1194: Self-Management Deal Making, Tenant Interactions & Maintaining Control with Drew Baker

I really need to thank you and Sarah for being there for me. You guys could have easily said, this isn't my problem, this is your problem. Your lack of due diligence is entirely your fault and not done anything at all. But you guys have been there for me every step of the way. You responded on Voxer at 3:42 in the morning. I know it might have been 6:42 depending on where you were, but honestly, who works at that time? So just the fact that you guys were there for me, I appreciate it so much. 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 multimillionaire who's actually been there and done it. And 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.

Welcome to episode 1194. 1194. Thank you so much for joining me today. I've got a good show for you as always. I hope you think that's true. Always. You know, we cover a lot of stuff here, so it's a variety. It's a variety. Anyway, today I've got Drew back on the show for a few minutes because we need to talk about commandment number three of my ten commandments of successful investing in. And we also need to talk about something that my dog is always saying. My dog is always saying this. She just constantly says roof, Roof. Drew, welcome. How are you?

Woof, woof. I'm doing great. How are you, Jason?

Yeah, well that's actually roof. Roof.

Oh, roof. Roof.

Yeah. The reason I bring that up is because, hey, my dog can speak English. He can talk about roof. She's into real estate. You just replaced one of your roofs on your self managed properties. Tell us about your roof deal, folks. The reason I have Drew on the show quite a bit, of course he's a client, of course he's a great case study, but he's also good at getting deals. Now some of you listening have had property managers give you crazy ridiculous invoices for a rent ready. That is literally close to the cost of Drew replacing A whole roof. I saw the pictures. It looks great. Drew, this is a Memphis property, I think. Or is it Indianapolis? Where is it?

It's in Indianapolis.

Okay.

It's one of the five or six places that I'm self managing in that area. You know, I'm looking here at the expenses that I had. And last year I had. In the Memphis area, I had a roof replaced at their quote, unquote, cost. Because. Because the property was. Basically what happened was the property manager did put a band aid on a heart attack. And I said, hey, this roof's a mess. Why are we doing patchwork on this roof? I wouldn't have spent fifteen hundred dollars to repair a leaky roof that's twenty years old. I would have replaced the entire roof. So they offered to do the roof at cost, quote unquote. And they did this for two different properties.

In other words, they did it at cost, saying, hey, look, Drew, we're giving you a great deal. Right. But I'm guessing the deal wasn't nearly as good as the deal you just.

Yeah. So I don't want to confuse the audience, but basically, they charged me their cost, quote unquote, which was one of the roofs was 9200.

Oh, my gosh.

The other roof was 7700 at cost, quote unquote. Because I had a $1500 roof repair build before this that was done in a way that I would never have done it, because why would I want to put fifteen hundred dollars towards a bad roof to just do this piecemeal, you know, repair to stop one leak when the whole thing needs to go? You know, there's that analogy of Houdini's wand where Houdini has his wand and he uses it and he breaks the tip while he's doing the magic trick. And then they go and they replace the top of the wand, and then he gets the wand back and he does another magic trick and breaks the handle and then replaces the bottom of the handle. And people say, is that still Houdini's wand? Because it's a whole new thing.

Right, Right.

I don't want Houdini's wand on my roof. If the roof is old, it needs to go. Going in there and doing 1500 dollars repairs is pointless.

It's not worth fixing. It's worth replacing. So the point is. The point is, last year you did two roofs. You overspent. This year you got a beautiful new roof on one of your properties. And it was only. Can I say the price? Or do you want to do you.

Want to say, hold on, I'll set y' all up. So this actually has to do with the show in a lot of ways. Because appeared on your show. Someone reached out to me and wanted to ask me about self management. I started to talk to them, and they said, I bought some homes in this property and have someone who's a seasoned investor. And they gave me their vendor cheat sheet of all the people that they've used throughout the years and the people they liked and didn't like. I traded him some contacts, and he traded me for his contacts. So I reached out to this roofer who does 20 roofs, like a week. And it's kind of the inside guy that everybody uses. He usually replaces about two roofs a day. He went out and bid the job, and he did the repair for six. He did the new roof for sixteen hundred fifty dollars.

