AIPIS 64 - Learn About Detroit’s Economy with John Jamieson

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 AIPIS show for accredited income property investment specialists and those who aspire to be if you're a real estate, mortgage or financial professional, this is the place for you. We'll explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.

Welcome to the AIPIS show for accredited income property investment specialists and those who desire to be this is your host, Jason Hartman. We talk about increasing your income, your productivity and just generally having a better life while serving your clients better with America's most historically proven asset class income property. We have a great interview for you today and we will be back with that in less than 60 seconds.

What's great about the shows you'll find on jasonhartman.com is that if you want to learn how to finance your next big real estate deal, there's a show for that. If you want to learn more about food storage and the best way to keep those onions from smelling up everything else, there's a show for that. If you honestly want to know more about business ethics, there's a show for that. And if you just want to get away from it all and need to know something about world travel, there's even a show for that. Yep, there's a show for just about anything only from jasonhartman.com or type in Jason Hartman in the iTunes store.

Hey, it's my pleasure to welcome John Jamison to the show. He is the author of number one bestseller the Perpetual Wealth System and he's a daily finance real estate columnist and he is based in a city that I like to bash a bit and I think our guest is ready for that and he's ready to counter some of those impressions and agree with others. And that is Detroit. I call Detroit the poster child for why big government doesn't work. My home state, the Socialist Republic of California, is kind of becoming the new Michigan. I like to say. The thing about real estate that we all have to understand is that all real estate is local. And it's not only local to a metropolitan statistical area or even a city, it's local to neighborhoods and suburbs. And we're going to take a deep dive into that today and I think you'll find it to be very interesting. John, welcome. How are you?

I'm doing very well. Thank you so much for having Me on the show. I appreciate being here.

Well, the pleasure is all mine. And I hope you don't mind my teeth. Detroit, you know, no one likes to hear their hometown teased, but I guess you actually agree with some of it, right? Yeah. So, you know, take us through the history. I mean, your dad was a Detroit cop. I guess you grew up right in the city, right?

I sure did, yeah. I was born and raised in the city. And as you say, my dad was a Detroit police officer for about 30 years, so. And that was starting in the 50s. So my dad was a police officer during the heyday, and then very much right in the middle of the start of the decline of the city, he was also a police officer. And I lived actually in the city limits till I was about 19, and then we moved out to the suburbs. I'm still here in metro Detroit, but I was actually in the city limits for my first 19 years.

Okay. And when we talk about heyday, you know, Detroit really was something big. I mean, it was really one of the flagship cities of the entire world. I mean, you know, the auto industry, music. Detroit was a big deal in its day. And, you know, over a couple of decades, we saw the population really be cut in half. I think it was about 1.6 million, depending on what areas you're counting. Exactly. And then now it's down to about 800,000, which is a pretty big deal. And, you know, we see this stuff on the news about them bulldozing houses and stuff like that, and that's the current stuff. But take us through kind of chronologically, if you would, John. You know, what happened with the city, it definitely was great in the heyday. And when did that decline start, and why did it start?

Well, there's many issues why it started when it started. You know, that's open for debate. But, you know, you basically had the riots here in the 1960s, and that didn't help. So what you saw was a very much divided city racially, and it probably still is one of the most racially divided cities in the country, which is a shame, because as we all know, there's good and bad people in all races and sizes and colors. But Detroit, after those riots happened, that's when you saw an exodus of a lot of the wealth that was in the city. And that continued to happen. And as you say, it became very much a welfare city and a government and state that just continued to fund money into it. But yet people kept leaving and leaving. And you mentioned something about the population. At one time, Detroit was considered the wealthiest city per capita in the country, believe it or not. People have no idea that that was true. But if you think about it, we had the automobile, and we still have the automobile. But as people started to leave, you know, you went from about 1.8, it depends who you talk to, but now down to about 700,000 people that are actually in the city limits. But what people don't realize is most of those people didn't leave the city per se. They left the actual city limits. And I'm case in point, city for my first 19 years, and now for the last 25 years, I've been in the suburbs, but never more than 20 minutes from the city line. So the metropolitan Detroit area has four and a half million people in it. When you take into account what's considered the tri county area, not just the city limits, but that's when it all started. And it got worse and worse and a lot of corruption, governments and just, you know, people not taking pride in the city. And a lot of people left. And it became a very adversarial relationship for a long time between the city and the suburbs. And now, frankly, they're coming back together because they realize that they both need each other. But that really took place over about between 30 and 40 years. It was several decades that, that, that, that took place. And so now that's what we're left with. But there's still what people don't realize. There's a lot of money here, and we're free to talk about that if you'd like, Jason.

