On this Flashback Friday episode, Jason explains the “Refi Till Ya Die” option with a rental property portfolio, which he believes is a great technique for multiplying wealth over the long term. Jason explains that at Empowered Investor, they recommend buying and holding prudent rental properties over a long period of time to build real wealth, instead of constantly churning properties and creating taxable gains.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com.
Jason Hartman 0:10
Hey, this is Jason Hartman, thank you so much for joining me. Do you know what day it is? Yes, it is flashback Friday, or you hear the best of the creating wealth show and you hear some good prior episodes, some good review. Remember, we’ve got almost 500 episodes out. And you know what? iTunes doesn’t even hold them all if you’re an iTunes listener, if you are listening on Stitcher thank you for joining us. So we want to bring you some good review stuff now. What’s interesting about flashback Friday it’s a little scary for me I gotta I gotta be very very candid with you on that. Because you the listener, you get the chance to hold my feet to the fire. Did I make any predictions? Was I right? Was I wrong? I’ve been I’ve been right about a lot of things, but I’ve been wrong about a few. But it’s flashback Friday and we will give you the uncensored Best of the creating wealth show with a prior episode. So let’s dive in. Here we go. Remember, this is not current, it’s flashback Friday.
Announcer 1:20
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 thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial industry. And stay, you really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 2:10
Thank you so much for joining me today. I’ve got a few things for you before we get to our guest. Well, I guess we do have a guest today. Actually, our guest today will be Jason Hartman. Yes. He’s been on the show before. And we’re welcoming him back to the show. today. We are going to talk today about refi till you die. And what I’m actually going to do is just play a live clip from one of my live events, one of my life conferences where I talk about refi till you die. And this is one of those core fundamental strategies, and I’m going to share some statistics with you before we get to our, quote, guest unquote today. These will blow your mind when we talk about the importance of refi till you die and I was talking with one of the lenders today that I will soon have on the show for you to talk in more detail who is filling the gap with what Fannie Mae and Freddie Mac and the conventional financing market is not doing very well at all. And that is financing investment properties. And this is such a big market of course, free enterprise is rushing in to fill the gap. They can’t compete with Fannie Mae and Freddie Mac on rate and price directly because, of course, Fannie Mae and Freddie Mac just like Obamacare has an unfair advantage. They are backed the only agency in the country that can legally counterfeit money, the government and the Federal Reserve. I put those two in one because they really are one even though technically the Federal Reserve is supposedly a private corporation, but it’s not very private on one hand, but on the other hand, it’s not very federal. what some of my guests have said about the Federal Reserve before is the Federal Reserve Bank rec Central Bank like the ECB, the European Central Bank, or any of the central banks in any other countries, our Federal Reserve is about as federal as Federal Express. But it still is definitely in cahoots with the government and the Treasury Department, especially in setting monetary policy. So they have an unfair advantage in the conventional market with Fannie Mae and Freddie Mac financing because of course, they can lose money and still offer loans on properties that are really below the rates, they should be. They’re not market interest rate loans that are artificially low. But if you’re one of those people like me, who has more than 10 properties and can’t get financing, or if you’re one of those people who wants to finance through an IRA or some kind of retirement plan that self directed or if you are a foreign national, like so many of our clients that is really really wanting to buy American real estate and rightfully so the deals are fantastic here. If you don’t fit into one of these boxes where Fannie Mae and Freddie Mac can finance you, then you’ve got to look for other alternatives. And I’ll tell you the other alternatives have never been great. They’ve never been able to compete with Fannie Mae and Freddie Mac and the conventional financing world. However, they are getting much, much better. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday.