Okay, so as the saying goes, and your wife's name is? Katie. Katie, bar the door. Wait a second. You said 1-600-SO-7600. Now, that was just for labor. You actually purchased the materials. But wait, there's more. When we get to your tenant getting you a discount. Go ahead. Yeah, so I love it.

The thing that was nice is the shingles that the builder used on the property. You know, in 2001 or whenever the property was built, they used shingles that were not resistant to wind. They're the cheap shingles that you might find. So the roofer said, hey, we should get these dimensional shingles that are more wind resistant because we had an insurance claim on this property because of wind damage, because of all the crazy Midwest polar vortex wind issues. So I'm still dealing with the insurance company on getting them to pay for part of the roof. But the beauty of this was I had some say in the color of the roof tile shingles, the quality of the materials that were used, and then I made sure that he bought them at Lowe's. And the $3,000 worth of roofing materials, what was the beauty of this? That's kind of an irony that you would never know unless you were self managing. Is my tenant works at Lowe's, and she's an employee there. And she said, hey, if you leave your receipts with me, I can get you a 10% discount and they'll give it back to me on a gift card and I can send it to you. So I got a $300 discount on my roof that will end up costing me about $5,000, which is at least a 50% savings, Jason, if not 100% savings off of what it would have cost me to, to use one of these other property manager vendors.

Right.

Because the thing is, they claim they're doing this at cost. I'm calling their block.

Yeah, well, that's B.S. i'm sure. Okay, so here's the thing. Just to wrap it up and make everybody understand it. Then let's get on to commandment number three, this beautiful new roof. I saw the pictures myself. Looks great. Cost you $1,600 for labor, $1,400 for materials.

It was probably about three, $3,000 worth of material.

Oh, oh, I thought it was 3,000 total when you said that to me. Okay, it was. It's $4,400 or $4,600 then.

Correct.

Okay, so it's about half price. But wait, it gets a little better because your tenant, who you now, since you are self managing your property, you have an actual relationship with your tenant. Normally this is this sterile thing. There's no people helping people. There's no sense of community. There's nothing. There's no relationship. Your tenant said, hey, by the way, you bought those materials at Lowe's. I work for Lowes. Send me your receipt and I'll go and get you a 10% credit. Because that's my employee discount, right?

Yeah, exactly.

Unbelievable. Awesome. Awesome.

Yeah, you couldn't make it up. So it's sort of like building your own network. And I mean, this all came together because of your show and, and talking to an investor and the investor talking to me and kind of that network effect of having a relationship with these people and everybody's happy at the end.

Yeah, that's great.

So it's really, really turning a situation for the best.

Look at, we talk about commandment number one, which is thou shalt become educated. Commandment number two, you know, basically thou shalt have a team, right?

A network.

Right. That's essentially commandment number two. We talk about investment counselors and so forth. And part of that network, part of your team, listeners, I want you to think of it this way. Part of your team is literally your own tenant, your own customer. I mean, look, take my business as an example. All of you listening, who are clients of our firm, you help us all the time. We love you for it. Can't tell you how much we appreciate it. Look, Drew's a client. He's not being paid to be on the show. He, he's just helping out because he wants to share a good story.

I'm going to send you your bill.

You're not sending me a bill.

