Join Jason Hartman as he opens with some thoughts on buying far below construction or replacement costs sharing an email from Allstate Insurance, then a discussion of an Orange County Register article citing Marcus & Millichap’s 2012 National Apartment Report. You’ll hear Michael LeBoeuf’s best-selling book, The Greatest Management Principle in the World, where he discusses human behavior and how “What Gets Rewarded, Gets Repeated.” In the news: Underwater borrowers eligible for settlement write-downs. A calculation by a Brookings Institution economist narrowed down a pool of underwater homeowners to 500,000 who could qualify for principal reduction from the $25 billion mortgage settlement. Using the parameters of the settlement, Ted Gayer found just 5% of the nation’s 11.1 million underwater borrowers could get the principal reduced on their mortgage, first reported by The Washington Post. About $10 billion of the settlement, in the form of credits, will go toward principal write-downs made by the five banks. Only homeowners delinquent on their mortgages are eligible. Gayer eliminated others according to underlying requirements, including Fannie Mae or Freddie Mac loans and homes not owner-occupied. It’s a rough calculation, Gayer warned, and he made some assumptions in the process. He eliminated any loans not held on the banks’ balance sheets, as well as any with a second loan. Mortgage bondholders may not take kindly to principal write-downs, he said.
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Introduction: 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 has 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 is your host Jason Hartman with the complete solution for real-estate investors.
Jason: Welcome to the Creating Wealth Show, this is your host Jason Hartman and we are here with Episode #248 almost to 250 that’s the 10th show again folks and you know what we do on 10th shows we talk about non-real estate, non-economic, non-financial topics, but of course they always seem to relate back to it in same way and gosh we got some really good 10th shows coming up by the way some guests that I am working on you are really, really going to like so anyway stay tune, but we are only at Episode#248 today so let’s talk about some stuff there.
First of all we are going to have a great client case study today, and you are going to hear about what you can learn from a really bright client of ours who has all sorts of great ideas, he is always talking to me about him at our Meet the Masters event which by the way of course I have to mention that is coming right up in about a week and a half in Irvine, California so make sure you join us for Meet at Masters at the Hyatt Regency in Irvine, register at jasonhartman.com.
And I think we’ve got two more price escalations before that event so register right away and get it on the lower prices while you still can well, folks I tell you in a lot of ways the good news just keeps coming in. in every silver lining there is a cloud, I know that’s the opposite way that’s the same supposed to go, but its good and bad really since I now live in the Greater Phoenix metro area this is the first time that I’ve really had the opportunity to spend a lot of time basically my living in one of our markets.
We would always be in a situation where we would scout markets, travel to the markets from time to time, look at the inventory, and work with their providers there, and that’s one of the big values that we had as that we deserve a lot of leverage over the providers in the various marketplaces, but its been interesting because we have always found the Greater Phoenix area to be a rather difficult market in which to do business.
Now, of course we were here for the big bubble that got all the hype. We were in this market a long time ago, and then the prices got too high, and being area agnostic as we are, we bowed out any of our clients that bought in that market. They just continued to rent and operate through stabilszed properties that’s a much different scenario than entering the market at the wrong time.
And then we came back into the market somewhat recently what it was about a year ago, may be a little more than a year ago now when we saw all of the prices having declined so much, and its crazy but I have been networking with people here. I have been meeting with various vendors, trying to get more good inventory.
In fact the last two nights its 10:26 here as I am recording this 10:26 p.m., and I want to a real estate club meeting here in Phoenix tonight, and last night I went to another real estate club meeting here, and I got to tell you the dark cloud that seems to be a bit of a problem is that it is getting really tough to find inventory here.
You know one of the speakers said at the club I went to tonight and I didn’t verify this because its not really — and I honestly just don’t know how to really explain this to you what I am about to say. In fact, I haven’t come to terms with it myself, but when you look at prices of properties, and of course they go up, and go down, and they jug along and do the re-linear thing and it’s all different at different time periods at different markets of course.
But when you look at prices it is hard to say that overall there is appreciation or depreciation sometimes and here is why because one of the speakers that got out. There were three speakers at this meeting I went to you tonight, and I really don’t have the opportunity to do this very much to go to like real estate club meetings, and networking groups in our local markets because I live here in Phoenix, and I have had the opportunity to do that which is kind of a different thing for me honestly so I am developing a much greater depth of understanding almost like I’m a traditional realtor in this market like I used to be in Orange County for many, many years.
And what was interesting tonight is one of the speakers who is a rehabber who buys properties at auction, and then sells them to people. He said to me since the — or he didn’t say to me, but he said to whole audience sort of being so I guess selfish in saying that.
But he said to the whole audience prices have gone up about 20 to 25% from the bottom in the Greater Phoenix market, but I am thinking you know you can’t read a survey. I don’t think you can find a survey that says that certainly the Case–Shiller index wouldn’t tell you that, or the governments whatever that acronym a [FoA 0:05:28.9] acronym is Federal Oversight, Housing Oversight blah, blah sorry its late, and I am going to bed after I record this okay anyway you can’t find a survey that’s going to tell you that, but the interesting thing is when you talk to the ground troops and you talk to me we are going to all say that’s true in the segment of the marketing which we operate where the most sensible investment properties are in the right cities, in the right neighborhoods, and again you can’t find a survey that’s going to show you this.
It’s anecdotal more than it is empirical. I would tell you that what he said is true that prices have increased by 20 to 25% and again you are not going to document that anywhere in any survey, but in the small segment, in the narrow guidelines, and which we like rental properties in this particular market I would say that is true in Indianapolis. You know you heard our client drew on the show several episodes ago may be about six, seven episodes ago the young guy that I interview.
And he will be at Meet the Masters by the way so you can meet in person if you are attending, and he just emailed me yesterday, he said I want to buy another property, I am ready, may be two properties. I am about on the verge of having enough money, and buy two more, and he just saves up cash and buys them with cash, so it takes them a while to save that money, but he lives frugally and saves quickly and that’s all very prudent. And he says to me, on this email he says Indianapolis where I have the three properties, the first three that I bought its just dried up. I can’t find any deals like that anymore, and I am like yeah I know believe me we are experiencing that same inventory problem that you are we are experiencing as a whole company so again I guess the moral of the story is that in some aspects I would say this, you certainly don’t have to talk anybody into buying good income properties nowadays.
A few years ago, yeah you did. You need it to really sell it if you will, but nowadays not at all. I mean anybody with a brain gets it that this is the time and of course I don’t mean everywhere, all real estate is local. I don’t mean every deal, every price segment, every product type. I don’t mean math. I certainly still don’t like condos, and I don’t like retail or office properties, and I don’t really know much about industrial properties.
I’m not going to comment on that, but with housing, with good housing in the right places, in the right neighborhoods, the right cities, and the right price segments, and product style segments boy inventory is really, really scarce.
