Lots to talk about today… Jason starts with thoughts on how Wall Street wants your retirement plan then a look at an exciting new “energy play” market with hot appreciation next a brief radio interview on the adjustable rate reset freeze and finally some Q&A concludes the day. Thanks for listening!
Announcer: Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Newport Beach, California. During this weekly program, Jason is going to tell you some really exciting things that you probably haven’t thought of before, or a new slant on real estate, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in nine states. This program will help you follow in Jason’s footsteps on the road to financial freedom through real estate. You really can do it. And now, here’s your host, Jason Hartman.
Jason Hartman: Greetings, and welcome to another addition of Creating Wealth. Thank you for joining us today. This is Jason Hartman, and we have three – or I guess four parts to talk to you about today, four different kind of subjects. First of all, I want to share with you a little bit of insight on Wall Street and how Wall Street wants your retirement plan.
A recent article by Larry Grossman, August 2007, that I think you’ll find intriguing, and then we will go to that radio interview that I mentioned in the last show that was recorded last week about the Bush and Paulson bailout plan to freeze mortgage interest rates on adjustable-rate sub-prime mortgages. I think that will be educational to you. And then we will interview two people, Lynda Mulley and Ken, to talk about Grand Junction, Colorado, our very newest market. It looks like a good, high-appreciation market, and it was just rated – oh, what survey was I reading? I was just reading it on my computer. I think it was Business Week as one of the top rated markets for the last year with some exceptional appreciation, upwards of 14 percent.
Now, you’re hearing all this negative news in the media about real estate, but remember, the prudent investor understands that there is no such thing as a national housing market in a country as large as the United States of America. There are only a bunch of local markets. All real estate is local, and many markets around the country are booming in the midst of all this negativity.
So we’ll talk to Ken about Grand Junction, Colorado, and Lynda. I think you’ll like that. And then we will continue with some frequently asked questions from some of our clients. I know there are clients that our podcast listeners want to know about, so we’ll listen to those, as well. But first let me just share with you a couple of tidbits out of this article entitled “Wall Street Wants Your Retirement Plan.”
“Note to self: Go on vacation for two weeks. Get some perspective on this market because nothing makes sense anymore. I’ve been in the business now since 1984. Since then, I’ve continued to study and research the markets more and more every single year. Even did a heavy-duty post-graduate program at Wharton, which basically consisted of statistics and modern portfolio theory. But right now the global markets are still puzzling to a veteran like me.” Now, this is Larry Grossman writing this article obviously.
“Either I’m missing something or all that training doesn’t apply to what’s happening in the global stock markets right now, an enigma of a market. Let’s take a closer look at this puzzling market. First of all, valuations are extreme, interest rates are rising instead of falling, and signs of inflation are everywhere, no matter what the government PR guys are saying. I can still see signs of inflation in my home state of Florida. My wife and I counted eight restaurants that have gone out of business in the last six months.”
Now, I think when he says that, he’s referring to the high cost of being in business, which as a business owner I can certainly attest to that. “A friend of mine used to make $1 million US a year in the mortgage business. That same friend recently was forced to sell his house and will probably have to file for bankruptcy protection. I have another friend who was one of eight construction managers with 12 projects under his belt. Now there is only one manager left and he only has a single project. And in the midst of all this, the global markets keep climbing.”
“The purveyors of investment pornography on Wall Street,” I love that saying, “keep saying how great the stock markets are. They’re claiming that this stock market will be different this time. ‘This isn’t a bubble and there’s no way it can burst.’ I’m really sick of the feeling in my stomach when I hear them say that, mostly because I know better. So what does all this have to do with your retirement plan? In a word, everything. Over the past few years, I have met too many individuals who have lost 50, 60, or even 70 percent of their retirement plans when the last stock market bubble burst.”
“These individuals all had the best of intentions, but many of them listened to their domestic brokers,” stockbrokers that is, “when it came to picking investments. That was their first mistake – the controllers on Wall Street. Wall Street always lobbies for your investment assets, and your retirement plan is one of their primary targets. They want you to pour your life savings into substandard stocks and equities and investment products. Why would Wall Street do this? Quite simply, they want to control your money so they can make the most of it.”
“Think about that. If you buy a piece of property with your IRA,” or just with your savings for that matter – that’s my comment, “how much does your stockbroker make on that deal? Not one penny. So he may tell you it’s a bad investment, or you should invest your assets in ‘safer’ investments. He may tell you it’s illegal to invest your retirement plan in real estate. I have heard them all.”
By the way, one comment to our listeners while I’m reading this article. Watch out for your CPA because many CPAs now have opened up a new profit center in their business, an investment business, an investment advisory business where they will not only do your taxes and give you hopefully great advice on taxation and how to save money on life’s largest expense, but they also want to have you invest with them just like the big brokerage houses. So what are they going to say about real estate? Not much because they’re not selling real estate. Now back to the article.
