Jason Hartman brings back, Adam, they discuss current news including federal rate cuts and COVID-19. During COVID-19 you should continue creating a plan for your financial future. Jason and Adam talk about the property investment benefits as a result from the work-from-home environment.
What I’ve learned is is you like to mention be area agnostic is one of your commandments and that I love that I like to look at this is also be when it comes to real estate investing. Be age agnostic, who cares what age you are, you can start doing this in 19 like you did, you could start doing this 20s you can start doing in your 50s I started my 50s
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 bear involved in thousands of real estate transactions. This program will help you follow in jail 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 1:14
Welcome to Episode 1405 1405. Thanks for joining us today. Adam is here with me. We got a couple of news items before we get to the main part of our show. Adam, there’s a lot going on in the world, not the least of which is another rate cut by the not so Federal Reserve. In other words, what I mean there, folks, for those of you not in the know, is that the Federal Reserve is just as federal as Federal Express. It’s not the government but
go ahead, Adam. Well, it’s not just the cut. It’s a chop, chop. Yeah, they, they didn’t mess around this time. They just stood a straight half percentage point that they’re going to cut off and it signals to a lot of people that there’s a lot of doubt going on in our economy, I know there’s some things going on, as everybody knows with like the coronavirus on the market. So
Jason Hartman 2:06
call it kovat 19, the official name
cold in 1919. And, you know, all of the whatever’s going on in the political world. And all of that uncertainty, it’s this showing that the Federal Reserve is also worried about it. So I’m a little concerned that this is going to cause panic in other areas just because people see the Fed taking such a drastic action so quickly. Now, they’re not just doing it by a quarter percent, like they usually do, right? They’re going straight to half a percent. Right. Right. Right.
Jason Hartman 2:37
But here’s the thing, you know, many people applauded the Fed that was under Alan Greenspan at the time, post 911 because the Fed did not mess around. And that’s what really saved everything post 911 Listen, I’m not for a centrally planned economy. I think the market should determine the interest rates and the market should determine the price of money and and so forth. But whatever we are where we are, and we have what we have. And the Fed acted very decisively. Yeah, you know, post 911. And I think they did the right thing, you know, and boy, that sure jump started the economy it over stimulated the economy because later we, you know, rolled right into the mortgage meltdown, which rolled right into the Great Recession. But for that short term, that was pretty good. The problem we have now is that to use that metaphor of the bullets in the gun, there’s not many left, there’s not much ammunition left, because rates are already so low. Now this is part of that cycle in that thinking of why the Fed was tightening and the and they were trying to get the rates up, because they wanted to be ready for the next bout of economic uncertainty like a covert 19 thing, or whatever is going on. Right? So then they could lower rates, but they’re already so low, that there isn’t as much room for them to stimulate now, because they’ve been stimulating for so long. And that’s the problem we find ourselves in. It’s kind of like if you’re trying to mug someone, and hey, they’ve only got $1 left. So take my last dollar, right? You know, it’s like there’s just not much left for them to work with here. There’s not a lot of room for our fed, or, or really any central bank because our Fed is the leader. But the rest of the world pretty much has been doing the same thing. It’ll be interesting to see how this happens. Now, the thing we need to understand about the kovat 19 issue is that look, it’s all over the news now. And there’s something to be said for an amount of panic that is out there. However, in a month, this may be out of the news cycle, because maybe that Israeli company will have a vaccine. Maybe someone will have a vaccine We move into springtime, people’s immune systems get better, these things tend to fade. They tend to be the worst in the winter. So I don’t know. It’s just an unknown, we don’t know. But the beautiful, beautiful thing for real estate investors right now is that money is basically free. In fact, as we demonstrated with our client, Evan on the show, we can half ago we could go something like that you’re getting paid to borrow, even if you never rent your house. Okay, you’re getting paid to borrow. And I think we demonstrated that pretty well. And now it’s even more true. So if you are able to tap into Home Equity, equity and other investment properties, you may want to consider doing that now, to buy more good, sensible properties. This will probably hit the cyclical markets even more than they’ve already been hit. But in the boring conservative, prudent linear markets, you’re in pretty good shape, folks. I You see a huge problem. And even during the Great Recession, as we saw the worst economy in seven decades, just over 10 years ago, the rents in these solid linear markets that we had been recommending they held up pretty well. The level of strength and those rents was pretty surprising. I think the same will be true this time around. We’ll see how far this goes. But there are other issues in the global economy outside of kovat 19. Okay, that were there before we were talking about them before and they are a concern, no question about it. Adam, do you want to talk about some properties in these prudent markets? Or do you want to talk about shipping or manufacturing
or let’s do the let’s do the property real quick. We talked about that. Now. One thing I would like to note based on what you were talking about with the rents holding steady is if you think about our kind of the bread and butter hundred thousand dollar property that is out there, which you can still get, just assume you’re getting a 1% an RV and $200 a month cash flow,
Jason Hartman 7:02
right? So, value ratio, rental value ratio, the value per month.