A few episodes ago, we talked about B to our financing, which is one of the big private equity groups out there that offers financing. There are two other major players in this market, they’re starting to get better and better. You know, at first when they came out, you know, they said they would do loans, but they really didn’t in practice. And, you know, some of our clients can tell you this firsthand, and I’ll have some of these clients on the show, hopefully to talk about this too. It really wasn’t very easy to get the financing offered. See it’s one thing to say hey, we’ve got all this financing available, but it’s another to actually close alone. And we know there’s quite a difference there. Sometimes, unfortunately, first of all, I want to talk to you about the size of the marketplace here. And then I want to talk to you about some specifics in terms of financing available. And then of course, on a future episode, we will have more and more of these people on to talk about the financing they offer, so you can hear it right from the horse’s mouth. Doesn’t that make you wonder where some of these things come from? I know there was a movie with Ed the talking horse, or was that a talking donkey, an old black and white movie or television show anyway, before my time, thankfully. But I remember seeing like a rerun of after hearing about it, at some point, the size of the market. There are approximately now these are all very rough numbers, of course, but they’re approximately 3 trillion that’s trillion with a T $3 trillion worth of single family rental properties out there in the market. That’s not all single family homes. That’s just the rental properties about three trillion dollars worth this is about 14 million properties. And yes, folks, I tried to actually do this on my calculator, but even my trusty HP 12 C, the good old fashioned calculator for those of us old timers that learned on the HP 12. c many years ago, even my trusty HP 12 C, which is a fantastic calculator and has a lot of zeros. It doesn’t do trillions. You know, the new version of the HP 12 c because the government bailouts and so forth. And now and the deficits we talk in trillions nowadays not millions, not billions. Those aren’t enough. We got to talk in trillions. I tried to do the math for you because I wanted to know the average price of those rental properties and I’m sure I could do it if I learned how to use my calculator a little better one online and found one but what is 3 trillion divided by 14 million because I was dying to know what’s the average price of those those rental properties. So I do not know that but I’m sure one of our dear listeners can tell me the answer to that question or spending just a couple minutes on it. I’m sure I can figure it out myself. So $3 trillion worth of single family rentals, 14 million properties. And guess what, this is unbelievable. And that is why I wanted to share this segment on refi. till you die my trademark phrase about how you should manage your investment portfolio over time. 80% of those properties are free and clear.
Wow, that’s a big number folks, that is a big, big number. 80% of them are free and clear. Now these people who own those free and clear properties, I think they are either really wanting to change that or they are just really uninformed people that don’t know that they should be refinancing those properties as a way to use their wealth better through The process of what I call equity stripping income property is the best investment in the United States. It’s the most historically proven asset class in the United States bar none. Nothing holds a candle to income property as a wealth creator, you know, when you look at the stock market and compare it, where are all the stories of the people who started with $10,000 in the stock market and made a fortune, guess what, I’ve never heard one and I bet you haven’t either. That’s because they don’t exist. You know, where all the clients yachts, as they say, it’s an insider’s game. It’s a scam. It’s the modern version of organized crime, then you look at other investments, you look at starting your own business, that could be good. It’s certainly a lot more complicated. You could get into the business of real estate. And I want to make a distinction here. The business of real estate is different than investing in real estate and I’ve alluded to this many times before in prior episodes, but you know, some people confuse what my firm does. Okay, and let me just say what we do here at Jay hartman.com what we do is we help investors, those are typically entrepreneurs or business owners, or corporate people who are professionals that have a day job. And many of them want to leave that day job and become financially independent. And they want to use real estate investing as the way to do that they want to they want to build a strong portfolio of income properties that make sense so that they can ultimately retire but not really retire. As you know, from what I said on the prior episode, I don’t really believe in retirement completely. Now you might believe in it. But I think retirement, if you will, is really about doing what we want to do. That’s what success in life is. It’s, you know, to me, at least it’s not about laying on the beach working on my skin cancer, okay. You know, it’s about, it’s about doing something and being actively engaged in life and what we’re passionate about. So maybe if you have that corporate job, if you’re a cubicle dweller, you want to use it. property is the vehicle to set you free from that. So you can do something you’re passionate about. Maybe it’s a charity, maybe you want to get involved in politics. Oh, God, I don’t know about that one. Maybe you want to start a business that is more in line with your passion. And maybe you want to start that business in a way that you’re not pressured to make money from that business. Maybe you want to start it as a business, that’s more of a social entrepreneurship venture.