Our investment counselor Sarah, who you have heard on the show before, I have had her on the show a few times. She has been telling me this for the last several weeks. She keeps complaining about it, and she says, Jason we’ve got a real inventory shortage problem. I’ve got clients that want to buy it. I don’t have enough properties to sell them, and wow so I can’t win for losing sometimes may be we had to stop talking to people who want to buy properties and try and work on more people that want to sell properties, I guess that’s the problem with every business.
You know what we do? We are a broker right, so we match people up. We are a matchmaker, so we’ve got all those balance out that’s supply and demand equation for our cents in order to make our business run in the supply-chain rain as effectively as possible, and reminds me of a comment that one of my traditional agents in my old real estate company said to me, well she didn’t say it to me at first she wrote me an email on it, and we discussed it later.
But I’m going to say that this was probably 2003 to 2004 and for those of you don’t know I owned a traditional real estate company that I originally bought a failing franchise, turned it around, and that franchise sold out, and it was kind of a big disaster right around 2001.
What was in 2001? Well, it was 9/11, and its like every bad thing that could happen happened to me in that business. It was pretty tough. I got to tell you it was the biggest, biggest challenge of my life, and then when the market got really good again, when the federal reserve, when the maestro is they called Alan Greenspan who was nothing more than a [kansean 0:09:47] you know he was the sell out. Okay he was the total sell out. Mr. inflation, Mr. money creation himself, and I don’t think history will reflect too well on Greenspan, and you know by the way if there is one person, if you are looking to place blame on the financial crisis on one human being. I think the most to blame would be Alan Greenspan really because all of the things that proceeded the financial crises in his ship easy money policies that’s what happened.
He just did overdid it. I admit that I was chairman of the Federal Reserve post 9/11 I would have loosened the money-supply, but he just loosed it way too much, and it led to all kinds of dysfunctions. Well, my agent Marty I remember she wrote me this email, well I have known Marty for years, I met her when I — you know we used to work at RE/MAX together years ago before she came over and I recruited her to my company, and I own the company.
And she wrote me this email. She said, I wish, and I would just never forget this email. She said I wish interest rates would go up, and I thought wow, isn’t that odd for a realtor to say that, and she was complaining there was just no inventory in Orange County in the City of Irvine where her office was based, and she had buyers that wanted to buy.
She just couldn’t find them. Every house had multiple offers. And again this was not dealing with investors. This was traditional home buyer types, but every blessing is a curse you know and every curse is a blessing in some ways, and I guess I am just kind of winning a little bit here about how hard it is to find inventory, so that’s why I have been going to this investor clubs here in Phoenix because I am just looking for inventory providers.
Inventory is so scarce, and its really becoming that way in a lot of our market, so folks I am telling you if you find good properties in the right locations with all of the stars being aligned may be even a few of the stars not being perfectly aligned you better buy them because I am not being a salesman.
I am telling you just look at our website, look at jasonhartman.com, and if you’ve been looking at our website for a while compared to how it was six months ago, or a year ago, I know a lot of you have been following this for years, and you haven’t even called us yet to express interest, you are just listening, you are looking at the website, I know you are out there because we get calls from you all the time or people that go to the jasonhartman.com and fill out a form, and say you know I’ve been following you for years, and I just finally decided to contact you.
We know you are out there okay so if you are out there just compare it, I mean don’t you think we would want to have more properties on our website in the property section. Of course we would. You know as Bob Dillon said, the times they are changing. Well, speaking of which I got a great little email today.
Its dated today March 13th 2012 at 1:38 p.m., and its from Angie my insurance agent in Indianapolis, and she says exactly this. This is the exact email. Hi Jason couple of questions on [unintelligible 0:12:47.5] that’s the street name of one of my properties. Couple of questions on [unintelligible 0:12:50.1] the rebuild value for replacement cost comes back at $147,644 talk about an exact number, ah Angie. So you know the insurance companies they modeled the stuff, and that’s what they are saying the replacement cost is so Angie goes on to say what do you feel comfortable ensuring the home for? I can do the stated value, but the $62,000 you paid for the property seems way too low.
Can you tell there is a smile on my face folks? Let me see. I paid $62,000 for the property, and the insurance company, my insurance company is telling me that it is worth $147,644 to be exactly more than double what I paid.
Angie goes on to say please let me know if you would like a flat $100,000 or any other amount for replacement cost, or any other amount up to the replacement cost, and that is how I will insure the property. Have a wonderful evening and I look forward to hearing from you Angie at Allstate Insurance.
Well, Angie boy I was happy to see that email may be I go to pay for a little more insurance, but I got a great deal, didn’t I because I bought way below cost of construction or replacement, and I guess that’s not just my opinion, my insurance company, the tax accessor, the appraiser everybody think so, so that’s really, really hurtening its very good news.
Okay interesting article in the Orange County Register, the paper for my old hometown with one of my friends. David [Jerome 0:14:25] emailed this to me one of my YEO, Young Entrepreneurs Organizations friends, and he put this on my Facebook page the other day, and its really an interesting article so I am going to read it to you just a little bit here may be not the whole thing, but here I want to show you how people can misperceive things, right? And it says U.S. apartment sector in “full expansion” article is dated March 9th, 2012.
Apartments are becoming scarce in most U.S. housing markets resulting in rent hikes throughout the nation. A new apartment outlook states broker Marcus & Millichap’s 2012 National Apartment Report forecast that employment and average rents would go up this year in all 44 U.S. metro areas. It tracks “recovery has move beyond the cyclical surging demand to a more sustainable expansion as remarkable shifts in demographic, economic and social patterns underpin demand for rental housing” the report said. Now, folks I’ve talked to you about a lot of this, so this is just reconfirming what I have been saying. But the article goes on to say. It says America created 900,000 new households last year in part due to 20 to 34 year olds taking 70% of the new jobs, and moving out on their own, the report said.
Now, remember this is my comment. Remember when I talked to you about a few shows ago where I talked about how so many of the people in that age group the Gen Y age group are still living at home, and ultimately they are going to be moving out creating a whole much more rental demand and how this benefits us as landlords.
I mean I don’t know if there has ever been a time in U.S. history where you had the convergence of all of these wonderful factors coming at the rental housing market, and remember by the way this report is talking about apartment, so there are some new ounce differences for sure when it comes to what we do which is mostly single family homes, duplexes four plexes in some apartments.
But this is solely about apartments. Okay there are some differences and I will talk about those in a moment. It says foreclosures, tight credit for home purchases, and people choosing renting overbuying as a lifestyle preference contributed to a net rise in rental households the report said.
Specifically the report said and there are some bullet points that I will just share with you. asking rents are projected to increase by 3.8% in 2012 to an average of $1101 per month effective rents that is asking rents less landlord concessions or discounts are projected to go up for 0.8% so what that means folks is that a lot of times these landlords will offer a concession so they might say first months rent free if you will sign a 12 or 15 month to 24 month lease right so when you amortize that first month into the overall picture, you get the average rent increasing at well, no I am sorry just the actual rent.
The coupon rate increasing at 3.8%, but when you intermingle all of those things, the concessions or discounts in with the rents you are saying it’s actually projected to increase by 4.8% another bullet point.
