CW 858 - 20% ROI, Staying Power, Alignment of Interests, Funding Purchases Gary & Jason

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Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. 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, episode number 858. 858. Thank you so much for joining me today. I've got Captain Gary Pinkerton with us today to talk to us about a bunch of things real estate wise. Answer a few listener questions, but most importantly, tell us something we don't know about one of these three things. Operating a nuclear submarine, operating a nuclear reactor, or launching missiles. Now, Gary, I'm sure you're not going to give us any classified information here, but.

Welcome to the show. And how do you like me putting you on the spot like that?

Oh, thanks. Well, I love it and thanks for inviting me back. Always a pleasure. I won't tell you anything classified either because I don't really want to go to prison, but. Yeah, so I think that most people don't appreciate that driving a submarine or a submarine drives in the water just like an airplane drives in the air. There's a couple minor differences.

Differences.

But they both have, you know, essentially planes on, you know, somewhere up forward and they have planes in the back. On a submarine, it's the, the big planes are back on the back and you operate those just like you do wings.

You, you call them planes, not wings. Why is that?

Yeah, we call them planes. Yeah, plane surfaces. I mean, an airplane would call it a plane surface as well, but they call it wings for some reason. Right, but, but we basically change depth and maintain depth on a submarine. So changing depth with the big planes on the back, like the big tail of a dolphin, if you will, it points the submarine in a different, you know, an up or down elevation and then her attitude and then it moves, you know, changes depth that way. But the thing that's different with the airplane is that, you know, water is many times more dense than air.

Yeah, for sure.

So, you know, so when you change, you go from the surface of the earth to space, outer space, you know, that's 14 pounds of pressure. And in the ocean, it's 44 pounds per 100ft. So.

Wow.

We can't allow, you know, what you do in a, in a, an airplane is you, you have to actually pressurize the inside of the compartment or the cabin because otherwise it'll crush like an aluminum can, even just in that little change we can imagine underwater. So these submarines are, you know, an inch or two thick and they don't compress really very much at all. So a little bit different that way. You don't, your ears don't pop like they do, you know, in an airplane.

Very interesting, Gary. When I hear, when I'm watching a movie and there's a submarine involved, they say 30 degrees down bubble. Why do they say that? What does that mean, down bubble? I mean, I mean, I guess they're going down. That's what I interpret. But down bubble, like what, what do they mean by that?

Yeah, so you know those, those carpenters levels where there's a little air bubble and it, you know, you can tell whether it's level or not. Yeah, of course, yeah. So, so the old school submarines, I mean, up until like five years ago, all of our submarines, maybe 10 years, had those same kinds of inclinometers or an air bubble in water or some liquid. And it would, it would tell you what the attitude of the submarine is. Because when you get, you know, if you point down 5 degrees and then get stabilized there, sometimes it's hard to tell exactly what angle you are at. So, so that bubble, you know, it had a 30 degree marker on it. And so the plainsmen would, would use those big, that big tail or the big planes back there to adjust the submarine. So it's pointing down at a 30 degree angle. And that's a big one, by the way. And that's the one that you see when they jump out of the ocean testing emergency blow systems. That's the angle that they're pulling there. It's pretty, pretty hefty.

So 30 degrees is really steep, right?

It is very steep, yeah.

Wow. Interesting. You know, I remember, I think it was the first time I met you at Meet the Masters in Irvine, California. And I remember standing in the room, I believe it was the first time we met with you and you told me you, you were with the Navy, you're always so humble. You didn't bother to say you were a captain of a nuclear submarine, which is kind of a big deal. But. Yeah, that's interesting. And you're. And you're retired now, just doing real estate investing, right?

I am, yeah. And loving it. Absolutely loving it.

Good stuff, Good stuff. So I mentioned on the show on Monday that you and sue, your wife now just got up to your, I think, your 20th property, right?

Very close.

You used all your Fannie Mae, Freddie Mac, 10 loans each, and now you're just waiting for Trump to increase the limit. Right?

That's right. That's right. To be exactly correct about it, they're all spoken for, under contract. Some of them are new construction still being built. But yeah, by the end of the year or early next year, we hope to be there and very proud of that fact.

How long did it take you to do it? How long have you been investing?

