In today’s episode, Jason Hartman discusses the ten commandments of successful real estate investing. Gary Pinkerton also shares some of the commandments that resonate with him the most.
Announcer 0:04
Welcome to the heroic investing show. As first responders we risk our lives every day our financial security is under attack. Our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant, and we need to take care of our own financial future. The heroic investing show is our toolkit of business and investing tactics on our mission to financial freedom.
Gary Pinkerton 0:39
Hello, and welcome to Episode 101 of the heroic investing show. Yes, this is past the 100 mark. We’ve made it past 100. I started back in mid 40s. Last summer, and it’s amazing. It’s been an amazing journey. I hope all of you have found value in this and there are many, many more great ones to come. This is the show where we focus on the unique challenges faced by members of the armed services and first responders but also those common to all investors, we aim to provide the tools that enable our listeners to secure their family, their future and their retirement. And we helped them put in place passive income, a way to stop trading time for dollars, get back time with their family. To help create wealth, first identify who then create and then become a master at their unique genius share that with the world for a greater place. That’s Gary’s vision for the future. But on this show, that link that step two passive investment and putting those protections in place that we do a paradigm live. But that link to passive investments that Jason does on his website that now my beautiful wife Susan is doing as an investment counselor, helping individuals get passive income in place. So on episode 101, we’re going back to the basics. This is not a 10th episode is not a flashback Friday. But what we are talking about is something that Jason has covered many, many times. This is actually a clip from one of his live events several years ago. But we talked about these topics. And I would say it is absolutely at the core of what the company stands for what Jason stands for, and really what my personal investment in what I cut my teeth on, and what has kept me safe after venturing into some pretty crazy wolves dens before I got with an ethical organization got myself surrounded by some great people. Some of those are at Platinum properties. Many of them are at paradigm life. So if you would like to find out more about both the companies I work with, please go to Gary Pinkerton comm Gary Pinkerton calm and you can email me at Gary at Gary pinkerton.com got a new book out that came out this week, you can find out more about that on on that side as well. Today, we’re going to talk about Jason’s 10 commandments for successful investing. This is what really attracted me to Jason and his message, and made me believe that I was at least like minded with this company. And then I learned from that point forward, that it’s an ethical company, it’s an ethical individual at the helm of it, they may not have the absolute best product every time and the greatest inventory or the cheapest price, but what you will get is a company that will go to bat for you, and one that surrounds itself with other ethical and like minded individuals. So his 10 commandments, you know, that really resonated as one of the first main kind of core philosophies that I I really started liking when I was listening to the creating wealth show at its at its beginning. You know, the first one on that list is thou shalt become educated. And that’s what we’re doing right here. So I’m not gonna go through all of Jason’s list, he goes through much greater detail coming up here in just a moment. But I wanted to just key on on a couple of them that are absolutely my favorites. And so there’s that one that becoming educated, I seek to become, you know, more educated above all else, because I think if you continue to improve yourself, you add more value to the world. And in helping others, you In turn, get everything in life that you want as as Ziggler would say. And so the other one is number three, of course we talk a lot about and that is that thou shalt maintain control. There are a lot of people that participate passively in syndicated events, or they buy stocks and companies they don’t understand buy mutual funds, give money to others in companies they don’t understand and more importantly, that they don’t have any control of and Jason talks about the three things that you open yourself up to with that I’ll let him go down that path. That’s a really, really big one. And then I absolutely believe in number eight, which is thou shalt use borrowed money and that’s what we do at paradigm life is help people fund the down payments of their rental properties. With money borrowed from an institution. It is the only way that I know of in America, that you can do that for Fannie Mae conventional loans after 911 I mean before 911 you could just pull money together and borrow the down payments and get the conventional loans. couldn’t do that after 911 I sorry, I keep saying 11 I’m sorry. 2009 is what I mean to say, after 2009. But you can if you’re borrowing that money from an insurance company. And so that’s what I help people do. It’s what I’ve done for 30 different property loans. It’s what I’ve done for about 28 doors now, from my own personal portfolio. So if you’d like to learn more about that, please reach out to me. But let’s let the expert the man who created this list, talk to you in a clip from a previous live event, about these 10 commandments and how it will keep you on a successful investing path in life. Thank you so much, and until next time, safe investing into your prosperity.
