CW 171: Creating Wealth Boot Camp Debriefing & Analyzing Two Real Estate Investor Case Studies

Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing fresh new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Grading wealth show. This is your host Jason Hartman. And this is episode number 16 71. I hope you enjoyed last episode number 170 with Dr. Jim Wendling. I listened to that one again. Of course I listen to it when I record, as you might guess. But I also listened to it after the show is published and he was an interesting guy, had some very good points there. And show number 180 will be interesting as well. Again, every 10th show you know what we do. So I won't talk about it anymore because if you're a regular listener, you know that, hey, I don't know if you saw the article in CNN Money and it says real estate's new problem, not enough homes. Just as I have been predicting for about three years now. I knew that when construction came to a standstill, the inventory hangover would be gobbled up. The population is increasing rather dramatically. We're having some of the biggest birth years since the big birth years during the baby boom post World War II. And the inventory hangover is being gobbled up pretty quickly. So my prediction again, by the end of 2011, early 2012, we are going to see a rather dramatic shift in the inventory problem we do have anywhere, depending on who you listen to, from 2 to 7 million homes in the potential foreclosure pipeline. However, many of those homes you must remember, are currently occupied. It's not like these are new homes being built that suddenly hit the market just because they're foreclosure. All this is is a moving around of occupants. So maybe the people that live in those homes now move to another home, again filling existing inventory. But the construction machine has basically stopped and you've got to rem. It takes a long time to ramp up that construction machine. So again our philosophy, be a packaged commodities investor, tie up three or four decade long as I'll talk about in just a moment fixed rate financing. Let your tenants. Let inflation that is coming. It is definitely coming. Pay off the loans. And by the way, I just wanted to address the inflation deflation issue. And we'll go into this in more detail in future shows. But I've been debating with a friend of mine who's a very knowledgeable guy who has been talking. He's kind of becoming a bit of a deflationist, actually. And I think the overall big trend is definitely inflation. And what is faulty about the deflationist argument, in my opinion, is really hinges on two major things. Number one, they say things like the government, the Fed, the Treasury, whatever, it's sort of all three of these cannot possibly print enough money to offset the deleveraging that is occurring. Well, I beg to differ with you because there is no limit to the amount of money they can print. Look at Argentina, look at Zimbabwe. Look at all of the other examples throughout history where the fiat currencies have become totally worthless. So inflation is an unlimited prospect. There is no limit to the amount of money they can print. The number two thing is they say. They'll say things like, you know, there's $40 trillion of potential deleveraging, but that assumes that everything will be deleveraged and everything will be defaulted upon. And that is just simply not true. Now, some of it will, some of it already has, and that does create deflationary pressure, but nobody knows how much of that will ultimately be deleveraged or defaulted upon. So this deflation argument just really doesn't fly with me. So, anyway, enough of that. I've got Sarah and Ari here. We wanted to give you a little debrief on our boot camp that we had last Saturday. So, Sarah, what do you think of the day?

Hello, everyone. The day was great. We had a lot of guests from out of town, which was nice. Want to thank our two guests from Hawaii, Nyota and Emily. Thanks for coming out.

Yeah, we had people come from all around. We had east coast, we had Hawaii. I don't think we've ever had any people come from Hawaii to our event before, have we?

I don't think so.

Well, I want to say mahalo. Mahalo and aloha.

We do have some Hawaiian clients, though.

That's fantastic. So I want to come visit. Can I come and hang out with you for a while? Hawaii, what a beautiful place. But I wouldn't invest there. It's a little too expensive. The RV ratio is not good.

Gas is definitely not cheap. So I also wanted to thank Ozzie from New Jersey. He's been a long time podcast listener and exchanged many, many emails, so it was great to put a face with the name.

Fantastic. Ari, what do you think of the day?

Good afternoon, Jason.

We're all being so funny with these greetings, by the way. You know, whenever we get together, folks, don't we get a little goofy? It's just funny how we are. Okay, we're being a little goofy today. Go ahead.

Yeah, no, the weekend was great, actually. There was a lot of new clients there. I don't think anyone there in the room actually currently owned an investment property, so it was a really good education for them. A lot of people enjoyed the inflation talk.

Well, I think my mom was kind of an interesting guest. We've never had her speak at an event before, have we?

No, I think everyone liked her because everyone heard the podcast with her on it, and they really wanted to see her in person. In fact, that was a good idea to have her come out. I think that was fantastic.

