1632 FBF: Investing In Your 20’s & Home Buying vs Renting for Millennials

You know, the markets we're buying in are robust markets. The population is stable and growing and the values are stable and growing. It's not like we're just buying residential anywhere. We're buying in good markets.

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.

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 multimillionaire 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.

Welcome to the Creating wealth show. This is your host, Jason Hartman. And this is episode number 234. 234. Wow. A lot of episodes behind us and a lot of episodes ahead of us. Looking forward to continuing to report to you on financial, economic and real estate investment matters from around the world. And today we will be doing a case study, a case study with one of our young and ambitious clients. And I think you'll get a lot out of this and you'll see how the rent to buy analysis plays out in today's world a little bit differently than it used to. And what I mean there is renting versus owning, owning your own home, whether or not that makes sense, versus renting your own home and buying investment properties instead. So this should be a very insightful interview. First of all, I should say I hope everybody had a very merry Christmas. Talked to you right before Christmas and now it's right after Christmas to start the new year off right. 2012. I hope you're all planning to join us on January 7th here in Arizona, in lovely Arizona. The weather is gorgeous out here. It is just stunning. I mean, what a beautiful Christmas day. What a beautiful day. After Christmas gets a little chilly at night, but for those of you in the Midwest and back East, I think you'll feel that it's warm here, actually. But the days are just gorgeous, sunny and bright. Right? And we don't change our Clocks here in Arizona so it stays light longer and that's really nice too. Anyway, we are at the Hyatt Place Hotel in Tempe, which is right near the very famous Mill Avenue. It's a very colorful and eclectic kind of scene. I think you may want to go out on Mill Avenue. It's just a very short cab ride, probably take you two, maybe three minutes from the hotel. Or you can take the hotel shuttle for free. They do have a shuttle to Mill Avenue at your convenience. And just a really cool scene, you know, a lot of very colorful acclaim. Restaurants and bars, nightclubs, bands, live music and so forth. It's kind of like 6th street is in Austin, Texas or the French Quarter in New Orleans. In fact, there are some French Quarter looking buildings on Mill Avenue in Tempe, Arizona, and it's right by asu. So again, a really fun area, kind of eclectic. If you'd like a more upscale type thing. Scottsdale, Old Town. Scottsdale is very close by and there are just. There's just a plethora of wonderful restaurants in Old Town, but also some good ones right near the hotel on Mill Avenue as well. So a lot of choices. It'll be a great event. And all day Saturday, January 7th, we will have Creating wealth in Today's Economy Boot Camp. Again, this is our fundamental seminar. It is the one that thousands of people have attended over the years. I've been giving that one for a long time on behalf of different companies actually, and been a guest at different events as well. And it's very well received. I have probably, and I kid you not, two banker's boxes, those portable file boxes of evaluations from that seminar. And literally all but out of those thousands of evaluations, I would say maybe there are three sort of negative ones in there. And you know, you can't please all the people all the time. Folks, as much as you may try. I do tend to bash Wall Street a bit. So I'm certain that I've made some enemies out there. And I have this terrible tendency to use a little too much candor at times. So maybe that's the reason a couple people gave me some bad evaluations. But by and large all of them are extremely positive and just glowing evaluations for the Creating wealth in Today's Economy Boot Camp or seminar. And again, we have not done that one in over a year. We've done Meet the Masters events. Of course you can purchase Creating wealth in Today's Economy as a home study course on the website@jason hartman.com but again, come and see it live. And then Sunday morning we'll do a tour of the Phoenix market. And I think you'll really enjoy both of those things. And you know, Saturday night we'll probably get a little informal dinner together as well and all go out to dinner together. Should be a really fun time and a very educational and very valuable time to help you start the new year off right. And again, the cost of the event is it's just nominal, especially in depreciating dollars. Right. So anyway, register for that@jason hartman.com and we'll look forward to seeing you there. We've got a special room block rate at the Hyatt and it's only $89 per night. They've got a free shuttle from. So you don't even need a rental car. It's just minutes from the airport. So very convenient all around. The hotel was recently remodeled. It's gorgeous. It's not a big giant Hyatt Regency hotel. These are Hyatt Place hotels, smaller scale, but I chose it based on location and just convenience, location wise to the airport and to Mill Avenue and the excitement and entertainment value there as well. I spoke with it a good old buddy of mine who lives in Seattle today and called to say Merry Christmas, etc. And I got to talking with him and I said, why aren't you investing in more rental properties? And he says to me, jason, if you can help me get out of the two I have in the Seattle area, I will be happy to start investing with you like crazy. And I said, forget it. I don't want to talk about the two bad ones. I only want to talk about how much money you have now and what you're doing with it. And so he goes on to say, I've got about a quarter of a million dollars. Some of it's tied up, some of it's in 401k and retirement money and about 100,000 is liquid. And I said, where's that hundred thousand? And my good old friend says, in the bank. So I did a little analysis and I did this before recording this show, long after the phone conversation ended. So maybe the first time my friend will be hearing it is here on the show and listen to this analysis because I think you'll find it really valuable. Before we go to our guest today in our case study, it compares three things. It compares the cost and I want to look at the opportunity cost of this hundred thousand dollars and I want to look at it three different ways. I want to look at that money in the where it is now, I want to look at it in private lending or hard money lending. And as you know, I am very much a fan right now of that short term private money lending. And by the way, several of you contacted since I mentioned that on a prior show and I wanted to say if send me an email, I can hook you up with the right people. You may not be eligible for this, depends what state you live in and so on and so forth. And again, I don't know all the regulations, but shoot me an email jasonasonhartman.com if you're interested. But please do include your phone number in that email and I will CC you with the various parties and you can talk with him directly and I'll just make the introduction for you. But comparing it to short term private lending or hard money lending on real estate, I want to do that as the second comparison. And the third comparison of course is my all time favorite and that is income property. So when we compare these three, I'm going to take into account that $100,000 and how it performs in the bank, how it performs after taxes, how it performs after inflation, what the net is and what the potential opportunity cost is every single day by doing nothing. And this, folks, this is the great urgent, urgent urgency. How do you like that? The urgent, urgent urgency. This is the great urgency of making sure that your money just like your employees, just like your contractors, just like your children, making sure that they are working for you, making sure that everything you have is working, making sure that there is as little opportunity cost in your life as possible. Another big opportunity cost. And I have mentioned this before, but not for a long time, and that is the opportunity cost of credit. In other words, what I mean is unused credit, having a high credit score and not using it. Because I asked my friend who I'm about to do this comparison for, I asked him what's your credit score? And he said it's excellent. Well over 740. Now folks, I think in this kind of interesting in the paradigm of our last show where I interviewed the guy from the lawyer from youwalkaway.com where we were talking about how and Kathryn Austin Fitz said it too, how credit score it ain't what it used to be. And you know, I think the banks largely have to look at that as a bell curve and there may be times and this is a very hard call to make, but it's a judgment that each of us have to make individually where you have to ask yourself how much is that credit score Worth? Well, I'd say if the score is good and you're not using it, it's costing you a fortune. It's worth hundreds of thousands of dollars in borrowing ability. Assuming of course you have the other part of the ability to borrow. You need not just credit or credit score, but you obviously need income as well, right? Because you can't qualify, at least not anymore. Because we live in a much more sane world nowadays. This is post subprime mortgage meltdown. You cannot qualify without actual income. And you know, nowadays they generally tend not to make that up like they used to in the stated income world of the past, what I call the liars loans. So if you have income and this person has a good corporate job, W2 income, the kind lenders most like to see, and you have a high score and you're not using it, and then you have cash, boy, that is really a shame because there's a huge opportunity cost here. So let me go through a little example comparing these three options, okay? These three investment options. And since we're not doing this visually, I'll try and describe it as best I can. And if you're sitting down right now, it would make sense to pull out a pen and paper and just jot these numbers down. But even if you're not, if you're on your ipod, if you're at the gym, and I know a lot of you are because a lot of you say you listen to me when you work out, I probably should start playing some really good jazz music for you to work out too. But anyway, we'll just. We're working out the mind too, not just the body, right? But if you're in the car, you're working out or taking the dog for a walk or whatever, this example will still be understandable to you. So here it is. My friend's hundred thousand dollars in the bank earning about 0.25%. That means $100,000 only earns $250 a year. 200ameasly dollar. 