Jason Hartman 5:49
So the first thing I like to start with grab your workbooks is what I call the 10 commandments of successful investing. So the first most important thing is thou shalt become educated. So in your workbook, filling in the blanks, I think you’re on page three right now shall become educated. So become educated so that you can become your own best advisor, be your own best advisor. Number two, have a professional investment counselor, someone who actually practices what they preach. I cannot tell you the number of times and you’ve probably experienced this too, that I have sat across the table from a guy wearing a nice suit went to a great school at a company like Merrill Lynch or Ameriprise, and they’re telling me how to invest millions of dollars. And they haven’t followed their own plan. They’re saying incredible things like buy an annuity. How many of you know someone who got rich on annuities? I didn’t think so. Yeah, good point. buy bonds have a diversified stock portfolio. It is unbelievable to me folks how much financial misinformation is out there. read magazines like Money Magazine. On the cover every month, it says something like this retire rich 43 page special report and you open it up. And what you see before you get to the retire rich report is you see a bunch of ads for companies like t Rowe Price, Vanguard, Ameriprise, Merrill Lynch, etc, etc. And the advice it’s a joke, no one gets rich following this advice. Yet, that is such a huge part of the media. I call it the vast Wall Street conspiracy. So have a professional investment counselor who practice what they preach just one more on that point, we buy the same stuff we sell. I’ve been investing in real estate for 22 years now I’ve made millions of dollars investing in real estate. Most of it was here locally. About five years ago, I started diversifying all across the nation. I currently have properties in 17 cities in 11, states nicely diversified, which I recommend to you that you do that. Because what if one market goes down the tubes and another comes up and saves you reduce your risk that way. But we do the same thing. All of our investment counselors that you meet today are following the exact plan we’re recommending for you. It’s not like there’s some big difference here. We practice what we preach, we buy in the same markets, we own properties, many times on the same streets, our clients own properties in Mobile, Alabama, in Dallas, Texas, wherever and all these different markets. Next one, thou shalt maintain control. This is one of my favorites, because this one really gives me an opportunity to bash Wall Street. So maintain control. There are three major problems that you leave yourself susceptible to when you give your money to somebody else. We say be a direct investor. So you control where you invest. First problem, you might be investing with a crook. I don’t have to tell you about the scandals on Wall Street, Enron WorldCom global crossing, Bernie Madoff, whatever. I mean, isn’t it amazing that Bernie Madoff was president of NASDAQ doesn’t just blow your mind. And you know, when the Madoff thing, I think the reason he just went to plead guilty, and there was no trial. And so a lot of this shenanigans wouldn’t be exposed. That was just a deal to just put this guy in jail and don’t expose what really went on there because people still can’t figure out how he did it. Of course, he wasn’t acting alone. That’s it was just impossible. So you might be investing with a crook. second problem, you might be investing with an idiot. If they’re dishonest, you can lose your money. If they’re stupid, you can lose your money, but assume they’re honest, and assume they’re competent. The third problem, they take a giant management fee off the top for managing the deal. A year ago, January, I was skiing in Colorado, and I was in Vail and I picked up a book by lou dobbs called war on the middle class. Now my mom says Jason, you know, what do you read lou dobbs for? He’s on CNN, the communist news network. And what do you read lou dobbs for he is a socialist. She doesn’t like lou dobbs too much. And I said, Mom, give me a break. You went to Berkeley in the 60s and got a degree in social welfare and you’re calling lou dobbs a socialist. Are you joking, right? I’m a fan of lou dobbs because I think he’s a real advocate for the middle class. So am I, I think the middle class is really the one class of people in America today that is under total attack, and nobody is really fighting for them. And so we’re in the middle class, great book, I’d highly recommend it in the war on the middle class, chapter two, Lou Dobbs talks about these huge management fees. So this is totally the legal part. When you are not a direct investor and you invest in someone else’s deal. This is what happens. Lou Dobbs says median CEO compensation went from 1.8 million and 92 to 6.1 million in 2000. Just a mere eight years, CEO pay increased 340% from 92 to 2002. While compensation for rank and file employees increased a mere 36%. In the past few years, we’ve seen levels of pay for individual CEOs that is beyond most people’s comprehension, money that sounds like it belongs on a company’s revenue column rather than somebody’s paycheck. 