CW 892 - Client Case Study, Clay Slocum - Power of Compounding, Asset Protection, Gen Y, Fannie Mae Appreciation Rates, Learning Taxation

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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 892. This is your host, Jason Hartman. Thank you so much for joining me today. It's been absolutely crazy. This Las Vegas shooting, this terrible, disgusting tragedy has just turned my life upside down in the past few days. But I have absolutely nothing to complain about compared to the victims and the people who witnessed it closely. I did witness the event. We published an extra episode 891 yesterday on an off day Tuesday where we don't normally publish episodes, that told of my firsthand eyewitness account of the shooting and then one of my friends who was in lockdown at the Mandalay Bay Hotel. I was of course at the top of the Mandalay Bay Hotel, 25 stories above the shooter and recounted that story yesterday. But it's just, just awful. I mean, I can't believe this. And I.

Just can't wait to learn about this psychopath's motivation. It's just unbelievable. It really is. I know we're all still in shock. The whole world's in shock about this. Or at least all peace loving, decent people are. Yeah, as you know, ISIS claimed responsibility right away and, you know, who knows what's true anymore. The media partial. Some of the media denies that. Some of the media is just not talking about it. I don't know, nobody really knows yet. But it's absolutely a crazy thing. Today I was interviewed on Inside Edition, or was it extra? I can't remember which one. I've done a couple media interviews. I know it was on TV in San Diego. They interviewed me via Skype yesterday. You know, you, you get a video of that and publish it and it's, it's like, wow, the whole, whole World. I've given a copy of it to the FBI. They asked for it. I mean, the FBI actually messaged me on Facebook. Crazy. And never thought that would happen. I never thought I'd witness such a terrible tragedy like that. But at least I did not witness it close up. I was up high. I saw the concert below. You know, you heard the whole story yesterday if you listen to that episode where we just talked about that. So let's go back to real estate investing and talk about that. You know, this is all weighs heavy on everybody's mind that I will never forget that night.

It changed me forever. I'm sure. I don't even know how yet, but it's. It's unbelievable. It really is. It's. It's just tragic. Moving on, we have got a client case study today that was of course recorded before the shooting and then basically the terrorist attack that happened. And that is our client, Clay Slocum. So I so appreciate him coming on the show, and I appreciate all of you clients coming on the show to talk about your story and. And definitely your unique insights about real estate investing. You know, Clay will talk about some things that have not occurred to me. I've not heard them before. Really wonderful, original thoughts about how to evaluate one's investments, consider one's investments. Just really great stuff. So we love it when clients come on the show. If you would like to be on the show, we'd love to have you. If you have something to contribute, just reach out through the jasonhartman.com website. Or if you're working with one of our wonderful investment counselors, reach out to them and they'll get you connected and we'll have you on the show to share your story and your real estate investing goals or just your questions. You know, if you just have questions for me, I'd be happy to answer them on air as well. And by the way, we've got a whole bunch more questions from the last three contests for the Amazon Echoes and the Apple AirPods that we gave away. And you really had some very thoughtful questions and comments. So we will get to those over the course of the next several episodes. You know, we just got a lot to cover. We've got so many great episodes coming up for you that I've been recording episodes just like crazy the past few weeks. I interviewed Dan Burris today, a really interesting futurist who's developed basically that the software that Zillow uses kind of underlined their system. He licensed that. And he developed several great real estate apps and is just a futurist in general. We're talking to about having him come to meet the Masters in La Jolla, which by the way, we have 96 tickets sold so far for that event, the most ever this early. So thank you to all of those of you who purchase tickets. And if you haven't purchased your tickets, get in on the early bird pricing. You know, the price does escalate as we get closer to the event and is and not just based on time but also based on ticket sales. So it's like an airline, folks. The store, sooner you buy your tickets, the better. Okay, so get your tickets@jason hartman.com, click on the events section and do that. So we'll get to a lot of those questions. We've got a really interesting interview coming up next week for you where we interview a new lender in our network who has some really interesting financing programs. If you're already working with one of our investment counselors, of course they can connect you with her. But I did a really insightful interview with her and we should be publishing that one next week. We've just got a whole bunch of interviews. I can't even remember all of them if it's like a blur. All of the interviews I've been recording. We've had some great guests recently, so stay tuned for that. I don't mean to talk to you all about the future and what's to come because today we have a great show with with our client Clay on a case study as well. But do get your tickets for the Meet the Masters event. We look forward to seeing you there. Also, I also want to give a shout out to the new property tracker system if you're if you haven't been to realestatetools.com lately and checked out the apps for iPads and iPhones and the web based app Property Tracker that has been totally upgraded. Take a look at that. Really some great changes that Fernando and Zach and Michelle and that whole team did to work on Property Tracker and really upgrade it and take it to the next level. I think you'll love it. So check that out as well and you can also find that at the front page of Jason hartman.com but without further ado, let's get to our client case study with Clay Slocum. Here we go.