The number of empty apartments is projected to drop to 5% nationwide down from 5.4% in 2011, and 2009 8% of apartments were vacant, so you see how the vacancy rate is just plummeting as occupancy increases.
Next one builders are projected to complete 85,000 apartments this year too few to relieve the demand problem. U.S. is projected to need 120,000 new apartment units, okay so see there is a shortage right there of what that’s 35,000 units is the shortage okay.
Now, here is what’s interesting. I want you to see if you see the fallacy in what is said here in this bullet point. It says San Jose California ranked first in the nation as the best market for apartment landlords. San Francisco ranked second. Both are projected to benefit from new hi-tech jobs in income gains.
Other markets benefiting from technology, financial services, and leisure, and hospitality are projected to have strong landlord markets in 2012. Before I talk to you about that fallacy may be you’ve already noticed it. I want to read the next bullet point because it also is part of the fallacy.
Los Angeles dropped to — that’s where I grew up, Los Angeles dropped to 13th best from 11th last year because of slow payroll growth, housing vows, and government budget constraints. Average asking rents are projected to increase 3.5% to now notice the rate $1446 per month. What is the fallacy in those last two bullet points’ folks? Here it is. the casual observer who doesn’t listen to the Creating Wealth show and who doesn’t know any better would think well gee, if I am an investor I better run out to San Jose, San Francisco or may be even Los Angeles and buy an apartment building.
What did they not tell you there? They left out a hugely important factor. The fact that they are so expensive to buy in those markets and the rent to value ratio is so completely out of sync. Its just stupidity folks because there is a chart next to this that talks about it ranks the markets in order.
Okay and watch this. Look what are ranks? Just the top five markets. Well, we will go top seven. San Jose number one, San Francisco number two, New York number three, Boston number four, Orange County my old hometown number five, San Diego number six, those are all incredibly expensive places to buy real estate. Those are all high end markets. The rent to value ratios in those markets stink. They are awful. So well, you may have low vacancy and you may have rents rising, they are not rising enough to compensate for the lousy benchmark that they started with.
I mean folks, people just — they don’t get it. And this is the way the major media report stuff. It is so misleading. It is so deceiving and down at the bottom of this list by the way let me point out some of the markets at the bottom of the list as we go down. I will just give you a few highlights. Houston number 18, I like Houston great place to invest. Phoenix number 22, another good place to invest if you can find some good inventory, good luck. Charlotte, North Carolina, I like Charlotte pretty well. We are not doing business there at the moment, but Charlotte it’s a good market number 25.
Turn the page. Number 34, Saint Louis great place to invest. I mean the properties there are so cheap that the rent to value ratio in Saint Louis phenomenal. Now, I am going to point this one out even though I don’t like the market. There are some other markets I don’t like too which I haven’t mentioned, but Las Vegas the big market that gets too much attention that I don’t think is a very good place at all yet in six months, two year I am probably going to say Vegas is okay its getting there.
But there is still a lot of — vacancy rate is too high. The economy is not that well diversified, so again listen we got providers and what do our providers that we do business with now in another city keeps bugging us to do Las Vegas. We won’t do it. We could sell it. Hey we need inventory, we could recommend the clients go there. But you know what a reputation, you only get one of those in life, and they are very, very expensive, so we are not going to risk hours to just for the sake of doing some business. Okay but number 37 love this market Atlanta and that’s a bad market they say.
Now, actually I do want to point out one other thing that might tip the scales a bit. See markets like Atlanta, Indianapolis, those kinds of markets for apartments because by the way Indianapolis number 39 on the list those markets the single family homes are so inexpensive there that they are probably not great, great apartment markets.
They are probably — hey as far as the rent to value ratio, I am sure they are much better than Los Angeles, San Jose, San Diego, San Francisco, New York, Boston are only the markets at the top of their list, but again those are markets where single family homes get very cheap.
Last two bullet points. The Inland Empire that’s right outside of my old hometown, Orange County and LA both my old hometowns. The Inland Empire ranked best in the nation. In 2005 had slipped to number 29th and that’s by the way the Inland Empire, that means riverside in San Bernardino Counties in California slipped to 29th out of 44 metro areas this year.
The 2011 report cited below average rent growth. Still tenants there face a 3.8% rent hike this year bringing the average rent to $1069 per month. Now, the Inland Empire’s I keep looking at that one because I keep kind of being interested in it. I don’t think its ready yet kind of like Las Vegas may be, but there is going to be a point at which I am actually going to recommend that market.
And can you imagine it’s actually in California. Would Jason Hartman actually recommend California? Yeah maybe reluctantly but I can see it happening not yet, but I could see it happening as much as I like the bash California. Last thing here before we get to our interview under water borrowers eligible for settlement write downs, a little excerpt from our article here.
And if this just doesn’t show you what I talked about on the last show remember what is the greatest management principle in the world? What gets rewarded gets repeated. So notice how that’s happening here. And this if you are a responsible citizen, this should just get your goat because it makes me mad too.
Its just not that good, but you know you can see why people do strategic defaults when stuff like this is out there because that who gets to write down, right here what I am going to tell you its going to make him mad.
So the title Underwater Borrowers Eligible for Settlement Write Downs meaning writing down the principle balance of the mortgage, a calculation by broking since institution economist narrowed down a pool of underwater homeowners to 500,000 who could qualify for principal reduction from the $25 billion mortgage settlement.
Using the parameters of the settlement [Ted Gear 0:25:25.5] I guess that’s some kind of consultant or something. No, may be that’s a broking institutional economist sorry it’s probably who they are talking about.
Using the parameters of the settlement [Ted Gear] found just 5% of the nation’s 11.1 million underwater borrowers could get the principal reduced on their mortgage first reported by the Washington Post about $10 billion of the settlement, so the settlement is $25 billion, 10 billion of that settlement in the form of credits will go toward principal write downs.
In other words, if your mortgage says 200,000 suddenly it might say a 150,000 or even a 100,000 it will just be written-off. Boy, aren’t you glad you borrowed as much as you can. Aren’t you glad you didn’t pay down your mortgage because you got nothing if that’s you?
Doing the seemingly responsible thing, I know its counter intuitive, you don’t get anything the article goes on to say that was me talking obviously. So, it said listen to this what I am about to say here.
So, who gets the write-downs? Only homeowners delinquent on their mortgage are eligible I am going to repeat that. Only homeowners delinquent on their mortgages are eligible, so in other words my commentary I you didn’t buy the new iPad3, if you didn’t go on that extra vacation, and if you did the seemingly responsible thing, and paid your mortgage rather than enjoying life and buying goodies and gadgets you don’t get the benefit of this.
You got to be delinquent on your mortgage to pay the benefit, so I wonder why people are strategically defaulting folks because what gets rewarded gets repeated. Again I like chuckle at this stuff, and if you are a new listener you may not understand all of what I am saying, but if you are a regular listener you get where I am coming from with my sarcasm on this.
