Jason Hartman’s guest on this episode is Michael Thomsett, accountant, real estate investor, and author of The Real Estate Investor’s Financial Toolkit. They discuss the 10 Principles of Real Estate Evaluation in detail, which will undoubtedly help even those with a limited understanding of income property investing.
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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 on now. Here’s your host, Jason Hartman with the complete solution. For real estate investors,
Jason Hartman 1:02
Welcome to the creating wealth show. And thank you so much for joining me. This is your host, Jason Hartman. And today we are going to dive in with our guests, Michael, Tom said, talk about real estate valuation and analysis and the landlord’s toolkit. And I think you’ll find this interview to be interesting one thing I want to say about this interview and really all interviews and all media in general and that is the concept that very few people out there really segment the market properly, whether it be a segmentation between linear, cyclical and hybrid markets, or it be a segmentation between low price entry level housing and high price luxury housing, or middle market housing or every different strata in between, or product type, whether it be condos, townhomes, single family homes, apartments or other commercial real estate even for that matter, and you just gotta really understand that and take it with a grain of salt. I’m not necessarily saying that in regard to this guest I’m making it as a general statement. But as I just dove in and kind of listen to a few segments of this interview that was recorded just two months ago, I believe, you know, it reminded me of that, I just thought I should say that to you, listeners, again, most of you understand and realize that because you’ve been listening to the show for 732 episodes, but if not, if you’re newer to the show, especially, make sure you understand that and take everything with a grain of salt always and always think twice about it rather than just listening to general sound bites. So that is one comment I wanted to make before the interview today, and as a general comment, and also let you know that I am talking to you today from Las Vegas, Nevada, Sin City, otherwise known as lost wages Nevada, it is really just pitiful and disgusting to see the kind of desperation that these casinos cause and gambling, I just I’m a libertarian, I’m the last guy that’s gonna say we need another law. Right? But I don’t know, it’s pretty tragic really what goes on in the world of gambling and just terrible thing, but on the positive side, and I’d love to get your feedback about this listeners, I have always had the goal of living in a no income tax state, you know, you’re always gonna have to pay federal taxes, of course. And they are exorbitant unless you are doing what the government wants you to do unless you were listening to them and following their incentives. And what are those incentives? Well, they incentivize you to own income property and provide housing to other people. They give you phenomenal tax benefits for doing so. And that’s why I always say income property is the most tax favored asset class in America.
So one of the ways that you can really accelerate your wealth creation and I noticed it myself five years ago when I moved from the Socialist Republic of California to Arizona and massively reduced my state income tax bill, but Arizona still has state taxes. Nevada, Florida, Texas, Tennessee, Washington State, Wyoming and a few others. I think there’s 11 states in our wonderful union that do not have state income tax. And, you know, I think it is a very reasonable goal, if you can do it, if you want to do it, to really consider as part of your wealth creation strategy and your tax planning strategy, at some point, hopefully sooner rather than later to get into a low tax environment or Better yet a no tax environment. And so I’ve been looking at houses here in Las Vegas, a city that I’ve always sort of loved to hate in a way, you know, I don’t gamble. I’m not into the, you know, the Las Vegas Strip scene too much or anything like that with all the party lifestyle once in a while Sure. I mean, I’m not totally boring, I hope but you know, it’s it’s not a lifestyle concept. But you know, when you leave that environment, and you just drive 510 minutes away from it. It’s really quite beautiful out here. If you like the desert, you know, and I live in Scottsdale, Arizona now. This is actually a little prettier than Scottsdale in some ways, and no state income tax. Anyway, I’ve just been looking at houses out here and it’s been pretty interesting. Looking at high end rentals and high end homes for sale. Just been a very interesting education the past couple of days. I’m going to do more little more of that today. So I will let you know as it progresses. But if you have any feedback for me on Las Vegas and what you think of it, let me know, for a long time I thought, well, maybe I should move to Florida. But gosh, you know, if you’re a West Coast guy, that’s a big move. If you live in Phoenix area, or if you live in Las Vegas, and you’re from California, as am I, that’s a pretty easy thing. You know, you can still see all your friends and you still have business contacts and all these areas, of course. And so it’s not a big move. It’s not a big life changing move in other words.
