Jason Hartman starts the show discussing real wealth. He explains that investors should be spending money on investments, not assets, and things that diminish in value. Later he finishes a clip from a webinar from the previous show. He compares single-family homes over multifamily units, discusses different types of inflation, and goes over differences between commercial real estate investing and residential real estate investing.
Announcer 0:02
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 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 0:53
Welcome to Episode 967 967. This is Jason Hartman, your host in Thank you so much for joining me once again today, as I record, looking over beautiful San Diego harbor and thinking about all those gorgeous yachts down there, and thinking that you know what I could probably afford? Well, almost any of them. Not all of them maybe. But I have zero desire to Own One. Yes, I owned a boat years ago. And you know what they say about the two happiest days of a boat owners life, the day you buy it, and the day you sell it. It’s just funny because, um, I noticed how and this has probably happened to all of you to Here we are on a show that is all about investing, about earning a good return on our investments about making money. And yet, oddly, oddly, at least for myself, and I bet it’s true for a lot of you too. You want to spend your money on things that are Do not give you something else to do. You know, there’s enough to do managing our investment portfolios. If you want to go out on a yacht charter one, and let someone else do the cleanup, and the maintenance and all of that kind of stuff, and the insurance and all of these things, you know, it’s just the sharing economy has brought us a whole new way of looking at things. We all have access to this stuff. It’s so much easier to get access now without ownership. So only investments own the things that create wealth, and don’t buy at least as much as possible. Don’t buy the things that diminish your wealth, don’t buy the obligations. You know, rich people spend money on things that create return, that create wealth, while poor people spend money on the appearances of wealth, the things that will give them comfort or a feeling of status or acceptance or whatever. In the short term while ultimately making them poorer, okay, nothing wrong with enjoying all these things. But hey, rent them rent them. In fact, you don’t even have to rent them anymore. You can charter them. There’s an app on your phone, probably to do all just that. You know, you can do it through lots of different sources, you can do it through. Heck, you can do it through Airbnb. You can Yes, you can rent yachts on Airbnb, there’s all kinds of stuff coming in the world of aviation as well, that makes it all possible. So it is truly an amazing time to be alive. So when it comes to your money, dedicate your money to the things that produce more money for you, so that your money works for you, rather than sleeping and depreciating. And to have those experiences of those other things that cost money that are liabilities, right? Just use them, rent them, borrow them, you know sharing economy type of format. One of my very wealthy friends bill, a real estate developer in Orange County. In the old days, I knew bill. I wonder what he’s up to nowadays haven’t talked to him in years. I remember talking to Bill around the time that I was either thinking of buying this yacht, it was a 48 foot yacht I bought with some partners, and it was not a great experience, to say the least. But you know, I liked it for a little while, then it just became a new burden and alligator. You know, I had the money wasn’t that big a deal to afford it, but it was just a bit of a hassle, honestly. And so I remember bill, with all the gorgeous homes he had and all the gorgeous cars he had and the lavish lifestyle he lived I said, Bill, you know, I’m kind of surprised you don’t own a boat. And his reply was great. He said, Jason, the best thing to have is a friend with a boat. Well, isn’t that the truth very, very good philosophy bill. But by Lots of properties, because the properties are good, they work for you, they create wealth for you. So in today’s episode, we’ll do part two, as we talk about some of these fundamentals of investing some of these very glorious, very great fundamentals. And I hope you’ll join us this weekend in San Jose, as we dive into the math of real estate investing and building portfolios, and property analysis and management, professional van management versus self management, all this great stuff. So hope you’ll be there at Jay Chou live on Saturday. Go to Jason Hartman university.com Jason Hartman University comm and check that out. But hey, what is the biggest fear most investors have nowadays? What is their biggest fear? Well, investors who are not in the know, guess what their biggest fear is? Is it war? Is it normal? North Korea. Is it the trade imbalance between China? How about the collapse of the European Union? that is happening? The trade war? Is it Trump? Is it currency valuations of different currencies around the world? Is it the oil markets, the energy markets? Is it? Gosh, is it the deficit? Is it the debt? Is it the tightening policy by the Federal Reserve and some other central banks? Is it all of this stuff? Well, what do you think? What do you think the biggest fear of investors is? Is it the overvalued markets or the perception that some markets are overvalued? Is it the business cycle? You know, Austrian economics would talk about the business cycle, right? Well, no, that isn’t the fear. The thing that causes the most fear and investors right now, according To an investopedia article that I was reading recently, it said that the biggest fear, the number one fear Now, before I tell you the number one fear, remember what I have said in the past? Yes, I have said, Take the things that most people worry about the things that hurt most people, the things that most people complain about, you know, there’s this whole part of our culture. And look, I’ve been part of this at many times in my life, being a news junkie, right? Are you a news junkie? Are you addicted to the news? My mom is a news junkie. She’s kind of always been a bit of a news junkie. And I don’t think this is a particularly healthy behavior to be a news junkie. Why? Well, mostly because hey, the news is going to happen anyway and you’re not going to change it. So that’s the first thing. And there are all these people out there who find all these reasons to be fearful. to complain to really hate the passage of time to hate bad government policies bad fiscal and monetary policy, to worry about father time to worry about mother nature to worry about all these things, right? All these bad things that are usually negative right through usually negative. Take all those things and start making them your happy place. Yes, your happy place here it is just like all those people that needed a safe space after Trump got elected. Oh God, they needed a unicorn and a pony and the safe space on their college campus.
