive, that’s what will create a future for you.
PHIL: Yeah, that’s the big—that’s the one thing I’ve distilled from the Robert Kiyosaki book, Rich Dad, Poor Dad, and that’s the problem that I have reading somebody’s book is I could really distill [[INDISCERNIBLE] The one most important idea for me from that entire book was that, you know, wealthy people buy assets and people that are broke buy debts and liabilities.
JASON HARTMAN: Yeah, they do, they do. They just buy things that cost more money and create more hassle for them when they should buy things that produce and build. Guns and butter theory, that’s, that’s really what it’s all about, so, so good. One other part to this discussion, that—you didn’t necessarily ask, but I think you’re thinking of it from our pre-recorded conversation here is what do you do, I mean, you know, how much does it take like if you wanna start as a real estate investor, it will generally take about $20,000 or so to get into the game of buying your first property and if you want to get into the lending side of the business and do hard money or private lending, that will probably take about $50,000 to $100,000 because you’re the lender. You can’t use leverage, but if you can’t qualify for a mortgage, then, you may need to go that route but the other thing to explore is the concept of partners and like I’ve talked about on the show, I’m definitely interested in buying more property and partnering with people and being a cash partner where I can put up money on the deal and go in with, you know, I’ve done this with several other clients and it’s a very good deal as long as neither party lives in the property and it’s an arm’s length transaction for both people, so consider partners, consider investors like my second property I got my grandmother to basically loan me the down payment and that was a great deal for both of us. She got paid back. I made a bundle of money so that’s what really got me started. And I remember thinking when I saw that property by the way, going back to the guns and butter and liabilities versus assets concept. I used to really, really want to own a boat and now, I have owned a boat and now, I never want to own a boat again. [LAUGHING] But I remember thinking at the time, I was in my early 20s and when I saw that property, I remembered having that 60,000 bucks in my hands thinking “Gosh, I could buy a sailboat” and I’m like “No, I didn’t do that. I bought more properties.” And then years later, I bought a big yacht and that was a pretty terrible experience ultimately, [LAUGHING] the two happiest days of the boater’s life are when they buy it and when they sell it, so that’s a great example of how things cost a lot more than the initial cost.
PHIL: Yeah, and I think that’s a good, good pinpoint of divergence point whereas, if you hadn’t made that decision at that point, you’d probably be on a very different path and what really stunted your ability to go down the path that you’ve gone down, maybe you should, make a decision like that at the time. Yeah, and so, I guess the question to as um, a followup to what you’re saying so you can get your first property but you still have the cash flow that you gave, still have to bring in the majority of your income, if you get one or even a couple of properties, I mean it – what do, what do you think is the number of single family home types that your network sells, how many do you typically need to replace your income?
JASON HARTMAN: Well, it depends on your income –
PHIL: It depends on what your – yeah.
JASON HARTMAN: Everybody is different so that question cannot be answered but if you, if you look at it like this, if you look at it that each property produces say 250 dollars a month of income now, of course, it depends on how much you put down, what market it’s in, there are lot of variables there but let’s just use that as a round number, 250 dollars in income, which does not seem like much but it’s a return on investment that is phenomenal because maybe you only put twenty thousand dollars down on that property, okay, and I’m just thinking out loud here, I don’t have exact numbers by any means but for those as a thousand dollars a month but you could all sorts of tax benefits, especially if you own several properties and you qualify as a real state professional. Okay, which we have talked about on the show before so eight properties is two thousand dollars a month. You can start to see how this works and then, in a couple of years, you can have some rent increases and all those $250 a month properties may turn into $300 dollars a month each. So four properties is now twelve hundred dollars and eight properties is now $2400 dollars and you can see where, really, I mean most people just want it all today. You know, I get that. It’s the instant gratification mindset that kills most people but in the matter of a few short years and, folks, – that time will pass anyway. You might as well make it constructive. You can really get ahead of the game. I mean, it is, you know, and keep working, don’t quit your job because, then you’ll have both incomes. Well, you might have a business on the side, you really have multiple streams of income. You have your day job, you have your business, and you have your real estate investments. Three forms of good income for you.
PHIL: Absolutely. I wanna talk to you about two smaller issues that are kind of current but I – do we have a couple of minutes or should be –
JASON HARTMAN: Ah yeah, just quickly, I’ve got to go and do another interview but just quickly, sure.
PHIL: Okay, I just want, I know you’re kind of, your thoughts on gold, well, we don’t need to get too much into that but I just thought it might be, it might [INAUDIBLE] that I think gold buggery is very much alive and well.
