1227: July Mortgage Rates & 20 Properties in 6 Years, Client Case Study with Damon Santa Maria

Well, you're going to laugh, but because of your podcast, we're positioned well.

I don't know how else to thank.

You, but thank you. Your podcast and your services are amazing and I wish I could do more as far as working with you guys, but I haven't really. But maybe in the future, obviously. But once again, our family is grateful to you and your services and your information is priceless.

Thank you 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. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and 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 1227. 1227. This is your host, Jason Hartman. Thank you so much for joining us today and greetings from beautiful Copenhagen, Denmark. This is my third time in Denmark. It is a beautiful place. We stumbled onto some fantastic weather and wow, the weather. All the Danes just keep telling us it couldn't be better. We had dinner last night with some friends here. One friend who is an American, Iranian born American who got engaged to a Danish guy. Just hearing about their situation and immigration and all of that stuff because, you know, he wants to move to the States with her. And going through all of that was interesting to hear the details of it, but it was also interesting to hear and have some discussions about the regulations in Europe. And you know, my view on this, it just every time I come to Europe, you know, once or twice a year, I was of course born here, I become rather quickly frustrated with the regulatory environment and the way it has put such a big weight on the economy. How, you know, you hear from Europeans when you try to get things done because it's a continent that's largely anchored in the past and it has an incredible past. I mean, European history is fascinating, to say the least. Very, very fascinating. But you know, there's a lot of anchoring to the past and it's fair to ask ourselves what has us, what is our anchor? Are we anchored toward the future, the past, the present? Of course, we're all anchored to all three of these things, but. But I would say Europe is mostly anchored to its past. And you'll hear, when you try to get things done, you'll hear the word procedure a lot. It's not our procedure here, you know, this is our procedure. We have to follow the procedure. And that becomes frustrating to someone like me. But hey, I told you that last time I was here and the time before that, probably, so you're not hearing anything new from me on that. But hey, we've got some great episodes here coming up. I've been recording heavily over the past few weeks to get a lot of episodes ready for you and I'll make some quick commentaries along the trip here. Coming up next, we are going to Berlin. Going to Berlin, Germany, then gdask. Gdask, Poland. I've been to both of these places before, a few times. Gdansk, of course, is the place of the Solidarity movement with Lequilensa. You remember his name in the news. Last time I was there, I went to the museum and it was quite fascinating. So a lot more to come up and. And we've got Finland and St. Petersburg, Russia. Helsinki, Finland, I should say, to be more specific. So I'll have more on that for you as the next episodes come up.

I'm not sure if you can hear the crashing waves, but greetings from somewhere in the Baltic Sea as I am sitting on the balcony of our cabin here en route from Helsinki, Finland, cruising to St. Petersburg, Russia. We had a great day in Helsinki today and I've been there before, but it was great to visit again. And now heading back for my second trip to St. Petersburg, Russia. And it looks like Koko the dog will be able to get into Russia. So very excited about that. The Russian government is sending a veterinarian on board, on board the ship tomorrow morning to give her a quick exam before she heads into the country and practices her Russian. So that should be fun. I'll let you know how it goes. Anyway, let's go to a quick mortgage update before we get to our client case study with Damon Santa Maria.

Welcome to the July edition of the Mortgage Minutes. We're joined today by one of the lenders from the network. Welcome to the show.

Thanks, brother. How are you doing this morning?

I am doing well now. Can you tell us what is going on? We've been seeing mortgage rates for home buyers dropping significantly around the last month or so. What's it looking like for investors out there?

Same, you know, they're going to experience some Decline as well. Of course they're not going to match up, you know, rate for rate just because of the risk associated with at least a perceived risk by Wall street for an investor versus a homeown. But they're also seeing some decline. Now an interesting thing that some people don't quite know and many won't, you know, it's going to be hard to understand is that there's going to be different coupons available in the mortgage backed securities pools for each type depending upon the risk. Sometimes you'll see more decline in the homeowner style mortgage or the primary residence mortgage versus an investor one, because they have different pools that investors choose to invest into. So you're talking about like pension funds and other, like mutual funds and other securities that are deciding to take on some mortgage backed securities and they will decide where they're going to plant their money depending upon the potential risk associated with it or the perceived risk. So if they pour more money into the pools that will fund your owner occupied housing, you might see a greater decline than you might see in investor interest rates because of the availability of the funds. Now lately we still have seen many of those decline alongside the owner occupied rates, but not quite to the same extent. And the thing that's really fueling it now, at least the back and forth on the interest rates, because they're seeing some days it's getting a lot of improvement and then other days it gives it all back and it goes back where it was a couple of days before as far as the trades are concerned. And that has a lot to do with these talks with China and that's fueling majority of it.

