In this Flashback Friday episode, Jason Hartman shares President Ronald Reagan’s 1982 radio address to show how much the world has changed. He also tackles the global prosperity boom by discussing a short story called Shift Happens. Lastly, he finishes his interview with Oliver Morris about commercial real estate.
Announcer 0:00
Once we did encounter some challenges because we were part of your network and because I have an investment counselor, I always felt like I had somewhere to go for an answer. I always felt like I had somebody with more experience than me that I could lean on. And if Sarah didn’t know the answer, she got the answer. 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 has hand picked to help you today in the present and propel you into the future. Enjoy.
Announcer 0:29
Please note disclaimers at the end of show.
Announcer 0:35
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities, this program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:30
Welcome to another edition of creating wealth. I am your host, Jason Hartman. Glad to have you here. today. We are on the verge of Christmas 2007. And to those who celebrate Christmas around the world, Merry Christmas to you. And today I’d like to talk about a few things. We will have later in the podcast, an interview with a prior guest Oliver who talks about commercial real estate a little bit more. And I think you’ll find that very interesting and educational. And then sort of in the middle of the podcast, we’ll talk about the global prosperity boom, a little bit in the form of a short story called shift happens, which you may have seen floating around the internet. I just thought I’d read it here for you. And that’s quite amazing. But we’ll start off with kind of a Christmas story. So after President Reagan favorite president of my lifetime, my personal favorite was out of office, I purchased a set of tapes, yes, tapes, we used to have these little things that go in to cassette recorders, and they were called cassette tapes. For those of you younger digital media listeners, much more convenient nowadays. By the way. One of the things that was particularly moving to me on this series of tapes, was a Christmas radio address that President Reagan gave in 1982. And I think this is very poignant. Because the first thing we need to do as real estate investors is have a sense of history. It is constantly amazing to me how short term people seem to think we look at our lives in a rather short term basis. What’s happening today, this week, this hour this month, this year, certainly Wall Street, I could be very critical of wall street because they seem like many times they’re sacrificing the long term good to meet short term numbers, what are the numbers going to be this quarter next quarter, whereas you see some of these Japanese companies. And the stories go that they have 500 year business plans? Well, as real estate investors, it’s very, very important. And we’ve talked about it, or alluded to it on prior shows here, to have a sense of history and a sense of perspective. And I think this story, in particular will really put it in perspective. But before the story, I think maybe a quote, this quote is from Warren Buffett, and it’s very fitting given what’s going on in the media today, to make sure that you’re on a steady course, and you’re viewing your investments with a sense of history and a sense of perspective. So Warren Buffett’s often considered the world’s greatest investor, has a great quote here, he says, be greedy, when everyone else is fearful, and be fearful when everyone else is greedy. Now, isn’t that a good quote, be greedy when everyone else is fearful, and be fearful when everyone else is greedy? So as we know, listening to the creating wealth show here many times, we’ve talked about how there’s no such thing as a national housing market, only a bunch of little local markets. And this I think, is a particularly good time to take advantage of very good certain local markets. And there are many bad markets around the country right now. That should definitely be avoided. But the media news is nationwide. And so many people are missing out on great opportunities in various particular markets.
So, I read to you before that poem called The Reluctant investors lament, if you didn’t hear that it is on a prior podcast, go back and listen to that, because it gives you a sense of history and a sense of perspective, as it was written in 1977. And the perspective then, is that they thought housing and real estate was so overpriced. Well, this particular very moving all American Christmas story was shared by Reagan in 1982, in his weekly radio address on Christmas Day, I’ll just read it to you. But I’ll interject a couple of points here and there. He says this is sort of a modern American Christmas story that took place not on our country’s Heartland, but on the troubled waters of the South China Sea in October 1982. To me, it sums up so much of what is best about the Christmas spirit, the American character, and this beloved land of ours and what it stands for, not only to ourselves, but to millions of less fortunate people around the globe. So think about when this was written, the Cold War was still raging. We had a situation where we look now back on this and we see what is America really exporting? Why would people want to invest in real estate here, because of the American brand, which I’ll talk about after I finished reading this? Reagan goes on to say, it’s a letter from ordnance man first class, john Mooney, written to his parents from aboard the aircraft carrier midway on October 15 1982. But it’s a true Christmas story in the best sense. Dear mom and dad, he wrote, today we spotted a boat in the water and we rendered assistance. We picked up 65 Vietnamese refugees, it was about a two hour job getting everyone aboard. And then they had to get screened by intelligence and checked out by medical and close. But now they’re resting on the hangar deck. And the kids, most of them seem to be kids are sitting in front of probably the first television set they have ever seen watching Star Wars. Their boat was sinking as we came alongside, they’d been at sea for five days and had run out of water. All in all a couple more days, and the kids would have been in pretty bad shape. I guess once in a while he writes, we need a jolt like that for us to realize why we do what we do, and how important really it can be. I mean, it took a lot of guts for those parents to make a choice like that, and go out to sea in a leaky boat in the hope of finding someone to take them from the sea. So much risk, but apparently they felt it was worth it rather than live in a communist country. For all of our problems with the price of gas. Now, let me just interject Isn’t that interesting? complaining about the price of gas in 1982. compared to today, back to the letter, and not being able to afford a new car or other creature comforts this year. I really don’t see a lot of leaky boats heading out of San Diego Harbor, looking for Russian ships out there. After the refugees were brought aboard. I took some pictures. But as usual, I didn’t have my camera for the real picture. The one blazed in my mind. He goes on to say as they approach the ship, they were all waving and trying as best they could to say hello America sailor. Hello, freedom man. It’s hard to see a boat full of people like that not get a lump somewhere between the chin and the belly button. And it really makes one proud and glad to be an American. People were waving and shouting and choking down lumps and trying not to let the other brave men see their wet eyes. The lieutenant said to me. Yeah, I guess it’s payday today in more ways than one. We got paid today. And I guess no one could say it better than that. It reminds us all of what America has always been a place where a man or woman can come for freedom.
