CW 529 - Listener Call-in Q&A - The Importance of On-The-Job Training with Jason Hartman and Ian Kimball

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Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before and a new slant on investing fresh new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors. Welcome to the Creating wealth show. This is your host, Jason Hartman. This is episode number 529. 529. We've got a good listener Q and A show for you today. Our listener Ian is calling in with some questions. We'll be with him in a moment. But first a couple of notes on upcoming episodes. Wednesday will be a 10th show and we will have the world famous Bob Proctor, author of a few great books, very big on the speaking circuit, was also in the very famous little short film called the Secret and you've all heard of that. His latest book is the ABCs of Success. He's also author of youf Were Born to Be Rich. So he'll be on on Wednesday. And for Flashback Friday, we're going to talk about multi generational wealth preservation with Kathryn McBean, author of Get Rich, Stay Rich, Pass it on Monday. Next week we'll have yours truly talking about something or other. I haven't exactly decided what. And then the following Wednesday for episode 533, the famous economist Lawrence Kutlikoff is back on the show with to discuss Social Security, how you can maximize that. And it's kind of amazing. You know, this is not something I think about at all really. Just knowing that Social Security won't be there for any of us in any legitimate way. I know we have to kind of think that way because it is so mismanaged along with our government in general. You know he's got a New York Times best selling book right now on maximizing Social Security. There really are some interesting tricks of the trade on that that I was certainly not aware of. I don't think much about it at all because I thank God if I actually need Social Security when I Eventually someday do qualify for it. I am not doing very well. I plan to be extremely wealthy by then, not having to think about Social Security. But interesting point. And he's also, of course, going to be with us. He's done the most extensive studies really on the $210 trillion time bomb. So he's going to talk about that. And then the following Friday for episode 534, we're going to talk about some interesting Wall street stuff, the collapse of Bear Stearns. Look forward to those shows. But as we dive in today, first of all, I am not broadcasting from my closet, the place with great sound, with padded clothing everywhere that makes the sound really good. I am broadcasting from my guest be. How does it sound today? I'm not on my good microphone, so of course it won't be as good in that respect. But I think the acoustics in this room are fairly good given that I am sitting on top of the unmade guest bed with those egg crate memory foam. So that's got to be fairly decent for sound, even though I'm not using a good microphone for this one. I was going to record this introduction last night and I just wanted to kind of sleep on it and process my thoughts and emotions a little bit. And I just got to tell you, we finished last night or yesterday afternoon, really our inaugural kickoff for the Venture Alliance Mastermind Group. And I am just, I just gotta tell you, I am so honored and I am so moved by the people that we had attend this last weekend. It was really just a fun, phenomenal phenomenal weekend. And what was interesting about it, and I never really do events like this where it was a really, just a very intimate event. It was a very interactive event. It was not the usual thing where I'm giving a presentation. This one was much more interactive. Of course, I presented a few times on a few things, a few different investment deals. We had our analyst come up, the analyst Oliver for the Venture alliance, who is analyzing deals and looking at them. We had hot seats. That was really one of the highlights, people. Investors come up and talk about whether they want to get out of the corporate world or they want to increase their real estate portfolio size or how to manage their real estate portfolio better. A couple of them even talked about starting a business so that they could supplement that with their real estate portfolio. And really we just went over some very interesting ideas. We had a guest speaker come in, really our very first, I think our very first paid speaker at any event who did a really interactive exercise to help everybody get to know each other better with.

