2471 FBF: Elon's $1.5 Billion Move, Green New Deal Impact on Investors, Client Case Study Chad Hewitt

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 handpicked to help you today in the present and propel you into the future. Enjoy. This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.com. Welcome to the Creating Wealth Show with Jason Hartman.

You're about to learn a new skill, slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible.

Jason is a genuine self-made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer, and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions.

This program will help you follow in Jason's footsteps on the road to your financial independence day.

You really can do it. And now here's your host, Jason Hartman, with the complete solution for real estate investors. Welcome to episode 1645, 1645. Today, our main part of the show— well, you judge what the main part of the show is today because I have some important things to share with you. We have a client Case study, another another new client case study that I think you will really enjoy. But first, I must comment: Are you amazed? I'm amazed. We are seeing some seemingly terrible things occur in the world, but at the same time, as the Chinese say, crisis is an opportunity riding the dangerous wind. I've been sharing that with you for many many years, and it is an opportunity riding the. Dangerous wind. We have seen massive question marks about our last. Well, can I say it? E L E C T I O N. You can't say it anymore because you might be censored. They installed. That's the right word, by the way. Installed. They, meaning the powers that be, installed a new administration. Now. Nobody trusts the system. And then we have seen this massive money creation. In fact, so much money was created out of thin air— currency, I should say, of course. Of course, you know, you can correct me, listeners. Currency is the proper word, not money. Money has intrinsic value, currency does not. But admittedly, the 2 things are kind of used interchangeably, and hopefully everybody gets the difference. Hopefully they do. We saw so much currency creation last year, and we're about to see so much more this year that it absolutely boggles the mind. Now today— well, maybe it wasn't today, but it's in the news today— our friend Elon Musk, possibly, uh, one of the most famous people on planet Earth, uh, good old Elon, uh, purchased $1.5 billion worth of Bitcoin cryptocurrency. Why does that matter? It does not matter because you want to become a cryptocurrency speculator. I hope you don't. That is a very volatile, risky asset class. I own some, and you know, I'm doing a few bets here and there. I, I think it's okay to speculate with a small portion of your net worth, but you better be prepared to lose it. Just be prepared, be prepared to lose it. But on the other hand, you know, it's a gamble and it could be a big win. Nobody knows. Nobody knows. But what does that say about the systems? What does it say about the institutions? Well, according to yours truly, what it says is that we are literally witnessing Right now at this time in history. Aren't you glad to be here for it? You have a front row seat, ladies and gentlemen, just like the cardboard cutouts at the Super Bowl yesterday. They had a front row seat too. Well, I don't know, maybe they don't give the cardboard cutouts the front seat. You know, I was talking with Ashley last night about the massive amount of environmental damage the Plandemic has caused. I mean, think about it. Do they really need to waste all that cardboard to, to make it look like these venues are full of fake people? I mean, this is like another example of desperate, crumbling institutions. The, the, the idea that they would, first of all, cut down a whole bunch of trees damage the environment, create a whole bunch of pollution by making those cardboard cutouts, by shipping them there, by setting it up. Absolutely absurd, right? If they want to social distance, why don't they just have every other or every, you know, other 2, you know, seats empty? Big deal. We all get it. We all know that there's a pandemic going on and they've got to make it look like, like our goody-two-shoes moron president, you know, always wearing his mask. He's sitting there at the Oval Office. There's nobody in the— even in the Oval office, yet he's got his mask on. Oh, I'm a goody, goody two-shoes. I'm setting the example. Yeah, right. Whatever. This is the, the last desperate gasp of so many big institutions, and it is a slap in the face to them. Nobody trusts the media anymore. Nobody in their right mind, right or left on the political spectrum, does not matter. We all know it's fake. We all know Big tech is a scam. We all know social media companies are disgusting, pathetic, and awful and evil, no matter what side we're on. You know, even those on the left who benefited from it cannot be stupid enough to see that what is going on is wrong, right? It's wrong, right? Yeah, that's kind of how you got to look at it. So the institutions are not trusted. And now you've got all these multiple— this, this like eating away at the banking system, at the central banking cartel, at the treasuries and governments. And you've got this whole population that is not tied to any geography. Think about it. Think about how it used to be in the old days. Right. In the old days, you know, if you had a certain skill and you were a factory worker, you might keep that factory job for your entire career. You know, back in the day when the US used to actually manufacture things. Now we just outsource them to coal-burning China, the biggest polluter on Earth, because somehow all of the folks who are running the world seem to have forgotten what famous Democrat John F. Kennedy said years ago. What did he say? We all breathe the same air. That's what he said. We all breathe the same air. But somehow it's okay to pollute China because the, the wind won't blow that pollution around the world, I guess. Whatever. Absolutely. 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 handpicked to help you today in the present and propel you into the future.