Okay so they estimate others according to the underlying requirements including Fannie Mae, and Freddie Mac loans, and homes not owner occupied. It’s a rough calculation. [Gear 27:33.7] warned that he made some assumptions in the process. He estimated any loans not held by banks on the balance sheets as well as any with a second loan and that mortgage bond holders may not take kindly to the principal write-downs he said.
Well, of course they won’t because when you are bond holder you are nothing more than a lender so you are getting burned. If you loaned your money in one of these mortgage backed securities you are going to get burned. If you borrowed the money and you decided to go delinquent on your loan, whether by choice or necessity. I know its not always a strategic default decision sometimes its just economic hardship you are getting rewarded, so its just counter intuitive folks you got to follow my strategy because what gets rewarded gets repeated.
So, anyway enough of that let’s go to our guest and we will be right back with our case study from our client. He has got some great ideas on property management on keeping track of your properties and what kind of research to do before you acquire them. You are going to love this interview and this is with one of our clients, so we will be back with that in just a moment.
Introduction: Are you interested in a property outside of our network? Do you need a second opinion? No problem. Let Jason’s experts evaluate the deal. Our deal evaluator is only $50. For more information go to jasonhartman.com now.
Jason: It’s my pleasure to welcome one of our clients to the show. One of the things that I had mentioned before is that I learn and we as a group at my company learned so much from our clients and at the last Meet the Masters event I was talking to David and he is just a wealth of ideas.
It does so many unique things that I never thought about in terms of property identification and management, and trying to make management easier and just all kinds of stuff that you will really glean some valuable information so David, thank you so much for coming on the show today. I really appreciate having you on and having you talk about your experiences and what you do to be a more successful investor so thank you.
David: Oh my pleasure Jason. I have really enjoyed working with you and your entire staff, and hope to buy some more properties in the future.
Jason: Well, we appreciate having you as a client. But first of all may be a little background what are you interested in investing in income property?
David: Well, I had been looking at income property as an idea for many, many years. I had read just about every book there was on you know how to buy and rent small properties everything you can imagine from the rich dead books to the XYZ books, and I was one of those people that really had the info down, but didn’t had the practice down.
I know you like to say there is some paralysis there, and I think that is probably the case. And I did think that it was probably going to be one of the best options for long retirement funding. Something that if I could get and maintain and hold on to a good number of properties that inflation and just the way the world works would make the income on those grow every year, and even if I never decided to sell, and either that would be something which help me fund my retirement.
And so then when I found your podcast and listen to them from front to back it all made sense to me, and I decided to jump in, and actually try it.
Jason: And how did you happen to find the podcast?
David: I think it was just real estate, and I went to iTunes real estate podcast something like that and found you there.
Jason: Okay great and how long have you been listening to the show?
David: Since 2007 I believe.
Jason: Okay so well, quite a while. Yeah you are one of our listeners from a long time ago, not the oldest listener, but one of them in the beginning. Do you remember what show number you started with by any chance?
David: I don’t. I do remember going backwards in time after the one that I had listened, and I had a good 10 or 12 to listen to I think.
Jason: Great well good. Well, what did you start with? Which one was your first one?
David: That was Kansas City, Missouri the Duplex.
Jason: Okay great. And you have some processes so you do strike me and this is not a fair statement please tell me so, but you strike me as a pretty analytical person who is methodical who really wants to integrate good practices into things, and that’s why I wanted to talk to you on the show about it so that other investors could learn from you because I really like some of the things you do.
I mean I never thought of some of the stuff, and you’ve got some great things so may be we will start with the beginning of the process about where to invest, why did you pick the markets you picked. You went, I think you flew out and looked to properties and what struck you about them, and then get into more the management end too.
David: Sure. I am a fairly risk averse person. I like to make sure that the risk is managed, and it’s much because I don’t want to ever lose the property. You always talk about playing to win, not playing to lose, but I do think that the key component in playing to win is making is making sure that you never lose the property. You don’t have the foreclosure or an insurance claim or something that would stop you from having the benefit of that property after all the years of getting the tenant to pay that mortgage for you.
Jason: Yeah and let me just clarify that for a moment. The analogy I made, I just want to make sure people understood that what you said. Its some people and most people in life are playing not to lose. They are very security minded. They are playing not to lose whereas I say play to win, but first you’ve got to not lose in order to win, so those are the steps right. Yeah anyway go ahead.
David: Yeah so I am one of those people that actually wanted to go out, and open the door myself and listen to hinges creak and see what the neighborhood looked like, and I have done that on all my properties, and I really think it’s a good idea for somebody that has the time and doesn’t mind spending little extra money to go do that because you will be able to take a look at a couple of different properties in that area, and really see why one is correct for what you want to do with it.
Sometimes it comes down to more than just cash flow because I think that will come in the future. Sometimes you are looking more for a neighborhood or more for a style and property that will have less type of maintenance and that type of the thing, so I really do enjoy going out and seeing it, but before I go out and see it I don’t want to waste my time, so there is a whole group of websites that I’d like to use.
And I guess Google Maps is probably the first one that I go to that will just give me a real good street view of kind of generally what’s in the area, and an overview.
Jason: Such a great tool, I mean investors one of the things you want to do is you want to look at those satellite images and notice what is the property next to this? There were railroad track, is there a landfill, is there some sort of commercial facility? It might be a sewage plant. Is there an airport? Do you see a runway there?
David: Yes absolutely.
Jason: All kinds of things to look for like, if there is a prison nearby I love whoever I drive from California and Arizona and you go by that prison there are signs to say don’t pick up hitchhikers and I guess its good advice.
David: Yeah actually I have found a prison landfills. I don’t think its on a hazardous waste side, but all of those are keywords that I do type into Google Maps once I am on the page that allows me to search nearby you just click search nearby and I do type in things like prison, landfill, hazardous waste side or super side and then also positive things.
Shopping, you know pizza joints, home depot, entertainment because I’d like to see how far people are going to have to drive and what kind of the quality of life would be, and one of the things that really impressed me about the Kansas City property that I bought is they had just completed a new best bass pro shop less than a mile less than a half ago, and I had not yet been in a bass pro shop the minute then I walked —
Jason: Those are the huge, the big giant stores right?
David: Yeah sporting good store and that the minute I walked in that place I knew that people would want to live near that to be able to go that pro shop and get their sporting goods. Its an event to go to, and so yeah so Google Maps and being I was going to mention has their birds eye view has another satellite imagery just gives you a little different angle, little different dates sometimes those images aren’t really all that fresh, but gives you a good overview of the area.
And then besides physically looking at it, you know then there is all the data you want to, you are right about the area. You know what is the population like, what is the average income like, what are the average rents like? What percentage or renters versus owners, what’s the age category and that’s available through a bunch of websites one that I like a lot is city-data.com.
Jason: We use city data all the time. It’s great.
David: There is another one called ZipSkinny, zipskinny.com does similar type of thing to try and compare if a manager is telling me that the rent is going to be a specific amount I will go to the rentometer.com website and type in the address and the bedrooms, and it will give you just a rough idea whether that’s a little more or little less than the average will bear in that area because you know I don’t know what the rents are in Kansas City, Missouri before I have gone out there.
