When Jason Hartman speaks, he often refers to his mother. Aside from a genuine affection for the woman that raised him, Jason talks about his mom because it’s a story full of lessons.
In 1976, Jason’s mother purchased her first house (which she still owns) for $62,500. Although she’s knocked down the house and rebuilt it, years later it boasted a price of (we’re estimating here) $800,000. She hadn’t been living in it for some time, instead renting it out. To avoid the capital gains tax, she moved in for a while—a write-off you should always take if you can. She sold the house, but still had 13 rental properties.
Jason Hartman informed her that she wasn’t diversified enough—all 13 properties were along the San Andreas Fault and she’d paid all of them off, which reflects an outdated viewpoint on real estate. Since, she’s purchased three more properties around the country. Jason says his mom is really coming around. She’s financing properties and making money.
When she retired, she was making $211,000 per year in rental income. All she has to do is collect rent, so it is money that is pretty easily made. But earthquake insurance is expensive and most people don’t have it—which means that, because she owns her properties free and clear—she’s responsible for any and all damage. If you have a high loan balance, your lender becomes your best advocate because it is in their best interest to protect their collateral. High debt would work in her favor.
And it will work in yours too. Your lender will certainly stand up for you, a huge benefit when you’re dealing with large national insurance companies who resist paying claims. Think of your lender as your partner, your defender, and your advocate. Rely on them to collect money from insurance companies if they need to. While money in a bank CD might collect more in interest than rental income—but rental income keeps your money working for you and your properties leveraged.
Inflation is attacking equity, but inflation destroys the value of debt. Inflation can seriously hurt people because it is the most powerful method of wealth redistribution, as it is hidden and offers the long, slow burn. If you place a frog in hot water, he jumps out. To boil a frog, you put it in some warm water and turn up the heat. Inflation acts in the same way—the slow boil.
(photo credit: alles-schlumpf via photopin cc)
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Going Green: Sustainable Investing
The Jason Hartman Team