Enjoy.

You can't— this stuff is so stupid, you can't even make it up. But as we notice the institutions crumble, we are witnessing a time when people can just vote with their feet so easily. Now granted, it's not as easy as it was before the cerveza sickness began. But It's easy enough and people are taking advantage of it. They are geo-arbitraging in the US on a state level and a city level. And then around the world, some people are still even now even doing it with other countries. If you had a certain skill, you were an auto worker in Detroit, you couldn't just move anywhere. You know, yes, when you move, you take the skill with you for sure, but it wasn't the mainstream thinking back then that you would just move. But even Even then, you could only go to a place that manufactured the thing that you had a skill in pretty much, right? You weren't just going to get out of the automotive industry and go into another industry. And if you were a company or a business, most of the time you had a physical plant of some sort. You had equipment. You couldn't just shut your laptop screen. And move. Now you can. So we're seeing the institutions of socialistic, poorly run disaster areas like my home for most of my life, the Socialist Republic of California, and the Socialist Republic of New York, and, and many others both in the, in the country and around the world. We're seeing them crumble. People can talk all they want. In fact, they can vote all they want. But at the end of the day, Everybody knows that the most important vote is where people choose to locate and how they choose to spend their money. And whether they're spending their money on consumer goods or housing or taxes, right, that is the most important vote. It's not the vote that they're making for the politicians. So that is a very important thing to see. Make sure you notice this week, today, tomorrow, every day, the whole month, the whole year, forever. Just notice how the credibility of institutions is just getting just decimated. The university debt enslavement complex College tuition rip-offs? Just decimated. Disastrous public schools? Decimated. The credibility of the pharmaceutical industry? Decimated. Just scam after scam after scam. We all now know the cat is out of the bag. Pandora is out of the box. We know that we cannot trust anybody, resume notwithstanding. We know that Wall Street is a complete scam. We know that the new administration has been basically sold off to BlackRock. It's like a corporate takeover. That's basically what the new administration is. It's a corporate takeover of America, and nobody can trust the corporatocracy. So notice the crumbling institutions. But what does that mean to us as real estate investors? Oh, it means a lot because people are voting with their feet. And they're— guess what? They're moving to the areas that we've been recommending that you invest in for many, many years now. And those of you who have listened have benefited greatly. So congratulations. Congratulations. Now let's talk about the central banks and the government printing press. Not just the U.S., it's central banks all around the world. The ECB, the European Central Bank, is in trouble. The Federal Reserve is a Ponzi scheme. Okay, I mean, look folks, you can't hide this stuff anymore. It's so ridiculous that it just— we all know it doesn't work. And now Elon Musk has basically slapped that system in the face and said, you know what, I don't really trust keeping all of my corporate treasury in dollars or even in stocks or other assets of whatever kind. I want to slap that system in the face and I want to put $1.5 billion With a B billion dollars into a decentralized, uncontrolled, trustless asset. That's a pretty big statement against the institutions. So just keep watching them crumble, crumble, crumble, crumble, crumble, crumble. Yep. That's what they're doing. Okay. Before we get to our case study, and by the way, if I didn't make that connection well enough, maybe let me just make one more part of that connection. Elon's move is a move saying he is very worried about, guess what? What word do you think I'm about to say? I'll give you a hint. It starts with an I. Not like I, like I am saying it, The word starts with I. The word is, of course, inflation. That's the word. He is worried about inflation. And we as income property investors have aligned our interests with the forces who create inflation. And by the way, in all my rant about the institutions, I didn't even mention the whole Robinhood scam, the GameStop issues and that whole thing from last week and Google deleting over 100,000 negative reviews. Google decided they were going to censor the negative reviews against Robinhood because, God forbid, Google doesn't want the truth out there. I mean, folks, we are witnessing a massive shift in history right now. And it's ugly, but it's also positive in many, many ways. Okay, I have been meaning to play a whole bunch of messages that I have been saving for you for so, so long, and I just haven't had the chance to. So let me get a couple of these out of the way now. They're random, they're on a variety of different topics, but I think you'll want to hear them. And we got to get through more of these, maybe on Wednesday's episode, and then Then we will get to our guests today. But let's get through a few of these messages.