Yeah, she flew out from Alabama and talked a little bit about her investment property experience. And I think the big message there is keep the faith, keep moving along the same path. That's really what it's all about. In regards to the number of people there, the room was packed. We had expanded from one section of the ballroom to two sections, and there was one left that we didn't take. And looking back, just like Masters weekend, we probably should have taken it because we could have certainly used all three sections of the ballrooms. Folks, we really got to ask you, please register for our events in advance. Give us notice. We can plan better and do a better job at that if you do.

Yeah. Another one of our guests, actually a real estate broker in San Diego, came out, and, you know, I always wonder, you know, when real estate professionals come out, you know, what their intentions are in coming to our seminars and, you.

Know, are they spies?

Are they spies? You just never know. But, no, it was great meeting you, Richard. I know you're a podcast listener as well, and, you know, Richard said that no one does what Jason does. His teachings are money in your pocket. And I think that was just great of you to say that.

Yeah. And I appreciated all the kind words also at the break from you as well. I'm glad that we're going to get your wife listening to the podcast now, too, because. Because I know that she was complaining that you were paying more attention to my show than to her. So you don't want to do that. That's not good for marriage. Right? This is a team sport.

I wanted to give a shout out to Phil, our Texas contact. That was awesome. He came out and a lot of people really enjoyed that market, listening about it and all the deals that are going on there. And I think a lot of people.

Got a lot out of that. Yeah. And we also had Jennifer from Entrust talk about investing with your IRA and the Roth conversion. It's a very, very hot topic. No questions.

And we are going to give Jennifer more time to speak next time because we just had a ton of questions. So if any of you are listening and attended and you have more questions for Jennifer, let us know. We're happy to put you in touch with her.

And we've had her on the show before too, so you heard some more detail there.

So I want to also thank one of my clients named Matthew for bringing Jason and I some fantastic T shirts.

Those were awesome by the way. The first one, the one, well he gave me two of them but one of them I just, I love it. It was hilarious and it's a, it's a great looking T shirt. And by the way, his T shirt company is called Chimerica. Yeah. So we want to say that on the air if anyone wants to get one of those. But it was a picture of Timothy Geithner and Ben Bernanke. So you've got those two guys that are totally messing up our economic world here. And, and the caption says the Dukes of Moral Hazard. I love it.

That's awesome.

Those are great. So thank you very much.

Yeah, thanks Matt. Thanks again for that.

Those were awesome. Folks, one of the things I really want to talk to you about today is the concept of these income property bonds. That's kind of our little trademark term income property bonds. So call them IPBs, alright. Like ICBMs, Intercontinental Ballistic Missiles.

Okay, and what does that mean, Jason?

Well, what an income property bond is is a property that is usually a lower priced property in a very stable linear market with a fantastic RV or rent to value ratio. And I'll give you a great example of one. And we have these in several markets but one of them that has been very dependable for many years and we have a lot of happy clients in is good old Indianapolis. I know we've talked about it before but let me give you an example of a specific property we have right now. Now folks, I cannot stress to you enough, if you're interested in one of these properties, you have got to act lickety split because these properties go, they're just gone right away. Multiple offers, constantly on them. This property, I'll give you the rundown, okay? And I know you guys will have comments on it, so get to that in a moment. But built in 1999, it's a foreclosure property. It's a single family home. Again, we're not crazy about condos here. This is 1,200 square feet. It's 4,59,000. It does need some minor rehab. That will cost about $7,800. Your total cash into this property is just over 25,000 bucks. It's $49 per square foot. It would cost you almost double to rebuild that same house today. Okay, so you're buying it far below the cost of actual construction. The projected rent is 950 per month. Positive cash flow is. Listen to this. $4184 annually on a $25,000 investment. So I just want you to notice what a bond this is. This is better than the crummiest junk bond out there on the market, this cash on cash return. I'm not talking roi, I'm talking no appreciation, no additional financing. None of the multi dimensional characteristics of a real estate investment like tax benefits. 17% cash on cash return. The cap rate here is projected at 12.5%. Folks, you can't beat a deal like this in a quality market. Now granted, I know you may have heard these other groups peddling junk properties from the loser city of Detroit. Properties that are being bulldozed to the rate of 10,000 homes. This is not a junk property in a junk area. These are yuppie ish communities. These are qual properties. These are properties that have a potential for appreciation in the future. Your overall return on investment here is projected at 28% annually. And without the multi dimensional characteristics, 17% annually, that's just a phenomenal opportunity. Just look at it like a bond. Compare it to a bond where a normal bond you might earn 3 to 5%. A junk bond you might earn 9 to 12% if the company stays in business. If you're lucky, in your savings account, you're going to earn 1%. If this only works out half as good as projected, you'll earn 8 to 9%. That's just a no brainer deal.