Well, you know, you're totally right, Jason. And also, you know, my tenants are a valuable asset to me. And one of the properties that I have, it was a duplex. And so lawn care was my responsibility because it's a common area. And I talked to the tenant, and she said, hey, one of the trees is falling over in the backyard. I had someone out there the next day to remove the tree. I got a bid for them to do lawn care, and it was outrageous. And I said, no, thanks. So I talked to the tenant again, and she said, you know what? We're having such crazy winds in this area. Since this is a common backyard that sprawls because there's no fences, I think you'll be wasting your time doing a bunch of cleanup because the wind's just going to transfer all the neighbors leaves over to our yard or back and forth. So it's better to wait for the wind to die down, the weather to improve, and then do the cleanup. So I said, sounds great. So she texted me today and said, hey, have you had anyone to find to do lawn care? So I said, why? I reached out to a couple people that I had, and no one responded to me. So would you do me a favor and keep your eye out for the next week and see if you find someone in the area that's doing lawn care and get their information and. And I'll hire them. So I sort of put the responsibility on the tenant.

Oh, yeah.

To find the person for me, rather than me cold calling people to see if they'll come out and deal with it.

So that's the point I was making. Look at. I want you to look at. You know, every guru out there will say, hey, if you want to invest in real estate and you want to be a big real estate investor, you got to have a team, right? You've heard it before, folks. It's not new. Part of your team is your own tenant. Your tenants are part of your team. They are your customers, and they're also a valuable asset. They will help you. You're all moving in the same direction here. So look at your tenants as part of your network, as part of your team, okay? Make sure you do that. That's really important, and that's a good lesson. And that's another benefit of self management, of having those tenants on your team to be an asset. I can't tell you the number of times Drew, over the years that I've had my own tenants repair things, fix up the house, meet contractors for Me, you know, I mean, I'm not local. I can't meet them. The tenant will meet them. The tenant will take their phone number and set up the appointment and just do the whole thing. In fact, I remember one tenant who was telling me that, you know, he was giving me his opinion on which estimate we should go with. And he said, you know, I think this other guy's overcharging you. You know, that that's too much. You know, use the cheaper guy. These tenants, most of them are just great people. I mean, I know we hear a lot about bad tenants here and there, but the vast majority of them are just really nice, good people that just want a good place to live and are happy to pay you the rent and help you be a better manager. Now, Drew, one last very quick point on that. People listening and you've addressed this before on prior shows and at Meet the Masters, they're probably thinking, oh my God, he's spending so much time on this. This is his full time job. Not really. You've got a very successful business that you run. Got a new baby and another kid as well. You've got lots of other things to attend to. So do you feel that this is worth your time given that you're a highly compensated person, the self management, or are you doing menial work here? Tell us how you feel about that real quick.

I think part of the performance of this asset is my oversight because if something is being managed by a third party, they're not going to do as good a job as I am. So I don't think it's fair to talk about how much money I'm making per month when once I've resolved all these problems, I have that compounding effect of you not having the incompetency, you know, building up inside the property. So I think there's a lot of unseen benefits that I'm going to get from this that I'm already starting where the first couple months it was a little bit more trouble than I would say it was worth if you were looking at it on a monthly basis. But now the amount of work I'm fielding and the amount of projects I have has gone dramatically down. And if you think these property managers are doing one or two things every month at your property, most likely they're not.

Oh no, they're just a lot of them are just overcharging people. So, you know, we want to empower people and I really recommend the self management. If you have never tried it, try it once, try it with one of your properties, see how it goes. You'll be surprised at how little time it takes, how overall your tenant turnover will be reduced, your expenses will be much lower. Your whole experience will just be better. I bet you it will. I mean, you know, now I'll say that, of course, and. And, you know, someone listening will do that. And the first experience will be the bad, unlucky, you know, experience that everybody's gonna have once in a while. But overall, I just think it's a much better deal. Okay, hey, let's move on from the self management. We got two more things to cover. And Drew, can we jump into Kyle Bass and then we'll talk about commandment number three?

Sure.

Okay. We promised last week we would just wrap up this video that I played while I was in China. It's quite interesting. So let's just finish it, you know, we'll have a couple comments on it.

To Gordon's point, and thinking back to the fall of the Soviet Union, it looks to us like, I don't want to say fraud, but let's say the disingenuous nature of the exchange rate between the RMB and the USD.

