In this episode, Jason Hartman’s guest is Fernando. They talk about the investment property tour of Chicago and Grand Rapids. They discuss the tenant turnover rate in Chicago, land contracts in Grand Rapids, and Detroit’s current state. The two also dabbled on judicial foreclosure states, the differences of a small provider versus a large provider, and The Cold Stone Philosopher’s Club.
Announcer 0:00
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:03
Hey, welcome to the creating wealth show. This is your host, Jason Hartman, thank you so much for joining me today. I am stuck in the Detroit airport. Fernando and I are here our flight has been delayed. We’re not too happy with US Airways right now. But we thought we’d sit down and record a little bit and talk to you about some impressions from our Chicago and Grand Rapids and our little side trip to Detroit, our little semi private property tours that we’ve done here the past few days, it’s been a really good time. So let’s talk about that. And next up on our next episode, we will have a returning guest for the fourth time, the economist and author Harry dent. So that’ll be on our next episode. And hey, let’s jump in and talk about the past few days. So I am sitting here in the airport with Fernando and we just got stuck. We’re angry a little bit, I think with US Airways and American Airlines, because they suck. So if any of you out there work for them, you probably know this. So don’t feel insulted because you probably agree with us. Anyway, we got stuck and it looks like we’re going to be delayed. And you know, the delay is always a weather delay. So they don’t have to give you any vouchers or pay for your hotel or make any accommodations for you whatsoever. Other than making the wait on hold for 35 minutes to try and change your flight. And then make you wait in line again at the airport to try and change it there. So anyway, enough of my grumbling and griping because you know what if we keep this all in perspective, look, our ancestors used to die traveling across the country. Okay, they used to get sick. traveling across the country, it used to take months to travel across the country by stagecoach and horseback so life is pretty good. Okay, Jason be grateful. Yes. So yes, Fernando, we’ve got to keep it in perspective. Don’t
Fernando 2:54
wait. Yes, we do. I think we need to set our expectations. It’s not as bad as,
Jason Hartman 2:59
as it seems. We’re going to be stuck in Phoenix in a hotel there tonight. And then we’ll make our way to San Diego tomorrow morning. And we will enjoy Sunday in San Diego and then have our mastermind meeting for Monday and Tuesday. So that should be really good. I’m really excited about seeing everybody there. But you know, we’ve been on our little semi private property to her here. And the last couple of days. We’ve just had a great time, Chicago in Grand Rapids and today in Detroit, the poster child for big government disaster. Fernando, what are your your thoughts and impressions from this very interesting tour. This is the first time we’ve ever done an event this way. It’s a totally different type of property tour for us. So any impressions you want to share?
Fernando 3:42
I think it worked out really well. It was, as you said it was a small, semi private gathering tour, we got to talk quite a bit with several investors that came to the tour. And we were able to visit properties with two providers, our big provider in Chicago, and also a smaller provider, Mike St. in Chicago. You know, in Chicago, it
Jason Hartman 4:10
was just like a total study, in contrast, wasn’t it? Because in the morning, we met with our big corporate local market specialists and their big team, we met in the boardroom, had breakfast at their office, got a complete tour of their, I think 15,000 square foot facility and met a whole bunch of their staff, the property management team, the development team, the rehab people, they have a in house planning department, and all sorts of interesting stuff there. And then in the afternoon, we all have lunch together their team, all of our clients that were there. And then the new team, which is Mike and Jamie, there are the small, you know, solopreneur type providers and you know, that sort of roll up your sleeves, give great service type of thing, the complete opposite of the big corporate provider. So really a big contrast for the clients, wasn’t it?
Fernando 4:59
Yeah. Big contracts. And we had a lot of questions, you know, during dinner. And in much the clients were asking our opinion, Jason and I were, we’re providing the pros and cons of working with, with the two providers in our large providing in Chicago, john was, was showing us around, the owner of the company was there as well. And they’re probably the most sophisticated of our providers. I would, I would totally agree
Jason Hartman 5:29
with that. And you know what, let’s just share with our listeners, because I think this is going to be really valuable. some insight into the vacancy rate question or not the vacancy rate question directly, but really the tenant turnover question. I think we were all pretty impressed with that, you know, many people listening, are interested in investing in single family homes, and many other people are interested in investing in apartments. I’ve done both I do both currently. You know, it’s it’s just such a difference, Fernando in the different quality of tenant you get in an apartment, when we heard from the head honcho of our big corporate provider. And it was kind of interesting, that conversation he recounted from being at an industry conference. Do you want to share that?
