Jason shares President Ronald Reagan’s 1982 radio address to show how much the world has changed in 25 short years which illuminates America’s best export and the essence of it’s “brand” – freedom. Next, “Shift Happens” as global prosperity booms. And finally segment two in our series on commercial real estate investing. Stay tuned for lots more innovative “new thinking” about investing and the financial world with our upcoming Creating Wealth podcasts in 2008.

Happy holidays and best wishes for the new year!

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: Welcome to another addition of Creating Wealth.  I am your host, Jason Hartman.  Glad to have you here today.  We are on the verge of Christmas 2007, and to those who celebrate Christmas around the world, Merry Christmas to you.  And today I’d like to talk about a few things we will have later in the podcast, an interview with a prior guest, Tolliver, who will talk about commercial real estate a little bit more, and I think you’ll find that very interesting and educational, and then sort of in the middle of the podcast we’ll talk about the global prosperity boom a little bit in the form of a short story called “Shift Happens,” which you may have seen floating around the Internet.  I just thought I’d read it here for you, and that’s quite amazing.

But we’ll start off with kind of a Christmas story, so after President Reagan – the favorite president of my lifetime, my personal favorite – was out of office, I purchased a set of tapes.  Yes, tapes.  We used to have these little things that go into cassette recorders and they were called “cassette tapes” for those of you younger digital media listeners.  Much more convenient nowadays, by the way.  One of the things that was particularly moving to me on this series of tapes was a Christmas radio address that President Reagan gave in 1982, and I think this is very poignant because the first thing we need to do as real estate investors is have a sense of history.  It is constantly amazing to me how short term people seem to think.  We look at our lives in a rather short-term basis, what’s happening today, this week, this hour, this month, this year.

Certainly Wall Street, I could be very critical of Wall Street because they seem like many times they’re sacrificing the long-term good to meet short-term numbers.  What are the numbers going to be this quarter, next quarter?  Whereas you see some of these Japanese companies and the stores go that they have 500-year business plans.  Well, as real estate investors, it’s very, very important, and we’ve talked about it or alluded to it on prior shows here, to have a sense of history and a sense of perspective.  And I think this story, in particular, will really put it in perspective.

But before the story, I think maybe a quote.  This quote is from Warren Buffett, and it’s very fitting given what’s been going on in the media today to make sure that you’re on a steady course, and you’re viewing your investments with a sense of history and a sense of perspective.  So Warren Buffett, often considered the world’s greatest investor, has a great quote here.  He says, “Be greedy when everyone else is fearful, and be fearful when everyone else is greedy.”  Now, isn’t that a good quote?  “Be greedy when everyone else is fearful, and be fearful when everyone else is greedy.”

So as we know listening to the Creating Wealth show here, many times we’ve talked about how there’s no such thing as a national housing market, only a bunch of little local markets.  And this, I think, is a particularly good time to take advantage of very good certain local markets, and there are many bad markets around the country right now that should definitely be avoided, but the media news is nationwide, and so many people are missing out on great opportunities in various particular markets.

So I read to you before that poem called “The Reluctant Investors Lament.”  If you didn’t hear that, it is on a prior podcast.  Go back and listen to that because it gives you a sense of history and a sense of perspective as it was written in 1977, and the perspective then is that thought housing and real estate was so overpriced.  Well, this particular very moving all-American Christmas story was shared by Reagan in 1982 in his weekly radio address on Christmas day.  I’ll just read it to you, but I’ll interject a couple of points here and there.

He says, “This is sort of a modern American Christmas story that took place not in our country’s heartland but on the troubled waters of the South China Sea in October 1982.  To me, it sums up so much of what is best about the Christmas spirit and the American character in this beloved land of ours and what it stands for, not only to ourselves but to millions of less fortunate people around the globe.”

So think about when this was written.  The Cold War was still raging.  We had a situation where we look now back on this and we see what is America really exporting?  Why would people want to invest in real estate here?  Because of the American brand, which I’ll talk about after I finish reading this.

Reagan goes on to say, “It’s a letter from Ordnance Man, First Class, John Mooney, written to his parents from aboard the aircraft carrier Midway on October 15, 1982.  But it’s a true Christmas story in the best sense.”

“Dear Mom and Dad,” he wrote, “today we spotted a boat in the water, and we rendered assistance.  We picked up 65 Vietnamese refugees.  It was about a two-hour job getting everyone aboard, and then they had to get screened by intelligence and checked out by medical and clothed, but now they’re resting on the hangar deck, and the kids – most of them seem to be kids – are sitting in front of probably the first television set they have ever seen, watching Star Wars.  Their boat was sinking as we came alongside.  They had been at sea five days, and had run out of water.  All in all, a couple of more days and the kids would have been in pretty bad shape.”

