1376 FBF: Double Rent Arbitrage, RV Ratios Worldwide, Unwinding Depreciation & Leveraging Debt

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. We are now on Alexa, so if you have an Alexa device, you can get my real estate update on Alexa as part of your daily Flash briefing. So be sure to check it out in the Alexa store and add the skill for Jason Hartman's real estate Minute.

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

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 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 listeners from 165 countries worldwide. This is your host, Jason hartman with episode 1022. 1022. Thank you so much for joining me today. And we are finally. I apologize, I know we're a little late in getting to some of these listener questions, but you know what they say, better Nate than lever. There's my attempted humor, folks. That's about as good as it gets. So don't count on any humor. But you will get some good information from my show. So let's go ahead and dive in and go over some of those. I've got my boy, he's here kind of often on the show lately, isn't he? Carrie Lutz, my guest co host, Kerry. What's up?

Hey Jason. It's becoming a bad habit I guess, huh?

Yeah, well, you know, you do know how to do a radio show, so it's good to have you here with me. Thanks for joining me today, you know, last time and we're doing two consecutive shows in a row here. Last time, you know, we didn't get a chance to talk about everything. But before we get to a couple of these Q and A things, you know, people should have a right to take a job without being forced to join a union. I call it pro choice. What do you think of that, Gary, in the Supreme Court ruling? I think we mentioned it last time, but I'm still excited about this.

I don't think that's what the liberals quite have in mind when they mention the words pro choice. It's a pro choice for the things that they want, not for the things that you want.

Well, that's the way it works, you know. But I'm so excited that the Supreme Court has put a. They just punched the unions in the stomach. And really the public employees unions, look, unions in the private sector, I'm not as upset with them. But public employee unions, think about it, the government, and I've said this before, the government is in theory the arbiter of fairness. So the idea that when you work for the government, you should have a union to lobby against the taxpayers is completely absurd. Because think about it, on the government side, there's really no self interest. If it's a private company, there is self interest and that self, self interest will be adversarial to the union. Right? Because you know, the company ownership wants the lowest cost labor and the labor wants the most money so they can duke it out. And that's a fair debate. But when it's a public employee union, you know, the people want more money, the union members want more money and the government bureaucrats who run this division of the government, it's not their money. So they just hand it over. It's pretty good gig if you can get it. But not anymore maybe, right?

And in return, the politicians receive generous contributions from the unions, both in terms of cash to their campaigns and payments, so called payments in kind. Meaning they get the union slugs to go man the phones, to do all the phone campaigns, to go knock on doors, to hand out propaganda at train stations, et cetera. So I guess potentially that's going to change.

Hashtag government corruption. Hashtag government corruption. You know, I interviewed, and you know him too, I interviewed Adam Angievsky on my show today. He's a returning guest, second time on. He's the founder of OpenTheBooks.com and so that show will be coming up soon and he talks about, oh my gosh, all this insane government Waste. It's just crazy, crazy, crazy stuff. And I mentioned it last time on the show, but the changing demographics of home buyers and home renters, and this is something, folks, we've never seen it before. So as real estate investors, we got to think about this stuff. I mentioned the article in the Wall Street Journal, the rise of the older single female home buyer. Unmarried women over 55 is now one of the largest, fastest growing demographics of home buyers with longer lifespans and careers. Many look for homes with. And this is what the subtitle of the article says. No bad memories. So, you know, that means probably a divorce and they don't want to, you know, live in the same house, whatever, right? Some interesting change. Changes. What we've never seen before also is this. These empty nesters, these older and not that old in some cases by today's standards, but empty nester baby boomers moving out of the house, selling the family home, obviously the empty nest. And a lot of times they would move down and they'd buy a condo or a townhouse, right? Lower maintenance, you know, a little more freedom of lifestyle, could travel a bit, whatever. But now what they're doing, Carrie, and this is interesting, they are renting, and they're fine with renting. No, you know, look, folks, I will admit that I, in the old days, turned up my nose and had a bit of a snobby attitude about the difference between two classes of people, renters and homeowners. And, you know, I think that stigma's just largely gone in what I call our portable society. The world being more mobile than it's ever been. And especially with the millennial generation growing up on the sharing economy, just a. A different deal nowadays.

Oh, yeah. For myself, I fall into that category. Jason.

