Announcer: Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Costa Mesa, California.  During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.

Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk.  He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities.  This program will help you follow in Jason’s footsteps on the road to financial freedom.  You really can do it.  And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.

Jason Hartman: Hello and welcome to another edition of the Creating Wealth Show.  This is your host, Jason Hartman.  This is Show No. 93.  We are getting close to that big 100-century number, aren’t we?

It’s great to have you here today.  I hope you enjoyed Show No. 92, our last show, with the very famous and scholarly Pat Buchanan.  Obviously, that’s a big name and we have quite a few more of those coming up from different parts of business, investing, real estate, politics, etc, etc, economics.  So keep looking for those.  We have a lot more good stuff coming up for you.

Just before we get into today’s show, I wanted to announce a couple of events.  I am a keynote speaker at the Financial Quest 2009 Program in La Jolla, California.  That’s at the beautiful Torrey Pines Hilton Resort.  I believe that’s a Hilton.  It could be a Hyatt.  I always mix those two up.  That’s on Saturday, this Saturday, so come see me if you’re around there on Saturday, the 28th.  I’ll be speaking at 10:00 a.m., and we’re expecting about 2,000 people in the audience, so that will be a fairly large event.

And then we have, of course, our most famous program that thousands and thousands of people have been through on April 4.  That is the Creating Wealth in Today’s Economy.  We have a webinar coming up this month as well.  I don’t have a specific date for you, but keep looking on our website for that at  And we’re also going to be doing a program that we haven’t done in a while and we had a speaker on this at Masters Weekend on investing in real estate with your IRA or retirement plan, 401ks.  Different kinds of qualified plans can be eligible.

The reason we haven’t really addressed that subject very much is that, for a while, it really wasn’t that great of a deal, but it’s become a better deal again, and I think with everybody’s massive disappointment and distrust in Wall Street and the stock market now, that that topic is pretty good again and pretty interesting again.  So we’re going to be bringing that to you.  We’ll have them on the show as well.  But we have a live event coming up in the month of April on that, so keep a look out for that,\Events.

Also, I noticed that some of you listeners are finding us on Facebook.  You can look for several different pages on Facebook.  One of them is Platinum Properties Investor Network page, so please become a fan of us there.  Also, look for the Creating Wealth Show page as well, and Jason Hartman, the Jason Hartman Foundation.  We have several pages on Facebook and we’d love to have you join those and become engaged with us there as well.

Listener questions, we have a lot of questions from you and a lot of very nice comments, which we much appreciate.  And we will be reading those on hopefully the next show – don’t have time for it today.  We have to get into the program.  But I wanted you to know we’ll get to your questions, trust me.  We always do.  They will be coming up real soon and we’ll get those all answered for you.

Also, we have a new character.  When I say character, I mean character.  His name is Barry Fin.  You may or may not be familiar with Barry Fin, but I want you to go check out his website.  It’s  And check out Barry.  He has a short video there and he’s going to tell you some interesting stuff on Wall Street.  It’s Barry Fin’s Wall Street Low Down, How to Make a Killing in the Markets, How to Beat the Street, How to Invest with the Best.  So I think you’ll like Barry Fin.  He’s there with Birney Madoff.  Anyway, he’s just a real character.  Check him out –

Also, make sure you go back and listen to our Core Content, and you can’t find that on iTunes easily, but if you go to, click on Education, and then Podcasts and Radio, New Listeners Start Here.  They’re just six shows out of the nearly 100 shows we have.  Those will show you some of the core, main content.  And occasionally, we will add another show or two to that core content, so check back on it once in a while and make sure you’re listening to sort of what we consider to be the core material.

Loan modifications, next subject.  A  lot of you are asking us about loan modifications and I tell you that’s one of the greatest things about this type of investing in income properties is you have the opportunity to get your own personal bailout.  Yes, a loan modification.