“I guess once in awhile,” he writes, “we need a jolt like that for us to realize why we do what we do and how important, really, it can be.  I mean, it took a lot of guts for those parents to make a choice like that and go out to sea in a leaky boat in the hope of finding someone to take them from the sea.  So much risk, but apparently they felt it was worth it rather than live in a communist country.  For all of our problems, with the price of gas,”  now let me just interject.  Isn’t that interesting?  Complaining about the price of gas in 1982 compared to today.  Back to the letter, “and not being able to afford a new car or other creature comforts this year, I really don’t see a lot of leaky boats heading out of San Diego harbor looking for the Russian ships out there.  After the refugees were brought aboard, I took some pictures, but as usual I didn’t have my camera for the real picture – the one blazed in my mind.”

He goes on to say, “As they approached the ship, they were all waving and trying as best they could to say, ‘Hello America sailor.  Hello Freedom man.’  It’s hard to see a boat full of people like that and not get a lump somewhere between chin and bellybutton, and it really makes one proud and glad to be an American.  People were waving and shouting and choking down lumps and trying not to let the other brave men see their wet eyes.  A lieutenant next to me said, ‘Yeah, I guess it’s payday in more ways than one.’  We got paid today.  And I guess no one could say it better than that.”

“It reminds us all of what America has always been – a place where a man or woman can come to for freedom.  I know we’re crowded and we have unemployment and we have a real burden with refugees, but I hope and pray we can always find room.  We have a unique society, made up of cast-offs of all the world’s wars and oppressions, and yet we’re strong and free.  We have one thing in common – no matter where our forefathers came from, we believe in that freedom.”

“I hope we always have room for one more person, maybe an Afghan or a Pole or someone else looking for a place where he doesn’t have to worry about his family starving or a knock on the door in the night, and where all who truly seek freedom and honor and respect and dignity for themselves and their posterity can find a place where they can finally see their dreams come true and their kids educated to become the next generations of doctors, lawyers, builders, soldiers and sailors.  Love, John.”

This letter sums up all of the special gifts that Americans enjoy as their birthright, so what does that have to do with real estate investing?  It’s a very moving story, to say the least, at least for me.  What does it have to do?  Well, I think it really gives us a very big clue as to what America’s biggest export is.  It’s a brand.  It’s a philosophy, and to sum it up in a word, it’s freedom.  And we see so many people now buying real estate here from around the world where wealthy people, powerful people in other countries, in South American countries for example, want to have at least some of their assets outside of their own country because they know that they are safe in America.

Now, they’re certainly not guaranteed anything in terms of market fluctuations obviously, so they have to invest in the right places, and a lot of South Americans, frankly, invest in overvalued markets like Miami.  Hopefully, some will be listening to our Creating Wealth show and make better choices because they want to avoid those types of markets.  So I hope you enjoyed that Christmas story.

On to the global prosperity boom.  We’ve talked about this a lot.  We’ll continue to talk about it because it is truly amazing to me.  Just this morning I was in the coffee shop and I was reading the December 10 issue – yes, I’m always a little bit behind on my reading it seems – of Business Week.  And there was a small article here that says, “Got Something,” and in Chinese it’s milk, and it says, “China’s soaring economy has given China a big appetite for oil and other commodities.”  Now, we’ve talked about that a lot.  “Now you can add milk to the list.  Under the old centrally planned system, milk was a luxury with 250 grams costing a tenth of the average monthly income.  Today, as people’s living standards have risen, so has the demand for milk.”

And they talk about this CEO of China Milk who operates dairies and all of that and supplies milk to the country.  “At the country’s biggest milk producer in Inner Mongolia, the first half o 2007 profits were up 41 percent.”  The first half – I’m going to repeat that because you may not understand the impact.  “The first half of 2007 profits were up 41 percent from the year before to $64 million, and there’s more room to grow.  In 2006, annual per capita milk consumption was 53 pounds, reports China Dairy Yearbook.  Well, that’s way up from 11 pounds a decade ago.  It’s low compared with, say, the US per capita intake of 181 pounds, or 21 gallons of milk.”

What does this all mean to us?  It is another sign of many in the global prosperity boom that will make the value of our packaged commodity investments, in my opinion, rise dramatically in the years to come.  But have a sense of history.  Have a sense of perspective.  Have long-term thinking about this stuff, and by long term I don’t mean very long term.  I’m talking the next few, the next five, the next ten years we are going to see more and more prosperity created around the world.  Many experts say that just in China alone, with globalization and what I call the global prosperity boom, over 200 million people have been lifted out of poverty.  And what do they do?  They consume, consume, consume.

Every time the cost of energy goes up, the value of your houses increases because it is more expensive to rebuild the same thing.  And if you buy very close to the actual cost of construction, you have basically eliminated pretty much your downside risk.  Go back to my other Creating Wealth show on the Hartman risk evaluator for more details on that because what we really are thinking about here is not investing in real estate per se but rather packaged commodities investing.