Jason, hi, good morning. It's Johnny from Arlington, Virginia. Hope that the weather and the day is as beautiful there as it is here. It's looking at 75 degrees.

By the way, this is an old message, so the weather report doesn't follow. I just want to flag 2 things for you.

I was watching, or I was listening to the show on Thursday. And I, I gotta tell you, Jason, I— when it comes to Bitcoin, I was listening to the guy that you had on. Uh, I, I still— I've tried to learn about Bitcoin for 2 years. I've tried to understand like how it works, the value proposition of it, of investing in it, and I just, I just still don't get it. I don't get how this can be treated as money. Or an alternative form of money. I love the idea and the concept, and like you, the decentralized quality of it. Um, but like, even if, even if someone does go on— what was it, like Coinbase or something like that— and buy Bitcoin, uh, you still hear about these cases where, where people spend millions on Bitcoin and then they get hacked, someone takes it, and then it's gone. Or it's on some laptop and some, some 20-year-old throws it away, um, doesn't realize that all of his Bitcoin's on his laptop, and then it's in some landfill somewhere. You know, you hear about stories like that, and, uh, I just, I just don't see how it's any different than, than investing in some other speculative investment. And to your point, I know that, that your guest was talking about, oh, you know, um, Don't worry as much about the Federal Reserve shutting it down. But it's like, the Federal Reserve is a powerful force, and if they don't want Bitcoin in the United States, they will make sure that Bitcoin is not in the United States. If they— if the U.S. government can physically confiscate gold, um, by, by force of law, certainly they can, they can, um, you know, turn off the lights for Bitcoin. So that's just, that's just my impression. I just, I just don't get it. Uh, I'd rather invest in physical things like real estate where there's title, there's a building, there's at least a plot of land that you own. The one thing that I do worry about in the long run is if people like AOC come into office more and more or, or whatever, um, like-minded politician that there would be, if there's lots of AOCs in the government, what's to prevent them from increasing property taxes to confiscatory levels, 3, 4, 5%, and saying, hey, you guys can hold onto this property, but you gotta keep paying taxes. Well, if we can't afford to pay those taxes, then they start seizing houses and boom, the federal government has this nationalized housing stock and landowners or, or, uh, property owners are, are just marginalized and made into peasants. That's unlikely, but lots of things are unlikely that have happened. So I don't know, I guess it's the one thing that I get concerned about. Um, would love to know your thoughts on that. I want to flag also yesterday's show, the Flashback Friday, was awesome. Um, I really got a lot out of listening to that, out of hearing something that you had published from 2008. I need to go back and listen to more Older episodes. It's because it kind of crystallizes the thought from that period that maybe we forget about, um, things that we had to think through as, as a— as investors from 2008, that, you know, in 2017 when the economy's hot, we kind of forget that we had to think in those ways. It really was a good exercise. So just wanted to tell you I got a lot out of both episodes. But, um, if anything, Thursday's episode where the guy was talking about Bitcoin, maybe he All the more thankful that I'm investing in real estate. Thanks.

