CW 341: Income Property Investing with Self-Directed IRAs - John Bowens of Equity Trust

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 Grading wealth show. This is episode number 341. 341. And this is your host, Jason Hartman. Thanks so much for joining me today. We have got three areas or three sections of this show today rather than the usual two. And first of all, I've got Steve here. Welcome Steve, how are you?

Hey, pretty good. Recovering from eating way too much barbecue on the Austin property tour. I've been in a meat coma for a few days.

Yeah, well you really missed Saturday night. I went to dinner with one of our clients and boy, this Brazilian restaurant, oh my gosh, you would have been in a meat comb of all year. You're such a carnivore. You would have been in one for a long, long time. And I'm actually still full from that meal, I believe. And it's, it's Monday afternoon and that was Saturday night. So, so anyway, but yeah, so we're going to talk, we'll recap on the Austin tour. We got to talk about JP Morgan, we've got to talk about some amazing upcoming guests that I've got coming. We boy, I mean you listeners, you're gonna think what happened to Jason when I tell you who these guests are? Yeah, I mean this is mind boggling. Who we got coming, Jason?

Driving on the left side of the road. Now.

Don'T worry, I haven't fallen down the rabbit hole. But, but anyway, so I'm gonna mention that we got two quick properties to review and then we're going to talk with a guest that I interviewed at the Equity Trust Conference in Orlando, Florida about a week and a half ago about self directed IRAs. That was kind of an interesting discussion. And then we've got one of our clients, Neil, who is going to talk about homeowners associations. So let's get to it, Steve. So should I spill the beans on who the guests are.

Yeah, you might as well get it over with, you communist.

You know, I'm not going to live this down. If you're a regular listener, you probably know that I'm. I'm pretty libertarian in my political leanings, but I've got Noam Chomsky coming up, and the reason I requested that we invite him onto the show. For those of you who know who Chomsky is, he's an MIT linguist, I think, a professor of linguistics at mit. Really bright guy, and he's written all sorts of books, very critical of American foreign policy, and a lot of it I agree with. But he was. I saw an interview with him and Julian Assange of WikiLeaks fame on YouTube, and it was fascinating. Something he said, and I just can't wrap my head around this. But he said, Steve, that the concept of democracy and capitalism going together and being one and the same thing are a relatively recent phenomenon. And I cannot for the life of me figure out how he's right about this. But I want to ask him about it on the show. And what he said is, he said that the concept of free market capitalism and democracy, those two were tied together intellectually and marketed as part of US Propaganda during the Cold War against the Soviet Union and other communist states. And I'm like, really? Because to my thinking, you can't have freedom without property rights. Those two are inextricably linked in my mind, because the effort of our lifetime is what we spend doing our work, right? And our work pays us. And with that, we create wealth and we. For. We create capital formation, which is very good for an economy. And those two go together. And I'm sure you would agree they go together, right? But Noam Chomsky said they don't. And I just got really fascinated with that statement. So, heck, we booked him on the show.

Okay, let's ask him. Maybe it's because we're automatically associating, say, communism with the Soviet Union, because the people didn't really have a say in the Soviet Union, and there was no free market. There was central planning. This is how many cars we had.

Listen, I hate central planning.

Yeah, So I can see how he would say it was that. That it was propaganda during the Cold War, but I'm sure he has plenty to say beyond that, so. Looking forward to it.

Yeah. Yeah. So remember, I do have an interview from a long time ago, and it was an awesome interview with Pat Buchanan. So I'm just trying to balance things out for you fol. Okay. But I'VE got another one of these types of guests coming up. This one's gonna blow everybody's mind when I say it. But he is a longtime friend, possibly a best friend. I don't know of our emperor, our comrade Obama. Barack Obama. Yeah. And that is Mr. Bill Ayers is going to be on the show. Whoa. Hello.

Whoa. So you gotta get Sarah Palin the week after that, if you're gonn.

I gotta get Sarah Palin or Mitt Romney after that to balance things out, huh? Yeah, yeah, but don't worry, I haven't fallen down the rabbit hole. But about three years ago, maybe four years ago now, what was fairly shortly after Obama was elected the first time? And I want to say Obama was selected more than elected, but that's another discussion, because how does a guy with such a little resume and a mysterious past just come from nowhere and become president twice in a row? I don't know. But anyway, you know, I saw a really interesting documentary on Bill Ayers and the Weather Underground. That is the Bill Ayers we're talking about here. And he's got a new book entitled Public Enemy Confessions of an American Dissident. So, I mean, regardless of what you think of him, he's going to be a fascinating interview. And heck, it doesn't get much more controversial than that, does it, Steve?

Oh, wow. During that first election, he was all the rage for quite a while. That's why I joked about Sarah Palin, but about alleged terrorist activities by Bill Ayers and the president's support of him and whether or not Bill Ayers officially helped him launch his campaign. There's a ton of controversy surrounding this guy, so it'll be really interesting to have him on the show.

Yeah. Ton of controversy. But I can't wait to talk to the guy and see what he says. As you know, my guests, I had Bret breakfast yesterday with one of our faithful listeners. She was on the property tour. And I know this person will not want me to mention her name, so I'm not going to.

But I know who you're talking.

Yeah, you know who I'm talking about. She won't be in any pictures, you know.

But she said, you know, Jason, one of the things I really like about your shows is, is you actually let your guests talk. And, you know, I really do because I want to learn from them. I want to hear what they have to say. So, hey, we'll see what Bill Ayers and Noam Chomsky have to say. And let's get some people on the right to Balance it out pretty soon, but there you go. So, so that'll be coming up. And what should we dive into now? You want to go to? You want to talk about Wall street or Main Street? Let's talk about Main street first.

Yep, Main Street.

Main street, that is getting burned constantly by Wall Street. And that's why we don't want to invest on Wall street, we want to invest on Main Street. But we did Main street this weekend with the Austin property tour, right?

Yeah, yeah, it was a great time. Great neighborhoods, newer construction properties out in the suburbs of the Austin, Texas area. Because Austin itself is just too expensive.

Yeah, well, downtown, I couldn't believe it. I mean, I looked at places, you know, I've always kind of thought about moving to Austin for about 15 years now. Never did it. Got close a couple of times. And so this time, for kicks, if nothing else, I spent Friday afternoon and a little bit of time on Sunday afternoon looking at some apartments. You know, I love being a high end renter, love renting a high end property and buying a lot of low end properties that I rent to other people. It's awesome. Highly recommended folks for all the reasons I've discussed on prior episodes and I looked at some myself and I can't believe the prices, Steve. I mean downtown Austin is expensive. I mean it's not quite on par with downtown LA or Westwood Village, which is an area, you know, a Los Angeles area. It's not as expensive. New York or even maybe, you know, I'm kind of assuming. Although I haven't shopped there much lately, I don't think it's as much as Miami probably, but it's not cheap. I mean, if you want to rent a 1500 square foot, swanky high rise condo, you're gonna pay 45, $4600 a month.

That's crazy.

And, and believe it or not, as nutty as that sounds, that is still a bargain in my opinion. Because to buy that place in terms of an RV ratio, it would probably cost you a million five to own it. And so 45, $4,600 a month, that means you could buy $460,000 worth of real estate through our network and get a 1% RV ratio that would generate $4,600 a month. It's a much better deal to buy those properties and rent them to other people and rent your own high end property for yourself is nutty. Everybody on its face, Steve. They would think you gotta be crazy. Throwing away, they'll say throwing away in quotes, $4,600 a month in rent. But it's much better than owning it. And never listen to me, folks, I will. I don't think there will ever be a time when I recommend buying a high rise condo because those things have. They're just plagued with problems. And I'll tell you my own horror story in the future about Las Vegas. And I lost a fortune there before I knew any better. This was in the old days when I was stupid. But I've learned my lessons at the school of hard knocks is an expensive education. But you know, unlike college and paying for a beer pass in college for four years, beer drinking pass. These lessons, you, you remember, they stick with you. You don't have a choice. Yeah, they really do. But hey, so. So a little bit more on Austin property tour. One of the things that was. Well, there were two things that were discouraging about this tour. And those of you who've been longtime listeners, you know, I try to be very transparent with all of our stuff. We tell you the problems, we tell you the good side, we tell you the bad. The good, bad and the ugly, as it were. And this Austin property tour, we made a mistake on it. I mentioned this before. We thought we'd offer this executive tour concept and because we, frankly, we found it hard to book a seminar room in Austin. You know, everything was so booked up and you could see that we stayed at the Hyatt Regency Austin and that hotel was packed and you had to wait in line to park your car. You know, it was just impacted. I mean, the hotel was full. It was unbelievable.

It was a zoo.