And for more on perspective and massive acceleration of global changes, what is happening now remember has never before happened in human history.  We are truly in a new age, in a new world, but some of the old things people always need – food, clothing, shelter, and let them rent their shelter from you.  And every time someone wants to build more shelter, no matter where it is around the world, you have locked in your cost of construction for several decades.  In my seminars I sometimes ask, “How long does a house last?”  Well, according to the IRS, it lasts 27-1/2 years.  I believe a house lasts about 50 years, five decades.  Certainly there are houses that are much older than that that are still being used, still being rented, still creating value for their owners, but five decades is a good reasonable amount of time.

So when you buy a property today, if you follow our advice, you’re locking in your cost of borrowing for the next three decades, for 30 years on fixed-rate financing.  You’re locking in your cost of construction for the next five decades, 50 years, so everybody that comes after you has to pay more to build as the global prosperity boom keeps increasing consumption for energy, petroleum products, copper wire, glass, steel, concrete, lumber, labor, everything, everything that are the ingredients of our packaged commodities.  And just to re-explain that if you haven’t heard me talk about it on prior shows, that is the assembled or packaged commodities that are in the form of a house sitting on very inexpensive land.  That is the way to invest in today’s market, and invest and pay the mortgage back, or rather have your tenant pay it back, in constantly devalued inflation-affected dollars.

So listen in to this short story called “Shift Happens.”  Again, you may have seen this float around the Internet in the form of a slideshow.  It’s brilliant.  I have no idea who the author is, but it’s quite interesting so listen in to this and then we will talk to Tolliver about more learnings in commercial real estate investments.  Here it goes.

Did you know sometimes size does matter?  If you’re one in a million in China, there are 1300 people just like you.  In India, there are 1100 people just like you.  The 25 percent of the population of China with the highest IQs is greater than the total population of North America.  India, it’s the top 28 percent.  Translation for teachers:  They have more honors kids than we have kids.

Did you know China will soon become the No. 1 English-speaking country in the world?  If you took every single job in the US today and shipped it to China, it would still have a laborer surplus.  During the course of this presentation, 60 babies will be born in the US, 244 babies will be born in China, and 351 babies will be born in India.  The US Department of Labor estimates that today’s learner will have 10 to 14 jobs by age 38.

According to the US Department of Labor, one out of ever four workers today is working for a company for whom they have had been employed less than one year.  More than one out of two are working for a company for which they have been employed less than five years.  According to the former Secretary of Education, Richard Riley, the top ten jobs that will be in demand in 2010 didn’t even exist in 2004.

We are currently preparing students for jobs that don’t exist yet using technologies that haven’t been invented in order to solve problems that we don’t even know are problems yet.  Name this country:  The richest country in the world, the largest military, the center of world business and finance, the strongest education system, world center of innovation and invention, currency the world standard of value, the highest standard of living.  That was England in 1900.

Did you know the US is 20th in the world in broadband Internet penetration?  Luxemburg just passed us.  Nintendo invested more than $140 million in research and development in 2002 alone.  The US federal government spent less than half as much on research and innovation and education.  One of every eight couples married in the United States last year met online.

There are over 106 million registered users of MySpace as of September 2006.  If MySpace were a country, it would be the 11th largest country in the world.  The average MySpace page is visited 30 times a day.  Did you know that we are living in exponential times?  There are over 2.7 billion searches performed on Google each month.  To whom were the questions addressed B-G, before Google?  Hmm.

The number of text messages sent and received every day exceeds the population of the entire planet.  There are about 540,000 words in the English language, about five times as many as during Shakespeare’s time.  More than 3,000 new books are published daily.  It is estimated that a week’s worth of New York Times contains more information than a person is likely to come across in a lifetime in the 18th century.

It is estimated that 1.5 exobytes, 1.5 times 10 to the 18th power of unique new information will be generated worldwide this year.  That’s estimated to be more than in the previous 5,000 years.  The amount of new technical information is doubling every two years.  For students starting a four-year technical or college degree, this means that half of what they learn in their first year of study will be outdated by their third year of study.  It is predicted to double every 72 hours by 2010.

Third generation fiber optics has recently been tested in both NEC and Alcatel.  That pushes 10 trillion bits per second down one strand of fiber.  That’s 19,000 CDs, 150 million simultaneous phone calls every second.  It’s currently tripling every six months and is expected to do so for at least the next 20 years.  The fiber is already there; they’re just improving the switches on the ends of the fiber, which means the marginal cost of these improvements is effectively $0.

