2378 FBF: Property Acquisition Checklist, Insuring Real Estate Assets with Investment Counselor, Sara

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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.

Hey, welcome to the Creating Wealth Show. This is episode number 569. 569. Thank you so much for joining me today. I'm your host, Jason Hartman. I've got Sarah with me today because we want to do something that I am going to dub the Checklist edition. Wouldn't it be nice to have a checklist when you buy a property and when you close on a property and when you apply for financing on a property and do all of these different things? So the first step on your checklist obviously is to listen to the Creating wealth show. That's the most important part, right, Sarah?

Yes, of course. Creating wealth with Jason Hartman.

And without listening to the Creating wealth show, like, if you didn't listen to that, you might end up shooting yourself in the shoe.

You promised you were going to stop bringing up these.

I couldn't resist. I couldn't resist. That's an inside joke for our longtime listeners. The rest of you will not get.

But let's take a survey. Is it even funny anymore? Because I don't think it's funny anymore.

It's funny to me, but I'm humored by, you know, really silly things that just, you know, it's probably not funny to anybody, so let's just move on and act like I didn't even attempt that lame joke. Okay, so why is a checklist important? I mean, obviously it keeps you on track. You know, there's a good book, by the way. I think it's called the checklist Manifesto. Certainly when I was pilot training, learning how to be dangerous in the skies, you always had a checklist. Pilots used back then a kneeboard. This was before the iPad and now they're doing iPads all the time. But you always look at your checklist, your pre flight checklist, your pre landing checklist, and even very, very experienced pilots do this. And, and you know, it's certainly helpful. You know, surgeons do this. It's a common practice and I think it's a good, best practice for doing anything. So with properties, let's kind of just go through a loose outline of this. Sarah, you know, also just talk generally about pitfalls that we see, you know, our clients getting themselves into, how to avoid these things and, and just all of that kind of stuff out there. I think why don't we just take it in sort of chronological order. I'm sure we'll get off the outline here. But you know, in terms of acquiring a property, you know, what are some of the first things people should look at in the acquisition phase? And maybe, Sarah, you, because you do this all day long with our clients as an investment counselor, you know, maybe how to pick a market or pick the property or. I'll let you take this for a moment.

Yeah, sure. I mean we certainly, you know, the first step would be to have a phone consultation with your investment counselor, you know, to go over this checklist from the get go and kind of have an outline of what you're going to be doing and certainly, you know, discussing your goals and your time horizon and you know, when you're going to get started and how many properties you're going to purchase this year and you know, what your short and long term goals are. That's kind of a, you know, step two, after listening to the podcast, right. Is to have a phone consultation and those are complimentary. I do those every day with our clients. And it's important to know. We also do annual reviews with our clients even after they've purchased properties. During that call, we'll kind of narrow it down to maybe top three markets of interest and really narrow it down to a starting point. And then I'll start to feed them property performance in different markets of interest so they can get an idea of what the inventory looks like. Then once they get that list of properties from me, they might be able to say, hey, I like the these three versus these three. We'll open up a dialogue as to what they like and why they like those properties. From there, I'll send a Follow up email with a property address, the local market specialist info. We'll probably do a conference call with that local market specialist and really fine tune the details of that property. Just going through this list here, that would include again, property address, age of the property, square footage, year built, you know, all of those items. And then of course, we would recommend you do a little Google Maps search.

Yeah. And you said age and year built, so those are obviously the same thing, but.

Oh, did I shoot myself in the foot?

In the shoe.

In the shoe.

I always just love to tease you about these things. You do the funniest thing. You take old expressions and revise them to the Sarah method. Yeah, it's awesome. Hey, but the other thing I think people should consider is the year rehabbed and understanding how extensive that rehab was, because some of our providers, and I don't really like that they do this, but we can't catch everything. So just understand that when they upload properties to the jasonhartman.com website, they'll put in your built and they'll say this year. And when they say 2015, that's not really true. You know, the house could be built in 1990, you know, but it was rehabbed in 2015. And some of these providers, our local market specialists, do do pretty extensive rehabs, for sure. But that's just a word of caution to the listeners. I want you to keep that in mind. I don't think anybody would be deceived by it, but it's just something to keep in mind.

Yeah, and one thing to add to that is you have to be careful as you're working with different providers, different market specialists, not to compare one operation to the next. I mean, you can certainly compare them and choose to go with a more extensive rehab, but just understand that the property may be priced accordingly. So we have some rehabbers that we work with that do a basic rehab job. I think we went over this on one of the past Birmingham podcasts. You know, their whole philosophy is to keep it really simple.