I know we’re crowded and we have unemployment. And we have a real burden with refugees. But I hope and pray we can always find room. We have a unique society made up of the castoffs of all the world’s wars and oppressions. And yet we’re strong and free. We have one thing in common, no matter where our forefathers came from. We believe in that freedom. I hope we’ll always have room for one more person, maybe an Afghan or a pole, or someone else looking for a place where he doesn’t have to worry about his family starving, or a knock on the door in the night. And we’re all who truly seek freedom and honor and respect and dignity for themselves and their posterity can find a place where they can finally see their dreams come true and their kids educated to become the next generation of doctors, lawyers, builders, soldiers and sailors. Love john This letter sums up all of the special gifts that Americans enjoy as their birthright. So, what does that have to do with real estate investing? very moving story to say the least at least for me? What does it have to do? While I think it really gives us a very big clue as to what America’s biggest export is, it’s a brand. It’s a philosophy. And to sum it up in a word, it’s freedom. And we see so many people now buying real estate here from around the world, where wealthy people, powerful people, in other countries in South American countries, for example, want to have at least some of their assets outside of their own country, because they know that they are safe in America. Now, they’re certainly not guaranteed anything in terms of market fluctuations, obviously. So they have to invest in the right places. And a lot of South Americans, frankly, invest in overvalued markets like Miami, hopefully, some will be listening to our creating wealth show and make better choices, because they want to avoid those types of markets.
So I hope you enjoyed that Christmas Story onto the global prosperity boom. We’ve talked about this a lot. We’ll continue to talk about it because it is truly amazing to me, just this morning, I was in the coffee shop, and I was reading the December 10 issue. Yes, I’m always a little bit behind on my reading, it seems, of Business Week. And there was a small article here that says got something in Chinese it’s melk. And it says China’s soaring economy has given China a big appetite for oil and other commodities. Now, we’ve talked about that a lot. Now, you can add milk to the list. Under the old centrally planned system, milk was a luxury with 250 grams costing a 10th of the average monthly income today, as people’s living standards have risen. So here’s the demand for milk. And they talk about this CEO of China milk, who operates dairies and all of that and supplies milk to the country at the country’s biggest milk producer. In Inner Mongolia, the first half of 2007, profits were up 41%. The first half, I’m going to repeat that because you may not understand the impact. First half of 2007. profits were up 41% from the year before, to $64 million. And there’s more room to grow. In 2016, annual per capita milk consumption was 53 pounds, reports China dairy yearbook. Well, that’s way up from 11 pounds a decade ago, it’s low compared with, say the US per capita intake of 181 pounds or 21 gallons of milk. What does this all mean to us? It is another sign of many in the global prosperity boom, that will make the value of our packaged commodity investments, in my opinion, rise dramatically in the years to come. But have a sense of history, have a sense of perspective, have long term thinking about this stuff. And by long term, I don’t mean very long term. I’m talking the next few the next five the next 10 years, we are going to see more and more prosperity created around the world. Many experts say that just in China alone with globalization and what I call the global prosperity boom, over 200 million people have been lifted out of poverty. And what do they do? They consume consume consume, every time the cost of energy goes up, the value of your houses increases, because it is more expensive to rebuild the same thing. And if you buy very close to the actual cost of construction, you have basically eliminated pretty much your downside risk. Go back to my other creating wealth show on the Hartman risk evaluator for more details on that. Because what we really are thinking about here is not investing in real estate per se, but rather packaged commodities investing. And for more on perspective, and massive acceleration of global changes.