Some very telling questions. And that was really good. Friday evening, really, before all of that, we ate dinner at a. Just a fantastic restaurant that is 50 years old. It's called Mr. A's, and it's at the top of a high rise building in San Diego. And it's just, it was amazing. You know, of course, all of us real estate investors were thinking, well, this, this restaurant is a tenant on the top of this building. It's been there for five decades. Five decades. And that building obviously has been there more than five decades. Couldn't be less right, because the restaurant's been at the top. Real estate is just so wonderfully stable. That building has been sitting there producing income for five decades for its owner. Just think about that. You know, these, these rental properties, they are such a stable, wonderful, historically proven asset class. The most historically proven asset class in the world. So that was really great, really nice, beautiful view of San Diego, San Diego harbor, the city lights, etc. You know, Saturday we had our presentations that I already talked about. I'm kind of jumping around here. Saturday afternoon we had a couple hours of free time. People went shopping, hung out by the pool, whatever. And then Saturday evening we met and we got on a beautiful, brand new, I mean, you know, not completely brand new. We weren't the first people to ride in it. Brand new, but pretty much a brand new beautiful sailing yacht. A 50 foot beautiful yacht. We had some food delivered by a professional caterer. We ate and we drank and we talked and we cruised around San Diego harbor where there was almost no wind, just very, very dead. But we did actually have the sails out. And we motored for a little bit of it and sailed for a little bit of it. Then we went out in the famous Gas Lamp district, did a little bar hopping. That was fun. And then Sunday morning we met again, had breakfast together, did some presentations. I talked about a few different things. We did a couple of hot seats and we were going to go paragliding. But once again, the same thing with sailing. There wasn't enough wind. So instead of doing that, we went for a Segway race. You know, the, the famous Segway scooter. We rode around La Jolla, Beautiful La Jolla on those. And then we went and we had lunch at George's, which is the George's Ocean Terrace. Just a spectacular view of La Jolla, La Jolla village and the harbor and the ocean. That was great. Then we walked down to the park, did a couple more hot seats and shared Some great ideas and then talked about our next meeting for the Venture alliance, which is tentatively, we're thinking of tentatively, the last weekend of September for that. And we were talking about different places we might go and different locations for the Venture alliance meeting. And so I am just honored and moved. You know, the people are the ones who make it work. And we have such wonderful clients. You know, they're so bright. They've got so many great ideas. They've just got so much to share. They're such sharing, giving, helpful, wonderful people. So I just want to thank everybody who attended for being there. It was a fantastic kickoff. It really couldn't have been better except for the weather, you know, San Diego and its June gloom. That could have been better, I would say, but otherwise it was just a spectacular, phenomenal, excellent, wonderful weekend. So thank you to everybody who attended and made it happen. If you're thinking about the Venture alliance, check it out. We do have a formal application that we finally created. Go to Venture Alliance Mastermind and check out what we have to offer there. Maybe we'll see you in September at the next meeting. So Zimbabwe, you know, Zimbabwe, of course, the poster child for bad central banking and government. Well, their exchange rate now is 35,000,000,000 Zimbabwe dollars to one US dollar. That's how bad their inflation was. Now remember, the Zimbabwe dollar and the US Dollar when it began were near parity. They weren't far off from parity, which means you could exchange one Zimbabwe dollar for one US dollar. And now it's 35 quadrillion. Okay, that's quadrillion. I don't exactly know how much that is, but is that a thousand trillion? Is that what a quadrillion is? It's a big number. Okay. Amazing. That's what happens with bad governance and with bad central banking. An amazing story there. And get ready because we are eventually going to have some real inflation here in the US I'm looking at a 2009 article that I posted in, in one of our groups. It is from 2009 from the Wall Street Journal. It's got a picture of a helicopter. Ben, Our former Federal Reserve chair, Ben Bernanke. The article is entitled back in 2009, six years ago. Get Ready for Inflation and Higher Interest Rates. Now, we certainly had some inflation since 2009, no question about it. But it got relatively tame the last couple years. But it's just, we all know it's just got to be baked into the equation. And as prudent real estate investors, we are going to profit handsomely from that, from what I call inflation induced debt destruction. And in addition to the inflation induced debt destruction, we are going to profit from the packaged commodities investing aspect as well, or the assembled commodities investing aspect, which I also talk about. So income, property, being a multi dimensional asset class, provides so many wonderful opportunities for that. Without further ado, let's get to our listener today who's got a few great questions that I tackled with him. And let's go to Ian. And then Wednesday, I will look forward to talking with you as we have Bob Proctor on for a 10th episode show where we talk about a general success and better living topic, not specifically about real estate, but a general better living topic. So that'll be Wednesday. Let's get to our listener with a call in and some good questions here. And let's talk to Ian. Here we go. This is Ian Kimble, a show listener calling in with some real estate investing questions. Ian, welcome. How are you?

Thanks, Jason. I'm doing great, Doing great.

How are you? Good, good. It's good to have you on the show. Thanks for sharing your questions with the listeners. What we always find is that, you know, when one person has the question, usually a whole bunch of other people do too. So I appreciate you being willing to put your questions out there. And, you know, we can educate a broader group of people too, so fire away.

Absolutely. I mean, the biggest struggle I would say I've been having lately, as you know, listen to another couple podcasts recently by Kevin Buffett. He had one person on his show, I forget the name offhand, but he had essentially said, rather than jump right into real estate feet first with whatever it is that you can afford just for the sake of getting a deal done, it's better to wait a year or two and really secure that deal that's going to make a big impact on your life and kind of give you that initial leg up. So we kind of use the analogy of instead of buying maybe that single family property for that 15 or 20 or $25,000 down payment, you should be looking at even 12 plex or 20 unit. And I know for some people.

