CW 326: Income Property Real Estate Investing Forecast & US Economic News with Jason Hartman and Investment Counselor Steve

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 South 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 Creating wealth show. This is your host, Jason Hartman and we are at episode number 3, 26, 326 today. Thank you so much for joining us. And we've got several things to talk about. We won't actually have a guest on the show today. I am just doing the show today with Steve. Steve, how you doing?

I'm feeling hearty. Jason, I've got an eye patch on right now.

Yeah, I know. I heard about your eye patch. So you seem to have scratched your cornea somehow, huh?

I seem to have. I don't know how this happened, but it is definitely scratched. And I went to the doc today, he said, here's an eye patch and some medicine. You're a pirate over the weekend. So that might be slipping into my speech. You know, you dress a certain way, you start behaving that way.

Yeah, that's right. It's a pirate language. You know, I remember several years ago when I had that same thing happen to me. I was laying on the beach in Corona del Mar, California. And you know, another hazard of the beach besides skin cancer, right? I don't know, maybe I'm just getting too conservative at my old age. But I was laying on the beach and this wind kicked up and it blew sand in my eyes and I went. My mom took me over to the er. I remember she came by later that day and she said, said, no, you better go check this out. And so she took me to the, not the er, but the private like walk in clinic. And the doctor practically had to have two people hold me down because he had to touch my eye. And it's like your reflex does not want to let anybody touch your eyeball, right?

No, it doesn't.

You'll punch them, you'll throw them off, you do whatever, you know, and. And that was, that was hard to do to Let him do that.

Yeah, yeah. He had to flip my eyelid up and look under there to see if there's anything in there. It was. Wasn't a pleasant experience. So hopefully it's all healed up come Monday. And I don to go see the specialist because that's not going to be cheap.

Yeah, I hope it. I hope it's a no big deal problem for you. And I'll tell you, though, just be grateful that you don't live in Canada or England or somewhere where there's Obamacare. Oh, wait, we're going to have that here, too. Or you'll have to wait four months to get in to see the doctor and another five more to see the specialist.

I totally bombed on a joke with the receptionist. I was checking in. She's like, and can I see an insurance card? And I said, oh, no, just send the bill to 1600 Pennsylvania Avenue. She looked at me. Huh?

Did she even know what you meant by that?

She didn't. I told you I bombed. I thought it was funny, but she didn't.

For those who may not know, those who aren't following my advice, that's the address of the White House, folks.

Send all your medical bills to the White House and they'll get them paid.

Ned.

30.

That's right. That's right. But hey, it's kind of cool. I just told you before we started recording here, change your Facebook to pirate. And folks, you may not know that you can do this, but you know you can put your Facebook page in any language you wish, right? It could be French, Russian, German, Spanish, but it could also be pirate. That's kind of fun. Just try that out, folks.

Yeah, I just posted something in our internal content page and I was just notified that Jason Hartman was a scrawling about my flapping my gums or something.

There's pirate language for you. Pretty cool. Well, hey, let's get down to business here. You only need your mouth and ears for this. No eyes, Steve. But what do you want to talk about first? We got several things to cover today, not the least of which is good old Mr. Warren Buffett. I have like a love hate opinion of that guy, but depends what he's talking about. There's really three Warren Buffets. Just so everybody knows, and we talked about that on the show. There's not just one Warren Buffett, there's three of them there.

There are three of them. And he has a secretary, too. From what I hear that that pays a lot of taxes, but, well, he.

Doesn'T pay her Enough.

Well, yeah, but I doubt he's raised his pay. I mean, she pays too many, too much in tax. That drove me crazy during the election. I don't want to get off on that.

Okay, sure. Let's move on.

I did just buy the Essays of Warren Buffet, the book. I'm looking forward to reading that.

Well, you know what I love, I do really love about Warren Buffett is that the whole concept of being a value investor, when I liken it to income, property investing, there are those people, we all know these people. Maybe a few of them are listening. Hopefully not. But they're like the get rich quick types. You know, they're the people that are forever chasing the end of the rainbow and they almost, almost, almost never, ever find it. Because this is the great thing about getting a little older. Like the wisdom that comes from time and experience is just, you can't, you just can't impart that to people. You just got to do it yourself. And you see all these people that they're in all these different multi level marketing programs, or they're doing this or they're doing that, and they've always got some deal of the month that they're approaching me with, and they've always got some deal of the month and they, they just, you see them five years, 10 years, 15 years down the road, and they're still broke, they're still struggling, and they've always got some great deal. I mean, I guess humans are just incredibly optimistic or they just have incredible delusions of grandeur. Maybe a little both, I don't know. But you know, they'll just keep pounding away at the deal of the month deal, rather than being kind of like the Buffett philosophy of being the value investor. Right? And when you liken that to income property, the buy and hold mentality, that's the one that really works. It's the tried and true proven thing. And I know, you know, everybody wants to chase the bright shiny objects and the end of the rainbow and the get rich quick scheme, but just the good old boring buy it and let irresponsible government be on your side because it creates inflation. And that inflation pays off your debt, it increases your rents, it increases the value of the property. It just does wonderful things for you. Everything gets on the side of a value investor.

Yeah, that's, that's a good, a good point. And that is one thing that we can all certainly appreciate about Buffett. You buy a good company at the right price and it's just like buying a good income property at the right price. Everything else could go wrong, but you're going to be okay because you, you purchased in a smart way. But when you're chasing the shiny objects, sometimes you get them and they're great. But it's never a long term solution to anything.

It's so rare that you get the bright shiny objects. The context of a real wealth creator is the tortoise, not the hare. The person who is willing to roll up their sleeves and suffer through a few hassles, delay gratification and, you know, before they know it, they're rich. I mean, that's, that's just the, it's. I saw my mother do it and it was just a great example. You know, just keep plugging away and wow, just. You let a few years go by and the compounding effect of being patient and delaying gratification and doing the right investments in the right vehicle are great. The problem is that since Buffett started so long ago, Wall street has become such a crooked thing nowadays. And until really, I guess, the early 90s, it was much more legitimate because the CEOs and the boards of directors and the other execs, they weren't ripping off the shareholders as much as they are today. And so like I had a guest on recently that said Warren Buffett. I don't know who that was, but I just did the interview last week. But it'll be posted soon. You can hear it yourself. I can't remember. This is how it goes with me. It's like a blur. I interview so many people for all these different shows, but he's really a demographics investor almost more than a value investor. Because when you look at demographics and you look at a company like Coca Cola, what is the chance you would lose on that kind of an investment at that time? It's almost nil. Right? That's the whole thing. But I like Buffett in that regard. I think he's good.

Yeah, definitely. Agreed.

Well, hey, let's play a short video. This is only a minute and a half and I know a lot of you probably heard this and it's interesting to look back on it. It's maybe, I want to say about a year and a half old. Steve, would you concur? It's about that old?