You know, maybe you see something in the world that you want to change a cause, you know, whatever it is, and income property is no question about it the most historically proven vehicle to do that in America, if not in the entire world. We’ve got 80% of these $3 trillion worth of properties out there, these 14 million investment properties that are free and clear, and only about, by the way, we’ve talked a lot on prior episodes. And I know there have been a zillion articles on this topic and that is about how institutional investors have Come into the marketplace. And And folks, I think I’m going to be right about another prediction. You know, I’ve been right about, like every prediction I’ve made, except one. And that is interest rates. I have been wrong on interest rates. And I like to freely admit and be totally transparent. If you asked me five years ago, I would have told you I thought interest rates would be higher today. Actually, I thought they’d be substantially higher. What is the reason I’ve been wrong about this one prediction and right about everything else. The reason is, it’s illogical. And it’s not about the math. And all of these people that I interview on this show and a lot of them on my holistic survival show and maybe some on the American monetary Association show, they talk about the demise of the dollar. Well, you know, I used to kind of believe in that line of thinking too, but I don’t really believe in that. I think that it’s not about math. I don’t believe really in the demise of America, yet. I think it’s going in the wrong direction. I think the dollar is going in the wrong direction. But do I think America is going to collapse? Or the dollar is going to collapse? No, not really.
I find these theories very interesting. I love talking about them. One of the reasons I’m single, because monetary policy is not exactly the best first state conversation. As I like to say, you know, I love talking about this stuff. I think it’s fascinating stuff. There’s a lot of interesting theories about there. But it’s not about the math. If it were just simply about math, the dollar would have collapsed by now the United States would have collapsed by now we would have 20 30% interest rates on home mortgages by now I didn’t say that correctly. 20 or 30% interest versus four and a half percent interest. And you know, we saw this due to the Jimmy Carter economic disaster. We saw very high interest rates, people with home mortgages in the late 70s and the early 80s before reagan kind of fixed the Jimmy Carter hangover who had mortgages anywhere between 16 and 20% on their home. So that’s certainly possible. And if the mathematicians were right, and all the economists out there who just believed in math, that’s what we would have now, we would have 20 to 30% interest on a home mortgage rates would even be higher than that for credit cards and auto loans and other types of financing student loan debt, the next big bubble that will probably pop in some way or another, we would have hyperinflation. But the fact is, it’s not just about the math. It’s not just about what is the amount of the deficit? How much is the Fed pumping into the economy? What does QE mean quantitative easing, aka money printing, Money Creation. It’s not just about that a long time ago, I had Chris martenson on the show, and I’ve asked my guest Booker’s to invite him back on the show. super smart guy very interesting to listen to, but he’s, he’s been wrong so far about this topic and you It’s not just Chris. I don’t mean to pick on him. I like his work. But so many economists have been just massively wrong about this, because it’s not just about math. Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday. What else is it about? It’s about the American brand name. It’s about the power of the American military. It’s about the interconnections in the global economy and the way that China, China would have just basically given us the finger by now on buying our bonds, if we want their best customer. Think about it in business, if you’re in business, who wants to destroy their own customers, that’s not going to be good. We’re all interconnected in this interconnected world nowadays. That’s the problem with looking at just the math and just the empirical analytical linear thinking. There’s a Way more going on in the world than what a brilliant PhD statistician could tell you. There’s just a lot more to it than now, this huge market of $3 trillion worth of single family home rentals that doesn’t include apartment buildings by the way that single family homes, this is a giant market for refi till you die, only 2% of them are institutionally owned that prediction how I started that last tangent with I know I tend to go off on tangents institutional investor thing. My prediction was that the institutional investors, the private equity groups, Wall Street, the hedge funds, they will not like our business, and they will not stay in our business, because our business is very fragmented. And I always say, embrace the fragmentation. fragmentation gives us the opportunity to play in a field that institutional investors don’t want to play him. So that’s very important.
