Jason Hartman starts the show answering listener questions. The topics include interest rates, the 5-year outlook on rental income, and using self-directed IRA money for income properties. Later, Jason shares some strategies and tools he uses to formulate his predictions on real estate investing. He explains why cap rates aren’t a great metric and then goes over the Property Tracker software to project future values.

Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com. Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason is hand picked to help you today in the present, and propel you into the future. Enjoy.

Announcer 0:25
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 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 1:15
Welcome, welcome. Welcome. This is your host Jason Hartman Episode Number 647 Episode 647. Thank you so much for joining me today listeners around the world in 164 countries. We appreciate having you and we appreciate being able to answer your questions and help you in your real estate investing career. Beware of imitations. There are many out there who tell you I had this. This competitor I’ve had you know if he calls himself a competitor, he’s really just a copycat. He squats on my keywords in iTunes and, and everywhere and it’s amazing to listen to his show. He says Literally, I could quote the things he says they’re exactly what I say. imitation is the sincerest form of flattery, I guess, but it’ll also get you in legal trouble. So, boy, businesses are complicated folks. We look at income property, the most historically proven asset class in the entire world. And you compare it to the complexities of a business and businesses are there is so much to do. There are so many ins and outs and the different transactions and different things you have to be involved with, especially today in our big, big, complex world. So many different tools to use and so many different process, software’s and marketing tools and just it’s endless, endless, endless. I remember the days before email, and before Well, not before I had one but a lot of people didn’t have one and then old days, a cellular phone. Yes, one of those things, all these things we all take for granted nowadays. But I gotta tell you, before I get into these listener questions just to comment about that, I believe that our communication has just massively deteriorated through the use of email and texting technologies. We used to talk and we used to understand each other. Someone sent me an email yesterday actually, a potential local market specialist who we’re constantly being pitched with opportunities and people that want us to sell and recommend their properties through our network and we pride ourselves on being very, very picky. And sometimes we’re still picky but we see someone that kind of they were good with for a while and then they weren’t so good. And we got to get rid of them. And that’s our duty to you, our clients is to give you good properties and good local market specialists that can provide good service. This gentleman, he sends me an email yesterday. And literally, I mean, what the heck is even talking about I can’t even understand what he’s talking about. He launches into all of this complexity and depth of an eye. I’m thinking Who are you? It’s just amazing. Now people cannot communicate anymore. Do you sense this too? Or is it only mate? Is it only me because I do not really know how to type properly. So I can’t fire off a quick response to an email when I need to because I’m a slow typist. hunt and peck method. Isn’t that or is it that I am overwhelmed by emails and have too much stuff to read already and cannot keep up? Boy speed reading that would be a nice skill, wouldn’t it? You’d be a great real estate investor, great business person, if you could speed read. Isn’t that Or is it that we were actually meant to talk? We were meant to use our voices. Our creator gave us, our voice and our ears. And that is the way we were meant to communicate. Of course, writing has its place. It preserves things for future generations. I mean, no one would deny that the concept of the written word, and well written language, even in hieroglyphic form has been a huge advancement to humanity. But nowadays, we don’t need to do that we can communicate by voice by video, all of the ways. Our bodies were created to communicate, there’s so much more powerful. So get off your email and get on voxer or you mail or one of those similar apps that do that kind of thing. And just improve your communication dramatically. It’s, it’s quite amazing. Okay, let’s get over to some listener questions. And these Come in the wake of our Salt Lake City GHQ Jason Hartman University live event, not a real University real life. That was a fantastic event I so much again, appreciate all of you who came out for that. We had a full room, and just a great event. It was awesome seeing all of you. So thank you so much for coming out to that. We have so many great questions at these events. And we probably need to start appointing a secretary in every event to literally log every question. I think that would be a good idea. So yeah, we’ll we’ll see if we can get to that one. