262: The Ten Commandments of Heroic Investing

Welcome to the Heroic Investing Show. As first responders, we risk our lives every day. Our financial security is under attack. Our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant and we need to take care of our own financial future. The the Heroic Investing show is our toolkit of business and investing tactics on our mission to financial freedom.

Welcome to the Heroic Investing Show. This is our first episode where we explore financial strategies for first responders. I'm your host, Jason Hartman and The website is heroicinvesting.com and today we will explore the ten commandments of successful investing. And as a first responder, a police, fire or medical person, you're in a very special situation. Because in today's world, the thing that many of you have really, really planned on as a big benefit of your career is a nice pension opportunity. And we have states, counties, cities around the country that are in big, big financial trouble. And these pensions are getting renegotiated. There are a lot of problems with money in government and this is obviously not big news. But what we need to do as first responders is be prepared for this. We need to plan for this. We need to plan with thinking that our pensions, our contracts may be renegotiated at any moment. And even if they're not, even if things work out for us in that respect, we've got to plan our financial future and learn how to invest prudently and successfully so that we can put a second career investment, putting our money to work for us on autopilot in addition to the money we earn from our career as a first responder. So one of the foundational things we do at my real estate company, Platinum Properties Investor Network, is we talk about investing in properties, in income properties, the most historically proven asset class in America. And we have other shows that we do on this topic that are more general, but this show is more tailored to first responders. One of the foundational pieces of our content is called the ten Commandments of successful investing. So let me go over this with you now and kind of talk about them. The first one is thou shalt become educated. Obviously, if we want to learn anything, if we want to learn how to fight fires, if we want to learn how to fight crime, if we want to learn how to save lives, we need to become educated. And of course, the same is true with investing. We need to do our due diligence. We need to learn how to do our due diligence and how to do our due diligence properly. So that is an important thing. We will be covering this on subsequent episodes of this show. Number two, thou shalt have a professional investment counselor. A professional investment counselor who actually does what they are recommending to you. And I do what I am recommending to you. I've made millions of dollars with income properties over the years. They have been a very good thing for me. And I will teach you throughout the show how to invest prudently, properly and successfully. How to purchase properties that make sense the day you buy them so that you are putting yourself in a winning position. From day I cannot tell you the number of times I've sat across the table from someone who was wearing a nice suit, who went to a grade school, who works for Merrill lynch or Ameriprise or Pain Webber or any of these companies, any of these big brokerage firms, and yet they have not actually created wealth with the method they're suggesting to me. That is different. With me as your investment counselor, I will show you how to create wealth through income properties the same way I've done it in a prudent, successful manner. Number three, thou shalt maintain control or thou shalt be a direct investor. When we talk about investing on the heroic investing show, we talk about you controlling your investment. Not putting your money, your retirement, your future, your financial freedom in the hands of some other person, some crooked brokerage firm, some crooked CEO. When you put your future in the hands of Wall street, when you put your future in the hands of poverty, partnering on investments, pooled money type investments, whether they be stocks, bonds, real estate investment trusts, limited partnerships, these types of things. One of the sayings I have is pools are for fools. You leave yourself susceptible to three major problems. Number one problem, you could be investing with a crook. Number two problem. And by the way, with number one, I mean, I don't really need to explain to any of you because you've all heard the stories about all of the scandals on Wall street, whether it be Enron, WorldCom, Global CR, any of these. I mean, Wall street is just pretty much a criminal enterprise in my opinion. And it's the modern version of organized crime. And unfortunately, all of these Wall street firms, all of these large companies, they're in bed with the government and they go and they hire lobbyists and spend millions and millions of dollars on lobbyists to get laws written in their favor so that they can do their thing and they can pay the big bonuses to the executives. And we, as the investor, get the Short end of the stick. So what I'm saying here is maintain control. How many people do you know that got rich in the stock market starting with very little money? How many people do you know that got rich in real estate? I bet you've answered that question by saying you don't know anybody who got rich in the stock market unless they were an insider. And you know lots of people who got rich in real estate by just simply buying, owning and controlling as a direct investor maintaining control in some little simple rental properties. It is the most historically proven wealth creator. I saw my mother do it when I was growing up. I've done it myself and I've seen lots and lots of other people do it over the years. So maintain control. So the first problem, when