Gosh. Yeah. So we started, bought the first one at the very beginning of 2012. And, you know, so a little over five years and there was a pause in there as I was transitioning out of the military and obviously my W2 income got interrupted. And so we transitioned over to Suze, but also building a little down payment capital, you know, so there was a time to, to refill the. Well, if you will.

Yeah. Fantastic. So what are some of the things that you've learned as an investor over the years? I mean, I'm sure you've had some bumps in the road. You know, this is certainly not all rosy. Just share any of that with the listeners, if you would. I mean, we got a bunch of stuff we got to cover, but I just am asking a general question to start and, you know, just any great tips, any things you've learned, problems you've had, or metrics you want to share on your portfolio?

Sure, absolutely. So I think some of the stuff I'm going to say is common and that you have heard from others, but it's good to kind of get it reinforced from somebody, I guess, that's down in the trenches still fairly early in their investing. The team on the ground, extremely important. The manager makes the most difference of everything. And to me, the most important lesson learned, and we talked about this, Jason, in a previous podcast a month or two ago, is that it's most important that your interests and the manager's interests are aligned. And I think that's super important. And I think cash flow for most of us is about staying power. We talked about that in Oklahoma City last weekend. It's about staying power. If you have a positive cash flow or a very close to zero cash flow or better, you have the ability to write out good times and bad times, you know, tenant evictions and other damages or failed equipment, you know, with reserves and that fairly close to zero or positive cash flow, I think you're in good shape. And I've also learned over time, and this was surprising to me, that a majority of the return on investment comes from, you know, just being able to get good prudent leverage on an asset and hedge yourself against inflation and, and have the tenant pay down your mortgage. Those two things are really the biggest parts. Cash flow is really, again, just about staying power.

It's kind of interesting that you say that because since you started investing in 2012, I think you said there hasn't been much inflation. I mean, there are certainly, it's certainly more than the government has told us. Okay, we all know that the government numbers are completely understated. But you know, it's not like it's been a severe inflationary time in, in the regular world. But in the terms of assets, there's been tons of asset inflation. Massive, massive asset inflation, which, you know, I've talked about. How, how does that play out in 10 years? Because many people aren't, because of that asset inflation, able to enter what I call the investor class. And I think that's a big deal. I think that really is bad for society, but I think it's good for us as landlords because, you know, that means more renters overall. But. Yeah, what are your thoughts?

Yeah, no, I agree with you. And I think, you know, the big bubble in assets is not necessarily, you know, single family homes in, you know, in linear markets.

No, it's definitely not that. Yeah, but single family homes and other types of real estate in cyclical markets have inflated dramatically and the stock market's way up and, you know, cryptocurrencies are way up. Gold has done like nothing pretty much.

We should do a whole podcast or something on, on the, you know, that idea. And this came to me on the idea of, of, you know, leveraging prudent debt and getting, getting credit for all of the, the appreciation that occurs, even the boring 4% a year appreciation or something in a, in a linear market cap, getting credit for all of that, most of which the lender funded, really makes a big difference. You know, it's a 20% return on investment. So just in a very boring market is pretty impressive. And that's one of the things that I've Learned and has really kind of surprised me. The other thing I learned, and I think many of your listeners are this.

Way, Gary, before you go on, I just would like you to drill down on that and explain a little bit. You threw out the number 4%, then you threw out the number 20%. And I think some people might be listening, thinking, what is he talking about? Sure, of course you're talking about leveraged return on investment. And you're not even including tax benefits, cash flow, inflation induced debt destruction, just leverage. That's it. But go ahead.

Yeah, debt, debt, pay down or any of that. Right. So, okay, so let's say that you have $100,000 house and you're going to have $20,000 of your money. So a 20% down payment and there's a little bit for closing costs, but I'll leave that out of the picture here for easy math. And so if you took that $100,000 house and broke it into five parts, five pie pieces, that would be 20,000 each. And the bank has agreed to fund, put the money in for four of those five pie pieces. Well, each one of those pieces, each One of those $20,000 components is going to go up by, you know, by 4%. And, and so since I get the credit for the appreciation of his part, the bank's part, even though they put all the money in, I get credit for that. So what's really happening is this hundred thousand dollar house goes up by $4,000, but I've only got 20 in the property. So if you take 4,000 and divide it by 20, you see that I actually got a 20% return from that, not 4%. And it's because I got to use all five pie pieces worth of the increase. Does that help?