Predictions are that e-paper will be cheaper than real paper.  Forty-seven million laptops were shipped worldwide last year.  The $100.000 laptop project is expecting to ship between 50 and 100 million laptops a year to children in underdeveloped countries.  Predictions are that by 2013 a supercomputer will be built that exceeds the computation capability of the human brain.  By 2023, when first graders will be just 23 years old and be getting their first careers, it will take a $1,000.00 computer to exceed the computation capability of the entire human brain.  And while technical predictions farther out than about 15 years are hard to make, predictions are that by 2049, a $1,000.00 computer will exceed the computational capabilities of the entire human race.

What does it all mean?  Shift happens.  Take advantage of this massive global shift and the looming asset shortage that all of the prosperity this education and knowledge will create in the world with prudent real estate investments.  Buy them, hold them, let the population get smarter.  Let the population get more prosperous.  Let the value of all the raw materials inside of a house, the copper, the lumber, the labor, the petroleum products, the concrete, the glass, the steel, let all of that and all of the energy it takes to build it get more expensive as more and more consumers, 2.5 billion consumers in China and India alone, let them drive the prices of all these commodities up.

This is what I called “packaged commodities investing” or “assembled commodities investing.”  You’re investing in commodities in the form of a house because a house contains all those commodities.  Housing is a universal need.  Buy prudent real estate investments, hang on to them, lock in your cost of construction for the next five decades or so, your cost of borrowing for the next three decades or so, and create wealth.

Isn’t that amazing, though, all of the changes that are going on in the world?  And they are accelerating faster and faster and faster, but one thing is certainly consistent – everybody on Earth needs a place to live, and I think that American real estate is far and away the best deal globally that I’ve seen so far, all things considered.  And if you want a little more perspective on this, you can listen to a recent podcast I did about two months ago or three months ago that was talking about one of my trips to Eastern Europe.  Some interesting tidbits there if you’d like to listen to that.

Now let’s listen in to Part 2 with Tolliver Morris who is talking about commercial real estate.  Learn a little bit more about commercial real estate and then we will conclude.

We want to welcome you back to Part 2 on commercial real estate investing.  This is just the introductory part of investing in commercial real estate.  And last time we were fortunate enough to have Tolliver Morris in to talk to us and educate us on this subject, and let’s pick that up and continue today.  So welcome back.

Tolliver Morris: Great.  Thanks so much.  Glad to be here.

Jason Hartman: Okay.  So let’s talk first about the best type of properties to invest in, and maybe the way we want to break this down is there’s not really any best per se, but it’s best depending on what is it the investor wants out of the deal.  Do they want something that gives the highest return or the lowest amount of effort and management?

Tolliver Morris: Right.

Jason Hartman: And obviously there’s a huge spectrum here.  There are many more choices than with residential real estate.

Tolliver Morris: Right.

Jason Hartman: And it’s more complex for sure.

Tolliver Morris: Right.

Jason Hartman: But the opportunities are really nice.

Tolliver Morris: Right.

Jason Hartman: So what would be the easiest type of property to manage where –

Tolliver Morris: The easiest –

Jason Hartman: – where it’s just the simplest deal of all?

Tolliver Morris: Yeah.  The easiest bar none is single-tenant triple-net properties.

Jason Hartman: So this is the Jack in the Box, the Dollar General Store.

Tolliver Morris: Right.

Jason Hartman: Even a big thing like a Best Buy or a supermarket?

Tolliver Morris: No.

Jason Hartman: No, they’re not?

Tolliver Morris: Those are typically in retail strip centers and so that’s a multi-tenant scenario and that’s more involved, but when you have a single building that’s single leased by one single tenant and it’s a triple-net lease where all they do is send you a check every single month.  You don’t manage it; they manage it.  They handle the grounds keeping.

Jason Hartman: They clean it up.  Yeah, right.

Tolliver Morris: They clean and they do everything.

Jason Hartman: Okay.

Tolliver Morris: It’s all on their dime and they just send you a check every single month, that’s the easiest bar none.

Jason Hartman: And all of the expenses, maybe you can define what triple-net means.  When someone sees – they’re looking around and they see a property advertised and they’ll see NNN, and that means triple-net.

Tolliver Morris: Right.

Jason Hartman: What is triple-net?

Tolliver Morris: Well, triple-net basically means there’s zero expenses, so it means that –

Jason Hartman: To the landlord.

Tolliver Morris: To the landlord, so the tenant pays the taxes, the tenant pays the insurance, the tenant pays the common area maintenance, the tenant pays the structural.  On a true triple-net, the tenant even pays for the roof and everything else having to do with the building.  So those are the extreme.  You can have things that are called triple-net that may not be everything included.

Jason Hartman: They’re not exactly triple-net, yeah.

Tolliver Morris: Yeah.  But true triple-net is everything is paid for by the tenant, period, end of story.  And the landlord doesn’t even receive money from the tenant to pay the bills.  They just –

Jason Hartman: The tenant pays them directly.

