Buying dozens of properties and holding them most of your life, while never or rarely selling any of them, is the “old school” way of real estate investing.
It’s not the path that real estate investments expert Jason Hartman and his Platinum Properties Investors Network follow: They would rather that you adhere to his 10 Commandments of Real Estate Investing and apply such techniques as becoming an empowered investor and keeping your investments aligned as ways to get many more gains out of your portfolio.
However, the “old school” way has served Hartman’s aunt, Joan, quite well. She and her husband, John, own and rent more than 70 properties, most of them single-family homes, in the Sacramento, California area. Over the course of their nearly 40 years of income property investing, the “old school” way, the Sacramento couple now boast a portfolio that’s worth more than $25 million, by Jason Hartman’s estimation.
During a recent “Creating Wealth” podcast episode produced by Hartman and his Platinum network, he interviews Aunt Joan and digs into her “old school” way of real estate investing for you.
He also talks about how his new newer ways of investing—via his 10 Commandments of Successful Investing—can help you and other investors build your own healthy portfolios. He focuses specifically on his Commandment Number Three, “thou shalt maintain control,” by becoming an empowered investor and keeping your investments properly aligned.
Meet Jason Hartman’s Aunt Joan, a Part of the ‘Old School’ Real Estate Investment Business
“It’s interesting, because as child, my aunt and uncle in Sacramento, Joan and John, really influenced me a lot in my thinking about real estate investing,” Hartman says while introducing his aunt in the podcast.
“As they were accumulating properties, it seems every time we went up there (from southern California), Mom and I would go around with them and look at houses. Joanie claims to own ‘over 70’ properties—she only would say ‘over 70’—but I have a feeling it’s more than that.”
Joan and her sister, Joyce (Hartman’s mother), grew up in upstate New York, and as a teenager, “I didn’t have any ambitions of getting into the real estate market at that time of my life,” Joan says. “However, when I came out to California, I went to
UC Berkeley and majored in two fields—one was real estate and the other was personnel and human resources management, so I’ve come to use both of them.”
It was a decade after she finished college, though, in 1978, before Joan and John started investing in rental properties. They had at that point bought two homes for themselves—one in Hillsborough when they lived on the San Francisco peninsula, and then another when they moved to the Sacramento area.
“We were in the restaurant business and had absolutely no tax write-offs, so we needed to have something to defer some income,” Joan says.
“We bought our first house (as income-producing rental property) in Sacramento, and little by little, we started acquiring a little more. We had come from the expensive, San Francisco peninsula real estate market, and when we got to Sacramento, things were so cheap, so to speak, that we went sort of crazy.”
In Sacramento, “I kept looking at these houses, these little darling Craftsman houses, and I couldn’t believe how inexpensive they were,” she adds. “So, the more I looked, the more I said, ‘Wow, why don’t we buy one?’ So, we bought the first one.”
Joan already had adhered to what would someday become Jason Hartman’s first commandment of successful investing, though she didn’t know it at the time, because it hadn’t been invented yet. That first commandment, as many of you have come to know by now, is “thou shalt become educated”—and Joan already had earned that real estate degree from UC Berkeley. As she and John bought that first rental house and started picking more and more Craftsman plums from the Sacramento market, she plied some investment strategies.
“I never wanted to buy in lower property areas, because I just didn’t want to have the problems connected with some rentals in very low-income areas,” she says.
(“Whatever city you’re in, just below median price is kind of the ideal” at which to buy rental properties, Jason Hartman notes at this point of the podcast. “So,” he says, “if you’re in a $150,000 median-price marketplace, or even a sub-market, if you’re doing something at $120,000, that makes sense, that works, because you will have a decent quality tenant.”)
Joan also focused on single-family homes when she bought properties, as does her nephew nowadays. The bulk of her 70-plus properties are single-family homes, though “we have a few duplexes, and we have one four-plex … but I’ve never gotten into the apartment situation.”
Why center investments on single-family homes? “We just heard a lot of horror stories about renting apartments and we didn’t want to deal with that, so we just stuck with renting single-family houses.”
Apartments can be “troublesome,” Joan says. “For one thing, you have to make sure you get a good manager and that can be a very, very hard thing to do. Then you’re really at that manager’s mercy. If he decides to take another job, you have a major problem.”
Some of Joan’s Tricks of the Trade in Managing Properties Herself in the Real Estate Investment Business
By being her own manager, Joan has learned some lessons along the way, and you may want to adopt some of those, too.
“Maybe 10 years into doing this,” she says, “we realized the fantastic necessity of having house rules, and we expand them as things occur at our residences. Some people when they’re going over these, they’ll think maybe we had some wild dreams in the middle of the night. But all of these things that have happened, all of these rules, are based on actual situations that occurred.”
For example, people especially like hardwood floors these days, and Joan’s Craftsmans have them—her properties do range in age from circa-1916 to 1960. “In the market we’re in, everyone wants houses with character.”
However, “A lot of people don’t know how to take care of hardwood floors,” and Joan’s tenants are asked to place pads beneath larger pieces of furniture and smaller pads beneath the legs of tables and chairs.