The minimalist method. Yes.

And then you go to, you know, Chicago and they do very extensive rehab. But you may get a better deal on the property that, you know, has had less work done to it because that, that passes through to the investor.

So, yeah, no question. So it's all a function of price. You know, every property will sell at the right price. It's not necessarily a question of, you know, oh, I want the more extensive rehab versus the less extensive one. It's, you know, you want the investment that performs the Best. And that's really the thing to look for. So. Very good point there. Very good point.

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.

Okay, so there's some great online tools nowadays, of course. Looking at Google Maps, Google Earth and seeing what's around the property, that's an important thing to do. You know, looking around the street view, getting a sense of the street that property is on. You know, you can do this all virtually nowadays. Isn't that awesome? And also consider that area. You know, where's the closest shopping center? What, what types of facilities does it have? These are all good questions to ask, right?

Yeah, absolutely. And those are things that a lot of times we'll cover on that conference call with the local market specialist. So, yeah, where's the nearest Starbucks? Where's the nearest Home Depot? Walmart? Those bigger names can be attractive to a potential tenant wanting to lease the place.

They sure can. But they, they tell us one more thing. We're just going to rely to some extent on these big retailers. And we're just going to know that, you know, if, if a big retailer is willing to build a Target or, you know, any of the national chain restaurants are willing to open restaurants in these areas, then, you know, they must think that there's growth. They, they, they will generally not make mistakes. Of course, they, they get over speculated too, just like everything does. I, I do believe firmly that this country, I mean, it seems like every city I go to, I ask myself the question, how many? And you think I'm gonna say Starbucks, by the way, but I'm not actually. How many cvss, how many Walgreens and how many Rite Aids do we need? How many drugstores? And these aren't really drugs. Drugstores anymore. They're like little mini Walmarts, really, in a way. But how many of those do we really need? I mean, they're all over the place, you know, that's just got to be overbuilt.

I mean, well, I like Rite Aid the best. They have the best ice cream.

Oh, really? Okay, well, there you go. There's a reason. I remember one of my friends posted on Facebook recently, she and her daughter were at, I think they were at a Walgreens, and her daughter made the cute kid comment, you know, this is the greatest store on earth.

Yeah, that's awesome.

It's really amazing. Okay, so on this checklist should we talk about once people choose an agreement or a property. I'm sorry, see, I made the mistake there. Not that they choose an agreement, they choose a property. Then what happens next? Well, they've got a purchase agreement, they need to have a home inspection. You know, what's the closing date going to be on that property? What about the joys of getting financing?

Yeah, well, it's important that they get their financing approval in place prior to putting the property under contract, of course. And so that's really the first step in. Once they identify a market, we'll match them up with a lender that we have a history or a track record with in closing deals in that marketplace. And then, you know, once we do narrow it down to a specific property or properties, we will request a purchase agreement that they'll sign and return, you know, usually within one to two business days, along with an earnest deposit. That earnest deposit can vary from, you know, 1 to 5,000, depending on the provider and the purchase price. But it's usually around $1,000 goes into an escrow account and it's applied towards, you know, closing costs, et cetera. And so at that point you really want to. Once you have the property under contract, the next step is to have your third party inspection done. And you should really do that within seven days of putting the property under contract. You want to check and maybe you want to touch Jason on some of the major items that may come up on the inspection report. But I tend to think important items would be, you know, the condition of the roof, H vac, plumbing, electric outlets and things like that.

Yeah, I think you could sum it up by saying systems and roof, those are really important, but there are other important issues too. Sarah, do you want to give any guidance on how to pick a home inspector or this third party inspection? The local market specialist will refer you to someone. But I would really like it if people ask for a few referrals and don't just use one that the local market specialist refers them to. Maybe, you know, I think it would be a best practice. Not a maybe, but it would be a best practice for them to contact one themselves that they just find online. I bet you a lot of people aren't doing that, but I do think it would be a good best practice.