Now, two things on this:  We have partnered up with a loan modification company, so if you give us a call or go to our website,, inquire about loan modification, we have some resources there, and we will help you with loan modification.  You can talk to our investment counselors here just by inquiring at our website or giving us a call, and we’ll be glad to help you with loan modification, refer you to the right people.  And we have a good attorney-backed firm we’re dealing with now.  Again, there’s a lot of scams in this industry.  There’s a lot of fast and loose players out there, and we feel pretty good about the firm we’re dealing with.

So if you need a referral on loan modification at a very reasonable price, give us a call.  Contact us through the website and just say that’s what you’re looking for and any of our investment counselors here can help you with that.

Also, we have a new guide that we have commissioned.  We’ve had a guide on loan modification written and we’re going to bundle this up and make it a whole kit, which will be out very soon.  This is a do-it-yourself method.  It even includes an option for some software for loan modifications, so check back on this.  It will be out really soon.  Look for it in our email blasts.

And by the way, if you’re not getting our email newsletter, make sure you go to, request the free CD, fill out the Contact Us page, join the Members Only section, whatever, just so we get your information there, and you’ll be on our email list.  We send out these free resources regularly via email, so make sure you take advantage of that.

Also, for those of you who have been to the Creating Wealth program, our most popular educational event, if you have been to that already, I want to remind you that you should come once again every six months and you can re-audit at no charge on a space available basis.  So be sure you’re staying in touch with that.  That program is constantly morphing and being changed and improved and so on and so forth, so you’ll need to stay in touch with it.  We recommend that you come every six months, and again, it’s free so long as we have space.

If you have to get on a plane to come to any of our events, except Masters Weekend, again, we will comp you in for that.  So just contact us through the website and let us know or give us a call.

All right, today’s show.  Enough announcements, right?  Today’s show, we want to talk about the Small Rental Assistance Program and the Go Zone as a combined opportunity and as a separate opportunity.  Now, you know that if you’ve listened to some of the older shows, we talked a lot about the Go Zone.  We’ve had a lot of investors do extremely well in the Go Zone.  There are some phenomenal, phenomenal tax benefits, if you qualify for them.

And there are some ways that you can make yourself qualify for them.  So it’s pretty darn cool.  Make sure you check that out and listen to this show.  We are interviewing here an expert on the Small Rental Assistance Program, and we’ll be talking about some properties we have in this area.  This is a very, very unique program.

There are some guidelines you should know about and if you go to and you click on Properties, it says, below the Power Point presentations of some of our selected areas, it says “SRAP Guidelines” and “SRAP Applications.”  Just get a copy of these documents.  Read them over as a follow up to this show because there’s a lot you need to know about this.

This opportunity is really, really unique and really phenomenal.  It does require some fast action, but you can get paid back a whole bunch of money for investing in this area, and it’s pretty darn cool.  We’ve had investors who have done very well.  I’ve done very well with Go Zone properties myself, so you’re going to want to perk up and listen closely to this.  You may want to listen to it more than once, and I think you’ll be pretty darned amazed with the opportunity you’re about to hear.  So let’s go to my interview and listen in.  We’ll talk to you soon.  Here’s the interview.

SRAP Interview

Jason Hartman: It’s my pleasure to welcome Dan to the show.  He is an expert on the SRAP program and that is the Small Rental Assistance Program available in Mississippi.  And we’re going to talk a little bit about that and the Go Zone.  Dan, welcome to the show.

Dan: Well, I appreciate being here, Jason.  It’s a pleasure.

Jason Hartman: Yeah, good to have you.  First of all, if you would, our listeners are, of course, familiar with the Go Zone.  We’ve done a few shows on it before, but if you could just kind of touch on the Go Zone, do a quick review, and then let’s really drill down into the SRAP program.

Dan: You got it.  Well, the Go Zone is really one of the greatest benefits that real estate has seen in terms of tax benefits for literally decades and decades, and maybe even forever.  It’s like getting real estate at half price.  It’s almost like the government giving you money to buy real estate, and that’s one of the things we like about the Go Zone so much.  It enables an investor, who qualifies for Go Zone tax treatment, to have first year depreciation deductions that can be measured in the hundreds of thousands of dollars.  And that means that somebody who is able to take advantage of this can completely eliminate their income tax in one year, and they can take it back as far as five years or forward as many as 20.