“What the average S&P 500 return really looks like. Last week, I heard one of the bigwigs for Merrill Lynch say ‘The expected 12 month return on the S&P is 7 percent.’ My first thought was, ‘Really, 7 percent? That’s it?’ Not to mention, if you break down that 7 percent, your ‘expected 12-month return’ isn’t anywhere near that. So let’s break that average return down right now. Say between dividends and capital gains, your total return really is 7 percent. But you still have to factor in how much you pay to maintain your brokerage account. Say you use 1.3 percent to manage your account. That’s a 1 percent annual asset management fee and .3 percent for all transaction costs. It’s probably higher but I’m trying to be generous here. Now let’s factor in inflation. Say inflation is 3 percent. Again, it’s probably higher, but we’ll use the government’s numbers here.”
And by the way, folks, it’s much higher, and this is me talking here. When it comes to inflation, I want you to just ask yourself to look at your own life and the way you spend money on every product and service you buy and the cost of your housing except for technological products. Technology is the one place where we really do benefit because technology keeps inflation low, but we have the right to expect progress after all, right? So really look at inflation. It’s really in my opinion about 8 to 12 percent annually. Okay. Back to the article here.
“Then you need to factor in the decline of the US dollar over the past few years.” Now see, there’s two factors here, and this is Jason talking again. One is the consumer price index or the core rate or whatever inflation barometer you’re looking at, and of course as real estate investors we know how to win the game through inflation. Go back and listen to the various podcasts on inflation. You’ll probably want to start with “The Great Inflation Payoff” because this benefits us. It’s the best thing we’ve got going is the fact that the dollar is inflated when we pay back in cheaper dollars over the years, so that’s good news.
But the other factor you have to look at when you consider the inflation issue is not just the consumer price index or the core rate and that devaluation of the dollar, but the devaluation of the dollar compared to hard assets around the world like precious metals and other assets, oil, gas, every commodity, but also compared to other currencies around the world. Okay. So he says, “Then you need to factor in the decline of the US dollar over the last few years. Can you see where this is going? Once you strip away the fees to maintain your brokerage account, inflation and the decreased purchasing power of the dollar, you’re left with miserable returns.”
So what does that mean? Do you buy imported items? When you buy imported items, that weak dollar is costing you more money as a US dollar denominated person. “Possibly even negative returns, plus you have to consider the incredibly high levels of the stock market, which translates into additional risk. You probably won’t make a dime in real returns if the market goes up by 7percent, and personally I think the market is going down, not up. So this means, once again, you won’t make anything to build your retirement plan in the stock market. In fact, you might be facing straight losses and zero gains.”
“Refuse to play by Wall Street’s rules. Here is the blunt and harsh truth: Wall Street has its own rules, and in their game, they get to control all of your money. They don’t want you to invest it freely in real estate or anywhere around the world. They want you to be investing with them. That is the only way they can make fees on an ongoing basis. Wall Street has set up your retirement plan so you can only pick from a basket of predefined mutual funds they happen to offer. Never mind that 80 percent of all mutual funds and managers under perform the market. That means even if the market goes up by 7 percent, the odds are you won’t make that much.”
“But you do have some options. I’m happy to report that the US government has changed the rules for your retirement plans. You can now invest even more freely with your retirement plan and make dramatically higher contributions.” By the way, that’s the end of the article. If you want to know about investing in real estate with your retirement plan, which has its place. I don’t think it’s the best, best way to invest in real estate, but it does have its place in a few particular situations. Call one of our investment counselors here at Platinum Properties Investor Network and they will be glad to fill you in and refer you to the right experts to help you do that, and we’ll be talking about that on a future podcast.
Comment. My comment at the end of this article. The only people who seem to be getting rich in the stock market at the insiders, the money managers, the CEOs, the brokerage houses, etc. Invest in the most historically proven asset class that has created real wealth for millions of people – rental real estate.
Okay. With that, let’s go to the radio interview, then we’ll talk about Grand Junction and then we’ll do some frequently asked questions. Let’s listen in.
Al Rantel: Talk Radio 790 KABC. Right. Earlier in the day today, actually about – I guess about an hour or so ago, not even, President George W. Bush announced that there is some kind of an agreement or a plan with the coalition of lenders, loan servicers and investors to help the people who are involved in the trouble of the sub-prime mortgages. This is a pretty big story today financially, so we turn like we normally do to Platinum Properties’ own Jason Hartman, who you can find at www.jasonhartman.com. Last time we saw Jason, we were at the auto show.
Jason Hartman: That’s right. A lot of beautiful cars up there, Al.
Al Rantel: Yeah. And a lot of those people that are probably buying them can’t afford them, just like the people who bought these houses.
Jason Hartman: That’s exactly right. Maybe they’ll start bailing out car buyers, too. I can buy a really expensive car and then get the government to bail me out when I can’t afford it a couple years later.
Al Rantel: Now, is this – what the president described today, what is this? This isn’t a bailout, is it? Because they would say it’s not.
Jason Hartman: Well, yes. It’s a bailout in my eyes.
Al Rantel: How?
Jason Hartman: Basically there’s sort of a couple of different groups or entities interacting here, and I don’t really understand the relationship, but one is called the Home Ownership Preservation Foundation, and then there’s the HOPE NOW Alliance, and he gave out that toll-free number, which I called a few minutes ago and just heard their voicemail and waited on hold. I never actually was able to talk to anyone.
Al Rantel: Oh, I’m surprised, yeah.