Yeah, that really is one of the amazing things. It's deceptively simple but incredibly powerful is that when you're saying like the lender, they loan the money on the property and the property still produces positive cash flow, but you get all the credit, in other words, you get the benefit. They don't get to participate in the appreciation of the property. But interestingly, you'd think, well, you know, you hear people say, well, leveraged is a two edged sword. And I've argued, not really actually, because if it goes the other way and say everything goes to hell in a handbasket and you know, we got 30 degree down bubble and the market crashes, okay. You know, people just walk away way. Right, so.

Right.

So it's, it's like what, you know, it's the best of both worlds. I mean, admittedly, that's kind of the nuclear option. That's. You don't want to walk away from your properties. But, you know, millions of people made that decision in the last Great Recession, I think about 12 million people, actually. And. And the people who didn't walk away, you know, they did short sales, they did workouts, they got loan modifications where they reduced interest rates. I mean, I got those on a bunch of my properties. And it really is better either way. You know, now you got to use it somewhat responsibly, but, yeah, super powerful. Okay, I interrupted you on that tangent. Do you remember what else we were going to say after the leverage discussion?

I do. I was certainly. I was going on my own little bit of a shift and tangent. And that was to say that one of the other things that I learned, I got into this, you know, after 26 years, 25 years in the Navy. And. And, you know, I loved my time in the submarine force, but it was challenging on the family, you know, time and time again, you know, dragging my family around the country, and this is not unique to my job. Many people have to go through this very long hours moving people around and asking them to, you know, one more time, take one for the team. Putting my career kind of above the family. And it was my, you know, and things were getting rough. And so it was my impression that the job was doing it to me, and I needed to replace this W2 income with passive income. Right. And so that, you know, that was the focus, and I blamed it on the job. Of course, it was me making those decisions, those wrong decisions, but about, you know, priorities, but. But nonetheless, I think many people out there, and this really resonates. I talk to people all the time like this about this, and. And, you know, they say the same thing. They're like, the moment that my passive income from real estate can exceed my W2, I'm out, you know?

Well, yeah, Kiyosaki says that's what he calls getting out of the rat race. Right.

Out of the route race, or Fernando's Financial freedom Day. Right, right. And when I found. When I found financial freedom, what I realized was I didn't actually want to stop working. I want to produce. I want to add value to the world, and you get paid for doing that. And I'm in a completely different field now. What I wanted was the ability to continue going to work there or anywhere else on my terms. Right. And that's what people really want. Options. They don't really want to stop producing.

No, no, it's, you know, like this whole concept of retirement is just stupid, if you ask me. Like, I have. It's not healthy, it's not good, as humans were meant to be engaged in the world and we're meant to be contributing to the world, and that's what gives us a sense of meaning and purpose and. And, you know, it's. It's good for us, it's good for other people. It's a win, win thing. I mean, you know, the idea of sitting on a beach in Belize, which is a. But that's another discussion, you know, or buying property there, too. Same thing. You know, it's just so unattractive to me. Like, I would. I can't imagine myself ever actually wanting to do that. But, hey, you know, different strokes for different folks, right?

Yeah. You know, I'm with you. I've traveled many times outside the US as you have, and every time I come back, I kind of, you know, stop myself from literally kissing the ground. I mean, we have. I'm not saying it's the greatest country in the world, but I am saying that it's pretty close. The lights always come on.

I know, it's amazing. Yeah. My friend is in Ukraine now, and I was there with him about a month and a half ago. I met up with a buddy over there, and he was out on a date, and he sent me a voxer message, and he's at this restaurant, and they couldn't. They wouldn't. They were holding him and his date hostage because their power went out and they couldn't run his credit card for $19. And they said, you have to stay here until the power comes back on. Can you believe, like, living? I mean, that's just absurd. Unbelievable. Yeah, it's crazy.

Well, we make fun of our litigious society here, but just feeling. Knowing that they'd get sued for doing that makes us, you know, very free people over here.

It does. You know, lawyers serve a purpose. They do. Okay, go ahead, tell us more.

