This Flashback Friday episode is about Jason Hartman as he discusses his Ten Commandments of Successful Investing. He gives a rundown of his investment philosophy and explains why income properties are the most historically proven asset class.
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This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com.
Announcer 0:10
Welcome to the flashback Friday edition of the creating wealth show with Jason Hartman. As he rapidly approaches 1000 episodes of this podcast, he has hand picked individual episodes that he feels is going to be good review for you to prepare you for the future by listening to the past. Let’s dive in.
Announcer 0:29
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 Get involved in thousands 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. And now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:19
Thanks so much for joining me today. I know you’re not hearing from me as often and I apologize for that. And instead of telling you how busy I am, I’ll tell you one of the things I’ve been busy with how’s that Lately, I’ve been very busy buying a large deal, largest personal deal ever bought it with a couple clients of ours and that is 125 unit apartment complex in Scottsdale, Arizona. And that has been an interesting experience buying it but I’ve learned a lot from it. And I hope we’re going to do really, really well with it. One of the things that came up in that deal is the need for entity structuring and asset protection. And I know we’ve done some shows on this, but I want to tell you really, I think the very best interview on This subject that I have ever done, where I have learned the most, and I think learned really what the best solutions are. And I’ve mentioned it before, but it’s the interview I did with Garrett Sutton, author of own your own Corporation along with Robert Kiyosaki. And that interview is in our members section at Jason Hartman calm, I highly recommend you check that out in less than an hour, you can really, really learn the ins and outs of proper asset protection and a little bit on tax planning, but mostly on asset protection, and really the proper use of entities very, very good show very good interview that I did with him. And then again, that’s in the member section at Jason hartman.com. If you’re not a member become one, it’s probably the best money you’ll ever spend, except maybe for lunch tomorrow, because it’s very, very inexpensive and you’ll get a lot of benefits out of that a lot of discounts on our stuff too. So check that out. And also, be sure to join us for our members conference call this month, which is on the subject of borrowing and lending and financing knowledge. owner occupied properties. Again, that’s different. It’s quite a bit different actually than owner occupied properties. And that will be the subject non members pay $20 register at Jason Hartman calm and for members it is free. And last thing before we go to today’s show. And that is of course, a reminder to join us for our meet the Masters event coming up in October, we’ve already got over 40 people registered and attending that event. So be sure to sign up while you still get some early bird pricing price escalates as we get closer to the event and you will not want to miss it. Because every single time we have topped the prior event, and I know that many of you come to every one of our masters events when we hold them twice annually. So we appreciate that and the loyalty and consistency of you coming. But for those of you who have not attended yet, be sure to attend because it’s really just a great event and you get to interact and hang out and enjoy meals with our various local market specialists and experts and so forth and just a great time. So that’ll be here in orange. Counting again, we have not booked our hotel yet. We have lots of time to do that. It’ll probably be at the Hyatt Regency again in Irvine. But again, that’s not formalized yet. So don’t make any room reservations. We’ll give you the info on that. And we’ll get a good room block discount as well for you as we have in the past. Today’s show is actually a review or review of something we have not covered. If you can believe this in 200 shows. Yes, it’s been 200 episodes since we have covered this all important topic. And that topic is something that I know you need to hear again, because it’s been 200 episodes and that 200 episodes, it’s probably taking place. It’s probably been five years since we’ve reviewed this topic on the show, but it is critically important and I know it’s important because so many of the questions that I get from you over and over and unfortunately some of the mistakes I see our clients making and people that invest outside of our network making as well are that they are not following my 10 rules. Successful investing, formerly known as the 10 commandments of successful investing. So that is what we are going to review today. But it’s not going to be a repeat of a prior show, it’s going to be a new spin on those 10 commandments of successful investing. And it will be a recording from a live event that we did that we actually sell as a product on Jason hartman.com. So you’ll get a little part of that product today. And so you get that for free. But this part I think you’ll enjoy and here it is. We will be back with that in just a moment. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday.
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Want to know what you’ve missed in the creating wealth series? Well, here’s your opportunity with Jason’s five books set that’s shows one through 100 through digital download, you save $288 by getting this five books set. Learn all of the advanced strategies for wealth creation. For more details go to Jason hartman.com.