250 a year on $100,000. Isn't that a shame? A total shame. Terrible. But it gets worse. Yes, it gets worse because after taxes. Now I have to make some assumptions here for purposes of illustration. So I'm going to assume that my friend's tax rate is 40%. Now, granted, lives in Washington state, there's no state income tax, doesn't live in the socialist Republic of California where you have state and federal taxes that are very high. Both together. But just for simplicity sake, I'm going To assume the combined, and you know, it depends where you live. The combined state and federal tax rate is 40%. Just for simplicity sake, if it's a little lower or a little higher, doesn't matter. It's close enough for government work, as they say. So if you take the $250 that this hundred thousand dollars earns in the bank, though the measly $250, and you take 40% away from it, you lose another hundred dollars. So now after taxes, you're down to $100,000, 100 G's, 100 grand. Only earning 150 bucks a year. Isn't that sad? That is terrible. Awful, awful, awful. So now the total return we have now is our hundred thousand dollars. One year later, we've got 100,000 comma or 100 comma, $150. So less than $101,000. $100,150 only. That's it. Now, if the inflation rate is 9%, okay, and I think it's about 9 and a half to 10% unofficially. But let's just go with 9% as the number. If you think it's lower or higher, plug in your own numbers. I'm just using 9% because I think that's a very reasonable realistic number. Now, for most of us, then inflation is going to take away 9,014 of those dollars. So at the end of the year, in real dollars, my friend's hundred thousand dollars has now devalued to $91,139. You have definitely lost money by, through your inaction, by leaving that money in the bank. It has cost you a fortune. Now, if you don't think that's that very significant, listen to this, because here's what good old sales trainer Tom Hopkins used to call it, but this is in reverse. He used to call it the reduction to the ridiculous. Now this is in reverse because this is the cost per day, per week and per month of this money. This is how real it is for my friend. $24.70 a day is the opportunity cost, the money that is being lost here. Now, actually, that's not the opportunity cost. That's just the cost from taxes and inflation. The opportunity cost is what could have been earned. Okay, so I actually said that incorrectly. So this is costing just inflation and taxes is costing $24.70 a day, $173.35 per week, or $751.17 per month. Now, folks, I don't know about you, but $751.17 per month can buy you a nice high end car. You can go get a BMW 535i and you can lease that car for about 750 bucks a month, fully loaded, I think. Okay, haven't checked lately. But if you want a really nice car, you can definitely get a nice car for $751 a month. Or better yet, you could get a rental property. You could get a few rental properties with that money. So here we go. Now let's look at the short term private or hard money loan. Now that one I'm taking a return here of 12.125%. So that means that $100,000 on an annual basis earns $12,125. Taxes. The government will come along and basically steal about 40% of that. So you'll give $4,850 to the government. So you'll give 48, almost $5,000 to the government. But you're still doing pretty well. Your net is $7275. And before inflation comes, you now have $107275. Inflation is going to come along. The robber and the thief. The few people understand or see who slowly steals your money without actually having to mug you or stick a gun in your ribs or pickpocket you. Inflation comes along and it steals because it does steal money from interest income. It'll steal about $9,655. And at the end of the year, in real dollars, my friend would have $97,620. Not terrific, but a heck of a lot better off than he would have putting that money in the bank, right? So here we're comparing $91,139 by keeping it in the bank and not doing anything to $97,620 by taking some action here. Now let's look at column number three. Let's look at income property. We looked at the bank, we looked at a short term private loan or a hard money loan. Now let's look at income property. Now I know that all of you realize this, that income property can produce well over 20% ROI annually return on investment. But I'm going to be a little more conservative here. Now, if you want to see specific performance, especially if you're a new listener and you think, oh, this guy's saying a bunch of hype. He's, he's crazy. This is just too good to be true. This guy's a, another one of Those late night TV scam artist guys. 18%. Who gets 18% on their real estate? Well folks, a whole lot of people get 18% on their real estate. Not real estate, actually I'm calling it by the wrong name. Income property. That is the right name. And if you don't believe me, just go look at the very detailed performers@jason hartman.com in the properties section and you will see how you can easily and realistically get well over 18% on your properties in terms of total ROI. So here we go. We've got that hundred thousand dollars and now we've used that to buy several income properties because remember, we can control maybe $500,000 worth of income property with only $100,000 in capital, maybe even more than that. But let's just take that as a a round number possibility. But look at, even if we didn't do that, even if we paid cash for an income property, we can get cash on cash returns very commonly of 11 to 13% sometimes. And you can see these properties right now@jasonartman.com you'll see income properties, cash on cash return of 18% or 18,000 per year. So we wouldn't even necessarily have to use leverage to get this return. Just sit with that for a moment because when we use leverage the return could be dramatically higher than 18%. All right, enough of that. Let's just go with the 18% number. Look at the details. Jason hartman.com so we've got the income property. It produced $18,000 annually on our $100,000 investment. Now taxes, I really can't even calculate the taxes for you. I'm going to assume that this person would qualify for the tax benefits offered through passive losses or depreciation, which are the best kind of tax benefit of all. Why? Because they're a non cash write off. They're a phantom write off in other words. Look folks, if you or I want to get a tax break for an independent contractor or we own our own business or we're self employed, we have to take and we have to spend. So money. If we spend some money we can get a tax deduction. Or if we take some money, maybe we don't have our own business so we can't really spend money on anything that'll be deductible. So the other thing we could do is we could do something nice. It's the holiday season, it's the time of giving. We could donate money to charity, right? If we donate money to charity we get a tax deduction. That's all well and good, but the problem with both of those plans is that we have to actually spend money. We have to actually write a check in order to get a deduction. With income property, though, as long as we can qualify for all of the tax benefits, not all of us can. So check with your CPA or your tax professional about the details on that. Some of us can qualify for some of the benefits, not all of them. Some of us can't qualify for any of them. Some of us can change our plan and our approach a little bit so we can make ourselves qualify for these benefits. So again, that's a complex discussion. We have had previous shows on that subject where I've interviewed some CPAs on the show, and we've spent an hour solely on that subject of taking all your tax deductions on your income property. But just remember this one thing is for sure. Income property is, without exception, the most tax favored asset in America, bar none. Income property rules the rooster when it comes to tax benefits. So here we go. We've got our $18,000 return on our $100,000 investment here. We're actually going to add money for taxes. No, we're not going to take money away like we did when we loaned money or when we put money in the bank and earned interest on it. We're going to get money from the government because we've created more tax benefits through the most tax favored asset class in America. So here what I'm doing is I ran a little, very simple depreciation schedule and I showed that just a $100,000 property, in other words, paying cash for a $100,000 property, not using any leverage at all, no leverage would generate about 2,900. Well, the number I wrote down is 2909 annually in tax benefits. Now, what if we use leverage? What if we got $500,000 worth of property and we qualified for all the tax benefits? We could multiply that number times five.