And it was very difficult to find a seminar room. So we decided, let's just do something different. People just want a tour. So, you know, let's just offer a tour only we'll just have breakfast together, get a bus, do a tour and have lunch together and then we'll adjourn and people can fly in and out on a day. And, you know, a lot of you said, hey, if I'm going to travel to Austin and come on your tour, I want to get the Creating wealth seminar. So we didn't have the Creating wealth seminar. So, you know, our turnout was a little lower than expected, for sure. You know, we usually have 40, 50 people on these tours. And here, I don't know, I think we had like 18 or something like that. And so the turnout was a little lower. And then another disappointment with this tour was that our poor local market specialist, Kevin, you know, he worked pretty hard and so I thank him for that. But the day before the tour, he called to check availability on the properties. And this is one of the challenges we face. And of the. I think he had 12 properties lined up for us, six of them sold. Six. Half the inventory was sold in one day. Yeah, it's just really difficult and discouraging. But he worked hard, burnt the midnight oil, got a few other properties, but of course, not as many as we wanted to see. But, you know, we still saw a good number of properties and some good properties, surprisingly, given inventory shortage problem. But what were your impressions, Steve?

Well, I seemed to like the north side a little bit better. The Hutto area and Pflugerville, I liked those better. Of course, the properties down on the south side in Kyle were great, too. A lot of people were asking, so who lives out here in these suburbs? And the answer is people that don't want to pay the outrageous prices in Austin.

But that work there. A lot of H1 visas in those areas. Those people are the techy people, the really, really smart people that work at, like, Dell Computer and so forth. And they're great tenants because they've got money. A lot of them. They're not there. Well, if they're on a visa, they're not there permanently, or at least they don't think so in the beginning. So they rent and there you go. You got a great tenant pool.

Yep. And their properties, typically built 1995 and newer, you usually buy these things for somewhere in the low one hundreds, and then our local market specialist helps you complete the rehab after the fact. So it requires, I guess as a percentage, a little bit more cash to get into the deal. But that's how we can make Austin affordable. Because in the commandments, the deal must make sense. Today we want cash flow. Today you don't want to. Because Austin is such a hot market, we don't want to get caught up in that euphoria of, oh, it's going up, it's going up, I'll buy just to buy. Nope, it has to cash flow today. And there are very few neighborhoods where you can be in a good neighborhood and get a good quality property and get cash flow. And that's why it's. It's so tough for Kevin, our local market specialist, to source these things because there's not a lot of those properties left.

Well, Austin's one of these markets that's sort of a hybrid market like Phoenix, like Atlanta, where it's. It's tough to make the cash flow work because the appreciation potential is greater in these markets. Than it is in the very linear markets like Indianapolis, Little Rock, Arkansas, Memphis, Tennessee. I guess I don't have to say the name of the state, do I? People probably know where these cities are. Okay.

Memphis, New York.

Yeah, well, you know, there are duplicate names and. Of things.

Yeah. But I don't think. I don't think.

I think they get it. Yeah, yeah. Elvis Presley. You get the idea, folks. Yes. Graceland, etc. Anyway, those are the very linear markets where the cash flow is. Is better and it's a little easier to find inventory, for sure. But again, if you want to lean more on the speculative side, although not really truly speculative, it's not like you're doing on the coastal properties where they're really expensive and the cash flow just never works.

But it's negative. Yeah. The coastal areas, it's negative.

Yeah, yeah. So that doesn't work. But. But, yeah. Good. So it was a good tour. And. And, you know, one of the things I loved about this tour is because we had a smaller group. It was really, really nice getting to talk to people more individually and hear some of their ideas. You know, I talked to one of our clients who wants to file for a patent, interesting construction process. So I heard all about that. We had another group of clients there that was a family, and, you know, I'm sure all these people are listening to us talk about them, so we don't mention a name necessarily, but they're. They've got a bunch of properties in Northern California that they're doing 1031 exchanges, and they're getting out of those. They want to get into properties that are in better neighborhoods, number one, and have better cash flow and. And, you know, hopefully better potential for the future. And so they're. They want to diversify, and they're looking at some of these other markets around the country. So it was great to talk to them and just really great to get to know some of the clients more. With a smaller group, you have the opportunity for that. And I gotta tell you, we have, without a doubt. And I constantly hear this from our local market specialists, the different developers and builders that we deal with. You know, in our business, it's a cottage industry. We have really almost no competition. It's a pretty unique kind of business model. But, you know, we do have other groups out there that are sending investors to these different cities. And I constantly hear, and I've heard this for years, the same thing, Jason. Your clients are so sophisticated, and they are such a pleasure to work with because they are educated and some People in the old model of salesmanship, the Glengarry Glen Ross model. I know you like that movie, Steve. Coffee is for closers. You don't drink coffee. Yes.

That was a pretty good movie. But I know you're a big fan of that movie. And, you know, in the old model of sales, the idea was you want to work with sort of a dumb customer customer, where you can pull the wool over their eyes and. And be a timeshare salesman. Right. But in my opinion, working with a smart customer is much easier because, number one, they don't ask as many questions. So, you know, they're not, like, taking a lot of time to manage. You know, they get it. They come to the party with an education. And that's why we do this podcast, 341 episodes in already, so that we can have people educated in advance. And they're just a pleasure to work with. They're just. They're just easier, better client. It's just a better, classier, more sophisticated clientele. So I think it's a wonderful.

Yeah, I agree, and I was actually going to say that, but you did first, because when you're with a small group like that, you get to know them. These are smart people. They know how to do their homework. They've been listening to the podcast. They study investing.

It's great. Many of them have purchased properties in our network already in other cities. It's just cool to get to be around people that share your same mentality. And that's one thing that I heard from all of them. They liked meeting other investors that think the way they do and are using the same strategy. They are.

Yeah, absolutely. And the other thing that we are constantly doing, Steve, you, me, the other investment counselors in the company, we are learning from our clients and assimilating the learnings we get from our clients and then sharing them back to the other clients, the rest of the group. So that's one of the things we constantly want to do on this show. That's one of the things we constantly want to do for our members who've joined Jason Hartman University for a whopping 10 bucks a month. And that's about the cheapest university ever, isn't it, Steve?

You're not going to have to get a federally insured student loan to join Jason hartman.com.

The one that's not dischargeable in bankruptcy. That makes you a debt slave for life.

If you've got to go bankrupt over 10 bucks, you've got bigger problems.

There you go. Absolutely. Well, hey, you want to jump over and hear from some of the scum of Wall Street.

Yeah, let's give up the feel good stuff and get all fired up talking about Wall Street.

Now here we're going from where. That's the real economy, the tangible economy. Let's take a walk over to Wall street in the smoke and mirrors economy built on a house of cards. And let's hear these people who call themselves journalists in the mainstream media. This is a CNBC interview, but I'm not blaming CNBC in particular because it really could be anywhere and they call themselves journalists, but this should really be just be called advertising.

It's mind bo the way they are defending Jamie Dimon and JP Morgan. I mean it's just, it's just shocking.

Yeah, see if you can tell who's paying the bills at cnbc.

Yeah, yeah, see if you can tell who's pandering to the advertisers or I don't know how exactly JP Morgan and the other Wall street cartel as part of the vast Wall street conspiracy are supporting cnbc. But we know they certainly are. But it's so complex because these companies have so many entities under which they do business and so many, they just have so much influence.

It's, it's, it's that cronyism. You don't want to spend too much time bagging on, on Chase and JP Morgan because then they won't advertise with you. And it's a, it's a circle.

It's just.

Yeah.

They're not advertising on the Creating wealth show, are they?

No, they aren't.

I guess not. Okay, well, we don't plan to get them as advertisers anytime soon because we're not being very nice to them. We're being kind of critical. So here you go. This is a six minute interview. We'll cut it up with a few snarky comments here. But listen in.

Stocks down over 1% this week. Jamie Dimon looking to end government probes into its selling of potentially shoddy mortgage securities. He was at the Justice Department yesterday working out the particulars on a possible 11 billion dollar settlement on both federal and state levels. So why is the firm getting so much heat from regulators?

Salon journalist Alex Perrine is with us. He says Jamie Dimon is the regulator Reason and he's doing more harm than good to JP Morgan. Fortune's Duff McDonnell could not disagree more. Here we are talking about this. Alex, to you first. Legal problems aside, JP Morgan remains one of the best, if not the best performing major bank in the world. Today you believe the leader of that bank should, should step down.

I think anytime you're looking at the greatest fine in the history of Wall street regulation, it's really worth asking, is this guy, should this guy stay in his job? In any other industry? I can't think of another industry. If you managed a restaurant and it got the biggest health department fine in the history of restaurants, no one would be like, yeah, but the restaurant's making a lot of money. There's only a little bit of poison in the food.

So who, who has the qualifications better than Jamie Dimon?

Great line, huh?

I mean, only a little bit.

Yeah. Did you, did you hear the way Maria Bartiromo teed that up, saying how great the bank was and, and blah, blah, blah, and now she's just going to tear what he said apart?

Yeah, he's not cooperating with the tee up.

Yeah, yeah, it's mind boggling. So we'll go back on qualifications better.

Than Jamie Dimon to run JP Morgan, in your view?

I mean, I think the bank might be too big and too complicated and at this point too corrupt for anyone to run, but we could just give almost anyone else a shot and see if they could do better.