Yeah, it is. And kind of listen to it with the mindset of is this all still applicable? Is all still true?

What is and what isn't? There's one thing here that's not true, and there's one thing here that still is true, in my opinion of the big things he talks about. Yeah, we'll play it just a minute and a half. Here we go.

Equities are still cheap relative to any other asset class, but they're not. I'd say the single family homes are cheap now too. Yeah, single family homes. But if I had a way of buying a couple hundred thousand single family homes and, and had a way of managing the management is enormous, is really a problem because they're one by one, they're not like apartment out as we saw. But I would load up on them and I would take mortgages out at very, very low rates. But if anybody is thinking about buying homes, five years ago they couldn't buy them fast enough because they thought they were going to go up and now they don't buy them because they think they're going to go down. And interest rates are far lower. It's a way in effect to short the dollar because you can take a 30 year mortgage and if it turns out your interest rate's too high next week you refinance lower and if it turns out it's too low, the other guy stuck with it for 30 years. So it's a very attractive asset class.

Now if you are a young individual.

Investor at home and you have your.

Choice between buying your first home or.

Investing in stocks, where would you tell.

Someone is the better bet?

Well, if I thought I was going to live, if I knew where I was going to want to live the next five or 10 years, I would buy a home and I'd finance it with a 30 year mortgage. It's a terrific deal. And if I literally, if I was an investor, that was a handy type, which I'm not, and I could buy a couple of them at distressed prices and find renters. I think that's. And again, take a 30 year mortgage. It's a leveraged way of owning a very cheap asset. Now I think that's probably as attractive an investment as you can make.

Well, there you have it. So what's true and what's not true in there?

I would say that equities being priced low is no longer true.

Yeah, it probably was when he said it. Obviously the market would go up, but.

A lot of monetary morphine later, it is not true.

Yeah, monetary morphine, you want to say morphine, doesn't that make you tired and put people to sleep? I mean I've never had morphine, thank.

God, but I think it makes you feel good no matter what reality is.

Okay. Oh, I get it, I get it. I would say monetary caffeine how's that?

Okay.

Monetary Red Bull. The energy drink. Stimulating coffee.

Invented a new illegal drug, caffeinated morphine.

Hey, let's just think about that.

I'm sure they're listening to us.

But you know, what Buffett says was pretty, pretty good. He talked about, obviously the value is still in those single family homes that he talked about. He explained the reason that institutions stay out of her business. As I always say, embrace the fragmentation. He can't do it. He's too big. Institutional players are most of the time too big. And Steve, I know that you represent a couple of hedge funds that are buying properties through our network and they're playing the game. But I have long predicted that they aren't going to like it, they aren't going to do well with it, except as speculators. They will not be buy and hold investors. Comments on that, Steve?

Yeah, well, we'll make hay while the sun shines with them. But I saw a cartoon that I'll tell you about and it's. We could easily substitute something in here, but there was a cow. And on one side of the cow there was a guy pulling on the, the leash, whatever you want to call it, the rope around the cow's neck, like you know, saying mine. And on the other end there was a guy pulling on the cow's tail as hard as he could saying mine. They're clearly fighting over the cow.

So they're fighting over the cow, one on one end saying mine, pulling that way and the other one on the tail pulling the other way. My. My cow. My cow. Okay.

Correct. And in the middle is a lawyer on a stool milking the cow. So I think you could put Wall street in the place of the lawyer.

Yeah, that's very true. Because the cow represents actual intrinsic value. Right. As a grazing tool, as beef and as milk. Right. And so that's actual real value. So the company itself, in which, you know, an investor might invest, has real value. Right. But Wall street and I want to include in that is, you know, I call this. They talk a lot about economics people and financial people talk a lot about something called counterparty risk. And counterparty is where, you know, you might be the seller and you've got the buyer. And what's the risk that the buyer won't do the deal. Right. Or that they won't pay the price you want. That's counterparty risk. Right. But I call intermediary party risk. In other words, they are your counterparty. But there's really. Most people just look at the the opposite side of the transaction as the counterparty. And what I say is these intermediaries are your counterparty. Their agenda is the exact opposite of yours. So that means your financial advisor, the person at Merrill Lynch, Wall street itself, generally. And the person could have been anywhere. I just said Merrill lynch is an example, by the way. Their agenda is different than yours. Okay. It may seem like it's aligned, but I say that it's not aligned at all. And then you look at the C class in the company and the board of directors and all of those people, they're all looking to milk that cow. Just like in that example, Steve. They're taking all the money out. And the retail investor, they just get nothing. It's a terrible deal.

Yeah. And they, they structure it based on transactions because these guys get paid when there's a trade made, when there's an acquisition made, when a, when an asset is sold, whether that's the most efficient long term return for the owner of the investment is irrelevant. They want to move money because they get fees. They're fee based. That's ultimately why I think that some of the funds have pulled out. Others, some are doing an okay job. None of them are going to get the results that I think that they thought they were going to. But I know the market in Indianapolis pretty well. You know, I used to live there. I know there is a fund there right now that is responsible for probably 50% of the volume in that market in this rental grade price range. Obviously they're not buying the half a million dollar house, they're buying the 50,000 or the $100,000 house. But what they've done is they've hired these two guys on the ground to make their acquisitions for them. And they say we need to spend $10 million this quarter. And so what do those guys do? They spend $10 million that quarter. It's not done intelligently. They look at, okay, well, I've got to buy a house. So whereas an investor like you or me or myself, we're at the auction and we know that there's a maximum amount that we can bid on that property. These guys don't really have one because they're going to get paid. In fact, they'll probably get paid more if they spend more on the house.

Well, that's the thing, you know, it's nobody's money. It's not their money.

One of the clients that I've done some work with and I careful, I won't say any names, but we were supposed to be closing on a package of homes. And there were some delays on their end. So myself and our local market specialist, we were getting a little concerned, and out of the chief operations officer's mouth said, well, we're a hedge fund, which means we don't really have any money. We just have other people's money. So they were having trouble getting this money together. And, you know, all of this because it wasn't really theirs.

This is why you should be a direct investor and only invest in things that you actually own and control. A piece of property maybe, but not as good a mortgage on a property, something that you actually own, that you own and control your own business, although business is far more risky because they have a lot more moving parts. But you've got got to be in control of your investments. It just every day amazes me the degree to which people will relinquish control to somebody else. And it. I mean, it's just. Just silly.

It's extremely rare that your interests would line up perfectly with somebody else's.

They never do. I mean, they never do.

Yeah, I guess extremely rare was a strong word.

