CW 508 – Local Market Specialist Brad – Jackson Mississippi Real Estate Investment Market Profile

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Hey, welcome to the Creating wealth show. This is episode 508 and this is your host, Jason Hartman. Thank you so much for joining me me today. Our guest will be our new provider in Jackson, Mississippi. Now I did quite a bit of business in this market years ago, but we just hadn't really been too happy with our provider that we had many years ago. We've got a new one. I think I like this guy. He's got, he said some really good stuff which you'll hear. We did of course talk off tape, off air as well. And I liked what he had to say there too. So it's worth checking out. Now after the Memphis property tour that is just coming up this weekend. You still, I know there's still a couple people, a couple people that have kind of trickled in. I think we have over 30 people for that tour. You can still register for it@jason hartman.com. we got a few spots left where we can accommodate you if you want to do it last minute. A couple of us are going down to Jackson, Mississippi on, on Sunday night following the property tour there. We're going to meet with our provider and look at some more of his offerings directly. So of course I've been to Jackson, definitely not my first trip, but wanted to go back and see the, the latest and greatest that it has to offer. So you'll hear more about that today. Also, just wanted to let you know, well, I don't want to launch into all that. I'll save that for another time. What I was going to say because I want to keep these intros a little shorter. I am really excited about our upcoming event for the Venture Alliance Mastermind in San Diego. I just got to tell you, this group as Small as it. It's just a humble little beginnings right now we're already starting to look at some things. I have hired an analyst, one of our clients and that is Oliver, who's probably listening. So Oliver, welcome aboard to help with analyzing deals for the Venture Alliance. I'm really excited about that. Again, the purpose of this group is to look at out of the box deals, the deals that would not fit in the typical mold of properties that usually is single family homes that I talk about on the podcast and to look at other things. So we're looking at a couple interesting apartment deals in Columbus, Ohio. One of our members, Neil, said that he has a local friend who's believe a real estate investor who's going to go check these properties out for us. Just do a physical look at the properties for us, which is great. You know we're looking at some interesting stuff, I mean portfolios of properties in different markets. There's another one that's a portfolio of notes, 74 properties, just some really cool stuff. And I'm hoping that the Venture alliance members will get together and invest in these deals together. And of course I'll invest in them because I don't expect our investors to do things I wouldn't do myself. So if you want to invest with me, look at some of these out of the box deals, get to our Venture alliance meeting. We probably won't continue this practice that I'm about to share with you, but since it is our first event in June in San Diego, if you're not sure about the Venture Alliance Mastermind, if you're not sure if you want to join, if you're not sure it's worth it, if you're not sure you'll get value, you can come as a guest. You know this is a high end group. This is where we're going to have some high end experiences. It'll be a first class weekend, really, really nice stuff. So you can register as a guest and you can do that either@jason hartman.com and I think Brittany should have that in the events section now. But if not you can go to venturealliancemastermind.com and you can either join on the annual basis, the quarterly basis or just as a single for the event in San Diego in June. So hope you'll join us for that. Without further ado, let's keep this intro short for once in my life. Well, there have been a couple of short intros. This will be one of them. So let's get to our guest today and talk about Jackson Mississippi. Hey, it's my pleasure to bring you a market profile on a market that we were busy in years ago but have not been doing business in lately. And I'm getting pretty darn interested again. And that is Jackson. Mrs. Mississippi. Brad. Welcome. How are you?

I'm good.

Good. We got. Our local market specialist is here and he's got a great story. What's great about him is that he really likes to buy and hold. So he's doing exactly what he's telling you to do, which is just like me. You know, there's too many false prophets out there and too many gurus that say, you know, you do this while I do something else. Right. Tell us a little bit about what interests you in Jackson, why other people should be interested, and, you know, what you're doing with your own investment portfolio.

Okay, well, thanks for having me on. I appreciate it.

When I started in real estate 15 years ago, I was just looking for any way to make some extra money. And, you know, I had a job. I thought I was making pretty decent money at the time, but I'd had my first child a year before and so I started looking for other ways to make money. And a friend of mine was in the real estate business, so I got with him and asked him some questions. And he happened to be exiting the real estate business at the time and opening up a restaurant. So I bought, I read half a book and went ahead and bought 10 properties right off the bat. That was probably pretty crazy, but I'm always kind of a jump in and learn guy.