And so anyway, I would love any of your feedback. I know you listeners always have great feedback. You have great recommendations and we love hearing from you, and love hearing those recommendations from you. We will be announcing real soon a meet the Masters event. we’re negotiating with a couple of different venues now, and we will let you know about that real soon. So that is slated for January ish of next year. It’s our annual event. So stay tuned for more information on that. In the meantime, I know that a few of you have been purchasing without me even mentioning it lately too much. The Hartman education.com products, we’ve got some bundle specials on suites of products, from prior events and so forth. I think you’ll really like those. There’s a lot to learn there in a more organized rather than a news sort of format like the podcast, check out Hartman education comm that’s Hartman education calm, and be sure to check out all of the properties and other resources at Jason Hartman calm and let’s dive in. And let’s hear from our guests. I think you’ll enjoy this interview.
It’s my pleasure to welcome Michael Thomsett to the show. He is the best-selling author of Real Estate Market Valuation and Analysis; The Real Estate Investor’s Pocket Calculator: Simple Ways to Compute Cashflow, Value, Return, and Other Key Financial Measurements; The Landlord’s Financial Tool Kit; Getting Started in Real Estate Investing; and J.K. Lasser’s Real Estate Investing. Michael, welcome. How are you?
Michael Thomsett 8:07
Thank you. I’m doing well. Thanks. How are you doing?
Jason Hartman 8:08
Good, good. Give us a sense of geography. Where are you located?
Michael Thomsett 8:11
I’m just south of Nashville, Tennessee.
Jason Hartman 8:14
Good stuff. And you have a background in accounting. You’ve also written about options trading and some stock market-oriented things and, and you were trading options before Al Gore invented the internet. I guess.
Michael Thomsett 8:28
That’s right. I was streaming on the day when it took sometimes half a day to get a trade placed. unconfirmed. A lot of paper confirmations, the good old days.
Jason Hartman 8:38
Yeah, that’s that’s Yeah, that’s right about the time Al Gore invented global warming. I like to say
Michael Thomsett 8:45
I think global warming might be caused by his invention of the internet. I’m not sure
Jason Hartman 8:49
It could be because, you know, he was pontificating about the coming ice age in the late 70s. So, you know,
Michael Thomsett 8:55
Yes, he was.
Jason Hartman 8:56
They changed their story. But the nice thing about math is that it’s pretty solid. Right. And it’s something we can really rely on to being consistent. So where do you want to start? Do you want to talk about analyzing a real estate deal maybe in some of these key valuation metrics and such?
Michael Thomsett 9:12
Yes, I think that a good starting point might be to talk about a market area analysis. It’s something that’s very big in a lot of commercial projects. But when you come down to residential real estate, which I assume is more interest to other folks, for most folks, there are some essential principles of valuation there. In fact, there are actually nine of them. And if you want, I can go over them very quickly. I just explained, yeah, because collectively they define what a property’s worth.
Jason Hartman 9:42
Yeah, absolutely. And just before you do that, I just wanted to maybe even give a broader, much more general thing when it comes to real estate appraisal. There are three basic methods appraisers use, and I know this isn’t necessarily valuation, but one of course is the comparison approach. Most common When used in residential real estate, another is the income approach most commonly used in commercial real estate. And then there’s the replacement cost approach, right?
Michael Thomsett 10:09
Yes.
Jason Hartman 10:10
So those are the three basics. But how do you get to nine?
Michael Thomsett 10:12
Well, we’re actually talking about two different things. I apologize for that. But one thing I want to say about these different approaches of appraisal. Appraisers in real estate often do those, those two, you mentioned the cost and replacement, and we’ll adjust those two to get to what they consider fair market value. However, there seems to be an interest these days, in some circles, of using the income approach for residential. And the reason for that is first of all, rental rates are higher than ever and purchasing records among individuals are lower than ever. I think people are afraid sometimes to buy a home because values have been going down. And so a lot of people that at one time might have bought a house or now actually rented And for this reason in the appraisal business, some people are making an argument that the income approach should be used in appraising real estate. In other words, that’s based on what the rental value would be of a home, multiplied by a multiplier that’s used elsewhere in the area. And this may be more accurate, especially when you consider how, in the past especially 2008 2009, we saw the consequences of real estate being overpriced and overvalued. So that’s just a trend that I’m aware of that might be very interesting for folks in the future. Sure. Okay. As far as, as far as most lenders are concerned, they’re still looking at cost of replacement appraisals.