you relinquish control, you could be investing with a crook. The second problem, when you relinquish control, you could be investing with an idiot. And through their stupidity they will lose money on your investment. Third problem is, assume they're honest, assume they're competent. What's the third problem? They take a huge management fee off the top for managing your investment. So we look at this in the Wall street example. We look at all of the executives with Goldman Sachs paying themselves huge bonuses every year. We look at the bank of America people, we look at all of these firms, we look at Merrill lynch, and all of them are making absolute fortunes on the back of investors because they get to decide how much to pay themselves. They've loaded the boards of directors with their college buddies, their friends, their cronies, their family in many cases, and they are paying huge bonuses to themselves. While the people who are investing their hard earned money, mostly middle class Americans in their companies, are getting completely shorted on the deal. I'll give you one example. You've probably heard of this guy, Larry Ellison. He owns a company called Oracle. And between 2000 and 2002, in two short years, Larry Ellison paid himself, I believe it was $761 million. That was his personal take from Oracle. And in two short years, not bad. Almost a billion dollars in two short years. But guess what? In those very same two short years, the people who invested money in his company lost 61% of their investment. And this is completely legal, but in my mind it is totally criminal. But all the laws are written in their favor because they have the lobbyist. They're in bed with the government and they control the game. So be a prudent investor, maintain control. Commandment number four, thou shalt use prudent financial planning. Techniques. Now look, I think the one thing that Wall street can teach us is how to use prudent financial planning techniques when planning our investments. Everybody listening has a different perspective on investing. Some people are investing for capital appreciation, some people are investing for income or cash flow, while others are investing for tax benefits. Everybody listening has a different time horizon. Do you want to retire in five years, 10 years, 15 years? Well, how you act as an investor should be handled differently depending on your time horizon. Also, everybody listening has a different risk tolerance. Some are very conservative investors. Some will take moderate risk, while some will take large risk. And they have different amounts of capital to allocate to their different risk in their portfolio. So use prudent financial planning techniques and learn that one thing from Wall Street. I do believe financial planning is a legitimate science, but I think you apply it to the most historically proven wealth creator income property commandment. Number five, Thou shalt not gamble. Be a prudent long term investor. Never a get rich quick gambler. Don't be a speculator. Don't be a property flipper. Over the years I've been in the business and this is 20 years now, you want to make sure that you are investing for the long term. I have seen the flippers, the speculators, I've seen them create some spending money for themselves. But the people who are the buy and hold investors, they always seem to be the ones who have the real long term wealth. The same is true with you. That's what you want to be, a prudent non gambling investor. And when it comes to income property, what do you do? The property must make sense the day you buy it. From a cash flow perspective. You must have sensible cash flow from day one. Don't expect anything great to happen in the future to make your investment work. It must make sense the day you buy it. Don't be a speculator. Number six, Thou shalt diversify. You can reduce your risk and maximize your returns by investing in several areas. There's a great saying in the real estate business and that is all real estate is local. In a country as large and diverse as the United States of America, there is no such thing as a national real estate market or a national housing market. Every market is different. There are about 400 different local markets and some are very good and some are very bad. So right now as I speak, I think California is a pretty bad market and I think it's going to get worse. I think many of the high priced areas in the northeastern United States, many areas in Florida are Still in big trouble. Many areas in Illinois are still in big trouble, but there are many areas, for example in the Southeast and the Southwest that are pretty darn good. So all real estate is local. And if you want to look at some of the better areas, look at my real estate company website, Jason hartman.com and you'll see where we have properties we're recommending and you'll look at returns on these investments of anywhere between 15 and 35 or even 40% annually income. Property is the most historically proven wealth creator in America, bar none. Number seven, Thou shalt be area agnostic. Only invest with an advisor who is not partial to any one area or any one investment and avoid that natural conflict of interest that requires consider a variety of opportunities and invest where it makes sense. We are very disloyal to markets on the Heroic Investing Show. So you want to be investing in different markets. You want to diversify your portfolio and go where the investments make sense. Do not be attached to any one market. Eight Thou shalt borrow to maximize leverage and accelerate wealth creation. You want to use as much OPM as possible. What is opm? Other people's money. Now I am talking to you two years after a huge financial crisis hit this country in the rest of the world and a lot of people got themselves into a lot of trouble with debt. But I am talking about the prudent use of long term fixed rate investment grade debt debt