Jason Hartman 6:06
So the first thing I like to start with grab your workbooks is what I call the 10 commandments of successful investing. So the first most important thing is thou shalt become educated. So in your workbook filling in the blanks, I think you’re on page three right now shall become educated. So become educated so that you can become your own best advisor, be your own best advisor. Number two, have a professional investment counselor, someone who actually practices what they preach. I cannot tell you the number of times and you’ve probably experienced this too, that I have sat across the table from a guy wearing a nice suit went to a great school at a company like Merrill Lynch or Ameriprise, and they’re telling me how to invest millions of dollars and they haven’t followed their own plan. They’re saying incredible things like buy an annuity. How many of you know someone who got rich on annuities? Yeah, I didn’t think so. Yeah, good point. buy bonds have a diversified stock portfolio. It is unbelievable to me folks how much financial misinformation is out there. read magazines like Money Magazine on the cover every month it says something like this retire rich 43 page special report and you open it up. And what you see before you get to the retire rich report is you see a bunch of ads for companies like t Rowe Price, Vanguard, Ameriprise, Merrill Lynch, etc, etc. And the advice it’s a joke, no one gets rich following this advice. Yet, that is such a huge part of the media. I call it the vast Wall Street conspiracy. So have a professional investment counselor who practice what they preach just one more on that point. We buy the same stuff we sell. I’ve been investing in real estate for 22 years now. I’ve made millions of dollars investing in real estate. Most of it was here locally. About five years ago I started diversifying all across the nation. I currently have properties in 17 cities and 11 states Nicely diversified, which I recommend to you that you do that, because what if one market goes down the tubes and another comes up and saves you reduce your risk that way. But we do the same thing. All of our investment counselors that you meet today are following the exact plan we’re recommending for you. It’s not like there’s some big difference here. We practice what we preach, we buy in the same markets, we own properties, many times on the same streets, our clients own properties in Mobile, Alabama, in Dallas, Texas, wherever and all these different markets. Next one, thou shalt maintain control. This is one of my favorites, because this one really gives me an opportunity to bash Wall Street. So maintain control. There are three major problems that you leave yourself susceptible to, when you give your money to somebody else. We say be a direct investor. So you control where you invest. First problem you might be investing with a crook. I don’t have to tell you about the scandals on Wall Street, Enron WorldCom global crossing, Bernie Madoff why Whatever. I mean, isn’t it amazing that Bernie Madoff was president of NASDAQ? Doesn’t that just blow your mind? And you know, in the Madoff thing, I think the reason he just went to plead guilty, and there was no trial is so a lot of the shenanigans wouldn’t be exposed. That was just a deal to just put this guy in jail and don’t expose what really went on there because people still can’t figure out how he did it. Of course, he wasn’t acting alone. That’s it was just impossible. So you might be investing with a crook. second problem, you might be investing with an idiot. If they’re dishonest, you can lose your money. If they’re stupid, you can lose your money, but assume they’re honest, and assume they’re competent. The third problem, they take a giant management fee off the top for managing the deal. A year ago, January, I was skiing in Colorado, and I was in Vail and I picked up a book by lou dobbs called war on the middle class. Now my mom says Jason, you know, what do you read lou dobbs for he’s on CNN, the communist News Network. What do you read lou dobbs for he’s a socialist. She doesn’t like lou dobbs too much. And I said, Mom, give me a break. You went to Berkeley in the 60s and got a degree in social welfare and you’re calling lou dobbs is socialist. Are you joking, right? I’m a fan of lou dobbs, because I think he’s a real advocate for the middle class. And so am I. I think the middle class is really the one class of people in America today that is under total attack, and nobody is really fighting for them. And so we’re in the middle class, great book, I’d highly recommend it in the war on the middle class, chapter two, Lou Dobbs talks about these huge management fees. So this is totally the legal part. When you are not a direct investor and you invest in someone else’s deal. This is what happens. Lou Dobbs says median CEO compensation went from 1.8 million and 92 to 6.1 million in 2000. Just a mere eight years. CEO pay increase 340% from 92 to 2000. To well compensation for rank and file employees. is increased a mere 36%. In the past few years, we’ve seen levels of pay for individual CEOs that is beyond most people’s comprehension money that sounds like it belongs on a company’s revenue column rather than somebody paycheck. 