You know, I'll tell you, our Phoenix provider that we really haven't been doing business with lately. They. We had our share of struggles with this company, and they're now promoting a fund, okay? And they're promoting it to our clients. And every time one of our clients calls me and says, hey, should I do this? I say, well, look, what's commandment number three? Thou shalt maintain control. And some of the corollaries to that are pools are for fools. If you pool your money in an investment, the general partner, regardless of how the entity is structured exactly. Legally, the concept of the person running the deal managing the fund, the general partner, the fund manager, whatever you want to call it, the person in that position, they're going to be in control of the money, and they're going to spend it on all sorts of silly things sometimes. And I'll give you a great example, okay? This provider is in that apartment deal, the big apartment that I own part of here in Phoenix area. And I remember when we were refinancing the property about a year and a half ago, the general partner in this example, now, this is only a couple of partners, so it's not like a big partnership or anything, but they found the deal, so they got into it, too. They got equity just for finding the deal without putting money into it, okay? And. And he says to me, hey, I think we should buy gifts for the lawyer and the title officer. And the escrow officer and all the people that work so hard to get this deal done before the end of the year, before New Year's, because they were, they were rushing and I'd like to take about two or three thousand dollars out of the bank account to buy them gifts. And I said, no frickin way. Are you kidding me? You're not taking our money out to buy gifts for your vendors that are going to. You're. First of all, he's gonna get all the credit for it. I mean, it's like, it's like they're not gonna be involved in my transaction again. You know these people. I mean, can you imagine someone saying, I'm gon buy a gift for my lawyer who charges $400 an hour? This is insane. But of course he thought that way. It's not his money. What does he do?

It's not his money. It seems to be the other way around.

Yeah. I mean, if they could justify it. There are probably all kinds of little things like this that I know nothing about. Little expenses that are being allocated to the partnership that are being run through the deal that I can't keep track of and I know nothing about. Okay. It's almost impossible to really know. But I mean, if they could do it and there was some excuse to travel, oh, we got to buy first class airline tickets and then we got to go out to dinner on the partnerships bill and have $300 dinners at the nicest restaurants in Scottsdale. I mean, folks, when you do this kind of thing, when you invest in someone else's deal, this is what you're susceptible to. There is always someone skimming the cream off the top of the deal and it just, it just doesn't work. I mean, I would say that the outlier, the exception to this rule is the one who doesn't. I'd say most of the time someone does it. It's just, it's just human nature to stick your hand in the till.

But people, people are so. I don't know what the word is, but they don't want to feel the bumps. They would almost rather lose money than feel with the bumps that come from maintaining control.

The bumps are so minimal. They're just no big deal.

They aren't, but people perceive them to be a big deal. So that's why these fund managers fleece them. Yeah, that's why they get away with it.

They're getting totally fleeced. I mean, you know, and then, and then on their real estate deals, they don't know how to keep score properly and do the math. They're not using property tracker or some software to tell them what the math is really like. Like, I'll give you an example of the kind of things that would derail most people. I've got this one property in Charlotte, North Carolina, and I've had it for, I don't know, nine years now. Right. And it's, it's pretty much been a great property, all things considered. But, you know, like in the last two weeks, I got hit with two things on it. And you know, I write emails back to the manager, you know, who's taking care of the repairs. That one I don't self manage some. I do, you know, this already, but, you know, I write them emails back like, this property, what's next? You know, I hate it. Making them think. I think it's such a terrible deal. Right? But really, I'm kind of laughing all the way to the bank. I think it's actually a pretty good deal, all things considered, when you put the tax benefits and so forth. But, but the two things that happen to me are, number one, the garage door came off the track and they sent me these pictures that look looked horrid. Like I thought, oh my God, what is this gonna cost? Turns out, you know what the cost was? 230 bucks. No big deal.

To get the garage remounted.

Yeah, yeah. To get it remounted and all fixed up and tuned up and everything like that. I think it was like 230. I don't know, might have been 280. I might be forgetting, but close enough. Nothing, Nothing much. Right. And then like right around that same time, a tree branch fell off the tree. Okay. And it's a pretty big branch and it fell into the yard, right. And so this tree branch is to get that removed, that was going to be like another $250 or something like that because they got to come and cut it up and remove it. And you can hire someone off Craigslist with no insurance to do that kind of stuff. But a guy operating or a couple guys operating chainsaws on my property with no proper insurance, that doesn't make me feel really good. Not warm and fuzzy, you know, it's a little dangerous. These are the things that derail most investors. These little pebbles in the shoe, these little bumps in the road. In the big scheme of things, they're just no big deal.

Yeah, exactly. And that's what Buffett's talking about is it's hard to do that in mass. That's why funds are bailing out because they run these huge vacancy rates. Of course they're not getting the return. Why else would they bail out? I mean, we have historically high rents right now. We have low prices and they're not getting the good returns. I mean, we all know why here. It's because there's a vacancy problem and they're buying too many properties too fast.

Yeah. And. Well, when you say there's a vacancy problem what you mean is. You mean a lot of the hedge funds buy for pure speculation. They don't even try to fill the properties. They just keep them vacant. Right?

That's exactly right. They'll just buy them and they'll ride the market up and do the best that they can there. And when you just buy that many that fast, you just don't have a prayer.

Yeah, it's crazy. But remember, folks, if you don't follow commandment number three the three things you're leaving yourself susceptible to is you might be investing with a crook you might be investing with an idiot. And assuming they're honest, assuming they're competent. The third problem is the one I just talked about. They're skimming the money off the top of the deal. I was just floored when that Phoenix provider said, let's spend two, $3,000 buying gifts. And I'm like, what? Do I have to seem like the bad guy? Right. I gotta seem like Scrooge. Here it is right after Christmas, and I guess I'm Scrooge because I said, no way. You're not taking our partner's money so you can go in and bring them a gift and look like this great guy. It's just ridiculous. I don't know. Maybe I'm like that episode of Seinfeld where George buys a salad for Elaine or something and someone else hands it to Elaine. And I think Jerry handed it to her. And Elaine said, thank you. Like, Jerry bought it and George didn't get the credit. It was so funny.

The whole episode was George having a cow about that.

George is. What a jerk that guy is. He's a great character, really. Jason Alexander does a great job playing him. They ought to bring Seinfeld back. That show was really the best written calm ever, I think.

But they quit while they were ahead. You know, that's what. That's. Everybody had fond memories. You know, it's not one of these that you're going, when is this going to be over with? You know, they left when everybody wanted more.

Well, that's. That's the way you leave them wanting More, right?

That's right.

But guess the same is true of the show 24. Another great show. But, hey, let's talk about the government wasting our money.

Yeah, I'm sure everybody wants to hear about that.

Well, well, Steve, I'm curious. Can you tell me why the US government spent $2.6 million to train prostitutes? To train Chinese prostitutes, mind you, not just US prostitutes. To train Chinese hookers to drink more responsibly.

Well, they need to be able to get them out of the embassy in a more orderly way, I guess. I don't know.

Oh, you mean if they're too drunk? Yeah.

