2458: Direct Investment vs. The Pitfalls of Real Estate Passive Investing with Michael Zuber

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Hey brother, I just finished listening to your July 5th episode, man. I just absolutely love your content, man. It gives me value every time I listen to it. It gives me a different perspective on how I view some of the stuff that I do. It's just always good, man. And I just, I want to keep telling you the same thing over and over and over. It does affect people. It does change people's lives. And really do appreciate all of the effort that you're putting in for that, because I know that you've really got better things to do than this, but yet you still sacrifice that time and do it. So hats off to you, bro.

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.

Alrighty folks, Jason Hartman and I have been looking to help people in real estate for a total of over 50 years. What I thought I would do today is play the game of ping pong where with my guests on a topic, we will go back and forth 3 times each for a total of 6. And the topic at hand is what are the failures we have seen with folks in real estate? These are the folks that are super excited, really interested, but then actually do Nothing. Jason Hartman, as the guest, I know you have seen this hundreds, if not thousands of times. But why don't you start us off? What's the first consistent thing you see?

You know, I think probably the most important thing, Michael, and this does not come from my Ten Commandments. So, you know, we can, we can touch on those for sure. But the most important thing is that people need to be a direct investor. Thou shalt maintain control is my commandment number 3, be a direct investor. And As a direct investor, you're going to feel the bumps in the road because it's all about you. You are in control of your investments. You are not making the 3 big mistakes every investor makes. You are not going to be investing with a crook because you're in control. You're not leaving your financial future susceptible to a Bernie Madoff in Enron or any of these crooked syndicators, Marco Santarelli, fund manager $93 million Ponzi scheme. You know, he's being indicted and sentenced this month, actually, in, uh, in federal court. Being in control, not putting your financial future in someone else's hands. Okay, the second problem: you might be investing with an idiot, and you'll lose money because of their crookery or their incompetence. And the third problem is, assuming they're honest and competent and you've passed those two hurdles, they take a huge management fee off the top for managing the deal. Now let's talk about the downside of this. Being a direct investor is a good thing. You want to be a direct investor. That's how you're going to create wealth for yourself. Buy some properties and rent them out. It's really quite simple. But when you are a direct investor and things, things go badly, you've got a maintenance call, you've got a big repair bill, you've got a vacancy, an eviction, you have to control your emotional state. Because this stuff, all of these problems, when you are not a direct investor, are going on behind the scenes anyway. The company you invested in, the CEO is getting kicked out and sued for sexual harassment. There's a patent lawsuit against the company that could cost billions of dollars. There are strikes by workers. There are lots of problems in everything. You just don't feel it if you're an investor and you just own the stock in the company. In the syndication you invest in, there are vacancies, there are evictions, there are big unanticipated maintenance expenses. All of these problems are there either way. But when you're a direct investor, you hear about them, you see them, and you have to fix them. So control your emotional state. You've got to understand and plan that these problems are coming. They're going to happen. You're going to get the call. You're going to have problems. Don't freak out. Just deal with it. Just handle it and understand that you are an investor who is in control of your investments. You are investing in the most historically proven asset class in the entire world. You are investing in the most tax-favored asset class in America. And the most debt-favored asset class in America. And I mean debt in a good way. So that's the key. You've got to control your emotional state and be a direct investor.

It's funny you went with emotion first because that's my first, just a slightly different twist. I actually have a term for them. I call them shooting stars. They come in hot. Shooting stars.

They come in.

Yeah, they come in full of vigor, full of excitement. When they're talking to me, they're they probably have my book with them. Like, you can see them vibrating at this high rate. And they're called shooting stars because they just fizzle out. And they just go on to the next thing. Or worse, they're a shooting star with some money. And I remember one guy, I think I wrote about it in my first book. He had a little bit of money to his name. He read the book. You know, we had mutual friends, so I had a lunch or coffee with him. I made some introductions in Fresno to my people, my team. So he went down there one weekend and he called me up on Monday and he goes, Michael, thanks for any deductions, blah, blah, blah. I made 3 offers and I'm in escrow on 2. I'm like, what are you doing? You don't even know. Yeah, you don't even know what a deal is yet. Yeah. Yes, I gave you my people. Yes, this and that. But you don't even know the city. You don't know the team. Like, what are you doing?

Yes.

So again, you can go too fast.

Yeah.

As well. So, you know, the first one for me is just realize this is a long game, right? Wealth takes a decade. And, you know, you're, you're not going to have a baby in a month. That's just not how this process works. So that's my first one. What do you got for number 2?

Okay. So just to comment on yours, that's good. You know, like everything in life, there's two sides to that.

Okay.