Jason Hartman: But basically the problem is, as we’ve kind of talked about before but just to give you some updated stats, Al, of these sub-prime loans that are out there, one in seven of the adjustable-rate sub-prime loans are at least 30 days late, the borrowers are, on their payments. And on the fixed-rate sub-prime loans, one in ten are at least 30 days late, so the problem is getting bigger definitely and –
Al Rantel: Well now, those people wouldn’t be eligible. Didn’t the president say – play say you have to be current?
Jason Hartman: I don’t know if it said you have to be current. I don’t think so because I’m at the website for this foundation that he talked about and it says, “Foreclosure is not the only option. Let us help.” Get credit counseling and the possible outcomes are that we’ll renegotiate your loan for you, freeze the rates, all kinds of things, so I think you do have to be in trouble, but you have to have kind of a – they’re saying a relatively clean payment history.
Al Rantel: Right.
Jason Hartman: And the details, Al, are really murky. They just haven’t said what all this means. Who will get the interest rate freeze for sure? There’s a lot of mystery there. No one knows which sub-prime arms will be eligible exactly, how the frozen rates will be determined.
Al Rantel: Well, why is the government involved in this at all? I know Democrats – many of them would like the government to be even more involved and do more.
Jason Hartman: Yeah.
Al Rantel: But why is the government involved at all? In other words, if the lender thinks it’s better that they make an arrangement with the homeowner for a free frozen rate or whatever so they don’t have to take back the property and go through the trouble of then owning and getting rid of it and having to sell it for a loss or whatever it is or auction it off, why does the government have to be even involved in this?
Jason Hartman: Because those are individual one-off cases. I mean, in my opinion, Al, I’m sure I’d agree with you on this. I don’t think the government should be involved at all philosophically, and I think it’s ridiculous, frankly, they’re rewarding irresponsible behavior and it just bugs me to no end, but the fact is the government is very intrusive in many areas of our lives nowadays so this is just one more part. And the people that were responsible that didn’t live in a bigger house than they could afford for the past five years, they’re the ones that are going pay for it, the taxpayers.
Al Rantel: Now, how do – that’s what I was going to ask you. How do the rest of us pay for this, or is this just a deal between the holders of these mortgages and the lender? How do we get involved?
Jason Hartman: Well, the investors who bought these mortgages through these CDOs, or collateralized debt obligations, they will pay for it because if the government gets the lenders to agree – and this is an agreement they’re saying, not legislation – it’s not a requirement that the lenders do this. But they’ve gone – the Treasury Secretary Paulson went and talked to a bunch of lenders and got this sort of agreement hammered out.
So what happens to the investors that bought the bonds or the mortgage backed securities that basically funded these loans? They gave an artificially low teaser rate in the beginning in order to get it back later and get an equitable deal, an equitable return on their investment, and now the government is going to come along, and they got this group to agree to a five-year freeze on increasing the interest rates. So the investors are certainly paying for it. I mean, I don’t see any other way that they wouldn’t be. And I’m sure the taxes –
Al Rantel: Yeah. You know what? I hadn’t thought about that. See, that’s why Jason Hartman is the expert and not me. But if the interest rate gets frozen, any additional costs can’t be recouped so the investor eats it.
Jason Hartman: Yeah. Money doesn’t just come out of thin air. And then all the taxpayers will pay for it because they’ve offered more funding, $200 million, to support these various mortgage counseling agencies, so they’re just going to give them money to talk to everybody and help them work through the morass. And then Bush is wanting to increase support of these GSEs, these government sponsored enterprises like Fannie Mae and Freddie Mac, etc., and modernize the FHA, giving more people a chance to refi, larger loan limits, lower down payments, which sounds like we’re going to be talking about this again in five years, so it’s the world we live in.
Al Rantel: So would this be political in your opinion? In other words, politicians have gotten themselves involved in this because they want to be seen as helping homeowners in trouble who are being maybe kicked out of their house and they’re going to be on the street and all this, so is there a political arm to this do you think?
Jason Hartman: Oh, yeah, absolutely. Bush wants to be seen as compassionate, and the other politicians that are going after these types of programs want to be – I mean, on the liberal side, on the Democrat side, they’re saying that Bush isn’t doing enough.
Al Rantel: Oh, I know. Well, yeah. They probably think we should buy people houses and let them live in them for free, yeah.
Jason Hartman: Yeah. And just write a check to pay the house off for them. Why not?
Al Rantel: Yeah, right. And send someone over to do the laundry while you’re at it, as well.
Jason Hartman: I know.
Al Rantel: By the way, Jason, I’m not inviting myself, but I did hear a rumor when you sent me your email this morning that you’re moving in February. I hope I get invited to see the new place, your office.
Jason Hartman: All your listeners are invited to any of our –
Al Rantel: Congratulations.
Jason Hartman: Thank you. Yeah. All your listeners are invited to any of our seminars. We’d love to have you down there. If you come, probably everybody will show up, Al.
Al Rantel: That’s right. Of course they would.
Jason Hartman: We’ll have a grand opening party and lots of big –
Al Rantel: Your new office is going to be bigger, I assume, and in Newport Beach still.
Jason Hartman: It’ll be about three times the size. We’ll be over in Costa Mesa now.
Al Rantel: Wow. You’ll be where?
Jason Hartman: Costa Mesa.