So it’s a terrific tax-planning tool.  We like it for that reason, but really, we’re here to talk about the SRAP.  The Go Zone, as great as it is, really only becomes the icing on the cake for the SRAP program.

Jason Hartman: Okay, good.  Well, let’s drill down into it and just explain the Small Rental Assistance Program, and maybe first, Dan, why it was created, and then also, how it’s been broken up into different pools of money, I guess, on the government’s end, and then what the benefits are to the investor.

Dan: First of all, to understand what the SRAP program is, it would probably be a good idea for me to give a little bit of history on the origin of the Go Zone because they are somewhat related.  The Go Zone, the genesis for the Go Zone, came out of the tragedy of 9/11 and the powers that be in the Senate created the Liberty Zone, and it was a very successful program.  Then after Hurricane Katrina down in the Gulf region, they took that basket of benefits, if you will, and changed the name of the program to the Go Zone and moved it down into that area.

For the Small Rental Assistance Program, it’s the State of Mississippi’s answer, or sister, if you will, to the Go Zone.  And it differs in one very big way.  While the Go Zone largely is a terrific tax tool, the Small Rental Assistance Program actually pays you cash for the investments that you make.  The State of Mississippi had a $266 million capital base from which to give these, what feel like grants, but really are forgivable loans to real estate investors to help provide much-needed housing for residents in that area.

So they put together the Small Rental Assistance Program Phase 1 or SRAP1, as we call it, was done in ’07 and into ’08, and then at the end of ’08, they got prepared to fund SRAP2, and we’re in the midst of that right now.

But here’s what it means to an investor.  It’s unbelievably huge the dollars that you get back.  We have, for example, some four-plexes that are available that qualify for this Small Rental Assistance Program, and an investor buying one of these four-plexes, they sell for around a half million dollars, slightly more than that, but what they get from the State of Mississippi is a cash payment in the amount of $146,000.00.  That’s cash that goes right back into the investor’s pocket.

Jason Hartman: Okay, so when do they get that money, Dan?

Dan: Well, that’s really the good news.  They don’t have to wait long at all.  It comes in two payments.  The first payment of $55,000.00 will come even before the first nail is put into the first piece of wood in this project.  As soon as the investor has Small Rental Assistance Program approval and the builder has his building permit, then the State of Mississippi cuts the first check in the amount of $55,000.00.  The balance of the $146,000.00, which is a total of $91,000.00, comes at the completion of the unit, when the property has its certificate of occupancy.

So in the first effectively ten months or twelve months, you’ll have $146,000.00 back from the State of Mississippi, and if that wasn’t enough, the builder is stepping up and offering a credit of an additional $30,000.00.  So an investor buys one of these units, they get a total of $176,000.00 back between what the State of Mississippi offers along with the builder credit.

Jason Hartman: Now, Dan, how does the builder credit occur because one of the things that I’ve always told investors to be very cautious about with builders is like so many companies, they can go out of business, and they certainly do nowadays.  And if they make a future promise on a rent guarantee or pay two years of your property management or your homeowners association or your property taxes, we’ve heard these kinds of things in our business being promoted.  And that builder can go out of business and just default on the agreement.  So when does the builder part of the credit come in?

Dan: Well, that’s a good question and it brings up really, really strong, valid concerns that everyone should have and that is, first of all, in this economic environment, you have to really be careful about who you’re having build property for you and making sure that they’re financially solvent to be around to the end.  We have a number of different safeguards to ensure the investor’s safety in this regard.  The first is that we’re using a strong, well-known, reputable builder, and the way the construction financing works is the builder is only paid on work that they’ve completed.  The bank that provides this construction financing doesn’t want the builder to get way out in front of them in terms of the cash that’s being put up.

And the banks, honestly, they’re taking 80 percent of the risk.  Their risk is over $400,000.00, where an investor’s risk may only be $100,000.00.  So the banks are pretty careful about that as well.