Too corrupt is a bit hyperbolic, perhaps. Duff, you agree or disagree?

Note that they just paid what, an $11 billion fine? Too corrupt is too hyperbolic. Yeah, it's like every, these guys are just totally defending them. It's amazing.

$11 billion.

The media, is it supposed to be a watchdog? I mean, that was my impression. The media is supposed to be a watchdog of government, of big business, et cetera. But here the media is a lapdog. I mean, they're just a, they're a friend of the company, they're covering.

It's, it's, that's a bit hyperbolic, don't you think?

Oh, sorry. Yeah, yeah. Good, you got me there. Right, here we go.

Absolutely not. It's, he obviously got attention with this article. He got your attention.

It's preposterous.

The Stock's touching a 10 year high. It's a cash generating machine. Sure, they're, that they've had their regulatory. But he's looking to settle them expeditiously at this point, which is everything you want out of a CEO.

It's an absurd suggestion. All they're talking about, by the way, is the shareholders. Isn't that interesting?

That's all they care about.

There are other stakeholders in the company because they're the ones that have been just dumping toxic waste. It's just like polluting a river, dumping toxic waste on the entire planet with these crappy mortgages and CDOs and CDSs, these collateralized debt obligations. I mean, this is just, this is toxic junk. It's poison, like the first speaker, the first guest said. And all they talk about is, well, the executives and the shareholders are making a profit.

It's a cash generating machine, like he said. So why are we even talking about this? That's the tone that he's taking on.

If they were in the manufacturing business and they made batteries or they, you know, they, they extracted oil out of the ground, they would be like the Gulf oil spill, right? It's the same thing. They're just polluting the world with toxic junk. And it's just a financial instrument that bankrupts people, companies and countries like Iceland rather than poisoning them and giving them cancer. We need an Erin Brockovich of the corporate world, don't we?

Yeah, I don't think that's going to work.

Of the financial world.

I mean, that would be nice. That would be nice. But yeah, if you were to apply this same logic to manufacturing or something else, people would be pulling their hair out. They'd be going to jail because it's a complicated product. Most people don't know what's a cds. They don't get that. So this is why they can skate by with this stuff.

It's unbelievable. Anyway, it gets better. So let's keep listening.

Maybe we should pose the question, does Jamie Dimon want to go? I mean, given everything that's been going on around this company, it seems like he's taking arrows from all sides almost every week at this point. Maybe he doesn't want it anymore and within a year he's not even going to be there. Who knows?

I doubt he's interested in leaving. For one, he probably wouldn't want to leave on a low note like this. But, you know, he's expressed a desire to stick around for quite some time. The only thing that's going to have him leave is the board or shareholders basically showing him the door. And, you know, despite suggestions that he should leave because they're paying a fine, you know, no major shareholders are calling for his departure.

So should we talk about the financial strength of JP Morgan at this point? I mean, even with all of these losses, the company continues to churn out, you know, tens of billions of dollars in earnings and hundreds of billions of dollars of revenue. How do you criticize that?

Well, I think a lot of their earnings and revenue we've seen have come from really shady dealings that they've been.

Oh, come on.

They have three shady dealings, all right?

Bribery in China, hiring.

Things that you can't prove.

Well, the nepotism. Hiring the children of prominent Chinese officials is not something I just made up.

They've been charged.

They haven't been charged, but it's a fact. It's in the news. Everyone knows about it. The fact that they're. The fact that they hired the children of prominent party officials, and there's a spreadsheet on which it's connected to deals they were trying to do in China, hiring connected people.

Things that are not actual fact on this program.

Because anyone can just Google China and JP Morgan and see this. I mean, it's not. It was in the New York Times.

It's not. Oh, the New York Times. Oh, okay.

You know, it's never been a crime.

Isn't that unbelievable?

That's crazy.

I mean, did you hear her? She said, oh, the New York Times. Oh.

Who I'm sure she cites as fact whenever it's convenient.

I mean, this is just unbelievable the way these. They. They call themselves journalists. They're. They're advertising salespeople. That's what they are. They're advertising reps. And I mean, this is toxic waste. This is the toxic waste of the financial world. That's what it is.

That's what it is. And I just keep getting over that New York Times comment, and.

They'Re just considered to be so credible within most of the media.

Well, listen, I have my qualms about the New York Times for sure, too, but the fact is, she's using it so selectively.

That's what I mean. That's what's got me all mad about it is. Oh, it does? It's not convenient for you now, is it, Maria?

Yeah, exactly. Okay, here we go. A couple of, like, two more minutes.

Time to hire the children of connected people.

The point. Part of the point Maria makes when she. When she cites the performance of the bank. I mean, shareholders have no reason to want this guy to leave. Stock is up 18% year to date. He's considered to be one of the most respected CEOs on the street Streak. Sometimes in some forms. Even mentioned as a possible treasury secretary somewhere down the line if he.

Oh, just what we need. The guy who dumped the toxic waste of the financial world on the entire planet Earth should be Treasury Secretary. Hmm, sounds like TurboTax. Timmy.

The.

The guy who can't do his own income taxes and didn't file or whatever. His exact Violation was he becomes Treasury Secretary.

Well, we had to have him. He was critical. He's so talented.

Yes, of course. I mean, this is. I mean, I don't know what to say. Maybe he can be the next Federal Reserve Chair if not the Treasury Secretary. Right?

I guess so. Because you know what these clowns do is they run these banks, they become the Treasury Secretary, and they have incentive to create an economic climate where the Fed will give them unlimited backup, the government will make them too big to fail so that they can keep dumping toxic waste. And much of that toxic waste comes in the form of mortgages and easy credit for housing because that's the only thing that has any positive news in the economy right now on any kind of large scale. So as investors, like you've said many times, all we can do, I guess complain about it a little bit like we are right now, but take advantage of it because it's not going to change.

That's a good point, what this is all about. Every time you hear me whining or complaining or, you know, talking about how corrupt the system is, the whole point of that is there's a few points. Number one, be a direct investor and only invest in things that you directly own and control so you don't leave yourself susceptible to the three major problems of violating commandment. Number three, thou shalt maintain control, be a direct investor. So that's one. And then the other thing is, understand that the system is just designed for inflation and invest for inflation. Invest in a way that is going to help you basically game the system where you're going to benefit from all this massive stupidity out there. And when these, when these banks are too big to fail and the government bails them out, and the only way they bail them out, obviously the government has no real money, so they have to print a bunch of fake fiat money. And that makes all the money in circulation less valuable. And that makes the value of the mortgages that you owe less valuable, which is a benefit to you because you're paying back in cheaper dollars. And it makes the commodities that those mortgages are attached to, the houses that are made out of lumber, energy, petroleum products, copper wire, glass, steel, etc. It makes all of those things more valuable, okay? And it increases the price of rents in nominal dollars, but you know, at least it's indexed to inflation, okay? So you benefit in so many ways by this absolute stupidity. All we're doing here is telling you how to do what the bigwigs do and game the system like they do. You just do it on a smaller scale.

That's exactly right. So they can, they can have their apologists over at CNBC and have a round robin of treasury secretaries that go back and behind forth between there and whatever investment bank they were at or going to be at. And they, they print, print, print, create these derivative products so that they can keep churning out fees because that's what they do. And taking advantage of these mortgages and housing is probably one of the very few ways that you can get out in front of that.

That is very true. It's definitely the best way. There are a couple second and third choices, but they just don't even come close. They don't hold a candle to owning income.

Property, buy gold.

Yeah, right. We've, we've debunked that myth about a thousand times on the show and it's down a lot today too, by the way. So, so here we go.

What does gold rent for per square foot?

0. 0. It produces exactly zero income. I have yet to meet in. We ought to start a whole nother podcast. We'll call it the Gold show and we'll see if we can get people to rent out our gold and silver.

Yeah.

How many takers do you think there'll be? Yeah, I don't own gold, but at least I rent some, so I've got some.

I should mortgage my gold.

Yeah, yeah. See what kind of financing you can get. Good luck.

You know what, by the way, I talked to somebody at the, at the Equity University conference and I need to track him down because he's claiming, I don't think that this can actually happen. But how cool would this be, Jason, that there's some bank here in the U.S. probably JP Morgan, that will allow you to get a Japanese yen based mortgage on your U.S. real estate?

Yeah, that's interesting. I remember talking about that when we were there in Florida. And it's an interesting idea. So what you're betting on there is that the value of the yen will decline faster than the value of the dollar. Look, it's a race to the bottom with all these fiat currencies. So it's a race to the bottom. But you know, I would say that if you could pull that off, it'd probably be a good deal because I'd say that the yen is worse off than the dollar, wouldn't you?

Well, yeah, I've heard, I don't know this firsthand, but the money printing in Japan dwarfs the US Money printing, so they're very committed to this race to the bottom.

They are they are definitely committed. But see, the thing is the US can do it in a much more sustainable in quotes fashion because we have the reserve currency. So it's like when we have the big military and all the other things we've been saying.