Wow.

The most tax favored asset class in America, bar none. Again, my disclaimer. I'm not a tax professional. I'm not qualified to give tax advice. I'm not a lawyer. I'm not an accountant. Check with the appropriate professional, always. But I'm giving you the concepts so you can go to your tax preparer and talk about depreciation and ask questions about it. Ask about becoming a real estate professional. Ask about ways that you can obtain your full tax benefits, and you may be able to. And if you can't do it, your spouse may be able to. One of the advantages of being married right there is that you can get your spouse to become the real estate professional has nothing to do with selling real estate. It's just an IRS classification. You don't need a real estate license or anything like that. Long story. Check the prior shows more details on that. So now our $18,000 in return on the 100,000 has turned into $120,929. Now inflation comes along and the question here is, does inflation detract from the return on investment of income property, or does it add to it? I would argue that it adds to it in not one, but two ways. Of course, if we've leveraged the property, we're in a position where we have what I call, and this is my own great famous little term, inflation induced debt destruction. Inflation induced debt destruction. Hey, that. Say that 10 times fast. So that is where our debt is actually being paid off by inflation. And inflation is benefiting us. But in addition to that, it gets better. Why? Because we are a packaged commodities investor. We purchased the building materials or the construction materials for that house, that apartment building, and we purchased it, hopefully with borrowed money. But if we didn't, we purchased it with cash. Either way is fine. Borrowed is better. But even with cash nowadays, it's good enough. It's pretty great, actually. So here we've got commodities. What do commodities do in an inflationary environment? What happens to the cost of concrete, lumber, glass, steel, petroleum products, copper wire, labor, energy cost? All of those things increase in nominal price, not necessarily in real dollars, although historically for real estate, they have. Remember when I interviewed that PhD on the show a long time ago, who was talking about how real estate generally outperforms inflation by about 3% annually? I say inflation benefits real estate investors in two giant ways. But, but let's assume that it doesn't. Let's assume that like the bank and like the lending, that the real estate actually is hurt by inflation. So we're going to take 9% inflation and we're going to take that out of the value of our return that year. How much was that? Remember, it was $120,929. We're going to go ahead and we're going to take 9% of that, which is $10,884. And at the end of the year, here is our comparison. The income property, even with inflation without any benefits of inflation, only with negatives from it, has reduced our return. Our total at the end of the year we have left in real dollars is $110,045. We've still performed better than the other two. So just to recap, three columns, a three investment comparison here. The bank, we've got $91,139. The loan, we've got 97. Where we loaned out money as a hard money loan or a private loan, we were the lender, we got $97,620. And with the income property, we got $110,045. Remember, if my friend lets this money sit in the bank, it's costing him essentially 25 bucks a day. $174 per week or $751 per month. Folks, herein lies the urgency. 2012 is upon us. It is time to make sure as much, if not all of our money is working for us. Okay, if you own a business, then you want your employees working. You don't want them dilly dallying around by the water cooler, surfing the Internet, doing Facebook or Twitter or whatever they're doing. Unless it's for business. You want them working. Why would it be any different for your money? Your money has got to work for you all the time. You've got to have your money working. If it is not working, it is costing you 25 bucks a day. You know, you could have a darn nice lunch for $25 a day. In fact, you could have a decent lunch and take a friend. This is real money. It is diminishing our wealth if we don't put it to work. Enough of this. We'll see you on January 7th, Hyatt Place in Tempe, Arizona. It'll be a great event. Register now@jason hartman.com and let's go to our case study today with our young investor, Drew as he talks about what he has done compared to his friends. We're going to talk a little bit about monetary and fiscal policy and Ron Paul and some other interesting sort of political things here, too, and home business. And anyway, I think you'll enjoy this interview. It's kind of an interesting conversation with one of our actual clients who's doing a good job with his investment portfolio. So we'll be back with that case in just less than 60 seconds.