It's my pleasure to welcome another client to the show. We always love client case studies. We get great, great feedback on them. And if you're interested in coming on the show, just reach out to your investment counselor and we would love to hear from you and possibly feature you on the podcast. So again today we're going to do another client case study with our client, Clay Slocum. Clay, welcome. How are you?

I'm doing pretty good, and yourself?

Good, good. It's good to have you on. You are a 32 year old millennial and we're going to talk about some millennial stuff when it relates to, as it relates to real estate investing. And Clay, where are you located?

I am in Northern California.

Okay, great. The where, where? Like more specifically than that, up in.

The Chico, California area.

Okay, fantastic. So you, you are not in the Socialist Republic of San Francisco.

And, and you are not paying $8,000 per month to rent a closet either. So good for you. Yeah, I think these high priced markets are just crazy. I gotta, I gotta. A message from one of our other clients today who lives in Los Angeles and is a wealthy, wealthy client, by the way, a celebrity client whose name I will not mention, but he and his wife been buying properties from us and he was just commenting on how absolutely nuts the Los Angeles market is. I mean, these markets are just, gosh, I mean, they are bubbles. I don't know when they'll burst, but they are bubbles for sure. I mean, it's just, it's just absolutely crazy. Clay, you want to talk about a bunch of things today. One is the power of compounding for millennials. I think that's super important. It's a great message for people at any age to hear. And then, you know, we'll talk about some other stuff too. So go ahead and dive in. Where do you want to start?

Oh, well, I guess I'd really like to start with talking about compound interest. You know, being a millennial and potentially having, you know, the years ahead to work the magic on these investments, on the investment properties. That number can do some real magic for you. And so.

It was something that I myself actually kind of had to play around with in order to discover the true power. And I've been honestly trying to explain it to my friends ever since, but it definitely has its power to make your growth.

Just exponentially fly up at a certain point.

Yeah, no question about it. And you know, I know you mentioned you had some spreadsheets and things like that, so feel free to share any numbers or figures you want with us. But I will tell you, Clay, you are absolutely right. Einstein called compound interest the eighth wonder of the world. And it is truly amazing how, you know, as I always say, most people in life are hurt by inflation. They're hurt by government spending, they're hurt by time. And as real estate investors, when we do it right, all these things are to our benefit. You know, we watch the news and we look at, you know, we hear a story about government waste and, you know, government spending and, you know, that's actually beneficial to us as real estate investors. You know, time passing by. Most people would rather not have time pass by. They'd, you know, rather go back to the good old days. And as investors, we put all these things, Father Time, Mother Nature, even when it comes to natural disasters, this is all actually beneficial to us, oddly. So. Yeah, that's. That's great. Compound interest, very, very powerful thing.

Yeah, yeah. No, I mean, looking at some of the numbers that I ran, you know, I'm looking. I just ran this a few minutes ago so I can talk to it. But if you were to put down, if you were getting to get a hundred thousand dollars, you know, invested into, into your properties and say you were able to achieve something like a 32% ROI.

You know, in about 18 years, that gets you all the way up to 14 million, which is amazing. It's great.

Yeah, but let's be a lot more conservative than that now. Many income properties, with all things considered, all of the different elements of return on investment of ROI can certainly produce 32% annually. But like I always say, even if it's only half as good. Right. It's still pretty amazing. It really is. And with leverage, you can vastly outperform inflation. So, yeah, it's truly amazing, isn't it? Powerful tool, huh?

I went back and checked my own spreadsheets and everything and ran the numbers myself after listening to one of your podcasts. It was, I forget the gentleman's name, but he's the submarine captain or Gary.

Pinkerton, one of our clients. Yeah, yeah, he was talking about the.

Leverage factor of the appreciation and just how that that can dominate, especially if you can find yourself in a consistently appreciating area or, you know, heck, being in one though one of the hybrid markets and like Phoenix perhaps, or. And ride it up even higher. That. That could really drive. Drive some things. But no, I do completely agree with you that it's pretty safe to just stay with your cash on cash and your principal pay down. Those are good numbers in and of themselves.

