Jason starts the show talking about Meet the Masters and then brings on an attendee, Lisa. She talks about why people should be attending the event. Then they get some tax advice from Tom Wheelwright. Jason hosts a panel of lenders to talk about some lending practices and to give investors advice. At the end of the show they talk about rehabs on different properties in the network.

Investor 0:00
When you’re in your car and you’re listening to that podcast, you’re not really thinking about the fact that people are real and accessible on the other end, maybe you’ve reached out and you’ve gotten contact with an investment counselor. Again, they I wouldn’t say they have star persona, but they’re really not these tangible, real people. When you go to these events, all of these people become real, you get to look them in the eye and shake their hand. And then you’re surrounded by like people that have a passion for real estate. And it all becomes more real and it creates a sense of community. And so I would really strongly encourage people that have more than a casual interest about real estate that are wanting to do more than just be that passive investor through their investment counselor. And like you said, that’s a great if you’re doing that, but if you have an interest to do more, I really do strongly encourage people to come out and be in person. The experience is very different from when you’re listening on the podcast, and when you are In person, hearing the conversations

Announcer 1:04
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 1:54
Welcome to the creating wealth Show Episode 1157 1157 Today we have a wrap up from Saturday at meet the masters of income property. You know, Saturday was such an action packed day. It always is. Saturday is the busiest day and frankly the most stressful day for me. And Sunday, it gets kind of relaxed, and it just has a good feel. But I think everybody really enjoyed the tax strategies, the local market specialist panels, the lender panels, the portfolio wealth building simulation. We had George Gilder come up and do a little teaser talk, as he talked about information economics. And that was such an interesting theory, you know, that basically says that, when we lived in caves, when our ancestors lived in caves, you know, they have the same resources that we have today. The only thing that changed life was the knowledge that we created and used to just advanced civilization. And so I love that one. And then Patrick did a great presentation. On banking and how to basically lend money to yourself a really good strategy and we did more on financing and then, hey, the concert with the Roadster tribute band. That was awesome. I had so much fun and so many other people said, it’s the funnest thing I’ve had in a decade. It’s definitely the funnest I had since last year when we had a journey tribute band. So yeah, I love that I was really fun.

Lisa 3:31
I own four income properties right now. My goal number is probably close to 100. I just quit my job. So I’m trying to replace the income that I’m not getting anymore. I decided to come to meet the Masters because I was interested in learning about other markets and financing possibilities and options. I’m looking forward to hearing and Tom wheelwright, I’m tired of paying taxes. I live in Los Angeles and we get slammed on everything. And I think anything helps At this point, people should come to events like this because you don’t know what you don’t know, the possibilities in real estate are endless. And you can go so many ways with it, that you should just look at your options that are out there. If someone told me that they didn’t want to invest in real estate, I would tell them that they should just do it and try it. See what happens. You really don’t have anything to lose. This is Lisa and you’re listening to the creating wealth show.

Tom Wheelwright 4:28
This 2017 tax law that came into effect which is just really applying this year to your tax returns for the first time is a fascinating

Tom Wheelwright 4:41
tax law because it completely changed

Tom Wheelwright 4:46
the way taxes are assessed that completely changed the whole tax system. It used to be we think of the the the tax system as an income tax. In other words, it’s an tax on income. What happened in this new law is that it fundamentally changed from an income tax to a consumption tax should write that down. The tax law fundamentally changed from an income tax to a consumption tax. Here’s why. If you look over here, here’s the producers.

Tom Wheelwright 5:26
And on this side are the consumers.

Consumer 5:30
The producers include anybody that does business, real estate, or commodities. Right there producing agriculture, energy building like this one, businesses. These are the producers. over here on this side, we have the consumers, we tend to call them employees. They’re the consumers of the world. In fact, now, the world has always favored these people. In fact, so much so that I remember there was a presidential election a couple years ago. And you may remember that couple of interesting candidates. And those candidates had a debate. And this was the most important debate because it was about taxes, which is the most important subject in the world. And anyway, let’s just watch it. Here’s what they here’s what happened.

Consumer 6:35
Or maybe he doesn’t want the American people all of you watching tonight, to know that he’s paid nothing in federal taxes because the only years that anybody’s ever seen were a couple of years when he had to turn them over to state authorities when he was trying to get a casino license, and they showed he didn’t pay any federal income tax. So that makes zero

Tom Wheelwright 7:03
bless his heart, I’m watching this and I’m going, Well, duh. here’s, here’s Clinton always been an Employee Self Employed, you know, employ a lawyer, right? And here’s Trump. I did a bunch of interviews during the during this. And I explained that basically, he would have had the dumbest tax advisors in the world the paying the tax, because of all the real estate, he owned all the real estate in the debt.