Here is an example of one of these types of loans. That is available to you. And we will do a more detailed show on this very shortly where you can basically do the refi till you die plan. And it’s pretty darn good if you have and I know many of our clients listening do have a bunch of income properties. They purchased them through our network, and they’ve been buying over the last couple of years, and they’ve been buying with cash, and they would love to engage in equity stripping, they would love to engage in the refi till you die business plan that I talked about, and have been talking about for many years. And they’d love to strip the equity out of those properties, do a cash out refinance and buy more income properties. And that would be a phenomenal business plan. Let me whet your appetite. Here are the rates in terms of these loans on one of them and this is for a low volume program. If you qualify for a higher volume program, the rates get even better, but I’m going to give you the worst of the deals. Okay. The better One will come up on a future episode very soon 6.25 to 6.75% 30 year amortized loan. I know that’s not as good as Fannie Mae, Freddie Mac, but that’s pretty darn good. And you can do this with a 620 minimum FICO score. And you can get a minimum loan amount of $75,000, you can finance up to, I hope you’re sitting down because this is going to make you fall off your chair, but it’s going to make a smile at the same time, up to 25 properties on this program, you can finance up to 25 properties, and I know a few of you by name, who are probably listening to this episode who have 25 or more properties that you bought from us free and clear, and you can refinance those refi till you die. Okay, great business plan, you can refinance them on a cash out refinance, of up to 75% loan to value ratio. So if it’s $100,000 property, you can get 75,000 dollars cash out on 25 of those properties. And you can go buy a whole bunch more properties. Now, by the way, on the same program on purchases, they don’t give you quite as high loan to value on a new purchase 65% loan to value ratio. And I thought, you know, that’s kind of backwards when I was talking to this gentleman this morning about the program. I thought that’s kind of counterintuitive, because usually you’ll get a higher loan to value ratio on an acquisition on a purchase money loan, as it’s called, then you will on a cash out refinance. But in this case, they actually like to refinance the property better than they like to help you acquire the property. And their thinking is this it does make sense to me their thinking is that you’ve already owned the property for a while and you know the property and you’re comfortable with the property. So they’re going to give you 10% more on a cash out refinance than they will on a purchase. So I thought that was kind of interesting. And this is the worst deal they offer. They have an even better deal than this. If you’re financing a higher amount or more properties, so I just thought I’d tell you about that. And the refi till you die one of the one of the great things when we were on the last episode number 407. And I was talking to Matt, in the intro of that section, as I was doing my moment of stupidity, and I didn’t really realize that the mic was not plugged in, because I was rambling away. You can tease me about that one later.
I’m sure I’m gonna get some flack about it. When I was talking about that. I talked about the affordability in different markets. I compared I believe it was San Francisco, Atlanta and Denver in that example, markets that make sense to invest in markets that don’t make sense to invest in and I was talking about, you know, why is it that in these very affordable markets, why is it that the rental rates are so high and my rental rate I mean number of people renting, of course, the rent to value ratios are very high. In these good markets as well, but why do so many people rent when it actually would make sense for them to buy? Now, there are many reasons for this. And many years ago, we came up with a big list of maybe, I don’t know, 10, or a dozen reasons that people rent when they should be buying. And I’ll just share two of those with you today before we get to our guest who’s going to talk about refi to die our guests. Yours truly, but many reasons people do this. But let me just share two of those with you today. First and foremost, financial immaturity financial immaturity The first reason that many of your tenants don’t buy and financial immaturity is the process of not being willing to delay gratification for a longer term bigger goal, and that is obviously a bad thing. Now, the 8020 rule applies here again, because 80% of the people in the world will unfortunately just not get very far in life and 20% will They will experience real success however that’s defined. And with that financial immaturity issue, if you want to buy, it requires discipline, it requires you to delay gratification. You know, I’m speaking from the tenants perspective. Now, when I say this, you know, they have to save up some money, they have to prepare to buy a home, they have to take a step back to take two steps forward, because almost always they can rent something a little nicer they can then they can afford to buy. So that’s the first thing financial immaturity. The second thing is urgency. There are three basic types of markets out there when you look at the almost 400 essays or metropolitan statistical areas in the United States. And by the way, the very, very incomplete, woefully incomplete Case Shiller index that is cited all over the media only covers 20 of these nearly 400 essays. So if you’re using that to make your investment decisions on how the real estate market is You’re going to be very, very uninformed Case Shiller is a tiny little sample. Well, the three basic types of markets are a linear market. Number one, a cyclical market number two, a hybrid market number three. So three types of markets, the linear market, those are markets I like generally. I mean, there’s more to it than just whether or not it’s linear. I mean, Detroit is linear, and I don’t recommend Detroit, at least not yet. Probably won’t. But you know, I’m constantly monitoring what’s going on some of these markets do from time to time surprise me. Detroit has not surprised me yet. So that’s a linear market, but I wouldn’t recommend it. Our markets, the markets, we like our linear markets. Then there is the cyclical markets. I don’t like these markets because they’re always too expensive, and they always have bad rent to value ratios, bad RV ratios, where you don’t get enough money per month.