So, yeah, so, you know, I wanted options. And so once I got those options, then it really opened up my mind to, like, what else can I do in this world? And it's funny that kind of along the way, I knew that I had already kind of made decisions to leave the military and kind of step aside from that, because I was at this point where signing up for becoming an admiral or, you know, and flag officer, while it was really an exciting, enticing idea, it meant many, many more years in a row. And that just wasn't in the cards for my family, so. But not having to go off and hustle and get a job allowed me to just open my mind and say, you know, what does inspire me? Where do I think I could add the most value? And I'm very, you know, humbled and happy to have come across Pat Donahoe, back when I was with Paradigm Life, back when I was getting my first properties and stumbled onto, you know, the idea of being able to. To, you know, increase the efficiency of my properties by, you know, funding them in a different way. And it added, you know, lots of safety and security. So, you know, with that, the first place.

The first place I ever heard about this technique and, you know, I'm using it myself now, but it was back in maybe 2004 when I read Doug Andrews book, I think it was called. I can't remember the name of the book now, but do you know, you know him, right? He was kind of a big deal in this world.

Yeah, yeah, yeah. I can't think of his book either.

And I tell you, I. His book was, like, divided into two parts, and I loved the first part, and the second part, I just thought was totally overrated. But you guys have kind of moved the needle on this whole thing. So, you know, tell us how. How you came on to that and, you know, what it meant to you, and then let's get to some listener questions.

Perfect. So, you know, to go back to the end of 2011, I was waiting for this new construction fourplex that I was having built and was in escrow on. I was, you know, just waiting for that to get finished. And I had a couple of months, and I was looking for ways to optimize my portfolio that I was kind of designing and thinking about when I was going to buy my properties and get those at the time, you know, for finance properties that I was allowed. And I was. I was trying to figure out, well, how is there a way in which I can not have my own dollars in the property? Is there a way that I can, you know, kind of increase the velocity of my money? I read Robert Kiyosaki's books, and he talked about that a lot. And, you know, I came across an advertisement that Patrick was. Was doing with the real estate guys. And I went and took a look at all of the, you know, that kind of stuff with Patrick, and at the same time, I was learning about Jason Hartman's network and realizing that that was the best place, you know, to go with my properties. And so I knew where I was going to get the properties. And then I started learning from Patrick about how to get the properties and, and how to fund the, you know, the down payments with them and allow my money to continue working while I use somebody else's money in as the down payment. And the beauty is that it also satisfies the requirements of Fannie Mae, which you wouldn't think would be true.

Right, that's interesting. Right, go ahead.

One of the things with Fannie Mae is that they, you know, they're worried about you borrowing the down payment because that has somehow been linked to concerns about 2008 and 2009, although I'm not exactly sure that connection.

But I can tell you, I mean, basically there were these various down payment loan programs out there and even some of them were charitable. They were just basically trying to help people, you know, like low income people buy a house. Right. But you know, the reality of life is, Gary, when people don't have skin in the game, they don't act responsibly. That's just the way way it is.

Right. So in this, in this case, you really do because you're pledging your own dollars as collateral for money to borrow from the insurance company. But if you think about like a home equity line of credit, you know, those have been abused over time. But one of the beautiful things about a HELOC or a home equity line of credit is that let's say that you have $100,000 credit line and you use 20,000 of it and then at some point you have money coming from a cash flowing asset and you put 5,000 of that back. Well, that 5,000, you know, comes off the 20. Now there's only 15,000 borrowed and that 5,000 is immediately available to borrow again. And so this works exactly like that. So as my tenant is paying down this loan from the insurance company, for me, that money's, you know, immediately available again to go after the next property. So in the first you asked me how, how long had it had I been investing those first couple of years I invested in a couple properties and then had to wait, had to kind of pull pause. But now what sue and I see is that we have several loans, you know, out for each of these properties, money flowing in from all of the tenants. It only takes a month or two and there's enough, you know, for the next down payment and then the next down payment. So it's really pretty fascinating to see this snowball start to roll and it's made a huge change. And so as I was, you know, as I mentioned I was coming out of the military, and I know I had reached my financial freedom, but I decided I didn't really want to quit working, working. And if that's true, what do I want to do? And, and I decided that the thing that inspired me as much as real estate and, and more than anything else out there was, you know, the, the vision and what Patrick had done for my family's life and, and our finances and our just comfort. And I wanted to kind of spread that.