What is happening now remember, has never before happened in human history. We are truly in a new age in a new world. But some of the old things people always need food, clothing, shelter and let them work. There’s shelter from you. And every time someone wants to build more shelter no matter where it is around the world, you have locked in your cost of construction for several decades, in my seminars, I sometimes ask, how long does a house last? Well, according to the IRS at last 27 and a half years, I believe a house lasts about 50 years, five decades, certainly there are houses that are much older than that, that are still being used, still being rented, still creating value for their owners, but five decades is a good reasonable amount of time. So when you buy a property today, if you follow our advice, you’re locking in your cost of borrowing for the next three decades, for 30 years on fixed rate financing, you’re locking in your cost of construction for the next five decades, 50 years. So everybody that comes after you has to pay more to build as the global prosperity boom, keeps increasing consumption for energy, petroleum products, copper, wire, glass, steel, concrete, lumber, labor, everything, everything that are the ingredients of our packaged commodities. And just to re explain that, if you haven’t heard me talk about it on prior shows, that is the assembled or packaged commodities that are in the form of a house, sitting on very inexpensive land. That is the way to invest in today’s market, and invest and pay the mortgage back or rather have your tenant pay it back and constantly devalued, inflation affected dollars. So listen in to the short story called shift happens. Again, you may have seen this float around the internet in the form of a slideshow. It’s brilliant. I have no idea who the author is. But it’s quite interesting. So listening to this and then we will talk to Tom Oliver about more learnings in commercial real estate investments. Here it goes. Did you know sometimes size does matter. If you’re one in a million in China, there are 1300 people just like you. In India, there are 1100 people just like you. The 25% of the population of China with the highest IQs is greater than the total population of North America. India, it’s the top 28% translation for teachers. They have more honors kids than we have kids. Did you know China will soon become the number one English speaking country in the world. If you took every single job in the us today and shipped it to China, it would still have a labor surplus. During the course of this presentation. 60 babies will be born in the US 244 babies will be born in China, and 351 babies will be born in India. The US Department of Labor estimates that today’s learner will have 10 to 14 jobs by age 38. According to the US Department of Labor, one out of every four workers today is working for a company for whom they have had been employed less than one year. More than one out of two are working for a company for which they have been employed less than five years.
According to the former Secretary of Education, Richard Riley, the top 10 jobs that will be in demand in 2010 didn’t even exist in 2004. We are currently preparing students for jobs that don’t exist yet, using technologies that haven’t been invented in order to solve problems that we don’t even know our problems yet. Name this country, the richest country in the world, the largest military, the center of world business and finance, the strongest education system, world center of innovation and invention, currency, the world standard of value, the highest standard of living. That was England in 1900. Did you know The US has 20th in the world and broadband internet penetration luxenberg just passed us. Nintendo invested more than $140 million in research and development in 2002. Alone, the US federal government spent less than half as much on research and innovation in education. One of every eight couples married in the United States last year met online. There are over 106 million registered users of MySpace as of September 2006. If MySpace were a country, it would be the 11th largest country in the world. The average MySpace page is visited 30 times a day. Did you know that we are living in exponential times. There are over 2.7 billion searches performed on Google each month. To whom are the questions addressed big before Google. The number of text messages sent and received every day exceeds the population of the entire planet. There are about 540,000 words in the English language, about five times as many as during Shakespeare’s time. More than 3000 new books are published daily. It is estimated that a week’s worth of New York Times contains more information than a person was likely to come across in a lifetime. In the 18th century. It is estimated that 1.5 extra exabytes 1.5 times 10 to the 18th power of unique new information will be generated worldwide this year. That’s estimated to be more than in the previous 5000 years. The amount of new technical information is doubling every two years. For students starting a four year technical or college degree. This means that half of what they learn in their first year of study will be outdated by their third year of study. It is predicted to double every 72 hours by 2010. Third generation fiber optics has recently been tested in both NBC and Alcatel. that pushes 10 trillion bits per second down one strand of fiber. That’s 19,000 CDs, 150 million simultaneous phone calls every second. It’s currently tripling every six months, and is expected to do so for at least the next 20 years. The fiber is already there, they’re just improving the switches on the ends of the fiber. Which means the marginal cost of these improvements is effectively zero. predictions are that e paper will be cheaper than real paper. 47 million laptops were shipped worldwide last year. The $100 laptop project is expected to ship between 50 and 100 million laptops a year to children in undeveloped countries. predictions are that by 2013, a supercomputer will be built that exceeds the computation capability of the human brain. By 2023. When first graders will be just 23 years old and beginning their first careers, it will take a $1,000 computer to exceed the capabilities of the entire human brain. And will technical predictions farther out than about 15 years are hard to make. predictions are that by 2049, a $1,000 computer will exceed the computational capabilities of the entire human race. What does all this mean? shift happens. Take advantage of this massive global shift, and the looming asset shortage that all of the prosperity, this education and knowledge will create in the world with prudent real estate investments, buy them hold them, let the population gets smarter, let the population get more prosperous. Let the value of all the raw materials inside of a house, the copper, the lumber, the labor, the petroleum products, the concrete, the glass, the steel, let all of that and all of the energy it takes to build it get more expensive as more and more consumers, two and a half billion consumers in China and India alone. Let them drive the prices of all these commodities up.