There is the person who has the paralysis of analysis. And they overthink everything, and they don't do anything. I have seen these people for decades, you know. I've known them in my personal life. I've seen them as people who attend my events and follow my work. I'm sure you have too, Michael. They are the people who are constantly learning. They are the most educated people ever. They are the professional students. They are the seminar junkies. And they never do anything. They know everything, but they do nothing. And so that's one side of that. Now, the other side of the spectrum is the person you just talked about— too reckless, right? And the old saying, a fool and his money are soon parted, right? And that's kind of that person, you know, being too reckless. So what is the answer to that? The answer is to find the middle road. I'm no expert on it, but in the philosophy of Zen Buddhism, there is the middle path that they talk about. Is it good to eat too much? No. Is it good to eat too little?

No.

Is it good to eat the right amount? Yes. You know, there is a balance in everything in life, right? But what I would say is I think most people err on the side of being paralysis of analysis. I think that's where most people are because of the scarcity mindset. And, you know, you got to be really careful. So I would say cultivate the attitude of being rationally reckless. You know, Steve Jobs, I think, echoed this idea, you know, move fast and break things, right? You know, things that you can fix, not things that are going to ruin your life, fixable things, but just you got to try more things. Okay. So there's a balance.

Yeah. Yeah. It's funny you brought that one up. I actually had that as number 3, but I'll kind of tee it up. I call that is they, they always think they're kind of at an information deficit. They're like, they're always looking for that one little piece, like a puzzle to snap in place. And then the the world is going to open. But that's just not how this game is played, right? You got to get in the game at some point. What I tell people to kind of get around that is your job is to basically learn what an average deal is in your buy box. And once you can articulate what average is— and to be clear, average, learning that should take you 3 to 6 months, right? Not 3 days and not 3 years. 3 to 6 months, somewhere in that. I've helped thousands of people do that. But once you can articulate average, You're done. Now you can write great offers. And that's how I try to help people understand, because it's not a— you're not at an information deficit. In fact, there's probably too much information.

That's just—

learn to answer one question.

Yeah.

Too much information is confusing you and it's paralyzing you. Just do it is the Nike slogan, right?

Yeah.

You got to do things to make stuff happen. All of these so-called brainiacs who— and I was watching Melody Wright the other day, by the way, it's just like, you know, Along with Adam Taggart. I mean, these, these people are just— they're sort of too smart for their own good, right? They don't do anything. They've got every reason the crash is coming, and they're just wrong over and over again, and they just keep missing it. You know, Adam has been talking about a housing crash for a very long time, and before that, he was talking about a crash of everything because he was partners with Chris Martenson. A friend of mine, nice guy, very smart, but a doomer nonetheless. And the credit— like that great quote, you know, about the man in the arena, right? The credit belongs to the man in the arena. Get in the arena and do things. I, I just think most people err on the side of paralysis.

So yeah, no, I agree, I agree. Well, uh, why don't you give me another one that you have on your list?

I think that people, when they invest, there's two sides of this equation too. You know, you go to any financial advisor and they'll say— and by the way, I'm in San Diego right now. I'm speaking at a conference here tomorrow, and, uh, that's why I'm a little backlit. I'm in my hotel room, okay? So the lighting is not good here, but I wanted to show you the beautiful city view I have and the bay view over there. And there's a big financial advisors conference going on at the convention center right there. There's like 10,000 people, and I was talking to some of them in the elevator this morning. And any advisor will tell you, like the typical stock market advisor will say, you must diversify. Modern portfolio theory. Diversify, diversify, diversify. Well, that's not really true. Okay, diversify means diversify because you will never get rich diversifying. There are two sayings on this, and these things also require balance. One saying is, don't put all your eggs in one basket. We've all heard that saying, right? But then Andrew Carnegie, one of the richest people in history, said, put all your eggs in one basket and watch that basket. Okay, you will never get rich Diversifying. You must focus and concentrate. When we were kids, we all probably did this. We had a magnifying glass and we aimed it at a leaf on the ground. And with the sun's focus and concentration through that magnifying glass, the leaf will start to burn. It will catch on fire. Sure. But it will not just catch on fire in the sun with diffuse light, right? It must be focused to make it work. So you must focus. Now, the great thing about our philosophy of residential real estate investing is you can do both of these things at the same time. You can take the most historically proven asset class in the entire world, but you can diversify geographically. Now, don't make the mistake I made many years ago when I became a nationwide investor in 2004. I must admit, my eyes were bigger than my stomach, and I would buy properties in every market my company would open.. And I would say that to clients, like, you know, I buy there first. And that sounded good, right? But the problem is it became just too much to manage. You should be in at least 3 markets, but not more than 5. Okay, I was in 17 markets, and that was a mistake. I, I will admit my mistakes. That was a big mistake. It's not that they did badly, it's just that it was too difficult to manage. I had different tax collectors for each of those properties and each, each of those markets. Okay, I had different property managers, different insurance agents, 3 markets at least, not more than 5. Okay, that's, that's the rule. You can remember all the parties in your head, not that you want to, but you could. Okay, that you're dealing with. And so diversify geographically, but be in the most historically proven asset class. Now, later in life, as I am now, I hate— almost hate to say that, but, you know, I've created my wealth, and I am intentionally downshifting, not chasing every rabbit I see like my dog does, okay? And I am quite diversified now in virtually every investment, okay? But I created my wealth through income property. That's where it came from. Okay, once I realized, hey, you know, I don't need to keep chasing, I've got enough money to last many lifetimes now, then that's when you diversify. Okay, most people are in the wealth creation stage. You gotta focus, man. You've got to do one thing well, and the best thing to choose is income property because nothing beats it. Nothing.