Tolliver Morris: The tenant pays them directly.

Jason Hartman: Okay.  So that brings up a couple of questions, Tolliver.  No. 1 is if the property tax bill goes up.

Tolliver Morris: Right.

Jason Hartman: Like the property gets reassessed.

Tolliver Morris: Right.

Jason Hartman: The tenant pays the higher amount five years later, right?

Tolliver Morris: The tenant pays whatever the property tax bill is, period, end of story.

Jason Hartman: It just passes right through.  Now, you said that they actually pay the tax bill rather than in a residential deal they’re sending me the money and I’m paying the expenses.

Tolliver Morris: Right.

Jason Hartman: And I may even have positive cash flow or break even or whatever, but I’m still the one taking the money in and then distributing the money out.

Tolliver Morris: Right.

Jason Hartman: What concerns me about a triple-net deal is what if they don’t pay the tax bill and the property gets foreclosed on or gets a tax lien against it?  How do I know that they’re really going to do that?

Tolliver Morris: Well, the leases are set up so that they pay the tax bill in advance.  As soon as you send it to them they pay it, and if they don’t pay it within a certain timeframe, and that’s all prior to when the tax bill is actually due, then you have the opportunity obviously to pay the tax bill and go after them with all the issues that are in the lease that give you rights and remedies, etc., if the tenant defaults.

Jason Hartman: Yeah, okay.  So –

Tolliver Morris: And these tenants are typically pretty big companies, so they know what they’re doing.  They’re not going to default.  They are big companies on the hook, great credit.

Jason Hartman: They only occasionally go out of business.

Tolliver Morris: Well, yes.

Jason Hartman: I mean, Kmart went out of business.

Tolliver Morris: It happens.

Jason Hartman: Yeah.  So it does happen.  Okay.  So triple-net single-tenant is the easiest type of property to manage.

Tolliver Morris: By far.

Jason Hartman: But generally it’s not going to offer the highest return on investment.

Tolliver Morris: Correct.

Jason Hartman: What is going to offer probably the highest return on investment?  I mean, I know this is a massive generalization here but generalize.

Tolliver Morris: It is, but typically the highest return on investment – well, many times it can be trailer parks.  That might sound like kind of it’s low end and difficult, and that’s why it gets the highest return.

Jason Hartman: Okay.

Tolliver Morris: It’s high return because it’s one – it’s not a pride of ownership scenario typically, and especially in the South.  There’s a big stigma with owning trailer parks, which we don’t necessarily have out here in the West.  And so lots of people with money in the South don’t want to own trailer parks, don’t want to be associated with trailer parks, don’t even want to have their name associated with trailer parks.

Jason Hartman: That is really interesting.  See, I’d love to own a bunch of mobile home parks.

Tolliver Morris: Absolutely.

Jason Hartman: I think they’re great, yeah.

Tolliver Morris: Absolutely.  They can be fantastic returns, but again, as we talked about before, they’re difficult to manage because you’ve got a low-level caliber tenant typically, and it’s fairly management intensive.

Jason Hartman: Yeah.  And you know what I say to that?  Serve the masses and dine with the classes.

Tolliver Morris: Absolutely.

Jason Hartman: So people have become very wealthy doing fast food deals and all kinds of stuff like that.

Tolliver Morris: Right.  And the tweener kind of in the middle of those, and we’re talking extremes –

Jason Hartman: Yeah.

Tolliver Morris: – the very easy and we’ve talked the very difficult –

Jason Hartman: Okay.

Tolliver Morris: – and the highest return.  I’m going to take office and medical kind of out of equation because it takes a lot of infrastructure to do those types of deals.

Jason Hartman: Right.

Tolliver Morris: And it takes a lot of management intensity and it takes a lot of upfront dollars on the improvements and all that kind of stuff.  It’s very management intensive.

Jason Hartman: So we’re going to exclude office and medical and, in fact, by and large, office and medical are probably the hardest deals of all in terms of management intensiveness and infrastructure intensive for the landlord, for the investor.

Tolliver Morris: Right.  And repeating costs that are unforeseen costs both downtime as well as commissions on re-tenanting as well as tenant improvements on re-tenanting.

Jason Hartman: Yeah.

Tolliver Morris: So they can surprise you.  If you don’t have a lot of staying power, office and medical can be pretty painful.

Jason Hartman: Okay.  By the way, I do want to mention, there are some simple office opportunities out there.

Tolliver Morris: Correct.

Jason Hartman: Like there are office condos people can buy.

Tolliver Morris: Right.

Jason Hartman: Those are very popular in some areas.  You can do industrial condos, too.

Tolliver Morris: Right.

Jason Hartman: Again, this is not an exhaustive conversation on it.