Jason Hartman 8:39
Yes. Oh my god. It’s just crazy. What a world we live in. Right? Poor millennial generation. They couldn’t handle the election. Oh, sorry. Okay, enough making fun of them as those, those lefty millennials, take all these things that people worry about that are bad news. Make it your happy place. All of these things the passage of time, bad monetary and fiscal policy, they actually all work for you now the bad monetary and fiscal policy part that leads to pretty much one thing, what does it lead to? It leads to the I word, inflation. That is the thing investors fear most right now, inflation, inflation fears are seeping through the markets, especially the bond market. And guess what that means to us as real estate investors? It means our Happy Places here, yes, our happy place because we love inflation is the hidden wealth creator. In fact, we’ve been kind of missing inflation. Now granted, we’ve had lots and lots of asset inflation. Yes, venture Alliance member Jeff, I’m talking to you and everybody else, the same We’ve had lots of asset inflation, but we haven’t had a lot of consumer inflation the past several years we’ve had some, but it hasn’t been incredibly significant. But guess what? Yes, guess what? They say it’s upon us. They say we are just getting into an inflationary cycle. You know, some of the guests I’ve had on the show recently, they say that the Fed is going to try and engineer a soft landing, cool the economy off a bit by tightening by raising rates by reversing all of the QE. Yes, the queue does not stand for Queen Elizabeth. You know, like the ship the QE to the Queen Elizabeth to right. No, we’re not talking about crossing the Atlantic here. We are talking about quantitative easing, right. Well, now the mode is the path is to do the opposite. And we will see we will see if our friends who manage Our central planning economy which I am the not the least bit in favor of, by the way philosophically, I think it’s absolutely disgusting. appalling. Terrible. I hate it. I hate it. I hate it.
Jason Hartman 11:13
But, but, but instead of complaining about these things instead of worrying about these things, we as good investors following the plan of that awesome teacher, that awesome teacher, whose name actually stands for healer, but I think it really ought to be teacher. That’s Jason Hartman. Yes, yours truly. pat on the back. I don’t know if you heard the pat on the back there, but I just did it. What a strange podcast host you have, huh? Yes, I know. This is what I do. Just when I’m by myself, patting myself on the back all the time. Just kidding. Not that weird. But to hate. What we do is we align our interest. we align our end With these central planners, these disgusting appalling, terrible central planners that run our economy that run the central banks that run the government that mismanaged virtually everything, okay, that act out of their own self interest rather than our interest. They’re not completely disengaged with our interests pay, to some extent act in our interests, but they mostly act in their own best interest and what is their own best interests? Well, it’s to maintain power, power over us. Yes, power over us little pawns in the scheme of things. It’s little p on ones, they got to hold their positions of power and justify their existence. Yes. They got to fly to Davos, and their high carbon footprint private jets, and then talk about saving the environment. Oh, yes. You mean they couldn’t have done that meeting over zoom or Skype or some conferencing system you They couldn’t have flown commercial, they couldn’t have shared a jet. A lot of them are coming from the same places. They couldn’t have flown together, some of them Nope. Over 1000 private jets in Davos to talk about helping the environment. I wonder if al gore was there in one of his private jets or maybe john travolta in one of his private jets? I don’t know, you know, at least the trumpster as bad as he might be. isn’t a hypocrite? Well, not always, at least not on this. Not on this count, right? Not on this count. But hey, we will see it’s always interesting, I guess I am a bit of a news junkie and a complainer myself. I guess I don’t have the right to talk, do I? But hey, just align your interest with the most powerful forces the human race has ever known. That’s all you got to do. That’s all you got to do. It’ll really save you a lot of heartache throughout your life. That’s what we do here. We help you do that. And how do we help you do that? We say invest in the most historically proven asset class. The world has ever known income Producing real estate. It’s good stuff. It’s good stuff. If you don’t own it, get some. If you own some, get some more, and we’ll help you with that, because that’s what we’re here for. And by the way, some of you encounter problems from time to time.