Yeah, I always, you know, we have a handful that we receive from the market specialists and sometimes, you know, when we have multiple providers in one market, I can send, maybe one provider refers to this inspection company and I might send that name to an Investor who's buying through a different provider so that it's not from the same person. But the concern is, well, they could be in cahoots with the inspector. And so, yeah, it's definitely a good idea to consider just googling and getting a third party that is not affiliated, you know, with us or the seller. There is a website I wanted to mention. I think you've used them, Jason. I think we found them in Indianapolis, but it's pillar to post. Yeah. And that's pillar to post. And they're a nationwide. They're kind of like the Angie's List for inspectors, I guess you could say.

And let's just address that issue you brought up, Sarah, about cahoots. I want to address that being in cahoots concept. So the likelihood, you know, there's a lot of shades of gray of cahoots. Okay, so how do you like that one? Fifty Shades of Cahoots. Sounds like a new comedy movie. Anyway, you know, it's. It's not like they will be in this big conspiracy, Ness. They could be to pull the wool over the eyes of the buyer of the property. But, you know, it's. Hey, this. This particular seller, this local market specialist, this real estate company refers a lot of business to me, so I'm not gonna be so picky on their inspections type thing. You know, there's a lot of subtlety to this. Okay. You know, if you. If you look at Washington and how messed up our government is, you know, it's. It's not like all these Congress people are just accepting bribes where the lobbyist comes in with a suitcase full of cash. It's. It's more subtle than that, you know, and that's what needs to be discerned. So, you know, I think it's good to, you know, at least talk to a couple of different inspectors. And, you know, a lot of our clients are buying multiple properties in one area. And I think it would be an interesting idea to use different inspectors. Maybe, you know, maybe you use two or three different inspectors. You're buying 10 properties in a given market. Maybe you'll. You'll sort of spread that around and. And get a feel for the different inspectors and look at how their reports are and so forth, and that might be an interesting lesson as well.

Yeah, and I'm not overly concerned with this being a problem. You know, here's how I would address this concern is, you know, I've seen a lot of inspection reports over the years, and they don't really leave a lot to the Imagination. They take photos of every angle, you know, the property. I've seen them point out cracks in the sidewalk, which, you know, I then have to say to the client, look, they're not going to fix all the cracks in the sidewalk. You know, if it's a big one, they may, you know, but they point out so many things with the house that some items won't be fixed. You know, they're like minor items but you know, in the event that they do come up, we would just forward that inspection report back to the seller and you know, have them go through and take care of any items that come up. And you know, usually the buyer and seller come to an agreement of what needs to be fixed and they move forward. But again, the purpose of having that inspection report is if there's just not a meeting of the minds, you can identify another property.

Right, right. And you know, it's very important what you just said. The inspection report is not an opportunity for the investor, for the buyer to get a bunch of upgrades to the property. That's not what it's for. It's to keep you out of trouble from getting into something really bad. You know, and so that you go into the deal with your eyes wide open. You're not buying something new, they're not going to do cosmetic things. It's not a chance to nitpick at things, you know, that's just not going to fly. So just have a, have a reasonable perspective with that stuff and know that. What about the financing part? I mean, you know, leverage is so valuable to investors, it's so powerful. The mortgage, it's really a huge asset, but it's not so easy to get anymore. What do you think about the financing process and any tips on making it easier for people?

Well, I think it's definitely easier than it was a few years ago. No doubt.

Fair enough. It's not easier than it was 12 years ago. Years ago though.

No, but yeah, I mean it's, it's pretty, actually it's a pretty simple process to get pre approved. You know, most lenders have an online application link and you'll follow that up with a call and they'll give you a list of documents including your, you know, tax returns, bank statements and a sample of your blood.

That's a joke. Obviously.

Kidding. You'll send all that over to the lender and you know, they're going to run your numbers and make sure your below their expectation. From the debt to income ratio perspective, they've got everything all electronic on the back end. It actually is a pretty. I think people think when they have to go through the financing pre approval process that it's this big long process and it's really not. Usually it takes the lenders just a few days to have an idea. As long as all the information you're submitting is true and you're not hyping up your income or leaving out any big debts, it's pretty easy for them to give you a thumbs up on your approval.

The tip I want to share with listeners, and I do this at the seminars, and I think our audiences do appreciate this, is that I don't let them use all these acronyms. I mean, they're so. I cannot believe the way these financing people talk in, you know, in acronyms that the public doesn't know. And you know, a lot of times people feel intimidated and they feel kind of like afraid to ask. You know, dti, that's debt to Income ratio, you know, there are all these acronyms. Don't let them do that to you. Don't let them say things that you don't understand. Ask them questions and make them explain things. So I think that's another, another valuable thing. And a good lender will do that. But also I think we should address the point of understanding which lender to use and understanding the concept of, you know, how investment property financing really is a specialty, isn't it?