Oh, yeah. Okay. So. Whoa, that's a great question. Okay, so first of all, before I answer that question, I want to give the listeners a little background. So you heard me on another show, you heard me being interviewed on Kevin's show, and then you've been kind of, you said binge listening to my podcast. Right. And really learning a lot from that. So that's great. Thank you for listening. Gosh, I think that I thought you were going to say it was a question of do I buy my first single family home as an income property now or do I wait and keep looking for a better deal? Okay, now that question I think would have been a little harder to answer than the actual question, which is you got this advice from someone or you heard this other guy talking on the show saying, you know, don't do a single family home, just search around, save some more money and wait and try and buy a, you know, like a 24 unit apartment complex instead. Is. Is that the question? Basically, yeah.

Yeah. More. More or less.

That's easy. That's a terrible idea. Okay. I mean, that is a terrible idea. Talk about. Have you ever heard the expression baptism by fire?

I have.

That's exactly what that will be. Okay. You know, listen in. I started out with, well, I started out with a condo, a little crappy one bedroom condo. That's how I got started When I was 20 years old, my first property. And I've told the story on my show many times, so I won't like bore everybody with it. But suffice it to say, you know, it was kind of a bad experience in a way, my first deal because I had to evict the, the crummy tenants that I had in there. And you know, I didn't know anything and know how to do it then. And I just kind of, you know, I kind of learned by on the job training, if you will. But had I gone into and say I waited till I was 26, okay, and I purchased a 16 unit little apartment complex or something, or even a fourplex, you know, I would have missed out on all that inexpensive education. What I mean is that, you know, the size of your mistake is limited on a, on a single property. The size of the mistake can be really big on an apartment. And the other thing I would say about, and you know, not only that, the opportunity cost of missing the return on investment I would have made on, you know, those single family properties I did earlier in my career in my investing career. Apartments are complicated. I mean, they are a different animal. And I actually did an episode, I've talked about that subject many times, but I did a full episode on it where I was actually interviewed on someone else's show. But I played it on my show on the Creating wealth show where we compared single family homes to apartment buildings. And believe me, you can make money in both of them. But the apartments are like running a business, they are complicated. There's just a million little moving parts. You Know, there's just a lot more to it. Okay. A good old single family home is a pretty simple concept, and it's a pretty reliable investment. You know, of course, you know, you got to buy it, right? You got to buy it in the right area. You got to, you know, you got to know what you're doing a little bit. But I mean, does that make sense what I'm saying so far? It does.

It does. And that's kind of the struggle I've been faced with is, do you. Obviously, it's the bigger units you can get, the economies of scale and, you know, if you have 25 doors to, you know, a single bigger apartment building that's only, you know, one roof you have to replace every 30 years versus 25 roofs you have to replace. I know you had.

Yeah, but that one roof is a bigger roof and it'll cost you a lot of money, okay? It's not that simple. See, one of the things you got to remember when you're thinking about apartments and listen, I like apartments. I've made a lot of money in apartments, too, okay? I've, I've, I've got a lot more experience in single family. Maybe. Maybe that's why I kind of like it better. I don't know. The thing you got to remember in apartments is you're running a business. And every business has a reputation. And, you know, your apartment building has a reputation. You know, people will go online and they'll write reviews on Yelp about your apartment complex, right? In a single family home. Nobody does that, okay? They're not going to say, I live at 123 Elm street and I think the managers. A jerk, you know, it doesn't happen. But your apartment is like a complicated enterprise, okay? It's, you know, you've got all these people that are right next door to each other, and they're talking to each other and they're talking about the management, and they can do rent strikes and, you know, they can, like, kind of gang up on you. You know, it's a different animal. It's a really different dynamic in an apartment, okay? And they're just, you know, the laws that protect you in the world of single family home, because you're, when you're, when you're one to four units, which is what our government considers to be.

A commercial property, is anything four units or four units and above or above four units, I should say five units and above. And residential is four units and under. And when you're in residential, you're not expected to Be an expert. You're not expected to know what you're doing. You know, if you get into a problem on a commercial property, hey, you're a businessman. Grow up. You know, it's like the judge will not care. He will not listen to your sob story. But in a, In a residential property, you've just got a lot more rights. There's a lot more disclosure obligations. You know, it's. It's just a really, a much simpler type of investment. Okay.

Makes sense. Yeah, absolutely.

Yeah. Now, now, can. Can we rephrase your question? Because here's what I thought you were going to ask me when you started to talk. I thought you were going to say, well, I've got the money to buy my first property today. Should I buy it? Or should I wait until I can find a better deal or wait until I can save a little more money or wait until I can get a little more educated?