Jason Hartman 14:15
And you know what? It kind of feels like there have been a few more problems than usual lately. And I don’t know exactly why that is. Maybe it’s just a Winky Dink a coincidence? I don’t know. I don’t know. But it got to listen to the podcast. And you got to reach out to us because we can help you with problems. In fact, we have a positive good story about that. We helped one of our clients recently, and I think he’s gonna come on the show and talk about it. I hope he is because I’m looking forward to it. You know, there’s an old saying, Don’t get mad get even. We helped one of our clients do just that recently. So hopefully we’ll have that story for you soon, but reach out to our investment counselors. We We’re here before, during, and after we are here with you for the duration for the long term. We’ll help you get through any challenges any bumps on the road. Remember, when you are a direct investor, you’re going to feel the bumps. You know, when you invest in some big company, and someone else is skimming all the profits off the top, guess what? There’s lots of bumps. You don’t even know they happened, because they were hidden. But those bumps took your money. Yes, they ate away your return, besides all the other people skimming the cream off the top there, right. And that was your return on investment, the money you should have ADD and would have had, if the company didn’t just settle that ginormous lawsuit for discrimination in employment practices, or sexual harassment, or product liability or patent infringement. Or, you know, they didn’t just pay someone off under the table or Or if it wasn’t because they just hired this big consulting firm and paid them a fortune. Because guess what? The decision maker that hired that big consulting firm, that big management consultant, that massively overcharged, all of the stakeholders and shareholders in that company for their services? wasn’t given them a kickback. Yeah. You know, that yacht sitting in the harbor, huh? Well, it was paid for by that consulting firm. And guess what? The person who works at that company who made the decision, maybe couldn’t afford it on their salary. And this goes on in government. It goes on in the pharmaceutical industry, it goes on in every business, and guess who’s paying for it? taxpayers when it comes to government, and when it comes to the companies in the private sector, guess who’s paying for it? Yep, that’s right. The shareholders are paying for it. Well, happy birthday shareholders, they’re paying for it. That’s what they’re doing. Where are all the clients yachts? As the old famous saying goes, I think that’s from a Random Walk Down Wall Street. Right, that famous book. Anyway, let’s get to part two from yesterday, we are continuing, let’s talk about some more of the fundamentals. And if you want to look at some properties, there aren’t too many. But there are some reach out to our investment counselors, of course, through Jason Hartman calm, but also go to Jason hartman.com. Click on the properties section and take a peek there. We’ve always got stuff for you, Jason Hartman university.com for this weekend’s event. And I’m going to see a lot of you in Silicon Valley in San Jose. Well, actually technically in Sunnyvale on Saturday, and I’m looking forward to seeing you there. So we’ll see you there. And here is part two from yesterday as we talk about some fundamental stuff. Timing the markets in terms of the appreciation and depreciation cycle is extremely difficult, if not impossible, but cash flow is pretty reliable appreciation is not reliable, it will change. It’s very fickle. But cash flow is pretty reliable. I mean, even during the Great Recession, with all the loan modifications and people living in their houses for free, these people should have been cycled into the rental market after they gave up their homes through sale or foreclosure. But they were recycled in rather slowly, you know, even during that time, there was very little downward pressure on rents a minor, you know, if you adjusted your rents down just a little bit, you could keep your tenants rent your properties, no problem, very reliable cash flow. And this is one of the reasons I really love housing because housing has universal need. Nobody needs to work in an office, right? I had several big, beautiful offices over the years for my company. And in 2012, as our last lease in Irvine, California was up, you know, we gave it up, I found myself battling with my employees to come to the office, they all wanted to work at home, they all wanted to just have flexible hours and be with their families and, you know, pick up their kids from school and work when they want, right. And so we’re virtual, right? Everybody works from their home now and they love it. It’s much better. Okay. And of course, it saves the company a lot of money too.
Investor 19:32
So, that’s great. Is that more to productivity is up more when people work?