You know what, there's a lot to be said for that. I mean, you just got to do things in life. That's where all the real wisdom comes from, is just doing something. You know, you can sit and debate theory and go to seminars forever, listen to podcasts like this one forever and ever. Do anything. You gotta actually do stuff. That's where the wisdom is, you know?

Well, believe me, my first six months owning 10 rental properties, I got a Harvard education in six months at the.

School of hard knocks, I bet, right?

It was tough, but I.

I went back and forth every day saying, I'm going to sell these properties, I'm going to keep them, I'm going to sell them, I'm going to keep them. And then finally one day I just committed and I said, there has got to be a way for me to make this work. I've just got to learn how to do it. And so I did. I set about learning how to buy houses myself, learn how to Sell them, learn how to rent them out, learn about the management business. And that was 15 years ago. And it's been really good to me. I. I've done. If I had to go back and count, I think, being conservative, I've done 1500 deals.

In those 15 years.

How many of your own buy and hold properties do you own now?

Got 117.

Only 117, you slacker.

Jason, I'm trying to get to 500.

Yeah, yeah. It's just amazing. I mean, wow, what a. You know, think about it. What other business can just a. I'm gonna just call you a regular guy. Okay. Which you'll probably agree with, I think, but I don't know, you know, just a. What kind of business can a regular guy get into? And in. In 15 short years, you can have 117 properties and a business. You've got a business of, you know, renovating properties and reselling them too. But I'm just talking about your personal portfolio. You know, this is the accessible thing. Show me a story, please. Somebody of someone who's done a similar comparative thing in the stock market like that. I mean, you've got basically a mini real estate empire. It took me longer than that. I mean, I've got about 150ish, give or take units. And those aren't single families, all of them. Some are, and I've got a couple partners on some of them. You know, that's just an awesome story. I mean, what. So you sold a bunch of your properties, though, in sort of the heyday, in like 2005, right?

I did, I did.

But you regretted it.

I think I did. From 2005 to probably earlier than that, to the end of 2008, I sold 50 to 60 properties a year. And after the crash, you know, when everything was tight for everybody, I sort of looked back and said if I had just kept half of what I had sold, I would have been in a much better position going forward through the crash. So that's what. After that, I realized that the true way to build wealth in real estate is to buy and hold. And I set about doing that. For the last three years, I've been doing a little bit of selling, but it's very tough for me to sell these properties because they're so good, the cash flow is so strong. It just.

I enjoy selling, believe me, but the buy and hold is where the true wealth comes for me.

I always like to say that the people who buy and flip have spending money, and the people who buy and hold have real wealth. That's kind of one of my longtime quotes. And I'm looking at a property now@jasonhartman.com properties. And you've got to go down to the map because we don't have Jackson, Mississippi icons there. So we'll, we'll get one of those up for you as we start to do more and more volume and kind of revamp this market. But, you know, we did, we did quite a bit of business there years ago, looking at these, these, these properties. I mean, this is phenomenal. A $50,000 house that is rented already. It's not speculative. It's not a projection. It could rent for this. It is rented now. Okay. And it's rented for $750. So that's much more than 1%, which is the, the RV ratio. The rent to value ratio that we Recommend is the 1%, which would only be 500. So this is rented for 750. And just looking at some of these numbers, the debt coverage ratio is 2.15. I mean, that's phenomenal. That's phenomenal. 2.15. And the cap rate. And of course, now this stuff has to be projected because it's based on income and expenses over the course of the first year, but the cap rate here is projected at 10.4%. And get this cash on cash return of 19%. Don't fall out of your chair, folks. This is. That's pretty darn good. Yeah. Yeah. And this is, this property is three bedroom, one and a half bath. What do you, what do you want people to know about, you know, this property or kind of your, your typical template deal?

Right? Those are, those are properties that I buy myself, that I hold myself as well.

That's, that's a very, it's, it's on a very good street, located near a school. Excuse me. But when we. It's got a new roof.

New plumbing lines, new sewer lines.