Like on the episode with my mom two episodes ago, she was talking about one of the Property she owns and she has properties in linear and cyclical markets. But her old stuff is from cyclical markets like California doesn’t make sense in California doesn’t make sense in New York City doesn’t make sense in Miami. Those are cyclical, high risk gambler oriented markets, where you’re expecting appreciation to solve all your problems because cash flow certainly won’t now a hybrid market. Well, the hybrid market is the blend of both these markets and there aren’t that many hybrid markets. But the market in which I happen to live now is a hybrid market and that is Phoenix Arizona. Phoenix really was a for the last two boom cycles. It really was a pretty linear market. But in the last couple of cycles, as the news about real estate investing became more and more widespread. We saw investors going out and buying properties from neighboring states and neighboring states. And a lot of them jumped into Phoenix because Phoenix was hot, not just in temperature. It was hot in 2000 to 2003 2004. In 2005. In investing, it was getting a lot of appreciation. And on that way up in that appreciation cycle, you could still get decent cash flow much better than say pretty much any market in California, Phoenix was pretty desirable. And so Phoenix was a hybrid market. Now we very wisely pulled out of Phoenix and recommended our investors pull out of Phoenix if they didn’t already own and already have a stabilized property. We stopped recommending that they get back into the Phoenix market when that first cycle happened. So you know, it ran up, and it had the highest depreciation rate in the country in 2005. And then, boom, it felt like a rock, just like cyclical markets always do. And so the Phoenix market was in big, big trouble for many years and then we too are Credit saw that and we saw that the prices were down and it wasn’t alone. And you could get good cash flow and good rental value ratios again, and we started recommending Phoenix and many, many, maybe to the tune of hundreds of our clients got into the Phoenix market. And guess what? The same thing happened again, showing its true colors as a hybrid market prices went up, our investors made a lot of money on appreciation, and they got nice cash flow, because they bought in when it was a linear market. Then when it went cyclical on them, they rode the wave up and made a bunch of money. In fact, a few of our investors did 1031 exchanges got out of Phoenix just this year last year, and purchase properties in other areas that have linear markets that we recommended. So this is always something moving back and forth.
If you want more information on this, go purchase the creating wealth home study course at Jason hartman.com and the product section. or come to our little rock creating wealth conference and property tour at the end of September. And you can register for that at Jason Hartman calm in the events section. And we go into all this in depth in a structured format. So we’d love to see you there. We’d love to have you get the creating wealth home study course. And you can learn a lot more about this stuff. But without further ado, let’s go on to the refi till you die ideology here. And I think you’ll really get a lot out of this. We have covered this a long, long time ago on really old episodes, but I haven’t covered it lightly. So I want to just share from you this 16 minutes segment from our live event that we did in California last June. Here it is. Let’s talk about one of the game plans that we have talked about for many years, which is the concept of refi till you die. Okay, it doesn’t sound cool. Okay. So I’m going to give you two examples of how this could work. And they’re just examples. And they’re simplified because of something called the rule of 72. Okay, you’ve heard of the rule of 72. Right? And that just means that things double, okay, and we’ll see how they double at different rates. So in this example, let’s talk about or just round numbers sake, a property portfolio, where you’ve purchased, let’s just say it’s 10 properties in diverse markets and say the property’s worth $100,000 each. And this is in your workbook somewhere, David will find it first, I’m sure and tell you all so you’ve got 10 $100,000 properties to buy them 20% down is $200,000. And then you’ve got closing costs, and I’m just rounding this off. It could be different. Hey, Drew, how you doing? That’s about 35,000. And then you’ve got reserves. Remember, I did say 4%. Here’s the first time that numbers actually on a slide 4% of a million is $40,000. So $275,000 total, and one of the questions that people ask Ask about this stuff is they say, hey, Jason, how am I going to get rich with $300 a month per property in positive cash flow? Well, that doesn’t sound like you’re gonna be rich. If you multiply that times 10 you’ve only got 3000 a month. But the real way you build wealth, a lot of it happens behind the scenes because income property remember, it’s a multi dimensional asset class. And so in this refi till you die example, I’m gonna show you the money as Jerry Maguire would say, and here’s how it works. You started with this $1 million portfolio 10 properties, diverse markets. A lot of people ask, Well, how diversified do I want to be one of the mistakes that I made is that I over diversified you know, that intro for the greater malto 17 cities and 11 states. That was a mistake. I’m going to take that intro off because it’s actually not true anymore because I’ve been selling some properties. To reposition and consolidate my portfolio. I would recommend that you don’t diversify into more than Five markets.