Yeah, well, I definitely want to dive into that, but I just don't want to gloss over kind of some of the history as to how happened first, and then we'll bring it up to current day here in just a few moments. So, you know what strikes me funny, and I have no idea what your political beliefs are or anything like that, but on the political left, you know, on the Democratic side of the equation, it seems like you always have these Democrat politicians who promise to help certain groups and all of this help, I'll put in single snarky quotes here, that they promise to do or they actually deliver ends up hurting the people they say it will help. And I don't know if it's the law of unintended consequences. I don't know if it's by design, and it's really a conspiracy to keep people down and build in a permanent voting block for this party. But, but I mean, Detroit has just had a bout of like corrupt leftist politicians over the years, hasn't it?

Oh, it sure has, yeah. I mean there's. As far as the city administration goes, it's been a Democratic administration completely unchecked for, you know, you're looking about 40 years now, give or take. And so I'll let the results speak for themselves. Anytime you leave, really, I think any party, frankly, even if it's a Democrat, Republican, anytime there's no checks and balances in place, I think things have a chance to get skewed. And I think in Detroit it definitely got skewed to the left. And you see what 40 years of unchecked liberalism has done. It has really taken a world class city down into almost bordering on a third world country. Although we do see signs of coming back and I know we're going to talk about that, but that is really what.

Yeah, I mean, I've read articles about the movie industry coming into Detroit, you know, the program for the writers and the artists and so we'll dive into that. But you know, first I'd like to ask you, did you hear a lot growing up about this Model Cities program?

No, we didn't hear much about that growing up. It really wasn't talked about much. You just could continuously see that people were leaving the city to the point of, you know, it's funny, Jason, people, unless they're from here, they don't realize that everything I had when I was a kid is all gone. As far as all my schools are closed, all my churches are gone. I don't have one parent or friend of my friend's parents who still live in those same houses, houses. They have all moved out and all moved down. And that's really very unique to this, to the city of Detroit. And I sometimes I get together with old friends and we all grew up down there and there's not one of them that live there and there's not one of them that who parents still have their old houses down there, schools are gone, etc. So that's kind of what we focused on growing up as everything just started to deteriorate and eventually we lost everything and now it's memories.

Yeah, yeah. Boy, that's. That's a sad story. It definitely is. So where exactly did you grow up? Like, were you. Do you just call it downtown Detroit or what area was it called?

Well, when you talk about Detroit, you talk about the east side of Detroit and the west side of Detroit.

Okay.

I grew up on the east side of Detroit.

Okay. And is that the good side of the tracks or the bad side oh.

You know, there's a good side of the tracks on both sides. You know, when you talk about Detroit, you've got downtown Detroit and then basically the whole city is basically a wagon wheel. And you've got the east side and the west side, and there's good and bad areas on both. Both parts of town.

Sure, sure. Okay. So people have moved. Now, I want to ask you a question that may seem incredibly obvious, but I, you know, it's probably kind of a D. But why did they leave? I just want to hear that in your words. Why did people leave?

Well, I think at the beginning it was just flat out fear. Once the riots happened and there was a lot of burning down of businesses and houses and just that undercurrent of tension, people didn't want to be a part of that. And so there was building going on just outside in the suburbs. So a lot of people started looking into the suburbs, people who would never have considered it before. And then I think it just had kind of a domino effect. Like, oh, my aunt left or oh, my best friend left. Maybe we should leave. And it was that domino effect. And before you knew it, you know, you had a city that was originally planted for two and a half million people that now has 700,000 people in it. And that happened obviously over time. So it was just gradual. And before you knew it, everyone you knew was out of the city limit.