And here's the way I was going to answer that question is, number one, I can't really determine how educated you are. But if you have the money to buy your first property and you have at least 4% of the value of the property in cash reserves that you're not going to touch, that's your emergency fund. Okay? You don't use that to, you know, cover little things. You're going to keep it in the bank, not spend it on, you know, paying for something in your regular personal life. You know, you're. You're ready to go. I mean, I wouldn't, I wouldn't wait. Because when you wait, you're. You're making a prediction on what's going to happen. You know, will prices go up? Will they go down? Will interest rates go up, up or down? Will rents go up or down? And the likelihood is you're going to get left out on the cold with that. That debate. Okay, so that's what I thought you were going to ask me when you started.

Yeah, absolutely. And that. That totally makes sense. I know I've seen things lately in the news that suggest, you know, rates could be getting higher again in the not so distant future. And, you know, obviously, money is pretty, pretty cheap to borrow for the time being. And, you know, so I definitely had been looking at some properties on the site in kind of the Memphis and Little Rock region in that, you know, anywhere from 80 to 150,000 region. I don't think I maybe, you know, always open to any class, but I'm sure it'd be easier to start in kind of that A or B class out of the gate, but definitely makes a lot of sense, I guess, from the way that people typically structure. I know there's been a lot of podcasts that talked about setting up entities or LLCs or just having umbrella coverage. And I had been calling around to a couple insurance companies and a brokerage company I'd worked with in the past, and I think for $150,000 property in Memphis with like, a $1 million liability policy, they quoted me at 1300 or 1,400 a year, all in, including the. Obviously the property insurance.

Yeah, right, right, right. And, you know, the real question is, do you even need that much liability insurance?

I bet you could kick that bill down to, you know, seven or $800 per year. I mean, I haven't shopped for an insurance there. Well, actually, I have. I just bought two properties in Memphis. What am I talking about? See, this is what happens when you get so busy that you don't even remember what you did two months ago. Yes, two months ago, I bought a couple properties in Memphis, but I don't honestly remember what my insurance cost was on them. But, you know, this is another thing that I kind of find. I think you might be falling into this, like, kind of. It's kind of a trap, you know, frankly, Ian, where, you know, everybody's like, telling you, oh, well, you know, you got to set up a couple of llc and, you know, you've got to get all this insurance. And, I mean, you're a young guy, right? Aren't you in your 20s?

Did you tell me that I'm 28?

Yep, 28. Okay. So, you know, you probably. I don't know, I could be wrong. You could be, you know, you know, the founder of Facebook. Well, I know you're not, but, you know, but you could have a ton of money, right? But probably at your age, you don't have that much to protect yet. Okay. And granted, what I just said there is kind of a specious argument anyway, so I want to point out the error in my own statement, and that is that, you know, if you got a judgment against you, it'll. It goes into the future. Okay, so you don't want to get a judgment against you. Okay, I. I have personal experience with this, and I'm kind of fighting a battle like that right now over a developer that I sued actually, and lost the first round, and I'm fighting with them. It's on appeal now, but that's another complicated story for another show, and so you don't want that to happen. But I will tell you that, look, I've been in this business for well over 20 years, okay, and everybody talks about, oh, you know, the slip and fall lawsuit, right, where the tenant slips and falls and they sue you. I have never heard of that actually happening in real life ever. Like, no client of ours has ever told me, you know, the tenant is suing me, really, over anything. I mean, I've never had that happen to me. You know, there are only really, if you have good insurance and you make sure that your insurance doesn't lapse. In other words, the policy doesn't expire and, you know, you forget to renew it. Right? There are really only as far as I can tell. And look, I'm not a lawyer. I have to make that disclaimer. I'm not an attorney, so I don't know every little in and out of the law. But, you know, just from my own experience and from what I hear from clients, there are really only two major areas where you could really create liability for yourself. Owning properties outside of, you know, outside of the stuff you can easily insure around. Okay, here they are as I see them. Okay? This is my own opinion. You know, there could be something else I'm not thinking of, but here's. Here's how I see it. Number one is discrimination. Of course, we have fair housing laws in the United States, and you cannot discriminate against people. There are what's called protected classes of people. You know, there are things like race, age, family structure, sexual orientation. You know, things like this. All the stuff that's kind of obvious, right, that most people wouldn't discriminate anyway. Hopefully they wouldn't. And, you know, discrimination is something that occasionally landlords get sued for. And, you know, if you're using a property manager, you're one step further removed from. From that kind of liability, okay? And you gotta use a reputable manager, okay? So that's one area. Now, the other area, if there is a safety or security concern on that property. So let me give you an example. If the tenant says, my door lock broke and I can't lock the door, and if you just kind of ignore that and you don't do anything about it, and someone walks into that house and robs your tenant or, you know, assaults your tenant, heck, you're gonna have a problem, okay? Because you were negligent in your duty as a landlord to provide a safe, secure property, okay? You've got to respond within a reasonable amount of time and take care of business. And that's reasonable, right? So you know, just do those things and you'll be okay. Yeah, yeah. Hey, I wanted to mention something before I forget that I think I found the episode where I talked extensively about single family residential property investing versus apartments. And that's@JasonHartman.com it's episode number 362 of the Creating Wealth Show. So episode 362. And I'm pretty sure that's the episode where I talked quite extensively on that topic. Okay, 362. Yeah, go ahead.