2004 Terry Semel Chairman and CEO of Yahoo was paid 120 million dollars. Lou Frankfort head of coach, how many of you ladies have coach bags, person’s luggage, whatever, right? Lou Frankfort head of Coach $58 million, Robert Nardelli, who had at Home Depot at the time. And by the way, this was written before he got this giant retirement package when he left his severance package. And then he went to work for Chrysler and of course, you know what happened there? Right. I don’t need to tell you your tax dollars at work. Robert Nardelli, who ran home depot at the time made 36 million Ed Zander of Motorola 32 million Meg Whitman of eBay. 26 million now, that would be okay. But turn the page and read what’s next, the standard rationalization for these astronomical salaries. CEOs, their boards of directors and their consultants. In other words, all their college buddies is that they bring great value to their shareholders through their leadership abilities. How then do they explain the fact that over the past five years, the CEOs of at&t Bell, South Hewlett Packard Home Depot, Lucent, Merck, Pfizer, Safeway, Time Warner, Verizon and Walmart, were paid an aggregate of 860 $5 million, almost a billion dollars with a beat. Now I know in today’s world a billion doesn’t seem like much anymore. You know, we talking trillions nowadays, but to me a billion still a lot. So 860 $5 million, almost a billion dollars, while at the very same time, the shareholders lost 640 billion dollars, same time period. Clearly these CEOs were not being paid for delivering value to those who held stock in their company. Last point, Larry Ellison, head of Oracle, he and Bill Gates. Hey, each other, right? And then there’s Larry Ellison, founder and CEO of Oracle from 2000 to 2002. In two years, Larry Ellison, his personal take from Oracle was 780 $1 million, almost a billion dollars in two years. Not bad and and then very same two years, the shareholders of Oracle lost 61%. Folks, you have got to stop giving your money to these criminals. This is legalized crime on Wall Street, and we’re all probably doing it. We’ve got to stop we’ve got to vote with our wallets. And what we say is that you should be a direct investor, own and control where your money goes. So we do not do any sort of partnership investing. My 96 year old grandmother, she said a very wise thing to me several years ago. You should write this down. It’s a good quote from Granny. Granny said Jason. The hardest ship to sail is a partnership. Isn’t that a good quote, that’s brilliant. When you invest in someone else’s deal, you’re their partner. We don’t have any pooled money investments. We don’t have any ticks or tenant in common investments. We don’t have any LLCs that you can invest in. We don’t have any reads real estate investment trusts, we help people buy their own income property in 41, markets nationwide. You own it, you control it. You decide what to buy, when to buy, where to buy, how to manage it, how much to charge for rent, how to finance it, how to refinance it, when you want to sell it, it’s your deal. The only person that could really rip you off in this deal is your property manager. And we pre screen and recommend property managers, and we use the same managers to manage our own properties in all of these markets nationwide. And here’s the thing, let me see the hands of the people that have owned income property, by the way. So how many of you had property managers? Did you ever have a bad experience with a manager Anybody rip you off or anything? What What happened? Yeah, just lazy. Here’s the thing, a property manager can rip you off. But the amount of rip off is so minute. It’s just nothing. It’s almost insignificant. I mean, think about it, folks, they could do repairs. I’ve heard this thing clients say, Well, those property managers, they’re in cahoots with the repair people. And you know, when the guy comes over to fix the garbage disposal, they just charge you extra. Okay, let’s examine that for a moment. So you can go to Home depot.com. Robert Nardelli doesn’t run the company anymore. So you can go to Home Depot and see how much a garbage disposal cost. You’d have a brain you can just kind of understand what this cost. You can go to a plumbers website and whatever market you’re repairing the garbage disposal in two seconds, and you can find out I mean, what are they going to do? Say the garbage disposal? The whole repair with labor and parts was $200 versus 175. They’re going to get a $25 kickback. I mean, maybe they are I don’t know. Maybe they’re crooks. But the amount of damage is it’s nothing. It’s just insignificant. You’re a direct investor you own and control. I mean, how many of you are control freaks, I’m a control freak. I like to control my mind where it goes. So be a direct investor maintain control. Number four, the one legitimate thing. The one legitimate thing, you know, that wall street does, is they believe in financial planning. And, you know, I believe financial planning is a legitimate science. So instead of applying financial planning techniques, to the rip off asset, stocks, bonds, annuities, mutual funds, whatever, apply it to the most historically proven wealth