That'S the only possible reason. Not that I agree with it, but this is pretty insane, folks.

This, what we're talking about here, is an example of intermediary party risk. Again, because that's what the government is. They're the intermediary. When you're investing, quote unquote, by paying taxes to the government, you are trusting the general partner to use your money wisely. That's exactly. Commandment number three, thou shalt maintain control. You have no control over where your taxes go. And here are some great examples of that.

Yep, yep. Let's see what the general partner did. We picked a few of them here. This is 60 different things that our friend Tyler Durden over at Zero Hedge has come up with for us.

Actually 66, but go.

Okay, number five. This is a good one to start with. The National Science foundation has given $384,949 to Yale University to do a study on sexual conflict, social behavior and the evolution of waterfowl genitalia. Try not to laugh, but much of this research involves examining and measuring the reproductive organs of male ducks.

Well, there you go. I'm glad my. I just sent the IRS a bunch of money. Now I know what they're going to be using it for.

Wonderful. Yeah, well, they're also. The US government is giving 16 F16s and 200 Abrams tanks to the Muslim Brotherhood in Egypt, even though the new president of Egypt, Mohamed Morsi, constantly makes statements such as the following. Dear brothers, we must not forget to nurse our children and grandchildren on hatred towards those Zionists and Jews and all those who support them.

Unbelievable.

I know. This is crazy heavy topic for today, really.

Just. Just. Just disgusting.

Yeah, yeah, here's.

Give me a couple more examples here.

During 2012, $25,000 of federal money was spent on a promotional tour for the Alabama Watermelon Queen.

Well, the Alabama. Now that one's actually worthwhile, right? The Alabama Watermelon Queen deserves is by.

Far and away the most worthwhile of what I've read so far.

So far, you might be right. Yeah.

It's not even a contest.

Oh, my God. Unbelievable.

Yeah.

Okay. All right, keep going.

The U.S. government spent $505,000 to promote specialty hair and beauty products for cats and dogs in 2012.

Oh, so I can get some specialty beauty products for my dog Coco, huh?

That's what I was gonna say. Did you see any of that?

But when I said that, she just looked over at me.

Yeah, there's got to be some kind of form online you can fill out and a check will just show up.

Yeah, that's amazing. I'm sure the form will take you three days. You'll have to hire a grant writer to help you fill it out to get your government aid for your dog's beauty products.

Yeah, it will be an absolute train wreck to fill out that form. I don't think it's going to be worth your time.

Unbelievable. This is insane. Okay, we got any more?

I got two more. And sorry, with the pirate eye. I have to kind of squint here. Maybe they spent something on pirate eyes, but. Okay, number 21. The U.S. government is spending approximately $3.6 million a year to support the lavish lifestyles of former presidents such as George W. Bush and Bill Clinton. So I threw a bipartisan one in there for everybody. It goes both sides of the aisle on that one.

Hey, look at this one, Steve. The federal government recently spent $484,000 to help build. Build a Mellow Mushroom Pizzeria in Arlington, Texas. Now, what business does the government have building a restaurant?

They think they have business and everything.

That's.

That's completely insane.

Unbelievable. Unbelievable. Oh, here's one. We started off with. With the oldest profession in this discussion, right? Prostitution. Number 57. The National Institutes of Health once gave researchers $442,340 to study the behavior of male prostitutes in Vietnam. I mean, you know, look, folks, this is so absurd. Like, I understand that. Not that I even agree with it, but I understand there's some. You can make a case that the government needs to spend money to study social problems, right? But for God's sake, at least make them US social problems. I mean, why are we. Why are we doing this in Vietnam? We got our own problems at home.

At least send us the results of the study. I mean, let us know what you found out about the male prostitutes in Vietnam. Yeah, right.

Unbelievable. Okay. I mean. I mean, the government, they're the politicians. They're the biggest prostitutes of all.

Oh, man. This is. When it's anybody, everybody's money. It's nobody's money. I mean, they're really. And when you hear about the deficit, this makes your head explode. I've got our closer here. Are you ready?

Yeah, go for it.

Okay. $10,000 of US taxpayer money was actually used to purchase talking urinal cakes in Michigan.

I'm looking at that one, number 26. So they talk as the guy is there doing his business in the bathroom. I guess this urinal cake not just deodorizes, but talks.

They're pulling out all the stops to make Michigan a more attractive place to live. You just need some company while you're at the urinal, I guess.

Steve, doesn't this just back up the point that I just mentioned about intermediary party risk?

Yeah.

Paying taxes to the government is a violation of commandment number three, thou shalt maintain control. Because what are the three problems? Right. You might be investing with a crook. Well, certainly, we could argue there's a lot of crooks in government. Right. You might be investing with an idiot. Certainly there's a lot of stupid people in government. And assuming they're honest, assuming they're competent, they take a huge management fee off the top for managing the deal, and otherwise they waste your money. Right. And look at the IRS and all the fire they're coming under right now for the money that they have spent on the most ridiculous things. Not only, of course, is Obama having them target political groups that disagree with him, like Tea Party groups and so forth, but the way they've spent that money, I mean, everybody saw the news, you know, about the parties the IRS has had, and it's just unbelievable.

I saw on the news last night, usually when I see congressmen holding a hearing and asking somebody's questions, I just roll my eyes and change the channel to the Food Network or something more interesting because it's almost always grandstanding. You know, I remember when they, a bunch of congressmen dragged Mark McGuire and some major League baseball players to Capitol Hill to ask him about steroid use in baseball. And I just couldn't get over the fact that Congress cares.

Well, you know what? I never understood that either. Like, I mean, I'm not much of a sports follower, but that blew my mind. I mean, you're a total sports fan. What does Congress have to do with steroids and baseball?

That's. It has nothing to do with it. That's why we have a local police department.

Yeah. I mean, do the police even have anything to. I mean, I guess they're illegal. Okay, but, like, drugs are, but. But.

Yeah. So the local drug task force would go arrest Mark McGuire. That's how we do this. But it's just. They think that. It doesn't really say much about what they think about the voters because they're trying to get TV time to say, look, I care about an issue that's supposedly important to America. But last night, I saw a clip of Paul Ryan, the former VP candidate, and he was taking this interim IRS commissioner because the other one resigned, but he was taking this guy to the woodshed. And I was loving every second of it. It because they were asking for a billion dollars to hire more agents. And he's saying, you have the nerve to come in here and ask the American people for money when we're hearing about all these lavish parties and you want more agents? And he made a point. It just resonated with me. Said, this is people's paychecks. They go to work, they work hard, and they get paid, and there is a big chunk taken out of there that they don't get. And to give you one red cent extra of that is absolutely insulting. I was actually clapping, and my wife said, what? Game's on? I said, oh, it's just Congress, you know, berating the irs.