Are you interested in a property outside of our network? Do you need a second opinion? No problem. Let Jason's experts evaluate the deal. For more information, go to jasonhartman.com now.

It's my pleasure to welcome one of our clients to the show. He is doing an amazing job job at accumulating income properties at a very young age. And while all of his friends are following the traditional plan of buy your first condo or buy your first house. He's taken a different tack, and it's really, really paying off for him. He's also very aware of politics and the economic environment and so forth. He listens to lots and lots of different podcasts and audiobooks about these subjects, and we constantly talk about them. So I thought we should just get him on the show, because the other day I was listening to his story, and I thought, you probably want to hear this as a listener. Anyway, let's welcome Drew. How are you?

Hey, Jason. Thanks for welcoming me on the show.

Well, good to have you.

Know, it's funny that you told me you said that I follow politics closely because my whole mantra in politics is just. Is very simple. As first people say, are you left or are you right? I would just say, I'm the leave me alone party. Just leave me alone.

I guess I'm in the same party you are. Because my whole mantra about politics is when it comes to. There's an old saying, when it comes to architecture and interior design, less is more and graphic design, too. And I say, when it comes to politics, less is more, because that's the leave me alone mantra, too. I want to talk about your plan and what you're doing for your own financial health and wealth and compare that to what your friends are doing. But before we get into that, let's talk about kind of the political and economic environment. What's going on out there? I guess I'll just ask you, Drew, what are your thoughts?

Well, you know, I was really interested in following all the debates closely in 2007 when there was kind of that split with who was going to be the next one to take the office. And the thing was, is the only one that made any sense to me was Ron Paul. I didn't even know who he was. I'd not seen him ever before. And he was the only one just standing up there saying, is everybody crazy? You know, he had Mitt Romney saying, we want to send lawyers over to, you know, Iraq to figure everything out. And he's like, we have the Constitution.

And so it's funny when you talk about less is more. That's what Ron Paul all had to say, was that, you know, a lot of people said, well, you want to go in the White House and not do anything? And his whole thing is, yeah, less is more. Like, you know, there's a lot of power in not doing stuff. I mean, and that's Apple's success. Their whole thing is not including stuff, not Doing stuff. That's how they're successful.

Well, let's elaborate on that a little bit. You mentioned Apple, and unfortunately, Steve Jobs passed away fairly recently, a couple months ago. When it comes to Apple, I mean, I think what you're talking about is simplicity in design, right?

Well, yeah, I mean, like Apple. Apple was the first company to exclude the floppy disk drive. They took that out and it made a lot of people mad. And so they've just done a lot of things, seeing what the next road is ahead. But I mean, as far as what the government goes, the road ahead is going to be far worse than the way it is now. I mean, different meaning it's going to get worse.

I couldn't agree more. It's just amazing how far we have strayed from the original intent of the Founding Fathers and the Constitution of the United States to where we've become this busybody country that is in everybody's business around the world. And you know what? I guess that's fine. If we decide that we're the moral authority and we know better and we should just go be everybody's parent and police force and social engineer. That's one philosophy. But whether that's true or not or good or bad, the fact is we can't afford it. We cannot afford to have military bases in something like 170 countries. Countries. This is insanity. What is going on?

Well, yeah, yeah, it was funny because back in the last debate, Ron Paul was saying that we were building a Marine base in Iraq that was the size of the Vatican.

As far as our military presence being completely gone. I know Obama is repositioning troops and some people say that's kind of a political move in order to get reelected. But we'll see what happens. But, yeah, we can't slay every dragon and we can't go after every fight. You know, I mean, we just. We don't have the money. And you. And that's the thing is there's a lot of. There's a lot of unintended consequences if you try to do that.

Well, you certainly make a lot of people hate you.