creator in America, the one that has actually enriched 10s of millions of people. Maybe it’s enriched You certainly it’s enriched more than one person, you know, how many of you know someone who got rich in real estate? Yeah. How many of you are not voting? How many of you know someone who got rich in the stock market? How there’s always one. What happened? Oh, okay. All right. But I think the best way to become a millionaire in the stock market is to start with 2 million. You know, there are a few people that got lucky traded some options, something like that, but people get lucky in Las Vegas. And I just don’t think they can do it on a consistent basis. I certainly don’t know anybody who has created any real wealth on Wall Street. Except the insiders and I don’t know them personally. But the insiders it’s an insider’s game. So financial planning, what is your investment goal? Is it cash flow is a capital appreciation as a tax benefits? income properties the most tax favored asset in America Barna just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday and every Wednesday. What is your risk tolerance? Are you an aggressive investor or conservative investor somewhere in The middle willing to take a little bit of risk. What’s your time horizon? These are legitimate financial planning questions. And what we do is we take the most historically proven wealth creator rental properties. And we use financial planning techniques to help you pick which markets you should be investing in, what types of properties you should be buying, and apply that toward the historically proven wealth creator, Thou shalt not gamble. We do not flip properties. We do not buy properties on the calm if you will. Where we expect something extraordinary to happen for you to make money. We are buy and hold investors. September 20, is my anniversary to renew my real estate license. I gotta go take some tests and stuff. You know, every four years they make you do that. That’ll be 24 years, September 20, that I’ve had my license. I got my license when I was in college, and I started part time. And here’s the thing I’ve seen in working with investors over 23 years 24 years almost the people that flip properties have spending money. The people that buy and hold properties have real wealth. Which would you rather have real wealth, spending money? Spending money is okay. But real wealth is better. So no speculation, no gambling, no buying high risk investments, that something extraordinary has to happen for you to make money. appreciation is in the rearview mirror. You cannot expect appreciation in your investments like we’ve seen in the past. No gambling, diversification, thou shalt diversify. So you go to any good financial planner, they tell you diversify, diversify, diversify, right, but they tell you to diversify in amongst of lame, and that’s a technical term lame, lame assets, stocks, bonds and mutual funds. Why not diversify the most historically proven wealth creator geographically. There’s an old saying in real estate that all real estate is local All real estate is local. The first time I was born in Germany, but the first time I went to Europe as an adult, I went with a buddy of mine. And I think I was 22 years old. And we rented a car. And we drove 3000 miles in about three weeks. Going through Europe in a rental car. It was really cool driving on the Autobahn. Have you done that? Here’s the thing on the Autobahn. No matter how fast you go, someone’s always going faster. Okay, and you get in that left, they actually know how to drive in Germany. It’s kind of cool. It’s not like here. You get in the left lane and you’re going 130 miles an hour, and there’s no one behind you anything I’ll just stay in the left lane. And suddenly there’s a Ferrari behind you blinking its lights going 160 miles an hour. It’s really kind of fun, but rather dangerous. At least if you have an accident there. You won’t live to tell about it. One day at like lunch hour we drove through a whole country, Luxembourg. In a country as small as Luxembourg. They have a such thing as a national housing market. In a country as large and diverse as the United States, there’s no such thing as a national housing market. There are about 400 local markets, and they’re all totally different. I remember in the 90s when reagan ended the Cold War, and the peace dividend was lay off all the defense contractors, a lot of my clients, they work for McDonald Douglas in Long Beach. And they were getting laid off like crazy as there was not so much need for aerospace stuff. And so they were getting laid off the California market went down the tubes for seven years, from 90 to 97. Really bad market. But other markets around the country were booming, because people as they were leaving California, or buying in those other markets, the top three markets in the country last year, actually in the worst economy in seven decades. appreciated. They were in Texas. Here’s something I said on my podcast. How many of you are podcast listeners? How many of you listen to my show. Oh, a lot of people. Okay, good. How many of you like the show How many of you don’t like it? Or your hair? Okay, um, how many of you like that interview with Robert Kiyosaki? Did