Well, they're all trying to, like, make themselves look like they're actually doing something important. And I don't know how many employees the federal government has, but whatever it is, I bet you could cut the size of government, and I kid you not, by 10% per year for the next seven or eight years, and the whole country would transform into this far more prosperous place where people would feel better about themselves, people would be better taken care of. People would become productive members of society that aren't. Now, my mother. It's kind of odd that I have these kind of beliefs, because, you know, my mother graduated from Berkeley, you know, a very liberal school in the 60s, no less. Okay, A very liberal time. And she got a degree in social welfare, and she quit after doing that for a few years and went to work for the Muscular Dystrophy association and then the Leukemia Society, and then finally got into business. And that's when she made a lot of money. But, you know, she did all those jobs all those years, and she said, I just couldn't be a social worker because I had to go to people's homes and look at their situation and dole out government aid to them. And I saw that as I would give them aid and go and do follow up meetings and check back up on them, it made them worse, they got weaker, their life was worse with the government aid. And I'm not saying this is true in all cases. Certainly there are legitimate people that need legitimate aid and a prosperous society should help those people. There's no question in my mind about that. But you know, now we've just got like everybody's milk in the system. These people are all on quote, disability unquote, which is massive amounts of fraud. There's massive amounts of Medicare fraud going on. I mean it's just, it's just become ridiculous.

You talked about that with George Gilder a few episodes ago. And you know how so much of people's time is spent on gaming the system and filling out forms and doing non productive activities when the power of the human mind is very, it's amazing. And you're just putting all of that human capital on the sideline when it could be doing things that are so much more productive and how much of the economy and how much of our population has to service these totally unproductive sectors.

Steve, you are absolutely right. I remember when I was in Romania about five years ago, or maybe four years ago, four or five, probably five years ago, I did an Eastern European tour. I went to five Eastern European countries. I looked at real estate in all of them. And by the way, I got another Europe trip coming up. We should talk about that and my plans to look at real estate there. But I remember I was with this one guide in Romania and she was a very interesting lady and she was a, she was a journalist like for the government news agency. I mean Romania was part of the Soviet Union. But I don't know, I don't think she worked for the TASS news agency that was like the Soviet agency. I guess the, the other former countries that were part of that union had their own news agencies. I don't know how it all worked, but, but anyway, she had like a prestigious job because when you were working for the news agency, you were like a prestigious person, right? And, and she told me about how when, when they would hear about a store getting a shipment of shoes, they would line up to get shoes and they would stand in line for like 36 hours a day and a half. They would wait in line to get shoes and by the time they got to the front of the line where they got to actually get the shoes, they were all out of their size. So they just took any shoes they had, right? And said I'll just take these, even if they're not my size, and then they'll try and trade them with people for the shoes that are their size. I mean, look at all that productive time spent just completely wasted doing a totally unproductive thing. When that's what happens when government gets involved, it just, it just diverts attention away from the main thing. As Stephen Covey says in the 7 Habits of Highly Effective People, the main thing is to keep the main thing the main thing. And you know that government always distracts you from the main thing. Granted, we need a little bit of it, otherwise we have anarchy, and that's no fun. I don't want to live in Somalia anytime soon. Anarchy is no good. We need the state, we need government. But it needs to stay in its proper role. And that's what's so important. But hey, we've harped on this enough. I have a feeling the listeners will get a little tired of this. So.

Yeah, we do that a lot. But we, we have other topics. We wanted to.

We do have other topics. Hey, let's go, let's go. Let's hear from Mr. Rick Edelman for a minute here. Okay. And then let's talk about a couple of properties because I've talked about the 10 great reasons, or, you know, I guess it's 11 great reasons. Maybe he added one, to carry a big long mortgage and never pay it off. And, and so I found this, this video recently on YouTube and I think it'd just be something worth commenting on. And then let's tie it in with these properties we're going to talk about. Okay?

Deal.

All right, here we go.

We're talking about the 11 reasons to carry a big long mortgage. Reason number 10, mortgages give you greater liquidity and flexibility. To help you understand this, let's pretend that you and your neighbor are both buying a $250,000 house. You each make 75 grand a year and you each have 50 grand in savings. Your neighbor hates mortgages. He takes out a 15 year loan with a fixed interest rate of 675. He uses his $50,000 as a down payment, and then he sends in an extra $100 a month to pay that sucker down even more. Unlike your neighbor, you know that mortgages are a great tool. So you take out a $237,500 30 year fixed rate mortgage at 7% and you invest the difference. You never make extra payments. Compared to you, your neighbor has a smaller mortgage, a shorter mortgage, a lower interest rate, and he's adding money to every payment. You've got a smaller payment, though, 1,600 bucks, most of which is interest. Assuming you're in the 25% tax bracket, that means your payment costs you $1,200 a month. Your neighbor pays almost 1,800amonth, but less of it is deductible. His after tax cost is $1,500. And this, this is where your smarts come through. Every month, you pay $300 less than your neighbor. You invest that money. Instead of sending the money to a lender with an extra hundred a month, you invest that, too. And after five years, let's say that you both lose your jobs. Your neighbor has a big problem. Even though he owes less on his mortgage balance, he doesn't have any money in cash reserves to help him make his current payment. But you don't have that problem. With the money you invested every month and the money you invested, instead of spending it on the down payment, you've got a nest egg of about 80 grand. Assuming a hypothetical 8% return on your investments, you can afford to make your mortgage payment for years. Even without a job. It doesn't matter that you owe more on the total mortgage balance. When you keep control over access to your money, you maintain liquidity. When you give your money to your lender, you lose control. If you're giving money to your lender, the only way to get the money back is to sell a house. And no bank will let you refinance if you're unemployed with no assets. So stop listening to those who pretend that the only thing that matters is paying off your mortgage. Your life is more complicated than that. And by realizing this, you see that trying to pay off the mortgage is actually a risky thing to do. So instead, a smarter, safer approach is to carry a big, long mortgage, invest the difference, and don't bother trying to be in a hurry to pay it off.

Great advice, Rich. That's Rick Edelman. He's been on the show before, and you should go back and listen to my episode with him. Remember, you can always use the Google search bar@jasonhartman.com and you can just find anything real fast that way. The show, the transcript, whatever, a great tool there. But Steve, Rick Edelman was back on episode number 186, by the way. I just looked it up. And what do you think about that? I mean, isn't it. Isn't. Isn't he just so right, it's better to keep control of the money?

He is. And it's so counterintuitive to what we're taught. Listen to Suze Orman or Dave Ramsey, who. Dave Ramsey actually recommends Rick Edelman a lot. But that's a big fundamental difference that the two of them have in belief. Dave wants a 15 year mortgage, but Rick's point is you're giving that money away as fast as you can to somebody else. What happens if you need it later?