Fernando 6:13
Yeah, I think it was very telling of the difference. And we get these questions from hires quite a big, quite a bit. If you have quite a bit of money. Why wouldn’t you invest in an apartment complex as opposed to a single family home? Or a portfolio of single family homes? You mean, correct? Yeah. So so the head honcho of the corporate provider that we work with in Chicago, gave us this this story, where he was asked, the question came up during, during a QA session in front of many, many of the attendees of this conference, about the vacancy rate on apartment, apartments in this apartment complex. And the the owner or the provider of the apartment complex, have said very proudly that they only saw, they saw tenants staying for one and a half years
Jason Hartman 7:07
on average. So they were impressed the tenant stayed that long in their apartments, and they, you know, a couple 1000 apartment units. So they were very, you know, a pretty big, sort of pseudo institutional investor, right. But in the single family home category, the average tenant stayed much longer, didn’t they?
Fernando 7:26
Yes. 3.8 years, almost four years is the average state for a tenant in Chicago. That’s, that’s actual data from from the provider. And, of course, that, you know, for new investors, you know, just to recap on how important it is to keep tenants in the property. When you lose a tenant, you know, there is a turnover cost, there’s a vacancy, when you don’t have a tenant there, there’s, there’s just cost for lease up. times, you could be losing two to three months worth of your income, because it turned out so it is very important to look at the contrast and why, in many ways what what the providing a Chicago was was describing is, they have this operation such it’s fine tuned to a degree where they treat these single family homes is small apartments.
Jason Hartman 8:21
I call it virtual apartment investing. So if you’re a large investor, and I know we have investors all over the board, we have people who are just buying a couple of single family homes for investment and people that are buying large amounts of single family homes. And, for example, I met with one of our clients a couple of weeks ago, Derek, I think he said he’s got 42 units now, and is building up from there. And it’s going to build a big portfolio. You of course, Fernando, you have 70 units now. And you’re about to do a refinance, which we’re going to talk about on a future episode because you did a great analysis. As we were driving around Detroit today or on the way to Detroit, you opened up your laptop or in the back of the suburban and you were showing me this analysis. I love that. We’ll talk about that on a future show. But where are you going to refinance and pull about three quarters of a million dollars out of your portfolio. You know, what should you do? Where should you invest in? And what kind of difference does it make to your cash flow in your overall return? So that was really interesting. Turnover? reducing tenant turnover is key. And one of the things you do Fernando that I really like, is you try to get to your leases with all your tenants. Right,
Fernando 9:26
right. Yeah.
Jason Hartman 9:26
So yeah, reducing tenant turnover is obviously key. And in apartments, you definitely have a more transient tenant base apartments require a lot more attention. I’ve made a lot of money with my apartments. They’ve been great. But I’ve also made a lot of money with my single family homes, and they’ve been great too. So that you know, this, the single family home at the end of the day, though, is just such a simple and such a proven investment with better appreciation. By and large. I mean, nothing’s always true. You know, there’s exceptions to every rule, better appreciation than apartments, and certainly Entertainment quality. That’s, I’d say always true. So a lot to think about there. But let’s talk about some of the other impressions. I, you know, I was really impressed with Grand Rapids. I mean, I gotta tell you, we saw some historic houses today, we saw some suburbs of Grand Rapids. And here, we really talked a lot about the land contract investing. So in this market, our investors have the option to invest in either the paper to be the banker, to hold the land contract, which is basically another type of note or mortgage, but not exactly the same different and better characteristics, in many ways, depends on the state, though, it varies state by state. But in Michigan, it’s pretty good. Or you can actually direct by the properties. But for self directed IRA investors, especially, or investors who cannot get financing, if you’re a foreign national, self directed IRA investor, you’ve got over 10 properties, you know, and your spouse, if you have a spouse has over 10 properties, and you’re at your Fannie Mae limit. Now, you can do other things. Of course, we’ve talked about that many times. But if you can’t get financing very easily, or very attractive financing, being the bank is a really good option. And especially inside a self directed IRA, it’s a great, great choice. So that options available, we’ve done shows on that in the past, we won’t go into that in terrific detail. But I think the Grand Rapids market is particularly appealing there. And you know, the rates of return can be anywhere from you know, 1213 14%, up much higher than that, if they pay you off early by selling a refinancing, your rate of return can go up dramatically. So you know, we’ve seen investors get 25 30% return on those land contract investments, and you don’t have the management. So there’s some pretty attractive characteristics about it. Any other comments on that? No, I