Okay, so that was a big message with a lot of stuff, and I don't really have time to dive down that rabbit hole today. But I will say, since we are kind of talking about the cryptocurrencies and Elon Musk's big move, you know, I think there are problems and opportunities with it. And I just, for For my main thing, you know, I think the income property is far and away the best asset class, the most historically proven asset class in the entire world because it's multi-dimensional and for so many other reasons. It has such a big lobby behind it. But I, I just would love to be wrong about the crypto thing. And Elon's big move was pretty amazing, and it's just a slap in the face to the institutions. So I think we all have to think about that. Just remember the The main product of any government, and of course central bank, is the currency they create. And like any business— look, you're in business, you create a product, you know, even if you don't have your own business, you work for a business, and they create a product. And nobody loves competition, okay, for their product. So just always remember that motivation, you know, bet conservatively if you're going to bet on this kind of stuff. All right. So, uh, tonight, by the way, I, I must say We are revving up. I, I'm so proud of our team lately. We've been just doing great stuff to Property Tracker. It has this beautiful knowledge base component that we've just been expanding and expanding for many, many months now, and, uh, it offers so, so much. So be sure you check out Property Tracker. If you are not using Property Tracker, you're really missing out, especially all of the educational components that we've added to it. And if you are are not part of our Empowered Investor Inner Circle, you are also missing out because we're having another one of our monthly meetings tonight and we're talking about another technology tool. You know, I run those Zoom meetings myself. Everybody just says such great things about them. And also, we have created a whole library that's included in that membership of just fantastic video content, and we are really just expanding that all the time. You know, there's a lot of content that we create that we do not use on the podcast, that you don't hear on the podcast. So be sure you're taking advantage of some of our other stuff like the Empowered Investor Network— Empowered Investor Inner Circle, I should say— and the, um, the Property Tracker software as well. All right, without further ado, let's get to our guest and let's, uh, talk about another client case study. Hey, it's my pleasure to welcome another client to the show, and everybody always loves these client case studies. This is Chad Hewitt, and he lives in the Seattle area, actually, I think Everett, Washington, I believe, outside of Seattle. And Chad, it's great to have you on. Thanks for joining us.

Yeah, it's great to be on. Thanks for having me.

Good stuff. So you own a construction scaffolding company, right?

Correct. Yep, we put scaffold up, take it down, and, uh, It's kind of like having little rental, short-term rental properties because while the project's being built, we charge rental for the equipment. So it's kind of like having, you know, little apartment buildings that we're renting all over Seattle, but I'm just owning the scaffolding.

That's cool. That's an interesting way to look at it. I like the way you look at that, just like a real estate investor would. So that's awesome. That's awesome. Well, you and your wife were interested in triple net leases on commercial property. And, you know, I guess you were looking at like a common one is a drugstore, a Walgreens, and you were We're looking at that deal. And just for people who don't know, a lot of times investors will buy these triple-net properties. And triple-net simply means that all the expenses pass through to the tenant. So, these are liked by some people because they're considered the most hands-off form of real estate investing, where you just make everything the tenant's responsibility. You own the property, of course.

Right.

But the yields are pretty low on most of these. People trade simplicity for low yield. What I would think is that on the Walgreens, CVS-type model, because all of those are triple-net-lease-type deals— and I didn't say this to you before when we were talking off-air, Chad— but I think they're overbuilt. I think Amazon is just going to pillage that business. They purchased a prescription company recently. I think that's the next wave is Amazonization. I don't know, I didn't say it right. And I think that's really going to hurt these drugstores. I think they're already pretty overbuilt. You go down any city in America, it's like you go a couple of main streets, and you've got a Walgreens on one corner, diagonally across, there's a CVS. Do we need this many drugstores? I don't think so. Tell us what got you interested in that and your story about getting in real estate. You read Rich Dad, Poor Dad? Poor Dad, and I guess that inspired it, right? So I'll let you talk.

Yeah, sure. So yeah, I was inspired from Rich Dad Poor Dad, read that book when I was in my early 20s, and the light bulb went on about using leverage and other people's money and the type of gains that you can— the minimum gains you can expect versus what you can expect on Wall Street. And it just didn't make any sense to me to start pursuing a 401 or anything like that. So As I began to build my staffing company, the goal was as a cash flow vehicle to have money to buy real estate. So my wife and I had acquired a number of small properties locally, but then what I found is my wife is very hands-on. She's very frugal. She likes to go and do the move-ins, the move-outs, the cleans. If the toilet's broken, she wants to go fix the toilet. So that was fun in the beginning, but that gets kind of old fast. If your Saturday's spent changing out washers and dryers and unplugging toilets, It's really a bit of a downer, right?