Jason Hartman 11:42
Right, right. Okay, good, good stuff. So dive into those nine areas for us if you would.
Michael Thomsett 11:46
Okay. These are called the principles of real estate evaluation, and they’re not too complex. They’re pretty straightforward. The first two are called progression and regression. This simply relates to the fact that market values tend to rise at times that progression, and they may tend to fall regression. And so those are the first two principles that you need to be aware of in order to understand how value is set in real estate.
Jason Hartman 12:12
Okay, so before you go on just a little bit about that, is this kind of something you would consider when you’re looking at an area that’s say, it seems like over time, most areas tend to kind of go downhill. But some areas become gentrified. And they they really go up and they get better as people move in and start fixing up their homes and improving neighborhoods.
Michael Thomsett 12:39
Yes,
Jason Hartman 12:40
You look at that progression or regression in terms of, you know, you can tell if there’s kind of like some pride in a neighborhood or if it’s just sort of being abandoned. And it’s true. It’s it’s contagious, isn’t it?
Michael Thomsett 12:50
Yes. And you just described perfectly those two principles. The principle of progression is stated by saying a property’s value is likely to increase when there similar properties in a similar similar location have greater quality regressions the opposite, the value is likely to decrease when there are similar properties in similar locations containing lower quality. So that’s exactly what you were just saying. That’s progression and regression.
Jason Hartman 13:18
Absolutely. Okay. And I just want to do a little tangent for a second, that I think is kind of interesting to what you said, you know, Jim Rohn, many years ago, he said, your income will be the average of the five people you spend most your time with. And this is true of us as people too. If we’re hanging around people that aren’t going anywhere in life, we’re gonna have regression. And if we’re hanging around people that are more successful than us that are dreaming big, doing big things, learning, constantly growing, we’re going to progress. And so our environment is very important and we get to choose it. So we got to control that just a little non real estate side note there. I wanted to make
Michael Thomsett 13:58
Well, I guess you’d call that principle of contagion. That success and failure are both contagious, I guess is the way you could put that.
Jason Hartman 14:05
Absolutely. Good. Good stuff. Okay, what’s the next one?
Michael Thomsett 14:08
Okay. Next one is called conformity. This is a concept that properties are likely to appreciate and value when they’re similar to other properties. And it’s in the same neighborhood. And this becomes important when you consider what happens if you buy a home and over improve it. So if you’re in a neighborhood that is, generally three bedrooms, two baths, and average size kitchen, and you improve that to five bedrooms and three baths and a huge kitchen, you’re less likely to get your money back on that because this becomes a nonconforming property.
Jason Hartman 14:39
Okay. Any anything else you want to say on that? Or does that kind of cover it?
Michael Thomsett 14:42
That covers it pretty simply. I think that’s that’s about what you need to know about that. But I think a lot of people think that improvements always bring more money, but that’s not true.
Jason Hartman 14:51
You’re right, right, because it depends what kind of improvements and of course, we always hear the old standard, while kitchens and bathrooms are where you want to put the money but if you put a swimming pool in, that’s gonna be a loser, right?
Michael Thomsett 15:04
Sure. Swimming pool, landscaping fireplaces, things like that tend to not add value to the home.
Jason Hartman 15:10
Okay, good.
Michael Thomsett 15:12
Okay, next is substitution. And this is a principle that states that the greatest potential value of a property is limited by the market value of other properties in a similar condition. This is kind of like conformity except that it’s more about condition than size and features. So, you want to see substitution of a property for similar properties that are for sale, because the lower press properties tend to sell faster. And so as a result, market value of other properties tends to be lowered by that.