Al Rantel: Costa Mesa, okay.
Jason Hartman: By [inaudible].
Al Rantel: That’s fine. That’s –
Jason Hartman: Yeah.
Al Rantel: I can get there. I have my navigator lined up.
Jason Hartman: That’s right.
Al Rantel: All right. So Jason, the devil in this story will be in the details. Is that the bottom line?
Jason Hartman: Yeah. And there’s just not many details yet, Al.
Al Rantel: Yeah, all right.
Jason Hartman: It’s really new so we don’t know much yet.
Al Rantel: All right. Well, thank you for sharing what you do know.
Jason Hartman: Thanks for having me on.
Al Rantel: And I thank you for taking the time.
Jason Hartman: Appreciate it.
Al Rantel: All right. So there you go. There’s the latest on the big, big economic story of the day, some plan that the government apparently has worked out, a voluntary plan with lenders to try to help the people who bought things they couldn’t afford and now find them – and the lenders, of course, who enabled them to buy it because they thought they were going to make a killing on them anyway. It’s a parasitical relationship. So thank you, Jason Hartman. We’ll see you tonight, KABC, the Al Rantel show at 6:00.
Jason Hartman: We have Ken, our local market specialist for Grand Junction, Colorado, one of our newest markets, on the line with us. Ken, the Grand Junction market has been experiencing some incredible appreciation over the past year and a half. To what is that attributed?
Ken: Jason, the most important area of growth has been the energy industry boom on the western slope of Colorado bordering Utah, and along Interstate I-70.
Jason Hartman: Well, I’ve definitely noticed the price of gas getting awfully high. Actually, it’s not too funny, is it? But it’s good for the economy in Grand Junction, right?
Ken: Absolutely. The most important development right now continuing through 2010 is the growth and the drilling of natural gas where they’re going to drill 43,000 natural gas wells where each well costs approximately $1 million.
Jason Hartman: Wow, so that pumps a lot of money into your economy. Tell us some more about that.
Ken: Absolutely. The other major impact is because of the need for natural – there’s a $3 billion Rockies express pipeline that will go into service by 2009 which will allow the energy resource to reach all over the US. Secondly, Exxon Mobil alone will produce over 250 million cubic feet daily beginning 2009, and as well as 1 billion in cubic feet of natural gas over the next ten years. One of the other sources of the energy boom coming back to the western slope of Colorado is the Shell Oil based on the price of the barrel of oil, and as a result it’s going to be a significant part of the energy development in this country because the largest fossil field in the country is in my backyard at the western slope.
And the result of all this, Jason, is because of the tremendous economic growth of the area, there is a very extreme need for housing in my backyard of the greater Grand Junction area, which is the only major city where there’s a capability of housing to continue to grow.
Jason Hartman: Excellent. Well, we’re going to talk a lot about housing today. Lynda, you just came back from visiting the area and you were in Grand Junction. I know you complained that you got your shoes dirty but enjoyed it, looking at a lot of properties there. Lynda Mulley, who’s here with us, is our area manager for Grand Junction and also Kansas City. Lynda, tell us about your findings.
Lynda Mulley Jason, I really liked what I saw there. The research that I’ve done is showing that really appreciation is the story here. For the period ending June 30 of ’07, Grand Junction is ranked No. 5 in the top 20 metros for appreciation. And the most recent quarter appreciation is 3.8 percent so it’s very solid, and this is a great time to get into this market.
Jason Hartman: Lynda, that is truly amazing, and Ken too. I mean, think about it. There’s all this doom and gloom in the median because the media doesn’t understand the distinction between the national and the local housing markets. They keep painting everything as though there’s one big national real estate market, and we all know there’s not because we’re experienced in the business. So you’ve got an area that’s appreciated almost 4 percent in three months, in a quarter.
Lynda Mulley Right.
Jason Hartman: So what’s the annual appreciation looking like for the past year?
Lynda Mulley It’s right about 14 percent.
Jason Hartman: So 14 percent annualized appreciation. If someone puts 10 percent down on a rental property in Grand Junction, before considering cash flow and so forth which could take away from this a little bit, that’s basically 140 percent return, that appreciation return on their down payment, so that’s phenomenal. And of course it’s a little more complex than that. If listeners want to know more about how to calculate return on investment, go back to our podcast on understanding true ROI, or return on investment. But Lynda, go ahead with your other findings.
Lynda Mulley Well, Grand Junction is the largest regional hub. It’s right between Denver and Salt Lake City, and what you see going on there is a good diverse economy. When I was there and visited St. Mary’s Medical Center, it’s becoming a large draw for cardiac research. And they’re undergoing a $200 million expansion, so that alone shows you that people are drawn to that area, whether it’s retirees or on a regional basis people wanting good healthcare. And the other facts that are real strong is there’s low unemployment there. There’s been a 10 percent increase in the labor force over the past 18 months so they’re generating new jobs.
Jason Hartman: Now, you know what’s amazing about that is we’re looking at job growth for the country next year being very, very low as the economy has got several cylinders that aren’t hitting correctly, but here you’ve got a 10 percent increase in the labor force in the past year and a half. That is an amazing amount of job creation.