Jason Hartman 7:35
So, on amortization, that is the big boring idea. What do you think? Right? Pretty good, huh? Pretty simple. Nothing crazy about this. How many people been investing with us for more than five years? So maybe 20% of the room. Okay. So if you get to that five year point, let’s look at that five years, you have added to your return on amortizes And if you had a problem with your property and a setback, and a bump in the road, where your property manager did something wrong, which is entirely likely, or you know what, the tenant did something bad, which is also entirely likely, we’re just about to really hit the stride. You know, if you bought a rental property 10 years ago, when you’re thinking this property is just kind of annoying. You gotta look at the rest of the iceberg that’s under the water, you’re getting a bunch of return on amortization, that you probably haven’t even considered, okay. And if you’ve owned property for longer than that, that return on amortization is adding a giant amount to your return. And remember, you know, some of you might be thinking, Well, I’m not that excited about this. But think about the stock market people, right? They say, Well, you know, the s&p we can get you 8% consistently over time, right. Look at how much real estate just Totally beats at the income property just blows it away. It’s incredibly impressive, that return on amortization that adds to your return. What are some of the distinctions that investors should know about financing versus you know, getting a mortgage on your own home? It’s especially right and I you guys all kind of specialize in the investor side of the business. So I just thought I’d have you address some of that.

Lender 9:27
Really, there’s really not that much of a difference in my opinion. as conventional lenders, we all three look at three categories. What your credit is, how much money you make, and how much money you have really boils down to that not only in the owner occupied side, but on the non owner occupied side. Yeah, there’s a couple things that we look at over beyond especially if you have real estate, we take a look at your Oreo and there’s a mathematical formula that we go through for Fannie Mae means the schedule of real estate God yo real estate, sorry, it’s on schedule, a schedule real estate. And so we take a look at that too. how much you’ve written off for the year a lot of times we can back into it depending on when you bought that property. And that’s where some of the specialty come comes into play, especially with the underwriters.

Jason Hartman 10:10
Is anybody getting adjustable rate mortgages nowadays? How much of that is going on in the marketplace?

Lender 10:16
I don’t see a lot of adjustable rate mortgages as it relates to the turnkey investment property financing at the price points that you guys are looking at. There are low level price adjustments for the fact that it’s an investment property. And the margins on the arms versus the margins on the fixed rates from from the agencies from Fannie and Freddie are the same adjustments but there isn’t enough of a margin paid on the arm like there is on the fixed rate. To give you any real advantage with an arm product on an investment property. We will see an adjustable rate mortgages in the portfolio products that I mentioned earlier that the 10 plus allow those guys will put that into an arm product seven or 10 year arm or five year arm. But we will see a lot of our products on your primary home residences That’s not on investment property that Yeah. And on jumble primary, particularly

Jason Hartman 11:04
any, Is there even an interest only loan anymore or in a game? Is that totally gone?

Lender 11:09
On the portfolio side? You know,

Lender 11:12
interest only on the jumbo money, you know? I’m sure well it says interest only product and interest on the arms Chase, you know, big retail, not investor, not really an investor

Lender 11:24
primary homes. Yeah, I

Jason Hartman 11:30
think the question really is, what are your rehabs include? I mean, are they do they get new mechanical items do they get you know, do you do you say that if that mechanicals got you know if that water heaters five years old, do you replace it? You know, this is going to be different for everybody and

Lender 11:47
it seems pretty standard. You know, I’ve been I know most of these folks and what they provide and and you know, there’s a reason we provide two inspection reports with each house. We want you to see those things and we always encourage you to Get your own inspection. But, you know, I think the minimum rule of thumb that I’ve seen across the board is, is if an item has five years of life or less left in it, most of these guys replace it. And so sure, we’re not

Jason Hartman 12:16
all so what is five years or life left in it mean? How do we know that? You know? Yeah, well do you know how old the item is before you decide whether or not you’re going to replace it or not? 90% of the

Lender 12:27
time, you can discover that info on the HVC system, but certain things you can’t you know, plumbing, electric, you can’t always see that. And a roof you can get a good guesstimate at but I think it comes down to yes trust but also those inspections are so key. And I feel like we have built that into the maintenance on on.

Jason Hartman 12:51
So what do you say your maintenance percentages on the performance? We have four or five, four or 5% how’s the house or buying Well,

Lender 12:57
our average home is like 80s

Jason Hartman 13:01
late night Okay, so son at his house and you put four or 5% on the performance as maintenance costs. And on your rehabs just address that, like, what are you replacing? You know, on each item, like you said, there’s a certain number of years of life.