Yeah. You own big, expensive homes in Westchester County, New York. I mean, you were a rich New York City attorney, right?

For 30 plus years, I owned my own home. Then I moved to Florida. Well, I didn't want to buy initially because I wasn't sure what area I wanted to be in and what my needs were. I looked at houses to buy. I rented two, three houses. Then I bought a house. Then family exigencies required that I move closer to an ailing relative. Sold that house, and I rented another house. And you know what? I'm about to rent a brand new, beautiful townhouse north of where I am.

Here in Jupiter, right?

Well, in the northern Palm beach county area. And the place is brand new and I didn't really want to buy it, so.

I know, I just don't I don't see, you know, I used to own all these big beautiful homes in Orange County, California. And I just, I don't know, you know, I've been looking at houses here in Florida and I just don't really feel the urge to own the house in which I live. I own lots of property. I'm a big believer in owning real estate. But the one you live in, you know, you can do it either way. So again, that is a changing mindset and I don't believe I'm any sort of rarity there. I think a lot of people feel that way nowadays. Well, it's borne out by statistics. They definitely do. So. So that's interesting. Okay, let's dive into a couple of these listener questions. Kerry, what do you got?

All right, so the first one here is from Mason Albaugh.

Mason was the number two winner of the video contest at the Meet the Masters event with Ron Paul. So congratulations. And Mason, one of the things he won was a Venture alliance weekend. So he joined us in New York at our last Venture alliance just about a month ago. And the next one is in Kauai, you know, Hawaii. Kauai, island of Kauai. And then we're having our, our Profits in Paradise conference before that. Then we'll do our Venture alliance retreat. Those are almost back to back on the beautiful island of Hawaii first week of November. Join us. Go ahead, question. All right.

Hi, Jason, I've taken your advice and have chosen to be a renter. While renting out investment properties, I actually got lucky and locked in a good deal this past year because the apartment complex I was moving into had a unit selected and a set rental price. But on my move in date, the unit turn wasn't ready. So they offered a new unit that had more square footage, washer dryer included, a better view and still at that locked in price, about $300 less. So I have a lease renewal coming up in a few months on this unit and wonder if you have ever tried to negotiate your personal rent successfully. I noticed this commerc type landlord has been raising rents at about 10% and would rather not have to do that and or get defaulted to the actual unit price. How would you keep your price locked in as a tenant at a current price? Any strategies?

Oh, that's a good question. So. So let me just say one more thing about the renting thing before I grab Mason's question. But I'm glad he brought that up. The point of the rental, my idea of promoting renting the home in which you Live is this. If it's over 250,000 dol, then it starts to make sense to rent the home in which you live. If it's under $250,000 in value, it makes more sense to buy it because the rent to value ratio, the RV ratio, gets way out of sync as you go up in price. Now the best deal of all is renting a really high end home. You know, go rent a 5, 6, $8 million house, it's a great deal, and take that same $8 million worth of real estate and buy, you know, a bunch of single family homes and a couple apartment complex. You will receive way more income in rent from that and you'll be arbitraging in your favor renting the high end home for yourself. So that's my point, you know, if your home is valued under $250,000, you should own it. The idea is rent a high end home for yourself and own a lot of little bread and butter inexpensive homes that you rent to other people. Because then you get the double rent arbitrage. You know, I talk about the double inflation arbitrage. Well, that's the double rent arbitrage. Okay, Mason's question. Look, if you want a good deal on a ren rental, do not rent from an institutional landlord. You called it a commercial landlord. Rent from a private party, you will almost always get a better deal from a private party. Now that must be begging the question. All of you listening are private party investors. And I don't want you to be this much of a pushover on your rents, okay? I want your houses to be fixed up nice and I want you to rent them at good high prices. Generally speaking, institutional landlords that own apartment complex boxes that, you know, a bunch of boxes, they are good at upping the rents. They're good at nickel and diming people. And I want you, frankly, as a private landlord owning single family homes to get better at that too. I want you to take the lead of the institutional landlords that are good at squeezing money out of people. And I want you to do that right? I want you to charge pet rent. I want you to charge 25 bucks a month if they have a pet, okay? You know, if they have two pets, charge them 40 bucks a month. Month, right. A lot of our landlord clients are starting to do things like rent appliances to the tenants, okay? You know, rent them the refrigerator, rent them a washer and dryer. You know, why is all this stuff included? One of our clients who's actually been on the podcast before, he's got a bunch of properties. He's really into self management now and he is literally. I kid you not, Carrie, I know you have one of these at your house. But he is now renting and this is small potatoes, but it's a good thought experiment. It's a good concept. He is renting the ring doorbell and the subscription to it. Yes, I know, it's kind of funny. But you know, you can rent alarm systems, you can do all sorts of add ons in your houses. Okay, think like an institutional landlord. You know when they have an apartment complex and say they have community laundry, you know, they make money, they make that laundry a profit center. There are more profit centers in this for us. One of them. That's easy, easy, easy pet rent. Okay, so just think about that. But you'll get a better deal from an individual landlord almost always than an institutional landlord. Next question.