Jason: Right. One thing I do want to say David is with Rentometer and Zillo and all these websites whether it would be prices or rents those are both pieces of market data you want to know always take them with a little bit of a grain of salt because it’s a computer trying to do what does require some human interpretation right? I mean is that a fair stament?
David: Absolutely. In fact, yeah none of this is a 100%, but it gives you another piece of data that I can compare with what I am hearing or what I found on my own, and again its way out in the ballpark than you have to throw it out as an outlined number, but there is another one Crime Reports.
There is one called crimereports.com, and it lets you search sex offenders which no matter where you live there is sex offenders everywhere, but you probably don’t want your rental house in the cluster to the darkest red with dots. It also lets you look at violent crime, property crime, police calls in the area, and so it’s nice if you can just kind of get an idea what is this area like? What am I going to expect for my tenants to expect?
There is a home estimator for replacement cost that I like to use. Now, when you give an insurance policy, your insurance agent would give you an estimate of what the rebuilding cost will be, and as you’ve said many times people will buy a home in your network and then they make and insure it for much more than the actual price they paid.
Jason: Right. Which they initially get kind of angry about, but ultimately they realize they just got themselves a great deal too.
David: Exactly and so there is — that’s a free service from your agent, but sometimes the agent doesn’t get the number of chimney’s right or the detail on what the flooring is made of and its not quite an accurate number.
In fact they say something like two out of three homes is under insured in most cases, and so there is a place I like to go called AccuCoverage, accucoverage.com and for $7.95 you are the one putting in all the data, and they will then generate that replacement cost report to you and it’s the same type of report that they use for the replacement from the local materials and the local contractors to rebuild that home to the same specifications.
Jason: And you have a background in risk management is that fair to say so that’s why you think of all these things huh?
David: Absolutely. Sure, well its part of it just gives me a little more comfort, yeah.
Jason: Before we — I don’t want to move on, and forget to say this, but one of our other clients who was on the show a long time ago, I’m going to guess that the show number was like number 89 or something may but a long, long time ago, and you may have heard the show [David Porter 0:38:22.7] a reporter he was talking about another metric that he uses and you may remember this one of you will listen to the show it was the free lunch metrics.
David: Yeah school lunch program.
Jason: Yeah you remember that. He thought that and he bought a whole bunch of properties in Indianapolis from us, and then he is — I think his latest thing is he is buying Phoenix, but great guy, and he just thought he would see how many free lunches are being given out at the local schools as an indicator of what the neighborhood was like, and so he just kind of tickled me to free lunch metric who would have ever thought of that one, right?
David: I do remember hearing that, and I looked at the lunch metric, and I didn’t think it was that good a metric for me because the more I had been hearing, the schools were sending home the permission slips for the free lunch to everybody regardless of income, and so who isn’t going to get a free lunch, right? There is no such thing unless the government is paying for it.
David: And so there were huge numbers of people that wouldn’t normally qualify for the free lunch program saying what the heck let’s just take the free lunch, and so it wasn’t necessarily that’s going to look at what the area would be like, but I thought it was a clever way of I’m trying to [unintelligible 0:39:28.9].
Jason: Yeah it is. But that’s our point really. Is that all of the stuff needs some human interpretation. These are — what these are folks as if you look at yourself like a detective it’s a clue, this is a clue that’s a clue, and then you assimilate all this stuff in your own head, and you start to see it kind of come together if you have ever watched a crime show like CSI or something like they have clues not one of them is necessarily conclusive. They build upon each other, and then they ultimately lead to a conclusion.
And one of the thing I wanted to say about the other day that in addition to the free lunch metric one of the things he loved, and you mentioned it is the insurance policy on his first, I think was his first property with us. He paid to believe $89,000 for the property and the insurance company, forgive me if I get this numbers slightly wrong folks you can go back and listen to the show, but this is a ballpark, and the insurance company told them he had to buy $280,000 worth of insurance.
And at first he thought well, this is kind of ridiculous, but then he thought well, they told them if the house burns down, and they have to rebuild it that’s what it will cost to rebuild it because it was a 3,000 square foot house, so less than $100 a foot.
Jason: Interesting so what else you know I just didn’t want to forget to point out those two things before we moved on.
David: Couple of other things. I definitely have a professional home inspector go out and look at any property that I have an offer on, and definitely think it’s something that I am interested in. something I am going to add as of my last property is a sewer camera inspection something I haven’t thought about, and one of my properties did have what they call a belly in the sewage line which is just a little drop out you know so that you don’t have a level exit of the sewage line, and luckily right now I don’t have to do anything with it.
And the tenants had to figure out how not to get at the backup on them, but in the future I probably will have a sewage inspection done on properties that are brand new with the warranty from the building just one more thing to take a look at. And something else I am talking about doing if not initially then may be in my annual inspection which we will talk about more once I own the property. May be thermal cameras because I noticed that a lot of home inspectors now have thermal cameras, and now actually look at the walls and be able to tell by the heat signature where water has leaked through, where insulation is either slipped or missing all together and of course whether weather stripping or other things that would help you save on energy it could be placed, and that would help both me and the tenant.
Jason: I already hate to admit this David, but you are far more through that I have ever been. And I am supposed to be the guru right? You are very, very thorough now. Do you this on brand new properties, or just resale properties?
David: I do. I don’t, I haven’t done the sewer inspection before that’s a new one, and that’s because of a foreclosure property that I bought, but yeah I have done everything else on a new property even going to the flood maps of the — you know the Federal Emergency Management Agency FEMA.
They have flood maps, and your agent will tell you whether or not you are in a flood zone, but what they won’t normally tell you is how close you are to say a 100 years own, or has something changed since the last time the flood maps were printed, and so you can take a look at the flood maps and then kind of make your own decision how close is this to a river, or a stream, or a lake, or something which in the future isn’t necessarily in the flood zone so they don’t have to declare it, but might just be a little too close for your comfort.
Jason: Yeah one of the things you will find, and this happened to me. And one of my properties I think this one was in South Carolina where it wasn’t — I bought the property new from the developer you know that was in a different era when new properties made lot more sense than they do today.
I mean now, now you buy the low cost of construction so why would you buy from a developer most of the time, but this particular property was represented as not in a flood zone, and initially I didn’t have to pay flood insurance, but then later they required flood insurance, and I thought that’s ridiculous.
David: Yeah they redrew the map.
Jason: Yeah they redrew, right so.
David: Absolutely because there is 100 year flood claims. There is 500 year flood claims and you know how long any of us are going to be around here, but you might will be as far away from anything if you can.
Jason: Right, good. Well, okay so now you also go, you fly to the properties right?
David: Yes I do.
Jason: Now do you do that every time? Have you done that always?
David: I have so far.
Jason: And so you are one of the — I am going to guess that about 3% of our clients actually go to look at the properties and or at least before more of them go after the fact, and you know may be then we will get 10, 15% that it will at some point as that the properties they own. But you know when I certainly would always as a point of disclosure and as a way to frankly reduce my company’s liability.