Fernando 11:52
was impressed with the provider there. I think. Justin did a great job. showing us the properties. I think the investors got to ask many questions. I think it was very valuable. I was impressed with with Grand Rapids in general, as you said, half a million people. Very pleasant location, we got to see some of the suburbs that was actually I was even more impressed with the service
Jason Hartman 12:17
to the suburbs. I mean, some of the suburban parts of Grand Rapids were just charming, like charming towns, where you just don’t have this investor community. So there’s like no competition. And you know, it’s pretty neat in the team that he has in place. Also, as was impressive. You got to have dinner with them to lunch with them. We
Fernando 12:40
talked quite a bit. We saw the different stages of homes, he showed us properties that he’s considering buying properties that is halfway rehab,
Jason Hartman 12:49
and some of some of those were disgusting. Some
Fernando 12:52
of them even want to stay there for too long. There
Jason Hartman 12:54
were so but remember that one house, we saw that I think he had purchased this one, but it had done nothing to read at all. We’re habit, disgusting sofa and mattress and just trash all over the Hello Kitty backpack on the floor, like a hoarder live there it was and they didn’t
Fernando 13:10
take anything with them. It was amazing. In the comment, one of the investors, David that was with with us on the on the tour,
Jason Hartman 13:18
he had to David’s on this tour, actually,
Fernando 13:20
right. So they’ve turned to Ryan and the other investor tour or another investor. And he says, you know, when you look at this, you have to mentally remove all that trash all of the cosmetic stuff out of the way. So that you look at the fundamentals. And he was absolutely right, the fundamentals of the house. were beautiful. You know, it was just just a matter of of picturing how it would look once it was rehabbed, painted with carpet and so on. So I was really, really impressed.
Jason Hartman 13:51
Yeah, absolutely. It’s very interesting. You know, we had such great clients on this tour, and we learned so much from our clients, and just a great team all together. So you know, we had david Ryan, Adam, Jasmine, the other David, john, Samantha, Stephanie, might Jamie, Justin, and, you know, members of his team as well. It was really neat. But you know, what I particularly enjoyed on this tour. And it wasn’t really about real estate. You know what I’m gonna say? I think Fernando, it was we went to dinner one of the nights and we didn’t go when we were at this dinner. We didn’t go with any providers. Okay, now that was we were in Chicago that was homely, yeah, we weren’t home that night. And we went by ourselves, just Fernando and I and the clients, no providers there so we could talk freely and critique what we saw and stuff. But what what evolved after that is, you know, we were sitting at dinner for quite a while we had a big round table and we were all having a good time having some drinks. And you decided let’s not get dessert at the restaurant. Let’s walk down to coldstone the ice cream place and we all got something there we sat down at a table and we formed what I call the cold stone. philosophers.
Fernando 15:03
Yes, conversation got really deep in that cold stone philosophers.
Jason Hartman 15:08
That was awesome. And we just sat there, I don’t know, for an hour, hour and a half talking about every issue under the sun it was
Fernando 15:14
we were there so long that they close the cold off the light, turn off the lights and give us you know, just a slight hint that we should get out. Exactly,
Jason Hartman 15:23
though that was pretty cool. But then we spent the night there. We did the Grand Rapids thing the next day. And then Detroit today. So Wow. You know, I always talk about Detroit being this total disaster, you know, it’s just a complete mess. Who knows if and when it will ever come back. But this is a population. This is a city that was really one of the world’s flagship cities in the past, and a population has gone from about 1.8 million to about seven or 800,000. So it’s been more than cut in half. And just the devastation destruction in the city, it really is, is set to accommodate about 3 million people. So what I always say is that all of my theories about investing and economics, they they work pretty darn well, you know, they’re there. They’re proven historically. The one thing you definitely cannot fix is out migration, destruction of the population. people leaving, you’ve got to have it least stable, if not increasing population to make your investment work. With the population declining, all bets are off. That’s something you just really can’t fight against. Very well. What were your thoughts on Detroit today?