Oh, yeah. I mean, that's why we got attacked on 9 11. A lot of people say because of a thing called blowback. We had a military base on the Saudi peninsula and we were killing people in that country or killing people outside that country through the military base, launching missiles and stuff, and got a lot of people, a lot of people pissed. And that was the whole, like, reason that Osama bin Laden came after us was he said this is like a deadly sin that the Americans have done, and we'll do whatever it takes for them to get out of our country. So what we. What did we do? We doubled down and went everywhere.

Right. Let's kind of take this into what we're talking about on the show, which. Which is how to create wealth and have investment success. What this all means to us is that the government is obviously insolvent, but the problem is most governments around the world are. It's not just us. We can. We can yell and scream about how the US Is a disaster all we want, but the fact is, so is everybody else. So I guess it's just peer pressure. Water seeks its own level. I say that the US Is. Is the nicest house in a really bad neighborhood of irresponsible tenants. We'll call them tenants, right? Yeah. What were you saying?

I got a D on my test, but my neighbor got an S, so I'm feeling pretty good.

Yeah. It's a bell curve. It's a bell curve. Right. So what this obviously leads to and regular listeners to the show. You're a regular listener and most people are regulars listening, is it just leads to inflation. And during the time Obama's been in office, we have increased our national debt by like, 50%. You can say George Bush was a spendthrift, and he certainly was, but, wow, he was nothing compared to Obama. And so we're in a situation now where there's only. I've identified six ways out of the mess, but I think the most likely way out of the mess is to just create more money out of thin air and tell us how that influences your investment decisions. And then I want to talk about what you've done and contrast it with what most people your age are doing. And by the way, are you 27 now?

Drew just turned 28.

20. You're 28? 28. Such an old guy.

I keep forgetting it changes every year, so.

It does. You got to update your clock, right?

Yeah, exactly.

Yeah. Well, I remember I got this one sort of note from a listener once that said, stick to real estate. Stop talking about all this government stuff. And I'm like, how can you do that? You would. That would be. That would be like thinking and talking in a vacuum. The government policy, monetary and fiscal policy, have a massive impact on investment strategy.

Whenever you're talking about what the government's doing and how that all works and what everyone's role is in the government, I mean, I think it comes down to the American dream, and I think a Lot of people would. That's kind of cliche. And I think a lot of people would say the American dream is owning your home, which I think is a bit of. A bit of a distraction and isn't necessarily true. It used to be what the American dream was, was creating your own business. That's a lost art now. And more people are wealthy because they start their own business than anything else. There's more millionaires because of people starting their own small business than anything else. And so I think what the government's done is they've stepped in and tried to manufacture a different American dream by doing this social engineering and attempting to incentivize certain things and tax other things in order to kind of manipulate the way they want the thing, want the things to work.

Couple comments here just for a moment. Sorry to interrupt you. First of all, I'm not so sure that more people have become wealthy in their own business than anything else. The distinction I'll make is this. I think more people have become wealthy by investing in real estate than anything else. But a lot of times those two go hand in hand because sometimes real estate is their own business, number one, or their own business gives them the freedom and the money to play at a higher level sometimes. But the pure start your own business statistics, like if you look at the SBA website, the Small Business Administration, they're not good. Lots of businesses fail. They say most 90 some odd percent of businesses fail in the first year. A whole bunch more fail in the first three years. And if you make it five years, you're probably going to make it. That's sort of the traditional thinking. But. But now I want to add on to that too, and I'm sure you'll have some comments about this. The thing is, nowadays though, a lot of that was more in the typical traditional idea of your own business, of opening up a shop, being the shopkeeper. Nowadays you can have an online business, a virtual business, and the risk is much lower if you know what to do and if you play your cards right. So just a couple of thoughts to muddy the waters there. Sorry.

Oh, yeah, no, I was. That's how I make my living is I sell stuff online and I find people online and I connect the dots. I'd be petrified if I had to put down 10 grand to secure a lease, to then pay a lease and then have a retail location. I'm just too much of a niche, to be honest. I don't have the sort of clients that would be required in a city or in a Small. I live in Laguna Beach. There's not enough clients here to support me. So you know, I have to reach to a more global level so that the Internet saved me.

Yeah, it did. And so what you, what you rent? Your only big rental obligation is some storage units to inventory your products and so forth.

Well, you'll like this. I lived about 10 miles inland and I had about three storage units. Three 10 by 20s. So I was renting those and I was driving what was pretty much an hour to go inland to gather inventory and drive back. So I said this stinks, I got to do something else. So I went, looked online and people are actually renting their garages here in Laguna as a form of storage. I rented a guy's 20 by 20 garage that is partitioned in half and I'm renting one unit. And it's the same price as what my storage unit was, England. And what's the best part is it has an ocean view storage unit with.

An ocean view in Laguna Beach, California. That's pretty cool.

I don't have an ocean view, but my storage unit does.

Well, you can always hang out there. That leads to a good point. Let's talk about your own plan. We'll get back to the government stuff maybe in a moment in the broader picture. But you asked me a few years ago, I think we've known each other for maybe four years now about.

Yeah, four or five years.

Four or five years.

It was 2000, six or seven, something like that.

And we met through Andrew Snyder, one of my former employees. Great guy and still friends with him. You both of us are. And he introduced us and when I was talking to you back maybe, I don't know, three or four years ago, you had asked me several times, I want to move out of my parents house. You were probably 24 at the time maybe. And you know, I want to move out. Should I buy a condo? Should I buy my first condo in Orange County, California? And I said no way, don't do it. And, and that's what some of your friends were doing. And I think you were sort of feeling like you were left out a little bit because you saw other people doing that in your peer group. Right.

Well, it was weird because a lot of my friends, you know, we're getting help from their parents, you know, their parents were co signing on loans for them. And I mean I didn't have that option available to me but at the time I was making more money than all my friends and so it seemed like I just wanted to escape from my, you know, from my parents house, which actually funny, I moved to Arizona then and went out there and just saw the insanity at the time in the market.