Yeah, exactly. I always like to say, I guess my commandment number three applies to this concept as well. Thou shalt maintain control. When you put the money all in the property, you lose control of it to some extent, whereas if you keep it outside of the property, you regain control of it. And I always like to say income, property is, in my opinion, obviously the very best investment. It just blows the socks off of anything else. Okay, income, property is the best investment, but it's a mediocre bank. It's not a very good bank. It's okay as a bank. You like, it even makes sense to buy these properties with cash. It's just not as good. I mean, if you have to buy them with cash. Look, I've been buying properties with cash. I don't like it, but it's still better than anything else I can do with that money. Even better than loaning the money on a hard money loan. As long as I'm willing to deal with these management issues that are minor that most people think are a big deal, I just, just don't see them as any big deal. Respond to an email that took me 32 seconds.

What a hassle.

You know, that's such a hassle. Oh my God. But it's just not that difficult. So any other thoughts on debt and leverage?

No, no, we beat that drum pretty consistently. I think everybody that listens to us agrees with that. That's why they're, that's why they're listening to us.

Hey, Steve, what's the temperature there in Utah?

I think we're about 100 right now.

Well, supposed to be 118 in Phoenix today. Oh my gosh, is that mind boggling it up? And I wanted to know the highest temperature ever recorded on Earth. I wonder if any of our listeners know this. The highest temperature recorded on Earth ever. 134 degrees. Whoa. And guess what the place is called. Steve, you're gonna love this.

What's it called?

Furnace Creek Ranch in Death Valley, California.

Furnace Creek Ranch. You don't even need a grill there. You could just smoke a rack of ribs right out in the middle of nowhere.

You could. 134 degrees is pretty darn warm. And today they said Death Valley, that same place will be 129. So there is a heat wave, no question about it.

Yeah, it's 100 here in Utah. That's pretty hot. We'll hit hundreds, usually in late July, early August. It's not too common that we hit them right now. It's hot.

Yeah, it's fluky. But hey, talk to us about a couple of these properties you wanted to talk about because we've got to get to our caller.

Yeah, let's talk about a couple of properties where it gets hot as well and it's humid, so that adds, you know, 5, 10 degrees. One of those being Indianapolis. And we haven't talked about Indy for a while.

The place I met you. Well, no, I met you there the second time. And you used to be a local market specialist in Indianapolis when you lived there.

That's correct. Yeah, I lived out there. So I know the market pretty well in Indianapolis. And we've had a tough time getting newer, what I call tier one properties, stuff built in the late 80s, 90s, 2000s, just because of what I talked about earlier. A couple of funds are buying all of them. They're way overpaying. But our local market specialists there do pick one off from time to time. They're just great steady ATM cash flow machines. This one is built in 1989. It's three bed, two bath. It's a $97,000 purchase price. Just a couple of highlights. It rents for 1,100 bucks a month. So we're a little bit above the 1% RV ratio ever so slightly, which is common on Tier 1 in Indianapolis right now. And our cash on cash return is 11% and our total return is 42%. This is on a newer property.

Right. Right. Now we've got to say also this. Obviously these are all projections on the Performa here.

That's correct.

But the property is not pre rented, right?

This one is not pre rented.

That's why I wanted to make that clear because it's not rented for 1100amonth yet. But we're usually pretty good at these projections, you know, in our local market.

Low on the rents. If we can try to put the lower end of the scale, and it's summertime, it's not hard to get a good solid rental amount. That's when most people are moving. This is a projection. But it could end up being better. Maybe they get 50 bucks more or something. Maybe they get a multi year tenant.

And have no vacancy even Though you've got a one month per year vacancy projected in here.

Yeah, that's exactly right. We've also got leasing and advertising fees built into this pro forma. So I think it's conservative. And plus we have it at a 5% interest rate, taking into account the recent bump in interest rates. So it's a conservative steady property that will perform for you very well on the west side of Indianapolis in what are called township schools. Those are the schools that are more desirable for tenants. So we really like this one.

Okay, so the overall cash flow is projected at $2,326 per year, and that will provide a debt coverage ratio. And we talked about that on a lot of these metrics on the members only conference call just a couple of days ago. But that debt coverage ratio is 1.46%. If you put 20% down and qualify for that loan. And the total cash on cash return is at 11% annually. So remember, the property could drop in value. You'll still make the 11% as long as you maintain the income and expense ratio and the overall return on investment. Steve, what is that number looking like?

42%.

You can't beat that with a stick. You know, that's a phenomenal deal.

We have very conservative assumptions in this pro forma. You know, with maintenance and, you know, management fees, vacancy rates, it's all in there. I mean, we're not pulling these numbers out of the hat. This is what you get in Indianapolis. That's why we love it. It's why we've been there for so long.

And like I always say, I won't say it today because you're getting sick of me saying it. You know, the old Jason Hartman saying, even if it only goes half as well as projected, in this case, you'd get 22% or 21%. Sorry, 21% annually. But let's say it only goes 14 as well as projected. You'll get 10.5% annually. Only 1 4th as well. As you project this property is going.

To march along, it'll likely appreciate within a couple of points of inflation. Well, the BS inflation that the government quotes the cpi. So it'll just march right along if the economy's doing badly, if it's doing great. This thing is just a consistent performer. If you're not an investor who is very doesn't. If you don't like volatility, you'll like this investment. It's just very steady.

A good way to like in these linear markets like Indianapolis that are just these Sort of. I call them kind of like workhorse markets. They just chug along and do their thing and churn out return. It's like a long distance, you know, a cross country runner who can run long distances, a 26.2 mile marathon for example. Right. Versus a sprinter who runs the hundred yard dash. And that's the speculator, that's the person that can not win that race as easily or have an accident because they're running so quickly. It's just a risky deal. We like this long distance runner type thing. Life is a marathon, not a sprint. Who cares how much money you make in the next three months? I care about it. What's your return on investment going to be consistently, every year, year in and year out? That's the key. Okay, what's the other property, Steve?

So we have another workhorse market. Memphis.

Memphis, Tennessee.

Yep. Memphis, Tennessee. I like to call Memphis Land of the tier two.

Well, I like to call it Elvis, but. Okay, go ahead.

Yeah, you do.

Presley, Graceland. Yeah.

Well, the Memphis market, you know, it turns out a lot of these properties that were built in the late 60s through the early 80s, you know, and I call those tier two that you. They rent for the mid-800s to low 9 hundreds. They're just a very consistent, cheap property right there in a sweet spot. This one is very inexpensive. $68,500. Love this property. $825 a month rental amount.

Right.

And you get your debt coverage ratio on this thing is 1.8. And your capitalization rate is 8.8. You know, we've talked about. That's a cash measurement, 8.8. And your cash on cash return with financing is at 15%. We really like this property. It's going to be a very good return for you off of that. Let's see, your initial cash out of pocket is going to be about $17,000 to $18,000. And off of that you're making $222 a month positive cash flow or $2,700 a year.