So he's talking about China manipulating the numbers essentially between their currency, the RMB or the yuan, and the dollar, you know, saying it's. It's disingenuous the way it's portrayed and that the Chinese economy is not nearly as good as. As they would have you believe.

Fact that China is completely running out of dollars and raising dollars through Hong Kong. And Hong Kong is as levered as it is and running out of its own rainy day funds. If you have money invested in Asia, I would rethink that, and I'd rethink it very quickly. If you have Hong Kong dollar deposits, you'd be foolish not to convert them into US dollar deposits because you don't even earn 80 basis points more in overnight rates. So I think this is multifaceted. You need to think about the nexus of Hong Kong and China economically. But then we go to the politics, and I know a lot of you here are political animals. So if you've noticed in the last month or so, China has actually floated a proposal through Hong Kong's legislature that says they would just like to extra judicially grab people off the streets of Hong Kong if China deems them to be a, quote, fugitive, and a fugitive means that they've broken a law that happens to be a law in China and Hong Kong. Let's just use murder, for example. If president Xi issues a warrant of Arrest and calls the Hong Kong police and says, hey, this person xyz, committed murder in China and he's there in Hong Kong. We want you to ship him over to us. Hong Kong's going to be obliged to do that without due process. Now that's not autonomous anymore. That is a breach of the 1992 agreement that the US has with Hong Kong. It's a breach of the 1984 agreement that the Brits have with Hong Kong. And so China, I believe, is overplaying their hand in a big way in Hong Kong. And I think this legislation is about to become law. The most interesting thing about these agreements is the 1992 Hong Kong US Policy act is re ratified annually by the US President. The State Department owes a report to the president, and then it's up to the President to decide whether or not Hong Kong is still, quote, autonomous enough for us to give them the status that they currently have. So given the economic fragility of the region, and going back to Gordon's point, China's in a really bad place today. Running out of dollars, slowing with their economy, and the biggest credit binge in world history. Hong Kong is the most levered developed nation in the world today and they're running out of dollars. We have them exactly where we want them right now. We should not sign a trade deal with them. We should go ahead and impose these tariffs and then negotiate something much more meaningful with them six months down the road. So I think it pays attention, you need to pay attention to both the politics and the economics of Hong Kong, which for 36 years has been a relatively stable place in Asia. And I think going forward, that's actually not going to be the case. So, Frank, thanks for having me.

That's a pretty interesting speech by the very renowned Kyle Bass, very renowned in the financial world. And Drew, thank you for sending it to me. I played part of it on the show last week. Do you have any thoughts on that?

Well, I mean, I think it shows that the prosperity and the Chinese economy is all based on debt. And it's interesting that the way they've transformed their economy, as you might know, is sort of modeled after the American empire of printing money. I think the difference is, is that the Chinese do not have currency that anyone wants to hold, not even the people in their own economy. I mean, if you think about the robber baron era, you know, the J.P. morgan's, these folks when they were making billions of dollars in adjusted to current currency, they kept their money in the US economy. They weren't going out and trying to get their money out of the system. If you look at every successful Chinese entrepreneur, they are trying to get out, Right. And some people speculate that's why bitcoin went hyperbolic, because they could literally just dance between borders and cash out, you know, and speculate at the same time.

Not. Not worry about the political risk.

Yeah. And like you kind of predicted, you know, once these governments see a threat to their monopoly, they'll just put an end to it. And so that's why some people speculate that when China said no more, it was only a matter of a few days or weeks where bitcoin then crumbled.