Yeah.

Then I started looking at a different vehicle that would be the most hands-off form of real estate. From the Rich Dad Poor Dad angle, they don't really have a big, you know, they're not really big fans of single-family homes. They're more, seem to be directed for multifamily. So for a lot of years, I was looking at potentially how I would get into a big apartment building, but that seemed kind of daunting because I wanted it out of our area. So basically that it would be a, it be forced to be a hands-off investment like I intended real estate to be. And then the idea of having move-ins and moves-out on 50 different units, that became a little bit daunting. So that then led me to the triple net arena where the thought of just buying a big box and being able to get good financing on it, the downside being that typically the average down payment on a triple net from what I was looking at was about 30% to 35%. So a considerable amount of money, and then they will only guarantee that loan, or you can only lock that loan in for 5, 7, maximum 10 years. So then when I started to think about it and weigh the risks, the rewards, what you're talking about, you know, are there a lot of— are they overbuilt at the end of that lease period? I'm then negotiating with a large company that I am just a fly on the wall to. They'll squash me like a bug if they want, or squeeze me or break me down. That just didn't seem like— the safety factor wasn't there. Then I told you that I heard you on the George Gammon podcast, and you're expounding on the single-family investment. I started to relook at that in a completely different light, and I realized that was the best, safest place to park money of any place in real estate. The idea that I used to have this thing that if you have a single-family house, Someone moves out, you're 100% vacant. But if you own 100 of them, it's no different than owning a 100-unit apartment building. And when someone lives in an apartment building, they're always waiting for the next step to be able to get that house. And because I think America's becoming a, you know, a nation of renters, Right. They're gonna be moving towards a rental house. And there's, you know, no time— more time-tested asset. You said again and again, in real estate. And yeah, so I ended up purchasing. I talked to the wife about, you dipping my feet in the pool and we would just buy one property with you. And I started talking to Evan, my investment counselor, and one turned into 5, turned into 6, which turned into 11, which turned into 15.

So that's about it.

I love it. I'm doing sound effects for that. So you were just going to buy one of our single-family homes through our network and you decided to buy 11. That's great.

Well, yeah, because You know, I told my wife, I said, one is not going to move the needle for us. You know, we— because another big thing was when I realized that you could also do cost segregations on these properties. You know, I looked at my tax situation and realized that in order to basically offset income, I needed to buy a certain amount of properties, certain amount of value. And that's where we ended up at the number that we ended up at.

Right.

Yeah. Yeah. No, I agree. That's great. And I'm really glad you didn't pursue the triple-net stuff and you went with the single-family homes instead. It's very hard to disrupt the housing market. First off, as you know, being involved with the construction industry— and we're going to talk about something you said to me before we started about the cost and the regulations and so forth— but it's very hard to make new, cheap product, which would disrupt the investment.

Right.

And it's very hard to build That's a disruptor. Nobody is outsourcing housing. They're outsourcing retail, they're outsourcing office space, they're outsourcing manufacturing, but you can't outsource housing. It needs to be where it is, and there's a huge shortage of it. I think you made a very, very good decision, and I'm glad you made that decision to do the simple, proven, humble, But very profitable single-family homes. And that is the best thing going, if you ask me.

And another thing I was going to point out, by the time that I identified these properties, and I'm buying all new construction properties, just as a side note, it's just the direction I want to go in. I'd like the least amount of problems possible. So I figured that buying brand new, you can't go wrong with that. Also, it helps on the cost segregation end of things, I think, to buy a newer property. But the market is so strong and so crazy. I mean, those properties all approved by the time that I had bought them at say $218,000 to the time that I got loans on them, they were all worth $240,000. So it's, uh, it's just, you're seeing all this money printing show up in, in hard assets.

Right.