Jason Hartman 15:44
Okay, okay, good.
Michael Thomsett 15:46
Okay. Then we get to the concept of change. This is number five. Change. This is a principle that states that no condition is going to remain the same indefinitely, changes part of the cycle, and so property values changed by the local economy, economy demographics, employment, age and condition of the property and surrounding properties. The character of the neighborhood you mentioned gentrification A while ago, and also by national events like hurricanes and earthquakes. So change is a fact of life. I know that when I lived in California, I happen to move out of the state about two months before the earthquake hit and what year was that? 1989. And I was very fortunate with the timing of that because as it turned out property values took a hit right afterwards because of that earthquake, and it was temporary, but that was an example of change. Okay, okay. Good, good. Move on. Okay. Next is anticipation. This valuation principle states that market value is going to be affected by expectations about the future. For example, let’s say that you’re moving into an area where you expect a lot of things growth and you expect a lot of demand to accompany that growth, you expect employers to come into the area, you expect a lot of services to increase and roads to be improved, and re zones and all of that. And so that anticipation will tend to increase the value of property. Of course, the other side of that is that if in fact those things don’t come to pass, then you have the the opposite effect, that values will then go down because anticipation didn’t bear fruition.
Jason Hartman 17:28
Okay. So that’s a that’s a very important concept there. Because anticipation takes place in all markets, not just real estate. It’s, it’s probably the most pronounced in the stock market. And the the concept that we need to understand as investors is the concept of whether or not that anticipation is what they say priced in, is it already priced in? So you know, you could think okay, they’re gonna build up A new highway that’s going to make this area more accessible. Or, you know, maybe on a negative side, it backs, you know, the highway is going to be right behind the house, and it’s going to be noisy and terrible.
Michael Thomsett 18:11
Sure. And those are both forms of anticipation.
Jason Hartman 18:14
Right. So positive and negative anticipation. And then the question is, is that event already priced in? If everybody knows about it, it the market might have priced it in already. Same as stocks? Of course, your you know, yeah. So anything more you want to say about that?
Michael Thomsett 18:30
No, I think that there’s a tendency for people who want to buy a home to be a little bit blind to this point you just made. And so they might think, well, there’s going to be a bunch of employers coming in here, because that’s what the real estate agent told me. So I should buy a house now because property values are going to go up without realizing that in fact, they may already be priced in as you said.
Jason Hartman 18:52
How do we know if it’s priced in though? I think I’ll take a stab at that one before you even answer but I would do that by saying, you know, how long has the news been out there? How widely known is that news? And how astute is your marketplace? So the one reason I don’t like the financial markets, I don’t like the stock market very much as is that you’ve got a very astute marketplace there that is pricing things in very quickly.
Michael Thomsett 19:23
Immediately. Yeah.
Jason Hartman 19:2
yeah. Yeah. You know, like every time there’s a natural disaster, or a terrorist attack, they they price in the oil markets change, the airline stocks change. It all just goes crazy, doesn’t it?
Michael Thomsett 19:36
Yeah, often with an overreaction. And that makes things more more confusing as well. And I think that another way to judge whether that anticipation factor is in there, first of all, you should assume that the market is efficient and that every known fact has been priced in, but you can also look back on the history of average prices of typical homes in that area. And just like Looking at a stock chart, you can tell if, if the current news is already priced into the stock. But the same holds true with real estate. You can look at the public record of that very house you’re thinking of buying. And you can find out what it was worth a year ago, two years, five years. And so you can tell from that how much of the anticipation has already gone into the price?
Jason Hartman 20:21
Yeah, right. Right. Very good. Okay. All right. Tell us more.
Michael Thomsett 20:24
Okay, next one is contribution. This is a principle that tells us that improvements will add to market value, but not dollar for dollar only as a factor of current supply and demand. So what this means is that, and this goes back a lot to the conformity idea that, as you mentioned, a swimming pool is not going to necessarily add to the value of a home and in some cases, it might take away from the value of the home because of the insurance and the maintenance and all of those things
Jason Hartman 20:52
And the safety issue.