Well, Mason, just wanted to say big thank you again for Meet the Masters and your team. Thanks for featuring the interview I did with Gary Pinkerton on the show he is hosting. Also, your producer Adam lives only an hour or so away from me in Texas and is a good guy who I could see myself learning about, producing with and potentially help out whatever you need later this year when I have my schedule set.

Good stuff. Thank you, Mason. Appreciate it and I'm glad it's valuable to you.

Next question is from Jordan Calloway.

Hey Jordan, how you doing?

Jason? First, thanks for your podcast. I find it refreshing, educational, entertaining. Gee, nobody ever says this to me, Jason.

Well, that's because my podcast is better than yours.

Well, you're entitled to your opinion. I mostly listen in order to keep my real estate goal of buying my first property on my mind. Second, thank you again for the AirPods from your contest. They are awesome.

Oh yeah, we had the AirPod. We gotta do another contest, folks. The next contest is gonna be win free tickets to our Hawaii event. Okay? So get ready. We're gonna have some kind of contest. We haven't thought about it yet, but we'll have it.

Hey, nice tease. Yeah, okay. My wife is enjoying them thoroughly, which makes me happy. Happy wife, happy life. Life. Third, you mentioned in your podcast today that was episode 954 that you are considering moving. If you're looking for a high quality lady, I suggest Northern Virginia. You can find an excellent rental property to stay at. And the women here are no joke. They won't take crap from anybody, appreciate a good man and are faithful. Full disclosure, Virginia has state income tax. There are a decent Number of Model X drivers on the road to laugh at Tesla.

Model X. That's what it is.

Tesla's, yes, perhaps a plus. And things move quickly here. I find that hard to believe, but I get the sense that you can handle that, no problem. Cheers to finding a great long term home, Jordan.

Hey, thanks Jordan. That's cool. I like the northeastern U.S. i love that you've got all these bright, smart people. I mean it's interesting being single in a place like California, Southern California, where, you know, the younger crowd in SoCal is usually not that with it. Okay. You know, some of them certainly are, but they're not as with it as they are in places like, you know, the nice areas of Virginia and Washington D.C. and stuff like that. You know, that's a pretty educated population up there for the most part. But hey, I am not living in a place with super cold weather. So thanks anyway, I'll come and visit.

Hey, and let's not forget, most of the people that live in Virginia, certain, certainly northern Virginia, all work for one person in particular and that is Uncle Sam. So you got to get your arms around that as well.

No Uncle Sam. Yeah. Okay. Is there a question in there?

It is from Han Gao. He says, I am one of your loyal podcast listeners now working full time at Language Online Solution as an over the phone interpreter and freelancing at RR Donnelly as a medical translator. Also I am a one unit landlord here in Northern Ontario of Canada. I used to be a medical doctor but now my specialty is to provide language services between English and Mandarin, sometimes Cantonese. I am wondering if I can provide service to you on the following aspects. As you have mentioned in your podcast, Interpretation for Mandarin speaking investors, promotion and development of your business in China, translation for all your books and transcripts of your podcasts.

You know that is something that we have definitely thought about. But you know what we need is a Mandarin speaking investment counselor and I think actually Oliver speaks a little bit of Mandarin. We can kind of touch those markets, obviously China, Chinese investors, huge market. We'd love to have more of that. You know, we certainly have many of them now. We really need a very fluent when it comes to any language, we need very fluent investment counselors that are very fluent in that language because it's not just about getting the client to get interested and exposed to the material. Someone's got to take care of them all the way through. So yeah, thank you for that. Good idea. And we've thought about it for many years.