Lynda Mulley And overall growth in the area is 3 percent with a projection of 50 percent population increase over the next 15 years. These are all very sound measurements for an area that is going to long term be very sustainable for the real estate market.
Jason Hartman: Excellent. The one thing all those people in this increasing population have in common is they all need a place to live.
Lynda Mulley Right. And with a great diverse economy, there’s a four-year university there that has over 20,000 students, and interestingly enough, I was surprised, and pleasantly so, to find out that Grand Junction is a high desert area with a high desert climate surrounded by river valley, mesas and mountains. It’s absolutely gorgeous there.
Jason Hartman: Excellent. Ken, tell us about the rental market in your town. What’s going on in Grand Junction’s rental market?
Ken: Jason, we’re very fortunate to say that we have a very strong rental market, a very strong demand because of the energy explosion in the area. Matter of fact, the majority of the time I am able to have all my properties rented before I close on them, and actually there’s over 42 percent of the population rents in the area, and as a result we have one of the lowest vacancy rates in the country. Our vacancy factor in Grand Junction is only 2 percent, which actually is the lowest of any city in Colorado itself.
Jason Hartman: That’s excellent because we’ve looked at the Colorado market a lot – Ken and Lynda, you both know this – and we just haven’t found anything that quite works there. I’m a fan of Colorado as a place to visit. I like to ski, etc., but Denver doesn’t make any sense right now, Boulder is way too expensive, and most of the markets there don’t really work that well. But Grand Junction is an anomaly and it’s kind of the cream of the crop as far as the Colorado market I think, so that’s excellent and adds to some diversification.
One of the things we’ve also noticed in some of our other markets is when we have this energy population or oil or gas population, it leads to kind of a transient population to some extent, which is good news for landlords because people don’t settle down and buy a house. If they’re only going to stick around for a year or two usually, they are renters so –
Lynda Mulley And they make a good living, too.
Jason Hartman: Yeah. They make a very good living.
Lynda Mulley So they can pay pretty good, solid rents.
Jason Hartman: Yeah, very good point, Lynda, so that’s good for landlords. Okay. Anything else you want to say on the rental market, Ken?
Ken: It’s interesting what you’re talking about the rental market because there is a great need, and it will continue for at least the next ten years I’m projecting here because of the demand for energy in the area.
Jason Hartman: Yeah. And energy is definitely a good business when you’ve got 3 billion people around the world consuming it like crazy in strongly emerging markets like China and India especially, so that’s good. Okay. What projects right now do you have, Ken, that are really suitable for our investors, that they might be interested in?
Ken: Absolutely, Jason. We have a beautiful single-family detached, it’s called Country Place Estates in Grand Junction where the starting price of homes are $222,900.00, and they’re already appraised at $235,000.00. That’s where you’ll have a very nice little amount of equity built into the homes themselves when you purchase the properties. I’ve got about 15 left, and they range in price as they say between $222,900.00 and $245,900.00. In some cases they’re already rented, and we’d certainly be delighted to have your investors give some serious consideration to them.
Jason Hartman: Lynda, do you want to mention any of the other things about these developments and the properties there?
Lynda Mulley Well, just from a numbers perspective, return on investment for these properties is around 31 percent.
Jason Hartman: So that’s projected ROI of 31 percent annually, and that’s before tax benefits so that could even be a lot better if the investor can qualify for all the tax benefits. Excellent. Don’t try that in a mutual fund, huh, I always say.
Ken: Yeah. One of the other things about that is that because of the demand for rentals, our rental rates continue to grow. In the last six months, the same property brand new rented for about $1100.00, and now today we’re renting them for $1550.00 per month.
Jason Hartman: So say that again, Ken. The property rented for $1100.00 a month when?
Ken: Six months ago, and today they’re renting for $1500.00 to $1550.00.
Jason Hartman: That is truly an amazing increase in rents, and it’s just because of the shortage of housing in the area, huh?
Ken: That’s absolutely correct, and we continue to find very good renters. I have been fortunate. I have a very good property manager on my team to make sure that they’re very well selected before they move in to the property.
Jason Hartman: Excellent. Lynda, do you want to highlight any of the other things about this project?
Lynda Mulley Well, I actually purchased one in this development and –
Jason Hartman: That was your own investment, right?
Lynda Mulley My own investment, and I was fortunate to walk the land, get my shoes dirty, but I picked out a nice property, and I actually picked out several lots for our investors. And, amazingly, there are some pretty nice views from this tract of homes of the mesa off in the distance, so they make for very nice rental properties and it would actually be a nice place to live.
Jason Hartman: Excellent. Well, Lynda, let’s kind of summarize this market for our investors. What are three or four key reasons why someone would want to consider Grand Junction as an investment?
Lynda Mulley Well, look for the basics. First of all, the market here is experiencing a huge growth cycle, and as we know, real estate is cyclical, and this one is at the beginning stages of a big growth cycle and that creates a great opportunity for us to ride the wave of appreciation. My personal profile is when I buy, I usually buy for appreciation and that builds wealth very quickly. Grand Junction falls into that as far as the other dynamics – diverse, sound economic base that shows a continued growth pattern on population and jobs which are very important over the next ten years, and very low unemployment – so all of these things contribute to this being an area that you want to get into now as it continues to do well.