It is. And you know, we like to use someone that we have a track record with in that market. They might not actually be in that market, but we know they've closed loans there for us before. You know, the other thing is, lenders have certain, you know, minimum loan amount requirements. And so one of our newer lenders that we like has been very competitive on rates, but he can't do a loan below $60,000. Well, I just found that out. And so as you're sequencing your deals and maybe doing multiple closings, we're going to refer you to the lenders that we know can close deals for you based on the loan amounts as well. The other thing is, you know, we have a handful of lenders that we like, but what I found over the years is like, sometimes they jack up their closing costs.

Yeah, they do. And we're just the same way. You know, one of my ten commandments is be area agnostic. And so we are disloyal to areas we like that. That's part of our business model. Some of our competitors out there in this very small cottage industry, you know, they can't be done disloyal to markets because they have a physical presence in these markets and that makes them committed to the markets. So just like we're disloyal to markets, we're also disloyal to service providers like lenders. You know, if they start increasing fees and doing that kind of thing, we're going to recommend that the business go elsewhere to the more competitive source. And so that's, these are just constant things that we always need to monitor. And, and we, we do that by getting feedback from you, our clients. So I think that's a really good thing. It's an ecosystem and we want to make sure that our clients are getting treated right, they're getting good service, they're getting good competitive pricing as well. So that's definitely one of the ongoing challenges, right Sarah?

Absolutely. And we appreciate the client feedback. We do take it into consideration when recommending different providers and lenders and so forth. So, you know, getting back to this list, you know, you've got your pre approval, you've got your purchase agreement, you had your inspection done, you may, you may have a re inspection done, which is, you know, about half the fee of the first inspection. And you know, that's, you know, for peace of mind. If there's some items that need to be taken care of and they're major items, you may hire that same inspector or a different one to go back out and make sure those items were taken care of. Once you get through that inspection period and you have a meeting of the minds, it's kind of like a hurry up and wait. The lender is going to do their thing in the background in processing all your loan information. They're going to request more documentation. While they're doing that and working towards the closing date. By the way, the closing date is usually within 30 days of the purchase agreement, although conservatively could go, you know, up to 60 days or even longer. But ideally 30 to 45 days is your escrow period. And so while the lender is processing all your paperwork, getting it to underwriting, you are going to be reviewing property management agreements, calling the local insurance agents in the area. We'll give you some names and numbers. But again, this is another area where you can call a third party insurance company for a quote and just make sure you're getting apples to apples quotes. So you want to get probably three quotes.

So first of all, you know, some of you listening may be asking, well, isn't there a company that does insurance nationally? Yes, there are a couple of them. We used the most famous one for a little while. And we had some bad feedback and bad experiences. I personally, personally had a bad experience with this company. So we don't recommend them anymore. So we just, we just go with a local, local people. And you can use usually one insurance broker or insurance company in that state. So any properties you buy in that state doesn't have to be the same city. You can usually use one source for that. And so if you're in three different states and maybe five different markets, meaning different, different cities or metro areas, you've really only got three insurance agents to deal with. And you can build a very large portfolio off of that. But a lot of people call me and ask me these strange questions about umbrella policies. And I really, I have a hard time putting my head around why I'm getting some of these funny questions about umbrella policies. An umbrella policy is nothing more. And by the way, I guess I have to make the disclaimer, like I say, when it's a legal issue or a tax issue, that I'm not a tax or legal advisor. I'm also not an insurance person. Okay, so let me throw that one out there. But an umbrella policy is simply a policy that covers you beyond the limits of your insurance. So if your Insurance had a $1,000,000 or a $500,000 limit and your umbrella policy was on top of these insurance policies, it might go to $2 million. And they're very cheap to get these policies. Well, the reason they're so cheap is because they hardly ever have a claim. Okay? So it's really easy to get this higher coverage. But what people don't seem to understand because they have this umbrella term sort of stuck in their head for some odd reason, is that they can just get policies with higher limits, too. Okay? Just to have the primary policy have a $1 or $2 million limit, and that would effectively do the same thing as an umbrella policy would do. So it's just a different way to look at it or slice it up. It's not like you have to have an umbrella policy. What you have to have is a certain insurance coverage amount that makes you feel comfortable. And you can do that with primary policies or with a combination of primary policies and umbrella policies. And we're not going to talk about asset protection stuff today, which is a whole different, longer issue. We've done many shows on that in the past. So that's just something I wanted to say about insurance. And then also think about your deductible. And Sarah, I'm sure you're going to have something to add to this, probably. But your deductible, if you get really high deductibles, it's going to cost you a lot more. And typically there are insurance claims that arise out of air conditioners getting stolen. Okay. That's sort of a common claim. And you may want to get your air conditioner caged. Now, I know if you live in Newport beach or La Jolla where I live, or Newport beach where I used to live, you're probably thinking, why are you even talking about this? Well, the reason is we're talking about areas with 60 to $120,000 houses. These are not the areas most of our investors live in. Okay. So it's a different world, but this is the world that makes sense for investment where you can get good return on investment. So you can do that for about $300 or so. And, you know, you may want to have a higher deductible on your insurance, maybe $2,500 rather than 500. And if you just do the math on that, understanding that you're going to bear more of the risk, it may really make sense where in three years you're going to get paid back for having that lower deductible. So keep that in mind. Another important thing, right, Sarah?