Reason is, it’s just simpler to deal with fewer parties, fewer cities, fewer tax collectors, fewer insurance agents, fewer property managers. So you might own 100 properties. And that’s 20 in each of five markets, three to five markets will give you a good enough diversification. You do not need to be like me, which was a mistake, it really became a hassle being overly diversified. So diversify, but don’t over diversify. Maybe you’ve got two properties each in five markets, or three and a third properties in three markets. And so the way it looks like this, you’ve got your $235,000 initial investment, you’ve got loans for $800,000 or 80% of the value and your equity is $200,000. This is how it looks when you start now what happens is you move on when 12 years go by at that 6% appreciation rate, your portfolio is going to double by the rule of 72. It’s going to double it’s going to be worth $2 million Now. So now you’ve gone from 1 million to 2 million in 12 years. And I know you’re all thinking 12 years is a long time. Not really. I’m having my 10 year high school reunion coming up. Just kidding. Now what’s happened in 12 years, think about this, say you’re 4040 is the new 25. Really is that is actually true to take care of yourself. So now your property’s double your 52. And you’ve got a million dollar gain already, and you stopped, you just did the 10 and you quit. And then you just let it ride million dollar gain. You go to the bank and you say, hey, I’ve got equity in here. Jason told me, I don’t want equity. So I want to pull my equity out. I want to engage in something I call equity stripping, you have the properties, you own the assets, but you strip the equity out of them. So basically what happens here, you still own the asset, but you’ve got all the money out and so you still control it and you’ve got an asset, which is awesome. So then the bank says okay, your $2 million portfolio 80% of that, we will loan you that. So we’re going to give you loans totaling $1.6 million. And now your equity has doubled to $400,000 difference between 2,000,001.6 million in financing. So $400,000 in equity, and you’ve got $800,000 in cash that you can now stuff under your mattress, you can go to Las Vegas and gamble it away. You can you know, do whatever for the next 12 years. If you just take this $800,000 and divide it by 12 and you don’t invest it you stick it under your mattress, it earns zero return you have $67,000 a year almost $67,000 a year tax free. Why? Because there’s no tax on borrowed money. This 67,000 on rounding a little bit $67,000 tax free is equivalent to Well, it depends on your tax bracket but let’s say it’s equivalent to about 90 hundred thousand is fair. That’s about $100,000 taxable equivalent, of course during the 12 years Maybe inflation has happened probably because your property portfolio doubled in value. These are nominal numbers. They’re not real numbers. So granted 2 million, you can say 12 years later ain’t what it used to be 67,008 what it used to be there, but it’s still money. It’s still something.
So let’s go to the next cycle. Let’s go another 12 years now remember, you’re only 52. And you’re now living on this tax free money every year, another 12 years now you’re 64 years young, in my example, and 64 is the new 40. Just wait to start listening to my longevity show. I’ve been interviewing people I know. I’ve been a little slow to launch that show. But it’s pretty incredible what’s happening in longevity sciences. Now your property portfolio has doubled again, it’s worth $4 million based on the rule of 72, that 6% appreciation and you’ve got a $3 million gain from your original $1 million investment and you go to the bank and say hey, refinance me 80% loan to value. Okay, we’ll give you $3.2 million in loans your equity has now doubled again to $800,000. And you’ve got $1.6 million in cash. Now granted, hopefully what you really did the first time is you took that 800,000 and invested it and you earned a return on it. We’re not even counting that we’re not even counting the tax benefits. We’re not counting the positive cash flow. We’re just talking about very simple, simple, simplified math here. It’s just properties double every 12 years and discussion. Now you’ve got 1.6 million and for the next 12 years, just divide it, don’t invest it, don’t earn anything on it, stick it under your mattress, you have $133,000 a year spend tax free, that’s probably equivalent to about, you know, nearly 200,000 a year in taxable so you’re 64 Now, let’s go 12 more years and now How old are we? We’re 76 years young 76 is the new 55 and now our portfolio is worth $7 million. We refi we get 6.4 million in loans we have 1.6 million in equity or equity has quadrupled, or no more than that. It’s gone up eight times. What’s that quintuple? What do you call that? anyone’s lot. So now we’ve got $1.6 million in equity, we’ve got an asset worth $8 million, a $7 million gain, and we’ve got $3.2 million cash out, tax free divided by 12. We got a quarter million dollars a year, tax free to live off until where 88 and 88 will be the new 68 your loan balances are going up. I don’t know what the interest rate will be. Nobody does. I don’t know what the refi rules will be, they might say will only give you a 50% loan to value they might say we’ll give you 135% loan to value. They actually do those things. Sometimes we’ve certainly been through those cycles. The question is, if my debt keeps going up, then my payments probably keep going up. Absolutely right. We know historically that rents adjust for instance So the rents go up to keep pace with housing prices and general inflation. We don’t know this will happen for sure. We do know for sure it’s happened historically, there’s something I call the three dimensions of real estate. I’ll talk about that in a bit. Because what you see is that there are all these correlating and non correlating indicators dependent upon the interest rates, the ability to qualify for loans, the housing prices, the housing affordability index, we’ll get into that.