Tolliver Morris: Right.

Jason Hartman: We don’t have that much time, so let’s move on to –

Tolliver Morris: Kind of the tweener, which would be the multi-family.

Jason Hartman: Yeah.

Tolliver Morris: And we’ve talked a little bit about this before.  This is kind of along the lines of what you already do with the residential property in terms of the single assets.  This is just multiplying those in a single location so that you have the same values and same benefits that you get with many of the aspects of the single-asset residential but you have it in a bigger package.

Jason Hartman: Right.  Which I like that.  Yeah, I like that a lot.  And I feel extremely secure with apartments because I know that everybody needs a place to live.  I say this in the seminars sometimes.  They can outsource the call centers to India, the manufacturing to China, Fortune 1000 companies, they tell people to go work out of their spare bedroom at home, and so they don’t provide them office space.  This lessens the demand for certain types of products.  To some extent shopping can be a little bit but not completely ever outsourced to the Internet, but then you just create the need for a distribution center, which is industrial.

Tolliver Morris: Right.

Jason Hartman: All of this has kind of a cycle to it and a rhythm, but I know that at the end of the day everybody needs a place to live, and I know that the population of the US is increasing and the demographics coming our way are just phenomenal –

Tolliver Morris: Right.

Jason Hartman: – for investors.  And make sure you heard that.  The demographics coming toward investors are phenomenal in the United States right now.  We’re going to see the experts say another 100 million people here in the next 34 years or so, so get ready investors.  Buy real estate because it’s good.

Tolliver Morris: Right.

Jason Hartman: Okay, go on.

Tolliver Morris: So we talked about the various different types, and you wanted to talk a little bit about the lending environment.

Jason Hartman: Yeah.  Now that we discussed the product types and what’s the best type, what type of lending environment is there today?  You’ve got to finance commercial real estate or any real estate to make it perform well.

Tolliver Morris: Right.

Jason Hartman: And our philosophy as our podcast listeners know is we want to use as little of our own money and as much of the bank’s money as possible now.  On commercial real estate, the financing is not usually quite as good there.

Tolliver Morris: Right.

Jason Hartman: But again you do have some advantages with commercial that you don’t have with residential.

Tolliver Morris: Right.

Jason Hartman: So you have to put maybe 20, even 25 percent down.

Tolliver Morris: Right.  It’s going to vary between 15 and 35 percent is kind of the range.

Jason Hartman: Right.

Tolliver Morris: You may be able to find it as low as 15 percent with certain programs, but that’s kind of the minimum.

Jason Hartman: And I just want to make one mention, and we’ve talked about this offline, but there are advertisements you see, and I get them, saying 100 percent financing on commercial real estate, which is possible sometimes.

Tolliver Morris: Right.

Jason Hartman: But the rates are very high.

Tolliver Morris: Correct.

Jason Hartman: So we’re talking about sort of the mainstream ways to finance.

Tolliver Morris: The real teaser scenarios, right.

Jason Hartman: Yeah, right.  So talk to us about sub-prime, the banks, the businesses, all –

Tolliver Morris: Well, the good news about commercial real estate, kind of unlike the residential sector, is that it’s not been very much affected by the sub-prime market.  There is really no sub‑prime in commercial real estate.  People are performing on their loans and commercial real estate has done great.  And so the commercial banks are flush with cash to do commercial loans just as aggressively as they have before, and maybe even more aggressively.  And so you can get commercial loans from both local business banks as well as the big banks, the B of A’s and the Wells Fargos of the world.  There’s all sorts of different places where you can get commercial real estate loans.

As we talked about, they’re typically 15 to 35 percent down required, somewhere in that neighborhood depending on your credit score and your net worth and the type of property you’re buying.  If you’re going to buy a single-tenant triple-net property that’s leased by Jack in the Box headquarters, those are pretty darn easy to finance.  Something else that’s multi-tenant, not yet full, would fill up with all sorts of kind of local mom and pops, that’s going to be a little more difficult to finance.

Jason Hartman: By the way, you just made me think of something.  One of the nice things about commercial real estate is that many of the times when you buy the property, it’s already tenanted.  It’s occupied you know –

Tolliver Morris: The vast majority of the times.

Jason Hartman: Yeah, right.  Versus with residential only because we really prefer the new homes and we’ve got lots of reasons for that that we’ve talked about and will continue to talk about on other podcasts and at seminars.  There’s no lease up period here whereas with a single-family, with the vast majority of ours, you’re going to be vacant for a month, maybe even two months.  Hopefully not any worse than that, but occasionally there’s a snag somewhere.  And that usually means someone didn’t follow our advice, by the way.  It’s not our snag; it’s theirs.

Tolliver Morris: Right.

Jason Hartman: But it happens occasionally.  But these are just all leased up so they’re ready to go.