But even in the best situation, things can still happen, so what do we do then?  Well, we have a performance bond that is in place for the full value of the project, and that is the cost of the four-plexes are $520,000.00, the builder will be bonded to that amount, and the buyers will be compensated per that performance bond, up to $520,000.00 should there be some default on the part of the builder.

Jason Hartman: Okay, so that covers the builder.  What about the State of Mississippi and what I’m really getting at here is the complexities of this program.  I’m looking at a book here and it is many, many pages long, that explains some of the guidelines and so forth, and I think an investor always has the fear that some little “t” won’t be crossed or an “i” won’t be dotted, or maybe the money will run out.  I’ve heard of that problem occurring.  What do you say to those people?

Dan: That’s obviously also a good concern and a good question to ask.  You’re referring to the 29-page guidebook on the SRAP.  It really isn’t complicated at all.  The beautiful thing about the Small Rental Assistance Program is once you’ve qualified, you’ve qualified.  And all of the documentation that’s contained in that guidebook is to help people get their property and their own personal financial affairs in shape so that they do qualify.  Once you’ve qualified, you’re in.  It’s a done deal.

The $266 million that was originally earmarked for this program, $100 million of it was used in this first round, where they 971 applicants for round one.  And the State of Mississippi closed SRAP1.  They had some self-imposed timed deadlines.  We’re going to open the qualification window on this date.  We’re going to close it on that date.  And they were only able to get processed during that period of time 971 applications.  There was not a lot of interest in round one back in 2007 because people spent a lot of time just trying to get their head around what is this thing and get all their questions answered.  It had never been done before, so it was a new animal for everyone.

Once SRAP-2 came into play, and that came into play October 15, 2008, just a few months ago, they opened the application window on that date and they closed it 60 days later.  The state knew they were going to have a lot of interest in SRAP-2 because you had people coming out of SRAP-1 that had received great benefits.  They were talking to family members and they were talking to friends, and the SRAP opportunity had been better promoted the second time around.  Nobody had any idea just how dramatic the difference was going to be.  Keep in mind that in SRAP-1 there was less than 1,000 applicants.  In SRAP-2, there were 11,400 people that applied during that 60-day timeframe.

Jason Hartman: I know it doesn’t go by the number of people or the number of investors who can take advantage of the program.  It goes by the amount of money, right?

Dan: Right.

Jason Hartman: So how many slots do you equate to being available in the second pool of money?

Dan: Let’s extrapolate using SRAP-1.  If we had 971, we’ll just round it up to 1,000 applicants that consumed $100 million, and we have $166 million left, we probably got something on the order of 1,600 – 1,700 applications that can be processed out of the 11,400 that were submitted.  So you can see that there’s a big problem with what they term “oversubscription.”

And that is an important point that is relative to our project.  The State of Mississippi, when they saw these oversubscription numbers, and it was just in the first couple of weeks of January that they realized how dramatically they were oversubscribed, they had to go into their guidelines and say, all right, which one of our guidelines can we use to eliminate the greatest number of people.  There was one proviso in the Small Rental Assistance Program that if the applicant didn’t prove that they owned the land at the time of their application process – and very few people did because they were told they would have until February or March to do that – those people got denied.  It ended up in the denial of 9,800 applicants.

Jason Hartman: So were those people just irate and were they suing everybody?

Dan: Shocked, dismayed, disappointed.  It was devastating for a lot of not only investors but developers in the area that put the infrastructure in and they planned on building hundreds of units.  I know of some projects where they sold 100 units to investors and every single one of those investors was basically out in the cold out in the street.  That was a terrible situation.

Now, our project we were able to get approved.  We’re one of the only projects in the Biloxi area that is in Section D – that Section D refers to new construction – and we were one of the only projects that are getting that approval.  So we have right now what 9,800 applicants would love to have, and believe me, if I knew the phone numbers of those 9,800 people, I’d have somebody on the phone right now calling them all, saying hey, we have what you need.  But they’re other people’s clients and we don’t know how to reach out to those people.