2004 Terry Semel Chairman and CEO of Yahoo was paid $120 million. Lou Frankfort head of coach, how many of you ladies have coach bags, person’s luggage, whatever, right? Lou frankford head of Coach $58 million dollars, Robert Nardelli, who had at Home Depot at the time. And by the way, this was written before he got this giant retirement package when he left his severance package. And then he went to work for Chrysler. And of course, you know what happened there? Right. I don’t need to tell you your tax dollars at work. Robert Nardelli, who ran home depot at the time made 36 million Ed Zander of Motorola 32 million Meg Whitman of eBay. 26 million now, that would be okay. But turn the page and read what’s next. The standard rationalization for these astronomical salaries by CEOs, their boards of directors and their consultants. In other words, all their college buddies is that they bring great value to their shareholders through their leadership abilities. How then do they explain the fact that over the past five years, the CEOs of at&t Bell, South Hewlett Packard Home Depot, Lucent, Merck, Pfizer, Safeway, Time Warner, Verizon, and Walmart, are paid an aggregate of $865 million, almost a billion dollars with a B. Now I know in today’s world and billion doesn’t seem like much anymore. You know, we talk in trillions nowadays, but to me a billion still a lot. So $865 million, almost a billion dollars. Well, at the very same time, the shareholders lost $640 billion, same time period. Clearly these CEOs were not being paid for delivering value to those who held stock in their company. Last point, Larry Ellison, head of Oracle, he and Bill Gates hate each other, right. And then there’s Larry Ellison, founder and CEO of Oracle from 2000 to 2002. In two years, Larry Ellison, his personal take from Oracle was $781 million, almost a billion dollars in two years. Not bad. And then very same two years, the shareholders of Oracle lost 61%. Folks, you have got to stop giving your money to these criminals. This is legalize crime on Wall Street, and we’re all probably doing it. We’ve got to stop we’ve got to vote with our wallets. And what we say is that you should be a direct investor, own and control where your money goes. So we do not do any sort of partnership investing my 96 year old grandmother, she said a very wise thing to me several years ago, you should write this down. It’s a good quote from Granny. Granny said, Jason, the hardest ship to sail is a partnership. Isn’t that a good quote, that’s brilliant. When you invest in someone else’s deal, you’re their partner. We don’t have any pooled money investments. We don’t have any ticks or tenant in common investments. We don’t have any LLCs that you can invest in. We don’t have any Rietz real estate investment trusts, we help people buy their own income property in 41 markets nationwide. You own it, you control it, you decide what to buy, when to buy, where to buy, how to manage it, how much to charge for rent, how to finance it, how to refinance it, when you want to sell it, it’s your deal. The only person that could really rip you off in this deal is your property manager. And we pre screen and recommend property managers. And we use the same managers to manage our own properties in all of these markets nationwide. And here’s the thing, let me see the hands of the people that have owned income property, by the way. So how many of you have property managers? Did you ever have a bad experience with a manager? Anybody rip you off or anything? What happened? Yeah, just lazy. Here’s the thing. a property manager can rip you off. But the amount of rip off is so minute. It’s just nothing. It’s almost insignificant. I mean, think about it, folks. They could do repairs. I’ve heard This thing clients say, Well, those property managers, they’re in cahoots with the repair people. And you know, when the guy comes over to fix the garbage disposal, they just charge you extra. Okay? Let’s examine that for a moment. So you can go to Home depot.com Robert Nardelli doesn’t run the company anymore. So you can go to Home Depot and see how much a garbage disposal cost. You have a brain, you can just kind of understand what this cost, you can go to a plumbers website, and whatever market you’re repairing the garbage disposal in two seconds, and you can find out I mean, what are they gonna do, say the garbage disposal? The whole repair with labor and parts was $200 versus 175. They’re going to get a $25 kickback. I mean, maybe they are, I don’t know, maybe they’re crooks. But the amount of damage is, it’s nothing. It’s just insignificant. You’re a direct investor, you own and control. I mean, how many of you are control freaks, I’m a control freak. I like to control my mind where it goes. So be a direct investor maintain control. Number four, the one legitimate thing, the one legitimate thing, you know, that wall street does, is they believe in financial planning. And, you know, I believe financial planning is a legitimate science. So instead of applying financial planning techniques, to the rip off asset, stocks, bonds, annuities, mutual funds, whatever, apply it to the most