Michael Thomsett 20:55
The safety issue. Sure. And so this, these are a couple of concepts that are work with contribution and these are the controlling factors about this for sure, increasing returns and diminishing returns. So in other words, making a promise to a property is going to cause growth and market value, but only to the extent that improvements exceed the return on the investment or exceed the level of contribution. When it’s the opposite, then you get to get to diminishing returns and have the opposite effect of either having no addition to the value or even a negative. In other words, that decline in value.
Jason Hartman 21:31
You know, that’s like it is in life. Hmm. Someone in a relationship will say, look at all I’ve done for her and she doesn’t appreciate you. Okay, tell us more.
Michael Thomsett 21:44
Okay, number eight of nine is called plot edge. And this is a principle that says that land values are going to tend to increase when adjacent land or lots are combined into single ownership and put into a single zone and reuse. So in other words, you Want consistency and conformity and zoning and you want to have what out west a lot they call growth management principles in effect, where you are going to define that rather broad area is zoned for residential only or for mixed use or for commercial, and the plot is should be consistent in the use of the property in that area. And that’s, that’s an important point because the history has shown that when you have a lack of plotted or consistency and plotted tends to be a very soft market as a result.
Jason Hartman 22:34
Okay, so you’re saying that areas where zoning is very lax, and there’s an inconsistent land use that tends to degrade values? Is that what you’re saying?
Michael Thomsett 22:49
Yes, yes. And another another aspect of plot edge is just that when when you have a an actual plan, that they the planning department or of the city or the county puts the plot edge into a well planned development of a city area, especially residential area that may subsequently be developed that that’s likely to have a uniform appreciation and value versus people coming in with different size lots and with different sized houses, and just building where they want when they want and then paying to have roads come in, it becomes haphazard, and that takes away from value.
Jason Hartman 23:27
Right. And so that would that would bode well for the suburbs, and it would bode well for master plan communities, right?
Michael Thomsett 23:35
Absolutely. Plan data developments and everything like that. Absolutely.
Jason Hartman 23:38
Right. But the funny thing is, though, I you know, no rule or law applies universally including this one, right?
Michael Thomsett 23:46
Absolutely.
Jason Hartman 23:47
And, and so, we sometimes though, you can make that work to your advantage when you have that nonconformity. If you’re the outlier, and you get a great deal, and then you can be either repurpose the property or market in a different way that it’s appealing in seen in a different way by potential buyers or renters, right? You can actually,
Michael Thomsett 24:08
Yes, yes. And when you come in and you’re going to look at property, you want to see that uniformity of plot esge and you want to see that predictability of land use. Mm hmm.
Jason Hartman 24:18
Okay, good, good. And number nine.
Michael Thomsett 24:21
Number nine, actually, I have to correct myself the rest day or 10 of these. Ah, but number nine is called highest and best use. And this is a very broadly used concept in which it states that valuation of real estate is at its best when land is utilized in the best possible way. And this doesn’t just mean residential. It means that which farmland should be used to farm and land located next to interstate freeway should be used for commercial use zoning or building intermodal facilities or warehouses. So it applies to every type of land use. The highest and best use depends on where it is and what can be put there based on the zoning.
Jason Hartman 25:01
So here’s what I want to say about that. Sometimes a tragedy can actually turn out to be a huge opportunity. For example, you look at the devastation of say Hurricane Katrina, people that owned crappy, old rundown houses in the golf area that got wiped out during Hurricane Katrina or any type of scenario like that. As bad as that may have seen. What happened to many of those people, is that some real estate developer came along and wanted to buy that a lot where that shack was in build a high rise condo. And they were willing to pay them a pretty good Premium Plus they got the insurance money, sometimes because the Chinese say the symbol for crisis and opportunity is the same. Yes. And then the crisis can turn out to be a grand opportunity, right?
Michael Thomsett 25:57
Yes. In fact, you’re describing how high and best use can change due to unforeseen events. That’s a very good point.
Jason Hartman 26:04
Okay, good, good stuff. So we went through all 10.
Michael Thomsett 26:07
Actually, that was number nine.
Jason Hartman 26:09
Oh, that’s nine. Okay. There’s a bonus round.