But we have reached out to a few people that were familiar with the SRAP.  They heard about the program.  They contacted us often through relationships like we have with you, Jason, and these people have come to us and they’ve been able to get what close to 10,000 other people only wish they could have.

Jason Hartman: Wow, that’s good.  Tell us more.

Dan: Absolutely.  The whole SRAP program is absolutely incredible, and I know I’m using a lot of adjectives to describe it, but you have to keep in mind, never have we been able to buy a piece of property, and in this case, we’re buying a property with 20 percent down.  It’s around a half million dollars, so you’re looking at $100,000.00 down payment.  But you get your entire down payment back, plus a 76 percent rate of return on that in the first 12 months of ownership.  You get $176,000.00 back, plus you still own a piece of property with $100,000.00 of equity in it.

So your $100,000.00 that you invested actually becomes a total of $276,000.00 in cash and equity.  That’s remarkable in and of itself.  Then when you sprinkle the Go Zone benefits on top, that $176,000.00 that you’re getting back from the State of Mississippi jumps to over $243,000.00 if you’re in a 30 percent tax bracket.

Jason Hartman: And if you qualify for all of the Go Zone tax benefits.

Dan: Yes, of course, you do have to qualify, but if you do, you’re ending up getting back 50 percent of the value of the property in the first 12 – 18 months of ownership.

Jason Hartman: When we talk about this, it is an amazing program.  I mean what is the catch?  What is the potential downside?  We talked about the builders’ incentives.  We talked abut the state.  You mentioned the simplicity of the program, whereas so many people think it’s very complicated, and they think there are a lot of obligations that follow on in the years after you make the investment.  Can you address those, who you have to rent it to, etc?

Dan: Yeah.  The first question that you asked is what is the downside?  And we’ve looked at this thing 16 ways to Sunday and tried to find the faults, trying to find the downside in it, and there’s really only one downside that I can possibly see and it’s hardly a downside.  I’ll talk about it in just a couple of minutes.

But first of all, keep in mind that the State of Mississippi is giving you $146,000.00.  Now, nobody hands out $146,000.00 without the expectation of something in return, and that something in return is you are expected to rent these units for the next five years, the next 60 months, to people that belong to the Small Rental Assistance Program.

Now, what the State of Mississippi does by county is they determine maximum rental levels that you charge these folks.  In the case of a four-plex, you’re required to rent at least three of the units to a Small Rental Assistance Program applicant.  The fourth unit you may rent out at the market rate.  Now, the market rates for a three-bedroom, two-bath townhome like this, in the town of D’Iberville, where we are, runs about $1,150.00.  The maximum SRAP rent that we can charge is $1057.00.  There’s only a $93.00 difference between those two rental amounts, so it’s not like we’re renting to low income people by any stretch of the imagination.  They’re just people that are getting affordable rents and you need to maintain those affordable rents for the next five years in order to enjoy the full benefit of this $146,000.00.

If somebody, for example, said I’m tired of this thing after a year and they started renting it out at market rents, the state would go that’s not what we had in mind with this program, and you are now required to repay that $146,000.00 in full.  If they did it after the third year, the state forgives one-third of that amount.  After the fourth year, they forgive two-thirds.  After the fifth year, they forgive the entire amount.

Jason Hartman: Some listeners might be thinking they’ve done Section 8 rentals, for example.  Now, Section 8 is good and bad.  Some people love it, some hate it, and just for the listeners, Section 8 means a government-assisted renter, I guess I’ll say, where the government is paying all or part of the rent.  Some people like it; some don’t.  There’s a question there, Dan, though, as to the quality of tenant, and I know you mentioned there’s only a $93.00 difference.  But can you address that?  How does the tenant get into the Small Rental Assistance Program on their end?

Dan: Well, they have to qualify.  They have to be able to demonstrate that their income is not higher than 80 percent of the average median income for that county.  So they have to go through a formal qualification process.  If the owner of the property or the property manager qualifies the tenant, that is that they go through all the paperwork process with them, they have to do that qualification every year.  And that’s dangerous honestly because somebody gets a bonus, somebody gets a raise, suddenly they’re not at 80 percent.  They’re at 81 percent or 82 or 85 percent.  They have to move out.