Yeah. I mean, it's almost the concept of self insuring, which obviously you don't want to totally self insure, but you know, you're, you are in a sense self insuring for that difference.

Yeah, no question about it. Okay, we are, we are going along here. Let's wrap this up. I mean, what else do you want people to do in terms of these checklist concepts? There's, there's, by the way, we have some checklists for you. And there's more to it. At Jason Hartman University, we put a little property acquisition checklist in that workbook. By the way, we're going to make that accessible to the public soon where they can watch the university online and so forth.

Yeah. I mean, just to wrap it up. So we've pretty much brought them through the process of acquiring the property and you know, from there they're going to get a close date, they're going to sign their closing documents. You know, they'll send out a notary to your home and you'll sign in the presence of a notary. You know, but during that time when you close, you should be thinking about, here's a big one, is the change of address form. And you can just go to.

The.

United States postal link. And again, this is on the Checklist. And just make sure you forward all the mail from your investment property address to either a PO box or you can forward it to your personal mailing address so that your tenant is not getting all your mail. And the different solicitations that may come. And your HOA bills, if you have them, you don't.

But Sarah, that is such a good point. Look at folks, your property tax bills, your homeowners association bills. If you have an HOA for your property, your insurance information should of course be sent to your address, not the property address. Right? Well that's in a perfect world. In the real world it doesn't happen. So we recommend that you simply, you either go to the United States Postal Service website and for $1 you can just do an online thing and have your your mail forwarded. And you should just do this once a year. It's real easy. Takes like two minutes. It's super easy. Or you can get the form at the post office and it's free, but it's a buck. Okay. So it's really easy to do do online. I always do it online and just constantly keep that mail forwarded to you so that you'll see what's going on with that property. Now of course you're not forwarding the tenants mail, it's by name. So if you have an entity that owns your property or your personal name, I would suggest you do that for both for your entity name and your personal name and just keep that mail forwarded to your address so that you don't miss anything. Okay, so very good, Sarah. I think that's a great last point to wrap up with. And listeners, there's a lot more to this. We just wanted to talk about a few of the issues here and hopefully this was helpful to you and we are here to guide you through this, to help you with the entire process and to make it as easy as possible for you. Income property is the most historically proven asset class in the world. So I hope we didn't make this sound overcomplicated. It's a lot easier than studying and becoming an expert on the stock market where you're probably not going to make any money anyway. Right Sarah?

Yeah, good point, Great point.

The Insider's Game. The Vast Wall Street Conspiracy. Sarah, Everybody can contact us of course@jasonhartman.com Any final thought for people?

Well, I think we've got our events coming up, so check the website and of course we've got our Jason Hartman University membership with a lot of these checklists as you've mention. So if you have any questions about upcoming events, properties, you know, or this checklist, feel free to contact us.

Excellent. Good stuff. And by the way, speaking of upcoming events, we've got our Venture Alliance Mastermind event in Providence and Newport, Rhode Island. Little side trip to Martha's Vineyard. By the time you hear this episode, we will be right on the heels of that event. But if you want to join us, go to Venture Alliance Mastermind or talk with your investment counselor that you can contact through Jason hartman.com we're going to have a Florida property tour coming up, probably Orlando coming up in November. So check that out@jason hartman.com as well as Meet the Masters. Thank you so much for joining us today.

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