Okay, so you’re getting $1,000 a month in rent on $100,000 house, and you’re making $200 a month positive cash flow, accurate vacancy, management, maintenance and all of that’s taken out. In order for you to start losing money, your rent has to go down $200 right, that would be breaking even.
Jason Hartman 7:27
In order for this breakeven you have in order to
start losing money you need $201. Okay, so
that’s a 20% rent reduction in the market. If that happens, we have a lot worse problems going on in our country. And housing is not going to be the worst of it most likely, I mean, a 20% drop in rents would be enormous. So it gives you when you buy it and it makes sense the day you buy it. It gives you a huge buffer in order to Be able to continue making that positive cash flow.
Jason Hartman 8:02
Very good point. And we have a tool box for you that we whipped out during the Great Recession. And we were helping people modify their loans, we were helping them analyze the strategic default options that millions of people were doing, and doing short sales, if you want to get out of the property. There are tools out there, a lot of our clients got ahold of our Q w, our letter, which was the qualified written request, that was something you could send to your lenders to help you negotiate loan modifications and so forth. We are far from that now. But if things get bad, we’re ready. Okay, and we’re here for you. And you know, we have a whole toolbox that we haven’t even mentioned. In fact, I would argue that we have a lot more room than the central bank’s do around the world. Because because they’ve used their ammunition. We’ve still got a lot. Okay. Okay, let’s talk about this first property in Jacksonville.
So we have a new construction coming up the estimate it’s going to be completed between August and September of this year. And it is a brand new property that you can get for $164,900. So a brand new construction for under 170. is a pretty solid deal. These days with the price of construction, skyrocketing the last couple of years, right? No question about it. You know,
Jason Hartman 9:23
homes in Florida are built like tanks. So new construction homes in the state of Florida because they’ve got all the hurricane requirements. Wow. They are solid. I mean, the house I live in now I’ve never lived in such a solid house is this. Those little Tinker toy houses in California that I used to own. You know those huff and puff and blow the house down but me about this house this thing is sturdy. So sturdy is expensive. And that’s one of the things you have. So this one you can buy it with $49,000 and that’s 25% down. Remember you can get more leverage if you want. You can put as little as 15 15% down. So this is very conservative 25% down 1295 a month projected rent gives you exactly, Adam, it’s funny you use that example. $200 a month positive cash flow.
Jason Hartman 10:14
Was that a coincidence? or
know? Yeah, it was actually even a $200 at rent like that, let’s still a 16 17% buffer, you’ve got there to break even very, and that doesn’t even include all the tax benefits, you know, look at the tax benefits than your breakeven is way more than that. Right. Right. So
Jason Hartman 10:32
so that’s pretty good. You’ve got a debt coverage ratio of 1.32. That’s the ratio that says how likely Am I to ever get into trouble with this property? So pretty low amount, that’s a good debt coverage ratio, your cash on cash is projected at 5%. So you know, again, not incredible, but it’s new construction. So it’s brand new property. And compared to what is always the question, can you even get in a Long Term CD and I have not checked the rates. But hey, go to bank rate.com and check folks. Can you get 1% in a long term CD? I don’t know, money market, remember is not insured. Okay? So be careful with that one. But if you can get 1% in the bank, this is five times better. It’s a 500% improvement over money in the bank. Okay.
At the worst case, that’s just cash on cash. But the little one year CD, according to bank rate right now, is 1.75%. Okay, that’s better than if you go to a five year CD. You still don’t even hit 2%. It’s 1.8 to unbelievable,
Jason Hartman 11:39
unbelievable that that is better than I thought. Yeah, those rates are probably going to decline with the feds rate cut. Because remember, whenever they cut the rate, they’re punishing Savers, and they’re rewarding. People who take on debt, they’re rewarding borrowers, okay, that’s the way it works. And also I want to make the stage That, again, the Fed does not directly influenced more well, they do not directly control mortgage rates, they do influence them. And whenever there’s a rate cut, you know, it typically trickles right through to the mortgage market. So, you know, makes money cheap, but it’s not a direct relationship just
won’t go down. Exactly. You’re saying you won’t see your mortgage rates go down half percent, right, you know, tomorrow because of it. Yeah, absolutely. Absolutely.