you hear that one? I got an email last night from a guy who said he just thought he was really arrogant. I gotta admit, I kind of did too. I thought he was grumpy. He was in a bad mood, I think but I like Kiyosaki stuff. So here’s the thing on the show, I said that if Texas were to secede from the union, it would become the Hong Kong of the United States. Its business friendly, and it is a great place to invest. Now, we don’t only like Texas, we like a lot of areas, mostly in the southeast and the Mid Atlantic. That’s really where our interest is. But Texas is just an incredible booming, vibrant economy. It’s what California was before all the commies took over, and made it the People’s Republic of California. So diversify, because all real estate is local. So you look at this. This is the National housing market from 1968, up to late 2003. And you see here that there has never really been any real national downturn. In real estate prices, I mean, there have been a little spot here or there, nothing significant at all. And the point is when you diversify geographically into a bunch of different markets, there are 400 unique, distinct markets in the United States. You protect yourself from downside risk. Don’t be attached to any one market. Go where it makes sense. Be area agnostic, thou shall be area agnostic. Don’t be attached to any one market. If a market turns sour, stop investing there. We are area agnostic in 2005 or 2006. Charlotte, North Carolina was our number one market we put about 200 clients into that market and then Charlotte got so many investors came into Charlotte, that it got oversaturated with rentals, and there were just a lot of properties for rent, and not enough renters to absorb the supply. So we got out of Charlotte We stopped recommending it for a whole year. And then we went back into Charlotte. We are not attached to any market. We are area agnostic. We have not recommended California in nearly five years. Although we’re based here in the People’s Republic, we don’t recommend investing here yet. If you listen to the podcast, you know that we’re getting interested again. Now that prices have been cut in half. It’s getting interesting. We still think it’s going to fall a little bit more. So we’re not quite ready to recommend California, but we’re not attached to any one market. Now. You might be thinking to yourself, well, Jason, what do our clients do? What about the clients, they’re fine, because they have stabilized properties in these markets. They have their tenants, if their property comes up for rent again, if the market is softened a lot, they may have to reduce the rent 2550 bucks a month. It’s not a big deal. You want to diversify geographically. I still own my property in Charlotte. I’ve been through the ups and the downs. But the point is, you don’t want to start in In a place that doesn’t make sense at that time, and this is the problem with the real estate industry. The real estate industry has the best product and the worst Salesforce. How many of you are real estate agents? I’m sorry. Anyway, I am too. I’m right there with you. So I can make fun of them. But you go to the typical real estate person, and they will say, invest where you live, invest nearby. Well, that would be fine if you live in the right place. But if you’re gonna buy multiple properties, you don’t want them all in your own backyard because you’re not diversified. I mean, think about it. In 2004 everybody who lived in Orange County said Oh, invest in Orange County, everyone will always want to live here. It’s by the beach. This is paradise blah, blah, blah. You know, many times I’ve heard that what happened? It went down the tubes you would have gone bankrupt investing in Orange County diversify, to reduce risk and increase upside potential. Be area agnostic, don’t get attached to anything, be totally disloyal. Now we have deals with different real estate brokers and developers In the different markets, we recommend 41 markets, and they can’t stand the way we do business sometimes because we’re totally disloyal. They go from feast to famine, an example Houston or Houston agent Jackie Houston, we were recommending a lot there. She expanded her business because of us. She was making a lot of money from us. And then Houston wasn’t so good for a little while, and we stopped recommending it. And I remember getting this email from Jackie’s assistant saying, Jason, Jackie is starving. You got to send some clients over here. We’re not in business to support these people. We’re in business to support our clients. We are disloyal to markets. And you should be let me take a brief pause. We’ll be back in just a minute.
Announcer 26:45
What’s great about the shows you’ll find on Jason hartman.com is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage, and the best way to keep those onions from smelling up everything else There’s a show for that. If you honestly want to know more about business ethics, here’s a show for that. And if you just want to get away from it all and need to know something about world travel, there’s even a show for that. Yep. Here’s the show for just about anything, only from Jason hartman.com or type in Jason Hartman in the iTunes Store.