This is what I call packaged commodities investing or assembled commodities investing, you’re investing in commodities in the form of a house. Because a house contains all those commodities. Housing is a universal need. By prudent real estate investments, hang on to them, lock in your cost of construction for the next five decades or so your cost of borrowing for the next three decades or so. And create wealth. Isn’t that amazing though, all of the changes that are going on in the world. And they are accelerating faster and faster and faster. But one thing is certainly consistent. Everybody on earth needs a place to live. And I think that American real estate is far and away. The best deal globally that I’ve seen so far all things considered. And if you want a little more perspective on this, you can listen to a recent podcast I did about two months ago, three months ago that was talking about one of my trips to Eastern Europe. Some interesting tidbits there. If you’d like to listen to that.
Now, let’s listen into part two. With Oliver Morris who is talking about commercial real estate, learn a little bit more about commercial real estate. And then we will conclude, we want to welcome you back to part two on commercial real estate investing. This is just the introductory part of investing in commercial real estate. And last time, we were fortunate enough to have Oliver Morris in to talk to us and educate us on this subject. And let’s pick that up and continue today. So welcome back.
Oliver Morris 25:31
Great. Thanks so much. Glad to be here.
Jason Hartman 25:33
Okay, so let’s talk first about the best type of properties to invest in. And maybe the way we want to break this down is there’s not really any best per se, but it’s best depending on what is it the investor wants out of the deal? Do they want something that gives the highest return? Or the lowest amount of effort and management? Right? And obviously, there’s a huge spectrum here, there are many more choices than with residential real estate. It’s more complex, for sure, right. But the opportunities are really nice, right? So what would be the easiest type of property to manage, where it’s just a simplest deal of all?
Oliver Morris 26:10
Yeah, the easiest bar none is single tenant triple net property.
Jason Hartman 26:14
So this is the jack in the box, the Dollar General Store, even a big thing like a Best Buy or a supermarket?
Oliver Morris 26:20
No, those are typically in retail strip centers. And so that’s a multi tenant scenario. And that’s more involved. But when you have a single building that single leased by one single tenant, and it’s a triple net lease, where all they do is send you a check every single month, you don’t manage it, they manage it, they handle the groundskeeping, they entertain it, they do everything. It’s all on their dime, and they just send you a check every single month, that’s the easiest bar none and
Jason Hartman 26:50
all of the expenses, maybe you can define what triple net means when someone sees, they’re looking around, they see a property advertised, they’ll see m and n. And that means triple net, right? What is triple net?
Oliver Morris 27:02
Well, triple net basically means there’s zero expenses, so it means to the landlord to the landlord. So the tenant pays the taxes, 10 pays the insurance, the tenant pays the commentary maintenance, the tenant pays the structural on a true triple net, the tenant even pays for the roof and everything else having to do with the building. So those are the extreme, you can have things that are called triple net that that may not be everything.
Jason Hartman 27:25
They’re not exactly triple Yeah,
Oliver Morris 27:26
but true triple net is everything is paid for by the tenant period in the story. And the landlord doesn’t even receive money from the tenant to pay the bills, the tenant pays and directly.
Jason Hartman 27:39
Okay, so that brings up a couple questions to cover. Number one is if the property tax bill goes up, a property gets reassessed, right? The tenant pays the higher amount five years later, right.
Oliver Morris 27:50
And it pays whatever the property tax bill is buried into storage just passes right through.
Jason Hartman 27:53
Now, you said that they actually pay the tax bill rather than in a residential deal. They’re sending me the money, and I’m paying the expenses, right. And I may even have positive cash flow or breakeven or whatever. But I’m still the one taking the money in and then distributing the money out. Right. What concerns me about a triple net deal is what if they don’t pay the tax bill and the property gets foreclosed on? Or gets a tax lien against it? How do I know that they’re really going to do that?