Definitely be checking that out. So on the topic of safety or security issues, then if obviously seems like you're a big proponent of third party management companies and I can certainly buy into that concept here and there.

I.

Guess in terms of who would then bear the brunt of that liability issue if a tenant did make a case about some sort of security issue, you know, and the property manager didn't handle it as they should have, and would that absolve you of some liability as a landlord that that still traces back to you?

That's a great question. I'm glad you asked. There's something called, and again, I'm not an attorney, but this is what I know, okay. There's something called the law of agency, okay. And your property manager would be acting as you, your agent. And I just learned this in real estate school, you know, many, many years ago. And the, the law says that the principal, in other words, the owner, is responsible for the actions of the agent. So ultimately, yeah, you could be liable. And that's why you want to use reputable agents. Okay. Because if you have a really stupid agent or a really reckless agent or a really fly by night agent, they might not care. And they say, heck, I don't like purple people, you know, or, you know, you know, whatever. And they could get you into trouble. But the likelihood is you're going to have a reputable agent. The likelihood is they're going to not want to lose their license, which they could for something like that.

They have a business that they want to run. They don't want to get sued. They're going to get sued too in that case. Right? They're going to get sued first. And you're going to get named as well in that lawsuit, probably. And you know.

You'Re just not going to have that problem. You're going to make it a little more arm's length from you. So even though technically you have that law of agency issue, I think, and you know, I've never litigated a case like this, so I don't know, but you know, I think you do push that liability onto that agent to some extent. But you know, ask a good lawyer, right?

Yeah, absolutely. Cool. So certainly another question I've been facing is when it comes to, I'm from.

New Hampshire area but working in sort of the greater Boston market and obviously ruled out buying property up here a long time ago.

So certainly I do see a lot of value in the whole rent to value ratios and some of the more untapped markets that you've mentioned, such as the Memphis and Little Rock and Indianapolis region. When it comes to working from that long distance relationship, do you typically secure, say insurance or financing from a lot of local brokers or banks in the area? And for someone like myself who's just starting out, do you have any recommendations when it comes to kind of establishing that trust or getting them to take that leap of faith in you and you maybe don't have the initial track record of half a dozen properties to kind of put in front of them and say, hey, I've done this before and I've been successful and turned a profit or a cash flow each month to pay my debt services.

Is that for a lender you're asking in terms of getting financing?

Yeah, primarily for a lender. And then I guess even for back to the topic of insurance and then to kind of fold the third question into that, you know, if you're talking about multiple properties, would you recommend. I know, I've heard, you know, even going as far as opening up a different bank account for each property that you buy to, you know, certainly make it easier to keep track of.

I don't know that you need to. You could if you want. You know, it's all, that's all kind of personal opinion how you want to organize yourself. Right. But I would have, I would recommend a separate bank account for all of your real estate investing activities. Now Maybe you'll have three properties or 20 properties and you'll manage them all out of that same bank account. I would not commingle your property stuff with your personal stuff. It's just a, there's no law saying you can't do that. I mean, in terms of your checking account, okay, you do have to keep things separate on your tax returns, but it'll just make it easier when you go to do your taxes. And of course income, property is the most tax favored asset in America. It'll make it easier when you do your tax returns to kind of manage that and see the expenses. Right. So that's one reason now of Course, if you do ultimately set up an entity and you have, you know, one LLC that owns one property or a few properties. Okay. If you do that, you'll be in a position where you have to have separate bank accounts because every entity needs to have its own separate bank account. Okay. So that's that question. Now your other question before that was about, I think it was a lender question about, you know, having a resume, if you will will, in order to get financing. Was that your question? It seems sort of convoluted.

Yeah, yeah. Basically along those lines of, you know, even if you, you have the cash and the credit score, you know, kind of coming to them with that blank slate still. Even if we are talking about, you know, only $100,000 property.