Yeah, yeah, that. It kind of feels, you know, three years ago, I moved from Southern California. I lived in Orange county, mostly in Irvine and Newport Beach. I had several different homes there over the years in. In my adult life, and then grew up as a kid in Los Angeles just 40 miles north. And that's how it started to feel in Orange County. It felt like all the stuff that I liked 15 years earlier just went away. It just sort of gradually happened. And there's been a huge middle and upper middle class exodus from California. I know that the ultra rich probably mostly stuck around because, you know, they have so many ways to get out of paying the ridiculous taxes and, you know, get out of having the government interfere too much in their lives. But the middle and the upper middle class, you know, they take the brunt of it. The poorer they get benefits, you know, so it's the middle and the upper middle that really get hurt the most. But.

It'S interesting how that happened. So, you know, did they go to any particular place? I sure know I had lots of friends in the 80s and the 90s in California who were from Michigan and, you know, and From Detroit and different areas in and around Detroit mostly. Did they go to any particular place or was it just kind of scattering all over?

Well, they were scattered all over, but the vast majority of them are still within the tri county area. So remember I described to you that all my friends have moved on and all their parents, I would say probably 80 to 85% of them are still within 20 minutes of the city border.

Okay. So they didn't completely move out of.

A certain demographic area and gotten to places where they felt safer in their schools, had better school systems, better roads, better opportunities, better retail establishments, et cetera. But most of them are still here. They're just on the other side of the eight mile border.

Right, right. And so what is that, about 20 minutes? They've moved about 20 minutes away then.

Yeah. When you talk about metro Detroit, you talk about Wayne county, which encompasses Detroit and some other areas, talk about Macomb county and Oakland County. So the vast majority moved to Macomb and Oakland counties.

Yeah. And what do you think really was the cause of the decline of the American auto industry? A lot of people like to blame it on the Japanese and I guess it really started with the Germans with a little the first Volkswagen Bug, the economy cars, which of course in the 70s when gas prices went through the roof and people were waiting in lines for gas and stuff, that was really when the foothold began. But, but you know, I blame the unions a lot because, you know, Americans now are making pretty great cars. I mean, you know, American cars are nice nowadays certainly, but you know, it seems like the unions just got too powerful. And while they were needed originally, many, many, many years ago, there was certainly a purpose and a need for unions because employees were being massively abused. But then after a while it just became sort of like, you know, we just want to be more primitive on purpose because we don't want too much efficiency in this company, otherwise, you know, people will lose their jobs. And they didn't want to adapt and you know, they just, they just put too, they were just too demanding on the companies. And you know, obviously we see a lot of auto manufacturers in the south and the Southeast now and you know, in right to work states, which Michigan recently I guess became a right to work state. I thought that was a step in the right direction.

Yeah, not to be sure. I mean, it's back to your original question of the decline of the American auto industry. I think unions can take some blame for it, but I also think that the companies themselves can take some blame for it because as with anything else, when there's no competition, people tend to get fat and sassy. And really at post World War II, we were it. So for the 50s, 60s and on almost into the 70s, really there was no competition. And frankly, they didn't put out a good product. So when that competition did come along and it did put out a product and they really cared about quality, they started taking a lot of the market share away. Now, as you say, a lot of that has changed and now American cars are on par with everything. But they gave up a lot of their market share because they got fat and silly and with no competition. So you always got to have competition in the marketplace. Auto, you know, the auto industry is no different.

Keeps, you know, I always say, a tribute to my competitors. They make me better, they make me work harder every day. And it's good that we have them there to keep us on our toes and keep us excited selling and pushing for more. So what's going on now in Detroit? I mean, there are some signs of light. I've definitely seen them.

Take us to what's happening now.