Phenomenal. That's just phenomenal. So what's the overall return on investment? 44% projected at 44% annually only goes half as well. You got 22% annually.

Well, and I don't know if it's necessarily projected. This one is already rented.

Oh yeah, well, that's a good point. As long as that tenant pays for that entire first year and everything goes as planned and you know. Well, it doesn't have to go as planned. There's some assumptions for vacancy in there and Maintenance and so forth. So you could, you can have a few problems and still come out with that same return.

Yeah, that tenant leaves early or damages something, you get the security deposit that absorbs much of the turnover cost associated with it, you know. But the point is, at this high, it has to go really, really far sideways for you to not win on.

This deal, that's for sure. Well, good stuff. Well, hey, thanks for coming on and talking about this stuff, Steve. Let's get to our caller. We don't have a guest for today's show, but let me tell you, folks, we have got some phenomenal shows coming up. Let me just tell you some of those. We've got Jerome Corsi coming up. We've got Senator Byron Dorgan, Democrat senator from North Dakota. I did that interview yesterday. James Altucher, the hedge fund guy who's written several books. Really, really fascinating. You're gonna love what he has to say. Robert Greene, who you may have heard of, he's gonna be our 10th show, number 330. And he has written several books. Once called the 48 Laws of Power. He wrote the 50th law with the rapper 50 Cent recently. That was his latest book. And then he wrote Seduction, which is.

The Art of Seduction.

The Art of Seduction, yeah.

Fascinating book, which I don't need because I have an eyepatch. But we're grateful that he wrote it anyway.

Oh, I thought you were going to say because you have a wife. But I guess that eye patch is the new sexy thing, right?

Oh, yeah, you're telling me.

All right. Got it. So Robert Greene, his books are fascinating because they're like, they've got so much historical perspective. I've always loved his writing. It's rather long. His books are long and, and meaty and they've got a lot of content in them, but it's great. So he'll be number 330. Meredith Whitney will be number 331. You know, she was the one that basically called the banking crisis. Les Leopold will be back on the show. He talked about the looting of America. Oh, about 200 episodes ago he was on. So we have him back to talk about hedge funds and some of the interesting stuff. You'll learn about that now that it's.

Been looted by the hedge funds. Back to comment.

Well, maybe that is the follow up. Yeah. Number 333, Al Goldstein. Number 334, Michael Kitches. Number 335, Kathryn McBean will be on. And number 336, Douglas Brunt. Who wrote the Ghosts of Manhattan, a really interesting book about Wall street and the economy. So a lot of great stuff coming up. Of course, that's all a little bit subject to change once in a while we change the order a little bit, but we've got all the shows coming up in either case, if they don't follow that exact order. Hey, Steve, let's go to our caller. Okay.

Okay, let's do it.

Be sure to call into the Creating wealth show and get your real estate investing and economics questions answered by me personally. We'd love to have you call in, share your experiences, ask your questions. And a lot of other people listening have those very same questions. So be a participant in the show at 480-788-7823. That's 480-788-7823 or anywhere in the world via Skype. Jason Hartman, ROI. That's Jason Hartman ROI. For return on investment, be sure to call into the show and we are going to enter all of the callers in a drawing for some nice prizes as well. So be sure to call into the show and I look forward to talking with you soon. We have a caller with a question, and that is Rachel from Los Angeles, my hometown where I grew up. How are you, Rachel?

I'm very well. How about yourself?

Well, good, good. Thanks for agreeing to come on the show. I know you were a little reluctant, so let's, let's make it easy. Oh, don't be nervous. It's no big deal. Hardly anybody listens to this show anyway. Just kidding.

Good to know.

Well, what is your question?

I'm new to your website and I happened upon it just looking, googling and finding it. I found you about three weeks ago and since then I've been listening to your podcast. You're almost through all of them in three weeks.

That's fantastic. We're going to give you a free T shirt. Yeah, There you go. Okay.

So I've been to Atlanta and I've been to Missouri and I'm also going to your upcoming property tour in Memphis.

Oh, fantastic.

I've been running numbers in Atlanta, the Missouri properties, the Indianapolis properties. And what I'm coming across is a lot of properties that give a cash on cash return of 5 to 6%. And I said to myself I wanted to find 8 to 10% to start. I run my numbers pretty conservatively, slightly more so than your Pro Formas add 5% for taxes each year because I see them going up and you see on the assessors website that they go up and I add a little bit more padding for maintenance and management. And I've been in real estate since I was 21. I bought my first house at 21. So I've seen the ups and downs of real estate and I like to do a little more on the.

Okay, fantastic. So that's why the cash and cash return numbers you're coming up with are actually lower than ours. Now, most people, Rachel, say our performas are pretty conservative, and I know they are compared to our competitors, but you're being even more conservative than ours and putting some higher expenses in there. So that's reducing your returns on all counts, whether it be cash on cash cap rate, overall return, etc. So, okay, good, slightly.

But what I'm looking at is when I go to do the number, even just the numbers that, for example, that one of the market specialists will give me, they're still coming out below 8%. And I'm looking at it adding, of course, the loan costs and all that, which are pretty expensive with some of the lenders, and it's just coming out 5 to 6%. What I'm trying to find out is, is that a good deal? Would you consider that to be a good deal? Would you go for it?

You mean a 5 or 6% cash on cash return? Well, it depends what you're comparing it to. Yes, I probably would. However, I think the returns will be better than that. But you're making the pro forma more conservative than ours. So I guess you would have to just look at it. What are you comparing it with? And the other thing you need to remember is you've been in real estate a while, so you understand it. And cash on cash does not include any tax benefits or any appreciation or depreciation for that matter. But I think we probably all agree that based on what's going on right now, at least in nominal dollars, we're going to see appreciation. I mean, that's certainly the broad, broad feeling in the marketplace that prices are going up. So if you add some appreciation to that and you look at an overall return, even if you make the numbers a lot more conservative than by increasing taxes, lowering rents, increasing maintenance, whatever it is you want to do, then if you look at the overall return, I mean, you'll still be above probably 20% on pretty much anything that we have to offer. And by the way, when you're doing this, are you doing it in the property tracker software? Do you subscribe to that?

I do have the property tracker software or evaluator, the app the property evaluation.

Right.

I'm not a big fan of it, I have to say, because it won't let you customize certain things. But I do use that and I also run my numbers on pen and paper old school way.

Whoa, you are really. Not even Excel. You're really old school. You're using pen and paper. I don't, honestly, Rachel, I don't use the apps much myself either. I just like the website version. And through us, it's $19.95 a month. We don't make a penny off it. You know, we don't own that company. It's just a client of ours invented it. We just like the software. But the web based version I think gives you a little more latitude for playing around with it. And I've always just used the web version over the apps. So, you know, you might check that out if you want a little more latitude and customization.

Okay.