If, however, the Mississippi Development Authority – that’s the body that administers this plan – does the qualification themselves, they’re qualified the first time they move in for a five-year term.  So even if their income changes, they’re protected and they stay there for five years.  That’s important and good for a couple of different reasons.  It puts tenants in there that are likely to want to stay for the full five-year term because they’re getting below market rents, No. 1.

No. 2, these people have to qualify like anybody else has to qualify.  They have to have the income that qualifies them, generally 33 percent; 33 – 35 percent of their take home income must be available for the rent.  They go through credit checks, background checks, landlord checks.  They go through all of the regular sort of checks.  These are not low-income people.  Low-income housing for SRAP applicants exists, but they’re $300.00 – $400.00 apartments that are in different areas for those kinds of people.

This is more a family-oriented kind of community because you have the three bedrooms, two baths.  You have a nice area surrounded by single-family homes and the like, and the people that are paying this are paying almost what the market rents are for the area, and that in and of itself is going to require a little higher income earning and a more upwardly, financially mobile kind of tenant.

Jason Hartman: So Dan, the other thing people might be thinking is rent control.  Probably one of the most failed programs in the history of the world is rent control.  You have New York and Northern California up in the Bay Area, and in Southern California in Santa Monica namely, where you have these programs where the government is dictating to the landlord what they can rent their property for.  It’s the stupidest thing ever and there are all kinds of gray market activities going on, or black market activities I should say.  That’s what people think is that maybe I have to do this and I have rent control for five years on my property, but not really so much, do you?

Dan: Let’s go ahead and call it rent control and I’ll take five years of rent control any day of the week for $146,000.00 check today.

Jason Hartman: At least you’re being paid for your rent control and remember the rent control only applies to three of the four units, right, in your four-plex.

Dan: Yeah, correct.  Now, I want to point out that the environment in Mississippi is the antithesis of a rent control kind of environment.  The very fact that this state program exists, it exists because the state wanted to do some out-of-the-box thinking to make it make sense for landlords to come in and build the very much needed housing that that area requires.  The quickest way to kill development is to have some kind of a rent control program above and beyond the SRAP that we’re talking about right now.

So I don’t see that as any kind of a possibility.  You don’t have rent control in these kinds of areas, Houston, Texas, or where we’re talking about, the Biloxi area of Mississippi.  People would go crazy.  You’d see more people with shotguns in their back window, looking for their local politician to say you’re not passing that law in my town.

Jason Hartman: Go on about it, but then I want to get into, after we’re done talking about this program, maybe a little bit about the area and the properties themselves and the specific opportunities.  But go ahead about the program.

Dan: I really want to emphasize the financial numbers.  This is an opportunity of a lifetime and that’s not hyperbole.  It’s a fact.  You show me anywhere in the United States where you can buy a piece of property, get a check back on brand new construction for $146,000.00, plus a $30,000.00 builder bonus.  You get back $176,000.00.  Then you throw in the tax benefits.  It’s like you give me $100,000.00.  I give you back $243,000.00.  It really is remarkable.

The problem is the timing and that’s something that we’ve talked about, Jason, is the timing of this thing.  I mentioned early on that the property deadline to make this thing happen, the window of opportunity as it were, was between October 15 and December 15.  Well, it’s March 24 and here we are talking about it.  Why?

Well, the reason is that we, around the end of that window of opportunity in mid-December, we elected to have our attorneys prepare some limited liability companies and we got those limited liability companies registered within the State of Mississippi.  And then we had them register to be accepted into the Small Rental Assistance Program.  And it was only the fact that we did that that gives us the ability to make this offer available today.