Jason Hartman 27:31
Number eight thou shalt borrow to maximize leverage, accelerate wealth creation and reduce risk. reduce risk. Really. You would reduce risk by borrowing money. Hmm. How many of you believe that people can get into trouble with debt? Folks debt is my favorite four letter word. It really is. I favorite four letter word debt is one of the best tools for wealth creation you can possibly get. And the most debt friendly asset is real estate. There is no asset that offers better financing, even now post mortgage meltdown than real estate. Now, if you don’t believe me about the advantages of debt and being the borrower See, I want you to always be in the position of power. I want you to be the borrower. Why is that? I’ll tell you by asking a question. How many of you have ever loaned money to a friend or a family member? Who was in control of that transaction? The lender or the borrower? the borrower, right? Who’s getting all the bailouts now? Who’s getting all the loan modifications now? Who’s getting all the rewards now? the borrower, not the lender? I mean, the lender gets the bailout from the government, sometimes not always, but the borrower is in the position of power, be the borrower. It’s a great position to be in now you’ve got to use debt responsibly. debt is like nuclear weapons. Some people say nuclear weapons have saved more lives than anything. Because if we didn’t have that constant threat of mad, mutually assured destruction, we would have had a whole bunch of little wars. And there would have been a lot of bloodshed. nuclear weapons, some people believe, have prevented war. I can’t believe that, I can see that. But if we don’t use them responsibly, they can destroy the entire planet. debt is something you’ve got to use with prudence with caution in a responsible manner. So we believe it’s a very powerful tool, but you got to be careful with it. Leverage can reduce your risk, it can increase your returns. Leverage borrowed money can vastly improve your investment performance, and it can make you a much bigger investor than you would otherwise be. I mean, think about it. How many of you would like to have your portfolio be five to 10 times larger than you can afford? It could be, do you think you could make some money? If that was the case? Yes. You should be saying Yes. I’ll give you the answer to that. All right. So yes, that’s good. You want want that and with borrowed money, you can do that. How many of you the last time you bought a stock or mutual fund, you financed it. You had to put 100% down, didn’t you? Yeah. With rental properties, you can do 510 20% 25% down. Pretty incredible. Here’s a graph out of Kiyosaki his book who took my mind. I’ve read five of his books. And this one I particularly like this graph because what it shows you is in 1992, if you invested $10,000 in an s&p 500 index fund, 10 years later, you would have had $17,000 and change. But if you bought a single family home with that $10,000 you could have purchased $100,000 property, right? Because of leverage 10% down and 10 years later, just on national Average is not even picking the best market, that property would have been worth nearly $160,000. So you sell the property, you pay off the loans, you’ve got maybe say it’s an interest only loan for 10 years, you’ve got $90,000 in mortgages to pay off here, your gain is about $7,000. What’s your gain here? $58,000. Now this is, by the way, I need to make a little disclaimer, some of our examples in the interest of time are kind of simplified. This is simplified, you know, it does include carrying cost, which may be positive or negative. It depends, and it doesn’t include closing costs. If you sell the property, you gotta pay closing costs. If you sell the stock, you have to pay closing costs to Commission’s on trading it, and they’re much lower though. One of the great things about real estate is that it’s a high cost to trade it. Now why would that be an advantage? You got to pay like 7% to sell your real estate? Why would that ever be an advantage? Exactly. Because it makes it much less liquid. Why would that be an advantage? illiquidity is a huge benefit, because it liquidity like stocks increase volatility. illiquidity decreases volatility. I heard Leslie Appleton youngly, chief economist for the California Association of Realtors on a podcast this morning walking the dog, taking a picture of that Obama sticker and listening to the podcast. Leslie said this, I think this was a very good thing you might want to write this down. She said, real estate prices are sticky on the way down. I like that that’s a good way to think of it as they’re falling. They’re sticky. Why are these sticky? Well, because sellers that have options that don’t have to sell that aren’t forced to sell their property. They just hold out. They might take their property off the market, they won’t take the price. It’s very sticky stock market, highly volatile. The people that I debate what’s better stocks or real estate, they say well, I really like my stocks chasing Because I can go online to the Charles Schwab website and with a click, I can sell them and get my cash. That’s the problem. That’s exactly the problem with the stock market right there other than the cookery and unethical behavior, but the liquidity is a disadvantage. Look at folks, we’re not recommending that you invest in income properties with your lunch money. This is your wealth money for your future. So if you have your if you’re down to your last $10,000, don’t buy income property with it because it’s illiquid. But if you have more money than that, buy some income property. So anyway, back to this. So the real estate investment outperformed the s&p by almost 800%. In this 10 year period, we had a.com. Boom, and a bubble that popped right. What if you sold it here, you still would have been better off with real estate. This doesn’t even include one of the 10 commandments coming up tax benefits. We’ll get to that in a moment. We’re going to talk a lot more today about what’s coming at us. I mean, how many of you think inflation is coming? How many of