You are turning into a lefty.

Yeah, yeah. It's sustainability of completely stupid economics. Right. Okay, let's get back to our video. We got just a couple minute and a half or so here.

So chooses and is so asked. I mean, why would shareholders want this guy to go?

I think that because he's a PR nightmare for the bank. If you look outside of the financial media, if you look outside of cnbc, like every time JP Morgan has been in the headlines for the last year, it's been for terrible news, it's been bad PR for the bank. And I think it may be there is a bubble you can be in which you never hear anything negative about the man. You hear he's the smartest guy on Wall street, but like out in the rest of the world, it's nothing but bad PR from Diamond.

And for JP Morgan.

What about that? I mean, it feels like, you know, this, this, it feels a little like a witch hunt, frankly, because they're constantly, you know, talking about charges and there's, you know, numbers that are mind boggling in terms of settlements. That's sort of what sets the tone for these negative.

Absolutely. Alex is right about the fact that it's been a PR nightmare and the London Whale is a complete and total embarrassment. So are the, you know, the regular.

By the way, folks, the London Whale is the trader who lost them like $2 billion in about a day. That's what he's referring to. You can look it up. But Steve, you know what this reminds me of is it reminds me of the late, great Stephen Covey and his books, but the most famous of which is the seven Habits of Highly Effective People. And you know, Stephen Covey, I'm a big student and fan of Covey and I actually got to meet him on a cruise in Russia once, many years ago. I wish we could have gotten him on the show. Unfortunately, he passed away prematurely. But he used to write about the concept of the two types of trust. Character trust and competence trust. And here all they're talking about is Jamie Dimon's competence, right? He's the smartest guy on Wall street, etc. The shareholders love him even though he's a complete financial polluter of toxic financial waste around the world. Right? And so it's like, well, he may be Competent. There are many people that you deal with in life that are competent, but their character is the question. You've got to have. You've got to be striking on both cylinders here when you deal with someone. They've got to be competent, but they've also got to have good character, They've got to be good people, they've got to have integrity, they've got to be decent people that will do what they say and tell the truth and all of that. So it's competence and character, two types of trust here. And all they're talking about here is competence.

Right. The most competent operator of a Ponzi scheme ever was Bernie Madoff. He was great at it.

Yeah, he's a fantastic, competent guy.

There's nobody else I'd want to run my Ponzi scheme.

Former president of nasdaq, by the way.

Yeah, yeah, but there are other things that go into the equation. Like Dr. Covey, like he used to teach.

Yeah, yeah, absolutely.

Tory issues are a big deal, but they're trying to address them. But that's hardly a reason to want to fire your CEO. Especially if, you know they're doing the 99% of the job that they're supposed to do, which, which is running the institution as effectively as you have.

And by the way, this is just the second quarter. But the second quarter net income was $6.5 billion just for the three month period, compared to net income of 5 billion in the second quarter of 2012. I just tried to figure out from a shareholder's perspective who would be doing. I mean, do you have ideas? If you're saying you want this guy out, who do you think is equipped to.

I already said I don't think anyone is equipped to run a bank that big and that complex. But I really think that this guy's track record at this point means they should just go with anyone else who's available.

I mean, I don't know, we could.

Spend here, we could sit here all.

Day, hey, are you available?

Sure, I would do it. I could do just as well at ignoring the London Whale.

But I mean, if you're talking. It's almost ridiculous to even have this conversation.

So ridiculous. Right? Record.

The guy has a great track record.

At making money for JP Morgan, not managing the bank in a way that has been good for the economy as a whole, or in a way that true avoided these massive fines.

True.

If JP Morgan were not among the banks that actually alleviated things during the 2008 financial.

Toxic assets on investors they unloaded out Assets they knew were toxic on investors. That's how they got through. That was the brilliant risk taking or the risk avoidance strategy.

That is not how they got through this. That's ridiculous.

Exactly how? Really?

We really need to stick to the facts here. Thanks so much for joining.

You're welcome.

We really need to stick to the facts, Maria, because. And she had to cut that interview short, obviously. You know, you can tell it with. It was cut short because, of course, she has a lunch date with Jamie Dimon. Probably.

That's right.

I mean, this is just insanity.

She's got to go ask him. Hey, how did you avoid the 08 crisis again? Because this guy told me about something about unloading mortgages, and that doesn't sound right.

And here I thought the media pandered to Obama.

This, folks, is the lapdog media. These are literally advertising reps who are selling advertising. They are not journalists, and they're certainly not investigative journalists in the very least. But why don't you see, put John Stossel on. He'll. He'll tear him apart. I mean, John Stossel is great. Yeah, he's awesome. Yeah. But. Okay, Steve, now that my blood pressure is up about 20 points, let's go back to Main street because Wall street is just. I can't handle it. But you got two properties for us to talk about.

I've got two properties.

And then let's get to our two different guests we've got today.

Yeah, and these are great. To get financing on so that Jamie Dimon can buy your mortgage and slice it up 100 different ways and make a bunch of credit default swaps out.

Of the house and sell it to 30 different buyers, even though only one buyer really actually got the note and the legal obligation for you to repay your mortgage.

That's right.

But 30 pools bought his toxic crap debt. Disgusting toxic waste.

If you are gonna buy stock, you should probably buy it in JP Morgan.

There you go.

He's great for the shareholders.

I'm told there's an old saying. Well, not really, though, because the other investors that bought the toxic crap, they all lost fortunes. You know, a lot of people, that was their life savings. I mean, is someone gonna ever report on how many suicides happened because of these Wall street crooks? Why aren't they responsible for, like, involuntary manslaughter or something at the very least, if not, well, maybe voluntary manslaughter.

Actually, look for a quick piece from Maria Bartiromo on that coming up shortly.

Oh, yeah, I'm sure.

I'm sure she'll cover it.

I'm sure I'll get that. Yeah, right.

Well, okay. We have a couple of properties to take into to look at here. And because we just got back from Austin, I found one that we really, really like. It is in Pflugerville, Texas, which is up by Round Rock.

I own in Pflugerville. What a funny name.

It is a funny name.

It's a funny name, but good place that. You know, I realized on this tour, I never even thought about it. But, you know, I think that property in eight year. Have I owned that eight or nine years, I think nine years now. And that property's only been. It's only had two tenants, I think in all that time.

That's a good.

Good.

That's great.

I could be wrong. It could be like three, but it's been a pretty low number. That's the one where I had a fire. I had a fire. That's the only time I ever had a fire in one of my properties. But it wasn't. It wasn't any big deal. So, like, at first I thought, oh, my God, a fire. That's my first fire.

And apparently I'll just. I told the story on a prior show, but the tenant was using some. Wasn't a barbecue, but one of those things that you have. The oil fryer. Yeah, yeah, A deep fryer. Yeah. Those things are dangerous. Don't use those things, you know, they're just dangerous. And it was on the back patio under the patio cover, and there was like a ceiling fan out there. It's almost funny to see the pictures because the blades of the fan were melted down. I think I actually put the pictures on the website. I did a blog post about that at Jason Arbor.

Yeah, I saw those.

They're pretty funny. But the tenant did get some burns and. But the tenants. Okay. And the insurance paid for everything. It was only like $2,700 in damage. It wasn't really. Wasn't a big deal.

And I should add that because you owned in landlord friendly Pflugerville, there was never even a question as to whether the tenant would sue you because of this.

Right, right, right. If that were in California or New York. Oh, my gosh, of course it would have been my fault that the tenant had a deep fryer. You know, I should have known better. Yep, yep.

Well, this property is. There's a reason I like it. Well, a couple of reasons. But it's 3,300 square feet.

It's a huge property, and it's an REO. It's a bank owned property.

Yeah. And you can buy it for $157,000. That's 3,300 square feet in Pflugerville, Texas.

This is mind boggling that it's only $48 a foot in an Austin suburb.

Right. You've got to add there's a projected other closing costs and fix up the rehab is about 12,000 on this. But that's not gonna take your cost per square foot up much at the end of the day.

Right.

It's very little. So the Projected rent is $1,800 on this property.

Wow.

Yeah. Yeah, it's a big, big property. Imagine what 3,300 square feet is going to cost in Boston or Los Angeles.

Well, Steve, don't say it's so big because I'm sure it's a lot smaller than Jamie Dimon's home.

Oh, yeah.

Or. Or one of his probably 11 homes. I'm just guessing. We know, we know. It's a lot smaller than Al Gore's house.

Yeah. Oh, geez. Don't, don't do it. Don't go there.

I'm going to get. Now that I got Noam Chomsky and Bill Ayers, I need to get Al Gore on the show.

You're losing your mind. I think this is where I get off.

All right. Okay.

Anyways, the property in Pflugerville, just to let everybody know, your projected cash on cash return is 8%. That's very, very good for the Pflugerville area.

Oh, yeah, yeah, yeah.