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday. So many of you wrote in with questions and I just want to finish this list. There’s so many questions here. So I thought I’d tackle that today. We’re not going to have a guest coming A whole bunch of guest interviews saved up for future episodes. But I just thought I’d talk to you personally today and tackle more of these questions because you asked a lot of good questions. Not that I can answer all of them, but they are good questions on some of them. We will just have to be with the question. It’s a very Zen like statement, isn’t it? Just be with the question. Okay, maybe the first one is an example of that. So, Ron, hey, Ron, I know you. You asked, What is my outlook for real estate and the best markets moving into the next five years and longer? Well, one of those has it relates to my prediction about the resurgence of suburbia. Yes, I know. I may be crazy. I may. You may look back and think that Jason Hartman guy, another one of his predictions was wrong been wrong. I think I’m gonna We’ll be right about this one. But you know what, like so many of these prognosticators and predictors out there. What they do, they have many tricks up their sleeve, but one of the things they do is they just make a lot of predictions. And then when one’s right, they find it and beat the drum on it incessantly. And they say, See, I was right. I was right. Well, I don’t do these things. Okay, so I’ve been right about a lot of things. I’ve been famously wrong about interest rates. Gosh, I thought interest rates would be higher. And by the way, before we get to Ron’s question here, someone at our Salt Lake City Jays who live event, asked me during the presentation asked me about interest rates, and where do I think they’re going and how do you predict interest rates and that is really, quite possibly the hardest thing to predict. Because of course, it has government in central bank intervention, making it very hard to predict There’s all sorts of manipulation. But I will give you what is considered by some to be the foremost resource on interest rate predictions. And, you know, a long time ago, we invited them on the show, but didn’t didn’t get anybody. So we’ll go back to trying to get them on again. But it’s a newsletter, an expensive newsletter called grants, interest rate observer, grants interest rate observer, you can check them out on the internet and see what they say about interest rates and even subscribe to their newsletter if you want but I tell you, it is the interest rates are probably one of the toughest things to predict. I would sooner predict my outlook for real estate in the best markets moving into the next five years as Ron asked. And part of this is really the resurgence of suburbia prediction I’ve made it’s this is a big deal. Of course I hate to even say the words again, but the self driving car, the autonomous vehicle, blah, blah, blah. I think we’re going to see a resurgence of suburban living. So that’s one of my predictions. So all of you who are purchasing in the suburbs? Well, a lot of these cities are like the whole thing is suburbs almost. But if you’re purchasing in the suburban markets of Indianapolis, Kansas City, Memphis, Atlanta, where you know, wherever any of the markets we recommend Little Rock, Arkansas, the most landlord friendly state, Arkansas, in the entire union, if you’re purchasing in any of those markets in the suburbs, and you’re seeing well look at all this development in this inner city and urban core and boy, these high rise condo complexes going up and this whole building was a meatpacking facility being converted to swanky loft style living, you know, I get it, that’s attractive. But I’ll tell you, they’re expensive and there are a lot of advantages to the suburban market. So really keep that in mind. And when when you want Ron to make a real estate prediction, you’ve got to segment that so many different ways. Of course, you’ve got to segment it by housing style, by price by geography, and the geography is really literally micro geography. It involves sub markets, and, and all of that, but you know, and then you’ve got to predict predicted based on linear, cyclical and hybrid markets. And the LTI ratio. I’m sure people are copying me on this. Now, this was my idea, okay, the land to improvement ratio, and the Hartman risk evaluator model. So when you do all of that, and you divide it all up, it gets to be a complex, complex set of answers, right.