Yeah. And so the neat thing about it is also there's the asset protection component. And honestly, that was one of my primary motivators initially is that I just loved having, you know, I, I like, you know, hiding money in this little box over here and over there, you know, having some diversification of some things. But the problem is if you do that, as far as the way the Wall street cartel interprets it, you're just gonna, you know, you're just never gonna make any money because it's all, you know, I mean, conceptually diversification perpetuates wealth and concentration creates wealth. Okay, so that's the, you know, the basic philosophical underpinning. But, you know, once you've got some money, you've got some wealth, then you, you become more conservative because you, you want to protect it. Because, hey, you're looking back and you're thinking, hey, I, I spent, you know, 10, 20 years, maybe 34 years, maybe 50 years earning it, and I don't want to lose it. I don't have time to, to earn it again, and I'm just too tired, you know.

Yeah.

So. So you want to get things in some little cubbyholes. And so there's some good asset protection component as well, so. Yeah, yeah.

Yes, yes. So the money, the money inside that product, inside that, inside your personal bank or your life insurance policy is protected from most lawsuits and things like that. Yeah, that's, that's a good point. And it also, you know, also there's the life insurance side. And that was really important for me at the time, time that we were doing this. If you remember, I said that, you know, I had, you know, things were kind of rocky for us, and I had done all this studying on real estate, and I was certainly sold on the idea, and I certainly still am. But Susan was in a different place. She was studying to become a nurse. She was working her rear off, and she knew nothing about real estate. And here I had, you know, really bought into the idea that I wanted to have as much fixed rate debt as I could get, you know, 30 year fixed debt. And so, but, but you know, to have a million or so of debt and not understand real estate was not that comfortable, you know, for Sue. So if I did get, you know, hit by the proverbial bus, you know, the fact that my banking system also brought life insurance, that, that would have completely paid off all that debt for her and she'd have, you know, debt free, cash flowing assets that she could then decide to get rid of, but would certainly provide a lot of cash flow if, if she chose not to.

Yeah. And so some of my skepticisms have been, well, don't you pay a big fat handling fee to the insurance company for doing that? And then also, you know, could these companies go out of business. Right. And not be able to pay claims or loan money on the terms discussed and then, you know, will inflation basically reduce the value of that policy? So you guys kind of move the needle on some of this stuff. I mean, I'm not saying it's like the greatest thing in the world world, but I think it's a good, it's a good strategy. You know, it's a neat strategy. I mean, I think you're, you're more into it than I am, obviously. But, but you know, just address those for a moment and then let's go on to some of these questions.

Of course. So, you know, you'd commented, you know, are you paying a lot for the insurance, like a handling fee?

Yeah, you know, yeah, handling fee to do stuff. Right, right.

And so one of the, yeah, one of the beautiful things that, that you know, we do when we're designing them this way is we reduce down the insurance focus and increase the cash focus of it as much as possible. And most of the handling fees, or the, the mortality charges, if you will, are in that base insurance policy, that main portion, the insurance part. And we minimize that, you know, on just about a, you know, a factor of four, maybe five, and it has a huge reduction in impact. Some of the other concerns sometimes is that your money's not accessible early on. Well, in fact, the way I do it and way I design it for real estate investors, there's on the order of 90%, 9 0% of the money available on day one to go use. So that kind of certainly removes that. As far as inflation goes, these companies are, you know, they're putting this money to work in the economy. They're not sticking the stock market, they're putting it to work in the economy and they are, you know, getting long term commitments from Stable companies. And so they're really investing in these hard assets, which makes it more difficult for one of these companies to go out of business than, you know, let's say a variable life insurance policy that is all invested in the stock market. You know, it's. So for them to go out of business means that the, you know, that Coca Cola and Caterpillar and General Electric have defaulted on loans to them, which means that probably the US dollar is not that helpful anyway at that moment. Right. I mean, we're probably in a complete reset. So similar to in real estate, where I try to invest in hard assets.

My policy, my insurance policy is investing in hard assets in reality. And then I guess the other thing I would say is just track record. Past performance is no indication of forward look. But, but when you look at companies that have been around for 150 years, have been paying profits, they have been profitable every year for 110. And then you look at like the Great Depression or 2000 and 2008 banks failing across America and these guys are paying profits. So I'm not saying it's going to always work forward, but one of the great things about this industry is that they are controlled, audited by the states. And, and so it's, you know, it's not a federally controlled thing. It's a much more, I think, intensive look from a state level. And then the rating agencies are fairly rough on them, so you can get a pretty good feel for how capitalized they are, you know, So I think, I think with that we should get onto your listener questions.