When we rehab a house, we try to take care of all the deferred maintenance up front. When I identified the areas that always gave us problems on these homes, they were the water lines, the sewer lines, and the H vac and the roof. And so we go in and we take care of all that up front. Those are the major expense maintenance areas we had going forward. So we decided just to. On every renovation, we take care of these up front.

Yeah. I wanted to talk about a specific property and what it looks like there for a moment, but back to your investing strategy and the buy and hold concept and anything else you want listeners to know.

About that, that particular property, I'll refresh everybody's ideas about it real quick. It's, we go in and we do our typical cosmetic package, hardwood floors. It's a large home, nice area, great tenant. Our motto is quality. Quality houses, quality rehabs, quality tenants. And we screen, we screen our tenants. So that's a great house. That's going to produce income for a long time to come. As far as our strategy, I think.

You know, we look obviously for great deals. We try not to be anywhere over a certain loan to value ratio. But these, and we like three bedroom, one and a half bath houses. But I'll buy through, you know, I have plenty of three bedroom one bath houses and they rent just as, just as good as the three bedroom, one and a half bath houses or three bedroom two bath houses. But what we look for is cash flow. Cash flow, cash flow. I can look at a property anywhere in my area and tell about what it's worth. So I know right away if I'm getting a good deal, I can walk through a house in less than five minutes and decide what I going to need to spend on the rehab.

I also know what it's going to rent for right off the bat.

Why would someone want to invest in Jackson? I mean, you know, we've got many areas across the country that people could invest in. What, what makes you like that area so much? And by the way, you didn't grow up there, so that's, that's important. Your part, your business partner did, but you didn't. And you've been there for, have you been there 15 years? Is that about how long you've been there? Since you started real estate there or were you already there?

I've been here for 18 years.

I've lived 10 years.

I didn't get into real estate until I was already here three years.

Right. Okay. So you know, there had to be some conscious decision about like, you know, I've only been here three years, but this looks like a good area to be investing, right?

Well, yes.

I had friends in the business and that helped me get into it. And then as I started going forward, I realized what an opportunity there was. Now the reason that I think if you don't invest in Jackson, Mississippi, you're absolutely crazy, is that you can buy a house here for $50,000 that rents for $750 a month. You take that same house and move it to another market, it's 100, 150, even a $200,000 house.

Our rents to prices here are Just so much better than anywhere else in the country. I don't think there's another market where you can buy a $50,000 house and have it rent for 750. In fact, our average rent is actually a little bit higher than that.

Jason, by the way, that's a moving target because right now as we're recording this in 2015, you are pretty right? I mean, there's maybe a few, you know, you can do this in really crappy areas, of course, all day long, you know, really blighted areas. But in quality areas, to get a 1.5 RV ratio is a pretty big accomplishment. That's awesome. So you're definitely right when you say that. But you know, years ago, I mean, in the thick of despair, in the trough, in the worst time, the time where people had to have the most faith and obviously those contrarian thinkers were proven right, you could get phenomenal rent to value ratios like this all the time. The fact that you can do it today in 2015 is the amazing part. What is this profile like? What's this kind of target tenant like? What do they do for a living? What are they like, what's their stability like and so forth?

Well, I have typical blue collar tenants, basically.

Some.

We do a good portion of section 8. I love section 8 down here because our rents are calculated on a national average. So taking into account if they try and average Mississippi with California, it's going to benefit the Mississippi rents.

Right? Right. That's interesting, by the way. And it just goes to show you how wasteful and lame the government is at pretty much everything. But I just have to get my jabs in there all the time. But I definitely want to drill down on the Section 8 thing because we have investors that love Section 8 and we have investors that hate Section 8 and there's not much middle ground. People are either kind of hot or cold on this and there are some real benefits to it. You like it? What percentage of your portfolio is Section eight, did you say, or did you say that?

I try to stay around 60%.

Okay, so you, you have more than half, slightly more than half as Section 8 tenants. And you, when you acquire a property, you want to get a Section 8 property, that's what you're saying?

Well, any of them qualify for a Section 8 tenant.

I know, but there's a target. I mean, of course, I didn't mean to imply that only certain properties can be Section 8, but you know, there's a target kind of property that fits the mold. Right.