Yeah, they definitely are. I mean, you know, when you can get 10 or 12% cash on cash and, you know, it used to be better than that, but. And it will, those numbers will improve over the years as we see Rents go up, but of course, rents always lag. Appreciation, we always say don't. Don't count on the appreciation. It's just the icing on the cake. But boy, it sure is a nice treat when you get it. And sometimes you get it in spades. I mean, it's just phenomenal. Really. Is. Really is. So good stuff. Good stuff.

Yeah. I pulled up historical data on that. Actually. I went back to Fanny. I think Fannie Mae's website had it printed. But I went back since I think they had it recorded up to last World War II, maybe even. And, and they just had by decade, you know, home values. And I plotted it all out. Oh. Just for the audience. I'm an engineer and I'm also a licensed real estate agent, so I love the numbers. I'm in the numbers all the time. But regardless, what kind of engineer are you? I am. I'm actually a pavement engineer, which is in the civil engineering realm.

Formerly a geotechnical engineer, which is why I think Oliver and I get along so well. He's a former geologist. Sometimes we, we nerd out on that topic.

And, and, and Oliver is your investment counselor with our company, so. Yeah, that's good. We, we have clay. We have so many engineer clients. It just boggles my mind how. How many of our clients are engineers. And I, I always used to say, like when I was in traditional real estate for many years before I got into the investment only side of the business, the most difficult clients to work with were engineers because they were just. They were. It was very hard for them to make a decision. And, and, but now I love engineers. You know, they're, they're, they're our best clients because our approach is so analytical. Our approach to investing is, is really, you know, it's just very nice to be able to deal with things on a very sort of rational, analytical basis. But I tell you, the one thing about this, is that when you invest in single family homes, the most historically proven asset class in the entire world, rather than apartment buildings or mobile home parks or office buildings or retail centers or any of the other types of real estate outside of the single family home realm, you're dealing with people that, see, here's the power, okay? You can buy a property with an analytical mind. You buy a single family home with an analytical mind. You buy it like an investor based on my 10 Commandments of Successful investing and all the other stuff we teach. But then when you sell it, someday you can sell it to a non analytical person, an emotional person who will pay You a premium for emotions. Okay. You know, I call it the emotionality premium. And that's just a great thing. You know, when you sell, you can sell to either an investor or a regular traditional home buyer. And when you buy, you buy like an investor. So it's great. All the other types of real estate, all the other classes, you buy it hopefully as an investor mind and you sell it to an investor mind so you don't get any emotional premium. Do you know what I mean by that? Does that make sense?

Oh, you know, I just renewed my license and so I completely agree. That's why real estate agents use the comparable sales approach, whereas, you know, with multiplexes and everything else like that, they like cap rates and they like the, the income approach or the cost approach.

Yeah. But with comps, you know, in order to use comparable properties, that, that's how you can account for the human element there.

I think it really is amazing. Okay, go ahead, tell us more about your, your analysis and the other stuff you wanted to talk.

Yeah, so I mean, I did track the median house price across the United States and it definitely is, it's asymptotically approaching, it's actually hovering around 5%. I think it went 4 6, 446 5, something like that over the period. But I think that's a pretty good estimate, or at least I'd like to think that that's going to be a good estimate to go with and you know, if you're, if you're getting anywhere.

So that's a national.

Oh, sorry. Yeah, no, that's national.

Okay, so that's a national average. And what time period? I know you said Fannie Mae went back even to like World War II, I think you said, but like what, what time period are you talking about?

To this is gonna explain how nerdy I am. I, I actually did it by a 30 year period, 20 year period, 10 year period, and then a running aggregate period. And they all started.

Okay, so tell me where you started and stopped though. Stop and start. Because I just saw this today. One of my clients, our clients tagged me on Facebook and someone else had posted this that they had just read an article that if you wait. The cost of waiting to buy a home in Nashville, Tennessee. Okay. And Nashville is not one of our markets. It's always been a little too expensive. So we've never been able to recommend Nashville, unfortunately. But we do a lot in Memphis. And I think, Clay, you own in Memphis as well. And if you wait a year in Nashville, It'll cost you $32,000. That's. That's what the article said. So interesting. It's a $32,000 per year cost for not making a decision. So I thought that was pretty interesting. If you're in Los Angeles, it's even more so that's why it really matters. See, a lot of those surveys, like if you're looking at Fannie Mae, for example, the last data that they're posting might be from a couple of years ago. I don't know. That's why I'm curious as to when you started and stopped, because it makes a pretty big difference if you include the last few years, right?

Yes, yes. No, it does. I don't know exactly when they stopped. It was, it was restorative data, and so I would have to go back and check that. But I did like that. It was kind of. The curve was asymptotically approaching about 5%.