That's good. And I should add too. We need to talk about this tomorrow, Jason. But, but the interest rates have gone down. This is assuming a 5% interest rate. And with the Fed's meeting, they've dipped. It's now very realistic for you to be in the anywhere from four and a half to 4.875 range.

Yeah. Funny thing, when you print $85 billion of completely unadulterated fake money every month to buy your own bonds back, it makes the interest rates lower. Yeah, that's funny. That's funny. But it makes your currency worth a lot less.

Yeah. Get your hands on some of that for the 30 years.

It's a good idea.

So we've got another one coming up. This one is in the Memphis, Tennessee area and the purchase price on it is 84,900. There's no rehab. This comes fully turnkey rehab. None tenant in place. It is a projected rent of $1,050.

And the overall, the cash on cash projection is 12% annually. And the overall return on investments projected at 34% annually. That's pretty awesome. You didn't mention the overall return projection on the AUS or the Pflugerville property.

That's 27.

27%. Yeah, yeah. And that's annually, folks. Okay. Hey, this Memphis house is a really good looking traditional ranch style home.

Yeah, yeah, it's a good looking house. I like it. I like it. Let, let your investment counselor know if you want to learn more about that house. But I, I wanted to kind of wrap up that with something, a conversation I had. I had to leave the tour a little bit early and go to the airport with one of our clients. And he's awesome. We had a great talk on the way down and he kept saying something that I agreed with because he had his parents on the tour with him. These are the people that invested in California many, many years ago. He said to me, he said, my parents have done such a great job investing. They're doing better than most of America today because they did it over the long term. I think they probably overpaid. They made some mistakes on the way. But real estate, if you have staying power and hold it over time, is so forgiving because the rents keep going up, but the mortgage stays the same. These deals, they get sweeter over time because of these kinds of things.

Well, you know what I used to say, I mean, I remember when I was, you know, we probably all remember this when you were very young and young love is like such a great thing. And couple of girlfriends that I have when I was very young. And you know, I remember after the breakup, I was really distraught about the whole thing. But, you know, I always remember that time heals all wounds. It really does. Time really does heal wounds. I mean, losing my dog last year, of course I think about it all the time still, but it's not as bad as it was at the time, obviously.

Right.

You do start to heal over time. And real estate is also just like you say, Steve, it's very forgiving. But the key is you've got to be able to stay in the game. So if you can stay in the game, staying power is the key to success. And how do you get staying power? You either have a bunch of money in reserve and you're very wealthy to start with, but that's not necessarily the case with some people. With most people. And so the way, the way you stay in the game is you buy properties that make sense. The day you buy them. You follow my Ten Commandments. And, and that's what allows you to cover problems when you have challenges. If the cash flow works, even if you have a vacancy for a while, it's made up for on either side of the vacancy. Before you had the vacancy, you had cash flow, right? And you still have a low cost of ownership that you can afford to manage. It's manageable. And after your vacancy is cured, or maybe a repair problem is cured, you'll have cash flow again. And so you can heal those wounds.

You can. I have a client and if he's listening, he knows who he is. And I tease him about this, you know who you are, you know who you are. But he, we've been talking for well over a year and he's always had a reason as to why to not do the deal. And many times it would come down to he thought the pro forma was off by $25 over a year here or that this was a little off over there. Well, while he was him hawing about this for a year, prices went up. How much? And think how forgiving the deal would have been. If you get in, you do it the right way. You've got cash flow today, okay, maybe you made $25 less or maybe more. But over time, just like when you see a chart of a stock that's going up, it's not always going up. It has these short term dips and things, but the general trend is positive. And I think that's what Daniel was trying to tell me in Austin. It just, it really resonated because it is so forgiving over time.

Yeah, yeah, it really is. That's, that's the beauty of, it's the beauty of income property done right. It's a really good marriage. It really is. So that's good. Good to know. Okay, Steve, well, shall we get to our first guest?

I give you permission to go to the first guest.

Well, hey, let's talk to one of the team members with Equity Trust. He's got some very interesting things to say about investing, about self directed IRAs. This is a relatively short talk. And then we'll go to one of our clients, Neil, who wants to talk about homeowners associations. And we will be back with that in just a moment.

So I'm here with John Bowens at the Equity Trust Equity University event. It's their annual event. And this is a fantastic thing. They are the largest IRA provider for self directed IRAs in the country and they've got about 25% of that entire market, about 13 billion with a B dollars in self directed accounts here. And the self directed account really offers some phenomenal features. And so I'd like to just have John tell us a little bit about what it is equity Trust does and talk about the overall marketplace in general and some of the benefits. John, welcome. How are you?

Thank you, Jason. Great to be here.

So tell us a little bit about the company, if you would, first maybe just for a few seconds here and then we'll move on to how investors can actually use this.

Absolutely. So like Jason had said, we're a self directed IRA custodian. We are the nation's largest provider and what we specialize in is helping Investors use their IRAs, 401ks and various other tax exempt retirement accounts to purchase real estate and various other real estate based assets. Most importantly, alternative to stocks, bonds and mutual funds, which we know have failed so many Americans in the past number of years. And so we have customers that are buying single family homes, multi family homes, they're purchasing mortgage notes and trust deeds, lending to other investors in their particular marketplace, investing in tax liens and tax deeds and other more exotic instruments like Tropical Tree Farm and Alpaca Farms. So really you're only limited by your own creativity as far as using your IRA to invest in alternative assets.

Some of those, John, are rather exotic, I will say. But yeah, one of the things we say is, we say that someone should be a direct investor so that they get control of their financial future and they're not left to the whims of Wall Street. The Wall street brokerage firms do a fantastic job of extracting money from investors and the investors don't tend to get any really good returns. So this is about control. It's about having control over your financial future and making decisions that will benefit you. Because one of the things that I think a lot of Americans are looking at nowadays is, you know, and it's a good problem to have nonetheless, but having too much life at the end of the money. And so we've all got to be responsible. We know that the government probably isn't going to be there for us and we've got a plan for our future and just be really diligent and really prudent about it. So in terms of some of the investments you mentioned, those are great. And real estate has been the most historically proven asset class in America. Tell us how someone actually does this. I mean, if they have an account now that's a regular IRA account at one of the big brokerage firms at Fidelity or whatever, I'M just throwing out their name as an example. Could be anywhere. You know, what do they do to get control of their retirement account?

You know, it's extremely simple. And essentially what our customers are doing, they'll have an old 401k or IRA with another custodian, bank brokerage, that's only allowing them to invest in stocks, bonds and mutual funds. You had mentioned Fidelity and Schwab and some of the other big brokerages. We commonly see that customers have accounts with those institutions. And it's as simple as transferring or rolling over the funds from the IRA with Schwab or Fidelity or whomever else it might be with into an equity trust Iraq. And one of the common questions I get is, well, John, when I move it from one account to another, am I taxed and penalized? And the answer to that question is absolutely not.

The ira, it's a rollover, right?

That's correct. A rollover or a transfer is the terminology. And the IRA with Fidelity or Schwab or any of the other brokerages is really no different than the self directed ira. Self directed is just an industry term. Now, equity trust, we're one of the few custodians that actually allows you to invest in real estate. So it's not a matter of legality, but rather a matter of choice. Equity trust, this is what we specialize in. The other banks and brokers, that's not what they specialize in. They specialize and they have an incentive to help. Their customers only invest in things like stocks, bonds and mutual funds. So the customer would transfer a roll of their funds into an equity trust ira, and then they would simply put a property under contract, just like you put any other property under contract. The only difference here, it's in the name of the IRA account. The IRA now owns that property, most importantly in the acquisition phase.

So you mean the individual investor's IRA owns it, not you guys? You know, I just want to kind of clear up some of the distinction about that they own the property via their own personal IRA account.

That is correct. We do not assist in the acquisition phase other than actually sending the funds from the equity trust IRA to the title company under the direction of the customer. But it is the. To your point, Jason? Absolutely. It's the IRA that owns that property. And the sole beneficiary, equity trust, has no interest in that property. The sole beneficiary is the account holder. So once the property is purchased in place of the cash, there is a property within the IRA account. The actual asset that we see It's a deed. So the deed is in the IRA account. That's what's in custody. So it's really no different than buying stocks. When you buy a stock, cash leaves the account in return for the cash is a stock certificate, many would argue is an intangible asset. Our customers take a little bit different approach. They're acquiring a property, cash leaves the account and return for that cash is a deed tied to a tangible property. Property that many would argue is a hedge against inflation. And that's why many of our customers are looking to utilize these types of investments. The exit strategy from there, they might rehab the home and resell it, wholesale it, or they might buy and hold for cash flow. We're seeing a number of customers that are taking that approach where with today's real estate market, they're looking to acquire income producing properties and hold Those properties for five, 10, maybe even 15 years, generate the cash flow, hopefully regain the appreciation that's expected in today's market. And then upon the sale of the property, there's absolutely no capital gains tax because the IRA is tax exempt. And then most importantly, recapture depreciation. You also don't have to take into account because the IRA is tax exempt.

