Featured in today’s Flashback Friday episode of the Creating Wealth podcast originally published in April 2015, Jason Hartman reminded his audience about the opportunity to join the Memphis real estate property tour, as well as discussing the Jackson, Mississippi market with a new local market specialist, Brad.
Brad mentioned the positives in the Jackson market and why investors should consider doing business in the area.
Jason Hartman begins the podcast by explaining that his guest is a new provider in the Jackson, Mississippi market and that years ago he did a good deal of business in Jackson but was not impressed with the previous provider. He notes that he likes this one and that the Jackson market is worth checking out.
Memphis Real Estate Property Tours
He reminds listeners about the Memphis real estate property tour approaching and explains that after the tour, a couple of other investors are going to join him in Jackson on Sunday to meet with the provider and look at some of his offerings directly.
He also notes that he’s excited about the upcoming Venture Alliance event in San Diego and adds that even though they’re a small group as of now, they’re already taking deep looks into things. Hartman states that he hired an analysis, Oliver, who he welcomes to the team. Oliver is already analyzing deals for the Venture Alliance Mastermind group, and Hartman states that the purpose of the group is to look at some out of the box deals, exploring some things that are not the usual for most investors.
Hartman states that he hopes the Venture Alliance members will get together and invest in some new deals together, such as Memphis real estate. He mentions that he is going to because he doesn’t expect investors to do anything that he wouldn’t do.
He adds that this might not continue forever, but at this point if listeners are not sure about joining the Venture Alliance group, they can attend an event as a guest and have some high-end experiences. To register, visit www.jasonhartman.com/events or www.venturealliancemastermind.com.
Jackson, Mississippi Local Market Specialist Brad
Hartman introduces Brad to the podcast, a local market specialist from the Jackson, Mississippi market. He explains that Brad has a great real estate story and likes to buy and hold his own properties. He’s doing what he’s advising investors to do, which is refreshing as there are a lot of false prophets and real estate gurus out there that will advise one thing and do another.
Brad explains that he started investing in real estate fifteen years ago, when he was looking for a way to make extra money. He states that he had a job and was making what he considered decent money at the time, but then he had his first child.
He notes that he had a friend in real estate and spoke with him when he was on his way out of the business to get into running a restaurant. After asking his friend questions, Brad explains that he read half a book and then bought ten properties right away, being a self-proclaimed “jump in and learn” kind of guy.
Hartman agrees that there comes a time where people have to jump in and do things. They can listen to podcasts or have ideas forever, but eventually decisions have to be made.
Brad explains that during his first six months owning properties, he received a Harvard education in the field of making it work. He went back and forth with himself during that time, not sure if he wanted to keep or sell his properties, but he made a commitment to making his business work. He learned about how to buy, sell, rent, and manage his properties. Fifteen years later, business has been good for him, and he states that he has probably done 1500 deals during his journey.
Brad adds that he owns 117 of his own buy and hold properties and hopes to one day reach 500.
Hartman wonders aloud what other business allows a regular guy to jump right in and, within fifteen short years, own 117 properties and a business. Since Brad renovates and resells as well, Hartman explains that he has a miniature real estate empire.
Regret in Selling Properties
Brad explains that he sold a few of his properties in 2005-2008. He notes that he got rid of 50-60 properties a year during the time, and after the recession, he looked back and wished that he kept half of what he sold. He explains that he would have been in a much better position if he had. Buy and hold became his way to go after that, though he does sell a few homes. Most of his properties are buy and hold deals with strong cashflow.
Hartman notes that people who buy and flip properties have spending money, but people who buy and hold have real wealth. He explains that he’s currently looking at a property on his website, adding that scrolling down the map was needed because Jackson had no icon yet. He states that the properties in the area are great, with the one he was looking at being a $50,000 home that’s already rented for $750 per month. This is much more than the 1% recommended rent to value ratio. Looking at some of the numbers, Hartman adds that the debt coverage ratio is 2.15 and the cap rate is projected at 10.4%. The cash on cash returns for the property are at 19%.
Brad adds that the property is on a very good street, hear a school. The property has a new roof and both new plumbing and sewer lines. He states that he tries to take care of all the deferred maintenance right away. He takes care of all of the major issues up front.
Brad’s Maintenance and Housing
Brad explains that with his properties, he goes in and does a typical cosmetic maintenance package. His properties are usually large homes that attract great tenants. He screens every tenant he has and invests in great houses that are going to produce income for a long time to come. His strategy, he says, is to look for great deals without going over a certain loan to value. He states that he likes three-bedroom, 1.5-bathroom homes but has done just as well with three-bedroom one-bathroom homes. He explains that he looks for cashflow and knows right away when he’s getting a good deal on a property. In his experience, he can walk through a property, and in five minutes he will know what he intends to do with the home.