All right, sounds good, Gary. So we have had this contest going and you can enter@jason hartman.com contest and we will pick a winner here very soon.

And I think we'll pick the winner. We'll announce the winner next week. How's that sound? And these are for the Apple AirPods. I love these things. They're one of my favorite products. I use them all the time because I love to listen to podcasts and audiobooks. Right. So, so that's good stuff. So Sarah had a question. She said, and, and Sarah, I, I'm going to tell you before I even read your question. I wish I could answer this one for you, but I can't. There's a couple reasons. Number one is I don't know. Number two is I don't want my competitors to know. And number three is we don't want to announce it until we have something really solidified. Okay. But she asked, you know, what are the new markets you're getting into and why. And you know, we are constantly looking for new markets. And you know, it's not really a question of new markets as we, I think we talked about that earlier in this episode. It's a question of new or good quality teams because the whole thing lives or dies on the team of people. You have, like I've said many times, I'd rather have an A team and a B market than an A market and a B team because the team is just more important than the market. Okay. It really is. And Gary, I, I think on this episode you said that just a little while ago. Right. When you talk about the whole thing, lives or dies on the manager and. Yeah, absolutely.

I, that is 100 the issue.

Yeah. Now do you self, I meant to ask you back then, are you self managing any of your properties or have you ever tried it?

Yeah, great question. Very, very timely question.

I like self management. I'm a fan.

Yeah. So I have a four, four unit building. My first one, it was new construction. So it was kind of a Class A4 unit and it's down in San Antonio and I am self managing that. I have been self managing it for about two years. The thing that was challenging for me was just setting up the whole dynamics of showing the thing, leasing it up. And I know you can, I know you can do that separately. But then there was also the turn, you know, the turning the property. So I have made a decision to try out a new property manager down there as I get more busy working with Pat. And, and so what I'm doing is I'm, I'm giving them a unit as the unit becomes available and I've done that with one unit and I have another one coming due so I'm going to do it with that one. But I'm also considering this, this new, new construction property I just purchased. You know, one of the challenges with new construction nowadays is that it doesn't cash flow quite as well, sometimes at all. And it's expensive.

You're paying a premium price. Yeah. And the market's gone, you know, prices have gone.

Right.

So it's harder.

So there's, you know, one of the things I'm considering is, well, if it's new construction and there's a, you know, a class A single family renter in there, you know, with a good white collar job, maybe that's a property that I can look to self manage and save a couple hundred dollars.

Okay, so let me, let me address that to what you're saying because I mentioned this when we were in Oklahoma City on our property tour and you know, the, I mean, look, this is all individual, case by case basis with real estate. Everything is. But the. I think the best type of tenant is when you get a good quality property and a good quality area and they will fight to stay in that area. Ideally, it's like a family where they want to keep their kids in a school, school district. And, you know, those tenants are pretty darn stable. Okay.

They're. They're awesome. And one of the things I Learned with this4unit and the reason I took it over again, back to that interest not aligned with your manager, is that my manager's interests were to. They didn't care at all about the tenants and they were actually fairly rude to them. And I had one tenant say that they stopped answering the phone once I signed the lease and moved in. And, and so, you know, it was not a good manager. Clearly. I'm not trying to say all managers are like this, but. But I took over that building because I knew I could be kind to my tenants and they loved me. And the only ones that have moved are actually physically moving out of state because of their jobs. So, yeah, I think, I think the same thing would be repeated in, you know, a new construction, single family home.