We typically accept A cash paying tenant or a Section 8 tenant on almost all of our properties. The ones further out, most of the ones we do accept will be in Jackson. The reason I like it is, you know, it's, it's. It's direct deposit into your account every month. And if you're paying a note, it's nice to know that that money is there before your notes due and it's just guaranteed. We have. The other reason I like it is that they typically tend to stay longer. Believe it or not, they typically tend to stay in a house longer.

Well, they're on the dole. Why wouldn't they stay?

Exactly. And you have leverage over them. If they don't pay you their portion, they can get kicked off the program.

But the objection is, and you're absolutely right, and they get kicked off the program for life. Okay.

That's it.

It's a big risk for them. So mostly they want to be good citizens and play ball and, and be decent tenants. But, you know, there's a, There's a. Certainly an element of investors, the ones who have had bad section 8 experiences who say, oh, you know, I got to do more stuff to the property. You know, these tenants are just lower quality. How would you respond to that?

Some of them are.

We still screen our Section eight tenants.

We're not slumlords that if you give me a deposit, I'm moving you into a house. That's not the way it works with us. We screen even the section 8 tenants. We check references, check previous landlords, everything. I have had really, really good luck with Section 8 tenants. I've had some in houses for six, seven years and they love me.

It's hands on. They're a little more needy.

Well, because they're dependent on government. So they just feel they have. That sort of neediness is kind of part of their programming, you know, unfortunately, that's true.

And they've all got my cell number and they can get in touch with me anytime they need to. And.

I've met a lot of good people being tenants, whether they're cash paying section 8 or. Or either way.

Yeah, yeah. And with your Section 8 tenants, are they on a full free ride or a partial? Like, what percentage is being paid by the government?

It varies depending on their income. Some can be 100% subsidized.

One I just rented six weeks ago, she's only getting her rent is 767, and she's only getting $138. Subsidized by the government.

Okay. And back to the Jackson, Mississippi. The broader discussion, I want to make sure we hit on that. Why Jackson? You know, it's not a very big city. The metro area is only about 575,000. You like the averages on the Section 8. That was one of your reasons. By the way, before we got off on another tangent, which I. Which, by the way, I'm always guilty of. I just want to disclose that to you. But you know what. What other things do you like about Jackson?

Well, Jackson, you know, being the capital, has a rich culture and rich history. It's. It's actually a vibrant, thriving metropolitan city. We've got. We're three hours from the beach, three hours from Memphis being the capital city. There's a lot going on here. We have one of the best children's hospital hospitals in town.

We have a good industry. We have large medical facilities here. University.

Medical system employs a lot of people. State government employs a lot of people. Obviously. We have, unfortunately, a big population of lawyers here, too, as well. We have a large Nissan plant just 20 miles north of the city that employs over 4,000 people immediately and about 8,000 people indirectly. So there's a lot going on here. It's growing. Jackson itself may not be growing as fast as the suburbs, but the suburbs are exploding.

And distinguish the suburbs from the city itself and what areas you like and don't like.

There are some suburbs where I will invest. Some are better for.

Some are better for retail deals. I typically don't buy rental properties outside of Jackson. Very, very far outside of Jackson, there is a suburb just to the east of here where you can still get pretty good deals. It bumps up against Jackson, and I typically only do business in Jackson and this little town that's just to the east of here.

Now, you go 20 miles north of here is where I live, and it's a nice suburb. It's growing. They anticipate 60,000 people will be moving into that, into just north of here, the county just to the north of Jackson in the next 10 years.

So typically, I do all my stuff in 95% of my business in Jackson. There's just plenty to keep me busy down here.

Sure. And how do you select a neighborhood and a property? Just tell us a little bit more about what you look for in a property and a neighborhood.

Well, the street, obviously, is key.

It's easier to say what my criteria where I will not buy a property is just I've blacklisted certain streets. I farm a particular pocket of Jackson. It's about five square miles, and I know all The I look at the street first and then I look at the house, what kind of condition it's in. I typically go for houses that are, that are light rehabs cosmetically. I don't want to go and rebuild an entire house. Just really the reason for that is, is it's too time consuming. When I can go and pick up, you know, buy one that's basically a total rebuild versus one that needs a light cosmetic redo and all the mechanical redone is a lot quicker. And as busy as I am, it's just I have to turn them over quicker. So it's mainly a time thing. So I look at the area, the streets, that condition in the house, and I know that area like the back of my hand. If I have a house that somebody calls me on and wants to sell, I know right away whether or not I'm going to be interested in it.