I would always encourage people to go to properties, but I am just saying that I own many properties I had never seen, and the vast majority of our investors they don’t go visit the properties so since you have visited have you ever gone and looked and decided it’s a no-go or what do you look for when you go and visit David?
David: Sure absolutely in fact nice folks you are working within Georgia took me to a couple of properties, and I put a bid on one or an offer I should say, and there were a few things that I didn’t like once I was there physically, and they were nice enough to actually come out and try to address some of those and one of them was the front lawn actually had a large slope where the driveway would go down into where the garage area was, and so I felt like a kid playing on the lawn, you know may be playing football there is something could fall off there is seven or eight foot drop going off at the edge of the lane, so they put a nice little picket fence in things like that you know nice little touches.
But in the end if I notice that there is perhaps the slope that I don’t like, and I think it’s going to cause a drainage problem in the future. One time I went out, and there was a sewage, or a septic tank instead of city sewage and city water with a well, you know all those types of things I have to decide if I want to be ready to manage a septic tank that its no longer out in the leech build property or something like that.
Jason: And just to comment on that growing up the vast majority of my life in Southern California in a suburban environment, or even semi urban environment, mostly suburban. I never would imagine that I would own a property with the septic tank, but I own a couple of them, and they have been okay. But that does bring on different issues.
They have to be cleaned once in a while and serviced, and but again a lot of areas require you to pay for sewers, or sewers are paid through property taxes. One way or another you are applying for this stuff, but it’s just a different thing, and in Georgia and especially Greater Atlanta, you move out in the suburban areas of Atlanta and lots of properties have septic rather than sewer.
I was rather surprised to learn that myself several years ago, but that’s just normal here. It’s not uncommon. It’s not strange. But you live in a place like Southern California or in any sort of a city you are going to think wow; this is just crazy who would ever do this? It’s such a different thing, right?
David: Right. Well, in the end the septic was not what made me walk away from the property, but I have found that there is an enzymatic or bacterial treatment you can do. One of them is called [Sewer gene 0:46:38.8] but I am sure there is a lot of different services out there, and they actually add this aerobic bacteria and a water bubbler like a airline to the septic [pretreat] and it actually clears out any of the problems that normally would happen with the anaerobic bacteria that wind up clogging the leech field so.
If you wind up having septic problems that might be something to look and I would definitely look at that I bought one with the — for the septic tank, but other things I looked at is one or two stories I prefer rent style, one storey homes just simply because I don’t want something leaking from top to the bottom. If it’s going to leak, it’s going to leak at the bottom and it would only remain one floor at the time. I think to use your maintenance, to use your repairs.
Jason: You do have another slight advantage with single other properties is that we have the graying of America, the ageing baby boomers, but then again we have even more Gen Yers that are that’s by 4 million more, so those people can climb stairs but —
David: And basements I typically choose properties without basements because of the pumping problems and the moisture problems that they have.
Jason: Yeah basements are problematic. I would have agreed with that. but one thing look at investors, one thing I would do want to say, and I just want to caution everybody all things being equal, all things are not equal so anything can be a good deal at the right price so you know —
David: Absolutely I would buy all of those things at the right price.
Jason: Right near a prison, near a landfill, near a sewage treatment, you know near an airport whatever you know I mean if you look around [LAX 0:48:06.5] those are some pretty, pretty rough areas around [LAX] but they are not super cheap oddly enough even when they are in the landing path because its just a expensive real estate around. Okay who well tell us more?
David: Well, then pretty much once I have decided and I buy it, and once I own the property then I have another whole list of things that I like to either find out about or do to, to kind of just make my life a little easier. The first thing I typically do is all again go to Google Maps and type in the fire extinguisher, either service, or fire extinguisher inspection, and find a local company somebody in the same city that it won’t be a very far drive for them to go.
And let them know that they are going to have an annual chance to come to the inspections on a fire extinguisher, and of course they get the initial instill and I will put a five pound ABC extinguisher in a cabinet and have that installed on every level of the property, and it has the tamper proof doors that are made out of the polycarbonate that will break away so that if the tenant does have to use that there you would know that you can see that the door is broken and that the extinguisher needs to be refilled.
And so its just again its another little piece of mind thing for me that I would like to know if something happened in a property that may be they didn’t held the property manager with all the tenants skilled in the property and I have some recourse.
Jason: Okay so you put fire extinguishers in all of your properties?
David: I do in the little cabinets with the breakaway doors, and then I have a professional inspection service come out in every year, do the inspection and stamped the little card on it. It says this was professionally inspected. I think that would also be a good point with liability if there were a problem, and someone was trying to question whether or not you are a responsible landlord or owner.
Jason: And how much does that cost? You know again I have never done that, and I have never heard of any of our investors did so.
David: Yeah extinguishers are about $100. The cabinets are about 40 to $50. Installation is about $50. It’s typically about $200 per extinguisher in cabinet installed.
Jason: So those extinguishers are a lot more involved than the little ones that you buy at home depot or lows that are 12, 20 bucks, right?
David: Yeah these are the five pound, the ones like you see in the hallway of an apartment complex or a hospital. They are five pound ABC which means it covers all the types of fire.
Jason: Right whether it would be an electrical fire, a grease fire, whatever right.
David: And they are meant to be inspected and refilled. They are not disposable ones. These are going to last many, many years.
Jason: Okay, alright, good.
David: And so those, and then the inspection service again depending on the area goes anywhere from about 30 to $60 a year to have somebody come out and physically do the inspection. And another thing I like to do is I like to have kind of a separate set of eyes on all my properties, and so all the way I have professional management which is there supposedly watching everything for me.
I do hire a local photographer to take pictures once a month and email them to me, and kind of a higher quality format like 10, 12, 14 mega pixel type digital photos you can really zoom in, and see what’s going on the roof, or on the lawn, and those people are sometimes professional sometimes just college kids, or high school kids doing it for me, and that’s typically somewhere between 15 and 20 hours a month depending on the area.
Jason: And that one I love that’s why I got really interested in having a result because I thought that was such a creative great idea. How do you find them just Craig’s list?
David: Yeah I started with Craig’s list although in the creative gigs area even though I am posting it, and it’s a job, and its for money. For some reason Craig’s list always bounces that about a day later, but by then I have already got 10 or 15 people responding so its never really been a problem that it gets pulled quickly, but the other one I found is getphotogrpahyjobs.com, and that’s where I found my one for the most recent property in Texas.
Jason: Does it cost you anything to post an ad on getphotographyjobs.com?
David: No neither one both for free.
Jason: Great. The other thing folks that could be useful for is probably I assume they do videographers as well still photographers, right?
David: Sure anything to do with the camera.
Jason: Well, listen there is one for you right there because if you don’t have time or you don’t have the interest or inclination to go to the properties you know you could have a person do due diligence for you in advance. Picture doesn’t tell you everything. A video doesn’t tell you everything, but you know you could have them go around and videotape the property, videotape the neighborhood, videotape the shopping nearby and the retail store, and get a real sense of it. Its an interesting idea.