Jason Hartman 11:50
But I will tell you that my prediction for the next five years for our type of real estate investing which means Linear markets, mostly suburban style real estate, it definitely means favorable LTI or land to improvement ratios, meaning that the land values are low. And the improvement values as a component of the entire investment are high as a ratio. So you’re maybe 70 to 75, maybe even 80% improvement value, the house sitting on the land, versus the land value being only 20 or maybe 25% of the sales price of that property. This is a low risk investment. This is a linear market. And I think these will fare very well. Now after Jay Chou live event, this past weekend, we talked about stress testing your portfolio and we talked about stress testing it through these three primary economic situations. One being inflation to being deflation and three being stagnation. So inflation obvious, you know, prices go up right? deflation they go down. Generally speaking, these aren’t the academic definitions. I most of you know that because we’ve talked about that on prior episodes. But these are the the anecdotal and perceptual distinctions, right. You know, people think inflation means prices go up. And deflation means prices go down, and stagnation. Maybe people don’t know that. But that just means that basically nothing happens. Everything is sort of stagnant and neutral as the name would imply. And during the Jimmy Carter era, that was the worst of both worlds, because during that era, a new term was invented stagflation, where you had stagnation with inflation. So it was like a one two punch. It was a double whammy, it was really bad. Because in that scenario, you saw people getting hurt dramatically where prices were going up, the cost of living was increasing. But the economy was just stagnant. It was anemic. It was terrible. And at the same time, interest rates were very high. So that’s that’s tough world for sure. So to answer your question in a very long way, not that I’ve ever been accused of being long winded, right, Ron, my outlook for our type of real estate, it is very positive, if you look at it as a multi dimensional asset class. Now, let me just say, though, that my outlook for the cyclical type types of markets that I believe are already many of them are highly inflated. I think those markets could see some serious hard times ahead. Of course, the properties Don’t follow commandment number five, which is Thou shalt not gamble. The properties don’t make sense the day people buy them. They never make sense from a cash flow perspective. And those markets are overvalued. So they will not those investors are speculators and gamblers who call themselves investors in those markets will not be able to sustain themselves during tough times. And they always seem to get themselves into trouble. I don’t know. I hope that answers your question. I know it’s a long answer. But I’m very bullish on our type of real estate investing for the next five years and even longer because the the demographics coming at the rental housing market over the next 10 years are nothing short of phenomenal. It’s a multi dimensional asset class. So if you buy properties, with a cash on cash return of just as an example, say 12%, give or take. I mean, who cares if the prices go up or down really, as long as you can maintain that same income and expense ratio, you’re going to be in great shape. And if you’ve listened to my talks about the three dimensions of real estate, and really there are more dimensions, but the three dimensions are, it’s a, it’s a cute name, I give it right. In the three dimensions of real estate, I talked about how values and rental incomes are counter cyclical in many markets, they’re counter cyclical. Why are they that way? Well, the reason they’re that way, is because you have a situation where, when prices decline in a market, people lose their motivation to buy, at least at the beginning of that cycle, and they usually start to pick up past the trough. As prices are going back up again, they start to think about buying. So the renter pool grows and rents solidify and actually rent to value ratios improved dramatically. Because when prices go down, and rents stay the same or go up, then the rent to value ratio gets a lot better and the cap rate gets a lot better on those properties, the capitalization rate. All right. So given the next question comes from Mike. And Mike says, given all the other ways to invest, why is real estate investing so attractive to you? Well, gosh, haven’t I already told you that in the last 646 episodes, you know, if this wasn’t the attractive investment that it is, if it wasn’t the most historically proven asset class and in all the world in all history, I would be doing something else. Certainly I could become a financial advisor. I could sell stocks, bonds and mutual funds of those were the better thing. The reason I was attracted to real estate, initially starting way back at age 16 years old, was because it is the most historic proven asset class in the world income producing real estate I should make that distinction, income property. Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday. You know, what else are you gonna do? You can invest in a business, you can invest in private placement memorandums and a business or real estate deal with a pooled investment. That’s probably not going to go too well for you being around income property because it’s multi dimensional in nature. Those returns are generated from many, many things. It’s, it’s just the way to go. It’s the best thing going and if it wasn’t the best thing going, I would be doing something else. Okay. So that is your answer. And I think we’ve covered that many, many times. Okay, David asked the questions. Would you be interested in partnering with an investment firm Pretty well, I think you mean another investor out a person investing in an investment property? Sure. I’m always open to partnerships. And I’ve partnered with many of our clients over the years, I have partnerships with some of our clients now. I’m always interested in that and feel free to connect with me on voxer and pitch me on your deal. I’ll be happy to consider it. Richard. his comment was Thank you. Okay, you’re welcome. Glad you glad you liked the content we’re producing. Adam asked, What cap rate do you recommend investing in? I prefer anything above 10%? By the way, does this cover plane tickets? Oh, that was for the event. Okay. No, it doesn’t cover plane tickets. Of course not. You got to get yourself there and pay for your own accommodations. Well, in terms of cap rates, or capitalization rates, most investors would jump at anything 10% or above. That’s a pretty phenomenal cap rate, and it’s pretty rare. But remember, cap braid is not my favorite metric when evaluating a real estate deal. Why not? Why don’t I really like cap rate very much. Because the cap rate the commonly used metric in commercial real estate investing doesn’t include leverage. It doesn’t include tax benefits. It doesn’t include appreciation, it doesn’t include inflation induced debt destruction, or the financing in general, which obviously, component of that financing is leverage, right? So it doesn’t include these things. It it makes sense to consider cap rate, Adam, when you’re looking at wanting to compare complex properties to each other. So that is one of the reasons it’s very attractive in the commercial real estate world, because in the commercial real estate world, you might say as an investor, well, I’ve got a bunch of money and I want to invest it and I want to buy some big commercial property. So what what asset class Do I look at? Do I look at multifamily? Do I look at apartments to look at self storage facilities, retail properties, industrial properties or office buildings office properties. And in these different asset classes, they all have very different expense ratios. For example, a retail property might have a triple net lease, so all the expenses pass through to the tenants, whereas an apartment complex will definitely not have triple net leases. And the landlord or owner will be responsible for paying for pretty much everything. And they need to control expenses themselves, rather than passing it through to the tenants. And so all of these investments act very differently from one another. And that’s why cap rate is a good metric in the commercial real estate world. But with residential properties, they’re not that complicated. The expense fence ratios are pretty similar on each property. You have property taxes, insurance, debt service, which isn’t included in cap rate anyway, but it’s still there as an expense. And you have, maybe you have association fees, you have repairs and maintenance, capex or capital improvements. And so you have these expenses that I mentioned property taxes, I think so. So you have these expenses, but they don’t differ that dramatically from one property to another when you’re talking about comparing a couple of single family homes. So cap rate is not that good of a metric. It really misses some important things. Okay. Next question here comes from Robert. Robert says, How do I invest with IRA money? Great question. It’s asked repeatedly, we’ve done many shows on this. I think the first most important thing you need to do Robert or anybody who’s interested in using qualifying money to invest like an IRA is you go to Jason hartman.com. And you type words like self directed IRA in the search engine, on the Jason Hartman comm website. And you will find lots of podcasts, lots of blog articles about self directed IRA investing. It’s a long topic, I don’t really have time to cover it here in these quickie Q and A’s. But basically, you can make your IRA self directed, and you can buy properties, or you can do hard money loans inside of your IRA as long as it’s self directed. There are different ways that people do this. Some suggest having what’s called checkbook control, and setting up an LLC inside of your IRA, so that it’s much easier to do business. There are certain custodians and self directed IRA companies out there who allow you to do this and think it’s okay and others really discouraged It. Now we had an attorney, a well known attorney on the show and CPA before a couple of times. And he was recommending a particular company that went bust and ripped off a lot of people’s money. And one of the safeguards against that, so far as I can tell, is, if you’re going to be self directed, have that money in your own IRA, LLC. Now, again, some companies say you shouldn’t have an LLC and you shouldn’t have checkbook control, because there’s too much chance that you’ll commingle or you won’t make sure every transaction is properly qualified as an arm’s length transaction. So you’ve got to obviously obey the law. That’s the first obvious thing, but that would have kept these investors so far as I can tell from losing their money in this bad deals. So that’s an important thing to keep in mind when you have it in your own LLC bank account. It’s under your control, and you’re not going to have this fraud problem. looms so heavy. Okay, so lots of stuff about self directed IRA investing, just go to the website, listen to some of those old podcasts we’ve done on that subject. A lot of material therefore, you Okay, maybe this will be the last question. And that is Andy. Andy asks, I’m in escrow on my first two