Yeah, I know. It's absolutely amazing. And, um, uh, the hard— it's, it's a good time to be long on hard assets, especially income property. You know, it's interesting through all of this, Chad, you know, gold, I mean, everybody's talking about But it just hasn't been anything that impressive. You can't leverage it, you can't rent it out, it doesn't produce income, it has terrible tax treatment. And now, it's got a big competitor, which is cryptocurrencies. Those are so speculative and volatile. Yes, there have been some big moves and some people have made money. But remember, the other side of all those people that made money are people that lost money.

Yeah.

There's a counterparty in every one of those.

Definitely.

I've been— I'm a gold investor too. I keep a small part of my portfolio in gold, and that was just from the preachings of Robert Kiyosaki, but it hasn't really reacted the way that other hard assets have. And I'm not too sure if that's manipulation, or that could be a conversation for a completely different show. But I've been— yeah, I've been disappointed with, with gold. I thought it was gonna break through $2,000 and go to the moon, and that never happened.

There are those very logical arguments for it, but they just never seem to really happen. The only time that really ever happened was in the '70s. It had a run in the last decade, but again, it frankly wasn't that significant compared to what happened in the '70s. The fact that you can't leverage it, it doesn't have the good tax treatment, can't rent it out, doesn't produce income, etc., and it is manipulated. You know, I would encourage anybody listening who wants to know about gold manipulation and other precious metals price manipulation to check out GATA, the Gold Antitrust Action Committee. And, you know, they, they are the ones pursuing this, but they're not going to stop it. You know, it's, it's just, yeah, it's, it's too big for any of us to do. But the one thing we can do is income property.

Yeah, absolutely. And that's, that's what the— that's the thing I like about it is it's so scalable based on whatever situation you find yourself in. And I mean, your properties that I was looking at in Memphis, although they're not new properties, you know, they're decent. They've got a roof over their head. They cash flow. They're $80,000. And you get into one of those for 20% down, $16,000. I mean, anybody that has a decent paying job can save $16,000. It's not, the barrier to entry isn't like you need $1.5 million to get into a Walgreens or something. So, it's—

Right.

Available for anybody no matter where you're at, I feel like, in I agree.

Or you can ramp it up. Like, we've got one client who closed on a big portfolio last week, and he wants to have 500 units. So, uh, you know, he's on his way. He's, he's doing big stuff. And, uh, it's really fun to see, see these people grow. Um, what kind of goals do you have with it? I mean, you're, you're up to the 11 properties now, plus you probably have your own home. Anything else?

Well, I mean, I have an overall portfolio right now that's worth about $12 million. My complete portfolio, I've got I've got some different properties, got a big commercial property. I've got a VRBO property in Hawaii that I literally think I just sold before we got on the air here that I got rid of just because I was listening to you. I'm thinking, this thing's worth about as much as it's gonna be worth. And the VRBO market has dropped off. Everyone's cutting each other's throats to get those things rented now.

Yeah.

And I've got equity tied up that could go somewhere else. So my, you know, goals are always changing too, right? If you wanna get to 10, that was my first goal to get to a $10 million portfolio. I got there. And then the next goal for me is a $20 million portfolio. And I think I can get there with just continuing to add single-family homes, you know, to what I already have.

Yeah.

Good for you. Good for you. That's awesome. So you wanted to talk about cost segregation, I think a little bit. Oh, but before we do that, actually, Chad, which markets are you in? Which markets did you buy in?

So I'm in Memphis. I'm in Huntsville, Alabama.

Good choice.

I'm in 3 different places in Florida. I'm in Ocala, North Port, and then Port Charlotte.

Okay, good, good stuff. So you got the Florida market covered, got Alabama, so you got the commercialization of space working for you, and Memphis, which is just great cash cow logistics. So you've got a nice variety there. Now don't over-diversify, okay?

Oh no, I think I'm pretty good with those markets. I picked Memphis just because the cash-on-cash return was higher, the appreciation isn't really there. I'm still, I feel like it's a little bit of both. And I think Florida overall probably has the, over the long haul, is probably the highest potential to appreciate. That's just my own personal opinion, just based on supply and demand. But either which way, I bought them not for appreciation, I bought them for cash flow. They're all rented, or, and I mean, as soon as they're built, within a week or 10 days, they will have tenants.

Yeah.