I mean the market being crazy in Arizona, right?

Oh, it was crazy. Yeah. I had a friend that bought a place out there and one of these narrow three story townhomes and paid 265 for it and now they can't get 100, so it's crazy. So I had saved up a pretty decent amount of money and I didn't know what to do because I knew that the government was going to inflate it away because interest rates were so low. And I just thought boy, they have to raise interest rates, that just makes the most sense. But, but from then to now the interest rates have still been so low and even lower probably.

Well, thinking the first problem is thinking that the government will do what actually makes sense is a dangerous bet.

Yeah, it really is. No, I should start thinking what makes the least sense because that seems to be what it always tries to run after. But so anyways, I had saved up a pretty decent amount of money and I didn't know what to do. And the problem was is that there was so much government reckless spending that I was just afraid that all my savings was just going to float away. So I kind of was a bit antsy and not sure exactly what to do. So I started looking around and I kind of took your advice and said that real estate is kind of a local market and you don't have to buy in Orange county, you can look elsewhere.

What my advice was just to be clear on this is I said if you want to move out, go and rent a place in an upscale area because you can rent it. For such a favorable RV ratio for the tenant, rent to value ratio is in favor of the tenant. So well, you, you bought some investment properties first but what you ultimately found is a rental is in Laguna Beach, California, which is a very high end area. And I think you're paying what about $2,100 a month or something like that?

No, this is actually funny. I, I ended up buying two houses pretty much back to back in August 2010. So it wasn't too long ago, about a year ago.

Now these were, when you say houses, those were income properties you purchased through my company.

These were income properties in Indianapolis and I found two foreclosures and since I was a cash buyer. So it's funny because the two houses that I bought as investments, I had enough money to pay my rent here in Lagoon Beach. So when I moved, literally when I moved out of my parents house, the first month's rent that I got from a check from my agent, I put in on my first month's rent here in Laguna Beach. So it actually paid me some money and I netted $100 a month, so I didn't have to do anything.

So let's compare that to the situation you could have been in. Those two rental properties that you purchased through network in Indianapolis cost about 100, 110,000 for both of them, I think, right?

Yeah, yeah, maybe like 120, but yeah.

So about 60,000 each on average. Okay, so 120,000. And those were producing income of probably what, 2,000amonth?

Yeah, that's pretty close.

And you could have been the. That was. That was the smart option. The way you did it was exactly right. But the way most of your friends are probably doing it, and just most people in general are probably doing it, is they would have purchased a 300 or $350,000 little crummy condo in Orange county, and they would have been in debt. Because remember, your house is a liability. It is not an asset. Anything that costs you money is a liability. I love what Robert Kiyosaki's wife, Kim, says to him. She says, look, you can buy a liability if you want, but you have to buy an asset to counter the liability. So he wanted to go buy a Ferrari, and she said, well, go buy an apartment complex to make up for it. So you're even, you know, And I think that's a pretty good philosophy because, see, most of your friends or most people just in general in your peer group would have saddled themselves with a property that, first of all, in Orange county is going down in value, the market outlook not being good. But you looked 1600, 2000 miles away in Indianapolis, and you purchased two properties that were assets that produced income that had rent to value ratios exceeding probably 1.3 or 1.4% of the price.

You had to pay cash, 1.5%. That's phenomenal. You had to pay cash, which would have been even better if you could finance them and get the leverage. But still, even paying cash, that was a great deal. You could have taken that money and made it a down payment on an expensive condo. You wouldn't be living in Laguna beach either. You'd be living in Liso Viejo or something less desirable than Laguna Beach. And it makes perfect sense what you did.

Well, yeah, it's funny because a lot of friends now are licking their chops Thinking now's the best time to buy. And, you know, maybe they're right. I don't really care because to me, it makes way more sense to rent here than to buy. But, I mean, we have a friend that bought in a very nice neighborhood in the suburbs in la. It's funny because what they put down was equivalent to the three properties I now own and paid cash for. So the down payment that they had was how much they put down just for their home there. And I have three homes in Indy producing income for me. And it's funny because the amount of income I'm getting in from my investments is equivalent to roughly how much they're putting out every month to live in their home.

Amazing. Amazing. Yeah. So. So in other words, that's their down payment was probably about $180,000 right on that house in LA. And when you say we, that's you and your fiance. Congratulations, by the way. I know you recently got engaged. Thank you. And so that's 180,000 they put down. And plus they have a payment that is probably 3,000amonth. But you have 180,000 into the three properties in Indianapolis, but you have income of $3,000 a month. I mean, folks, look at this equation. A house is a liability investment, properties, income. Properties are an asset because they produce, as the name would imply, income.

Yeah. So it's really given me a lot of flexibility and kind of security. I mean, I work from home, so now I just don't have to worry about getting a certain amount of income every month to pay off my. Pay off my rent because it's just covered. It's covered with just two of my properties. I mean, I only have to have a vacancy rate of. I could have one vacant the whole time and still have my head above water. So, you know, I'm not sure where I'm going to throw the. Throw the chips next. I'm debating on the next market to invest in because I don't want to put all my eggs in the same basket.

But the thing is, I told you, diversify.

What did you say about Indy? Go ahead.

I said India just has such a strong rent to value ratio. I just. It's hard to. It's like a drug addict, man. It's hard to leave.

You're addicted to the good RV ratio. Well, you know, as we talked the other day, Phoenix and Atlanta, those are probably the two I'd consider pretty strongly for your situation and what you like right at the moment. Let me take a brief pause. We'll Be back in just a minute.

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Really? Now how is that possible at all?

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But yeah, that is a great plan. You have definitely achieved it and congratulations.