So you've got a tax efficient vehicle here. Now one of the things I wanted to ask you, John, is that some people really like the concept of what's called checkbook control in their ira. So they can do this one of two ways. Once they have a self directed account with equity trust, they can do what's called a bi direction letter. So for example, they're buying a property and they instruct you, your company to go and transfer the funds to buy this property. Right. But they can also set up an entity or multiple entities inside of their ira, is that correct?

It is possible to set up multiple entities, but we certainly do not advocate that type of structuring. And the reason for that, and you had alluded to that just a moment ago, and that is the checkbook control ira. And we absolutely do not advocate a what they would call single member checkbook control ira. And the reason for that is because there are really rather a number of legal issues, and in particular the irs, their intent was to never allow an individual American to use an IRA account to buy into an llc, have checkbook control and then have sole discretion over the record keeping, the reporting and all other investment activities within that account. The IRS as explicitly stated, they prefer to have a custodian in place that can monitor transactions, that can prevent against prohibited transactions in Some cases, not in all cases, but in some cases they can. And make sure that they're handling all the record keeping and all the reporting. A few years ago, a number of companies, they were using what we would consider an ambiguous case to set a precedent for justifying these checkbook control IRAs. But we know that it has a very weak legal basis. And for that reason, Equity Trust company, as we've been advised by our legal counsel, to not allow our customers to invest in, again, what they call a checkbook control ira. We handle everything internally for the customer. We allow the customer to direct their investments. The customer contacts our offices and says, equity Trust, I need you to send $100,000 to this title company for this purpose. With all the supporting documents in place, we can process that transaction. We have not a physical checkbook for you because again, the irs, their intent is for you not have a physical checkbook.

And the reason I just want to kind of explain to the listeners the IRS's logic for that. The point of the IRA is it's supposed to be an arm's length. It's like a separate entity until you start taking distributions at 59 and a half or forced at 70, I believe. And that's why that's interesting. I never heard anybody really speak out against the Checkbook Control llc. But what you said makes a lot of sense to me. I guess that was a rather tenuous basis. A lot of other promoters are out there recommending it, huh?

Yeah, absolutely. We've been in business since 1974, actively assisting customers, investing in real estate since 1983 when we became an IRS approved custodian. The Checkbook Control IRAs came about many years thereafter. And really what it is to provide a simple explanation is they're exposing these Checkbook control administrators are exposing a loophole in the letter of the law. And we know the IRS doesn't like loopholes. Right? And you know the IRS. And this comes directly from the IRS back in 2008, in November, there's a publication called the Tax Exempt Entities Division publication, the Employee plans Newsletter.

Now that sounds like really fascinating reasons.

Oh yeah, absolutely. You know, do a Google search or, you know, you can let me know and I can send that to you directly. I've read through it thoroughly.

If anybody has trouble sleeping, this sounds like the thing for you.

Oh yeah, absolutely. A cure for insomnia, without a doubt. And so this Employee Plans newsletter explicitly states that they consider these particular structures, they actually refer to them as robs, R O B s. So certainly a negative connotation there. And so they explicitly stated that they consider these to not be a quote unquote bonafide employee benefit plan. So it's not as if they're saying that they're illegal. And I would never make the claim that these particular structures are legal, but many argue that due to the ambiguity of these particular structures that it's certainly not prudent for an investor to be investing through a checkbook control ira. Many of the companies that advocate and actually implement these for individuals, they are not IRS approved custodians, they're administrators. So they have no state and federal banking regulators that are actually overseeing their operations. They leave a lot of the responsibility to the customer to make sure that they're staying clear of prohibited transactions. Our firm is obviously a bank regulated institution and we provide education to our customers so that they can avoid prohibited transactions.

Very interesting, very interesting. And you know, like, like you alluded to, John, is you're not saying it's necessarily wrong or it's illegal. It's just the IRS could attack it and give you a problem. Right. So that's the thing. Well, that's quite interesting. We kind of glossed over a little bit when I asked you about the history of the company. But what's really interesting is the founder of Equity Trust actually was the pioneer of this whole concept of self directed IRAs, I believe back way back in the 70s, right?

Absolutely. We were founded in 1974. It's really an interesting story. In fact, Mr. DeSicc came out of retirement this weekend at the Equity University Networking Conference, actually told this story. So it's fresh in my head. He was a stockbroker for a number of years. He started his own Co. In 1974. Coincidentally, 1974 is when the ERISA act was passed, which actually gave birth to IRAs and 401ks and other retirement accounts. So it wasn't until 1974 that you actually do this.

Explain to the listeners ERISA, that's an acronym. What does it mean? And you know what is the ERISA Act?

Sure. So the ERISA act, back in 1974, it's the employee Retirement Income securities Act. And essentially what the federal government recognized is that Social Security and the defined benefit programs in the United States, so that would be like pension plans that you have from a large corporation were in dire need of financial reform and many would argue are still in dire need of financial reform.

Right.

I just gotta interrupt you there. That is unbelievable that back in 1974 the government was responsible enough to say that The Social Security system was in trouble and in need of reform, and we've still got it nowadays. And in fact, our friend Bernie Madoff, who? Madoff, with about $60 billion in people's money in his famous Ponzi scheme, who by the way, you know, I always say to investors, never really trust a resume. Trust ideas that make sense over a resume any day. Because Bernie Madoff was president of nasdaq. John Corzine with MF Global was governor of New Jersey. How much better does your resume get than either of those things? And both of those guys turned out to be bad apples. Okay, so that's quite interesting. But wow. So they realized it back then. And the reason I mentioned Madoff is because he claimed that he thought of his idea for his Ponzi scheme from the Social Security system and the government inspired the idea. I guess it's legal for the government to do a Ponzi scheme, but not individuals, right?

Right, absolutely. You know, we know the Congressional Budget Office is stated that by 2030, 30, 2030, 33 ish, that the Social Security fund will be insolvent. They'll only be able to pay out 75% of the benefits as recipients. So one of two things has happened. We're really probably both. You're not going to get money until you're 90 years old and you only need to get $50 a week. Right. And.

And not adjusted for inflation.

Exactly, exactly. And you know, this isn't funny.

Why are we sort of giggling about it? So you know why we're sort of giggling. I mean, it's really a travesty. But we're giggling because it's so ridiculous. I mean, this is so ridiculous, the kind of, of stuff that has gone on in our country. But you know, it brings home the point. We've got to get control of our financial future. We've got to self direct our ira. We've got to make prudent decisions. And that math that you just mentioned, I mean, look, it's 2013 as we're recording. So you say 2030. That's 17 years away. Well, less than 17 based on the month of the year. If you're planning to get Social Security in 17 years from now, you're in trouble.

Absolutely. I've been paying in the Social Security fund since I was 15 years old. I never expected to get a single dime. And I still to this day don't expect to get a single dime. And that's why, you know, with the education that Equity Trust Company can provide is extremely powerful in Particular purchasing alternative assets outside of the stock market within self directed IRA accounts. And you know, it's interesting, you asked me before about Mr. Desic, the pioneer of the self directed IRA industry. And so again, he was a stockbroker.

Okay, so what happened?

Yeah, so he's a stock broker, founded the company in 1974. At that time, the firms we were Middle High Securities. 1983, we became an IRS Approved Custodian. And that came about because Dick recognized that there are a number of investors out there that are paying too much in taxes. And he worked with a lot of these investors and he could leverage their IRAs to finance his real estate acquisitions. And so he put together one of the first deals. It was a landmark investment, if you will, for this industry. And it was a discount drug mart right outside of Cleveland, Ohio.

Was that the real estate on the discount drug mart, that's a store, I guess, or was it the business opportunity or was it both?

It was. Well, it was a little bit of both. What he had done is he actually bought the property and he raised money from 100 IRA investors and I believe 160 units that he had sold. And so he raised the money to finance the acquisition. And on a triple net lease over 19 years, Dick made thousands of dollars. And each one of his investors also received hundreds of thousands of dollars on the transaction using their IRA account. And of course it's all tax free because it's within a tax exempt realm.

Actually, technically, shouldn't we say tax deferred until you start taking distributions much later? Probably.

Correct, correct. Tax deferred. There are tax deferred and tax free accounts. But you know, it's really important and powerful for people to understand is that the IRA in any retirement account is tax exempt. And so what that means is in each incremental year as you're producing income, whether it be through the rental of property, rehab and resale, you avoid ordinary income or short term or long term capital gains tax on all of your investment returns. And with the 3.8% medical surtax that's just been enacted, that's powerful for a lot of our investors, especially our more higher net worth investors. And so a lot of clients are now sheltering their income within retirement accounts, that is their investment income in real estate and other alternative assets.

Yeah, fantastic. And with anything if you're going to receive money, it's better to receive it now than later. The time value of money, and if you're going to pay money, it's better to pay later than pay now. So that's really what an IRA does for you because you postpone that payment for a long, long time and the investment inside the account, or the money inside the account gets to grow tax free until you eventually take distributions.