Well, I got to tell you, Jason, I do a lot of researching and I'm sure you two can attest for that.

I do know that, Ari, because you are constantly emailing me articles and constantly emailing all kinds of, you know, interesting stuff. Some of it's a little off the beaten path. I will definitely say.

Yeah, well, I love the source information and I see a lot of websites, a lot of companies out there selling beat up properties like you're talking about, and they're selling them for 40, 50, $60,000 and they're 40 years old.

I see the properties these companies are recommending and one of my former tenants actually bought a couple properties from them. And you know, I'm thinking, what is this guy thinking? You know, I obviously did not get through to him here. He's looking at a property in Detroit that is, it's an older house. I mean, I saw the property on the website and it says that the after repair value of that house was like 110, $120,000 for a house built, I can't remember offhand, I think that.

Was built in the 50s.

These are a little 1100 square foot house folks. I don't know. You know, I'm no expert on Detroit, but I do know that I hear stories all the time of people buying houses for a dollar, one dollar, people buying houses for $500 that the city is just dying for you to take over the house so someone will pay the property tax bill and someone will mow the lawn and keep the house secure so that it's not invaded by gangsters. I mean, there are areas in Ohio and Michigan that are absolute disasters.

Well, and here's what I want to point out, Jason, is that you're putting $25,000 down on this property and you're leveraging your money to get a loan.

Yeah, the bank's putting up the other 75%.

So here's what a lot of people don't understand. Some people might see a house in Detroit, Michigan for 25,000 and say, well, I'll just pay $25,000 in cash. Can you explain the difference between not having a loan versus having.

Well, you know, it's definitely better. You know, and we all know this and all the regular listeners know this. It's definitely better to have financing on the property because you have a partner. But there are some times where paying cash makes sense and that is in an area like Indy or any area where you have really low priced properties that become those income property bonds. Now these don't really exist. The income property bonds don't exist in much in some of the sexier markets where the properties are a little more expensive because the cash on cash return isn't so good and you need the leverage to amp up the return. Your cash flow will still Be decent, it won't be as high. But when there are these little inexpensive properties, you can pay cash, those lend themselves very well to investing with your IRA, your 401k, and they just work really well inside a plan. Because inside a plan, the financing is not quite as good as it is outside the plan. So if you already have your four loans or your 10 loans and you're maxed out on financing here, it does make sense to buy with cash. But overall, given the choice. Ari, to your question and to your point, I would rather have a loan on the plan property. I'm just saying if you're maxed out on financing, then the income property bond really becomes something of interest and you want it to be in a quality area. Look, everybody listening has heard the three main things about real estate. Location, location, location. Right? And there are some areas that, look, heck, I could be wrong, but some areas that I just don't think have any future. And I think one of those areas is really Detroit.

Well, and I'll bring this up because you mentioned Detroit. I had a client call in. He's been on my email list, I don't know for two years. He's attended many of our seminars. And he calls in and he says, do you have anything in Detroit? And I said, no, please don't buy in Detroit.

We get the call from these groups that want us to sell their inventory in Detroit. I mean, it must happen twice a week.

Well, and that's exactly what I told him. I said, look, if we thought Detroit was a good market, we would recommend it. We can recommend anything we want.

We are area agnostic. We can go anywhere. We can recommend. Look at, I've looked at properties in New York countries. We could recommend Romania. We could recommend Panama. We could recommend Detroit. We can recommend Lansing, Michigan, anything you want. But we're not there because we don't like it. We don't think it's good. We don't have faith in it. And remember, we have to live with you clients through the life of the investment. And the story has got to work because we're going to be here to service you. We're going to be here to take care of you. We are attached to the deal. We're not just selling books and tapes and sending you on your way.

Well, and just to finish my story here. So he calls and he wants. You interrupted me many times.

Such a big mouth.

Okay, this is not morning talk.

Okay.

All right.

So anyways, they might be listening in the morning.

You know what I said before we Started recording everybody. Oh, here.

Did you just interrupt me again?