So what rates are you able to.

Currently get investors in the 15% down realm? We're probably talking about the mid fives, 5.5, maybe 5.6 depending upon many other factors. You start getting to the 20% down probably five and an eighth five and a quarter, you start getting into 25, it breaks below 5% or may just lag right at that 5% depending upon the day.

One of the things we're seeing, the President come out and say I can do whatever I want to the chair of the Fed, the Chairman saying, I'm here for four years. This has created a bit of volatility. How has that been impacting the bond rates as this is going on? Is it caused more fluctuation than normal or is it kind of just regular?

You know, I think that a lot of that volatility between the executive branch and the banking world over here, the Fed I believe that it's kind of been absorbed possibly by the market in the sense that they've been seeing this going on for a while. So they're not. I don't see that as making as big an impact because it just seems like that's been happening for what, over a year now. But what is making more sense is, you know, they're looking more at the economy and what's going to happen with the economy. And this whole conversation with China is impacting the economy more than I think the conversation between the Fed and the President. And ultimately when you're talking about the Fed, the Fed has some sort of influence about what the market does. But the Fed's decisions directly don't directly impact, it's an inadvertent impact to interest rates. So because of what they're indicating, that's again more economic indicators, additional economic indicator which would get the end trader, whoever's getting ready to invest their money into the market, whether they go into bonds, equities, commodities, precious metals, which is another commodity or currency, they're going to decide on that based upon what they're gathering in all the economic realms. And the Fed is only part of that. So right now, interestingly enough, with the Fed putting very little into the market as far as mortgage backed securities market like they did before with quantitative easing, it's being more fueled by just the traditional investing investment pads that was created in the mortgage backed securities world to begin with back with Lewis or an area in the 70s and on up till now that's being fueled by just the regular market. So it's interesting we're keeping fairly low rates even with the quantity of tightening kicking in in 2017, less Fed involvement in the mortgage backed securities, it's the general market that is keeping them where they are now today.

One of the interesting things that's happening is the rates have been dropping significantly over the past couple months, but owner occupied mortgage starts haven't been responding the way that they normally do. Have you been seeing any changes in mortgage applications for investors in your office recently?

Actually even the mortgage applications for investors is not as heavy as it was before. And I think because of all this volatility in the market, there may be a lot of people holding out now. We're still having a lot, there's still a lot of applications coming in. But if you want to look at the amount of applications are coming in after, after quantitative tightening, when there was the fear of the rates going up and people were just jumping in as fast they could to get Ahead of that, and now the rates are coming down. People like, whoa, let's see where they settle. I think that's the problem. And what I really preach in a big way to real estate investors, the rates don't matter. They absolutely do not. When you start looking at how inflation pays off your mortgage for you, inflation is not 2% as the Fed says. You start getting into the depth of inflation and start adding back in what they're taking out. It exceeds 5%. If interest rates are in the fives, you're not paying anything on the mortgage. So once an investor wraps their head around this, actually takes control of their business as a CEO of their business, and then gets the right people in the boardroom with them, you know, the right lender, the right real estate provider to discuss these things and understand what their business means and what their business is doing, they can start getting off the fence. You've got to get the right people to work with. I preach it up and up and down. I tend to be the CFO to their business. So I'll be at a fractional cfo. One of the trust advisor is in their boardroom to help them to understand. Don't sit there and wait for the bottom to hit because you'll never find. If you find it, you find it accidentally because you're involved. But if you're trying to time it personally, nobody is that connected to the market to time it perfectly. Unless you're manipulating the market, it's the only way to do it. And none of us that are listening to this have the billions of dollars or trillions of dollars it takes to manipulate the market.

Yeah, you can only see the bottom on the way back up. Now one of the.

Exactly.

One of the things that as rates have dropped is if you purchased in the last two years or so, your rate might have been, you know, in the mid sixes potentially. Are you seeing any movement in the refi market?

Some. And the only time I really push an investor to get involved in the refi market is when it comes time to extract capital from that and reinvest it because of what's going on. You know, talking about the inflation piece and all that, just jumping in there to drop your payment for an extra $23 of cash flow or jumping in there to just drop your rate because you feel better about it. That's not efficient way to run your business. That's actually a really inefficient way to run your business because you're spending money to get the new loan done. There's a reason why the banks love to preach refi your loan. Right. Because if you ride that loan out for 30 years, inflation literally eliminates the debt. I know Jason talks about inflation induced debt destruction, but if you're refiing every three, four, five years because the rates went down, you're paying more money into the system just so you can feel better about your rate and you're really spending way more than you'll ever get back out of that. And I don't care what people say is what your savings is over five years or you get paid back in two. No, you don't. You really need to think about that a little bit more. Sit down and understand.