Hartman inquires as to why Brad prefers the Jackson market and explains to listeners that Brad did not grow up in the area like his business partner did.
Brad explains that he has been in Jackson for eighteen years and started his real estate journey three years into living in the area. He states that he had friends in the business, and when he started moving forward, he realized that the area was full of opportunity. Houses sell for $50,000 and will rent for $750 per month. If the homes were moved to a different market, they’d easily be in the $100,000-$200,000 price range. Brad notes that he has never seen another market like that in Jackson.
Hartman agrees that as of the time of the recording in 2015, Brad is pretty correct. There are less-than-ideal areas where homes are cheap, but in quality areas, to get a 1.5 rent to value ratio is a big accomplishment. Years ago, in the trough, you could get phenomenal rent to value ratios, but doing so today is amazing, Hartman says.
Brad’s Thoughts on Section 8
When asked about his target tenant, Brad notes that he typically has blue-collar tenants, and a good portion of them are Section 8 tenants. He explains that he is a fan of the program and the tenants.
Hartman explains that he has investors that love Section 8 and investors that hate Section 8, and that there really has not been a lot of middle ground. There’s a real benefit to it for Brad.
Brad states that around 60% of his tenants are on Section 8 and that any of his properties qualify. He adds that he accepts cash payments or Section 8 on almost all of his properties. The Section 8 homes he has are in Jackson rather than the outskirts, and payments are deposited right into his account. He explains that Section 8 tenants typically stay longer than other tenants have as well. The program allows leverage over the tenants, because if they don’t pay their portion of the rent, they are liable to be kicked off the program.
Hartman explains that the objection to Section 8 for some investors is that there plenty who say that with these kinds of programs, they have to be more hands-on with the property, and they tend to attract lower quality tenants.
Brad mentions that he still screens all of his tenants, even the Section 8 ones in an effort to steer clear of lower quality inhabitants. He checks references and checks with previous landlords as well, and he has had good luck with Section 8 tenants. They often stay up to -7 years, and while they might be a little needier, each tenant has Brad’s cell number and can get in touch with him if they need to. He has met a lot of great tenants throughout his career.
Hartman asks if the tenants have their rent fully subsidized or only a percentage, and Brad explains that it depends on their income. He rented to one tenant who only had $138 of her rent subsidized.
Positives in Jackson
When asked about what makes Jackson a great market, Brad explains that because it is a capital city, it has rich culture and history. Jackson is a thriving city only three hours from Memphis and Memphis real estate and three hours from the beach. A lot is going on in the city, and it has one of the best children’s hospitals around.
Jackson has a great industry, Brad says, and it has medical facilities, a university, a lot of state work available, and a Nissan plant that employs 4,000 people directly. The city is growing, but the suburbs are at the top of that growth.
He adds that there are some suburbs he will and won’t invest in. He doesn’t typically go far outside of Jackson, though he will invest in the east suburbs. He lives to the north of Jackson and notes that the suburbs are growing there as well. He adds that 95% of his deals are in Jackson itself.
When selecting neighborhoods and properties, the street is key. He has blacklisted certain streets and tends to farm a particular 5 sq. mile pocket. He looks at a street first and then the home when he is considering a deal.
He states that after that, he visits the house and tends to prefer projects that need only light cosmetic rehabs, as he does not want to rebuild an entire house. He does not have the time and has to turn his homes over fast. He considers the condition, area, and street to be primary indicators of a great deal.
What Can Investors Expect?
Brad explains that investors who work with him can expect to have his cell phone number where they can call if they need anything. Investors have their own login portal and can expect good service on his behalf. He gives certain incentives to buyers from time to time and explains that his investors can expect positive cashflow, high rents, and low property costs. He mentions again that Jackson is a great place to do business and those who are not investing in the area are truly missing out.
When discussing the deals in Jackson, Hartman mentions that a lot of people wonder, if the deals are so great, why tenants don’t become buyers. He explains that he has a list of reasons behind this, but a lot of the time it is due to financial immaturity.
Brad adds that it could also be due to a lack of liquidity in the market, with lending qualifications still being pretty strict. People with damaged credit and lower income are going to have a harder time buying.
He also states that there are people who simply want to be tenants. They just want to rent, as they have a tight budget and like the security of knowing that if the water heater goes out, someone else is going to see that it is replaced.
In closing the episode, Hartman reminds listeners to check out the properties available in the Jackson area on the website. Scroll down the map to locate the Jackson area if the icon is not visible.