But, you know, when you put that in, boy, I think going back, what I was, what I was getting at is if, you know, if you put in the hundred thousand dollars to start and if you can, you know, if you do get that 32% return, you know, the power of compound interest is so big. And I think I said at 18 years, you'd be about $14 million, but all it takes is two more periods for you to get back up to about $24 million. And so two periods is $10 million. And that's, that's the, that's the numbers. I like to tell my, my friends when I'm trying to explain what I'm doing and also see if they have interest because, you know, it's easy for them to say, well, see how it goes for you. And, you know, oh, maybe, maybe after, you know, maybe we can do it after we buy another car or we remodel this part of the house. And I just kind of tell them, I'm like, you know, it's. It pays to do it now. It's, it's not the, it's not turning the $20,000 down payment into, you know, into 22 or $23,000. It's, you know, on a 20% return, it's the turning a million dollars into $1.2 million or 10 ain't turning $10 million into $12 million.

Okay, so when you said $10 million per period, how long's a period? What do you mean by that?

Oh, a year. If you get a 32% over a single year and turn.

So if you take 14 million and then multiply it by you know, 132% then. And then you essentially do that twice. So two years in a row, you can get that 32% right then. Yeah, you get that.

Okay, but. But what did you. What did you start with to get to 14 million? And how long did you wait? What was the compounding period to get to that? And what was the starting amount?

Oh, gotcha. So 100,000.

Yeah. Yeah. Okay, so $100,000 invested, or $100,000 property. Because we're throwing around some big numbers here, and I want to just make sure we're clear, you know, compound. The reason Einstein said compound interest is the eighth wonder of the world is because when it compounds, you keep working with a bigger tool, with a bigger war chest. And that war chest gets so big that, you know, once you get to the $14 million number, increasing that by $10 million isn't. I mean, it's hard and it takes time, but it's not incredibly difficult like it might sound. I mean, I know we're throwing some huge numbers around, so I almost want to rein that in. And I want to. I want to. And I know you didn't do the math for this, but I want to really look at. I want to say to the listeners, look, even if you got 12% annually or 10% annually, I mean, it's truly amazing. It's phenomenal what you can do in a relatively short time. I mean, I just cannot believe how quickly my life has passed. And the older any of you get, you know, if you're 30, 40, 50 years old, 60 years old and older, you know, you just know. It's like you remember 20 years ago, like it was yesterday. I mean, every year passes so much faster, you know, from our perception of it does. And it's just amazing. Like, there's an old saying, everybody overestimates what they can do in a year, and they underestimate what they can do in five years, you know, and that's so true, because the compounding, you know, in a year, you don't get much compounding. You can't go very far, far. But in three years, in four years and five years, you're starting to see some real compounding going on if you just stay the course. So. So go ahead with your thoughts on that. Clay, I interrupted you.

Oh, yeah, no, that was a $100,000 is your initial investment. That's not a $100,000 property. That's a hundred thousand, which might be four properties, you know.

Okay, so $25,000 each, you know. Got it.

And, but if you were to take that out, that's, you know, 18 years get you to 14 million, which, you know, maybe it's a lot easier to think about it as far as just, you know, taking. Taking that $100,000 and, you know, a 20% return on that gets you $120,000. That's 20,000. You know, $20,000 is pretty good. Pretty good money, especially to be making passively of sorts of.

No question about it. And like the iceberg, a lot of this return on investment sits under the water, and you don't notice it. You can't really see it until later. You know, you wait a few years, and then you do my refi till you die plan, or you sell the properties and you can 1031, exchange them. But if you want to take the money out, you can do a new vehicle that I'm looking at, and I'll have a guest on to talk about this in the future called a deferred sales trust. Deferred sales trust, a vehicle I've been looking at. If you. If you want to essentially cash out, okay, and maybe you don't want to buy another property. Now, I don't think that's the best plan, but it's a way you can defer gains and extract the wealth from your real estate portfolio slowly and just pay taxes and little dribs and drabs so it won't be such a hard hit. So there's. There's a lot of structure, opportunities available and things like that. So, yeah, it's. It's clay. Isn't it amazing? You know, when you really look at these, the numbers and the compounding effect, it's just incredible, isn't it?