Tolliver Morris: Right.

Jason Hartman: So you –

Tolliver Morris: You have their cash flow day one.

Jason Hartman: Cash flow day one.  Okay, good.  Go on.

Tolliver Morris: In terms of the financing, we’re getting back to that.  Typically, financing rates are somewhat close to the residential rates, again depending on credit and net worth and the type of property.

Jason Hartman: Not quite as good, yeah.

Tolliver Morris: Not quite as good.  You’re going to be around prime, sometimes below prime, and prime today is about 7.5 percent.  Amortized terms up to 30 years, so kind of similar to commercial real estate on that.

Jason Hartman: Residential.

Tolliver Morris: Residential rather.

Jason Hartman: Okay.

Tolliver Morris: And then variable and fixed rate.  The real difference in commercial real estate is that you don’t typically get fixed rate out to 30 years.

Jason Hartman: Right.

Tolliver Morris: About the maximum you’d ever get is about 15 years fixed.

Jason Hartman: That’s a bummer.

Tolliver Morris: Yeah, that’s a bummer.

Jason Hartman: Because I love locking in for 30 years because I just think with the dollar as weak as it is, we are really going to see where rates have got to go up.

Tolliver Morris: Right.

Jason Hartman: Because our dollar is just being devalued like – it’s disgusting what’s going on.

Tolliver Morris: Right.

Jason Hartman: But it’s really good for real estate investors, and that’s why it’s hard for me to get too upset about it because I keep paying my loans back – actually, my tenants pay them back – in cheaper dollars all the time.

Tolliver Morris: Right.  Well, one of the good things about the dollar devaluation that we talked about before, Jason, is that the foreign investors are starting to come in, especially in the commercial real estate sector.

Jason Hartman: Good point.  It creates a whole new market.

Tolliver Morris: Correct.  We’ve got people coming in from not any specific country but from all over the place saying, “We’d like to buy commercial real estate.”  And they don’t want to come over here and buy single-family home.  They want to come over here and buy sizeable assets.

Jason Hartman: Right.

Tolliver Morris: And so it adds value to everybody’s asset who’s buying today.

Jason Hartman: That’s true.  You’re right.  It creates a new demand side of the equation.

Tolliver Morris: Right.

Jason Hartman: And it puts upward pressure on values, on prices.  But I do beg to differ with you on that.  Some individual investors definitely cross the border –

Tolliver Morris: Absolutely.

Jason Hartman: – and they come over, a lot of them from Canada and a lot of them from Europe right now.

Tolliver Morris: Right.

Jason Hartman: And even Russia.  I’ve got stories I could tell you but we don’t have time now about Russians that come over and buy dozens of properties, residential single-family homes, but that is more rare, I would have to agree with you.  It takes the initiative of one individual to jump on the Internet and really go out of the box if you will.

Tolliver Morris: Right.

Jason Hartman: Okay.  Go ahead.

Tolliver Morris: So you wanted to talk a little bit about the market for real estate today I think.

Jason Hartman: Yeah, absolutely.  I mean, how has it been so far and what are your thoughts?  Predictions are never guaranteed, but what are your thoughts about the future of commercial real estate and what have we seen so far?

Tolliver Morris: Well, typically, commercial real estate tracks the residential a little bit to the tune of 12 to 18 months behind the residential cycle.

Jason Hartman: So there’s a lag time.  That’s a real big generalization –

Tolliver Morris: Correct.

Jason Hartman: – but it is interesting.

Tolliver Morris: Correct.

Jason Hartman: Because if you look at what’s going on in Southern California here, for example, the residential market really took the start of its downturn about 18 months ago almost exactly.

Tolliver Morris: Right.

Jason Hartman: Pretty close to that, and so commercial is still really booming here.

Tolliver Morris: Yeah.  Well, the sub-prime thing, although it’s not been localized to the commercial real estate industry, has had trickle over because people have just gotten nervous and pulled off to the sidelines.  The good news about that is the fundamentals for commercial real estate are solid, really solid.

Jason Hartman: Yeah.

Tolliver Morris: And so it’s going to create good buying opportunities because there’s not quite the pent up demand for buying that there was in previous years.  So I don’t think we’re going to see the commercial real estate falloff.  We traditionally don’t follow the residential near as much.  Commercial real estate might fall off a little bit and create some good buying opportunities, but it’s not going to fall off like the residential did because it doesn’t have the same component in the sub-prime scenario.

Jason Hartman: Well, and also I would say that commercial real estate is a little bit more linear because the valuations are based on the income the property produces – mostly, not perfectly.

Tolliver Morris: Right.

Jason Hartman: And there’s a little bit of speculation in there and stuff just like in residential.

Tolliver Morris: Sure.