Other rules include no pets and no smoking. “In our quad-plex, we get excellent tenants there. We have just professional people. We have no pets, no smoking, that type of atmosphere, and that works very well.”
Joan also is at the ready should a problem in one of her rentals, such as a backed-up sewer, arise, and her tenants appreciate the prompt attention.
“We don’t have just a handyman who does it all,” she says. “We have electricians, we have plumbers, we have contractors—everyone is a specialist in his field … so things get done properly. We even have a fence person. You could probably name 15 different trades with specialists we use.” The specialists like Joan’s repeat business, of course, “and they take good care of us, especially the plumber,” who she frequently recommends to others.
Joan also follows a screening process that has helped her find good tenants over the years. She said she and her husband only have had to evict renters four times during their nearly 40 years as landlords.
“We find that with right and proper tenant selection, that’s the most important thing,” Joan says.
“We have to make sure they’re properly employed and they’ve been there awhile, and that the rent does not exceed at least a third of their income. We always check (prior) landlord references, and we always run credit checks, and those are pretty good indicators right there.”
Joan also oversees a website that initially was designed only for her “over 70” rental properties, but since her rentals are usually all booked, she also has helped others in her Sacramento neighborhood sell properties through the site.
The “old school” way of “buy and hold” investing has served Joan and John well, even during the housing and financial crises of 2007 and 2008, when the values of their houses dipped considerably.
“Even with these ups and downs in real estate, people would say to me, “‘Wow, the real estate market has lost all of this money.’ But I would say, ‘Yes, but I’m not selling. Why do I care?”
Jason Hartman on Becoming Empowered in the Real Estate Investment Business
Hartman in the podcast with Aunt Joan also talks about newer ways of investing in the real estate investment business that can expand your portfolio even greater than the “old school” method that his aunt and uncle follow. Those ways include his concept of “empowerment and alignment.”
“If you have your interests aligned in your investments portfolio, you are going to be an empowered investor,” he says.
“When I was 17 years old, and I discovered (motivational speakers) Denis Waitley, Earl Nightingale, Zig Ziglar, Jim Rohn … those are basically the people who brought me up … they were pretty good influences on me as a wayward teenager,” Hartman says with a laugh.
“One of the things Denis Waitley used to always talk about is ‘win-win.’ And later, the late Stephen Covey talked abo
ut ‘win, win or no deal’ in the ‘The 7 Habits of Highly Effective People.’ And this concept of ‘win-win’ is a great concept … but I say you really need to go on to one more layer … it needs to be ‘win-win-win,’ so that you as the investor win, your property manager wins—meaning your interests are aligned—and then your tenant wins.”
To explain “win-win-win,” Hartman shares a personal experience of an apartment rental property he co-owned and recently sold.
While trying to sell, he and his partner learned that the property manager of the apartment complex was charging tenants a “lock-out fee.” If tenants in the apartment complex lost their keys or locked their keys inside the home, for example, the property manager would charge the tenants $150 to let them back into the property or to make new keys.
“That is really absurd, and my partner called me and he was pretty irate about this and I agree with him completely,” Hartman says.
“How is your tenant going to feel if their rent is $700 a month and they’re charged $150 to get back in their unit? This is an example of non-alignment. The manager is basically screwing your tenant over and your tenant is not going to want to be a good, long-term tenant in the property … there is non-alignment all over the place here.
“This is not a ‘win-win.’ This is the kind of deal you want to avoid. You want to make sure it’s a ‘win’ deal for you, a ‘win’ deal for your manager and a ‘win’ deal for your tenant.”
Hartman also tells of a real estate offer he learned about in which a Phoenix-area company was starting a new fund to help people invest in single-family homes.
“It was a crappy deal,” he says. “They thought they could return eight to 10 percent to investors and do fund investing. You all know the problems with that … I said, ‘Well, eight to 10 percent is a terrible return.’ You and I both know investors can make 20, 30, 40 percent annually, all things considered, on their prudent, good, smart, single-family investments.”
Problems inherent in such offers, Hartman says, include “you might be investing with a crook, you might be investing with an idiot, and assuming they’re honest and competent, they take a huge management fee off the top for managing the deal.”
Hartman says the property manager who decided to institute a lock-out fee is one example of why he likes the idea of “self-empowerment,” or self-management. It works with his aunt and uncle who follow the “old school” way of investing, though they do have an assistant who helps them manage the 70-plus properties they own.
And it works with their nephew’s newer ways of investing, too.
Hartman urges his listeners to go to his website and search for “self management,” then follow the tools and podcasts he offers on the subject—including his 10 Commandments of Real Estate Investing.
“The whole focus here is become an empowered investor,” he says. “Follow Commandment Number Three and then take on these additional responsibilities when you do follow Commandment Number Three.”
By doing so, he says, “you get the best of all worlds.”
“You create a win-win-win deal.”
(EDITOR’S NOTE: Since Hartman’s podcast with Aunt Joan earlier this summer, her husband, John, died. They had been married for 59 years. “Uncle John will be certainly missed,” says nephew Jason in a more recent podcast. “He was such a knowledgeable man and taught me so much over the course of my life. He was a pilot for many years and had a military funeral. He was just a great guy, and quite an inspiration in terms of real estate, too, that’s for sure.”)