Oh, yeah, definitely. And that's why I really am trying to, you know, show all my friends. I have a friend who drives a forklift. And I was asking him, you know, how long do you think it would take you to save up the down payment? And he said, you know, I could probably do that in about 18 months. And so, you know, I actually ran through with them. I said, okay, if you can take $25,000 and. And put that into a house and then say you get. Let's. Let's just assume conservatively about 24%. And I just walked him through every single year, multiplying it by, you know, 1.2, which is 20% increase. And his eyes kept getting wider and wider, and he kind of walked away. And at one point he looked at me because he's a high school friend of Mine. And he looked at me and he said, why didn't they teach us this in school? And we just kind of laughed.

Well, because they don't want you to know this. Yeah, they don't want you to know this stuff. You know, it's an amazing thing. And so you just keep multiplying it by 1.2 and then you take that number and multiply that times 1.2 and you keep doing that over and over again and is truly amazing. You know, we've all heard the thing about how you can take a penny and double it every day for 30 days and you have, I think like $14 million at the end of the month, you know?

You know, it really is. It really is shocking. And I just want everybody to be careful if you go, you know, Google compounding calculator or actually don't go Google it, because Google is evil. You can bing it. Yeah, you heard me say that before. You can bing it, but you can do even better than binging it. You can duck, duck, go it. I think everybody should switch their search engine to DuckDuckGo. That does not keep any logs on your searches. So that's the better thing. DuckDuckGo, it's a search engine and it's pretty good. I've been using it lately and I like it. It's good.

Really, really produces some good results. And so you can use that. Okay. Compounding is the eighth wonder of the world. We talked about that. Tell us about your properties. So how many properties do you have now, Clay?

I now have. I have three and then I also have, well, actually I guess four. So I have three active ones. And I also pulled off one of.

The.

Properties, buying it through my self directed 401k.

So that was a lot of paperwork, I will admit, a lot of paperwork. But I was tickled when I got it to come through. And so I have that. And then, well, I guess and then through my wife's 401k, we also have one locally here in California.

Good stuff. Good stuff. Okay, good. So congratulations on that. Keep up the good work. Work. What else should we talk about? You want to talk about your experience with any of those properties or anything? Or do you want to talk about working with our investment counselor or some of the other questions that we discussed before we started?

Definitely. Yeah. No, I think, you know, to give some other people who might be on the fence out there. It took me a while to buy into the concept of buying out of state. And that's really one of the things that I really attribute to you guys, you know, you. All the podcasts, and then working with Oliver extensively in the beginning, just kind of working through that and how the numbers worked and the. The comfort level of it. But, you know, one of the things that I think Oliver did the best for me is after talking extensively with him, I think he might have paired me up with, you know, like almost like a match dot com. Like, he paired me up with the perfect local market specialist to fit my. My personality and my. My investment philosophy. And so I kind of attribute it to him, but I'm very, very happy with the way the transactions go and. And the way the interactions kind of all fluidly occur with, you know, with me and Oliver and the local market specialist and just, you know.

Really has been a pretty seamless process.

Which I didn't necessarily anticipate, but I'm thrilled that it has worked out that way, so.

Yeah, glad to hear it. That's excellent. Yeah, good stuff. Yeah. Okay, good. Now, you wanted to talk about also some legal questions, and you have a bunch of things here that you sent me on my appointment request. What else? Just take it wherever you want.

Oh, I have lots of questions.

I think. Let me finish up on the Memphis market. I did do an analysis that Oliver was thinking would be beneficial for some people to have, because.

I ended up running the numbers. I was a little bit concerned. I mean, out here in the Socialist Republic of California, I see a bubble already occurring again.

I see what is happening in the Bay Area. There's another bubble going on. So I'm in fear that maybe there's a correction coming, but I had to go back and I, you know, it's not perfect data, but Zillow does. Does have a list of essentially the median housing price, and they have it published for Memphis. And so I went back into that, and I was able to kind of plot the entire, you know, January 2008, all the way through their anticipated January 2018 median housing prices. And so I actually plotted, you know, the. The depreciation that occurred during the. During the bubble, you know, during the burst of the bubble, and then kind of the tumultuousness that occurred for the next few years, followed by the rise that we'd seen in the last couple few years. And then I put all those, you know, different depreciation and appreciation numbers into, you know, my performa. And I. I did an analysis. I needed to see what. What was going to make sense, because the thing I had to get over was not being the, you know, analysis of proud, you know, Paralysis of analysis. Maybe I should hold my money in, you know, in a bank account until the bubble burst guy, you know.

Yeah, good luck with that idea. I've seen many people try it over the decades. And this is where I even agree with the stock market people. I hate to say, but market timing does not work. Okay. You know, you can. You can sort of nip at it around the edges. I'll admit that. That, you know, of course you want to be smart. And of course there are some things to consider when it comes to market timing. But the pure market timers, they just never end up as good as the people who just get their money in the market and get it working for them.