Well, when you talk about Detroit, you also have to talk about the state obviously, because Detroit wasn't the only thing that was hammered the last eight years. The state of Michigan was just absolutely hammered. We had an administration in here that really didn't understand business. They drove loads of business away, not just the auto industry, but all kinds of businesses. And for the last four years we've had a different administration and now we've got balanced budgets, we've got budgets being turned in early, we've got even surplus in a budget. So Michigan is benefiting from that as well as the city of Detroit. And what people don't understand about the city of Detroit is how much money is truly here. You know, when you hear everything on CNN that oh, it's terrible and the city went bankrupt, all that's true. But there's 4.5 million people here and a lot of auto industry. And what people don't understand is that we've got a big medical community here as well. We're kind of doing what Pittsburgh did. You know, when the steel industry collapsed on them, they went to a medical slant. And that's the exact same thing Detroit's doing. We've got probably 15 world class medical facilities all within no more than a 40 minute drive of downtown Detroit and frankly many of them within the city limits of Detroit. So between the industrial baits that we still have, I mean, yes, we've lost some of it. No Question. And of course when car companies do badly, you really hear about it. But the fact is there's still a lot of money being generated by car companies. We still get the lion's share of that here in metro Detroit. And you've got medical communities. So between those two highly paid industries and all the support material and support staff needed to support all that, we're doing well. And it's something that people are just amazed when they come into town and they work with us and they might look at some properties with us. They're just amazed how solid of a community it really is. And all the money that's here.

Okay, so I mean, can you still buy a house for a dollar or $100 or $500 in Detroit? I mean, I know they're bulldozing some, so you must be able to, right?

Yeah, you can do that all day long. And the question is, do you want to?

Right.

Most of the time the answer is no. You get what you pay for.

Yeah, right, right. No, I agree with you there. You get what you pay for. But tell us about those deals first. And I mean, are those just in total war zones? Are they meth labs? You know what.

I don't know what to think, but I hear about those deals.

Well, most to be in total war zones, they're going to be in old areas that might have two houses on the whole block and there's another 20 that are either vacant or torn or already torn down. So that's when you're going to get those kind of things. Now you can get solid several thousand dollar properties and still what I think could be considered tough parts of town. So once you start, really what we do is we focus on the suburbs where the money is. And in those areas now you're going to be all in for a solid little three bedroom investment property. All in for about 50, 55,000. And when I say all in, that's the fix up, that's the purchase price, that's any buying fees that you might incur. And that particular house will rent for about anywhere between $850 and $950. That sounds really attractive as far as cash on cash returns.

Absolutely. That's better than 1% RV ratio. Now when was that house built? That stereotypical house that you're mentioning, the.

One I described, those are going to be built post World War II. 50s and 60s is going to be the most common build for those areas that I was mentioning.

Okay, so 50s and 60s and you can have that house rent ready for about what $55,000.

You said about 55,000. Be rent ready and it's in a solid area that's no vacant houses or very few vacant houses. Solid school, solid park and rec, nice cars when you go up and down the street. Very unique opportunity.

Okay, so.

What kind of comfort level can an investor take? That that house and that area isn't going to be the next, you know, the next kind of white flight area. And you know, I don't mean to even mention racial, but that's just kind of an expression. And you know, the people move and they leave these areas, like areas go downhill. Obviously some neighborhoods get better, some get worse. Most of the time it seems like they get worse. You know.

How do we know that area's gonna stay good?

Well, you know, like anything else, nobody has a crystal ball, so nobody can really determine. What you need to look at is pride of ownership there, regardless of what people look like. Is there pride? Are people out there cutting their lawns? Are they cutting the bushes and the areas that we put people in? That absolutely is the case now. Could that change in the future? Sure it could. Nobody has a crystal ball, but one of the things we focus on is most of our investors, in fact, every one of our investors pays cash for the house. So they're making a great cash on cash return. And hopefully these properties will come back to levels that they were prior to 7 and 8 when the market collapsed. And if they do, these are all houses that, you know, you're all in now for 55. These are all formerly 130, $150,000 houses. Nobody knows if they'll return to that. But when you see the solid areas, people taking care of their homes, you take your best hold. And I think that's what people do is just make an educated guess. Nobody has a crystal ball.

So when were they? 130, 150,000. What time frame were they that price?

Prior to 07.

Prior to 07. So in 06 they were that price then. 05. 06, right?

Yeah, 0506 before the collapse hit. And then at one time, even a couple years ago, your all in price would have been about 40. So we've had a bounce like everybody else has. Certainly not a bounce to what the levels were, but we've had a bounce from the bottom.

Right, right. And how many square feet is that typical property there?

Again, about a thousand. They're typically going to be three bedroom, thousand square foot, Three bedroom, one bath, basement and a garage or at least basement or a garage. Basements are Big here in the Midwest, as I'm sure you know. Yeah, so that's your cookie cutter standard three bedroom home.