But yeah, so you're crunching the numbers and it's really good to be able to do that because that's what I say to investors. Look, you can try Property Tracker for a month for free and if you don't like it, just don't renew it. There's no contract or anything like that. And go in and play with the numbers. What you're doing is excellent, excellent experience because then you can start to just kind of comprehend how all these numbers interplay with each other. I mean, what does it mean if Your rent is $50 less than per month? What does that do to your return on investment? What does it mean if, if your, your rent is lower, your maintenance is higher, your taxes are higher, your insurance is higher, everything is worse than you thought, but the appreciation rate is pretty good. What does that do? And, and that's by, by crunching the numbers yourself rather than just looking at the static Performa on our website. I think, I think it's really good experience for people. I'm glad that we're talking about that on the show because a lot of people listening need to hear that I highly recommend doing what you're doing. So is that cash on cash return good enough? I mean, it's probably better than pretty much anything else you're going to do, but it's not great.

Okay, so in addition to that, now I'm going to use Atlanta as the market that I'm talking about for now because this is a market that kind of brought this up for me. So I went down there and I met with one of your market specialists and we went out and looked at the properties. And I saw the properties that have the higher returns that are 8 or 9% are really kind of scary neighborhoods for me. And I don't really want to invest there because I don't ever want to have to go there or have any of the problems that go with those lower end properties. And the higher end ones are the 5 to 6%. But the issue that I also came across is that when I looked up the values on Zillow and other websites such as Zillow, they came out to be half of what I'd be purchasing it for. And I use mint.com to track my net worth. I like to see that when I put money out there, I have instant equity rather than losing the money. And I know it's a paper loss and it's not a real loss, but it's just something that I track and that I like to see when I'm investing in something. I'm used to investing in something and then having the amount that I invest double where I currently invest. So it's hard to take that step. So I think that if it wasn't that way, in terms of the money I invest going down as well as the low return on it, well, cash on cash return, it would be a different story. But what do you recommend about that?

Well, okay, so first of all, your first observation is absolutely right. When you go to lower quality tier 3 or C and D class properties, your return is generally higher. We don't do a lot of those, but that generally gives you a higher return. When you go to higher end, nicer properties, your returns generally are lower. I mean, that's, that's a rule pretty much anywhere. Because the nicer properties, just the rent elasticity isn't as good. The numbers are never as good on a nicer property as they are on a cheaper property in a crummier neighborhood. So that's the first thing. The second thing is Zillow and Trulia are great resources. They're certainly better than nothing, but they're way off a lot of times. And what you've got to really look at is how close are you looking to that property? Are you looking at recent sales or old sales? Were they foreclosures? Were they rehabbed? Were they not? Generally speaking. And we've been very open about this. I'm sure you've heard it since you've listened to so many episodes. Our rehabbers generally will make about eight to maybe $14,000 per house when they resell it to the final investor. And so they're making some profit along the way. I mean, there's no question about it. To give you a turnkey property and provide service, they are making money. And that's just the way it's going to be. If you were going to buy the property post foreclosure and you were going to take the risk of doing that, that you might get a lemon. If you were going to manage the rehab and do the whole thing, you could make that money. But the problem is you could never do it unless you were in the business, in the market, had a construction crew, had all the connections, knew how to source all of the improvement products and the labor inexpensively and properly. You could never do it on a one off deal. You just couldn't. So they're making a margin for that. And so when you see that and you look on a website like Zillow or Trulia, you know, a lot of those properties aren't rehabbed, they're. There's special circumstances. I mean you just gotta really like. All I'm saying is you need to look deeply into the comps and sometimes also if it's one or two blocks away, it's a totally different neighborhood and a totally different story. Okay, so that's the other thing.

So, okay, which one of your markets that you currently have up on your website would you recommend? Where I could buy with that higher cash on cash return and with the higher kind of having some instant equity when I purchase the property?

Well, I mean those markets are generally markets like Memphis, St. Louis and Indianapolis. Those have the higher returns generally. But the properties and the cities themselves don't have the good prospect for appreciation because Atlanta, Atlanta's like a flagship city. Atlanta, Dallas, Houston, these are leading flagship cities. I mean you go around the world and you say that city name and people know what it is. Memphis, it's more industrial, yes. There's Graceland where Elvis Presley's from. But you know, that's kind of fading from memory now. That's a little bit old. And St. Louis, you know, it's not a, it's not a flagship city. It's just, you're just not going to get the returns in those, in those better cities and better neighborhoods within those cities. They're going to be lower returns. But the way you might make that up, maybe you'll make it up a lot more. It may ultimately work out to be a far better investment over the course of three, five or seven or 10 years. Nobody knows for sure because the appreciation may be a lot better. Those are Cities that have a lot better prospect for appreciation than do these cities where with the higher cash flow. So the concept is you want to, number one, know what kind of investor you are. Rachel, are you an investor who is a, you know, a cash flow investor that is simply like you would be the person that would want a dividend paying stock or are you, to use a stock market analogy, although you know, I hate the stock market. Okay, but do you want a growth stock? Are you a capital appreciation type investor? Do you want the old apple high flying stock or are you going to stick with the old fashioned, and I don't even know the example in the stock market, but maybe AT&T that just spins off a dividend when they do that, and it's more of like a cash flow stock, but there's not big gains to be made. And I don't even know if that's a proper example with AT&T, but you get the idea. And you know what I say for most people is be a little bit of both, diversify your portfolio and have a couple eggs in the cash flow basket and don't expect those to appreciate real well. And then I have a couple of eggs in where they have decent cash flow, but they have a really good prospect for appreciation. And if you wanted to go all the way to the extreme and be a complete speculator, you would be investing in a market, you know, like where you live, Los Angeles, where when the prices go up in California, generally speaking, because that's a very cyclical market, they go up a lot, but the cash flow will stink all the way while you're waiting for that to happen. And you may become insolvent waiting. A lot of people did for sure. Does that make sense?

Yes. Yes. Thank you. I definitely think I'm a cash flow investor and always have been. I like to make money the day the deal closes rather than waiting and waiting and waiting to see some appreciation that you never happen.

Right, right. Appreciation is a speculative thing. I was talking with Doug, who we've had on the show a couple of times, and at the last Meet the Masters event in Orange County, California in January, I was saying, doug, now that the market is changing, we've really got to work on a way that we can help investors who really want to take a little more risk, or maybe a lot more risk, frankly, and invest for appreciation for big capital gains, as I've done to some extent over the years in California. And he just turns to me with this funny expression. He goes, jason, I'm not that good and what he was saying there, and I agree with it, is you've got to be lucky. Nobody can predict appreciation with any real degree of reliability. That is the problem. So investing for cash flow is a very conservative thing. It's pretty reliable.

Yeah, I agree.

Any other questions?

Those are my questions. Thank you, Jason. Appreciate it.

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