Absolutely. As an investor, you really have to look at the effects of taxation on your overall return, the diminishing effects of taxation on your overall returns. Just to put it into perspective for the listeners here, if you started with $50,000 today, and you may, you were growing it at 10% per annum for 20 years, 20 year term, you would have just over $330,000. Say. Now we didn't factor in taxation in each incremental year. So let's factor what I would consider a modest 28% marginal tax rate. Now we do the same Numbers. Factoring that 28% marginal tax rate, we would have paid $130,000 in taxes over the 20 year term. So what our clients are doing is they're increasing their wealth and they're accelerating the growth within that account by eliminating taxation from all their investment returns.

Right. And so just understand that it gets to grow. You get the compounding effect of a larger asset or a larger account balance. That's you don't have to have the taxes taken out of it along the way incrementally each year. So it's, it really, you know, you do the math and project that forward 10, 20, even 30, 40 years and wow, it's a big difference.

Absolutely. And for instance, with a Roth IRA account, it didn't come about until 1997, 1998, when William Roth from Delaware enacted the legislation. But the Roth IRA is an after tax account. So if I put $5,000 into a Roth IRA today and let's say I'm wholesaling properties and then I move on to buying and rehabbing and then buying and holding, and I have this rental portfolio of 40 properties and I'm 60 years old and I have, let's say $1.5 million in that Roth IRA. I can take a one and a half million dollar distribution and not pay a single dime in taxes. And I never pay taxes on any of the income that I receive throughout all of those, let's say, 20 years.

Yeah, phenomenal. Okay, well, what else should we know about self directed IRAs? You know, maybe one of the questions, and you might not to want to get real specific about this, and I understand because you probably don't have the schedule in your head, although you've got a lot of other very technical stuff in your head, but what does it cost to do this? People are probably asking that question as they're listening to us.

Absolutely. Usually when I tell my customers or potential customers what our charges are, they usually the first thing that comes to their mind is how do you guys make money? We have a simple fifty dollar setup fee and we have an annual maintenance fee depending on the portfolio value of the account. For instance, if you have between 100 to $200,000 in an account, you only pay $440 a year. It's an all inclusive fee. It includes all transactions and investments and record keeping, IRS reporting, any ongoing consulting you need to do with us. Can I do this or can I do that? How do I structure this? We handle all of that for you. Once your account grows to a million dollars and over. And I usually make a joke, I say my goal is to charge you $1,850 per year. And they look at me, you know, kind of funny. I say if you have an account over a million dollars, you pay $1,850 and that's it. So what we've done is we've developed a fee schedule which is hassle free. We don't have ancillary fees or transaction fees. And most importantly, as you increase wealth, as you get closer to that million dollar mark, on a percentage basis it diminishes. So on a dollar basis we charge a little bit more, but again, on a percentage basis it diminishes and it's far less than 1%. So certainly much more competitive than any mutual fund or any other traditional security, if you will.

Yeah, and it's sort of the inverted version of our tax code that punishes success because it's quote, progressive, unquote ridiculous.

Yeah, and that's, that's one of the reasons why we have the, the Equity University networking conference. This gives us a chance to really be able to advocate what we do. Spread the word about self directed IRAs. And in particular we have an incentive here because if our customers come to this event and they learn from other investors, or they develop a relationship or they find the next big idea to make the next big deal and they grow wealth within that retirement account, well, next year we get to charge them a little bit more. And then maybe they realize that it's not just a traditional or Roth IRA that makes sense for them. Maybe it's a small business plan or it's a covered education savings account, or it's a health savings account or another product that we.

So you do all, you do HSAs and all of that other stuff too.

Absolutely. Solo 401ks. Any retirement account, there aren't many of them. Any retirement account that you can open up with, any other financial institution, you can open up with Equity Trust Company. And most important, it's self directed. So you have control. As you had mentioned before, Jason, you're the one that's in the driver's seat and decides, okay, this is where I want to put the money. And we even have customers that are using monies from multiple sources. They're taking monies from their IRA and then they're taking monies from their business, their llc. They're partnering those two entities together to acquire property. And then when they sell that property or as rental income comes back in, funds are flowing to and from those particular accounts or entities. So the possibilities are endless. And there's so many different ways to get creative.

Actually, that's one more thing I want to ask you before we wrap up here, Partnering with one's ira. So someone asked me that question the other day, and I remember, I thought you could do it. And I just want to clarify this because maybe there's a nuance. You know, all of this stuff gets sort of complicated and nuanced. But say, for example, someone has $50,000 in their IRA, they're just starting out and they want to buy a property that cost $100,000. Can they put $50,000 in as an individual and partner with their IRA and their IRA puts up the other 50,000, for example?

Absolutely. In fact, a number of our customers doing just that, especially on a great deal. One of the challenges that a lot of investors have is they say, well, if I'm doing all my deals in my IRA, I can't touch it till I'm 59 and a half. I'm trying to build my real estate enterprise. How can I build my real estate enterprise while also growing wealth within my retirement account and deferring taxes and hopefully transitioning income that would have otherwise be taxed into a retirement account. And one of the methods is just that, taking, let's say $50,000. And of course, I'm going to have that in my LLC. So John's LLC is going to partner with John's IRA. So on title, it's going to State Equity Trust Company for the benefit of John's IRA as a 50% partner, and then John's LLC as a 50% partner. So at closing, I'm going to take 50,000 from my IRA. Since it's a title company, I'm going to take $50,000 from my business and it's a title company. Now, the deed is recorded in the name of my business and my IRA account. And then going forward, all expenses are going to be paid 50, 50. And then most importantly, all returns from the rental or sale of the property are going to flow in accordance with that ownership interest. And it doesn't have to be 50, 50. It could be, you know, 75, 25. It could be my IRA and my wife's IRA account. It can be my IRA, my wife's IRA and my personal money.

So I think maybe the nuance and the distinction was what if the Investor has their IRA, the 50,000 that we mentioned and they don't have another entity, they just have them as an individual. There's no llc, there's no corporation. Can they as an individual partner with their ira or do they need to set up that entity so the entity partners with the ira? That might be the nuance.

Yeah, they don't have to, you know, you can personally take title to that property if you'd to like for 50%.

Ownership in that example.

Absolutely. You know, you could personally can take title to the property. The reason why I mentioned an LLC is because many investors prefer that and I'm not providing legal advice.

No question, I understand that.

Yeah. But you know, for asset protection purposes, clients will set it up in an LLC and then of course the LLC will partner. But to answer your question, Jason, by all means you can personally take title of that property in that fashion.

John Bowens, thank you. This has been very informative. Thank you very much. That was an excellent interview. Any closing comments you want to to mention?

You know, the only thing else I'll say, you know, again, thank you, Jason, for the opportunity here to provide some information, education. There's a lot we can talk about self directed IRAs and there's a lot of nuances and creative strategies. And you know, for the callers here, my last remarks would be take advantage of this opportunity. There's less than 2% of Americans that are doing this. It is growing in popularity with the real estate market where it's at now. From a macro perspective, there's never been a better time to get involved with a self directed Iraq and in particular the fluctuations in the turmoil in the stock market. Again, there's just never, there's never been a better time.

You will get zero argument from me on that one, John. I think the stock market is the. Well, I just think it's the modern version of organized crime.

It makes, you know, al Capone look like Mother Teresa. It's pretty bad. So get control of your financial future. I think the self directed IRAs, it's just a no brainer brainer as they say. So good stuff. John Bowens, thank you so much for joining us today.

Thank you, Jason. Appreciate it.

Want to know what you've missed in the Creating wealth series? Well, here's your opportunity with Jason's five book set that's shows 1 through 100 through digital download. You save $288 by getting this five book set. Learn all of the advanced strategies for wealth creation. For more details go to Jason hartman.com.

Hey, it's my pleasure to welcome Neal back to the show. He's called in a couple of times before and he's got a very good question of the day that I think affects a lot of you. So let's dive into it. And Neal's calling from Wisconsin, just actually on the border outside of Minneapolis, Minnesota. So Neil, what's going on?

Hey, Jason. Well, this is, I'll give you the short version, then I can expound if you want. Basically my question is what is the process for somebody to put a lien on a property? How easily can they do that? That's my basic question.

Right. Good.

The background is this. I've got a property manager, association manager actually basically not doing a very good job. And I've just decided I'm going to withdraw from the association. I'm not going to pay him anymore. So I'm late one or two months now and he finally wrote me a letter and said I'm going to place a lien on the property because you're not paying. And you know, I just wanted to know how easily he can actually do that.

Okay, so let me make a, let's make sure a couple things are clear to the listeners. So first of all, this is a homeowners association and it's the association management company, which is different from your property manager if you have a property manager. Now is this a single family home or is it a condo or what's the configuration of the property?

This is a triplex building and it's I own all three units of this.

Triplex and all three of those units plus other triplexes are in like a homeowners association, right? Yeah.

There's 31 units total of which he's built 11 buildings. Most of actually all of them in this association are either duplexes or triplexes or quads.

Okay. And you bought this property before you became our client, right?