you think we’re in a deflationary time right now? Yeah, I agree sort of depends what you’re looking at, obviously. So we’ll talk about that. And again, how you can exploit the imbecilic as we put it in there. That’s from the newsletter, by the way that you’ve got a copy of the imbecilic government spending. Alright, number nine, thou shalt only invest where there’s universal need. There are three common needs. Every human being on Earth has three common needs food, clothing, and shelter. Let them rent or shelter from you. Those three common needs are very important to address. Now, people a lot of times ask, you know, Jason, what about commercial real estate? Maybe I should buy an industrial building. Maybe I should buy an office building or a retail center shopping center, something like that. Here’s the thing. That could be okay. Those segments aren’t doing so well right now. All the ones I just mentioned, but let me just do The reason they can outsource the manufacturing to China, which they’ve done a pretty good job of that lessening the need for industrial buildings, the environmentalists are always attacking industry. In the People’s Republic of California, it’s almost impossible to manufacture anything anymore. So what do you think has happened to people that own industrial real estate? They’ve had a tough time, retail. Retail is going through a very difficult time right now, people that own shopping centers are going bankrupt, left and right. Retail is complex, very complex retail properties. Retail, to some extent is outsourced to the internet, isn’t it? I mean, how many of you would rather shop online than going to wait in line at stores, find a parking space, fight the traffic and pay sales tax, unless you’re an Oregon, and you don’t have to pay which is the one capitalist thinking thing about that whole state, nothing else. But retail can be outsourced to the internet to some extent, right. And when consumer spending is down, retail is down. So I don’t like those properties. office space. What about an office building? office? People are having a tough time right now, first of all businesses leaving the People’s Republic of California really fast. But also, if you think about office space, just think Have you called tech support lately? Yeah, you talk to the guy in India, right? in Bangalore, and that’s office space, fortune 1000. Companies are telling their employees go work out of the house. You know, if you’re a web designer, if you’re a customer service person you call JetBlue. And make an airline reservation, you’re talking to someone in their home on a VoIP internet connection. The office is not very needed anymore. So that’s why I like housing at the end of the day, as long as the population is increasing. Everybody needs a place to sleep. And housing is our favorite investment there. Yes. much cheaper to get into. Yeah, absolutely. So universally, yeah. what he’s talking about there is you can’t get that long term fixed rate debt, which we believe is a huge asset. Most people look at the property as the asset and the debt is the library. Liberty. We think it’s the other way around. We think the debt the mortgage is a huge asset. We’re going to talk a lot about that today. And then he’s also talking about tax benefits, which is actually my next point. Thou shalt only invest in tax favored assets. Income property is the most tax favored asset in America. I got this check last year. It was a well I guess it was 2007. Actually, it was the year before but it’s the last tax refund check I got for $109,000 I loved opening my mailbox that day. And that was because I have so much rental property. Wealthy people that own rental property don’t pay taxes. If they do they pay very little tax $109,000 that check now look at when I started talking about taxes, most people their eyes glaze over. Everyone hates paying taxes. We all know that, but it’s kind of like a boring subject to most people. And I want you to get really excited about taxes. Why is that? Because taxes are the single largest expense Any of us have, it is the largest expense in our life. How many of you made a major purchase lately? You bought a car, a TV, whatever major purchase? nobody buys anything anymore? What do you buy? You bought a car? What kind? infinity. Okay, gs 35. Did you shop around for your new infinity? Okay, well you shopped around for a Pre Owned one. Yeah. So the point is, look, you make a major purchase, you’re going to shop around right? Why are you shopping around in quotes to save money on life single largest expense taxes. This is the largest expense you have. Everybody will shop around and I know I do it to to save hundred $200 on a purchase. Yet they’ll pay all their money to the government because they don’t invest with tax considerations in mind. 40 to 60% of your income is going to some sort of tax. You better learn about taxation, it’s the largest expense you have. It is not boring. And if $109,000 check is interesting to you then get interested in taxes. So just to give you an example that here’s my Schedule II for my tax return from 2006. The reason I show you 2006 is this is a year I bought a bunch of properties, and a bunch of them were in something called the goal zone. How many of you have heard of the goal zone, we’ve invested a lot in the goal zone and we’ve helped a lot of our clients invest in the go zone to the go zone is a really cool like extra tax benefit on steroids. But any income property offers huge tax benefits. It doesn’t have to be in the go zone. So this year, I bought a bunch of properties that were in the go zone, and I bought many properties outside of the go zone. Talk to one of our investment counselors. If you want more details on this go zone thing. It’s certain hurricane affected areas in the southeast Mississippi, Alabama, stuff like that. But here’s my schedule eat. Now this is one page. There were many pages behind it for all the other properties, but I’m showing you the first page That’s the summary sheet, if you will of the schedule eight. So when you buy a piece of income property, this is what happens