Jason Hartman 19:39
Well, you know, there have been there been a lot of studies on that. Yes. And no, you know, some people find it hard to work at home, but some people are very much more productive. You know, it does depend a bit but people like the flexibility there’s no question So look, you know, you don’t need an office, okay? And even large companies are telling people to work out of the house. And they’re outsourcing a lot of their office workers to India and the Philippines. Certainly the call centers, the tech support have done that dramatically. Right. So that lessens the need for office space. Here in the US. Manufacturing has been offshored largely to China, that workshop of the world they call China right. And so that lessens the need for industrial properties. Retail has been outsourced to the internet, right? We call it the retail apocalypse. And if you look at Amazon, just eating up every retailer, it’s unbelievable the power of that. And so, at the end of the day, everybody still needs a place to live, right? They have three choices, they can rent it, they can own it, or they can be homeless, you know, someone jokingly in one of my seminars said, well, they can live with her parents. That’s, that’s, they call Generation Y the boomerang generation. You know, they go away to college and then they come back for 10 years
Investor 21:03
they know that very well.
Jason Hartman 21:05
Yeah, kick them out. charge him rent, you know, you got to make them pay rent.
Investor 21:09
Yeah, no, he hasn’t till the summer and then he’s out.
Jason Hartman 21:12
Good, good, good, little tough love might be helpful to most people will complain, at least I do about the way the government is managing our money poorly, right, managing our tax money very poorly. What I say is just align our interests with them, right? No amount of complaining will ever really change it. You know, the only thing that will change it is a revolution. So if there’s a Boston Tea Party coming up, you know, let me know. But until then, I just say align your interests with theirs. And their interest, whether they say it or not, is inflation, significant inflation, because as they spend, they create debt, and they can pay the debt back in cheaper dollars, just like weekend as real estate investors, that’s the hidden wealth creator called inflation induced destruction. Okay. So to understand inflation, we need to distinguish between real and nominal. Okay, nominal means in name only. So if I had a $10 bill in front of me, and I held it up and I said, What is this call? You’d say it’s called $10. And I would say, okay, that’s what it’s called today in 2018. What was it called in 1950. It was also called $10. Right? So the name has the same nominal means a name only. But the value is dramatically different in 1950, that $10 would buy a lot more than it would today. So there’s certainly inflation in the system. It’s the insidious hidden tax that destroys our purchasing power. It destroys the value of our stocks, our bonds, our savings. The equity in our real estate, okay, inflation attacks this. But thankfully, it also destroys the value of our debt. And that is a beautiful thing. Because income property is the most debt favored asset class in America. Okay, so let’s just go through that. It’s the most historically proven asset class in the world. It’s the most debt favored asset class in America. And it’s the most tax favored asset class in America. It’s a multi dimensional investment with very unique characteristics. I know I don’t have to expound on the great pneus of income property because that’s why people are in your club. Okay. But some people are interested in the asset class and investing in it. And they don’t even understand some of the other characteristics that makes it great, the things that are working for them under the surface, right. And so as it destroys the value of our debt, it basically redistributes wealth. And inflation redistributes wealth from lenders to borrowers. See, the lenders get paid back in depreciating dollars that are of less value as you pay them back. And the borrowers get to pay them back in ever cheaper dollars. So if you buy 10 properties today, and you encumber those properties with $1 million worth of debt, and there’s 2% even very mild, you know, the stated goal of the Federal Reserve is to have 2% inflation every year, right? Which really, it’s higher than that. Okay? But with just 2% inflation, inflation is basically paying off $20,000 per year of that debt for you for free. And when most people calculate their return on investment, they don’t even consider that. It’s just happening below the surface. It’s like the iceberg below the surface is most of the iceberg, right? And Hey, as the people that were on the Titanic, right, they’ll tell you, this is in a good way. And so that’s what inflation does for people. And income property is the most inflation favored asset class in the entire world.
Investor 25:15
So Jason, you got a few minutes we can go through some of these questions. Sure.
Jason Hartman 25:18
Absolutely. I love questions, go for it.
Investor 25:21
The first one is do you have a preference between single family duplex triplex or quad?