So I'm guilty as charged. Is that. I asked why. Why is it that morning talk shows like TV and radio are so different than nighttime shows? Why is it that in the morning they always have these chatty people talking and telling jokes and laughing? What is it people can't wake up? I mean, in the morning, I'd rather just listen to regular news or music. I don't get it. Anyway, maybe this is a morning show.

So the guy calls, he wants Detroit. He's a longtime listener, attended many seminars, and he says, look, your strategy doesn't work for me. He says, I'm retired. I'm 78 years old. I've been investing all my life, and I just have a bunch of cash. It's not doing anything. And I. So I suggested Indy to him. And, you know, long story short, that was about a month ago. He contracted and closed on his first properties in the rehab phase. And he called me the other day just to kind of check in. He says, I can't wait to buy more properties in Indy. And I'm so glad that, you know, I chose Indy.

Yeah, I mean, you know, that's a quality city. It's not a disaster like Detroit. This just doesn't work. And the other question we've talked about on prior shows, we always get is, you know, what about California? Look, folks, we'll be recommending California in the future. I am sure. It's just got to get a little bit less expensive because it still doesn't work. This state has way too many problems ahead of it. All these states that are sort of the more socialistic, liberal states, they're collapsing upon themselves. I mean, look at what a couple decades of that has done to Michigan. It's a disaster. California. Look at what a couple decades of that has done to California. Total disaster. So let it equalize. Let it hit bottom, then we'll recommend it. Nobody really knows where the bottom is for sure, but we don't think we're there yet for sure. They said that it was a recent article. I should have had it with me to talk about here. But that article that our local market specialist in Indianapolis sent us the other day was showing that Indianapolis was the number one most affordable, affordable market in the country based on income to home price ratio. And the worst market in the country was Riverside, California, an area that many investment groups are recommending, just like Detroit. You notice we're not recommending those.

One thing I want to say real quick about the seminar, a Question that came up a couple times was people were saying, well, what kind of weather do these cities have? What kind of dangers do they have as far as storms and floods and earthquakes and people are looking at other markets.

Yeah, good question. They're all different. Every area's got something. California has wildfires and earthquakes. And I'd say if you're going to choose a natural disaster, the worst of all is earthquake. Because earthquake is total destruction and insurance for it is rarely held and very expensive. And there's a huge likelihood that if there was a giant devastating earthquake, none of the insurance companies could pay the claim.

But no matter where you go, whether it's Indianapolis, east coast, west coast, south, north, you're gonna have something to deal with. Snow, wet, cold, hot.

Yeah, yeah, so.

So I would say that's not a big deal. People just need to get over that.

Yeah, they do. Because every area has something. Well.

And you don't have to live there. There's plenty of people that already do and will rent your place.

The funny thing I get from Californians is, is Houston, that's been a very good market for us and I own properties there and we've done a lot of business in Houston in the past. Not doing quite so much now because we haven't been sourcing really good inventory. When we do, we'll recommend it to you. But everybody says about Houston, oh, and Houston is just awful. The traffic is bad. Etc, Etc. It's sprawling metropolis, megalopolis. And you're right. But look, 6 million, 5, 6 million people live there. So somebody lives there.

Well, it's a disease that Brian Tracy calls excuse itis excusitis. And people make excuses to not buy in these places because they hear things and they're not living there, so.

Good point. Yeah, sounds like paralysis of analysis and other diseases.

Well, and just to wrap this conversation up, and I have to run, but exactly what Ari said.

Are you off to yoga again?

Actually, I am.

Hot yoga, Sarah, you have such a hard life.

Hey, I have a one hour conference call on the way to hot yoga with a client, so at least you'll be more flexible. So what I wanted to just say kind of in closing, and you know, Ari sort of alluded to it, but I noticed in the seminar that there were several clients that have attended the seminar before, or maybe they've been on my email list. I've exchanged emails with them over the last two, three, three years. And you know, I'm looking and Ari said, you know, nobody in that seminar had purchased through us anyways. And I just want to say, don't look back in a year from now and say, I wish I would have purchased when the interest rates were low and there were so many foreclosure opportunities. I mean, so many of those people I've been talking to for so long. And they can do it. They just for whatever fear factor is involved, they just haven't pulled the trigger. And I hope you don't look back a year from now and wish you would have taken advantage of these opportunities.