historically proven wealth creator in America, the one that has actually enriched 10s of millions of people. Maybe it’s enriched you, certainly it’s enriched more than one person, you know, how many of you know someone who got rich in real estate? Yeah. How many of you are not voting? How many of you know someone who got rich in the stock market? How there’s always one? What happened? Okay, all right. But I think the best way to become a millionaire in the stock market is to start with 2 million. You know, there are a few people that got lucky, he traded some options, something like that. But people get lucky in Las Vegas, too. And I just don’t think they can do it on a consistent basis. I certainly don’t know, anybody who has created any real wealth on Wall Street. Except the insiders and I don’t know them personally. But the insiders it’s an insider’s game. So financial planning, what is your investment goal? Is it cash flow? Is it capital appreciation? Is it tax benefits? income properties, the most tax favored asset in America? bar, not? Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday. What is your risk tolerance? Are you an aggressive investor, a conservative investor somewhere in the middle, willing to take a little bit of risk? What’s your time horizon? These are legitimate financial planning questions. And what we do is we take the most historically proven wealth, greater rental properties. And we use financial planning techniques to help you pick which markets you should be investing in, what types of properties you should be buying, and apply that toward the historically proven wealth greater, Thou shalt not gamble, we do not flip properties. We do not buy properties on the come if you will, where we expect something extraordinary to happen for you to make money. We are buy and hold investors. September 20, is my anniversary to renew my real estate license, I gotta go take some tests and stuff. You know, every four years, they make you do that. That’ll be 24 years, September 20, that I’ve had my license, I got my license when I was in college, and I started part time. And here’s the thing I’ve seen in working with investors over 23 years, 24 years, almost the people that flip properties have spending money. The people that buy and hold properties have real wealth, which would you rather have real wealth, spending money? Spending money is okay, but real wealth is better. So no speculation, no gambling, no buying high risk investments, that something extraordinary has to happen for you to make money. appreciation is in the rearview mirror. You cannot expect appreciation in your investments like we’ve seen in the past. No gambling, diversification, thou shalt diversify. So you go to any good financial planner, they tell you diversify, diversify, diversify, right. But they tell you to diversify in amongst of lame, and that’s a technical term lame, lame assets, stocks, bonds and mutual funds. Why not diversify the most historically proven wealth creator geographically. There’s an old saying in real estate, all real estate is local. All real estate is local. The first time I was born in Germany, but the first time I went to Europe as an adult, I went with a buddy of mine, and I think it was 22 years old. And we rented a car and we drove 3000 miles in about three weeks. Going through your In a rental car, it was really cool driving on the Autobahn. If you’ve done that, here’s the thing on the Autobahn. No matter how fast you go, someone’s always going faster. Okay, and you get in that left, they actually know how to drive in Germany. It’s kind of cool. It’s not like here, you get in the left lane, and you’re going 130 miles an hour. And there’s no one behind you anything, I’ll just stay in the left lane. And suddenly, there’s a Ferrari behind you blinking its lights going 160 miles an hour. It’s really kind of fun, but rather dangerous. At least if you have an accident there. You won’t live to tell about it. One day, if like lunch hour, we drove through a whole country, Luxembourg. In a country as small as luxenberg. They have a such thing as a national housing market. In a country as large and diverse that the United States, there’s no such thing as a national housing market. There are about 400 local markets, and they’re all totally different. I remember in the 90s, when reagan ended the Cold War, and the peace dividend was lay off all the defense contractors, a lot of my clients, they worked for McDonnell Douglas in Long Beach. And they were getting laid off like crazy as there was not so much need for aerospace stuff. And so they were getting laid off the California market went down the tubes for seven years, from 90 to 97. Really bad market. But other markets around the country were booming, because people as they were leaving California, or buying in those other markets, the top three markets in the country last year, actually in the worst economy in seven decades. appreciated. They were in Texas. Here’s something I set on my podcast. How many of you are podcast listeners? How many of you listen to my show? Oh, why don’t people Okay, good. How many of you like the show? How many of you don’t like it while you’re here? Okay. How