Right, right, right. Okay. So here's the thing about that. Since the financial crisis, since the mortgage meltdown that we had, you know, what, eight years ago now, I can't believe it's been that long already. It's kind of amazing. It's really the first time that I saw lenders putting kind of a lot of stock in the concept of the owner's or the investor's resume. Okay. With that in mind, there's not much of a resume issue in terms of buying single family home homes and getting normal Fannie Mae, Freddie Mac type financing. But you do, like, if you're going to buy an apartment building, especially if it's an out of state apartment building, they're going to ask for your resume. They're going to want to know, have you managed property from a distance before? Have you managed an apartment building before? You know, what kind of you really, they really will ask for your actual resume. You know, you're thinking, thinking, gosh, this is like a job, you know, and the lenders, you know, they want to know that the person they're loaning the money to has some experience. And that's why it's good sometimes to partner with people. Because when you partner with people, you can either ride on the coattails of their experience and that's how you can get your own. Kind of like having being a protege and having a mentor. Right. Or they can ride on yours and you can, you know, you can sort of add to each other and complement each other with kind of your combined experience. Okay. Yeah.

Have you, do you have an opinion on any of the CCIM courses?

Yeah, I do, Ian, don't worry. I have an opinion on everything. Okay.

I've been known to be slightly opinionated. I think so. CCIM is a series of courses that is, it stands for Certified Commercial Investment Manager. And I. When I was 19, 20 years old, I actually started down the path of. I wanted to get my ccim, and I started taking courses like that. I remember one of my instructors, I think his name. Gosh, this was a while ago. I think his name was Dennis McKenzie. And he. He wrote some of the real estate textbooks for CCIM and some of them for the state of California, test prep and continuing ed. And that was really fascinating to me. I did learn a lot by doing it. But I gotta tell you something. I think it's just sort of funny. Commercial real estate, that world has this image of where you think. Think that, oh, these commercial real estate brokers. And by the way, the CCIM course is for brokers. It's not really for. It's not really for investors, per se, although investors would learn some stuff from it. You know, it's. It's a designation that you want to get, if you're a broker, a salesperson. Okay, Selling those properties. And the image you have, Ian, as a. As an. You know, I was a real estate agent. Well, I still am, but back then I was, you know, like, really aspiring to be a successful real estate agent. And the image you have is, oh, I'm gonna do these huge deals. I'm gonna be selling giant hotels for $85 million and huge shopping centers for $46 million and all this kind of stuff. You know what most of those commercial people really do.

They show little crappy office spaces and retail spaces for people to lease.

And they really, you know, I mean, a lot of them just don't make much money at all. I mean, it's funny. When I lived in Newport Beach, I would say I had about probably 60 friends in the commercial real estate business. Okay, 66. Zero. I would say something like that. And a lot of these guys are living on Balboa Peninsula, which is a area in Newport beach that's kind of like the party zone. And they've got three roommates. They all drive like, Jeep Cherokees and they're broke. They're, you know, it's like when it comes their turn to buy a round of drinks there, you can't find them anywhere.

It's not what it seems, I'll put it that way. But. But, you know, of course, I mean, that said, there are commercial real estate brokers that do do very big deals and make lots of money, but it's the law of averages. Right? The law of the 80, 20 rule. Right. The Pareto principle.

Definitely. Definitely.

Cool.

So, a couple remaining questions. One being in terms of your sort of recommendations on screening property management companies, I would imagine some of your investment advisors or.

Advisors for some of the different cities that you guys work in would have kind of a preset list of their own. But when it comes to looking at the vacancy rates of some of these management companies or the clauses that they use in their contracts to make sure that any owed money past a 30 day window becomes their liability and not yours, or making sure they don't sneak in sales commissions into the contract or that you're only paying them on, on kind of the gross collected rent, not on, you know, any vacant units. Do you have sort of a guideline that you like to work off of when it comes to making sure you can trust the people who really are going to be that face to your business for a lot of your tenants?