tax wise. And this is why it’s such a huge benefit. So you’ve got two components. Most people think I own a rental property. That’s like one thing. It’s not one thing. It’s two things. Here’s what it is. It’s a piece of land, it’s land, and then it’s also a house sitting on the land. So the house is the structure or the improvement. Now, the IRS basically looks at it this way. They look at every piece of rental property, like a little business. And if you’re self employed, or you own your own business, you’re filing a Schedule C in your tax return, shows how much you made, how much you spent, what’s the net pay the tax, but if you own a piece of real estate, you do a Schedule E. And on that Schedule E. It’s similar to that. Here’s the way the IRS looks at it. They say look, we know that land will never go away. It will be there forever. But someday the house will fall to the ground, and it will be of no value whatsoever. How long does a house last? According to the IRS, about 27 and a half years, but what is it according to you? What do you think? How long does the house last? Here’s the best answer ever. Yeah, yeah. You already know what I’m gonna say. Are you listening to too many podcasts? Yeah. It depends on the tenant. That’s the best answer I ever heard. Yeah, no question depends on the tenant. So it’s sort of that sort of true, isn’t it? Depends on the tenant. But look, a house last 5060 years pretty easily before you want to do a major remodel. Now, I remember several years ago, I went to Paris with my girlfriend at the time, and we stayed in this hotel, and this hotel was like 900 years old, was the oldest Hotel in Paris. It wasn’t very nice, really, though, but we stayed in this old hotel, and I thought, wow, this hotel has been here for almost 1000 Some years and it’s still producing income for its owner, not sure the owner has changed in 1000 years. But you know, in fact, is still producing income today. How many pieces of real estate Do you see like a restaurant that you ate at 20 years ago, and it’s still there, maybe it’s under a different name. But the piece of real estate is still producing income for somebody, not many moving parts, really simple businesses, they come and go, piece of real estate just keeps chugging away, producing income. So eventually the structure will fall to the ground, and it will be of no further economic value. So the IRS lets you instead of deducting that loss, the year that someday happens when it falls to the ground, they say look, let’s just divide it up on a depreciation schedule of 27.5 years. So help me out with that calculator there. You can help me too. So take this example. Let’s say that in this example, the land is worth $30,000. Now you know we’re not In California, obviously right $30,000 land. And let’s say that the structure of the house sitting on the land is worth $150,000. So, land is not depreciable structure is take 150,000 and divide it by 27.5. This is $180,000 property 30 plus 150 27.5. How many years you get to depreciate? So, 5000 a number is 5454 Yeah, right. So, this is this is why we don’t need the paintings. Can you believe we still make pennies? It costs more to make them and you know what, it’s illegal to smelt them or melt them? Nope. The metal in the penny is worth more than the penny. If that isn’t inflation. I don’t know what it is. And if you melt the pennies down to sell the metal you’ll be arrested. It’s worth much more than a penny of metal itself. So the IRS considers this a loss of almost 50 $500 per year. Now, here’s the question, did you write a check for this money? See, if you have your own business and you want a deduction, you got to spend some money, hire some new people advertise more, buy some new equipment, then you get a deduction on your taxes. Or if you don’t own a business and you want a deduction, you can donate money to charity may be a great cause. The point is, you got to write a check. Here, this is what’s called a non cash write off or a phantom write off. You didn’t write a check, but you still got the deduction. This is the beauty of income property. No writing a check. So you get this deduction without writing a check. This is a beautiful thing. It’s a non cash write off property could be giving you positive cash flow. You could be making money on the property, but still, the IRS sees it as a loss. And in 27 and a half years to the house fall to the ground. No, you just stop getting write offs after that amount of time. Beautiful, beautiful thing. So here on my Schedule II, you’ll see that I deducted $524,742 in depreciation, and I did not write a check for that $500,000 and change. It’s a paper loss. And that saved me $138,000 in federal taxes that year. Wow. That’s cool. Now you saw the refund check was for 109. But pay estimated and then figure it out. But it was 138,000 in taxes i didn’t spend the most patriotic thing you can do is not pay taxes. The reason that’s true is because when you pay taxes, you enable a corrupt criminal enterprise called the federal government. Not that I have an opinion about that. So what do we do? Well, platinum properties we provide the complete solution for real estate investors, Investor Education and consultation. So education we do in the form of podcasts, seminars, things like that. And all of you are entitled to meet with one of our investment counselors, you’ll meet them in a moment. For a free consultation. We don’t charge for this. They’ll sit down with you help you analyze your financial situation, your risk tolerance, your time horizon, your investment goals, and then we will help you analyze how to finance properties, how to leverage them properly, and then we actually help you acquire the properties and allocate your assets so that you’re nicely diversified so that if you’re looking at a pie chart, it’s nice and colorful. Take the most historically proven wealth crater diversify geographically, this is where most of it stops in most of the world of our competitors.
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Jason Hartman 47:49
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