Yeah, don't be the I coulda, shoulda, woulda. That's just a very sad place to be in life. If you live in the past, you become senile. If you live in the future, as Dennis Waitley says, you're on. Someday I'll like I apostrophe ll like I will do it today.

Make it your now.

Look, we are not saying that real estate is going to start wildly appreciating anytime soon. We don't think that. We've never, we've never said that. What we do think, though, is that there is a high risk of interest rate increases. And there is just these treasury auctions are not going very well. And that's directly tied to mortgage rates, folks. You gotta tie up as many packaged commodities as possible, little houses in good areas and diverse markets that are sustainable, self sustainable. And what else are you doing with your money in the meantime? I mean, you're putting it in the stock market. The stock market is becoming very volatile again. I heard a prediction yesterday that the S and P is going to be around 7 to 800 from a very reputable guy who I've interviewed on the show, and that the Dow is going to 8,000. I predicted 6,000. We got to 6,400. So we got close. Hey, you want to just share that testimonial before you go, Sarah? That was kind of interesting.

I thought, well, let's see, 30% the price. This is on the seminar. 30% the price and 3,000% the helpful information of a Robert Kiyosaki seminar. And then in Parentheses it says 0.3% the sales pitch, maybe less.

Yeah. And what was the. Who was the star of the show, though?

Oh, the star of the show, of course, Puppy.

That's my dog, Puppy, the ROI dog. You've heard him in my newsletter. He writes a column in there from time to time. And Puppy was there at the Masters weekend and at the Creating World boot camp we just had. Yep.

And so thanks, Matt, for that little comment there. I know you're a Listener of the podcast too.

Thanks, Matt.

And we'll see you. You're one of. You're already registered for Masters weekend in October, so I'll see you then.

Awesome. Hey, by the way, we have several people registered for Masters in October. Be sure to take advantage of that early bird pricing. Remember, it does escalate as you go on in time, so plan in advance. Next. Creating wealth bootcamp is July 31st. That's a Saturday.

I also want to tell our listeners they can purchase the Creating wealth in Today's Economy home study course on our website. And you guys, if you can't make it to our seminar, you got to buy that because it's just like being here. But you can listen to on your own time. You can read the materials on your own time. And it's fantastic. It's a great way to learn.

Yeah, the Creating Wealth Home Study course is fantastic. It comes with the complete transcript, the audio files, as well as the PDF of the workbook as well, the PDF file. So you get all three of those. And that's on our website@JasonArtman.com. great point. Ari. Ari, it looks like we lost Sarah. She's off to yoga to learn how to become more flexible. It's okay. Hey, the other thing is. So we've got the next boot camp on the 31st. Wanted to talk a little bit about one of our clients who just got a fantastic loan modification. And I tell you folks, if you are not asking for your bailout, I mean, why should all the banks and the Wall street firms get the bailouts on your tax dollars and you not take advantage of that? Get a loan modification on all of your properties if you can. These sometimes take a while. You have to be a little persistent, but it's well worth it. And I'll tell you how worth it it was was for one of our clients. Check this one out. Her rate was 7.3%. I think it was 7.325. I'm not mistaken. And this was a B of a Countrywide bank of America Countrywide loan modification. And they lowered the interest rate to 2%. What? Yeah, 2% for five years. She sent me the documents, I read them. 2% for five years. And then listen to this. They extended her loan for 10 years.

Wow.

So they took the maturity date from 2038, which was a 30 year loan originated in 2008, and it's now not due until 2048. Wow. Okay. Her payment is dramatically lower. This property is now super positive cash flow. It has turned a. So, so property into a fantastic, fantastic deal by nothing else happening but the loan modification.

Thank you for listening to the Creating Wealth Show. This is Jason Hartman, your host and we appreciate you following the show. We have many, many episodes, hundreds of episodes, and some of the older episodes have been archived and placed in our Members section and that applies to this one. So we include a sample that's about 25 minutes long and then for the rest of the show you can go to our members section@jasonhartman.com Many of the other shows are still in their full length complete version. However, some of the shows like this one are in our Members section where you can hear the show in its entirety. And again, you just need to go to jasonhartman.com and you can get the full show there in the Members section plus a whole bunch of other great members benefits and resources, whether it be documents, forms, contracts, articles, other video and audio content. Just a great resource. So be sure to join as a member@jasonhartman.com and thanks again for listening to the Creating Wealth Show.

This show is produced by the Hartman Media Company. 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 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.