Love that. The last one I'll give you, and we'll let you close this out with your, uh, bonus one. The one for me is I see a lot of new people again, kind of similar to shooting stars, but actually more dangerous. They come in to me and they say they just want a deal. They just want a deal. I want a deal. I want a deal. I want a deal.

Call me when you have a deal.

Yeah. Call me.

You have a good deal. Yeah.

If you can't articulate it, what a deal is, you're going to get taken advantage of. You're gambling. And that's why these big syndicators, these, you know, social media Instagram influencers who are not operators can raise so much money. Because they tell you they have a deal and all you're listening for is, I want a deal, I want a deal. So when some schmuck who wrote a book somewhere starts to ask for money and tells you he's got a deal, you give him your money and, you know, maybe it works out, maybe it doesn't. Back to— back to your point number one, right? Own your stuff. But it just is so reckless and in my opinion, disrespects the process of building wealth just to say, I want a deal. Yeah, it's like you haven't earned the right. You don't know what a deal is and you couldn't create a deal if one landed in your lap. So get off your ass and do the work, man. That's, that's, that's my third one. So I'll let you close this out with the final one.

Yeah, that's, that's great, Michael. That's, that's really good. You know, at my last conference, Empowered Investor Live in Southern California, you were one of our great speakers. People really enjoyed your presentation. But I do remember at one of the breaks a very sharp woman. She appeared to have some money too. Came up to me and asked me, should I invest in a syndication or should I buy my own properties? And I said, well, that depends. Do you want to make the syndicator rich or do you want to make yourself rich? Right. You know, listen, no one—

they're going to eat first.

Yeah.

I remember, I remember being in church many years ago and hearing the pastor say this. He said, there is no committee sitting around thinking how to make your life better. There is only you working on making your life better, right? There is no syndicator. There is no fund manager. There is no CEO of a corporation that's selling their stock, okay, sitting around trying to make your life better. You have to do that. That is your job in life. So be a direct investor, concentrate your focus, and don't sit there saying, call me when you have a deal. You need to figure out what a deal is.

Okay.

Yeah. And by the way, just back to the syndicators for a moment and the fund managers. They're always doing a webinar or sending out an email blast saying, we have this great opportunity. And the funny thing is, They always talk about the property, and they never talk about the deal between you and them, where they're taking giant acquisition fees, giant disposition fees, giant management fees, giant promoter fees out of the deal. That's your money. They put no money for the deal. Usually you put all the money up, and they take giant fees for just finding the deal. Get to the top of the food chain. Be your own investor directly, right? That's, that's the key thing. So yeah, do the work. You've got to learn the math. So this would be my last one: understand the math of real estate. And, you know, years ago I bought a software program for this and I made it free. It's called Property Tracker, propertytracker.com. That is the best deal analyzer in the business. It's not the best at everything. But that is the one thing it is the best at— to analyze a deal and understand the math and the metrics of real estate, to get it all on one sheet of paper or one-page PDF where every, every number you really need is on there. So that's, to Michael's point, that's how you know what a deal is. You do the math. Literally, you create a free account at propertytracker.com.. And in 5 minutes, you can do a pro forma on any property, a single-family home, a triplex, a 200-unit apartment complex. It doesn't matter. You can do it on anything. And you will know whether the deal is good or bad because you know the math of the market. Back in 2004, this is what made me a really good investor, is that I understood the math. I standardized my data. And I used benchmarks so I didn't have to be a detective on every deal. I just put the numbers into my own software, Property Tracker, and it told me whether the deal was good or bad. And I understood every single metric on that page. And you know, you'll get data in all sorts of weird formats— Excel spreadsheets, on a brochure. You can't analyze it that way. You've got to use your own system and you've got to standardize your data. So standardizing data, critically important.

Jason Hartman, you're amazing. Thank you for coming back each and every week, even when you're traveling. That shows real commitment and we appreciate you.

My pleasure. So empoweredinvestor.com, we have a free monthly masterclass at empoweredinvestor.com/wednesday because it's on the second Wednesday of every month. You can register for those for free. You got the free property tracker software.

Awesome. Appreciate you, man. Enjoy the conference. Later.

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