Oliver Morris 28:20
Well, the leases are set up so that they pay the tax bill in advance, as soon as you send it to them, they pay it. And if they don’t pay it within a certain timeframe. And that’s all prior to when the tax bill is actually due, then you have the opportunity, obviously to pay the tax bill and go after them with all the issues that are in the lease that give you rights and remedies, etc. The tenant defaults, okay, so these tenants are typically pretty big companies, so they know what they’re doing. They’re not going to default. They’re big companies on the hook, great credit,
Jason Hartman 28:51
they only occasionally go out of business. I mean, Kmart went out of business, it happens. So it does happen. Okay, so triple net single tenant is the easiest type of property to manage by far, but generally, it’s not going to offer the highest return on investment, correct. What is going to offer probably the highest return on investment. I mean, I know this is a massive generalization here, but
Oliver Morris 29:14
generally, it is but typically the highest return on investment. Well, many times it can be trailer parks, that might sound like kind of its low end and difficult and that’s why it gets the highest return. Okay, it’s higher return because it’s one it’s not a pride of ownership scenario, typically. And especially in the south. There’s a big stigma with owning trailer parks, which we don’t necessarily have out here in the West. And so blocks people with money in the south don’t want to own trailer parks don’t want to be associated with trailer parks. I didn’t want to have their name associated with trailer parks.
Jason Hartman 29:47
That is really interesting. See, I’d love to own a bunch of those like, I think they’re great.
Oliver Morris 29:50
Absolutely. They can be fantastic returns. But again, as we talked about before, they’re difficult to manage because you’ve got a low level cap. tenants typically, and it’s fairly management intensive.
Jason Hartman 30:03
Yeah. And you know what I say to that serve the masses dealing with the classes, absolutely. People become very wealthy doing fast food meals and all kinds of stuff, right.
Oliver Morris 30:13
And the tween are kind of in the middle of both that we’ve talked the extremes, the very easy. And we’ve talked the very difficult, okay, and the highest return, I’m going to take office and medical kind of out of the equation, because it takes a lot of infrastructure to do those types of deals. And it takes a lot of management intensity, and it takes a lot of upfront dollars on the improvements and all that kind of stuff. It’s very management tensive.
Jason Hartman 30:38
So we’re gonna exclude office and medical and in fact, by and large office and medical are probably the hardest deals of all, in terms of management intensiveness and infrastructure intensive for the landlord, right investor and repeating costs that
Oliver Morris 30:53
are unforeseen costs, both downtime, as well as commissions on returning as well as improvements on return. And so they can surprise you, if you don’t have a lot of staying power office and medical can be pretty painful.
Jason Hartman 31:05
Okay, by the way, I do want to mention, there are some simple office opportunities out here, like there are office condos, people can buy, right, those are very popular in some areas, you can do industrial condos too, right. Again, this is not an exhaustive conversation on it. Right don’t have that much time.
Oliver Morris 31:20
So let’s move on to kind of a tweener, which would be the multifamily. And we’ve talked a little bit about this before, this is kind of along the lines of what you already do with the residential property in terms of the single assets. This is just multiplying those in a single location so that you have the same values and same benefits that you get with many of the aspects of the single asset residential, but you haven’t a bigger package, right,
Jason Hartman 31:45
which I like that. I like that a lot. And I feel extremely secure with apartments because I know that everybody needs a place to live. I say this in the seminars, sometimes they can outsource the call centers to India, the manufacturing to China, fortune 1000. companies, they tell people to go work out of their spare bedroom at home, and so they don’t provide them office space. This lessens the demand for certain types of products. To some extent, shopping can be a little bit but not completely ever outsourced to the internet. But then you just create the need for a distribution center, which is industrial, all of this has a kind of a cycle to it, and a rhythm. But I know that at the end of the day, everybody needs a place to live. And I know that the population in the US is increasing. And the demographics coming our way are just phenomenal. Right for investors, and make sure you heard that the demographics coming toward investors are phenomenal in the United States, right now. We’re gonna see the experts say another 100 million people here in the next 34 years or so. So get ready investors buy real estate, right? Because it’s good. Okay, go on.
Oliver Morris 32:47
So we talked about the various different types. And you wanted to talk a little bit about the lending environment.
Jason Hartman 32:53
Yeah, yeah. Now that we discuss the product types, and what’s the best type? What type of lending environment is there today, you’ve got to finance commercial real estate or any real estate to make it perform well, right. And our philosophy, as our podcast listeners know, is we want to use as little of our own money and as much of the bank’s money as possible. Now, on commercial real estate, the financing is not usually quite as good there. Right? Again, you do have some advantages with commercial, but you don’t have with residential, right? So you have to put maybe 20, even 25% down, right,
Oliver Morris 33:27
it’s gonna vary between 15 and 35% is kind of the range, right? You may be able to find it as low as 15% with certain programs. But that’s kind of the minimum.
Jason Hartman 33:36
And I just want to make one mention, and we’ve talked about this offline, but there are advertisements You see, and I get them saying 100% financing on commercial real estate, which is possible, sometimes, right? But the rates are very high. Correct. So we’re talking about sort of a mainstream way real
Oliver Morris 33:55
teaser scenarios, right?