Very, very interesting stuff. Now, the point is that China is hungry for US Dollars, the reserve currency of the dollar is not going away anytime soon. So all of this doom and gloom stuff you keep hearing from, you know, Jim Rickards or Peter Schiff or this stuff, it's super interesting to listen to, but they're just all was wrong. The sky never falls. And they've been saying that forever. I mean, I remember when Howard Ruff was talking about that in the 70s and I had him on the show. I believe he passed away, but he was a super interesting guy. All of this stuff, it's just always. It's just always wrong because they just do it by math only. And the US Is in a very good position. And all these Chinese people want to buy our real estate. They want to keep their money in our banks. And hey, listen, it's certainly not perfect over here, but by comparison, it's better than what else is out there in most places in the world. So that's important.

Kyle Bass has some interesting strategies to prevent China from stealing our intellectual property by basically attacking the businesses that are trying to use sell their products here. The one thing I would disagree with Kyle Batts, and it might just be a matter of semantics, is I think China is going to play the long game and they're just waiting for Trump to time out. And the thing is, is there's a lot of bluster, there's a lot of hyperbole. And I wonder, you know, if Trump has all this rhetoric but doesn't follow through with it. China's gonna call the bluff. So I think that's what I'm in fear of. But what's nice is Trump is at least trying, so I couldn't do better than he is in that regard.

Yeah, yeah, there you go. Okay. Now you talked about how China's economy is built on debt, and, you know, everybody listening is Rolling their eyes and saying, well, so is the US Economy, so is virtually every economy. And they're right. But let's not look at economies for a minute. Let's look at an individual company, a corporation, or really a person specifically, who claims always not to be selling his stock, but he's just leveraging his stock and borrowing against it. Now, folks, this all relates to commandment number three of my ten Commandments. Thou shalt maintain control. Because when you relinquish control and invest in a stock or a pooled money investment, you leave yourself susceptible to three major problems. Number one, you might be investing with a crook. Number two, you might be investing with an idiot. Assuming they're honest and competent, you got past those two hurdles. They take a huge management fee off the top for managing the deal. Let's go to Tesla. Very much in the news lately. I owned two Teslas myself. First one I thought was good, the second one was a lemon. Tesla finally took the car back and gave me a refund. So I stopped pestering them so much and kind of just let it go and, you know, said, that's done that deal. But look at what's going on with Tesla now, Drew, this is crazy. Making what they're doing. I mean, where do we start? You want to talk about Elon leveraging his stock or executive overcompensation? Is this company going down and they're just trying to steal all the money from it before it goes down the tubes or what?

Well, there's a lot of financial engineering that's going on with the company.

That's putting it kindly.

I have dubbed it Tesla math because it's its own thing and everything is seen in the best possible light. Whenever they come out with a number, it's always tweaked in a way where it's a manipulation. I mean, it's even down to the trunk size where they're adding the frunk into the cubic square feet into the trunk.

The thing that Tesla has going on right now is the cumulative debt is exploding. They're losing about a billion dollars a quarter. And the only reason they're able to mitigate some of those losses is by selling EV credits to other carmakers, which will soon be disappearing once they all start coming out with their electric models.

That's like Al Gore selling carbon credits. It's kind of a similar idea, huh?

Yeah, yeah. You know, but you also look at the rate of their cash burn and it has the same hyperbolic explosion as the stock based compensation for the executives. So they keep getting Paid more as the company keeps burning through more cash. And so the financial engineering is just absurd. You know, Elon talks about how he's never sold a share other than to pay for taxes. This is his baby and he's going to go down with the ship if it ever goes down. And he's a true believer in his word. But the thing is, is that what he doesn't tell you is that he has leveraged his stock by almost a billion dollars and has taken loans out against his stock. So sure, he hasn't sold his shares and sure he keeps buying shares. But if you're buying shares with money or borrowing against your own shares just to get headlines, is that really a fair assessment of what's going on?

Yeah, right, right. Very good point, very good point. It's pretty ridiculous. What about executive compensation? It seems like they're just ravaging the company. They're just taking all this money out of it at the wrong time.