Well, yeah, that's, that, that's a hard one. And look, I will be the first to tell you that property management, it's the hardest part of this whole thing. Okay. And talked on the podcast before, Fernando and I are trying to develop a kind of a software and a system that'll help people self manage their properties. And you can self manage pretty effectively, you know, for our members that pay a whopping 120 bucks a year. Okay. I've, I do a monthly members only call. We gotta raise the price of that thing. Seriously, 33 cents a day is a little cheap. Okay. Yeah. And anyway, we do monthly member calls and we've done a couple of calls and they're all archived in the members section@jasonhartman.com where I've talked about how to self manage your properties. I've also talked about it on the podcast a bit too. It really can be done. But the thing when you are dealing with a manager is number one, read the contract. The one part that bugs the heck out of me is these discretionary repair issues. Okay, so let me explain that. So there's a couple layers to this. Let's peel back to the onion for a minute. Okay. By the way, these are great questions. Okay. So the first layer is that you've got to understand that a property manager has a responsibility to protect your property. Okay. So if a pipe breaks and there's an emergency situation, they do have the right without, you know, maybe they can't reach you, maybe they can't get a hold of you. Okay. And they do have the right to call the appropriate professional, in that case a plumber, and say, you know, stop the leak, you know, get everything stabilized, and then, you know, I'll talk to the owner after that about, you know, how are we going to handle this, okay? And, you know, we'll file an insurance claim, whatever. Right? But you've got to understand, the property manager always has the right to do emergency stabilization, we'll call it like that, okay? To stop a leak, et cetera. Right? Beyond that, though, the property managers all have this other discretionary repair clause in their contracts. And that discretionary repair clause can say, you know, we have the right to spend up to $200 per month or $200 per incident, okay? Now be careful here because it could be per incident or per month, and then the amount will vary. Some of our property managers and I have fought them on this, and I've told our clients not to do it. And, you know, they've written long emails to me explaining, well, Jason, you just can't tell the clients not to. Yeah, I can, okay? I am on the client's side. Look, we love our vendors. We got to have good relationships with our vendors, but ultimately, the clients are what pay our bills here, okay? Not the vendors. We can change vendors, but we got to have a loyal clientele, okay, that loves us. And so. So, you know, I'm here for the clients first and foremost, the vendors after the clients. The clients come first, though, right? And so, you know, they have a clause in there that says they can spend up to $400 per incident and. Are you fricking kidding me? I mean, that's crazy. Now, you gotta understand. And this is why I, you know, even a great manager has a bit of a conflict of interest. And here's why. You know, they've got to keep the tenant happy, they've got to keep the owner happy, and they got to keep themselves happy, right? Okay? So the problem you have when you're a property manager is many tenants out there feel like they're getting mistreated, okay? You know, generally, the owner or the manager of the property kind of has the. The power, okay? So tenants will feel weak and they'll feel like they're being abused sometimes, okay? Even if they're not, they will just, you know, a lot of them have sort of an entitlement Obama voter mentality. How do you like how I threw that in? Okay?

This is why half the country hates me. Okay? Anyway, so they all kind of feel like that. And any. They'll go and they'll write bad things about the management company online. And of course, the management company hates that because they don't want their reputation to suffer. And so to some extent, the management company will kind of sell the owner investor down the road a little bit because they'll try to please the tenant. And this is why, this is why I kind of just like self management. And in my own portfolio I do both. I self manage some of my properties and I have professional managers for other ones. You want to know how I decide? I start with a manager and then when the manager does something bad, I get rid of the manager and I self manage. I have some really good managers for my properties. And a really, really good manager is worth their weight in real estate. I wouldn't say gold because gold is not a very good investment. It's worth their weight in real estate. Okay?

And so a good manager can be awesome. And then there are the mediocre managers and then there are the bad ones. Okay, you gotta understand, the manager has this natural kind of conflict of interest and it's just part of the dynamic of everything, right? They want to make the tenant happy, they want to make the owner happy. Sometimes it kind of feels like they want to make the tenant happier than the owner. And you know, that's kind of ridiculous. Now what you find if you self manage your properties though, is that the person, the tenant in your property doesn't perceive you as some big company with an unlimited budget. And they know that you are a regular human being. And if they're a decent human being, which most of them are. Okay, most, the vast majority of people and tenants are very good people. There's some bad apples certainly, but they will feel the pressure of having to maintain a relationship with you. And that's a good thing because they will tend not to abuse you and ask for every little thing. But we've definitely found when there's a management code, they ask for more stuff. Okay. You know, it's just sort of like this is some big faceless company. What do I care? I've got some ants. Oh, call an exterminator. You know, I've got, you know, a light bulb burnt out. I mean, I'm sort of over dramatizing it. Okay, now, you know, call someone to change the light bulb. Whereas if they're dealing with you, a lot of times the tenant will do that stuff themselves.

Yeah, that absolutely makes sense. And you know, I guess along those lines, for last question or two to wrap up, when it comes to that long distance self management.

For any property, whether it's self management or managed by a third property, will you always recommend still going out and Seeing the property in person, obviously, I know the importance of getting it inspected beforehand and all those other checklists prior to that. But do you still recommend seeing a lot of these properties in person before finally pulling the trigger?