many of you like that interview with Robert Kiyosaki? Did you hear that one? I got an email last night from a guy who said, I just thought he was really arrogant. I gotta admit, I kind of did too. I thought he was grumpy. He was in a bad mood. I think I like Kiyosaki stuff. So here’s the thing on the show, I said that if Texas or to secede from the union, it would become the Hong Kong of the United States. It’s business friendly, and it is a great place to invest. Now, we don’t only like Texas, we like a lot of areas, mostly in the southeast and the Mid Atlantic. That’s really where our interest is. But Texas is just an incredible booming, vibrant economy. It’s what California was before all the commies took over, and made it the People’s Republic of California. So diversify, because all real estate is local. So if you look at this, this is the National housing market from 1968, up to late 2003. And you see here that there has never really been any real national downturn in real estate prices. I mean, there have been little spot here, they’re nothing significant at all. And the point is, when you diversify geographically into a bunch of different markets, there are 400 unique, distinct markets in the United States. You protect yourself from downside risk. Don’t be attached to any one market. Go where it makes sense. Be area agnostic, thou shalt be area agnostic. Don’t be attached to any one market. If a market turns sour, stop investing there. We are area agnostic in 2005, or 2006, Charlotte, North Carolina was our number one market, we put about 200 clients into that market. And then Charlotte got so many investors came into Charlotte, that it got oversaturated with rentals. And there were just a lot of properties for rent, and not enough renters to absorb the supply. So we got out of Charlotte, and we stopped recommending it for a whole year. And then we went back into Charlotte, we are not attached to any market. We are area agnostic. We have not recommended California in nearly five years. Although we’re based here in the People’s Republic. We don’t recommend investing here yet. If you listen to the podcast, you know that we’re getting interested again. Now that prices have been cut in half. It’s getting interesting, we still think it’s going to fall a little bit more. So we’re not quite ready to recommend California. But we’re not attached to any one market. Now you might be thinking to yourself, well, Jason, what do our clients do? What about the clients? They’re fine, because they have stabilized properties in these markets. They have their tenants, if their property comes up for rent again, if the market is softened a lot, they may have to reduce the rent 2550 bucks a month. It’s not a big deal. You want to diversify geographically, I still own my property in Charlotte. I’ve been through the ups and the downs. But the point is, you don’t want to start in a place that doesn’t make sense at that time. And this is the problem with the real estate industry. The real estate industry has the best product and the worst Salesforce. How many of you are real estate agents? I’m sorry. Anyway, I am too. I’m right there with you so I can make fun of them. But you go to the typical real estate Some, and they’ll say invest where you live, invest nearby. Well, that would be fine if you live in the right place. But if you’re going to buy multiple properties, you don’t want them all in your own backyard because you’re not diversified. I mean, think about it. In 2004, everybody who lived in Orange County said, Oh, invest in Orange County, everyone will always want to live here. It’s by the beach. This is paradise, blah, blah, blah. You know, many times I’ve heard that what happened, it went down the tubes, you would have gone bankrupt investing in Orange County, diversify, to reduce risk, and increase upside potential, be area agnostic, don’t get attached to anything, be totally disloyal. Now, we have deals with different real estate brokers and developers in the different markets, we recommend 41 markets, and they can’t stand the way we do business sometimes, because we’re totally disloyal. They go from feast to famine. In example, Houston, or Houston agent Jackie Houston, we were recommending a lot there, she expanded her business because of us, she was making a lot of money from us. And then Houston wasn’t so good for a little while, and we stopped recommending it. And I remember getting this email from Jackie’s assistant saying, Jason, Jackie is starving, you got to send some clients over here. We’re not in business to support these people. We’re in business to support our clients. We are disloyal to markets. And you should be to let me take a brief pause. We’ll be back in just a minute.
Announcer 26:27
What’s great about the shows you’ll find on Jason hartman.com is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage, and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, here’s a show for that. And if you just want to get away from it all and need to know something about world travel, there’s even a show for that. Yep, there’s a show for just about anything, only from Jason hartman.com, or type in Jason Hartman in the iTunes Store.