JASON HARTMAN: Oh, I think so to.
PHIL: Yeah, the recent launch, you know, some people are claiming, it was a premeditated paper sell-off or whatever, but the physical demand has gone through the roof since that happened so there’s no [LAUGHING] – There’s no imminent sense of gold buggery and the recent drop just made people really head for the hills for everything as far as I can see. It’s just funny to watch all the articles that came out two weeks ago that the gold rush is over and gold is dead and the gold bugs are wrong and then this week, everybody is parroting, “Oh, physical demand is through the roof and then, you know, the media just feeds on such things and makes it a frenzy.
JASON HARTMAN: You know what, gold bugs are very illogical [LAUGHING] okay and those people – if gold is up, it’s great, buy more. If gold is down, it’s great, buy more.
PHIL: [LAUGHING].
JASON HARTMAN: They just make no sense to me, gold is totally overrated. It’s okay but it’s overrated. It’s completely overrated.
PHIL: That depends on strategy don’t you say?
JASON HARTMAN: Absolutely, absolutely.
PHIL: And there are things, I want to talk really quickly about Bitcoin and you know, this is such a new thing. I really just wanna say two things because I know you talked about it briefly in your last show but there are really two things that to me, kind of, just a lot of misunderstanding and I think a little bit of ignorance about it and the first point I wanted to make was in regards to the people comparing it to the tulip frenzy and I’m, I’m pretty strongly and I mean, lot of things you could say about Bitcoin why it may or may not work but I think that the tulip frenzy aspect evidence is kind of crazy I mean, you know, the tulip is a tulip and you know was a degradable substance and it doesn’t have any intrinsic value where as with Bitcoin, you know, I think there is value where in the pseudo anonymous currency that can be used worldwide with virtually nonexistent commissions when you compare it to the current choices, though I have to say I think people are thinking about it wrong and saying there is inherent value in the idea of a Bitcoin but there is inherit value in the networking that is accomplished with it.
JASON HARTMAN: Yeah, the problem with the whole Bitcoin craze and you know, I have really studied this whole Bitcoin thing quite a bit and I don’t own any Bitcoins by the way, I just make that disclosure but I think that the governments and central banks are going to shut that down. They’re, they going say – it’s used by terrorists. It’s the same way they shut the gift cards down to some extent. They really put a lot of restrictions last year on those gift cards, those Amex Gift Cards and Visa Gift Cards that you can buy at the CVS or Rite Aid, or Walgreens Stores, or any store for that matter. They’ve made those things a lot harder to use and Bitcoin is even worse. I have a feeling that regulators are going to come down on Bitcoin. They’re going to find an excuse to do it and they’re going to do it as a coordinated effort with governments around the world and Bitcoin is going to be in the shadows forever. I just –
PHIL: Yeah, I would agree with that. I think if it ever becomes a real threat to currency, they’re gonna destroy it.
JASON HARTMAN: And hey, Bitcoin is a fiat currency.
PHIL: That is true.
JASON HARTMAN: [LAUGHING]
PHIL: That is true, and you know, I think there’s one psychological aspect that people aren’t really realizing which is that – it’s such that, there’s a limited amount and that’s good and it’s such a limited amount that as it goes up in value what you’re really using is such a fraction that I don’t think a person of average mathematical ability can really use it as it, as a unit. You know, I played around with it, a couple of Bitcoins, and I bought an e-book and it was such a fraction of a Bitcoin to buy it that I had to make the calculations with dollars to figure out what value I was paying –
JASON HARTMAN: And therein lies the problem also with gold, that’s one of the problems with it too. Is the gold is too big of a chunk. It can’t be split enough.
PHIL: Yeah.
JASON HARTMAN: You can’t really use it.
PHIL: It’s really hard, yeah.
JASON HARTMAN: Yeah, it’s too hard. It’s –
PHIL: Okay, well, I appreciated it. That’s probably all the topics I have.
JASON HARTMAN: Be sure to call in to the Creating Wealth Show and get your real estate investing and economics questions answered by me personally. We’d love to have you call in, share your experiences, ask your questions and a lot of other people listening have those very same questions so be a participant in the show at (480) 788-7823 that’s (480) 788-7823 or anywhere in the world via Skype JasonHarmanROI, that’s Jason Hartman ROI for Return on Investment. Be sure to call into the show and we are going to enter all of the callers in a drawing for some nice prizes as well so be sure to call in the show and I look forward to talking with you soon.
ANNOUNCER: This show is produced by The Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or e-mail [email protected]. Nothing on the show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Empowered Investor, LLC. exclusively. (Image: Flickr | covilha)
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