Yeah, Great. Great question. So I'm always going to recommend that our clients go and look at the properties before they buy. But here's what happens in practice. They just don't do it, okay? They don't do it very much. I would say that 95% of our clients, just guessing, do not go to look at their properties before they buy them. And, you know, when you get past this sort of traditional local mentality that's been around forever, you know, as far as real estate before the technological revolution that we're in, you could kind of understand that, because everybody usually did things in their neighborhood. But the problem is their neighborhood may not be a good place to invest. Their own city may not be a very good place to invest. And even if it was the best place to invest, they still need to be diversified. Okay? And so most of the clients don't go and look at their properties. But heck, when they invested in the stock market, hopefully they're not doing that anymore. They didn't visit the company either that they were buying stock in. Okay? So it's really just, you know, it's just about the numbers. What is that property going to produce versus what you pay? That's what this is about. I mean, I don't much care what the house looks like. I just want it to be a rentable, desirable property that is going to perform well. And I can figure that out from a distance. I can go on Google Earth and I can look at the property from different angles. I can see what's near the property. And, you know, you should do all of that stuff and deal with reputable people. And, you know, you're. We just haven't had any big, huge problems like that. You know, we've had a couple over the years. I mean, we've been doing this a long time, so you're gonna get a couple things. Like, I remember once, years ago, a client who kind of was her own worst enemy, frankly. She was upset because she didn't bother to look at the property on Google Maps. And it was like a block away from a train track. And so there was some train noise. But, you know, the fact was that there were, you know, maybe a hundred homes right in that neighborhood, also close to train tracks. Okay? It's not like people didn't live there. They even lived closer than her House to the railroad tracks. Okay. Everything will rent at the right price. Okay. It's not a question of does that ruin the deal. It might just mean it rents for $50 less per month. Okay, cool.

I mean, I know I could go on for hours and hours and hours with. With questions, but those were definitely.

And you know, I could too, Ian.

Yes, I do. Yes, I do.

Yeah. Well, we. We've been on 38 minutes and these are great questions, by the way. I think, I think a ton of people listening had a lot of these very same questions as you did. So they're good questions. But, you know, I'll tell you, had I not purchased that first property when I was 20 years old, there's just something that happens by what we'll call on the job training, because you bring a new. You bring a new person, you bring your A game when your money is at stake and when your future is part of that deal. So just get your first property going. Heck, if it's terrible, don't buy a second one. You know, it's pretty good. It's not perfect by any means. There are problems, there are frustrations. It's just better than everything else. I mean, I just haven't found anything else that even comes close, you know.

Absolutely. I will believe in that till the day I die.

Yeah, well, hopefully you'll keep believing it after you have your first 10 property or something. Right?

Exactly. I was going to say, well, we'll see if it changes once. Once there's a couple of houses to my name, but hopefully it stays that way.

Good stuff. Well, hey, it's great. When did you become interested in real estate investing? You're 28 now and what do you do for a living? Did you mention that?

So I work at a digital advertising agency in the Boston area and been here for the last four years or so. You know, back to when it first started as kind of a startup. But growing up, my mom's side of the family, her father, you know, when her relatives came over from Europe and, you know, built 30 or 40 plus two units residences in a suburb just outside of Boston.

And duplexes, right?

Yeah, yeah. Over the years they had sold some off, but, you know, even when I was in high school, they probably still had at least 10 in the family. And, you know, every couple weekends I would be going down with them to help rake leaves or put down mulch or, you know, paint walls when tenants changed over. So it always been. Been kind of in. In my blood and heard some horror stories, but also saw The. The checks coming in each month or, you know, that. The big lump sum when they would finally sell a property in an up market. So it's always kind of been in the back of my mind, and I've, you know, dabbled in. In the stock market certainly since, you know, since starting a job. But I'm looking for some, certainly something just more, I think, consistent and grounded and, you know, it's appealing, to say the least.

Yeah, it definitely is. It's the most historically proven asset class in the world. So I am very glad you are discovering it at a young age. And I tell you, 10, 20 years from now will pass. 10 or 20 years will pass in the blink of an eye. I warn you. Okay, you know, just get going. Start building your portfolio. Get your first property, and then get your second and your third. And it is amazing how fast you can grow your own little mini real estate empire. So just get. Get started and just do it. Okay.

Awesome sound. Sounds good to me.

Good. All right, thanks for the call, Ian. I'm gonna end the tape now, and we can just wrap up off tape here. But listeners, I. I hope you enjoyed this. And that was Ian from where, New Hampshire? Ian?

Yeah, down in. Down in Boston now. Yep.

Boston. Okay, Boston. Can you say park the car in Harvard yard for us?

I can do it.

Do it in a thick Boston accent. We want to hear it.

Park the car in Harvard Yard.

I love it. That's good. All right, Ian, thanks for joining us.

Thanks a lot, Jason. Really appreciate it.

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