Jason Hartman 27:13
Number eight, thou shalt borrow to maximize leverage, accelerate wealth creation and reduce risk. reduce risk. Really, you would reduce risk by borrowing money. Hmm, how many of you believe that people can get into trouble with debt? Folks, debt is my favorite four letter word. It really is my favorite four letter word. debt is one of the best tools for wealth creation you can possibly get. And the most debt friendly asset is real estate. There is no asset that offers better financing, even now post mortgage meltdown than real estate. Now, if you don’t believe me about the advantages of debt and being the borrower See, I want you to always be in the position of power, I want you to be the borrower. Why is that? I’ll tell you by asking a question. How many of you have ever loaned money to a friend or a family member? Who was in control of that transaction? The lender or the borrower? the borrower, right? Who’s getting all the bailouts now? Who’s getting all the loan modifications now, who’s getting all the rewards now? the borrower, not the lender, I mean, the lender gets the bailout from the government, sometimes not always, but the borrower is in a position of power, be the borrower, it’s a great position to be in now you’ve got to use debt responsibly. debt is like nuclear weapons. Some people say nuclear weapons have saved more lives than anything. Because if we didn’t have that constant threat of Mad mutually assured destruction, we would have had a whole bunch of little wars, and there would have been a lot of bloodshed. nuclear weapons, some people believe have prevented war. I kind of believe that too. I can see that. But if we don’t use them responsibly, they can destroy the entire planet. debt is something you’ve got to use with prudence with caution in a responsible manner. So we believe it’s a very powerful tool, but you got to be careful with it. Leverage can reduce your risk, it can increase your returns, leverage borrowed money can vastly improve your investment performance, and it can make you a much bigger investor than you would otherwise be. I mean, think about it. How many of you would like to have your portfolio be five to 10 times larger than you can afford it to be? Do you think you could make some money? If that was the case? Yes. You should be saying Yes. I’ll give you the answer to that. All right. So yes, that’s good. You want want that and with borrowed money, you can do that. How many of you the last time you bought a stock or mutual fund you financed it, you had to put 100 percent down, didn’t you? Yeah, with rental properties, you can do 510 20% 25% down. Pretty incredible. Here’s a graph out of Kiyosaki his book who took my mind, I’ve read five of his books. And this one, I particularly like this graph, because what it shows you is in 1992, if you invested $10,000, in an s&p 500 index fund, 10 years later, you would have had $17,000 and change. But if you bought a single family home with that $10,000, you could have purchased $100,000 property, right? Because of leverage 10% down, and 10 years later, just on national averages, not even picking the best market, that property would have been worth nearly $160,000. So you sell the property, you pay off the loans, you’ve got maybe it’s a it’s an interest only loan for 10 years, you’ve got $90,000 in mortgages to pay off. Here, your gain is about $7,000. What’s your gain here? $58,000. Now this is, by the way, I need to make a little disclaimer, some of our examples in the interest of time are kind of simplified. This is simplified, you know, doesn’t include carrying cost, which may be positive or negative. It depends. And it doesn’t include closing costs. If you sell the property, you got to pay closing costs. If you sell the stock, you have to pay closing costs to Commission’s on trading it and they’re much lower, though. One of the great things about real estate is that it’s a high cost to trade it. Now why would that be an advantage? You got to pay like 7% to sell your real estate? Why would that ever be an advantage? Exactly, because it makes it much less liquid? Why would that be an advantage? illiquidity is a huge benefit. Because it liquidity like stocks increase volatility. illiquidity decreases volatility. I heard Leslie Appleton young, the chief economist for the California Association of Realtors on a podcast this morning, walking the dog, taking a picture of that Obama sticker. And listening to the podcast, Leslie said this, I think this was a very good thing you might want to write this down. She said real estate prices are sticky on the way down. I like it. That’s a good way to think of it. As they’re falling. They’re sticky. Why are these sticky? Well, because sellers that have options that don’t have to sell that aren’t forced to sell their property, they just hold out. They might take their property off the market, they won’t take the price. It’s very sticky stock market, highly volatile, the people that I debate what’s better stocks or real estate, they say, Well, I really like my stocks Jason, because I can go online to the Charles Schwab website, and with a click, I can sell them and get my cash. That’s the problem. That’s exactly the problem with the stock market right there other than the cookery and unethical behavior, but the liquidity is a disadvantage. Look at folks, we’re not recommending that you invest in income properties with your lunch money. This is your wealth money for your future. So if you have your if you’re down to your last $10,000, don’t buy income property with it because it’s illiquid. But if you have more money than that, buy some income property. So anyway, back to this. So the real estate investment outperformed the S&P by almost 800%. In this 10 year period, we had a.com. Boom, and a bubble that popped, right. What if you sold it here, you still would have been better off with real estate. This doesn’t even include one of the 10 commandments coming up tax benefits. We’ll get to that in a moment. We’re going to talk a lot today about what’s coming at us. I mean, how many of you think inflation is