What's your goal, you know, as far as next? Well, the problem is that I just. No one will lend me any money so I have to just because I'm self employed. I mean it's totally counter to the way it used to be. I mean it used to be that it's funny because the government was in charge of giving out money. So I mean back then it was people instead of people looking for money, there was money looking for people. And so people like me that were self employed which have a. We would tell them where our income is and we wouldn't have to prove it up with every number because you know, being self employed you get to take deductions that people that aren't self employed don't get to take. And so I can't buy anything. I can't get a loan. But now with this investment property I'm starting to get monthly income so I can show income there. And so I'm just going to try to build up my monthly income through investment properties until I can get a nice size loan. And then I'm thinking about buying like a next would be like a fourplex or something in Arizona. I think that's the next step. But I have to get my feet wet a little bit with that market. I mean I like Arizona. I lived there for about a year and a half. It's a lot different price wise now than when I was there. I'm amazed at some of the deals. I think I saw a four plex for like 130 which is crazy.

And we have those on Jason hartman.com and those will generally produce around $2,000 a month in income. So pretty, pretty phenomenal. We sold a bunch of fourplexes out here in the Phoenix area. But there are lots of different opportunities and I don't want to talk too specifically but you know one of the things you mentioned about having your own business and about the deductions, this is why anybody listening, if you have a job, W2 job that provides job, just traditional salaried type income, you must open a little business on the side, a home based business. Because that home based business, even if it doesn't make much money, you get to take a whole new set of great tax deductions that traditional salaried corporate type employees don't get to take. Your expenses are filtered through the business before you're taxed on them. Whereas with an employee you pay taxes and then you spend money. It's a terrible equation. You want to filter them business first.

Oh yeah, right. Right now I'm, right now I'm sitting on my, my desk in my house which the government is gonna, or you know, I get the deduction of an office and I'm sitting on my computer, which is a work computer and I'm talking on a work phone. So you know a lot of that stuff I would be paying for anyways if I didn't have that.

Yeah, yeah. So it basically you take a whole set of expenses out of your life and basically you get the government to pick up the tab for maybe depending on your tax bracket, about 40% of the cost. So you're only paying 60%. So it's a great deal. Folks, you got to have your own business no matter what. Okay. Even if it's a little side business. Drew, let's just kind of close up and talk a little bit more about the government situation, if we can. Any other thoughts that you have about economics, taxation, monetary policy, Federal Reserve? You know, we've had these discussions for hours on end over the years, but I just thought I'd ask you what other thoughts you have on those.

Well, I kind of want to ask you some questions, actually.

Oh, okay.

I think it. I think. I mean, you know, a lot of people like Ron Paul kind of want to go towards a gold standard, which I think doesn't really work because I think there's too much. I mean, there's too much money that will would, you know, there's not enough gold to cover all the money. I think maybe his counterpoint would be competition in currency.

Right, well. Competition in currency. Yeah. That's great. Well, did you have a question there? Sorry.

Yeah. So basically, I mean, what would. I mean, obviously, I think what's interesting with that is that there's more debt than there is money, but you know, how you detangle that mess. I mean, as far as. And I know Ron Paul gets of a lot of tears when he talks about the gold standard, but I don't know how you implement that. I think that's kind of a dream.

I think it is a dream, too. I agree with you. I don't think we've just gone too far afield. I mean, we've created far too much currency or fiat money. And currency and money are not the same thing, by the way, folks. Those are different. Currency is fake. Money is real. So a gold standard probably wouldn't work. A silver standard could potentially work. But you know, what? If we just had a balanced budget amendment, if we just had that, that would be huge. But then again, as much as we hate this stuff philosophically, we know how the listeners of the Creating wealth show know how to exploit it and use it for their benefit. And that is, you know, to follow my ultimate investing equation. So. So I don't think a gold standard is practical either.

Yeah, yeah. I'm kind of. I think it's interesting when people are. Well, I mean, I think as far as gold and silver, I mean, I'm skeptical on that. I mean, that's a wealth. I think a wealth preserver. But as far as it, like an investment, a lot of people, you know, want to purchase gold coins or purchase silver coins, assuming the government doesn't confiscate them. And they think that's a form of investment. But I think maybe that slightly a wealth preserver. But to me, I think having active investments like working in my business, buying and selling things and having income properties produces income.

Yeah, I agree with you. I think the gold and silver, the gold bugs, that is just a defensive strategy. What we do with income property investments is an offensive strategy. And yes, listen, I would rather have gold coins than dollar bills because the dollar bills, they have no intrinsic value, they're just fiat paper and ink. But the gold coins, they do have a tradition of intrinsic value. For sure, it's a 5,000 year old tradition. But again it's a defensive strategy. It's nothing more than a hedge against inflation. Whereas active investments like income property, because they're multi dimensional, they offer an offensive strategy. And of course they're most the historically proven wealth creator of all.

Yeah, and it's interesting as far as kind of creating wealth because I sort of saw with all my friends that if they went the, you know, the route that their parents went, they pretty much lost their shirts. I mean from investing in the stock market to putting a down payment on their first house. And a lot of my friends that, you know, went after what their parents did and what worked for their parents, they got their clocks cleaned, they lost their shirts. So it's interesting how the game is changing. And I think what you have to do is be proactive in order to counter what the government's doing. And if you're not, you're just going to put your money under your mattress and the government's going to, you're going to wake up one day and the money's going to be all gone.

Yeah, the interesting thing about that, you know, if you put the money in the bank or under your mattress or whatever, is that nobody has to actually physically steal it from you to steal it from you. In other words, they can just destroy the value of it because it's just a notional value, it's a symbol, it's not real. And I think what's real are commodities. I am very much a resources and commodities person. Everybody needs stuff. Stuff is what makes civilization, of course, stuff and ideas, good ideas. I should say fiat money is a bad idea. But again, we're here to exploit that, not change it. Because I don't think we can change it. And you know, people need stuff. If you, if you just go about your daily life, look at the amount of stuff you use or you're engaged with. It's all about things and material items. Things have value. Money does not. I should say things are money. Currency does not have value.