Fernando 16:37
It was depressing. I, you said depressing, depressing? Yes, it was. It was incredible. To me. We’re actually looking at some footage that we took today as we drove around Detroit. I think 30% of the homes as we approached, that was amazing Allentown were were boarded up, they were in various stages of the strat, we saw people just hanging out in front of the homes, we saw very rough neighborhoods. It gave me this, this picture of despair. And unfortunately, I didn’t see neighborhoods where maybe this is as bad as it gets, and it will get worse. I think that there’s still more that solution that will will come I didn’t get a feeling that this is turning around. I
Jason Hartman 17:34
don’t know. I didn’t I didn’t get the feeling it’s turning around either. I mean, devastation. You know, and I think Detroit really suffered. And you asked me today, Fernando, what was it really killed this city? And I think it’s a combination of a few things. corrupt, corrupt mayors. I mean, we just, you know, you’ve heard of probably caught Kwame Kilpatrick. And there have been many other corrupt politicians that have run this place into the ground, Japan, coming up in the auto industry in the 70s, obviously, and really giving the American auto industry a huge run for its money. The labor unions just pushing too hard. And placing demands on these auto companies that were just too, too difficult. You know, at some point, you just say the climate here is just too unfriendly. We just forced not going to do this, you know.
Fernando 18:23
So the scale is so massive, we looked at buildings, entire buildings today that were unlivable.
Jason Hartman 18:32
And big giant commercial buildings do I mean, you know, lots of homes. 30%? Maybe, yeah, in total despair. But the big commercial buildings Wasn’t that amazing.
Fernando 18:41
It was just jaw dropping. And as we were driving the number of Ford lease signs for sale, and everywhere, everywhere. It just what also, I kept thinking is this, this is not something that happens overnight, you know, it must have taken decades of bad thinking in improper governance to get to this point. And it’s sad to see that a city of this size can get to this point.
Jason Hartman 19:10
Yeah, it really is. It really is. I mean, hope for Detroit turning around? I don’t know, I wouldn’t bet on it. You know, I really wouldn’t bet on it. You know, let’s go back to Chicago for a minute and talk about some of the other things there. One of the concerns that people have are property taxes, and they are higher, but the cash flow in the rents make up for a pretty nicely, don’t they?
Fernando 19:33
Yes, they do in the providers there. They optimize their business, such that they can extract the most out of the properties. One of the items that I was the homestead exemption is that we’re going to talk to others and they and they rent to own it rent to own they have a process for rent to own that alleviates the property taxes and given that you know
Jason Hartman 19:55
what doesn’t alleviate them, it reduces them. It reduces
Fernando 19:58
it right by several $100 As in many cases, which does help. The other thing that one of the providers do to the homes is they try to reduce the maintenance costs. And what we saw in in, in understood that that was done is they removed dishwashers, for example from from the homes, they leave the hook up in case, the investor decides to sell the property later or the tenant wants to put
Jason Hartman 20:23
one in here. While they can’t in their case, because they’ve got they build cabinets instead, put in some providers do no dishwasher and just leave a place for a tenant to hook one up if they want to. Right. Because the providers try to do a very good job during the rehab. The large provider does 75% of their homes are gutted to the studs in they do redo the wiring, they redo the plumbing, looking at the amount of rehab, they do really amaze me and the way they’ve got such an assembly line such tasteful colors and, and durable carpet and great flooring choices and great counter cooktop choices. I mean really impressive. They’re, you know, makes it very easy to maintain. And, and to scale. I’d say if anybody listening wants to do a big portfolio of single family homes, we’ve got to pick some certain providers for you that can really help you scale that the markets I’d say would be Chicago, Memphis, Atlanta, would right at this moment at the time of the recording be my choices with our teams there. But that may well change depending on when you listen to this.
Fernando 21:29
Yeah, certainly. The scalability in a Chicago exists. We talked quite a bit about the inventory there, we I think are still many months, maybe a few years away from, from using up that even par Yeah, the shadow inventory of
Jason Hartman 21:47
theoretically about 20 to 25,000 homes, but that’s a big market. So don’t let that number scare you. It’s not that big in comparison to the overall market size. But you know, it is because when you have these judicial foreclosure states, things go much slower. And you look at Florida, you know, those markets take a lot longer to correct, which is a good opportunity for investors, because the prices haven’t really bounced back up that much yet, because the foreclosures are still clearing the inventory in the pipeline, you know, the the properties will likely get more expensive.
Fernando 22:18
In in as we, as we discussed with the provider, they do have members of their team that fight property tax increases, they appeal the assessments that happen, you know, by by the county and by the City of Chicago, and trying to keep those in check. They’re already pretty high. But as Jason mentioned, it, it, it makes up the efficiency, the the management of property taxes through through lease option, creative lease options help alleviate expenses, which means that the overall cash and cash return is very strong in Chicago. It does work the numbers do work well, in you have strong providers there, we should also discuss our small provider.