coming? How many of you think we’re in a deflationary time right now? Yeah, I agree. sort of depends what you’re looking at, obviously. So we’ll talk about that. And again, how you can exploit the imbecilic as we put it in there. That’s from the newsletter, by the way that you’ve got a copy of the imbecilic government spending. All right, number nine, thou shalt only invest where there’s universal need. There are three common needs. Every human being on Earth has three common needs food, clothing, and shelter. Let them rent their shelter from you. Those three common needs are very important to address. Now, people a lot of times ask, you know, Jason, what about commercial real estate? Maybe I should buy an industrial building. Maybe I should buy an office building or a retail center or shopping center, something like that. Here’s the thing. That could be okay. Those segments aren’t doing so well right now, all the ones I just mentioned, but let me just give you the reason. They can outsource the manufacturing to China, which they’ve done a pretty good job without lessening the need for industrial buildings. The environmentalists are always attacking industry. In the People’s Republic of California, it’s almost impossible to manufacture anything anymore. So what do you think has happened to people that own industry real real estate, they’ve had a tough time, retail. Retail is going through a very difficult time right now, people that own shopping centers are going bankrupt left and right. Retail is complex, very complex retail properties. Retail, to some extent is outsourced to the internet, isn’t it? I mean, how many of you would rather shop online than going to wait in line at stores, find a parking space, fight the traffic and pay sales tax, unless you’re an Oregon, and you don’t have to pay, which is the one capitalist thinking thing about that whole state? Nothing else. But retail can be outsourced to the internet, to some extent, right. And when consumer spending is down retailers down, so I don’t like those properties. office space. What about an office building? office, people are having a tough time right now, first of all businesses leaving the People’s Republic of California really fast. But also, if you think about office space, just think Have you called tech support lately? Yeah, you talk to the guy in India, right? in Bangalore, and that’s office space, fortune 1000. Companies are telling their employees go work out of the house. You know, if you’re a web designer, if you’re a customer service person, you call JetBlue and make an airline reservation, you’re talking to someone in their home, on a VoIP internet connection, the office is not very needed anymore. So that’s why I like housing at the end of the day, as long as the population is increasing. Everybody needs a place to sleep. And housing is our favorite investment there. Yes. much cheaper to get into. Yeah, absolutely. So universally, yeah. what he’s talking about there is you can’t get that long term fixed rate debt, which we believe is a huge asset. Most people look at the property as the asset and the debt is the liability. We think it’s the other way around. We think the debt the mortgage is a huge asset. We’re going to talk a lot about that today. And then he’s also talking about tax benefits, which is actually my next point, thou shall only invest in tax favored assets. Income property is the most tax favored asset in America. I got this check last year. It was a well, I guess it was 2007. Actually, it was the year before but it’s the last tax refund check I got for $109,000. I loved opening my mailbox that day. And that was because I have so much rental property. Wealthy people that own rental property don’t pay taxes. If they do they pay very little tax $109,000 that check now look at when I start talking about taxes, most people their eyes glaze over. Everyone hates paying taxes. We all know that. But it’s kind of like a boring subject to most people. And I want you to get really excited about taxes. Why is that? Because taxes are the single largest expense any of us have. It is the largest expense in our life. How many of you made a major purchase lately? You bought a car, a TV, whatever, major purchase? nobody buys anything anymore? What do you buy? You bought a car? What kind? infinity. Okay, gs 35? Did you shop around for your new infinity? Okay, well, you shopped around for a Pre Owned one. Yeah. So the point is, look, you make a major purchase, you’re going to shop around, right? Why are you shopping around in quotes to save money on life’s single largest expense taxes, this is the largest expense you have, everybody will shop around. And I know I do it to to save 100 $200 on a purchase. Yet, they’ll pay all their money to the government, because they don’t invest with tax considerations in mind 40 to 60% of your income is going to some sort of tax, you better learn about taxation, it’s the largest expense you have, it is not boring. And if $109,000 check is interesting to you then get interested in taxes. So just to give you an example that here’s my schedule E for my tax return from 2006. The reason I show you 2006 is this is a year I bought a bunch of properties, and a bunch of them were in something called the gozone. How many of you have heard of the gozone. We’ve invested a lot in the gozone. And we’ve helped a lot of our clients invest in the gozone to the gozone is a really cool, like extra tax benefit on steroids. But any income property offers huge tax benefits. It doesn’t have to be in the gozone. So this year, I bought a bunch of properties that were in the gozone. And I bought many properties outside of the gozone. Talk to one of our investment counselors. If you want more details on this gozone thing. It’s certain hurricane affected areas in the southeast Mississippi, Alabama, stuff like that. But here’s my schedule lien. Now, this is one page. There were many pages behind it for all the other properties. But I’m showing you the first page that’s the summary sheet, if you will, of the schedule, eat. See when you buy a piece of income property. This