Housing is still very affordable. You have properties in the low twos, which is just under the national average median price for homes. They have no problem getting tenants, so you put that all together and this just is a sound place to invest your money, whether you’re a new investor or a seasoned investor adding to your portfolio.
Jason Hartman: And our point is always diversify, diversify, diversify into a lot of different local markets, so it sounds like Grand Junction definitely needs to be part of your portfolio, and also Kansas City and all of the other markets we’re in, as well. Lynda, thank you very much for those comments. Ken, anything you want to say in closing about Grand Junction?
Ken: Well, I’m just looking forward to helping any way I can. We certainly have a wonderful opportunity. I have never seen a market –and I’ve been in the business for 18 years in investment properties – where I am experiencing appreciation from a standpoint of real estate itself for investors, but also the appreciation or increase in rent at the same time. So even though our appreciation is continuing to go up, the rent will maintain a point where it will be very acceptable to the investor.
Jason Hartman: That’s great. Well, thank you very much both of you, Ken and Lynda.
Lynda Mulley Thank you.
Jason Hartman: We appreciate you being here.
Ken: Thank you.
Jason Hartman: And we will talk to you soon. Brooke, welcome.
Brooke Razeghi: Thank you. Several of my clients have said that they would like a positive cash flow from day one. What would be beneficial about a negative cash flow?
Jason Hartman: Okay. Great question. We have that one a lot. I find that this one is one of the hardest things for investors to get their head around. We do not recommend negative cash flow. You can have all the positive cash flow you want. You’ve just got to put enough money down on the property. I mean, think about it. If you put 100 percent down, so long as your property is rented, you’ll have a positive cash flow. But the more money you put in your property, the worse it performs. I kind of made that joke about the girlfriend thing at the last seminar and everybody laughed. Once I gave a girl a Tiffany’s bracelet. It wasn’t a super expensive one but it was nice, and suddenly she didn’t like me so much after I gave her the bracelet.
But the point is if you give your property too much money, it doesn’t perform well. Okay. Your property performs better when you put less into it, believe it or not. So whenever you buy a property you have a choice. You can either put the money in the property or you can put it in the bank. And when you put it into the property, it is a bad idea because all you do is lower the rate of return, you reduce the performance of the investment, you reduce the speed at which you accelerate your wealth creation, and you increase your risk. That’s one of the amazing things. Most investors think it’s more risky to have a large loan balance, but that’s not true. It’s actually more risky to have a low loan balance or more risky to have lots of equity for many, many reasons.
And we’ll go over these in future podcasts because they’re rather lengthy, but just in a quick nutshell, if there is a natural disaster, God forbid – Northridge earthquake, Hurricane Katrina, all of these disasters that have occurred, the recent wildfires in the San Diego area in Southern California – whenever they have these, there is always litigation that arises between the insured, the property owners who were insured, and the insurance companies. Because insurance companies love to collect premiums, but when it comes to paying claims they want to watch their pocketbook, and that’s like any business, right? They want to make sure that they’re not paying out more than they absolutely have to.
So invariably there are these disputes between insured and insurance companies. And you know what? When you have a large loan balance, your lender has a vested interest in making sure that that insurance claim is paid. And I have seen this over and over again. Your lender actually becomes your advocate and they protect you. They go and they bicker with your insurance company about what should be paid versus you having to do it yourself. So I always say this: Who do you think your insurance company is more likely to get into a debate with, you individually as the property owner with 100 percent or 50 percent equity in the property, who has to go out and hire their own attorney to fight their battles, or Washington Mutual or Countrywide or B of A or some big lender with a team of attorneys who isn’t going to allow any games to be played.
So that’s one reason, but the other reason is that it’s just more prudent. The investment performs better, and if you want to know more about this, go back and listen to the podcast on the deferred down payment where this explained in a little more detail. So thank you for the question. Okay. Gia has a question.
Gia Jurevich: Okay. One of the questions coming up, especially lately with everything that’s going on in the real estate market, is why is now a good time to invest?
Jason Hartman: Well, that’s a great question, and the reason now is a good time to invest is because you’re going to be investing, if you’re following our advice, in the right markets. The United States is a huge country, and in a huge country you don’t have any one national real estate market. What you have is a bunch of small, local markets. There’s an old saying in real estate, and there’s a book with this title, by the way. I should have published that book myself because I always say this, that all real estate is local, and that is very true. In a tiny little country, you could have a national real estate market.
I jokingly say once when I went to Europe, I drove through the country of Luxembourg. Beautiful country, very rich country, probably has a national real estate market because it’s so small, but the United States is a giant country. There are just a lot of local real estate markets, and we are not attached to any one area. We’re area agnostic, so we only go where the market makes sense. Places to avoid now would be California, most of Arizona, most of Nevada, most of Oregon. These are mostly overvalued; not completely. There are a couple of small exceptions here and there. Most of Florida is overvalued. Most of the northeastern United States is overvalued, and the places where it’s hot are the markets we talk about. These are good places to invest that make sense.
Okay. Does that answer the question?
Gia Jurevich: That does. Thank you.
Jason Hartman: Excellent. Thanks, Gia. Okay. Next, Lynda.
Lynda Mulley Jason, everybody knows that foreclosures are coming on the market more and more every week.