I did. I kind of had it in the process. And I, you know, I had a pipeline of products that I was kind of following through. And these happen to pop first. So these were my first three that I purchased, and then the other two, actually three units that I'm working with you guys right now.

Okay, fantastic. So the process for placing a lien on a property is really. That's a. That's a pretty much a legal question. So, you know, I always have to make the disclaimer. I'm not a lawyer, and this works differently in different jurisdictions. But homeowners associations in most places have a lot of power. And I'm not too keen on homeowners associations especially. I don't mind the associations that are. Where you have like a single family home and the association fees are very low. There may be 30, 40 bucks a month. No big deal. You usually pay them annually, you know, $300, $360 a year or something like that. That. And it's a low amount of control that the association exerts over you and your property. But even in those cases, they can place a lien on your property, and they do have, in most jurisdictions, or at least in some foreclosure rights. So you want to be really careful of these. There are many homeowners associations that are. That are rather crooked, and what they do is they run up a bunch of legal fees and late fees, and suddenly your. Your dispute or the bill you forgot, or the bill that they conveniently mailed to the property address rather than your. Your address where you receive mail, yet they knew before they had corresponded with you at your address. You know, this is kind of a scam, I think a little bit of a conspiracy, because they somehow you didn't get the bill and so they never got paid. So this is another reason, I just have to say, to use property tracker so that you have these dates and you know when things are due and you can track them easier. Okay. But for whatever situation, you know, in your case, you're saying that the homeowners association is really lame and they're not doing much and you just don't want to pay them. Right. Is that. Is that the essence?

Yeah. And, you know, this call is probably maybe for the benefit of others in case they go through this. But yeah, this guy, you know, he wasn't running it very well when we came into it. I knew that. And in the year that I've owned these properties has, I haven't had a single profit loss statement or any type of communication whatsoever. He's Never held a meeting, and the process is kind of eroded. I took the high road and I sent him an email and said, hey, you know, I'm new and I'm. I'd like to be involved, obviously, so here's my information. Please send me the quarterly statements or however you do it. Never heard anything. And then I did that a couple times. Then I got to the point where he would email me and say, don't email me. Put it in writing.

And I thought, well, that's ridiculous.

So I did. So I wrote, put it in writing. And he didn't respond there. And then I sent certified mail, and he didn't respond to that. It finally got down to the point where I came and visited him. I just walked into his office, and that startled him a little bit. I said, look, I'm not here to cause a problem with you, but I have tenants that are complaining. They're paying $80 a month for nothing, virtually. It's what they feel, and we need to step it up and take care of the situation. I'm glad to pay, but they need to have the services. So it just got to the point where I just said, look, I don't know if this association has run well because I haven't seen any financial statements. I'm not going to feed a problem that may be there. And I'm almost to the point where I'm going to say, take me to court. Let's go to court. I would love to do that. Get a lawyer that will represent the association so that I could say, fine, show me where the money's going. I want to dig into it.

Yeah, no, absolutely. And there is a very good chance, and a little. Little podunk association like this, that's not very corporate, if you will, that this guy, you know, with his 30 units, he was the developer, that he is not doing things correctly, not having meetings, and he may well be ripping you off and the other homeowners as well. And this is just some small operator. It could easily happen. It happens all the time. So the first thing is, I'd like to say this happened to me. Not exactly like this, but it was the old didn't send the bill to my correct address scam. And I didn't know a bill was due, and I didn't pay it. And suddenly a $500 association bill ran up to, you know, where they wanted, like, $1,900. And then I got really upset about the whole thing, and I told them to go jump in a lake, and they told me to jump on the lake, and the fees keep running up. They start. I think they even technically started the foreclosure process, or they start filed a lawsuit, you know, in just the lower level of court. And this was in Texas. And I put an ad on Craigslist and I hired an attorney right off Craigslist, which I've done before. You know, it's hit and miss. You got to be careful of that one, too. But I happen to get lucky, and I got a good attorney, and he just killed him. You know, as soon as they saw that we were actually going to. They weren't just going to roll over me and I was going to stand up for my rights. Basically what they settled for is I told them, I said, look, look, I will pay you the back dues that I legitimately owe you, because, you know, I didn't get the bill, so I didn't pay it. And I'll pay you $500 versus they wanted like three or four thousand dollars in addition to the five. In addition to the. The $500 fee. I mean, it's just absurd. Eight times the amount in legal fees as the actual collection amount. Right. So it's absurd. And they settled for that. And, you know, I ended up paying the attorney about, I don't know, $1,200. So it wasn't like I felt I had a huge victory here, but at least I felt that they didn't get to take advantage of that.

The moral victory, maybe.

Moral victory, not a financial one. And so, I don't know. I can't tell you if you should really go to court with a guy. Going to court is usually a waste of money and a waste of time. And usually the only people who win in court are lawyers. This could probably be litigated in small claims court, although if they go through, depending on how it works in that particular jurisdiction, if they go through the court process, they're going to be filing first, and so they might be able to choose the venue. And it probably won't be small claims court.

Well, you know where I'm at the point where I'm considering hiring a lawyer on behalf of the association, and the lawyer represents the association, but where does the money come from? The association? So it would be my own, probably, because I don't know if there's even money there.

It would just be, you can't hire the lawyer on behalf of the association. You. You're not running the association, so he is.

I'd be hiring it on behalf of myself.

Yeah, yeah. Well, you'll Hire it on behalf of yourself. And what you're saying is, if the other homeowners are getting ripped off, then the lawyer could potentially do, you know, like a group of plaintiffs, not just you other plaintiffs could come in. They could cover some of the legal expense, or the lawyer could potentially even get it certified as a class action, which is probably not that likely for such a small association. But again, I don't know. A class, from what I understand, does not have to be a particular size necessarily. But that's a whole special area of law that is really specialized.

Anyway, my issue there is that most of the other people aren't owners. They like at least the three in mind. They're tenants, so they have no rights at all. Two of the units, or three of the units actually are his family members. And then the balance is left over. And a few people that I've talked to that are very upset as well. And so, you know, you can't. The tenants can't stand up because they don't have any rights. The owners could stand up, but there's no money to get a lawyer from the association. The rest of the units, actually, their lots are owned by a local bank. And I've gone to them and said, can you help me out with this and show me the books and make requests? They basically have turned a blind eye. I tried to buy a couple other lots because I was going to develop a 4 plex. And so I got his. The banks actually selling these lots to me. And so I got their realtor to get on this, to ask this property association manager for the documents. She got nowhere. She got ignored, and it just had a complete stencil. So I'm really down to the point where, well, I have the money. I put it in a separate account. I could send him checks, and I have no idea what I'm getting for that. The grass doesn't get mowed. The snow doesn't get removed. Nothing gets done. They even removed the insurance on the buildings. They no longer insure. I insure the entire structure.

Right. Okay. Which is uncommon in a triplex because that's a single structure. So that's not totally uncommon. But here's the moral of the story. Let me ask you one question, and then we'll see if we can get the conclusion. Here is how much are the association fees?

$80 a month.

$80 a month per unit or for the entire triplex? Per unit. Okay, so you pay three times $80 per month. Now, in my eyes, that's really more expensive than I want it to be, you know, especially for a triplex type unit, you really. Ideally, if you're going to have a homeowner's association. I don't love associations. It's kind of a love hate thing. But there is an argument for them. Many people think it keeps the values, the properties up, and that may well be true. I like those associations that are 25 to $40 per month for a single family home, not three times $80. And so that's the type of stuff that I really think you should be looking for in your future properties. Okay. Because, you know, you've got this guy who's running a little banana republic. He doesn't have to really be accountable to anyone. That's not a big corporate type homeowners association, which would probably be a little more legitimate.

Yeah. Well, if you have any lawyers listening up there.

I'm really in a pickle. I either, you know, risk. I almost want to just not pay him and say, fine, I'll meet you in court and then I'll ask all the hard questions that you don't want asked. And you'll have to produce documents. And I have the money enough in a fund and I have to pay. I'll pay it.

I have it, but I don't know, stay out of court if you can. But it sounds like this guy, you know, if he's not even giving you documents, he's probably not complying with the department of real estate rules anyway. I don't know what to tell you there, but. But try to avoid getting liens on your properties, that's for sure. Okay. You don't want, you don't want to go there if he can help it.

Yeah, I don't want that. But the profit that I'm making off these is worth the hassle at this point, so maybe it'll work out in the end.

All right, sounds good. Well, thanks for calling into the show again, Neil, and I am sure you will be calling again. We appreciate your calls. Congratulations on the investments you've made too. It sounds like overall you're doing pretty well.

Yeah, almost got 10 in two years, so I'm doing well.

Awesome. Well, hopefully. Now, is it going to be 10 more properties next year? We have 20 in two years.

After that, I'm. After that, I think I'm going to do the one a year. We'll see. I don't know. Every commission check I get from work, I'll look at buying a new property, maybe.

Awesome. Well, good for you. All right, thanks for calling.

All right, thanks.

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