Right, Yeah. I mean, and that's, that's why, I mean, I was telling you about these storage units that I have with inventory in them. And I mean, there's a lot of security in having those storage units and having that inventory because.

I can always sell it and get my money back and I can always sell it and make a profit. And so I like, I'm very comfortable when I don't have all the cash. And there's kind of this balancing act of, you know, do I want more inventory, do I want more cash, do I want more inventory? More cash. And usually when I get enough cash saved up that I can buy another investment property, I just been, you know, and have enough for a rainy day fund, I'll just throw the money at that. So it's kind of, kind of a balancing act on what I'm going to do.

So your whole thing is like, how quickly can I save the next 60 to $80,000 so I can get another property? And that's exactly what you do, and you're doing a great job of it. I got to congratulate you for being the ripe old age of 28 years old and starting this plan at about 25. I guess it's been a great plan for you and you're way ahead of the game. You're getting, getting 50% more than your monthly housing expense where you live, paid for by your income properties, and you own them free and clear. So it's just a phenomenal plan. Income, property investing absolutely works. Did you have any other questions for me?

Well, you know, it's, well, it's interesting as far as owning these properties free and clear because it's funny how, you know, you can hold title, but the government just essentially taxes you every month for living there. I mean, it's, it's funny how the government can get away with owning your property and you still get taxed. I mean, I think it's funny like when, you know, Ron, I think Ron Paul was at one of the debates and, you know, somebody said, are you for the flat tax? And he said, I'm, I want the tax rate to be so flat at zero.

But what's funny about it? What are you saying? You know, I mean, are you talking about how property taxes represent a perpetual lien on one's property? And that's what I said. You know, we Never really own anything. All these people out there are following this terrible plan of like paying off the house in which they live. And I'm a renter now too, and I live in, you know, I've talked about on the show, I live in this gorgeous penthouse in Arizona and it's brand new. And I've owned three houses in Newport Coast, California, a bunch of houses in Irvine, and lived in Southern California for pretty much all my adult life. And moving here, everybody says, well, are you looking to buy something? And I'm like, no. I'm involved with a whole lot of rental properties. I've got lots of people that are tenants of mine that are producing income for me and these properties producing income. And I just love being a renter because the place I'm in, the RV ratio is so much in my favor. And even if you owned your house free and clear, you never really own it because the government always has a lien on every piece of property. And that's almost a worldwide phenomenon. That's true in most countries as well, not just the US where property taxes just represent a lien. So if you do have property and you can get financing against it, lever it up and get long term fixed rate financing because inflation is coming and you don't own it anyway. And I'm sure when the time comes when you can do it, when you stop taking every deduction you can out of your business and maybe Drew gets on the grid okay.

Instead of off the grid, then you'll be able to get financing when the financing market eases up and you can refinance those properties, pull the cash out and buy more.

Well, it's funny, as far as the government having a perpetual lien on your property, of course, just to tease that, we were sort of looking around at homes around here because we're thinking about when we get married, we're thinking about getting married on the beach. So we were walking around and trying to see what the best spot was and there was an open house. And so we went through the open house and it was a nice two bedroom house that was on the water and it was really nice. But we found out that what the purchase price was was, I think, 3.7 million here in Laguna beach for a two bedroom house.

What a deal. A two bedroom house for 3.7 million.

Wow. And I was figuring out that the government gets about $3,000 a month from the person that lives there that owns that place. So.

That'S some people's, you know, house payment.

But here's the here's the other reality of it is that if that property were for rent, I bet you could rent it for ten grand a month, and that would be a much better deal than owning it. And that's the point, is that you're much better off owning a bunch of income properties in diversified locations and renting your own home. The only time this isn't true is if you live in one of the markets you can find on Jason Hartman dot com. Okay. And you live in a property that's priced in that price segment. So if you live in Phoenix and you live in a $110,000 house, that makes sense to own it. But if you live in Phoenix and you live in a $500,000 house, it makes more sense. It starts to make more sense to rent that house and own other rental properties. Because think about it, $500,000 could produce well over $5,000 a month in rental income for you. And you could probably rent that $500,000 house in the Phoenix market for, oh, you know, I'll say $2,500. But maybe. And just do the math on that. It's a phenomenal deal. Any other thoughts or questions, Drew?

You know, I think that's it. I have a few other ideas jogging around in my head, but I don't want to run around in circles.

Yeah, sounds good. Well, hey, thanks so much for joining us on the show today, and thank you for sharing your plan, what you've done so far, and what you're planning to do in the future. And I just think you're right on track. And I really congratulate you for. And while all of your friends are struggling to make their house payments and they're on this perpetual treadmill, or as Robert Kiyosaki calls it, the rat race, you're free. I mean, you're basically a free man. Now, where you can go, you can move to another area where an opportunity might present itself. Yeah, maybe your fiance, Katie is offered a job in another location. You're mobile, you can move. That's a great thing. And you've got those properties producing income for you regardless of where you go. So it's just an awesome thing. So congratulations on that, and thanks for joining us today, Drew.

Well, hey, thanks a lot, Jason, for having me on the show. Yeah, I would just recommend anyone to get a hold of your Indy rep and talk to her about getting an investment property out there. I mean, maybe you might recommend other things for different people and what position they're in, but to me, I mean, my experience was very positive and since then I've referred a couple of my friends and some family to purchase out there and they've had pretty positive experiences too. So I thank you.

Excellent. Well, thanks again.

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