Jason Hartman: Lots and lots of them, yeah.
Lynda Mulley And I get a lot of questions from our investors asking us, “Why don’t we participate in the foreclosure market?”
Jason Hartman: Well, the reason we don’t participate in the foreclosure market is because currently it doesn’t make sense. When it does make sense, we’ll participate. I started my career 22 years ago selling foreclosure properties, mostly in the inland empire in San Bernardino and Riverside and a little bit in Orange County and LA, and what I found was really interesting. In the olden days, we used to put ads in the newspaper. Now we use the Internet a lot, but you put an ad in the newspaper that says REO, which means real estate owned, meaning like the bank owns the property, or foreclosure or repo or government repo or any of this type of thing in the real estate section and the phone would ring off the hook.
And what was amazing is a lot of these foreclosure properties that I would sell as a realtor back then would be done on like a sealed bid or multiple offer basis, and they would actually sell for more money than a nice house down the street that was just sold by a traditional seller. And what you found is that just because it had the word “foreclosure” in it, people would overpay sometimes. Now, this isn’t always true. Of course, the real estate market is a fragmented, imperfect market, and that’s why there’s so much opportunity in it, and we’ve talked about that before.
But just because it says “foreclosure” on it or “REO” or “government repo” does not by any means mean it’s a good deal. In fact, it may be a terrible deal. A lot of times you get the sort of auction mentality going on where you have multiple offers, multiple bids, and the property sells for more than it’s worth frankly. So if foreclosures make sense, and we do keep looking at them, we will start recommending them to our clients. The other part of the foreclosure thing, Lynda, is that there is a lot of fix-up work to the properties. They may need to be dramatically improved. And for a client who wants to be as passive as possible when investing, and they want to invest nationwide where they’re not attached to maybe the market that they live in that doesn’t make sense to invest in, it’s too hard to coordinate contractors. You get ripped off by the contractors a lot of times.
I have one local rental property here in Irvine that just became vacant. I can’t even get a gardener or a window cleaner to show up at the property to get it ready to get rented. A carpet cleaner, it is so difficult to get people to just show up and do the work. And then the whole second part of it is do they do the work at the right price? Do they do the work well? It’s too much management.
Now, if you could buy the property for half off or 40 percent off, it might be worth doing that management, but so far, we definitely have not seen that. And where foreclosures are most prevalent, by the way, are in overvalued bubble markets. And people mistakenly believe, “Well, hey, this property is 20 percent below what it sold for last year.” Well, so what? It’s still going to go down another 10 percent. Why would you want to catch a falling knife? Let it fall to the ground and pick it up carefully. We are not at the bottom of many of these bubble markets yet.
Okay. Thank you for the question. Brooke?
Brooke Razeghi: Several of my clients have asked, “Why should I join Platinum Properties Investor Network as opposed to doing the investing on my own?”
Jason Hartman: Yeah, a great question. Well, first of all, you don’t have to “join” our network. You just come to a meeting, you call us up, you send us an email. Go to our website and fill out any of the web forms and let us know what you’re interested in and we’ll help you. There’s no fee for any of our advice. Our investment counseling is all free of charge. We don’t try to sell you any $2000.00 financial plans or any junk like this. Basically, the way we get paid is by arranging referrals to the markets we recommend.
And again, we’re not attached to any one market. We are a real estate company. We don’t make money off of selling education. And what that does is it makes us attach to the result of the investment versus just selling someone a package of books, tapes, or some overpriced coaching program or some overpriced financial plan. We give our advice away in the hopes that you will become our client, and so far, it’s working very well.
Now, why should you do this rather than going to a market and driving around and trying to find the right micro market within that macro market within that city? It’s hit and miss. No. 1 reason I’d say – because you can never really know the market as well as we do or as well as our agents, especially on the ground in that market know that market. And you can look in one city and one county and there are good neighborhoods and there are very bad neighborhoods. There are neighborhoods that are improving, neighborhoods that are declining, and so there’s a lot to know about the micro markets, which we’ve talked about on prior podcasts, which I know Gia talked a lot about. So school districts and lots of things to consider.
The other thing is when you’re talking with a local agent in a local market, they are not area agnostic like we are, so they will just be recommending their product. And if you only have one thing to sell, there’s an old quote about that. “If the only tool you have is a hammer, everything begins to look like a nail.” And that may be very bad advice. It may not be the right thing to do, so we help our clients do this on a macro national basis, but also help them pick the right micro markets. And markets are very micro. Think about it, all of you listening. Think about the city you live in. Think about how you can drive just probably a few miles and the neighborhood dramatically changes. Very true in all of these markets, and that’s what’s we help you with.
Gia Jurevich: I just want to have one more comment on that, that the agents in the areas that we go into, we have zero loyalty to them.
Jason Hartman: Yeah. And they hate that.
Gia Jurevich: They do hate that.
Jason Hartman: But our clients love it.
Gia Jurevich: Yes, exactly. So we are tied to your results. If you don’t have a good situation, then you come back and you don’t purchase from us. You say things about us. We have – a lot of our business is repeat and referral business, so we are definitely tied to your results where the agents on the ground are not. And the other question that we get a lot is we have the property trackers, the pro formas on our website, and clients ask, “How do we come up with the rents?”