It sounds great. Thank you for your time today.

Thank you, sir.

It's my pleasure to welcome another one of our clients on the show. And this guy has been a client for a long time. He's done not only properties but land contracts and we're going to hear about that. He's up to 18 transactions through our network and it's great to have him on the show. He reached out, I think it was last week and asked to be on and tell his story. Damon, welcome. How are you?

Great. Thanks to be here.

Jason, good to have you on. So, Damon Santa Maria, you just have such a cool name. First of all, it sounds like a place, a movie or something. I don't know.

My wife jokes that that was the only reason why she married me was because of my last name.

Because he had a cool name. Yeah, that's right. Very good, very good. Where do you live? Where are you located?

Live in Houston, Texas.

All right, well, that's actually one of our market. Did you buy any properties in Houston through our network?

Not through your network, but I currently have one rental right around the corner from my house.

Okay, cool. And when did you come in contact with us? I want to say it was like six years ago, but that's just a guess.

It was six years ago. And funny enough, I found you while I was scrolling through the itunes radio shows. There was a continuous loop of your podcasts. And because I worked from home at the time, I would kind of put on either background music or in this case, podcasts, and somehow I found you. And that's how I came to know Platinum properties and the Jason Hartman network.

Your first event, I know you came to Irvine or Newport for some of our events. And was it Meet the Masters back in, I don't know, 2012 or something? 2013, something like that?

Yeah, I think it was a little rock property. Event Creating Wealth. And that was my first event. And then meet the Masters later that year or the following year in Irvine, I believe.

Okay, I remember that. Yeah, we had a little property tour in Little Rock, so that was great. Good stuff. So that was your first time. What got you interested in real estate investing?

If I can kind of back up and provide some context. You know, I grew up with very little financial education. I didn't know anyone in real estate, and my parents had limited financial tools to kind of teach me. What made things worse was I was a horrible student. Somehow I had, you know, a 2.5 GPA could get you into college, you know, back in the day. And, you know, I'm happy to say that after six years, I graduated with a degree that I never ended up using. But despite, you know, all of the cards kind of being stacked against me, I always had a drive to make money. And it really became my passion to hustle and grind. And, you know, after graduating from college, I got into, you know, medical sales, and surprisingly, I did, you know, very well. And before long, my wife and I, we started making more money than we could spend. And this was before the Great Recession, so we invested in things like 401ks, Roth IRAs, mutual funds, etc. But as all of us know, after the Great Recession, we realized how quickly our investments could disappear, and we had very little control. And so when I started listening to your podcast, things just made sense. Your 10 commandments and then 20 commandments of real estate investing.

We're up to 21 now. Do you know, did you hear that.

We have 21 commandments now.

What's the 21st?

Well, the 21st one is thou shalt avoid manias. So whenever anything's a mania, that should be a warning sign to us that a bubble is forming. That's my point.

Yeah, I like it a lot. Maybe that'll become my favorite investment or commandment. But, yeah, so, you know, in 2013, I finally pulled the trigger. And, you know, after reading books and listening to so many podcasts and going to great events that you put on, I finally found a house that I liked that was right around the corner, and it was a great time to buy. I wish I could go back and go buy 10 or 20 more when the prices were low, interest rates were low. To this day, you know, I still have the same tenant from 2013, and so they've been there, they've never missed a payment. And I just got an email from them last week asking if they could stay till 20, 22. So that'll be nine or 10 years for the same tenant in place. And it's been a great investment. That was my first one.

And where's that, where's that one located?

Here in Houston.

That's Houston. Okay. I gotta tell you, you know, I had a tenant in one of my properties stay for nine years. My mom is finally losing her tenant that she talked about on the show. You probably heard a couple of those interviews. And the guy's been there since 1989. He's finally moving. She just told me. Yeah, yeah, so. So it is amazing. Some of these tenants will stay a really long, long time. But I'll tell you, Damon, sometimes they stay too long because the owner's lazy and they're not raising the rent enough. So there is a balance to that.

Absolutely.

Yeah. Yeah. Okay. So you still got that same tenant. You just kept buying properties. You're up to 18 now. You also bought some of the land contracts, which is something we did. We did a fairly small number of those deals. But I think the listeners would love to just hear about your experiences along the way.