And that's what actually penciled out. I was a little bit surprised to find this, but essentially I modeled four scenarios. One of them was the investor who wasn't decisive. They wanted to keep their money in the bank, and they wrote out the whole downturn. And then the tumultuousness invested at the exact right moment, you know, at the low in which occurred in January 2016. So I modeled what that, you know, what that would look like, followed by.

Wait, wait, wait, January 2016 is not the low. I mean, no, but if you look at the.

If you actually look at the Memphis market, there was January 2016 was lower than January 2015.

And so there was some volatility for some reason in the market right there.

And so, you know, what I'd attribute that to? I bet it was the hedge funds and the private equity groups that were bidding up the market. So that's a small anomaly, but I think to do that right, you'd really have to go Back to like 2009, 2010, you know, to look at a study like that. But go ahead, tell us what you did.

Yeah, no, there was definitely depreciation from for the first two, three years. Then it was kind of flat, a little gain. And then 2016 was, was the low again. But essentially the way that it penciled out is if you were to invest, you know, let's take $100,000 investment again. If you were to take $100,000 and get a single year's return based on, you know, some of the performance.

And then go through the exact downturn that occurred based on that median housing price.

By the time that, you know, that person that stashed their cash in the bank, you know, making pretty much nothing, got their money involved after the volatility in2016,ish.

Everything had already come back up. And the person that had gotten Just a single year of performance pulled ahead. And so that was the, one of the things that really helped me feel like, you know, if I can't time this and you know, if I, if I don't want to look at my crystal ball, then, hey, you know what? This person not only did pretty well, but they, you know, there's a chance that they came out ahead of the person who was kind of waiting for the dust to settle.

Yeah. And then, so there's. So Clay, there's that old saying, we've all heard it, you know, keep your powder dry. Right. We've all heard that saying, and there's some validity to that in some areas of life. But the, the problem of market timing is that the human mind has this bias that it does not see the cost of waiting. Nobody really interprets that opportunity cost of waiting very well. Our minds just don't do that. But it does interpret the cost of losing. So say, for example, you invest and the prices go down. Now, of course, since we're all smart investors listening to this, or if you're new, you're not smart yet, but you'll be smart soon, I, I promise. And you know, we understand that income property is a multi dimensional asset class. So, you know, I talk about the three dimensions of real estate. There's really many more than that. But you know, even if the prices go down, you know, we still have the return on investment from cash flow, from cash on cash return. So our bias just looks at prices. Number one, that's the way most people think. They think. Well, you know, I bought this house in Los Angeles and I paid $500,000 for it and the market tanked and it went down to 350 or $400,000. Right. And I lost 100 grand or 150 grand. And that's what everybody sees. But, but, or they bought the property in Memphis and the market went down and it went from 120,000 to a hundred thousand. So I lost 20%. But they never see the amount of money they made from the cash flow and from the tax benefits and the other benefits. And they, they, they don't see that, that they lost that money by waiting. You know, it's just funny how our minds work. We've got to open, overcome our own mind a lot of time, don't we?

Yeah, definitely, definitely.

Yeah, that, that bias is there. I mean, even if you're an engineer, you have the same brain that all the rest of us have. And the way you overcome it is by doing what you did and really doing a study and really looking at the numbers and really evaluating opportunity cost. Opportunity cost is a cost that most people don't see. They don't evaluate properly. And it's just an oddity of the way our brains work. I'm not sure why, but I'm sure we just had to have that. It's built in from evolution and it's there for some reason, right?

Yeah, yeah, exactly.

And then to carry on, the other two scenarios I ran is the investor that invest the money and then gets two straight years of, of returns based on the pro forma and then goes through the same, you know, median house fall that we, we saw in 2008. 9. And that person never went below their original price. And so, you know, if you think it's going to happen in a year or two years or you don't know, that was, that was really powerful to see that if, you know, unless you can do it to the day.

It makes sense to get it in there and let it start compounding and getting the cash on cash. But you'll appreciate this last scenario I ran and that was I pulled UP S&P 500 numbers from the downturn and then I used historic averages and I ran the same scenario and I took it out about 20 years. And I'll just talk in terms of percentages here, but yeah, it was about 5%. It was only 1/20 of what the investment properties ended up yielding in a 20 year period.