Excellent. Good stuff. Good stuff. So I would encourage you to kind of double down in those markets for the new ones that you buy for your next round and just get more in those same markets for ease of management because you've got some decent diversification already. So cost segregation, what questions or thoughts did you have about that?

Well, I know for me, you know, I bought these properties in part because of the cost segregation with the Trump tax cuts, which I think are sunsetting if I'm not mistaken. on the bonus depreciation. So I took that as an opportunity to buy things I was already gonna buy and then get tax incentives to do so. But I'm curious on your thoughts on why someone wouldn't do a cost segregation on property. I know why I would, I'm just curious if you have a counter to that.

Yeah, so first off, just for those who don't know, income property is the most tax-favored asset in America because you can depreciate it. And depreciation is a good thing, this is in a good way, meaning you get to take a non-cash deduction Or a phantom deduction, as I sometimes refer to it, where you're not paying for the deduction. You're not writing a check to take a tax deduction like if you donated to charity or spent money on your business. It's a really fantastic tax benefit, depreciation. You can depreciate a residential property over 27.5 years and a commercial property over 39 years. That's another advantage, by the way, of residential. You get faster depreciation, meaning more tax benefit.

Right.

But what you can do is, you can take some of the components of these properties and you can itemize them specifically because they have accelerated depreciation. For example, appliances in the house, or the HVAC unit, or other certain components of the house— the air conditioner is the HVAC, or the furnace— those depreciate at a faster rate. And so, you can itemize these These items, and you can depreciate them over, say, 5 years or 7 years, right? And you get a CPA usually to do your cost segregation analysis, or it's also called cost seg for short. Okay, and so they'll charge you a little bit of money. And on a single-family home, you can get this done now more and more. It used to be cost prohibitive on a single-family home, but nowadays you can get this done for usually between $500 and $1,000 per property. It will usually save you a lot more than it costs you because you can depreciate these things faster, take faster deductions. That's a long explanation, but the reason you wouldn't want to do it is, I can't really think of too many reasons not to do it. I guess, Chad, the expense. You're going to have to pay a little bit of money for the cost seg report so that you can do it. That's going to cost you $500 to $1,000 per house. And then also, all you're really doing with the cost seg is you're just bringing the future closer to you. And so you are getting the advantage of the time value of money, because I'd rather have a tax deduction today than later, right? So that's good. But you're not changing the tax deal overall, you're just accelerating it.

Okay.

So, you know, I guess from that component, it's not like a grand slam home run, but I think it is a good deal, and I think it's good to do I can't think of too many reasons not to do it. It takes a little bit of work, a little bit of time. But also, keep in mind, with everything that you do, there's not just the economic component. You do learn something from doing it. Just by doing these cost seg analysis and reading the report after you get it back from the CPA, you're going to learn something about it. That'll be an education. But you only need to do a couple of them to learn something. You don't need to do If you have 30 houses in your portfolio, you don't need to do 30 of them, right? But you might want to economically. So yeah, that would be my answer.

Yeah, yeah. Like I said, it makes all sense for me to do them, but, um, some people, I guess— and then you have to— if you sell the property, you have to recapture the gain. So it is kicking the can down the road a little bit, right?

Right.

But if you do a 1031 exchange, you bury that recapture into the exchange, so you don't recapture.

Okay. I always, always worried about it. If you sold it and then 1031'd You don't have to do the recapture.

No, no, because the recapture is buried into the exchange calculation. And so it just keeps going over to the next property and the next property, and you can do that your whole life. And then when you die, under current law, you know, the basis steps up to market value for your heirs. Now again, we always need to make the disclaimer, we're not lawyers, we're not tax experts, you know, consult the appropriate professionals. Disclaimer. Okay, yeah, so there you go.

Biden is going to eliminate the 1031 exchange. What kind of rules do you think are going to affect real estate for the new taxes?

Yeah, good question. You know, we have talked about that on the show. You probably heard us talk about that on the podcast, and, um, it's a possibility. There is some talk of it, but, you know, housing and real estate are just kind of this like sacred cow, and It's very hard to get away with doing anything to hurt real estate because, first off, it affects everybody. It's not this fringe element that's not going to screw up your political career. Everybody's in real estate in one way or another.