Sure. So I'm actually not to correct you, but I'm actually up to 20 properties.

Oh, 18 through us, 18 through us.

18 through your network, which, you know, that's a fair amount. It kind of, I think, goes to show how happy I am, you know, with Platinum Properties and the service that you and Sarah have provided over the years. It's one of the meet the masters, you know, I had a bunch of IRA money sitting around that I converted to a self directed ira. And I liked the idea of getting, you know, a 9, 10% cash on cash return within my IRA by buying what's called the land contract. And essentially I'm acting as the bank where a person who may not have stellar credit will come to someone like me and say, hey, I want to buy this house. I'll pay you 9 or 10% interest and you act as the bank for me because I can't get traditional financing. Those deals have worked out very well. Most of those deals have doubled in appreciation and doubled in value. I sold one about a week ago. I'm in the process of selling another one. And we'll do very well on each one of those properties.

Now, those are inside your self directed ira, right?

They are correct.

Okay. So you don't have to worry about a capital gains problem until, you know, I mean, the account will be bigger because of capital gains. And then when you ultimately take distributions, you know, you'll sort of pay for a little bit of that later. But that's great. That's a good way to do it. So, and then the buy and hold properties, I'm guessing most or all are outside of your ira?

Correct. All of the long term buy and hold are outside of my IRA that my wife and I have bought. We kind of stagger, you know, she'll buy one in her name, then I'll buy one in my name. So we can kind of maximize the Fannie and Freddie loans up until 10.

Good stuff. So your wife is working and able to qualify for those loans too, right?

Correct.

Excellent. Yeah. So you can get, you can go up to 20, that'll be great. So, yeah, good stuff. What about the regular rental properties, the buy and hold properties? Share any of the lessons you've learned there or the experiences you've had?

It's very exciting to kind of look at properties, look at pro formas, calculate the numbers. That's where I kind of get a little bit nerdy and I enjoy that process. But I think some of the learning lessons that I had was, you know, early on I wanted to just get into the game so I would buy lower priced properties that I could afford, C properties that had a higher ROI on them, higher cash on cash return. But I've learned over time that sometimes when you have a $60,000 property, you don't have the highest quality of tenants. And subsequently, sometimes the property managers are a bit challenging as well. So I love that one.

So not only in the cheap properties can the tenants be challenging, but so can the property manager, right?

Absolutely. And you know, I think you've pointed out on several podcasts that you'd rather have an A property manager with a B property than an A property with a B level property manager. And that's entirely true. I can't kind of overstate that enough. Property management really is so key to this industry. Or as you kind of pointed out, you know, the lack of property management and kind of letting them step out of the way. The tenants many times are great folks and I enjoy, you know, having the tenants in all of my properties, but the property managers can sometimes step on. On toes a bit.

Right, right. And so what? Just to clarify, what we're really referring to when I say lack of property management is referring to self management of not having a property manager at all. Because I'm really more and more convinced that that is the way to go. We just keep hearing such good things from our clients about it. I've had good experiences with it. You know, I Don't know. Some of the property managers, they're great, some are just terrible. But regardless of whether they're great or terrible or whatever, they are in between mediocre. You know, wherever they end up on the spectrum, there's still just a natural built in conflict of interest where everybody doesn't want the same thing. And whenever you have that, you know, you have the same problem. In many businesses. Right. Financial planners, obviously financial advisors, they don't necessarily want the same thing their clients do. Yeah, it sounds good. They say they do. You know, I want you to make money so you'll have more to invest. Yeah. But you know, there's a short term and long term trade off there. Right. And usually everybody will take the short term trade. And lawyers, same thing. You know, they want to bill as many hours and the client wants a result. And so there's a conflict of interest. Right. And it just doesn't work. So whenever possible in life, try and have interests aligned as much as possible. That's the lesson. And sometimes you just got to get them out of the way and just self manage. Now, are you doing any self management yet?

I am with the property that's closest to me here in Houston. I am self managing that property. And how's it working out? It's working great. Again, they have never missed a payment. I've come to know their family and we're not best friends or anything, but we have a mutual respect for each other and there's certain expectations that I've outlined that they adhere to and it's been a very good relationship and I'm happy that they've stayed as long as they have.

Yeah, good. But not doing any self management yet on the other properties. On the long distance stuff, huh?

