If you’ve got questions about investing in income properties, wonder what it is that an investment counselor does, or want to know how to utilize investment counselors, this Flashback Friday episode of the Creating Wealth podcast covers some of these questions.
Episode 803, originally published in March 2017 covered the second half of Jason Hartman’s live investment counselor panel from the Creating Wealth seminar. The panel answered questions on how to utilize investment counselors, what their jobs cover, the process of finding and vetting providers, how to balance portfolios, banking choices, and much more.
Venture Alliance Wrap
Jason Hartman opens Episode 803 thanking his listeners for joining in and explains that the second part of the investment counselor panel at the live event will be featured. He recalls that this clip was recorded after he spoke with his audience about his big discovery, the risk evaluator. If you’re familiar with it, it’s one of Hartman’s greatest discoveries to date. This idea based on the LTI ratio took nineteen years of working in real estate to develop.
Hartman reminds listeners that if they should need tax or legal advice, it’s crucial to seek out the correct professional. He is not qualified to handle these matters as they tend to get complicated, but he adds that he will give his understanding of or experience with the topic. Even so, it’s best to seek out advice from a professional in your desired field.
He notes that this weekend he came off of a wonderful quarterly meeting with the Venture Alliance Mastermind in Las Vegas. While he is tired, Hartman states that he had a great time. The pre-meetings started Friday morning and the formal meeting started Friday evening at 7:00 pm. The meetings were held in a gorgeous boardroom at the Wynn Hotel, and former governor Bob Miller spoke to the group about Nevada and Las Vegas history, including information about the mafia and casinos, as well how Steve Wynn financed his first property and became incredibly successful.
There were around 22 people in attendance when former CIA operative Jason Hanson came in to speak to the room. He teaches a class called “Spy, Escape, and Evasion” and showed the room how to break out of different restraints. He also spoke on various self-defense methods and how to evade someone while being followed. Hartman states that it was like James Bond came to speak.
He explains that the following day, after ziplining on Fremont Street, the group met back in the boardroom and masterminded. Everybody shared different books, newsletters, and podcasts they were interested in. One local market specialist that was in attendance shared the way he uses creative visualization to get where he wants to be in life and business.
Venture Alliance members also had the opportunity to go around the room and talk about situations that they’re interested in, and the group offered suggestions, asked questions, and helped better assess the situation.
Hartman explains that the next Venture Alliance meeting is set to take place in Chicago, so for listeners who are interested in attending, stay tuned for more information about this event in the future.
Another Memphis property tour is coming up as well, and Hartman states that this time the focus is on brand new constructions. The Creating Wealth seminar will take place during the same weekend, where Hartman will discuss the risk evaluator, inflation-induced debt destruction, President Trump, and various other topics.
Happy 13th Anniversary to Creating Wealth
Hartman mentions that the anniversary of the Creating Wealth seminar is March 12th. The first event he held was in Newport Beach, California in 2004. It was thirteen years ago as of now. The event is coming up again in two and a half weeks. For ticket information on upcoming events, visit www.jasonhartman.com/events or speak with your investment counselor. The upcoming event will have a few new providers in attendance.
He explains that though he is not a big drinker, he has learned that alcohol is a truth serum. It shows a person’s true nature. He’s heard before that money is like alcohol; it makes a good person better and a bad person worse. When having drinks with people, you get a flavor for what they’re really like. You learn things about other people by casually spending time together.
How to Utilize Investment Counselors: Finding and Vetting
When asked about different local market specialists and the process of vetting, Carrie explains that she finds the market, collaborates with her team, and looks at new projects coming in. She researches the neighborhoods in which she’s getting referrals and then begins the process of screening a provider. She notes that there are phone interviews that take place, where she gathers information about how legitimate the provider is.
From there, she states that she will slowly start working with them, will upload their properties, and keeps an eye on the progress so as to work out any kinks before making the properties public. She states that because of this process, she could be working with a professional for six months and they’ll seem new when they speak on the podcast. In the back end of things, Carrie explains that she will have been working with the provider and getting them accustomed to their individual structure.
Hartman adds that a lot of the time, his company doesn’t put a new provider on the podcast right away, as they need to be tested. He judges communication skills and whether they’re responsive and explains that some can’t even communicate. Some also don’t like to pay for their referrals, which is not a good sign.
Balancing A, B, and C Properties
When asked about the overall philosophy with creating balance in a portfolio containing A, B, and C properties, Hartman explains that it completely depends. It’s the investor’s decision and should be based on what they want.
Carrie adds that it’s important to look at your goals and ask yourself what you want now. Class A properties will barely hit the rent-to-value ratio, and Class B properties will be steadier with cash flow, as well as a bit of appreciation. Class C properties will need maintenance but will have more cashflow. It’s up to the investor depending on what they want. She mentions if you’d like to go with two properties, get two Bs and then move up to two As, then Cs. Make your portfolio an all-around blend. If you buy two properties in Class B and you don’t like them, you’re not going to want to move up to ten. Experiment a bit.
Hartman mentions that it helps to ask yourself how much involvement you want to have. In the Venture Alliance, the group came up with a new meaning for ROI as “return on involvement”. Class A properties are generally less involved while Class C properties are usually quite involved.
Oliver states that the choice is ultimately about how easy you want your investment to be. If you would like to be very involved and your goal is to maximize your return on investment, you might want to go into properties with higher returns. If you have a full-time job and need something with less involvement, steer towards Class B or Class A.
Sara explains that rents tend to go up accordingly with higher classed properties, as well as having a better overall tenant quality. There is no guarantee, but the nicer properties tend to appreciate better. An investor can either make choices to get their cashflow now or wait and have a good chance at making a rent increase later. Her advice is to diversify geographically as well as in different types of properties depending on your comfort level.