properties with your company. rent is 950 and $1,000 per month finance for 30 years, if I just used income and appreciation and tax advantage, money from these houses, where might I be in 10 years? Well, hmm. That Andy is a complex subject, you need to go to Jason Hartman comm click on the resources page, scroll down there a little bit and I believe it’s on your left hand side Where it says property tracking software, okay, and get yourself the discount on property tracker, put your properties in the property tracker, which is such an awesome program, I absolutely have been in love with that program for 12 years, like the Hair Club for men commercial, if you remember that funny commercial, the guy says, I liked it so much I bought the company. So get that software for yourself and look at the 10 year projection, because it’ll tell you exactly where you’re going to be in 10 years. I mean, of course, it’s a projection. And things in real life tend to work out differently. But it’s a great little tool, and it’ll have a lot of great stuff there for you. So just check that out. And also listen to some of the podcasts I’ve done on Rifai till you die. And that’s not you. It’s not proper grammar. It’s slang reified till you die. Type that in the search bar at Jason hartman.com. Listen to some of those and it will help help you answer that very complex question. All right, Aaron, your question is up next, when we take more questions, we’ve got a run. But thank you so much for your excellent questions. You know, one of the things I absolutely love is that we have such smart and sophisticated listeners and followers and attendees at our events. And folks, I’m not schmoozing here. It’s true. You guys are professionals. You have high level jobs, high level careers, you want to deploy capital, you want to put your money into the most historically proven asset class of all that is income property. If you really want to take it to the next level, join our venture Alliance mastermind, and yes, I’m going to announce the location. drumroll please, Coco give us a drumroll. Hey, wait. Hang on a second here. Do I have one? Now I don’t have one on here. That’s as good as I can come to a drumroll. Sorry, folks. So, the location will be on Jekyll Island, Georgia. Yes, that is our next venture Alliance mastermind location, Jekyll Island. Remember G. Edward Griffin has been on the show a couple of times. And he is the guy who wrote the the magnum opus work called the creature from Jekyll Island. We literally are planning to stay in the same hotel or the Federal Reserve was formed 101 years ago. And I think one of the days I’m pretty sure this is not inked yet that we are going to be having our meeting in the same exact conference room, the same meeting room where they formed the Federal Reserve and the vast central banking conspiracy got its wings 101 years ago. So that should be pretty darn exciting. And to add to that, it’s a great mastermind group, awesome people, and it’s a beautiful place. That’s why all those rich bankers like JP Morgan and all the rest went there 101 years ago. So that’s gonna be really fun. Go to venture Alliance mastermind and check that out. We don’t have any other events coming up right now. So do join us in Jekyll Island, Georgia. And that will be either the last weekend of April or the first weekend of May Jekyll Island, Georgia, it’s going to be awesome the creature from Jekyll Island. Okay. Thanks for listening and also go check out the properties at Jason hartman.com in the property section. It’s tough getting inventory nowadays. But the inventory we do have is pretty darn good. So check it out. And I think you’ll like the returns that you can get with the most historically proven asset class in all World History has Investing everyone and thank you for listening.

Announcer 30:03
I’ve never really thought of Jason as subversive, but I just found out that’s what Wall Street considers him to be. Really now How is that possible at all? Simple. Wall Street believes that real estate investors are dangerous to their schemes? Because the dirty truth about income property is that it actually works in real life. I know. I mean, how many people do you know not including insiders who created wealth with stocks, bonds and mutual funds? those options are for people who only want to pretend they’re getting ahead. Stocks and other non direct traded assets are a losing game for most people. The typical scenario is you make a little you lose a little and spin your wheels for decades. That’s because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you’re one of them, you will not win. And unluckily for wall street. Jason has a union niek ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than than a 26% annual return is disappointing. Yep. And that’s why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us. We can pick local markets, untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely. I like how he teaches you how to protect the equity in your home before it disappears and how to outsource your debt obligations to the government. And this set of advanced strategies for wealth creation is being offered for only $197 to get your creating wealth encyclopedia book one complete with over 20 hours of audio go to Jason hartman.com forward slash Store. If you want to be able to sit back and collect checks every month, just like a banker Jason’s creating wealth encyclopedia series is for you.

Announcer 32:15
This show is produced by the Hartman media company All rights reserved for distribution or publication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own and the host is acting on behalf of Platinum properties, investor network, Inc. exclusively.