Jason Hartman: Ah, yeah, good. Well, first of all, someone asked me – on my recent trip to the Ukraine, I was on the plane flying back and I was talking to this potential investor. He’s a real estate developer. And I was talking to him about it and he said, “Well, do you guarantee these returns?” And I said, “No. We only make two guarantees actually at our company – death and taxes.” Look, these are investments. Nothing is guaranteed, but you can only make your best-educated assessment of the situation. So we survey property managers, we do extensive due diligence for our clients, and we do rent surveys. We ask them, “What are things renting for?” We look around in the neighborhood because our area managers go there.
And there’s a lot of stuff that you can only get a sense of by actually being there. How many for rent signs do you see? What happens when you open up the newspaper? Are landlords offering dramatic concessions and things like that? So on our website, we put projected rents in the pro formas. And I think that it would be a good idea for any of our potential clients who haven’t worked with us before, the ones that are working with us, they know us and trust us and they’ve seen it work already, but if you’re skeptical and you haven’t worked with us yet, call up the property managers yourself.
Call them in these markets and do your own due diligence. Become your own best advisor and see what they have to say, but just remember when you do that, there are micro markets and macro markets so you’ve got to be very specific with them to know what’s going on in a rental market. In any one city, like in Austin, Texas, for example, or in Kansas City, you’ll have whole different ends of the spectrum in the town, and so one property manager may do one area but they don’t do across town, so there’s a lot to consider there.
Brooke Razeghi: Next question is do I physically need to go visit my property to close it or get it leased?
Jason Hartman: Yeah, that’s a great question. We’ve had that from time to time, and most of our investors don’t go and visit the properties, at least not before they buy. Sometimes they do afterwards, but we certainly want to encourage people to go visit our markets because it always helps us basically get them more investment properties, and they buy more when they visit. So go visit the properties if you like. You’re certainly welcome to. We would never want to discourage you from visiting, but I will tell you that most of our clients do not visit the properties. And I’ll just tell you myself, I have almost 30 units now, and I have not seen well over half of my properties ever. I just know that I get a check every month, and that’s what I want is that rent check and that’s what makes the investment work.
Thank you to Brooke, Gia, and Lynda for bringing up these great questions. We’ll have more on future podcasts.
I’m here with Area Manager and Investment Counselor, Lynda Mulley, and she just returned from Kansas City and also Grand Junction, Colorado. And Lynda, tell us about what you saw in Kansas City.
Lynda Mulley Kansas City is a great market, Jason. It’s very stable and solid. It’s a market where there’s good growth and lots of things going on, and there are some great projects there that I took a look at that I think the investors would love to hear about.
Jason Hartman: Now, one of the things we always do is you’ve got to go buy your own house there –
Lynda Mulley Yes.
Jason Hartman: – if you want to recommend the area to clients, and, of course, I’m already an owner in Kansas City. I bought a four-plex there. But tell us what you’re recommending today in Kansas City.
Lynda Mulley What we have is a great single-family home, three-bedroom, two-bath, about 1450 square feet for $189,900.00.
Jason Hartman: Brand spanking new, right?
Lynda Mulley Brand new, rent ready, close to schools and a beautiful shopping center, big upscale shopping center called Zona Rosa, which I had lunch at and just fell in love with.
Jason Hartman: Excellent. What’s the projected return on investment?
Lynda Mulley Projected investment return here is 34 percent based on our usual assumptions that we put on our performance projections and the loan that you could get.
Jason Hartman: Excellent. Boy, 34 percent annually. Don’t try that in a mutual fund or the stock market. You probably won’t get it, but you can do it pretty conservatively and prudently with the right real estate investments with the right structure. Lynda, thanks so much for talking about the property in Kansas City.
Lynda Mulley You bet. Thank you so much.
Jason Hartman: Hey. I just wanted to announce a couple of quick things for you. If you are interested in a Platinum Properties Investor Network franchise in your area, we are now approved for franchising in 18 states. Please visit www.jasonhartman.com and click on the franchise link and fill out the short application.
If you are able to come to one of our live events, we would love to see you and meet you in person. We’ve had people fly in from all over the US for them. So hopefully you can join us for some of those events.
Also, if you are interested in career opportunities with us, our company is growing quickly and we would love to talk with you about career opportunities. Also remember our rental coordinator is here to help with your rental properties. If you need assistance with your rentals, your property managers, your advertising, remember we’re here to help, and we stay with you through the life of the investment, so feel free to call our office anytime and ask for the rental coordinator for assistance on your rentals.
Also want to remind you, listen to our old podcasts. At least go back to Podcast No. 13 forward and listen to all the podcasts after that. You’re welcome to listen to all of them. The ones before No. 13 are older, but they’re also good, but the newer ones, No. 13 and forward, which are really good ones to listen to, so please take advantage of that.
Be sure to see appropriate disclaimers and disclosures on our website at www.jasonhartman.com. Remember that we are not tax or legal advisors. So give us a call on any of these issues, and remember, we are here to help, and we will look forward to talking to you on the next podcast.
This material is the copyrighted creative work of either Jason Hartman, the Hartman Media Company, Platinum Properties Investor Network, Incorporated or the J. Hartman Company, all rights reserved.
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Duration: 52 minutes