Okay. So let me just go over another quick example for you. Okay. And remember, we didn’t count that all that time. If you bought the right properties, you had positive cash flow, you had tax benefits. And some other benefits to this is just simple stuff. We didn’t talk about inflation and does debt destruction, or any of that, which we’ll get into. So let’s say you want to do this faster. And you you’ve got the Seven Year Itch as they say, right. And so here, we’ll just take a portfolio that’s twice the size to get there faster. It’s $2 million initially, and your investment to acquire that portfolio is 470,000 I’m just doubling the numbers here. That’s all and your loans are 1.6 your equity is 400,000 the next round only seven years later in this example, you’re only 47 not 52 you’ve got a portfolio that’s gone up by 50% because it goes up 50% in seven years or doubles 100% in 12 years, you’ve got a $1 million gain 80% refi 2.4 million in loans. I’m going to go a little faster because you already saw the idea in the last one 600,000 in equity 800,000 in proceeds that equal 114,000 a year for seven years tax free. No tax on borrowed money, because you’re only dividing this one by seven. Remember, we’re on a seven year cycle here. Now it goes to 4.5 million. You’ve got a two and a half million dollar gain 80% refi 3.6 million in loans 900,000 in equity 1.2 million cash out, tax free. Live on that for the next seven years. You’re now 54 generally 54 years old in the 40 example. So 171,000 in tax free income, boom, boom, boom, over a quarter million dollars in tax free income in 21 years. Now, there are a lot of assumptions we’re making here, obviously, because you know, as Yogi Berra said, the future ain’t what it used to be. We don’t know the future. Nobody knows the future except Janet Yellen. Or Obama because he’s God. Okay. So anyway, or at least he thinks he is. So in this in this example, on, you know, the rents adjust for inflation, the property prices adjust for inflation. We don’t know if seven years or 12 years is the right time to refi like maybe the climate won’t be good at that time. It’s just a concept as all it is, you know, you might refi in five years. for 15 years, but the point is to not kill the golden goose. The golden goose that lays the golden eggs are the properties. You don’t want to sell them. Selling is not the point except for me. I know I broke my own rule occasionally without apartment building, because I don’t know a bunch of one bedroom units just didn’t meet seem like they were going to go to a, you know, an incredible price. I just wanted a move. I’m moving money around. Okay, but I’m in the game, for sure. So yes, absolutely. Yeah. And your mistress, you might tell your ministers can see you leave your money to what? no tax under under current law, as Randy said when he was up here it steps up to current market value. So your errors under the law could change, you know, for sure, but under current law, it steps up to market value. So whatever the market value is at the time you pass on, you’ve left this to your heirs. Yes. No depreciation has nothing to do with financing it has to do with the IRS. So the depreciation schedule is 27 and a half years. So you know how I said that, you know, I want you to buy and hold your properties.
Actually, I take that back, I want you to buy and hold them for 27.5 years. And then you buy new ones and start depreciating those again. Okay, so, yeah. Oh, yeah, yeah, you can you can do cash out refinance. I mean, you know, you got to have good credit and the properties have to be rented and performing and things like that, but you can get cash out request. Sure. And I mean, you know, the loan rules may change. Like I said, it could be a different loan to value you know, a million things we don’t know.
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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. Really now, how is that possible at all? 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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