Jason Hartman 12:25
But overall return on investment on this property, Adam. Wow. Tell us 29% 20 nodal return. Yeah, that’s
a you can live on that.
Jason Hartman 12:34
You can live on that pretty well. And even if it’s only half as good, and you get 14.5% return on investment, you’re doing great. Remember, you’ve got a vacancy rate assumption of one month per year 8%. A management fee assumption built into that, at 8% of the income and maintenance percentage. Remember, this is a brand new property of 3% 3% Adam, let’s talk about manufacturing. And I want to tie it in. Well,
before we go to manufacturing, we said we’re going to mention earlier, we have the property cast. Yes. And property cast, we upload these performers straight to it. So you don’t have to go to the website all the time and search and see which one’s new. Which one’s not. And let me tell you folks, out of all of the many thousands of people who listen to the show, not thousands of people are subscribed to the property cast. And so if you do subscribe, you are getting this before they do. Yeah, that is guaranteed.
Jason Hartman 13:32
You’re getting you’re getting again, these are PDFs that are emailed or not emailed, but they come through the the property cast. It’s not an audio podcast, you don’t have to spend any more time listening to to us babble on okay. You will get the performance sent right to your mobile device, or your desktop computer. And it’s just super handy. So be sure to look up on any podcast platform. Jason Hartman property cast Subscribe to that. And please rate and review it too, because it is super unique. Nobody else does it. It was my idea. Everybody said it could not be done. I’m sure sleazy competitors will be copying us soon. Okay. Now let’s talk about manufacturing.
Yes. Yeah. So cobit 19 is, as we know, shutting down parts of our country and, you know, a big part of China right now. And that is creating, you know, serious issues for people in the United States who rely on manufactured goods from China. And so because of that, people starting to realize, hey, maybe we need to diversify. diversify geographically.
Jason Hartman 14:42
Jason Hartman is commandments. Thou shalt diversify. Yes.
Yeah, because we’ve seen you know, this isn’t the first time you know, we had the stars we’re having the coven. 19 and stars created a disruption whenever China was a much smaller part of the global economy. You know, I think I saw that China has grown four times in the global economy. To me, like they were 4%. Now they’re like 16 or 17% of global GDP. And so as it happens, the morn trying to get shut down, the more it’s going to impact everybody. And so manufacturers are starting to look at other places where they can get their goods, and Happy, happy, the best place they can go is to Mexico or the United States. So we’re going to start seeing manufacturing, come back across the ocean and come back to us, right? Even if China comes back tomorrow and says, Hey, everything’s good. cobit 19th gone away, you’re still gonna see people start saying, Yeah, but what about next time the
Jason Hartman 15:38
backup play exactly this kind of scare, even if it turns out to be no big deal. If this kind of scare happens, it really makes executives think about diversifying their supply chain and having a plan B and that’s a good thing. You know, that’s one of the good things that does, it does come out of something like this. And so I think that will only start And the Trump ideology of getting some of this manufacturing back to the US and has been flowing back. It’s been great. But this is going to hasten that and we’re going to see even more of it here in the US. So I think
that’s really good news for the US. And the other part that’s really good as you have, if you look at where the impact will be, if it all shifts to Mexico, that’s going to be the South and the southeast of the United States. For the most part, you’re going to have shipping men are going to have trucking. Those are things that go straight through the markets that we’re in a lot of them at least, you know, not all of them. But a lot of the markets that were in the recipe runs right through.
Jason Hartman 16:38
Yeah, yeah. They benefit from that. Yeah. And you know, that’s where most of the action is. It’s in the southeastern United States. I mean, there’s some other areas as well, but if you want to pick one big region, and if you go to Jason Hartman calm and you look at the markets we’re in and we’re recommending, you’ll see that’s where the action is. So out of every cloud has a silver lining, and this is one of those silver linings, so Good news for the good old US of A and especially our property markets. Adam, do you have time to mention one more property before you go?