All right, any further question? My rent to value ratio and you got to keep in mind, this is Canada is 0.859%, 1400 over 163,000, which is probably the best I can get in Canada. But the property quality is far from being ideal. Not even close to the listings on your website. Built in 1972, it is a semi detached with three plus one bedroom, two bathrooms. I also own some stock in Hong Kong because I had worked there for four years. I had been working at Dalian, Beijing, Hong Kong and Shenzhen. Now I am based at Sudbury, Ontario, Canada. Thank you very much for your each and every insightful episode and I will keep listening. Wonderful work.

Thank you so much. Appreciate it. And yeah, the interesting thing about rent to value ratios is that they apply worldwide. So the rent to value ratio you described really isn't too bad based on that price range. So, yeah, I mean, I'm not surprised. That sounds about right.

All right, next question from Chad Godin. Jason, how does depreciation get unwound? Say I'm reaching the age where I no longer want to be involved in real estate. So I start to sell some of my properties without doing a 1031 exchange. How does the depreciation work upon sale? Similarly, we moved out of a house, rented it out and have been taking depreciation. But now we may be moving back in. Was depreciating the house a mistake while it was a rental?

Well, that is a good question. That was from Chad.

Yes, from Chad Godin.

Hey, Chad, so that was a really good question. Guess what? There's an old saying, once a real estate investor, always a real estate investor. And here's why. You're trapped. You are trapped. Trapped, trapped. Well, not exactly. There is. I'm going to give you a couple. I'm going to give you at least one little solution. Look it, here's the way out in terms of unwinding. Look at if all of these years you've owned these properties and you've been getting the best tax benefit in America, the holy grail of tax benefits, because it's the most tax favored asset class in America, depreciation. If all of these years you've been doing that and then you sell the property that has appreciated, you are not going to get to take that depreciation benefit. If you sell it outright, you're going to have to pay tax on depreciation, recapture. However, if you 1031 exchange it, of course, you just roll it into the new one. And my understanding, under current law, and again, I'm not a tax advisor. Okay, so when it Comes to tax and legal stuff, you got to talk to the appropriate professionals. But I'll give you the concept. You can take it to them for further questions and analysis of your own situation. But you can bury that depreciation into the next property or properties on a 1031 tax deferred exchange. Another reason it's the most tax favored asset class in America. But if you do just sell and you don't want to be a real estate investor anymore, then you are going to pay tax on it. There's one thing you can do. Well, there are actually like two things. There are creative charitable things you can do through vehicles like a crt, a charitable remainder trust. This is a vehicle usually used by wealthier people. So depending on your position on the socioeconomic ladder there, you know, you could talk to an advisor about that. You could do some things, I think, with life insurance. So ask our friends at Paradigm Life. I think they might be able to help you do some things with that. I don't know exactly what, but I've heard about it. Talk to Gary or Pat about that. And then the other thing you can do is you can do, I think it's called an installment sale trust or deferred sale trust or something like that. I have talked about it on the show before. And basically all that is, is you essentially carry paper. Like if you sell the property on an installment sale and you don't take all the money out, you carry the paper, right? Then you only get taxed as you go, right? As you receive that equity back over time, so you slow down the tax liability for yourself. You can also do this within a separate vehicle that you sort of control, a trust vehicle where the trust can sell the properties and then the trust can do an installment sale to you, essentially, just like the buyer might. So there are a couple of options. But essentially the best thing to do is buy property all your life, have it all your life, and then die and have the basis step up to its current market value, pass it on to your heirs. If you don't have any children, you can always name me, okay? And I will be happy to accept and honor you on the show through for eternity. And boy, that's something else. Imagine if a listener did that.

Hey, imagine if 10 of them did it. Imagine if 100. I mean, this is.

That's what we got to do.

We could start a GoFundMe campaign with just people leaving you their stuff when they're getting ready to die. I think we got a winner. We're onto something.

Hey, A lot of my listeners are younger than I am, so, you know.

We could help them along. Hey, one other thing because I've had personal experience with this issue. Okay, so it's called Recapture of Depreciation Killer. It's a killer because you pay tax on every dollar you depreciate.