Michael Thomsett 26:11
Last one is pretty important, however. It’s called competition. Okay. And that is related to the broader concept of supply and demand is basically states that an opportunity for a profitable investment leads to competition. And if you think about that, let’s say that you’re looking at a plot of land or raw land, and you’re thinking, wow, I should, I should buy that before everyone else sees how great it is in this area. If you write and a lot of people start buying land around you, then the county is going to be compelled to build roads and put in utilities and in other words, the seven basic services. If you’re wrong, and no one else comes in, then you can lose the value of your investment because there is no competition. So the smart investor is going to be somebody who is going to recognize that competition grows from recognizing opportunities and opportunities sometimes mean identifying the best possible investment. And that often translates by the way to buying a rundown house on an otherwise good block.
Jason Hartman 27:17
Okay, so that actually is a great point you just made. There’s a common thought process, which I think is mostly true, but it’s certainly not always true. And I just wanted to get your comment on it. So they the idea of always buy the worst house in the best neighborhood concept, right?
Michael Thomsett 27:38
Yes.
Jason Hartman 27:39
You’ve heard that one? What are your thoughts on that?
Michael Thomsett 27:41
Well, I think that if you’re going to do any sort of fixer upper, for example, if you could find a rundown house on otherwise, well kept block. That’s a good investment on several levels. First of all, when you fix it up and often cosmetically, you’re gonna get a good return on your money on Sundays. That means painting the outside, clearing out the brush and redoing the landscaping. These are cosmetic things that most people can do on their own. Not only are you going to see an appreciation of your property, but your neighbors are going to see appreciation in their property as well. So this is a win-win, that that’s a good type of investment that pleases everybody and brings profit everybody. It also tends to raise the rents you’re going to get if you decide to make it a rental property makes you a great neighbor if you decide to move in.
Jason Hartman 28:31
Mm hmm. Yeah, good, good stuff. Okay. We talked about these different things. And that was very, very educational. I think for a lot of our listeners that don’t necessarily think about this stuff. I remember way back in the old days, studying about how there are improvements to a property that can be made or already in existence when you’re considering buying the property that don’t necessarily add any value and I remember one of the examples was used as a A well well for water and a well is something that we don’t really notice. And it doesn’t really matter necessarily how deep the well is or how much it costs to put the well in. It just matters that the result is water comes out of the faucets right? And so you know one might a seller of a property might spend a fortune and say look at this deep well I had to put in to bring you water right now of course we’re talking about non city type properties here. We don’t get that but you know the example applies to probably a lot of things. And in the buyers like I don’t care the house down the street has water and yours has water so what the seller is not going to get more money for the deeper well right is an invisible it’s an invisible improvement is sort of like these like real estate agents don’t like the sellers to be there when they show a home because is kind of disruptive to their own. on interest when a seller, here’s somebody complain and say, Well, this, this room’s kind of dark, and then the current owner says something like, you should have seen it before I painted it. I mean, that might be true that it was improved, but they would be buyer doesn’t see that improvement. And it certainly doesn’t help make the case that the house is is a good investment or a good residence for that new person because they didn’t see it beforehand. I think you’re absolutely right. And, and so if you have gold plated plumbing, that’s under the sink, the buyer doesn’t care. Okay. You know, so don’t over improve
Michael Thomsett 30:37
And they don’t plan to. They don’t think they should have to pay for that either. Especially if it’s invisible.
Jason Hartman 30:41
Yeah, absolutely. good points. Okay. I know we’ve got to wrap it up here fairly soon. But I just wanted to ask you a little bit about the landlord’s financial toolkit. Can you tell us about that a little?
Michael Thomsett 30:51
Well, the first thing I like to tell you is that just this week, I have signed a contract with amacom books to do a second edition of this book. This First came out in two in 2005. And we’re gonna change the title to the real estate investors financial toolkit. I guess the the sense of the on the part of the publisher is that landlord might have a negative connotation for some pro tenants. And so
Jason Hartman 31:17
Listen, I love I love being a landlord. So the whole idea that the word Lord is in the title is pretty cool.