Anything else you'd like people to know about, you know, your operation in terms of how you manage properties? What they should expect when they're buying in Jackson?

Well, I would, I would. They can expect to have my cell phone and be able to call me anytime they need something. They will have their own. They will. As far as management goes, they'll have their own login portal to see how their property is performing.

They can expect good service. They can expect, you know, I don't know if, you know, we give certain incentives to buyers from time to time. And I just think that they can expect a very strong net positive cash flow, high rents, lower property values than they're probably used to.

You know, I think it's just a great place to do business. I just think people are. That don't. Even the people that live here that aren't buying property are really missing out.

Hey, and one of the great things about your market is that you actually offer financing of these properties with between 30 to 50% down. And, you know, that may sound like a lot, but, you know, the, the properties are pretty inexpensive. So we're talking with 30% down on a $50,000 property that's only $15,000. And you've got some nice terms on the. And that can really be a good option. Who is this for this financing?

It makes sense for the buyer of a property that wants to utilize leverage that has an LLC already set up or, you know, they want to set one up, but it's just for someone who needs, who has a. Maybe a limited amount of funds but still wants to invest in real estate.

So the IRA buyer, the person who's got more than 10 properties. The person who wants a pre approved loan, because this is an asset based loan. Okay. So there's, there's no credit reports and messing around with qualifying or anything like that. And the foreign national buyer too, right? I mean we've got clients from all over the world. So it's, it's good for all, all those types, right?

That's correct.

Okay, excellent. Good stuff. And more on the financing, just have our investment counselors. We'll put clients directly in touch with you. But Jackson, Mississippi Market does offer some good financing. One of the questions we get asked a lot is, you know, if the deals are so great, why wouldn't all the tenants just become buyers? And you know, we've identified a whole list of reasons for this. I'd like to hear any from you, but you know, maybe I'll start to get you thinking. And, and one is obviously financial immaturity. I've definitely found when I was in traditional real estate for many years that to become a homeowner from a renter, it always seems like you have to take, you know, one step back to take two steps forward. And people who like the instant gratification of just, you know, having everything done for them and you know, having. You can probably rent a nicer place than you can buy. I'm not totally sure that's true nowadays with the mortgage rates being so low. Depends what city you're talking about, of course. Of course, it's really pretty amazing in that vein and just the willingness to delay gratification. And of course, if you're getting the Section 8 assistance from the government, heck, why give that up? But maybe address that question. Are there any other things or do you want to elaborate on any of those points?

I think you're right. When you. Financial immaturity, I think.

I think the main reason is lack of liquidity in the marketplace with lending rates or lending qualifications still being pretty strict. I just, I think a lot of these people do have damage dings on their credit, damaged credit, lower income, and they just, they just have a hard time buying a house now. The other is that there is, there is a certain group of people that have just a renter's mentality. They'll always be tenants. You know, I come across, I rent to people in their 60s that are.

Just lifelong tenants that have never owned a home.

They're, you know, forever perpetual tenants. And I think the big thing is that, you know, they're on, they're on a type. Most of them are on a fairly tight budget. And if, you know, they, they, they'd like the security of knowing that somebody else will replace their water heater if it goes out.

Right? Yeah. Yeah.

You know, as, you know, if their radiator on their car goes out, they can spend the money on that instead of having to buy new water heater.

Right? Yeah. Got it. Makes sense. Makes sense. Good, Good stuff. Well, this is a great market to take a look at, folks. Contact one of our investment Counselors. Go to jasonhartman.com and click on the properties page to look at properties there. You'll have to scroll down as we're recording this. Have to scroll down to the map toward the bottom to pick Jackson specifically. But it's a great market and thank you so much for joining us today.

What's great about the shows you'll find on Jason masonhartman.com is that if you want to learn about investing in and managing income properties for college students, there's a show for that. If you want to learn how to get noticed online and in social media, there's a show for that. If you want to know how to save on life's largest expense, there's a show for that. And if you'd like to know about America's crime of the century, there's even a show for that. Yep, there's a show for just about anything Only from Jason Hartman.com or type in Jason Hartman in the iTunes store.

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