Okay, so it's about 50, $55 per square foot. Something in that ballpark, right?

Yeah, and that range is pretty close.

Okay. Now what about expenses, though? I mean, how is insurance and property taxes? I mean, you know, property taxes, they vary quite a bit. And what are they like?

Yeah, they sure do. Our average, we've got certain guidelines that we will not allow investors to get in if the taxes are at a certain amount. So. So let's just say the place rents for $900. Our average investor will net about $550 a month after they pay taxes, management, insurance, and some deferred maintenance.

Okay, but can you tell us how much the taxes actually are on that? Well, sure.

It's going to vary. Anywhere between 1,500 and $2,200 annually is going to be a pretty good guess.

For a $50,000 house. Okay, all right, good, good. That's good to know. Okay, so yeah, the tax rate is fairly high. And what about property management? Does your company do property management?

We do. Actually, we used to do it all exclusively ourselves. Now we have contracted out with another company who does it for us. We have got a joint venture relationship with them, but we do have a total turnkey solution for investors, from finding them to fixing them up to turning them over to a management company and making sure they get leased out. So we do handle all that for the investors.

Okay. And on that sort of property, we're talking about what is the insurance like?

About $50 a month. So about $600 a year, give or take.

Yeah, that's about normal. Okay, that's good. So taxes are a little high, Insurance is normal. Okay. What else should people know?

Well, they just need to know that to stay where the money is, which is in the suburbs. So don't get. I see so many investors online, they get suckered into this looks like a nice brick home and boy, we bought it for $7,000. Well, yeah, but the guy that sold it to you bought it for, for $500 and it's in a tough part of town. And I get those calls all the time that people want me to help after the fact. I'm like, no, you should have called me before the fact. So you just have to have trusted boots on the ground that know the area and have been playing, you know, games there a long time. What you notice is a lot of people that are flipping those little Detroit houses they're not from Detroit. You know, they're buying them online and selling them online. And you're just asking for trouble if you do stuff like that. So you need to have trusted boots on the ground that you can rely on.

Yeah, yeah. And that's, that's definitely what my company does. So I completely agree with you there. What do you think the future is for Detroit? I mean, you know, what are you looking forward to? What are you thinking is next for the city?

Optimistic about it, actually. We've got a mayor in charge now who actually has a lot of business experience. He just took over. We sent the last mayor to jail, rightfully so. It's where he deserves to be. And he's. For the first time in a long time, we've got a mayor who really understands business. He's turned businesses around before, so we're very excited about that. He's already made some changes that haven't been done in 30 years, and all of a sudden he's making those changes, those tough decisions. We're excited about that. We're also excited about what's happening with the state for the last four years and the job growth and the manufacturing growth, et cetera. So overall, I think it's looking like a very nice turnaround prospect here in the Metro Detroit area and in the state of Michigan itself.

Fantastic. Well, give out your website, tell people where they can learn more.

Well, easiest way to find me is just go to johnjamison.com www.john j o h n jamison j a m as in mary I e s o n.com and from there there's different buttons. You can click on the real estate website. You can click on our perpetual wealth site. I have a book. If they're so inclined to purchase the book, they can do that there. That's the easiest way to find me.

Is john jamison.com John Jamison, thanks for joining us.

Thanks so much. I enjoyed it.

You know, sometimes I think of Jason Hartman as a walking encyclopedia on the subject of creating wealth.

Well, you're probably not far off from the truth, Penny, because Jason actually has a three book set on creating wealth that comes with 60 digital download audios.

Yes, Jason has that unique ability to make you understand investing the way it should be. It's a world where Anything less than 26% annual return is disappointing.

I love how he actually shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

We can pick local markets untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely.

I also like how he teaches you to protect the equity in your home before it disappears and how to outsource your debt obligations to the government.

And the entire set of advanced strategies for wealth creation is being offered at a savings of $94.

That's right. And to get your Creating Wealth Encyclopedia series complete with over 60 hours of audio and three books, just go to jasonhartman.com store if you want to be.

Able to sit back and collect checks every month just like a banker, Jason's Creating Wealth Encyclopedia series is for you.

This show is produced by The Hartman Media Co. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.