David: It’s a great idea. And its an independent third party does not trying to sell you anything, but their photography.
Jason: Right it’s always nice to have an independent [unintelligible 0:52:31.2].
David: And I had, I don’t know if you remember, but I had some problems back in 2008 with my first property just before we got tenants in it. both of the air conditioner compressors were stolen, and that was kind of my first test by fire as to whether I wanted to be a property owner, and so since then I’ve had either of the air conditioner units put on cement bases instead of those plastic bases and bolt it down to them or I have actually been also looking at those air conditioning cages that some companies sell and install you know for hurricanes and those types of things.
Having installed those yet although my Texas property that I have would you guys did come with one of those automatically, so that was kind of nice.
Jason: Let me a brief pause. We will be back in just a minute.
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Jason: Just to comment on that folks just so the listeners know there is couple of two interesting points on that. number one, that really goes to show that there is a real commodities and resource shortage going on, on planet earth because people are stealing air conditioners for the value of the whole air conditioning unit, but a lot of times they are just giving it for the value of the copper, or they are stealing the copper parts.
They are stealing plaques of tombstones and its just crazy catalytic converters out of cars are being stolen for the precious metals value, and what this is, is showing is that these commodities, these materials that it takes to build a house of valuable, and another interesting point in that and this is in Arizona.
I just heard this on the news a week ago I believe where they are trying to pass a law because the air conditioning theft problem is reasonably significant problem where people will not be allowed to sell the copper parts unless they have like an industrial license or something like that. No dealer can buy it from them unless they have a license, and they are also subject to a much stiffer crime penalty now because what’s happening is the value of the parts is so much less than the value of the whole that it’s really kind of an unfair theft.
If someone is going to steal 10 bucks from you, let them steal 10 bucks from you. But when they steal 10 bucks let them not do a $100 worth of damage that’s kind of the thought, and so this is just really one of this annoying crimes that occurs and so just two notes on that I wanted to mention.
David: And in some cases its just when I go out to the property physically I can see that may be there is something that I’m uncomfortable with may be with a stair railing that’s not bolted down property and I want that to be reinforced and in the case of my Kansas city there was actually a sewage cleanup pipe which is a different piece of PVC sticking up out of the front lawn which was huge. I got a giant lobe on this duplex may be that’s what I wouldn’t have to go.
And I didn’t want some either tripping on it, or falling on to it, and injuring themselves, so I went to a home depot and located online that they had all these plastic landscaping rocks that you can put over your pool equipment or whatever and for a 30 or $40 I had the rock ship for homedepo.com to the property manager and they went out and secured it with a couple of ten stakes, and its been there through this nose and everything for the last three years and there is been no problem with the sewage cleanup pipe.
What else physical inspections? I have usually the same inspector but sometimes a different inspector go out at least once every two years and goes through the property again. In some cases they will just do kind of a quick checkup for me, and if you know that if they know that you are going to be a regular customer and tell them they had may be I would like to have an annual inspection or once every two year inspection, they will usually give you a special price because they see you as a repeat customer, and that really gives you a good look at what’s going on with the property in addition to what the property manager tells what’s going on the property with the turnovers, and repairs and those types of things.
Jason: I think what people really need to understand is that far and away income property is the most historically proven wealth creator around. It works, it’s a great business, but like anything it’s not perfect. Okay there are issues that come up. There are problems that come up, but one of the things we are here for is to help people mitigate these problems to bring you the resources, the staff and the information to help you mitigate these problems, and may be that’s why I so appreciate having you on the show because of any of our investors I’m going to nickname you Mr. Careful.
You are very careful, and very cautious, and you have — your background being a risk management person that’s, that something that’s part of your thinking. And this really tells people how they can prevent problems; an ounce of prevention is worth a pound of cure as the saying goes.
But if you go into problems having a photographer handy that can help you deal with things, right?
David: Sure well, it really is a game. I mean any of this was enough to say it’s not worth doing, I wouldn’t be doing it. you are going to have headaches in anything that you do, but at least here you have the options of doing something about it, and then in many cases something about it before it even happens.
You know as much as you can predict you can avoid, and whatever still happens you still have the option is to how to resolve that. Am I going to fix this [unintelligible 0:58:40.3] am I going to wait and see, am I going to do the trenching where they dig up the front yard where we do this [reline 0:58:47.1] I’m not going to do that trench lift where they run a new pipe directly through the old one.
I mean this is the fun. This is the game of trying to see if you can hold on to that rental property long term because the benefit is going to be there. That’s really part of it for me.
Jason: Now in terms of you have managers for all, you don’t self manage anything right?
David: I don’t yet. I’ve been listening to your recommendations and at some point I may get to that, but I do still have professional managers in all the properties.
Jason: I have sort of this like love-hate relationship with the property managers, and the listeners know that because I have talked about it on the show. But what are some of your frustrations if you had any? I have no idea what are you going to say when I ask you this question with property managers you had any problems with them or anything like that that people should know about?
David: Oh sure. There is no bargains out there, so if somebody is quoting you say a 6% which is kind of a low ball quote for property management for a month versus something like an 8 or a 9 or a 10% they are probably going to get a little extra money out of you during repairs adding on to receipts or adding on to receipts or adding on to the cost of the job that type of things, but in the end for me its easier to have the property manger there to physically care of the day-by-day stuff.
My real frustration more then you know a few extra dollars for fixing this or that is when the communication isn’t there. And you know these days with every possible means of getting to somebody with texting, with email, with messenger, with telephones everything you could have imagined if you can’t get a hold of the property manager within 24 hours and get some type of an answer back that’s unacceptable to me.
There is just no reason they can’t come back with some basic answer to your questions.
Jason: One of the things that I say about the income property business is that even if you have a property manager who is they’ve got through hand in the cookie jar a little bit. Its still better than Wall Street because they’ve really got their hand in the cookie jar.
The people at Goldman Sachs cry and complain when they don’t make a $600,000 average bonus every year so that the thing is, the differences though with the income property investors when there is a bump in the road you feel it because you are a direct investor.
You notice it, but when it’s a traded asset, when it’s a stock or a bond, you know or a mutual fund, or any kind of a partnership, a tenant in common deal some sort of LLC that somebody invest in a real estate deal. You don’t notice those bonds, and it makes you almost think that may be that’s better, it’s easier.
It’s a better return, but its not. You have much less complexity as the direct investor in income property and much more control just so much greater control. And the great thing is about it now is you can just get online and find things now, so David you’ve heard me talk about this before in live events you’ve been to, but the property manager is saying we got to replace the garbage disposal and we want to bill you $200 for this.
You can just go to the home depot website and how much is the garbage disposal cost? Okay $99. How much is labor? You can just figure this out. Its not complicated stuff, and you have the resources of having it all online, or you can just contact another plumber, I and really get a sense as to whether or not someone is overcharging you that the resources are there.
Its just not that difficult to be good at this stuff is.