Jason Hartman 33:57
So talk to us about subprime the banks that businesses Well, the
Oliver Morris 34:02
good news about commercial real estate, kind of unlike the residential sector, is that it’s not been very much affected by the subprime market there is really no subprime and commercial real estate, people are performing on their loans and, and commercial, Real Estate’s done great. And so the commercial banks are flush with cash to do commercial real estate loans just as aggressively as they have before and maybe even more aggressively. And so you can get commercial loans from both local business banks, as well as the big banks, the B of A’s and the Wells Fargo’s of the world. There’s all sorts of different places where you can get commercial real estate loans, as we talked about, they’re typically 15 to 35% down required somewhere in that neighborhood, depending on your credit score and your net worth and, and the type of property you’re buying. If you’re going to buy a single tenant triple net property that’s leased by jack in the box headquarters. Those are pretty darn easy to finance something else that’s multi tenant, not yet. would fill up with all sorts of kind of local mom and pops, that’s going to be a little more difficult to finance.
Jason Hartman 35:05
By the way, you just made me think of something. One of the nice things about commercial real estate is that many of the times when you buy the property, it’s already tenanted, it’s occupied
Oliver Morris 35:16
the vast majority of the time. Yeah,
Jason Hartman 35:18
right. Versus with residential only because we really prefer the new homes. And we’ve got lots of reasons for that, that we’ve talked about. And we’ll continue to talk about it on other podcasts. And at seminars. There’s no lease up period here. Whereas with a single family, with a vast majority of ours, you’re going to be vacant for a month, maybe even two months. Hopefully not any worse than that. But occasionally, there’s a snag somewhere. And that usually means someone didn’t follow our advice. By the way, it’s, it’s not our snag, it’s theirs, right. But it happens occasionally. But these are just all leased up.
Oliver Morris 35:50
So that ready to go. So cash flow, day one,
Jason Hartman 35:53
cash flow day one, okay, good go on.
Oliver Morris 35:55
In terms of the financing, we’ll get back to that. Typically, financing rates are somewhat close to the residential rates. Again, depending on credit net worth and the type of property you’re not quite as quite as good, you’re going to be around prime, sometimes below prime. And prime today is about seven and a half percent, amortized terms up to 30 years. So kind of similar to commercial real estate on that residential residential route. And then Variable And Fixed Rate, the difference, the real difference in commercial real estate is that you don’t typically get fixed rate out to 30 years, or at the maximum you’d ever get is about 15 years fixed. That’s a bummer.
Jason Hartman 36:28
That’s a bummer. Because I love locking in for 30 years, because I just think with the dollar, as weak as it is, we are really going to see where rates have got to go up, right? Because our dollar is just being devalued. Like it’s disgusting, what’s going on, but, but it’s really good for real estate investors. And that’s why it’s hard for me to get too upset about it. Because I keep paying my loans back, actually, my tenants pay them back in cheaper dollars or at the time.
Oliver Morris 36:53
And one of the good things about the dollar devaluation that we talked about before, Jason is that the foreign investors are starting to come in, especially in the commercial real estate sector. Good point,
Jason Hartman 37:01
it creates a whole new market,
Oliver Morris 37:03
correct. We got people coming in from not any specific country, but from all over the place, saying we’d like to buy commercial estate, and they don’t want to come over here and buy single family homes, they want to come over here and buy sizable assets, right? And so it adds value to everybody’s asset who’s buying today.
Jason Hartman 37:20
That’s true, you’re right, it creates a new demand side of the equation, right. And it puts upward pressure on values on prices. But I do beg to differ with you on that. Some individual investors definitely across the board, and they come over a lot of them from Canada, and a lot of them from Europe right now. And even Russia. I’ve got stories I could tell you, but we don’t have time now about Russians that come over and buy dozens of properties residential single family homes. But that is more rare. I would have to agree with you. It’s it’s takes the initiative of one individual to jump on the internet and really go out of the box, if
Oliver Morris 37:56
you will, right. Hey, go ahead. So you want to talk a little bit about the market for real estate today? I think
Jason Hartman 38:01
Yeah, absolutely. I mean, how has it been so far? And what are your thoughts? predictions are never guaranteed? But what are your thoughts about the future of commercial real estate? And what have we seen so far?
Oliver Morris 38:11
Well, typically, commercial real estate tracks the residential a little bit to the tune of 12 to 18 months behind the residential cycle.
Jason Hartman 38:19
So there’s a lag time. That’s a real big generalization. But it was interesting, because if you look at what’s going on in Southern California here, for example, the residential market really took the start of its downturn about 18 months ago, almost, you know, exactly right. Pretty close to that. And so commercial is still really booming here.