is what happens tax wise and this is why it’s such a huge benefit. So you’ve got two components. Most people think I own a rental property. That’s like one thing. It’s not one thing. It’s two things Here’s what it is, it’s a piece of land, it’s land. And then it’s also a house sitting on the land. So the house is the structure or the improvement. Now, the IRS basically looks at it this way. They look at every piece of rental property, like it’s a little business. And if you’re self employed or your own your own business, you’re filing a Schedule C, and your tax return shows how much you made, how much you spent, what’s the net, pay the tax. But if you own a piece of real estate, you do a Schedule E. And on that Schedule D, it’s similar to that. Here’s the way the IRS looks at it. They say, look, we know that land will never go away, it will be there forever. But someday, the house will fall to the ground, and it will be of no value whatsoever. How long does the house last? According to the IRS, about 27 and a half years. But what is it according to you? What do you think? How long does the house last? Here’s the best answer I’ve ever heard. Yeah, you already know what I’m gonna say. Are you listening to too many podcasts? Yeah. It depends on the tenant. That’s the best answer I ever heard. Yeah, no question depends on the tenant. So it’s sort of that sort of true, isn’t it depends on the tenant. But look, a house last 5060 years pretty easily before you want to do a major remodel. Now, I remember several years ago, I went to Paris with my girlfriend at the time, and we stayed in this hotel. And this hotel was like 900 years old, was the oldest Hotel in Paris. And it wasn’t very nice, really either. But we stayed in this old hotel. And I thought, wow, this hotel has been here for almost 1000 years, and it’s still producing income for its owner. Not sure the owner has changed in 1000 years. But you know, the fact this is still producing income today, how many pieces of real estate you see like a restaurant that you ate at 20 years ago. And it’s still there, maybe it’s under a different name. But the piece of real estate is still producing income for somebody, not many moving parts, really simple businesses, they come and go, these are real estate just keeps chugging away, producing income. So eventually the structure will fall to the ground, and it will be of no further economic value. So the IRS lets you instead of deducting that loss, the year that someday happens when it falls on the ground. They say look, let’s just divide it up on a depreciation schedule of 27.5 years. So help me out with that calculator there. You can help me too. So take this example. Let’s say that in this example, the land is worth $30,000. Now, you know we’re not in California, obviously, right? $30,000 land. And let’s say that the structure of the house sitting on the land is worth $150,000. So land is not depreciable structure is take 150,000 and divide it by 27.5. This is $180,000 property 30 plus 150 27.5. How many years you get to depreciate. So 5000 a number is 5454. Yeah, right? Whatever. 5454. So this is, this is why we don’t need the paintings. Can you believe we still make pennies? It costs more to make them and you know what, it’s illegal to smelt them or melt them? Nope, that the metal in the penny is worth more than the penny. If that is an inflation, I don’t know what it is. And if you melt the pennies down to sell the metal you’ll be arrested. It’s worth much more than a penny of metal itself. So the IRS considers this a loss of almost 50 $500 per year. Now, here’s the question, did you write a check for this money? See, if you have your own business and you want a deduction, you got to spend some money, hire some new people advertise more, buy some new equipment, then you get a deduction on your taxes. Or if you don’t own a business and you want a deduction, you can donate money to charity may be great, cause the point is you got to write a check. Here. This is what’s called a non cash write off or a phantom write off. You didn’t write a check, but you still got the deduction. This is the beauty of income property. No writing a check. So you get this deduction without writing a check. This is a beautiful thing. It’s a non cash write off property could be giving you positive cash flow. You could be making money on the property, but still, the IRS sees it as a loss. And in 27 and a half years to the house fall to the ground. No. You just stop getting write offs after that amount of time. Beautiful, beautiful thing. So here on my schedule Lee, you’ll see that I deducted $524,742 In depreciation, and I did not write a check for that $500,000 and change. It’s a paper loss. And that saved me $138,000 in federal taxes that year. Wow. That’s cool. Now you saw the refund check was for 109. But pay estimated and figure it out. But it was 138,000 in taxes i didn’t spend the most patriotic thing you can do is not pay taxes. The reason that’s true is because when you pay taxes, you enable a corrupt criminal enterprise called the federal government. Not that I have an opinion about that. So what do we do? Well, platinum properties, we provide the complete solution for real estate investors, Investor Education and consultation. So education we do in the form of podcasts, seminars, things like that. And all of you are entitled to meet with one of our investment counselors, you’ll meet them in a moment. For a free consultation. We don’t charge for this, they’ll sit down with you help you analyze your financial situation, your risk tolerance, your time horizon, your investment goals, and then we will help you analyze how to finance properties, how to leverage them properly. And then we actually help you acquire the properties and allocate your assets so that you’re nicely diversified. So that if you’re looking at a pie chart, it’s nice and colorful. Take the most historically proven wealth creator diversify geographically, this is where most of it stops in most of the world of our competitors.
Jason Hartman 46:34
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