Sure. And just one more quick thing. Whenever this does happen, and the manufacturing sits back, it will help our economy when the downturn happens globally, as well, because we won’t be as concerned about the next kovat 19 because our goods are still going to be coming here so the businesses won’t be as impacted. That’ll see the downturn happens next. So did you want to go to the next new construction we have, um,
Jason Hartman 17:34
you pick it, I know you’ve got two more, but we probably only have time for one. So we’ll leave Jacksonville, Florida what we talked about before and go to Palm Coast, we’ve got a new construction, four bed, two bath, that is a little on the pricier side, it’s in just under $210,000. And it’s expected to rent for 1575. And cash flowed just under $200 and it will be completed towards the end of this year. So our new constructions Lot of the ones that are coming up, folks, they’re not just put a contract on it today, close in 30 days, get your house the next day. These are things that are being built, and are going to be done until closer to the end of the year. But they are coming on. If you bought new construction earlier, you’re waiting on more inventory to come in. It is trickling in who you got to be a little bit patient for this type of stuff. I’ll tell you something, folks, I’ve looked at these Palm Coast properties. In fact, that exact house looks like one that I saw as a house that was modeled I think, you know, this area I think is really got a very powerful long term play. You know, with all of the commercialization of space, I just can’t help but think that there’s a lot of opportunity in a market like this, maybe a longer term play, but looks pretty interesting. So So this one just a little more detail to Oh, nine 915 75 projected rent, projected cash flow it 193 per month or 2324 per year, the overall return on investment projected at 28%. Annually those again, these are annual numbers, folks 28% annually for ROI. And the How likely is it I could ever get into trouble with this property? If we go into another great recession, the worst economy in seven decades that ratio, the debt coverage ratio? Is 1.25. Not bad at all for brand new construction. Yeah,
yeah. And remember, folks, if you don’t fully understand what Jason’s talking about, if you go to Jason Hartman, calm right on the homepage, 27 minute video teach you everything you need to know about these pro forma pedo evaluate them,
Jason Hartman 19:44
yeah, how to read every single number on the performer, and really, how to be a great investor. If there’s only one thing you do. It’s watch that 27 minute video, it’s free on the front page of Jason Hartman. com. Okay, Adam, thank you so much. For telling us about these properties and talking about those current events. And let’s get to the second part of our show. Okay, so for part two, I just wanted to finish up with a few items that are important for us as investors. First off, I’ve been meaning to say many of you received my email regarding the tax sale education program. And many of you went ahead and join that. So congratulations to you. I can’t wait six months from now, hopefully, to be featuring some of your success stories in that tech sale opportunity that offers a little side hustle, some extra income there, so that’ll be great. So please, after you have gone through the program, please do go to Jason Hartman comm slash ask, reach out to us. Let us know how it’s going. We’d love to hear from you on that. With all All of this concern about kovat 19 out there, you know, a really basic thing. I want to share a real estate thing in a moment, but I want to share something for your general health and welfare first. The NBA has now told the players to stop high fiving. Okay, maybe you saw this in the news, no more high fives because it spreads germs. You know, many years ago before half the country hated him and half the country loved him. Donald Trump. I remember reading an article about how he doesn’t shake hands. And it’s really a good idea. I mean, it feels kind of weird when you meet someone or talk to them not to shake their hand. But if you don’t want to spread germs then stop shaking hands. Maybe we should bow like the Japanese Do you know that’s so courteous when I I just love Japan. You know, I’ve only been there once. But everybody’s so polite and even though the economy is is an absolute disaster. And the demographics are a disaster. And they do have some kind of weird customers over there. But hey, who’s to judge what weird is right? A lot of people look at our culture and think how weird You guys are so weird. And hey, I agree, I can see why you might think that they bow and it’s such a courteous gesture, and it’s so polite, it’s really neat. So maybe we should do that. But look, all of you should go to YouTube, and search for a video I I have not looked at any specific video like this lately, but many years ago I did. And you’re gonna laugh when I tell you this, you’re gonna laugh. But you should learn and teach everybody in your family, especially your kids. You should learn and teach how to properly wash your hands. I know, I know. I’m trying to save your life here or at least your time, but handwashing needs to be done with legitimate technique I know now you’re all saying, Hartman,
you’ve got OCD. You’ve got
Jason Hartman 23:04
OCD. No, I don’t.