Jason Hartman: But in residential it’s really disjointed in that the value is not based at all on the income the property produces really.

Tolliver Morris: Right.

Jason Hartman: It’s based on psychology and scarcity and all these other factors, and so in the cyclical markets which is like a California market, Arizona, Nevada, most of Florida, the Northeastern United States, the markets that are now overvalued, you’ve seen big, huge price increases in residential.

Tolliver Morris: Right.

Jason Hartman: And now you’re seeing that correct itself.

Tolliver Morris: Right.

Jason Hartman: And so the commercial didn’t have that as much.

Tolliver Morris: Not quite as much, correct.

Jason Hartman: And so the old saying, “What goes up must come down,” right?

Tolliver Morris: Right.

Jason Hartman: So the residential in the markets we invest now are very linear.

Tolliver Morris: Right.

Jason Hartman: So they didn’t have that big run-up yet.

Tolliver Morris: Right.

Jason Hartman: And I don’t think they will have a huge one.

Tolliver Morris: Yeah.  I think commercial real estate is kind of in a holding pattern across the country to some degree.

Jason Hartman: Yeah.

Tolliver Morris: There are some markets that are more bubbleicious I guess you’d say than others, but –

Jason Hartman: There’s a word for you.

Tolliver Morris: Right.  But it’s kind of in a holding patter, which like I said creates great buying opportunities.

Jason Hartman: Okay, excellent.  How do you find the best commercial real estate opportunities?

Tolliver Morris: Well, it’s kind of like the residential world.  I mean, you’ve got a local commercial broker who can show you properties in their backyard and can help you out, but they’re very localized.  They can’t show you everything very effectively across the nation.  They can only kind of show you what they know.

Jason Hartman: Yeah.  And I’ve got to tell you, now that you say that, that’s been my experience and my challenge is that I can’t seem to find an area agnostic commercial broker.  I’ve called some of these big commercial real estate firms.  I’ll call their main office.  I’ll talk with their Director of Research and I’ll say to them, “What’s the best market nationally?”  And they will give me some guidance and some tips, but it seems like they’re more referring me to their buddy in a certain market – you know, “Call this person,” – than really being like us here at Platinum Properties Investor Network, truly area agnostic.

Tolliver Morris: Right.

Jason Hartman: And so that’s been a challenge, but we’re –

Tolliver Morris: Right.

Jason Hartman: It’s how are going to solve that problem for our investors?

Tolliver Morris: The local brokers have had a hard time comparing and contrasting properties from market to market, unless they’re gigantic properties and those guys are focused on nationally based gigantic properties.

Jason Hartman: Right.

Tolliver Morris: But for the smaller investor, there’s really not been a very good system for them to kind of compare properties in multiple markets kind of side by side.  The other way to find commercial real estate properties is to represent yourself which again, kind of like the residential, it’s really hunting and pecking.  It’s a very difficult process.

Jason Hartman: “Danger, Will Robinson.”

Tolliver Morris: Absolutely.

Jason Hartman: Okay, go ahead.

Tolliver Morris: And so what we’re talking about is actually putting together a Platinum Properties commercial division where, similar to the residential program, go into the markets we think are the best markets in the country and we pluck properties out of those markets and compare and contrast them side by side so that you can take a look and see what’s out there and make some informed decisions.

Jason Hartman: Excellent, excellent, good points.  I just want to talk about one of our clients, Scott, who purchased a commercial property from us.  This was an apartment building – and if you’re out there listening, hello – in Kansas City, and he was just ecstatic about the investment.  I believe the purchase price, if I recall correctly, of that one was about $1.3 million, and it was, I don’t know, 30, 40 units, something like that.  And he was positive cash flow first month, no big wait to lease up.  I think he was about $4,000.00 positive cash flow the first month.  Now, of course, he put a little more down than the typical residential investor so he didn’t have that deferred down payment –

Tolliver Morris: Right.

Jason Hartman: – that we’ve talked about in prior podcasts.  But he’s very happy and excited about the investment, and once you get into this real estate investing it just – if you do it right and you’re prudent, you’re careful, you’re conservative, it works so darn well and it’s really hard not to be just addicted to it.

Tolliver Morris: Right.

Jason Hartman: So Tolliver, thanks for the words of wisdom today, and is there anything you want to say in closing?

Tolliver Morris: I just want to say that the Platinum Properties commercial division is here for you and we’re here to answer any questions and look forward to working with you and we’ve got some great opportunities out there for you.

Jason Hartman: Excellent.  Thanks for coming in.  All right.  I hope you found that interesting.  I just want to wish you all a very happy holiday season, a merry Christmas, and best wishes for 2008.  We will have one more show for you before the end of 2007, and stay tuned for just a couple of quick announcements.  Thanks so much for listening and happy holidays to you.

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:  48 minutes