David: No. And again it’s a game and you learn as you go. The game unfolds before you so if you have you know that air-conditioning problem in your first property like I did, you know how to handle it by your second property, and you know its already under your belt its not a panic situation. You’ve got plenty of insurance.
You’ve got plenty of reserve money that’s probably my number one concern is to make sure that I have got enough money to pay the rent, to pay the bill, to pay the insurance if the tenant doesn’t so again I get the hold of the property and win the game.
Jason: Right. Yeah real estate is the game of staying power and at the bare minimum you’re going to have 4% cash reserves, 4% of the value of each property, and if you ever have to dip into those reserves you should replenish them just to cover any problem vacancies things like that. But it’s a game of staying power, and when you do your tax returns, you are going to start to notice how great it is.
David: Is that the 4% that you recommend is that on the price that people get through your network, or on the actual replacement cost of the insurance company tells that you are short?
Jason: Well, that’s a good question. I just say that’s right so.
David: I know.
Jason: Every $100,000 worth of property value, $4000 in the bank is accessible for problems and things like that. But you know what you said like the air conditioning problem you had on your first property, and I have really noticed this as I have gone to the School of Hard Knox and business over the years. Every time you experience a problem, and you deal with the problem, and you overcome it, it increases your capacity to deal with the next problem.
And suddenly, something an amateur would panic about get all then out of shape and worried about. Its like a pro. Listen, I have been there. I have done that. I’ve had much bigger problems than that. I can handle this. Its no big deal, and its good for us, makes us stronger, better people, doesn’t it?
David: You grow absolutely.
Jason: Makes you grow sure steel is hardened by fire so that’s the thing.
David: And speaking of steel that’s one of the next things I plan on doing is, we were talking at the Masters weekend is having the steel braided water lines on the washer and the dryer, you know on the toilet.
Jason: And on the toilets yeah.
David: That type of the thing because again I haven’t done yet because I can just imagine the little fix of putting that on versus the big fix of the water lake.
Jason: Yeah some of the builders do that. Most don’t, but you do the steel braided houses because it always seems like its that washer or its toilet, and when that hose breaks out the icemaker that’s the other one, the icemaker so may be try and get refrigerators of that icemakers in your properties first of all. They don’t have that option because that’s another one, but the steel braided hoses for that are inexpensive, and obviously extremely durable so that’s a good point.
Yeah well good stuff any other thoughts you have in close just about investing in general or any other tips you want to share?
David: Sure couple of real quick ones on the ease of operation day-to-day because I didn’t wanted to be another job. I took your advice and automate all my mortgage payments through my banking industry bill pay, so that the mortgage is paid every month. I don’t even have to worry about whether wondering whether or not I met that deadline to meet the payment.
And I also use an online calendar, mine is with Google, but I’m sure here everybody has them so where you can set yourself reminders in the future that will email you when something is coming up so you know that will be for a renewal of a tenant if I want to ask my property manager about raising the rent or when I need to do the inspection on a fire extinguisher or an insurance policy is coming due, you know something that’s not automatic and not in my daily thinking.
This is a little stimulator just to tickle file and say hey you know this is something that keep an eye out for. And then finally that I think keeping in touch with other investors in that same area has been probably the best resource for me as you know I go to the Masters weekends when I can. People I have met there that have homes in the same areas, or areas that I’m thinking of buying, some of us were on an email list where you just reply to all every time somebody else post an email, and you get to find out what’s going on with their manager, what’s going on with their property, how do they fix this problem, who is a good local contractor?
You know these are solutions for problems that you don’t have yet, and yet people are already telling you in that local market the solution if you can just sit there and listen.
Jason: Yeah, that’s one of the things I have noticed about you. When you are at Meet the Masters events you were very good at networking with the other investors, and one of the things we really recommend people do at those events as we share several meals together, sit with different people each time so you will learn some new stuff. And you are good at networking with those so you have other investors in that area that you know. And you are not just relying on us on the company line that we are giving out right?
You are actually talking with other people directly, and you know they had a bad experience with the property manager, if they have got a good experience with a different one, what kind of repair issues they are facing or things like that some things affect whole areas like weather related phenomenon in Phoenix about a year and half ago. We had a big hailstorm issues so by the way I got to tell you I just scored big time on that.
This is something I should share with the investors I haven’t mentioned it on the show. I think you know about that big apartment complex that I bought here in Scottsdale, and listen that this one, this one is really awesome. I mean what a surprise, what a big score this was. The fire owner that owned that property during that hailstorm never filed an insurance claim on the roof. You know what’s coming here right.
David: Oh wow.
Jason: Yeah. You know what’s coming here right? And we did, and after you know I took that property over we filed a claim, and we got this guy to go and pursue that claim with the insurance company. It wasn’t even a lawyer.
He is just like a pit-bull, and he just got after the insurance company, and they paid out forgive me if I don’t remember the exact numbers but I think they paid like $350,000, and the cost of roof is only about 200 and something thousand dollar. So we are going to make money on that. That was a nice surprise.
I mean talk about a pleasant surprise that you could have. And you know again that’s apartment complex, so it was acquired for 3.9 million, so it’s a big deal. So obviously the numbers are bigger, that’s not going to happen on a single family home, but you would have different weather related issues in different markets. And so you know those are things that it’s good to network with other investors about and so forth too, right?
David: Sure and well you know the folks said that I have met with many of them now use the same photographer I use in those local areas. I have already negotiated with the guy. I just set up the route as long as their home that they have purchased is close enough to his home because I chose them based on where my property was. They will go, do a run and you know some of these people have answered my Craig’s list that now have little businesses of taking photos for people with properties in the area, and emailing them back. So yeah I think that networking is actually one of the most valuable things you can do.
Jason: Yeah, well I hope everybody listening will come to our Meet the Masters event. I’m going to do a little shameless self promotion here, and that’s March 24th and 25th Hyatt Regency Irvine, and you can do a lot of networking with investors there so that’s good. What else should people know?
David: You know I think that’s pretty much it. I don’t want to scare people away. I was scared away for many, many yeas because of the massive volume of information, and you know you really do analyze everything and figure out every trick and every hook, and how to avoid every problem and in the end you are not going to. In the end that the only way you get to learn that is if you actually stepped into the pool, started to swim, and so I would say get that first property under your belt, talk to other investors either in the area or out of the area that can help yourself that those little problems that are going to happened, and really find out how much fun it is to own income properties.
Jason: Yeah there is nothing like on the job training when you are at stake, when you have your own money in the deal, it just brings a whole new presence of mind to it. You pay attention to it, and that is how you move from theory in the classroom, in the book, at the seminar where they are trying to sell you the $40,000 coaching program to the reality of investing which it’s not that hard just get in the game, and do it if you haven’t done it, so far it’s really quite an easy thing to do. But these are being some great stuff David so thank you so much for coming on and sharing them today. I really appreciate it.
David: My pleasure, thanks again for all your great help and education, and you will see me the next Masters weekend.
Jason: Look forward to it.
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