Wow. Isn't that amazing? 1 20th. And this is why we don't. None of us ever know anybody who got rich in the stock market, you know, unless. Unless they're an insider. Right. That's the only ones who ever get rich in the stock market. But we all know lots of people that got rich in real estate. Isn't that just, you know, the reason why? Because the stocks don't have the multidimensional characteristics that the income property does. And so that's a, that's a very important thing to consider. It certainly is. Okay. Hey, Clay, we gotta wrap it up, but is there anything else quick that we can talk about before we say goodbye?

Yeah, I mean if, if you don't mind, I'm going to open up two cans of worms and you can answer them however you want or choose to hold them off. But you know, I guess the.

I have a feeling I know one of those cans of worms that takes like three hours to answer, but go for it.

Just, just the whole concept of when to think about putting properties into an LLC and kind of Detaching them from your own personal assets and whatnot. And then the second one is just whether there is a place or the best place to go to try to understand, you know, the, in an easy fashion, the tax aspect of investment properties. And so I'll leave it to you to take us out.

I'll take those two and answer them as quickly as I can. So first of all, the question of entity structuring and asset protection is extremely complicated. I've had Garrett Sutton on the show several times. He's a good attorney in that. In that field. Field. I've talked about it several times. I'm not a lawyer, but I want to say this one thing that so few people understand, and that is the concept of the internal threat versus the external threat when it comes to asset protection. Most people, again, there's some, for some reason, they have this bias and it really makes them dumb and blind or, you know, and here, here it is. The bias is that they think all about the internal threat, meaning the threat that exists inside of the asset. So with income, property investing, that's usually the tenant, okay? Now, in all these years, I've never been sued by a tenant, okay? So, I mean, and I've had hundreds of tenants, okay, But. And, you know, just never had any legal problems with tenants, okay, I've had legal problems in business for sure, you know, especially with what I say on the podcast. Some people get bothered by what I say when I, when I out their crooked behavior. But, but anyway, you know, that's one of the things we have to deal with, right? So that is an external threat. So let's take me as an example. This is a good. I'll just use myself as the example to explain this. So I've got all these rental properties and all these tenants, right? And if one of them slips and falls and, you know, ensues me because they say it's my fault that they had the slip and fall. The famous thing you always hear about, right, that I've never ever, with thousands of investor clients, heard of that happening, that lawsuit. I've never heard of it. I'm not saying it hasn't happened. I've just never heard of it. Okay? So none of our clients have ever told me, oh, a tenant slipped and fell on their property and sued them. In fact, I don't think any of my clients ever even told me a tenant has ever sued them. And I know that I haven't been sued by a tenant, you know, bought my first property at age 20. And in all these Years, you know, just never happened. Right? Okay, so that's one thing. That's an internal threat. And that threat is very easy to insure around, to just have good insurance and make sure you renew your insurance policy on time so it doesn't lapse. Okay, that's pretty easy to insure around. Okay. Now the external threat is. And let's use me as the example. So here I'm doing this podcast, and I stumble on this, you know, property manager who's ripping me off and ripping my clients off in Kansas City. I talk about it on the show, he sues me. That is an external threat, or at least it's external to the properties I own. Right? So if that guy was able to sue me and win and get a judgment against me, then he could go looking for assets that I have in my personal name, Right? Or in states, even in entities in states that aren't, you know, friendly to the investor and. And he could get a judgment and then go domesticate that judgment in that state and say, you know what? This guy owes me money. He. He hasn't paid me and I won in court, blah, blah, blah. And he has a house in the Socialist Republic of California. And even if that house in California is inside an llc, it doesn't matter. I can foreclose on the shares in the LLC or the corporation, and I can get that asset. Okay? Now, as Garrett Sutton explained, and again, I'm not an attorney, I gotta say that. I'm just speaking from my own personal knowledge as a layman. So check this out. You know, reach out to Garrett Sutton or any attorney that knows this field and ask them for details. I'm just giving you the concept. Okay? But if. If I have that property in a Wyoming llc, as Garrett explained when he was on my show, and he'll probably be speaking at our upcoming Meet the Masters again in January, he's spoke at the last two of them. Then they can still get that judgment, but until I take the asset out of the llc, they can't attack it. Okay? When it's inside that llc, it's protected. If it's in California, it's not. If it's in another state that's unfriendly, it's not. Here is another big complication about all this stuff. When you start crossing state lines, it gets very complicated. And this is why you really need to talk to Garrett or another attorney and get this straightened out if you. If you even go down this path, because it's a. It's a fairly complicated path, okay? What happens is, say, you have the Wyoming llc, but the, you know, Wyoming is not a place we necessarily recommend to buy properties right there. We haven't found, like, good investments there. So you might buy properties in Tennessee or in Florida or Indian, Indiana and. Or wherever we recommend, and then you have those properties owned by your Wyoming llc. Well, then you have to register most of the time. I don't think you have to do it in every state, but in most states, you do. You have to register it in that state. State, like it's doing business in that state. And then the question is, what laws apply? The laws of Indiana or Florida or Texas or Tennessee or the laws of Wyoming. And these become murky, complicated issues. Okay, now note that I've only talked about the internal threats so far. Now let's talk about the external threat. Okay, so the external threat is. Here I am doing my podcast, and I explained that, you know, the guy in Kansas City, and, you know, he could sue me and get a judgment and so on and so forth, right? Or the property tax lien company in Georgia or South Carolina or wherever the heck they're based, because it's complicated. They've played the game. Right, Just like we're talking about. Right? And so I don't even know where they really exist, to tell you the truth. Okay, but the external threat is, you know, you're driving your car, you get in an accident, the insurance doesn't cover all of the damages, or you say something on your podcast, or you run a business, or you're a doctor and you have a high liability business or whatever. Right? That's the external threat. So the external and the internal threat are different threats. And with the internal threat, the tenant suing you, for example, they can still get that asset from the inside. Okay? And the best way to protect the asset from the inside is to either have that asset owned through a bunch of structures or just have good insurance. Good insurance is the best asset protection, if you ask me. The other one is a high loan balance. So leverage the assets, so there's not much equity in the asset to get. The external threat is a different set of circumstances. Okay, so again, this stuff is complicated. It's. Most people just massively oversimplify it. They go to one of these. These disgusting. In my opinion, Mills, that'll just sell you a bunch of entities, and they don't really consider what you're doing. You know, you need someone to throw thoughtfully consider this stuff with you. Okay? And the other thing is, once you set up all these entities, then you got to start keeping everything separate. And there's like, governance things that you have to do and follow some formalities and. And you know, you got to maintain them, and it'll cost you money every year to maintain them. You know, it all can be done, but I'm just saying you gotta really think it through. Okay. Okay. So how's that for an answer? I know I didn't answer it, but did I confuse you?