No, that's probably one area that I'm a little less confident in because all of my properties are so far away and you know, maybe just not having the education or the tools or maybe even just the time because I think once you start to self manage, you do get perhaps more interaction, more contact with your tenants as you know, things arise and you know, the last thing I want is to have a bunch of deferred maintenance where the tenants are afraid to perhaps contact me if something does go wrong and then you find out years later there has been a leak or you know, some again deferred maintenance that has gone unnoticed or unreported.

Yeah, and I understand that as a concern, Damon. You can overcome that though. There are ways to, to handle that and you know, do inspections and all sorts of things like that. But most of it's just communication. You know, if your tenant is not going to report a leak to you, that would be pretty amazing to me that they would just suffer with a leak. And by the way, how's the property manager gonna know it's gonna have to come from a tenant report anyway? Right. The funny thing is, the managers, I mean, they might do inspections every year, but not all of them do that. And even if they do, it doesn't mean they're gonna catch everything. And usually it's all based on the tenant reporting an issue. Right. And so just something to think about.

No, good point.

Okay, so any other lessons or things you want to share or goals for the future?

Yeah, I think just in general, we kind of live in a time where for me personally, I have to be careful not to chase those shiny objects like buying a business or bitcoin or whatever the shiny object of the day is, and really have that long term focus on building income, producing prudent properties, that cash flow. And that's been something that there's all these distractions out there. And for me, you can easily become distracted by those shiny objects. So that's kind of been my focus from day one, is to build that portfolio of cash flowing properties. And I'll continue to do that here in, you know, in the future.

That's awesome. Yeah. The long term focus is a very good thing. It's a very sure thing compared to the speculative. Today it's bitcoin, tomorrow it'll be gold, and the next day it'll be something else. You know, it's really crazy how that. And that's commandment number 21 about manias right there. Thou shalt avoid manias. Absolutely, Absolutely. Absolutely. Do you have any metrics you want to share, Damon, of your properties? You know, cash flow metrics. I know you're. You're buying and selling a little bit too. So, you know, when it's a kind of a moving target, it's not always easy to have some really good numbers. But anything you want to share on.

The metric side, From a metric standpoint, I think the pro formas that you put out on each property do an excellent job of outlining each financial indicator. I mean, for me, cap rate is not as important as cash on cash return.

Yeah, good, good.

I tend to look at cash on cash return as kind of a primary metric for gauging how a property will perform today and into the future as well.

That's definitely a better metric. And overall return on investment too. Right.

You know, that number I think can be a bit nebulous at times because I think, if I'm not mistaken, that includes appreciation. Correct?

Yeah. So the appreciation is obviously speculative because you don't know if that's going to happen or not. Which is why we say appreciation is the icing on the cake. And you don't see that until you have a liquidation event or at least a refi. A refi.

Good stuff. Okay. Any other metrics or anything like that? So you like cash on cash return? The best?

Overall cash flow is king for me. And when I look at a pro forma, you know, the other metric that's kind of hidden is the maintenance. And we, I tend. I have tended to gloss over that in the past, saying, oh, there's not going to be any maintenance, it's a brand new property, newly rehabbed, etc. But if you don't build that into your cash reserves, you know, sometimes that can sneak up on you, especially with a tenant turn or you know, those unexpected events where an H Vac goes or water heater goes, whatever the case may be. And so sometimes taking that defensive calculation is just as important as how much money you're going to make as well.

Yeah. Very good. What are your goals for the future? Are you going to keep buying more properties or is 18. Well, 20. Is 20 enough or what's the next plan?

Actually, I've been at a study clip of buying three to four properties a year, and this year I'd like to do maybe five or six before the year is up. And I'm taking some steps now, working with Sarah to potentially buy a package of properties. But my goal is to continue to build that up for the foreseeable future and have it help pay for college as well for my three children.

Fantastic. And Damon, one thing I didn't ask you is what markets you're in. I know you mentioned Grand Rapids, of course. Houston, where you live. Did you buy in Little Rock on that tour?

I did. I bought a house in Little Rock. That's been a great performing property there. Most of my properties are in Memphis. Memphis has been a great market over the years and it continues to perform a lot of inventory there. I also have a house in Indianapolis as well, as well as Florida.

Good stuff. Where in Florida?

Just north of Tampa.

Okay, so yeah, you did Port Richey probably, right?

Yes.

Correct. Yeah. I wish we had more properties there. Those sold like hotcakes. Well, that's great. So you're nicely diversified and you're just going to keep building your portfolio and that is a great story. And you did this all in six years. Sounds like it's just going very, very well. Thank you for joining us on the show and sharing your story. Really appreciate it.

Damon Appreciate your time, Jason, and thanks for having me.

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