Oliver Morris 38:38
Yeah. Well, the subprime thing, although it’s not been localized to the commercial real estate industry has had trickle over, because people have just gotten nervous and pulled off to the sidelines. The good news about that is the fundamentals for commercial real estate are solid, really solid. Yeah. And so it’s going to create good buying opportunities, because there’s not quite the pent up demand for buying that there was previous years. So I don’t think we’re going to see the commercial real estate fall off, we traditionally don’t follow the residential near as much commercial real estate might fall off a little bit and create some good buying opportunities, but it’s not going to fall off like the residential did because it doesn’t have the same component in the subprime scenario.
Jason Hartman 39:20
Well, and also, I would say that commercial real estate is a little bit more linear. Because the valuations are based on the income the property produces, mostly not perfectly, right. And there’s a little bit of speculation in there and stuff just like in residential, but in residential, it’s really disjointed in that the values not based at all on the income the property produces really, it’s like it’s based on psychology and scarcity and all these other factors. And so, in the cyclical markets, which is like a California market, Arizona, Nevada, most of Florida, the northeastern United States, the markets that are now overvalued, you’ve seen big huge price increases in residential right. And now you’re seeing that correct itself, right. And so the commercial didn’t have that as much, not quite as much. And so the old saying what goes up must come down. Right. Right. So the residential in the markets, we invest in our very linear, right, so they didn’t have that big run up yet. Right. And I don’t think they will.
Oliver Morris 40:19
Yeah, I think Commercial Real Estate’s kind of in a holding pattern across the country. To some degree. There’s some markets that are more bubble licious, I guess you’d say than others. But there’s a word for right. But it’s kind of in a holding pattern in which like, is that creates great buying opportunities?
Jason Hartman 40:32
Okay, excellent. How do you find the best commercial real estate opportunities?
Oliver Morris 40:36
Well, it’s kind of like the residential world. I mean, you’ve got a local commercial broker, who can show you properties in their backyard, and can help you out. But they’re barely localized, they can’t show you everything very effectively across the nation, they can only kind of show you what they know.
Jason Hartman 40:51
Yeah. And I gotta tell you, now that you say that, that’s been my experience. And my challenge is that I can’t seem to find an area agnostic, commercial broker, I’ve called some of these big commercial real estate firms. I’ll call their main office, I’ll talk with their, you know, director of research. And I’ll say to them, what’s the best market nationally, and they will give me some guidance and some tips. But it seems like they’re more referring me to their buddy in a certain market, you know, call this person then really being like us here at Platinum properties, investor network, truly area agnostic, right. And so that’s been a challenge. But we’re already going to solve that problem, right? Those are districts, the
Oliver Morris 41:33
local brokers that have had a hard time comparing contrasting properties from Market to Market, unless they’re gigantic properties. And those guys are focused on nationally based gigantic properties, right. But for the smaller investor, there’s really not been a very good system for them to kind of compare properties in multiple markets kind of side by side. The other way to find commercial real estate properties is to represent yourself, which again, kind of like the residential, it’s really hunting and pecking. It’s a very difficult process. Danger, will Robinson Absolutely. Okay, go ahead. And so what we’re talking about is actually putting together a plan to properties commercial division, were similar to the residential program go into the markets, we think are the best markets in the country. And we pluck properties out of those markets and compare and contrast them side by side, so that you can take a look and see what’s out there and make some informed decisions. Excellent, excellent, good
Jason Hartman 42:23
points. I just want to talk about one of our clients, Scott, who purchased a commercial property from us. This was an apartment building. And if you’re out there listening Hello, in Kansas City, and he was just ecstatic about the investment. I believe the purchase price, if I recall correctly, of that one was about 1,000,003. And it was, I don’t know, 3040 units, something like that. And he was positive cash flow first month, no big wait to lease up. I think he was about $4,000 positive cash flow the first month. Now, of course, he put a little more down than the typical residential investor. So he didn’t have that deferred down payment, right, that we’ve talked about in prior podcasts. But he’s very happy and excited about the investment. And once you get into this real estate, investing it just, if you do it right, and you’re prudent, you’re careful, you’re conservative, it works so darn well. And it’s really hard not to be just addicted to it. Right. So Toliver thanks for the words of wisdom today. And is there anything you want to say in closing,
Oliver Morris 43:22
I just want to say that the Platinum properties commercial division is here for you. And we’re here to answer any questions and look forward to working with you. And we’ve got some great opportunities out there for you.
Jason Hartman 43:30
Excellent. Thanks for coming in. All right, I hope you found that interesting. I just want to wish you all a very happy holiday season a Merry Christmas, and best wishes for 2008. We will have one more show for you before the end of 2007. And stay tuned for just a couple of quick announcements. Thanks so much for listening and happy holidays to you.