Yeah. Yeah. Okay, good. Yeah, good stuff. Okay, so let's go back to the contest here. And Sarah, also, thank you for your comment. You said, I love Jason candidates, his honesty and the economics education. All right. Scott didn't have a question, but he said, I've listened to many other real estate podcasts, Scott. There are other podcasts. They all seem to be. They all seem to be trying to sell their information. Sure, they give some generic ideas, but nothing you can sink your teeth into. Jason is different. Exclamation, thank you. He is selling properties with a community around them. That makes you successful. He gives the information for free and it is great direction for the real estate investing world. Thank you, Scott. I appreciate that. Juan had a question and Juan says, how do you find the best property management companies to ensure that your investment cash flows? Well, Gary, you can take that one a little bit too, but I'll just say it is mostly with us nowadays. It's word of mouth because, you know, after doing this for 13 years, you know, we, we just know almost everyone in the industry nowadays. Right. In the old days, though, you know, back in 2004, 2005, when I first got into this sort of nationwide look at real estate investing, it was a lot harder because I didn't know anybody. You know, I. I was, like, sitting in Irvine, California and selling my traditional real estate company to Coldwell Banker back then. And, you know, I was trying to do that and. And start this. And, you know, it was just a completely. A completely much more difficult thing, you know, going out and just meeting people. And, you know, a lot of them are crooks. And, you know, we still get a little bit of a few crooks now and then slip through the cracks nowadays. And then, you know, maybe they're not outright right crooks, but they're just bad operators, you know, or. Or the worst thing is this one. They're good until they're bad, and they usually get bad when they get too much business. So, you know, it's like they. And when the too much business thing is kind of. Napoleon had this great quote that I love. It's, you know, the most dangerous moment comes with victory. I mean, maybe in the military you've used that quote. You know, the most dangerous moment comes with victory because that's the time you rest on your laurels. You become complacent, you get cocky. You know, maybe you think, and this is what happens to these people. We'll have like, this great local market specialist, this great property manager. Then we'll send them a hundred transactions and they're like, you know, they think they walk on water and it's like.

Yeah, hubris, right?

Yeah, totally. Yeah, it's terrible. So any. Anything to add to the management company thing, though?

Yeah, so size is a really good point. You know, I think if you have somebody who, you know, I think there's probably a sweet spot, like they're managing 100 doors, but not managing more than 500 doors or maybe a thousand. But that gets pretty big, right? So it's enough that they have a system. It's not just two people and a pickup truck, but. And it's also big enough that they're probably not crooks if they're managing that many people, but they're not so big that they get set in their ways. I mean, I have managers that say, hey, I have 1600 properties. I can't take time to email you or tell you everything. It's just the way we do the business here, you know, so that's a little. A little bit frustrating. So I think it's. It's about the right size of the property manager. I would also say that it's. It's really important, you know, if you have a group to ask and get word of mouth and referral. I think that's great. But also to understand that a good fit with a property manager is also about you. It's about your personality and what, what kind of keys you off. For example, we have one property manager who does a decent job, but it drives my wife sue, who's doing their books now, crazy because they send, they end their books in the middle of the month, you know, and she's like, who does that? It's so frustrating to be able to balance that way. That's a very small thing. Right. But when your property manager is not responsive to you, I think that's a bad fit. If you really get frustrated when they nickel and dime you, that'll, that'll turn you off. Right. And so, you know, you probably, it's like a good tenant. You're not going to find your best property manager the first time. But always set yourself up, like Jason said, with somebody who's probably not a crook because they have a good reputation and been doing it a while and also not so big that you're just going to be a number and then just kind of move from one of those to another. And after a couple, you know, you'll find someone that's a good fit for you.

Good, good, good comments, Gary. Okay, so the first one is I want to not disagree with you, but I just want to add a, you know, kind of a side note to what you said about the size of the company, and that is this one. No rules or laws apply universally.

Yeah.

Including this one.

Because, you know, it, I mean, some companies, when they're big and they're scaled up, you know, they're great. And some companies, when they're big and scaled up, they're just lame and impersonal and, and you know, it's, it, it all depends, you know, it just depends. And some companies, and some companies, when they're small, they're like the roll up your sleeves, personal service type of thing. You know, you can have a two person shop and they can do a pretty good job. It just depends. But I will tell you, in the smaller business, when it's really small, you might get great service. But if they have like an, a big, you know, like illness or something like that, it's, it could really interfere with things because they have no backup. Right, exactly.

I mean, I have a, I have one manager that has 2500 or so units and they do a tremendous job.

Yeah.

It just so happens that their philosophy is better in alignment. So I think my second part's more important than the first one.