Jason Hartman 23:09
But, you know, we, whenever it’s flu season, cold season and now kovat 19 Corona virus season. This is a real thing. This is legit. It’s a public health crisis. And just by simply washing your hands correctly, and often could save a lot of sickness. Think about it. You know, if you’re out sick for a week or three days, that just ruins your productivity. Do you know how costly that is? for you personally, and for the entire economy to which you contribute and you’re a part of it is very costly to get sick, just the regular cold and the flu. So wash your hands off and and learn how to wash your hands correctly. You know, a lot of people go in there they slather a little soap, they rub their hands around and they think they wash their hands. No, they didn’t wash their hands. They didn’t wash every part of their hands. The soap only works in the places it actually touches. If it doesn’t touch there, it hasn’t done anything for you. Very important. Now, one of the big stories that we’ve been following and reporting on for you is the work from home economy. And one of the silver linings out of out of this whole kovat 19 thing that’s coming is that the work from home economy is becoming a really big story. The US Center for Disease Control and Prevention the CDC said last month, American businesses should prepare by replacing in person meetings with video or telephone conferences, and increase teleworking options. The British government is planning to tell people to avoid human contact for 12 weeks in some badly affected regions like Hong Kong. Japan and South Korea, working from home has been made mandatory by governments, real estate investors. This is good news for you. This is good news for all of us. I mean, this is one of the silver linings that is going to benefit us as investors. Now, let’s look at how big the work from home economy is. Okay, this is a big deal, and it’s only going to get bigger. And why does it increase the demand for real estate for homes? Well, it increases the demand. Because as this trend continues to build momentum, and now it’s expediting momentum due to what’s going on out there. It basically requires that the House have extra space. And you know, if it’s just you living in your house, maybe you Got that second bedroom to use as your office or that den or that extra, just kind of open area that you can use as your office. But if you have two kids, and a couple, and you know, maybe you’ve got a three bedroom house, one kid in each room, well now you need a four bedroom house or you need a house with a little extra space. Maybe your kids are older, and they need more space, with every thing being pushed back to the home. This increases demand for real estate for housing and lessens demand for office space. Because look at this whole thing is going to blow over. Okay, relax. It’s not going to be the end of the world. The human race will deal with it, it will blow over and you know, it may blow over really soon. Nobody knows, you know in three or four weeks, this may be just a minor news item rather than the big story. We don’t know but The fact is the concern the trend, the new thinking, the new idea, it has come to the fore. It is becoming more of a big deal. If you have maybe two people living in a two bedroom house, and maybe their roommates. Well, you know, now, both roommates are thinking, Oh, my company told me to work from home. So now, they don’t want to work in their bedroom. They want like a dedicated little office space. So now each of those people needs their own place to live, right. So now you’ve just doubled the demand for housing. You’ve just multiplied it times two. You’ve just increased housing demand by 100%. It’s like I was talking about last week about how the corporatocracy wants people to get divorced. Because you increase the size of the consumer market, you literally double the consumer market. Now. You know, you stimulate the economy. Because you can’t survive with one coffeemaker, or one microwave or one dishwasher, or one sofa, you need to have everything if everybody’s now in their own house. It’s sad, it’s evil. But there is a legitimate movement to split people up. Because it’s more profitable for the corporatocracy and governments. Notice that it stimulates economic growth when there’s more consumption. So hey, you know, take off that tinfoil hat. This is a real thing. But also, the same concept applies to the work from home movement, and roommates. So this is how many companies in each country not each country all over the world, but in the following countries I’m about to mention, have flexible workspace policies, where they’re okay with people working from home or using co working spaces and not be In the corporate office, okay, the global average around the world is, this is amazing. You ready for this? It’s amazing. Ready? Ready, ready 62% it’s more than half of the companies have these types of policies. And now we’re seeing this expand. So in a month, in a year, in two years and five years, that number is only going to go up. And I say this is going to be a very profitable move for us as real estate investors. So that’s the global average of 62%. But check this out. Germany is the highest 80% 80% of the companies in Germany have these flexible, co working and work from home policies don’t need to come to the office don’t need to come to the corporate office in the Netherlands 75% Earlier 71% United States good old US of A where we like real estate the best 69% Canada 68% Uk 68%, Brazil 67%, South Africa 62%, Spain 61% if anybody’s actually working in Spain, but if you are working, which is kind of rare, just getting youth unemployment in Spain, I’ve reported on that for my many visits to Spain. Really quite a tragedy going on over there in terms of the very anemic youth unemployment rate in Spain, which is absolutely, absolutely devastating, frankly. France 60%, Italy, 59% Italy kind of got the same problem that Spain by the way, India 58%, Mexico 55%, Belgium 53%, China 51% well in China, they’re telling people don’t even come out of the house. Don’t you dare stay in You’re home, right? That one, especially Japan, only 32%. See in Japan, they want you in that office work in those 12 hour days. The work culture in Japan is absolutely crazy. They’re not into work life balance over there. They’re into work, work, balance work and more work balance. But that’s really quite interesting. This is a trend that benefits us as real estate investors. So go to Jason Hartman comm check out the properties there. But more importantly, in this market with very tight inventory, and fast moving properties that are selling very quickly, it’s important that you work with one of our investment counselors. You can contact them through the website, or by calling one 800 Hartman that’s one 800 Hartman and we will be happy to help you build a phenomenal income property portfolio with lots of your tenants working from home until tomorrow. Happy investing.
Jason Hartman 32:02
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss
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Jason Hartman 32:45