It's a start. It's a start.

Yeah, it's a. It's a start to the road down confusion and complexity. So there you go. And then the other problem is, if you put your properties inside of LLCs, it's going to be harder to refinance them later. Okay. So that's a whole nother ball of wax. It's also harder to insure them because the insurance becomes a little more complicated, too. Okay. Okay, so that's that one. Your tax. Let's take your tax question, Clay. Okay, so, tax question. So if you really want to learn about taxation, there are certainly many courses out there that you can buy and things like that. And I don't have one to recommend, unfortunately. But H R Block teaches courses, and I was going to take one several years ago just because I wanted to improve my own knowledge. But the problem is they're not focused and they're not targeted. They're mostly just how to fill out the forms. Okay. They basically teach you how to become an enrolled agent, basically. Right. And so they have courses. But one of the best ways I think you can learn about this stuff is to simply buy a software like TurboTax or, you know, there's many others out there too. Right. And you can buy one of those softwares and try doing your own tax return. I'm not saying that's a the return you'll want to turn into the irs, but just by going through the exercise of using the software, you're going to learn some stuff. I have not done this, but I think it could be a good education. The other thing you can do is you can just listen to my podcast, and if you haven't listened to some of the interviews I've done with tax experts over the years, go to Jason Hartman.com and use the search engine there and find those interviews and just listen to them and they will help you. And you can reach out to those professionals and talk to them and ask them questions. I will tell you one that I did not have a very good experience with is Kohler. Okay. So I had them do my taxes One year and I did not like the experience at all. I found his law firm to be a little bit better than that, but, you know, had some issues there as well. But tax wise, I didn't like my experience. Okay. I hope he doesn't sue me for saying that. You see how my business is external threat. Okay. But, you know, I mean, I like him. He's a nice guy and all, but I just did not like the experience using his tax firm. We've interviewed some others on the show that, you know, I'd recommend, had some good experiences with. If nothing else, you can learn some things from them. Okay. And just learn something, some things by listening to that interview. Does that help? Does it make sense?

Yes. Yeah. No, it does. It does.

Okay. Good. Good stuff. Well, Clay Slocum, our client, thank you for bringing some of these issues up, sharing some of your research. I appreciate it. The power of compounding. Very important. Don't like, like Robert Allen says, the old saying, don't wait to buy real estate. Buy real estate and then wait. And I just want to wish all of you happy investing. To you, Clay, and to all of our listeners, and thanks so much for coming on and sharing your story today.

Thanks, Jason.

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