Muthia mentions that he wants to speak on a different kind of leverage. He has had a fair number of exchanges with property managers by email, and there is a benefit that comes with letting people know that you’re working with Jason Hartman’s investment team. He adds that he always copies Carrie in his correspondences and it draws more attention from the property manager. It’s important to know that your questions are going to be answered and that you’re going to be taken seriously. In this sense, if the property managers make constant careless errors, they won’t continue to stay on the network.
Amortization of Property Components
A viewer in the audience asks how to handle a major repair after fifteen years of owning a property and how such a repair can affect overall ROI.
Hartman states that it will affect ROI negatively, as major repairs like replacing a roof are expensive. They’re a cap-x improvement, and it’s wise to budget for future repairs in advance. Homeowners’ Associations are supposed to do the same thing for large repair expenses. They know that in twenty years, the streets will need to be repaved or the pool will need to be redone. Investors are going to have expenses like this, so be prepared ahead of schedule.
Carrie adds that new constructions don’t always look great on paper, but they require a lot less maintenance. By the time a home needs a new roof, there might be the opportunity to perform a 1031 exchange, and the new buyer might take care of the repair.
How Many Properties to Have in One Bank Account
Aaron from Irvine asks if it’s better to have one bank account for all properties, or separate accounts for each property.
Hartman answers that he does one account for all of his properties that exist in one entity. If they’re properties in his personal name, they go into one account. If there are several properties in an LLC, he has an account for those. Some people suggest having one account for each, but that seems like too much, Hartman says. He also has one account for large properties like apartment complexes.
Fernando agrees, and Oliver explains that some people have one account for properties in a given state, as it is structured to reduce risks.
Fernando adds that he breaks his accounts up per state. Depending on who you ask, you are going to get a different answer on this, he says. If you ask a lawyer who makes money off of creating LLCs, you’ll probably be told to do one account per property. The answer can vary widely, honestly. In Fernando’s case, it was more organic, as he was building and buying, he had an LLC for the state. When he bought from a bank, they wanted a single-purpose LLC for that. It’s up to the investor and what they’re comfortable with.
Hartman mentions that last week, he had a Venture Alliance group meeting in Seattle where he gave every attendee a copy of Garrett Sutton’s book. Sutton has formed entities for Hartman and is both good at what he does and reasonable. He notes that when you form a lot of entities, things get complicated, especially in California. That state wants investors to domesticate every entity they’ve got in the state, even if the property is somewhere else. Even if you have a mailing address in California, and you do not live there, the state can try to make your tax nexus there.
He advises diversifying into at least three different markets, as it’s old-school thinking to only buy locally in this day and age. It’s not necessary to live in the same market you buy in anymore.
Fernando states that it amazes him that every so often he sees companies pop up that do a piece of property management, and because there are resources that didn’t exist before, it’s easy to manage your properties from anywhere.
Oliver adds that he has come up with a hack to save his clients money. For those that have registered agents, look around locally for the cheapest agent and see if the one you have chosen will match the price.
Hartman notes that he used to use a firm that he will never use again because he was paying outrageous fees for entity maintenance. He moved over to Garrett Sutton’s office and got a much better deal.
How to Utilize Investment Counselors To Your Benefit
When asked what the team provides and why a new investor should choose their services, Hartman explains that firstly, his services are free. His team makes money from the referrals they get from local market specialists. Even if an investor finds their own properties, they’re still going to have a broker or agent. His team is not attached to any one market, so if you buy from one of their local market specialists across the country, his team gets money. No matter what market you buy in, his team will be impartial with you.
Sara explains that her team is working with several investors at any given time and getting constant feedback. She knows who goes the extra mile versus the person that won’t do anything. She references a recent straw that broke the camel’s back with a market specialist that her team fired. He had a few complaints in the past, but a big issue came about when an investor, Fred, told her team that he just closed on a property and there was a small hole in the back door. The toilet in the home was also producing hot water.
She said to herself that these were two easy fixes and called the provider to take care of the issue. He didn’t perform any repairs and was the only provider she’d heard of in nine years of work that refused to fix a small problem. He blamed a squirrel for the hole in the door, and while her team went to bat for Fred, they ended up not working with this provider anymore. They removed the provider’s properties from their network.
She explains that this doesn’t mean that Fred had a property that wouldn’t perform. She helped him find a new property manager and got him back on track. Sometimes firings happen. You might be looking at a property through a provider and might have been communicating with them. If you call and ask about the provider, we are going to tell you the truth, she says.
Hartman adds that some local market specialists are making more than a million dollars from them, so they aren’t going to mess that up. He compares this to doing one-off deals and having no leverage.
Oliver states that the team is here to help the investors. There are other companies that charge money for coaching on how to do what it is his team does. They offer the information for free.
Are there Different Areas of Expertise?
When asked if there are differences between working with any of the different team members, or if anyone specializes in different markets, Hartman explains that each team member covers all markets. There aren’t enough markets to where specialization is needed. They’ve got local market specialists and know how to utilize investment counselors to handle all sorts of things. They cover a variety of things as clients grow and change.
Sara adds that the one thing investors should know is that all investment counselors bring something to the table. They perform team calls and Venture Alliance meetings. If an investor ever needs access to anyone, she and her teammates work together. If there’s a question that she personally can’t answer, she will find someone who can and get that answer to her client.
How to Best Utilize an Investment Counselor
Joe from Idaho asks how to utilize an investment counselor, and Oliver explains that an introductory call takes place where she sees what an investor’s goals and expectations are. She identifies markets and will introduce the investor to a lender to get a prequalification. From there, she will identify the home the investor wants, and they’ll close on a fully rehabbed home. A tenant moves in right afterward and her team helps along the process. There is a lot that happens during those first steps, but these are the basics.