Jason Hartman 23:13
But before you do that, I want to say something, the other thing of when you have a tenant that stays on average 3.8 years, overall, your investment is really going to perform well. And I want you to think about something investors. You know, we’ve been reluctant about going into this market for many years. And we’ve been in the Chicago market for I’m gonna say around a year and a half now. And we were reluctant about it. We thought about it, you know, five years ago, six years ago, okay. You know, just never liked it because it’s not the most landlord friendly market by any means. Certainly has high taxes. It’s a liberal, corrupt kind of government. I don’t like any of that stuff. But here’s the big here’s the big buck, if you will, haha, pardon the pun. Okay. Think about it. Chicago is a world class city. If you go to Europe, and you talk to someone about what are the big cities in America? What are the big world class cities you’d like to visit in America? They’re gonna say New York, LA, San Francisco, Chicago.
Fernando 24:09
So as I was saying that our small provider, he talking to the investors that were in the tour, who are in the tour, the question came up about the difference between working with a small provider versus a large provider. And here’s, here’s something to keep in mind. A small provider will typically be more flexible in working with the investor. If the investor wants to have preference for longer lease terms or adjustable lease terms, and they want a different type of rehab. Paint or carpet
Jason Hartman 24:43
or
Fernando 24:44
Yeah, preference that is that doesn’t fit the box at the provider. It would make sense to work with a small provider. Since we’re in Detroit right now at this at this airport, waiting for late plane. I’m going to give a Henry Ford quote, because I think it’s fitting Henry Ford,
Jason Hartman 25:03
he was the assembly line guy. That’s the big provider Fernando’s talking about right? He said, you can have your Model T in any color you want, as long as it’s black. Okay?
Fernando 25:13
So I realized that actually, it was better than for it because he had three different finishes. You could have anything you want, as long as it was one of those three. But nothing taken away from the big provider. They’re doing a great job, I was thoroughly impressed. All the questions that we had were were answered, you know, in a satisfactory manner, the amount of knowledge they had was great. But there are differences between working with a small and a big provider.
Jason Hartman 25:40
And it just depends what you’re looking for. And so your investment counselor, whether it be Sarah Fernando or Terry or Dave, or me, you know, we can help you choose the right provider for your situation and your investment goals.
Fernando 25:53
Hey,
Jason Hartman 25:53
we’re going a little long, let’s kind of wrap it up. Just a closing thought on the on the tour this weekend or just anything else you want to share?
Fernando 26:01
Well, we try the this sort of a small group tour in I think it worked out well. I think that the comments that I received from from the clients were very positive. I think that the intimacy was really a big, big factor in making it successful in the providers also enjoyed it. They sold properties during the tour as well. Yeah, it’s a good, good way to measure how successful
Jason Hartman 26:28
it absolutely was. I love it. When we were driving in the car from Chicago over to Grand Rapids, it’s about a two and a half hour drive. David and Ryan, one of them was looking at their phone, I think it was David. And he said, Hey, I just bought a property from you, you know, as we’re driving along the freeway, because he got confirmation back that the deal was accepted. So So congratulations on that and all the properties purchased during the tour. And thank you everyone for coming out. We really appreciate it. This was a totally new kind of event, we usually do larger tours where we got you know, I don’t know 20 3040 people, this was just a totally different kind of thing. And, and Fernando, you were the one who suggested it. So it was kind of a last minute thing. We didn’t have time to do a big tour. But it was a lot of fun. And I really enjoyed it. On our next episode, we will have Harry dent talking about how to profit from the demographic cliff. So thanks for joining us, and we will talk to you on Wednesday at our next episode.
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I’ve never really thought of Jason as subversive, but I just found out that’s what Wall Street considers him to be
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Really now How is that possible at all?
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Simple. Wall Street believes that real estate investors are dangerous to their schemes? Because the dirty truth about income property is that it actually works in real life.
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I know I mean, how many people do you know not including insiders who created wealth with stocks, bonds and mutual funds. those options are for people who only want to pretend they’re getting ahead.
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Stocks and other non direct traded assets are a losing game for most people. The typical scenario is you make a little you lose a little and spin your wheels for decades.
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That’s because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you’re one of them, you will not win.
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And unluckily for Wall Street. Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is disappointing.
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Yep. And that’s why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us
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we can pick local markets, untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely.
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I like how he teaches you how to protect the equity in your home before it disappears and how to outsource your debt obligations to the government.
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If you want to be able to sit back and collect checks every month, just like a banker Jason’s creating wealth encyclopedia series is for you. This show is produced by the Hartman media company All rights reserved for distribution or publication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own. And the host is acting on behalf of Empowered Investor network, Inc. exclusively.