And here's the reason. It's a killer because most people forget that they've had all these tax benefits over the last 20 years or whatever it is. And they forgot that they kept taking this write off and their tax bill was so much lower all those years, so they got to pay it back.

But the good thing is, if it's investment property and you happen to lose money on the sale of it, it's a loser. It happens.

Sell at the bottom of the market. Here's the advice. Buy high, sell low. What do you think?

Well, if you lose, you'll be able to deduct that loss off your income tax under certain circumstances. Other thing is, if you've got an asset around the same time, like bad stocks or whatever that you've got, you.

Can use an offset.

Yeah, you offset passive income, you offset capital losses. So you have options. But overall, it's like giving the kids the key to the Maserati after they had a fifth of Jack Daniels. It's not a good idea.

You know, some of the greatest song lyrics are that old Joe Welch song. My Maserati does 185. I lost my license. Now I don't drive. I have a limo right in the back. I lock the doors in case I'm attacked. You know, I make good records. My fans, they can't wait. They write me letters and tell me I'm great. So I got me an office, gold records on the wall. I have accountants pay for it all. Or how's it going?

It's such a fun thing.

It's so funny. The lyrics are so funny.

Yeah, I don't know who's paying for the accountants, but hey, as long as the accountants, he's okay.

He's a rock star.

It doesn't matter.

Yeah, like a government of an employee. It's not his money.

One more.

Shall we do one more question?

One more last question. Jason from Cody Hawkins. Jason, thanks to a successful business, I have the ability to pay cash for houses. I want a solid investment that provides a second income. Now, in that case, is it wise to put 100% down on a property? As long as the numbers work. And P.S. i enjoy listening to your podcast.

Okay, and who's that from? Cody.

Cody Hawkins.

Cody, thanks for the question. The answer is no. Not unless you have to look at income. Property is the most tax favored investment in America. It is the most historically proven asset class in the entire world. And in it is the most debt favored asset class in America. And you know, this is good debt. It's positive debt. I say that debt is my favorite four letter word. Okay? You know, it's good long term, fixed rate, conservative investment grade debt. If you can get it, take it, you know, pay cash for a property if you have to. We have clients paying cash for properties. If they're foreign nationals and can't get the US financing, We have people paying cash for properties. If they're buying them inside their IRA or some other qualified plan. Okay, we have people paying cash for properties. If they already got their 10 loans per spouse and they're maxed out or they can't get financing for whatever reason, then yeah, sure, pay cash if you want. But it's not ideal. If you can get financing, get it when it's this really good long term, cheap fixed rate financing. I mean, even though rates have gone up a little bit, financing is still historically very inexpensive. So when you get 30 year long, cheap fixed rate debt, take it, get all you can, stock up. The debt is part of the asset. Think about it. If you buy a property today and you finance it, you will not make the last payment on that mortgage until 2048. 2000. Carrie, can you believe it? I mean, how much will the world change in what will the world be like in 2048? There will be a hundred million more Americans. Okay. We'll be at about 420.

Want to call them that?

Well, whatever. Okay. There'll be, there'll be that many people here. Okay, so there will be a lot more demand for properties. We will be autonomous vehicles, flying cars, who knows what, right? I mean the world will massively change. We might have massive inflation at some point in there. I mean, that's a high likelihood. Somewhere along that 30 year trajectory, you'll get inflation induced debt destruction. I mean, take the debt if you can get it. The debt is part of the asset.

And I think Trump will be up on Mount Rushmore.

I kind of doubt it. He's hated enough that I don't think he'll be up there. I don't think he'll be next to Obama. I think we should just kind of leave it at that. I like that. Okay, thank you everybody for listening. And you know, we went off on a few tangents, but I think we kept our time. Pretty decent on this one, so thank you for listening. Happy investing to all and be sure to go to jasonartman.com and check out our Hawaii events. They are going to be awesome. Again. Two events there a two day conference on Waikiki beach at the most iconic hotel in Waikiki Beach. We've got a fantastic room rate on our discount room block there and then also the Venture alliance retreat. We skip a day in between these two events. Then we go to Kauai for the Venture alliance so you can do both and have a great vacation first week in November. All right. Happy investing. Thanks for listening. Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out this show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own and if you require specific legal or tax advice or advice in any other specialized area, you please consult an appropriate professional and we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.