Jason Hartman 25:27
I don’t have a giant preference, but I get this question a lot. Here’s what I’ll tell you. I think the single family home the humble single family home is the most historically proven asset class in the entire world. The next best thing would be what I call the plexes. duplexes. triplexes for plexus, okay, the reason they’re not as good usually, you’ll typically get better cash flow. But remember when you exit that property someday You’re going to be selling that property to an investor, not a homeowner. And they’re going to be buying the property based at least partially on metrics and numbers. With single family homes, you have the choice, you can sell it to an investor or you can sell it to a homeowner. Okay. And homeowners are what? They are il logical, and the fact that they’re illogical, is beneficial to you. Okay? They’re illogical is sellers. And they’re also illogical as buyers, right? You know, for many years, I was in the traditional real estate business, I was one of the top REMAX agents in the world at age 24. I own my own company that when I sold a Coldwell Banker in Irvine, I’m very familiar with that, how it works in the traditional real estate industry. So the other thing about the plexes is that when you are renting them, if you have a four Plex, for example, you will typically if that’s an a property now, you know, you all probably know About how properties are sort of categorized into ABC and D type properties, right? A properties would be like new construction in nicer areas more expensive. And if you have an a property in a single family home, you’ll typically get an A tenant. Okay? So those will be on par with each other, the tenant will match the property, B single family home, you’ll typically get a B tenancy, you’re going to see, right but with a Plex or an apartment building, okay, you will typically have the property grade be one grade higher than the tenant grade. So if you have an a four Plex, you’ll typically get a B tenant, because typically, you just get a better quality tenant in a single family home. Of course, everything is individual circumstances and people vary, but that’s the norm is typically that the tenant quality is on par with the property quality in a Plex or an apartment. If you downgrade a notch, okay, so they’re not bad. I mean, you know if you get a good Listen, every property is is great if the deal is good enough. Okay? Like for example, I don’t like condos right. I’d much rather have single family homes. I think condos are usually bad. But if the deal is good enough, in other words, if the price is cheap enough, I could be interested in a condo. Okay, same with the Plex.
Investor 28:24
Okay, perfect. All right. So I think this one might be a little bit too complicated for us to answer on this, but I’ll still ask it. How much cash flow or property value like the ratio cash flow to property value, do you consider a good investment?
Jason Hartman 28:39
answering that in cash flow is dangerous and I’ll tell you why. This is why I like to use as the number one first metric, just rule of thumb Okay, you see my thumb right? It’s a rule of thumb is the rent to value ratio. Because when you talk about cash flow, there are too many unanswered questions. What is the tax rate are there association fees. What kind of mortgage? Did you get on the property? Is it fixed or adjustable? How much do you put down? Cash Flow is not a very meaningful number actually, because there are too many variables. But rent to value ratio, just as a very simple rule of thumb is really easy. So if you can get somewhere in the neighborhood of 1% per month, you’re doing great. In other words, if that is a $120,000 property, now, I know this is not in San Jose. Okay? But if it’s $120,000 property, then and you can get somewhere in the neighborhood of 1200 dollars per month, you’ve got an awesome investment there. Okay. So keep that in mind.
Investor 29:44
So I have about three or four questions here that all kind of want to know the golden nugget of what are some linear markets, and I know that market has, you know, different reasons that you go after so do you want to share some of the linear markets
Jason Hartman 30:00
Sure, sure. Well, let me just take you here to my website, Jason Hartman calm. And so we have been in Gosh, dozens of markets over the years. Okay, dozens and dozens of markets and we move in and out of them. One of the things I’ll talk to you about on Saturday is that we are somewhat fickle. We’re not attached to any one market, we recommend that our clients buy or the properties make sense. They must make sense from a buying perspective, but also from a renting perspective for tenants. Okay. But these are most active markets right now. Memphis, unbelievably active. We’ve been in that market for many years in Atlanta. Good but getting a little bit expensive.
Investor 30:46
Is that Atlanta is my favorite. Yeah.
Jason Hartman 30:48
Yeah, well, it was my favorite for many years. It just got a little too expensive. So yeah, not much of the inventory in Atlanta works anymore. But you know, we have some properties there. Jackson, Mississippi has been An awesome market. We’ve been in there for several years to Indianapolis that Indianapolis is our longest running market. I’ve been doing business in Indianapolis from I’m thinking maybe 11 years or so.
Investor 31:12
Jason, thank you very much. Have a great day.
Jason Hartman 31:14
Thank you and happy investing. Hey, I hope you’ll join me in San Jose on March 3, as we host, our Jason Hartman University event. Now, this event is for the real practical, hands on interactive education on income property investing, where you will learn how to actually do the math, how to evaluate the deals, we will go in depth into this subject of how to analyze a real estate deal. And once we do that, we’ll talk about how to build a portfolio, how to properly structure a portfolio, how to diversify it, how to sequence your mortgage financing, and it is a fun event. We do some gamification. You’ll meet a lot of people because you’ll be working With the people in the class, and it’s a one day event, you can check it out at Jason Hartman University comm Jason Hartman University comm we’ve been doing this event for about three or four years, and people absolutely love it. We’ve done it in San Diego in Salt Lake City. Now we’re doing it in San Jose. We’ve done it other places as well. I just can’t remember where offhand but it’s a great event, and we try to do it about once a year. I asked her we did it in Oklahoma City. This time we will be in San Jose Silicon Valley on March 3. Jason Hartman university.com Jason Hartman University comm Get your tickets today, and we’ll look forward to seeing you in Silicon Valley on March 3.
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