Yeah, yeah. Good stuff. And then the other thing I just want to say, Gary, is folks, consider self management. Not if you're new. This is not for newbies. Okay? But if you've, you know, if you've done this a little while and you know, you, you have some experience, okay, don't do this when you're brand new, okay? But you know, here's the myth about self management. The myth, I think, is that it takes more time. Sometimes it actually takes less time because sometimes having that middleman in there, that property manager, it's like you got to manage them and then by extension manage the time tenant. And you know, sometimes self management. I mean, you just never. Like my landlord here, where I live, they're self managing. They never hear from me. Almost never. I'm, you know, it's like, and I'm thinking, what hassle are they going through? I send the rent like 10 days early every month. You know, I mean, it's, it's just great. And, and yes, if you're not a regular listener, I am a renter and I have lots of rental properties that other people rent from me because I think that's the best deal. Rent a high end property for yourself and rent low end properties to other people. Just wanted to throw that in there in case you're new and you think, what, what is this? Hypocrite? He doesn't even own his own house. No, I've owned lots of houses. Yeah, I've owned lots of expensive houses in places like Newport coast and Irvine. And, and now I'm just, I'm not into it. I like, I like being a renter. It's, it's pretty great. Okay, so Juan's comment is great. Knowledge and information sharing. The show is not only informative, but it's also entertaining. Jason is genuine and not looking to sell anything. Thank you, Juan. Well, I am looking to sell some things, but I'm glad I don't come across as a cheesy salesman. And then Juan actually had a second question. Maybe we'll wrap up with this one. To take full advantage of tax benefits, how would you suggest setting up my business entity structure? Oh, God, I had to read that question from 1:1. We need like two more episodes to answer that question. It's complicated as far as taxes. You know, I don't know if you're married or not because that's not a question we asked. And I don't know if you work full time or not or if you have your own business or what your situation is, but go Back and listen to some of the episodes. Just go to Jason hartman.com and search real estate professional. And that is something you should work toward. Try and get yourself.

Set up so that the IRS can consider you a real estate professional. It's not easy to do. I'm just going to warn you. It's not easy, but it's. It could be very worthwhile. But again, you know, for that to be meaningful and to even qualify for it or consider qualifying for it, I'd say you probably got to have at least 10 properties or more. So that's, you know, for someone who's pretty serious about real estate investing, you know, and we have clients with dozens and dozens and dozens of properties, but that's definitely one thing I would say. And then use property tracker, propertytracker.com just got a beautiful makeover. It looks gorgeous. And use that to make sure you're tracking all your deductions and making your tax filing easy. And, Gary, you're going to have something to add to that.

I'm sure that I'm not a tax professional, but.

Yes. And that's our disclaimer for me, too. Yeah.

So I have learned a ton from some professional CPAs and tax attorneys out there, just in reading their books and in stuff that has been on your.

Podcast, Jason, and one that we've had on the show. We would never do business again.

Yeah, right, right.

We both had bad experiences with that guy.

Yeah. He actually writes a pretty good book, but I'm not going to use their services anymore.

He's got two books out now, I think, and. Yeah, no, he was no good. Yeah.

But there's a difference between an operating business, you know, if your income is an operating income from sales or service.

And if it's passed through rental income and that kind of stuff. So it's a bit. It's a bit complicated. We can't actually answer the question without knowing specifically that. Because my answer to it would be different. It would be the opposite. You know, whether it's S Corp or LLC and those kinds of things. But, yeah, I think your advice on real estate professional and tracking your expenses, you know, paying family members if they can do services for you. All really good ideas.

Child labor. Yes, child labor.

That's right. They learned a lot.

Yeah.

Have.

Have your kids work in your property sweatshop and. And pay them more than they should get so you can use them as a tax deduction. So that's. Yeah, that's.

Mine has tried to sue me for paper cuts.

Yeah. Your kids have tried to sue you for paper cuts. Yeah, funny. Oh, gosh. Okay. Well, the show that we recommend violating child labor laws on and abusing your children. Okay.

All right. Hey, Gary, we gotta wrap it up. Go to jasonartman.com contest and enter to win the AirPods. We're going to wrap that contest up pretty quick. Gary, thank you so much for joining us. Do you want to say anything else? And let's wrap it up.

No. Absolute pleasure. Absolute pleasure. If you want to learn more about what I'm doing and how I do that with real estate, one good source is BeYourBank.com and I would love to talk to anybody about any of these topics. My favorite topic to talk about is real estate, but personal finance is really close behind. Thanks, Jason. That was a true pleasure.

All right, Captain Pinkerton, thanks for joining us.

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