Oliver Morris 43:54
Hey, so we’ve been Platinum members for a couple of years now. And we’re just real pleased with the way things are working out. We can
Oliver Morris 44:01
be happier and it’s really changed our lives for the better.
Oliver Morris 44:04
Are you ready to take the next step? Then join us the Platinum properties investing network in Costa Mesa, California for our next creating wealth seminar on Saturday, September 20. As millions have discovered, you can become very wealthy by investing in prudent income properties. Jason Hartman and the rest of the Platinum properties team will show you how to select the very best markets earn returns in excess of 30% and protect yourself from a loss of equity. In this full day educational event, you will learn all about Jason’s unique conservative investment philosophy that works in real life with no hype. Seats are limited. So visit Jason hartman.com. Today to register. That’s Jason hartman.com. On October 25, and 26th Join us at the Masters weekend a gathering of experts. This special event only happens twice a year. With our panel of 16 experts were putting enough real estate brainpower in one room to make Donald Trump flinch. The Masters weekend is a powerhouse education that can revolutionize how you think about money and wealth. Our speakers come Armed with the latest and trued real estate investing techniques, and we’ll address such issues as the smart way to choose your properties, how to grab every tax benefit, the law allows how to put together the most creative financing package possible, the hidden power of the 1031 exchange, and how to easily invest in dynamic growth markets outside of California. Order your ticket before October 1, and you’ll receive our early bird discount spaces limited. reserve your seat now head to Jason hartman.com and click on events. That’s Jason hartman.com. The Masters weekend beginning October 25. Have you heard about the gozone? What might be the greatest tax benefit in history? If not, you must attend our gozone tax benefits seminar on Tuesday, September 16. Right here in Costa Mesa, California. Act now to start slashing taxes for the past two years and set up your ironclad tax annihilation plan for next year. Sure, you could spend months picking through tedious legal jargon yourself, but our real estate specialists already understand it. And for less than the price of a good steak with all the trimmings. You can be front row Center at the gozone seminar, ask questions take notes, bring your tax advisor, leave with a solid understanding of how to save on taxes like no other time in history. To register for this very special event on September 16, head to Jason hartman.com and click on events. Jason hartman.com.
Jason Hartman 46:15
Attention agents, brokers and mortgage people. Do you know that we cooperate? Do you know that our network is an open system that you can refer clients or outsource your investor clients to us and receive passive income? It’s a really great opportunity. All you have to do is register your clients at Jason hartman.com. And tell them to attend one of our live events or live educational seminars, listen to our podcast, go to the website and request our free CD at Jason hartman.com. And if they invest with us, per the terms listed on the website, you will get a referral fee. We have lots of agents, brokers and mortgage people that receive surprise referral fees that they weren’t even expecting. They get a check in the mail. And they are just happily happily surprised to nice extra supplement to your income. So be sure to take advantage of our broker cooperation. Agents are welcome. We cooperate with outside people, and we’d love to help you with your investor clients. Hey, I just wanted to announce a couple of quick things for you. If you are able to come to one of our live events, we would love to see you and meet you in person. We’ve had people fly in from all over the US for them. So hopefully you can join us for some of those events. I wanted to mention to you that we have a new offering a free CD, a free audio CD that you will really really like we’ve had so many people that have given us really good comments about them. And you can go to our website at Jason hartman.com. And just fill out a little quick web form. And you can either download it or you can have the physical CD mailed to you in the postal mail, but get the free CD, especially if you are a new listener, you need this. And if you are a regular listener and you’ve listened to all the other old shows, you don’t need the CD so much, but it will be a nice review for you either way, but if you’re a new listener, you definitely want to go to Jason hartman.com and request the free CD. Remember that Platinum properties investor network has moved we are in our beautiful new office in Costa Mesa, California 555 Anton suite 150 in Costa Mesa, California, nine to six to six. And we’re right by world famous South Coast Plaza. So come in for a visit and a little shopping. Also, we just uploaded another video podcast. And I’d highly recommend that you subscribe to that there’s some stuff that just lends itself better to video than audio. If you want to see what’s on that subscribe to it, you can go to Jason hartman.com. If you use iTunes or an iPod and you’re an apple person, then you can go to the iTunes Store, type in Jason Hartman and two podcasts will come up the video podcast and the audio podcast. And you’re probably already if you’re listening a subscriber to the audio podcast. So make sure you get yourself a free subscription to the video podcast as well. And this particular one that we just loaded in the video podcast is about naked short sales. And what goes on with this short sale and manipulation of the stock market. It’s a very interesting report from Bloomberg News. And I think you’ll really learn a lot from that so be sure to tune in and watch that. Be sure to see appropriate disclaimers and disclosures on our website at Jason hartman.com. Remember that we are not tax or legal advisors. Anyway, we’ll talk to you next week.
Announcer 50:04
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