Lender 13:17
Yeah, so

Lender 13:18
So especially the the main systems, the roofs, the HVC, the plumbing, we, it’s a minimum of five years of life, left or, or it gets replaced. And keep in mind, these contractors make money by telling me it has less than five years to get it replaced. So if they want to,

Jason Hartman 13:35
they have an incentive to tell you rank to

Lender 13:37
speed on our time. And then our third party inspectors, if the third party inspector says that it has five years of life or left less in it, we don’t argue we replace it. And so, you know, when you see our inspection reports, you know, sometimes they’re embarrassing because, you know, they’re that sick. That’s what we want to discover. Okay?

Jason Hartman 13:57
All right. So anyone else want to take a stab at that kind of vote? Question and those thoughts are okay.

Lender 14:05
I’ll just say something real quick. If

Lender 14:07
I were to own keep a property, I would defer all the maintenance that I could.

Lender 14:12
But the question is, like Jason said, What’s in the rehab? Do you save water wouldn’t if I were keeping it, I defer as much as I can,

Lender 14:18
you would prefer I would defer as much as I can. If I’ve

Lender 14:20
got five years left on a roof, and I’m keeping that roof

Lender 14:23
you want to squeeze it. But selling to you guys out there

Lender 14:28
being two 3000 miles away wherever you guys can’t afford to have that happen.

Lender 14:34
So I’m with you guys. It’s what’s in the rehab, new roof, New Age fat, new water heater, new appliances. Those are the big things. I have a whole presentation idea of 45 minutes to an hour trying to educate investors that buy from me, you know how to make good, how to make good decisions when they’re purchasing a single family rental property. And I think it comes Down to boils down to four rights, you have to have the right property has to be in the right area, and you give it the right rehab, and then have the right team manage that property. Real Property can be a passive investment for you. If you have somebody that works very actively on it, real estate in and of itself, I don’t believe is a passive investment. I unless you

Lender 15:25
agree completely.

Lender 15:27
It’s not. It takes a lot of work for somebody, and it boils down to your property manager, but your property manager is stuck if he gets handed the wrong property in the wrong area that had the wrong rehab, even if he’s the right team. So you have to start with the four rights and then it goes from there and the person selling you the property, they can give you scope of work, they can give you pictures of all the equipment that went into the home they can tell you exactly what they did and did not do And you need to analyze all of that before you make a decision just like you make any purchase. And we always provide a self inspection that we do at the end of the rehab a guy on my staff quality control, we pay for our own independent inspection because we don’t want to have any last minute things come up when you have your inspection. And I highly recommend that you get Property Inspections and don’t just let us hand you what we think is Here’s your inspection. You never know.

Lender 16:32
Need for the five factors that he identified what will drive a real estate market without all speculation, but for real methodical ways up is economic growth, population growth, affordability, desirability, and healthy supply and demand. Now, if you can get at least three you can probably get pretty good results. But if you can’t get that you’re not and if you can get all five man that Good. And let me tell you, that’s very, very hard to find. But that’s what brought me to Northeast Florida. That’s what brought me to Bakersfield in the beginning with. And again, Johnny Carson made fun of it, but it had a really nice run. One of the key things here, that takes New York, San Francisco, Orange County out of the equation is the one right in the middle, right 40 ability just shoots down cash flow. But if you can get all those other things around it, that’s the key. And that’s what I was learning to look for it but you had to go into markets that had these. So going to Northeast Florida almost 15 years ago. We grew up in Northeast Florida, Jacksonville, Western Ocala, and then to a section of Southwest Florida called Punta Gorda, all based off of that and five things I wanted to look for. Of course, it had to have cash flow, but I wanted to have those five factors. So just we’ll go through Jacksonville in the last two to three years. These are some of the rankings just remember those five steps that we just talked about that Jacksonville is head markets to watch markets to watch developing an economic culture, fastest growing city, best city for jobs, no state young, educated workforce. I used to joke that when I left California, I saved 10% of my money. And again, I think it was Kevin, he said, Oh, no, you’re saving 13.2% of your money. I didn’t even follow that your state income taxes going up, but it has. So that was another nice thing. Number four for rent to income ratio, that’s city to find work, jobs, bring rent, ability to pay higher rents, right? Top 10 for logistics, infrastructure, best US city to start a business. These are some of the fundamentals of Jacksonville, which is why I went there. And again, I’m not a data expert. But one of my mentors said to me, actually, that I met through Tom and a few other people was follow the baby boomer migration, where the baby boomers going they control a massive, massive amount of money, and it’s only going to grow from there. So in 2005, when I was looking around It wasn’t that hard. You have to be a research expert to go where are the baby boomers going when they retire? I mean, everyone watch Seinfeld, we all know they go to Florida.

Jason Hartman 19:10
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 any episodes. We look forward to seeing you on the next episode.