You are brave for being vocal about Tesla because they sure have their fanboys. And I would even say that I was one. And I think I persuaded you. I persuaded you to buy your Tesla. I bought Tesla as far as the stock goes and made a decent amount of money.

I bought two of the cars and you bought the stock.

Yeah, I think I did better than.

You, but I think you did too.

But the difference is, you know, I think a lot of Tesla fans are thinking this is the dream and don't bother me with the facts. I've already made up my mind. The thing is that's persuaded me is the data. You know, as the stock market and equities rise and Tesla gets all the dumb money, they're just pillaging that by giving themselves preferential stock prices before certain big moves happen. But I will tell you that that is wearing out. You know, days before Elon came out with his quarterly, his first quarter of the year 2019 results regarding deliveries, it was a disaster. It was dramatically less vehicles and more losses than any analysts predicted. And the thing is, is that Elon came out and days before came out with an autonomous investor day to try to get more interest in the stock to kind of distract those from the disastrous numbers he expected to come out soon.

Right. So he's wagging the dog, of course, he's a master at that. But are you going to talk now about his. He's basically now going to compete with Uber and Lyft and all the other ride sharing companies all of a sudden, Is that what you're going to say?

Yeah.

So Days before his whole thesis about selling half a million cars a year crumbled because demand is falling apart, he decided to shift the company strategy to get away from that thesis, to say that he's going to compete with Uber and Lyft and design his own chip board for his car.

And wait, all the Tesla owners can now make an extra $30,000 a year, he says, if they'll allow their autonomous vehicles to give rides to people. 30 grand a year. I mean, that is crazy. That's just crazy. I mean, no way.

The lies just have to keep getting bigger and bolder and more outrageous. And it's wearing off. I mean, days after this autonomous car event, the stock just went down in price. People just weren't buying it. What's funny about it is, you know, the idea that this car is going to come to you without anyone in it. And what's going to be required is that people will have to sit in the driver's seat with their hands near the wheel if they have to take over. And what insurance company is going to underwrite this by having a drunk person in the driver's seat having to take control if the car accidentally is about to collide in the center median, as it's done dozens of times?

Seeing Elon speak about it, he was just so absurdly dismissive. It looked like he was deluded, delusional. He was like, well, we'll just take the steering wheels out, we'll just take the gas pedals out, or, you know, the pedals out, because nobody will need those. I mean, this is all coming. Of course. I've talked about autonomous vehicles extensively. I love it, I love it. That's why I bought the first Tesla. I love it. But it's not coming next year. It's not going to be here next year. I mean, that's just ridiculous.

Yeah. So there's a couple things going on. I mean, part of the problem is Elon is trying to do too much at once. I mean, the Tesla semi hasn't been delivered, the Tesla solar roof hasn't been delivered. Full self driving hasn't been delivered. You just have tons of service issues.

There'S tons of quality problems. Yeah.

So yeah, I mean, this goes back to when you put your trust in one person and you lose that trust, it becomes an issue. And in real estate, you know, if we don't like who we're using, we can fire them and find somebody else to do the job. And the problem is with Tesla, if you fire Elon, what's going to happen? To the stock. So it's an issue.

Yeah, it sure is. It sure is. It's absolutely crazy. But again, commandment number three Thou shalt maintain control. You're all listening to this show because you want to control your financial future. So just buy some little houses. Ideally consider self managing them, maybe not. Either way is fine. But be in control. Don't relinquish control of your money to a company, a CEO, a mutual fund manager, a financial advisor, any of those people. Because no matter what they say or how good they seem, they don't have your interest at heart. You're clearly seeing this now with a majorly newsworthy company, so that's pretty interesting. Drew, thanks for joining us. We gotta wrap it up listeners. We are getting ready to go to Savannah, Georgia for our Venture Alliance Mastermind retreat this weekend and we will be seeing some of you there and we look forward to it. We're focusing on tax lien and tax deed investing at this retreat. We'll tell you how it went next week. Thanks for listening and happy investing to all.

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