Michael Thomsett 31:29
I understand both sides of it, I think.
Jason Hartman 31:31
Yeah, good stuff. But what are some of the tools that should be in every landlord or investor’s toolkit?
Michael Thomsett 31:38
Well, on this particular book, of course, in addition to sort of setting up and talking about the justification for real estate as as a sound investment, I think some of the tools that you need to have are a very good bookkeeping system and a very good way of tracking transactions because when you get into real estate, I think you don’t realize at first that there’s a lot of transactions on A lot of it’s done in cash because you go down Sunday to Home Depot and and buy a part that you need to for your rental and you forget to take your credit card or your checkbook. So you pay cash and you need to have a system for tracking those things. Otherwise, you lose a lot of deductions. And you need to know how to calculate taxes, depreciation and appreciate the tax rules, Real Estate’s probably the only investment available that unknowingly generates cash income, but your allows you to write off up to a limit a net loss on your investments. So you need to know about tax reporting, you need to know about how real estate is going to work in terms not so much of profit on the real estate, but in terms of cash flow. And this is a tool you need is to be able to master the difference between those two things and to figure out how to actually calculate cash flow. And I spent a lot of time in the book and will in the new edition as well in explaining how to calculate cash flow why it’s so important,
Jason Hartman 33:02
Right? Sure.
Michael Thomsett 33:03
So that’s a few tools.
Jason Hartman 33:04
Yeah. And then you know, income property is the most tax favored asset class in America. So you got it, you know, and taxes are the single largest expense in anybody’s life. So we’ve got to understand taxation, and invest in things that are so incredibly beneficial as far as taxation goes, and in terms of saving money, because when you add up the time value of money on tax savings, over you know, 5 10 years, it’s just enormous. That if you’re, if you’re, if you’re in an occupation where you’re paying the highest tax brackets, and you have no deductions, like good real estate, you’re just missing out. I mean, you’re it’s just, it just totally separates the haves from the have nots.
Michael Thomsett 33:49
It’s the last remaining tax shelter, and it’s just an amazing tax shelter in the sense that not only can you deduct expenses and shelter income through depreciation, for example, But you also get to generate current income by renting out homes.
Jason Hartman 34:05
Yeah, yeah, I know I love it. It’s a multi dimensional asset class, and you outsource the obligation of your debt to your tenants. You pay it back and cheaper dollars over time through inflation, the value of money, and it just worked. You know, you leverage tax benefits. It’s just unbelievable. It’s such a great asset class. It really is. It really is. My goal. I could I ask you, how many books have you written? Wow, you’re a prolific author. In addition to the ones I mentioned, you’ve got a whole bunch more, right?
Michael Thomsett 34:36
Well, a book just came out. That was my 90th book at his career press called making money with options strategies, subtitle powerful hedge powerful hedging ideas for the serious investor to reduce portfolio risk. That’s number 90.
Jason Hartman 34:50
90. Wow.
Michael Thomsett 34:53
Got anything else going on right now. I mean, I’m, I’ve been doing this for 35 years, and that’s about an average of two and a half to three books a year. It takes me about three months to write a book. So that’s that’s not that extraordinary.
Jason Hartman 35:05
That is totally amazing. I just want to say,
Michael Thomsett 35:09
Somebody told me the other day that few people have read 90 books a
Jason Hartman 35:13
Sad commentary on today’s world. It really is. Absolutely. Well give out your website. And of course, you can search Michael Thompson on Amazon and find 90 books. But where else do they find you?
Michael Thomsett 35:26
Okay, well, my website is called Tom set publishing website. And it’s on it’s HTTP, slash slash Thompson publishing. One word.weebly.com. That’s w ebly.com.
Jason Hartman 35:44
Fantastic. Well, Michael, thank you so much for joining us.
Michael Thomsett 35:47
And I’m also also all over the social media, by the way, too, so if anyone wants to read free articles, I post them daily on stockcharts.com and the street.com and Seeking Alpha.
Jason Hartman 35:58
Fantastic, good stuff. Well, Michael, thanks. You so much for joining us.
Michael Thomsett 36:01
Thank you Jason. This is great fun.