that makes sense attached to properties that make sense the day you buy them. So we're not talking about being a fool with debt. We're talking about being a prudent long term investor with debt. And leverage can work very much in your favor as long as you apply it prudently and strategically. And that's what we talk about doing on the Heroic Investing Show. So look for a lot more on this on future shows. Number nine, thou shalt only invest where there is universal need. I like housing. They can outsource the retail to the Internet, lessening the need for shopping centers and retail properties. They can outsource the office space to India. Have you called tech support lately and talked to a call center in India? Well, that lessens the need for office space. Fortune 1000 companies are telling their employees to go work out of their house. So office space I think is a pretty bad investment. I think it has a pretty bad future. Number three, what is that? Well, that would be industrial properties. So here we look at all the manufacturing being outsourced to China and other countries around the world where labor is so cheap and government regulations are so low, that's where the manufacturing is going. And that lessens the need for industrial properties. But guess what? The population in the United States of America is still increasing. And everybody needs a place to live. Everybody needs a roof over their head. And something that we'll talk a lot about on future shows is what I call packaged commodities investing. When you're buying housing, you're really buying the commodities that make up the housing. What are the ingredients of a house? What are the ingredients of a mobile home? As an investment, what are the ingredients of an apartment building? Well, they're lumber, labor, petroleum products, energy, copper wire, glass, steel, concrete. All of these things are traded as commodities globally. So what we want to do is we want to arbitrage these commodities and we want to use 90, maybe 95 or maybe even only 80% of somebody else's money to buy them. And when we do this, we get long term, three decade long fixed rate debt to buy commodities at half price at one third the cost. And what I mean here is we're buying at far below the cost of replacement and far below the cost of actual construction. And we are buying something that has absolute universal need. Think about the three things every human being needs. Food, clothing, and you guessed it, shelter. Let them rent that shelter from you as a prudent income property investor. 10 the final commandment of heroic investing. And that is thou shalt only invest in tax favored assets. One of the great things income property offers is tax benefits. In fact is the most tax favored asset in America. Now. It's always been a funny thing to me how bored people get when I start talking to them about taxes. They'll spend hours shopping around for a good deal on a big screen tv. They'll spend hours, maybe weeks shopping around for a good deal on a car. Yet the single most expensive thing they have in their life, the single largest expense they have in their life is, you guessed it, taxes. And do not be the type of person who lets your eyes roll back in your head and gets bored when the subject of taxation comes up. Taxation is the largest expense any of us have in our life. Yet smart, prudent income property investors have learned how to legally minimize or avoid taxes. They've learned how to do this legally because the IRS wants us to provide housing to people. It wants us, it incentivizes us to provide rental housing to people and income property is the single most tax benefited investment in America today. So we will talk a lot about this on future episodes of the heroic investing show. Now Let me give you an example of one of the properties offered through my real estate company, Platinum Properties Investor Network. And this is a property in Arizona. It's in the Phoenix area and it is only $69,900. You can buy this property. It's only nine years old. It was built in 2001, three bedroom, two bath property for only $45 per square foot. That's less than the cost of actual construction. It's about half the cost of actual construction today. So if that house burnt down today, you would spend about double this just rebuilding it. And it is already pre rented. It has a renter in it. So from day one you will have positive cash flow of $263 per month. You have a projected return on investment of 35% annually. You have a projected cash on cash return of 18% annually and what is known as a cap rate or a capitalization rate of 10%. And we will explain all of these numbers on future episodes in more detail. But what I always say to our investors is, look, even if it doesn't go as well as planned, even if it goes only half as well as planned, what would your total return on investment be? 17.5%. Are you going to beat that in Wall Street? Are you going to beat that in the stock market where someone else is controlling your future, where bigwig brokerage firms and executives and CEOs and boards of directors are skimming all the profits off the top? Probably not. Are you going to beat that in the bank? Certainly not. So again, this is the most historically proven asset class in America today and we're going to explain explore this in a lot more detail on future shows. Thank you for joining me today for the Heroic Investing Show. You provide an incredibly valuable service to society as a first responder and we are here to help you invest prudently and properly with the right strategies, the right tactics so that you can be successful as a first responder and have a basically a second business going for you on the side. And that is your income property investment business. So Visit the website heroicinvesting.com and we will see you on the next episode of the Heroic Investing Show. Thanks so much.

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