Yeah.

It has such wide-ranging effects, and there's so many people lobbying against against any of this that I don't know, even if he wants to, it probably, he'd probably be hard pressed to make it happen. Go ahead if you had something on the tip of your tongue, but I want to ask you about construction costs, 'cause you said something about that.

What I was going to get into next was just, we were talking before we got on recording here about, you asked me about how Seattle's market was. And I noticed a spike of new apartment projects coming in, you know, to get bids on. And I kind of asked around to a developer friend of mine and I said, is there, you know, what's going on? Apparently, there's a new energy code coming in, you know, Green New Deal stuff, where the cost to develop your average apartment building is gonna go up something astronomical. So everyone was just racing to try and get their permits in so that they can build before they have to, you know, comply with the new energy code permit. So that's just gonna make, you know, they try to make more affordable housing and anything that the government tries to do, they just end up screwing up because no one's—

Of course.

afford to build these things or buy them or live in them or whatever the case may be. So that's basically the big thing I see going on in my market is just an influx of people trying to get permits before they have to acquiesce to this new energy code.

Yeah, you know, the, the government, yeah, I mean, they, they have created the homelessness problem, uh, not only by shipping the jobs overseas and, you know, not helping the veterans enough and all of this But by all of these regulations on housing, they've just made it so expensive to comply with the requirements, and especially in places like Seattle and California. I'm talking about Seattle like it's a state. It's obviously just a city, but it's run like its own little fiefdom. They're just making it so hard. You know, they can't look for low-cost housing anymore. You just can't do it.

No.

And one interesting thing about low-cost housing is it's always built by the government. And if you actually look, when you go to apply to do that job, we're a non-union company, right? So when we go to do one of these low-cost housing projects, we have to pay prevailing wage. So everyone gets paid a set amount of money. It's the highest wage bar that they have. So when you look at the cost to build what they call Quote unquote affordable housing in the government-run sector. The private sector could have built it for about half as much if they were actually, you know, if they if they let it to the free market. So, you know, I'm a free market guy, and I just don't understand anybody that anything the government touches, they just absolutely they just destroy it. And I don't know how many more times you need to prove that.

Yeah, no, it's it's definitely true. I mean, the government we need a government to do a few things. But let's just keep it to a minimum because, uh, you know, it's, it's like Reagan said, you know, the most dangerous words are, I'm, I'm from the government, I'm here to help.

Absolutely, absolutely.

Run for the hills. Yeah, yeah, absolutely. It's, it's just so— it's just the nature of the beast. It really is. But, um, what you were saying, uh, just— I don't know if that point was totally clear, Chad. is that you're seeing this boom in construction because all of these developers are rushing to build before they have to comply with these new requirements coming down the pike that'll make their cost of construction like 30% higher. So, see how that's distorting the market? It's causing overbuilding right now in these apartments, right?

Yeah.

And then later, it will cause a shortage of supply because no one will want to build.

Exactly. Yeah. I mean, these people are just all racing to get their permits. They're not even gonna break ground yet. They just have to get their permit. And then I think they've got 18 months from permit to actually start digging a hole in the ground.

Yeah.

Whatever the case may be. But that's, that's, there's definitely things coming down that are gonna distort the market.

Yeah. It just, it doesn't make any sense. It's crazy. But, um, but hey, uh, you know, I appreciate you sharing your story and, um, is there anything else we should talk about? Um, you know, questions, thoughts, goals, ideas? Anything you want to run by the audience?

No, I think I just wanted to share my experience that, you know, it's from someone that's looked at all different angles of real estate, totally bypassing single-family, coming right back around to that being the best place to park your money, and you guys being probably the best company to deal with, you know, in order to make that happen. So I just want to share my story and thank you for the service that you're putting out there for people and the education that that you have on your website and your podcasts. And, uh, just a, just a thank you from me.

Hey, well, thank you for your business. We really appreciate it. And it's, you know, it's an honor to serve you and other clients like you. And we just wish you super, super success, Chad, and, uh, and happy investing. And thanks for coming on the show. Really appreciate it.

All right.

Thank you.

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