Our project has been approved and we have a total of 31 buildings.  Of those 31 buildings, I have absolutely three and I may have an additional five buildings available.  We have one buyer that’s talking about taking ten buildings, and we’re going to allow them probably to take just five of them just because it’s too much of a percentage of the whole.  That means we have about eight buildings that are available.  That means eight investors have the opportunity to take advantage of this, eight investors only that have the chance to take $100,000.00 and turn it into $173,000.00 in cash about $65,000.00 – $66,000.00 in tax benefits.

So I want to emphasize that very strongly that if people are interested, they should contact you and express their interest, and you can direct them to us.  We can help answer their questions.

But it’s almost a backwards kind of investment decision that has to be made here.  As investors, we typically look at an opportunity, do our due diligence, complete our due diligence, and then make the investment decision.  This investment decision has to be made backwards.  You have to look at the opportunity, make the investment decision, and then do your due diligence.  A lot of people just can’t get their head around that.

The reason it has to be that way is we are literally within maybe days, maybe a week, maybe two weeks on the absolute outside of the State of Mississippi, coming to us and saying all right, we know you have those limited liability companies registered, but we need the names of the owners.  You give us the names of all the owners you have.  The ones that you don’t have owners of, you’re not building them.

So that day is coming very quickly, so what we’re doing is allowing an investor to reserve one of those limited liability companies while they retain as much of the due diligence period as they feel they need.  Typically, we give without hesitation 21 days and then there are still others subject to contingencies that protect the buyer to include that it’s subject to their full acceptance into the Small Rental Assistance Program.  The whole sale is contingent upon that, and that it’s contingent upon their getting the financing that they require as well.

So there’s time to do that due diligence, but I just want to make it really ultra clear that you have to pull the trigger first and do your due diligence second.  That’s part of the reason we’re taking the units away from the investors I was just telling you about.

Jason Hartman: Okay, so give us a timeline because this is an odd deal and when we first talked about it, I had a little bit of a hard time getting my own head around it.  Typically, the person makes a decision, they buy the property; they property might be under construction.  They’re obtaining their financing.  The builder’s building the house or four-plex, whatever, and then it’s completed.  The financing closes, the deal closes, you rent it out.  This works differently, right?  Can you give us sort of a timeline and the milestones as to the way this works?

Dan: Sure.  The way this works is we have a one-page reservation form that contains the clauses that I talked about.  It has a due diligence period of 21 days.  If somebody felt they needed more time, we can certainly discuss that with them.  If somebody wants to go out there, we strongly encourage that.  It’s always a good idea to go see what you’re buying.  And we have people on the ground there that can pick them up and show them around and show them the project and show them what’s happening in the area and that sort of thing.  So they’d have time to do that.

It contains the other contingencies that I mentioned as well, subject to SRAP approval and subject to financing approval.  Once that reservation has been done, then their due diligence period starts, and we work with our clients on an ongoing basis.  I’ll get a phone call with a list of questions and we’ll handle all of those questions.  We’ll introduce them to the property management team so they can get their questions addressed relative to management of the property.  We put them in touch with a lender so they can get their financing questions answered.

So we’re here to help with that whole due diligence period, but Step 1 is reserve the property.  Step 2 is we begin to work on the loan process during the due diligence period.  And Step 3 is we sort of patiently wait for the call from the State of Mississippi that says all right; we need to visit with you and we need this document, that document, and this document so that we can give you your Small Rental Assistance approval.

Once that approval has been granted, then your loan closes and the construction begins and off we go.

Jason Hartman: Okay, so the thing that’s really different about that is where you just sort of ended is where a lot of it really still begins because you said the loan closes, so they’ve closed the deal?

Dan: Oh, they’ve absolutely closed the deal.

Jason Hartman: But the property is not built yet.

Dan: No.  They’ve closed the construction loan and the land is in their name, and the bank retains the money for the construction loan and they do construction draws.  So the builder will say, all right, in our first phase, we’re putting foundations and framing up, and we need the funding for that.  So the bank will send their inspector out.  They’ll look at the site, make sure that it’s completely pad ready and they’re ready to pour foundations.  And then they do the first release of funds.  So the bank is working with them every step of the way.  And we’re in it every step of the way; both myself and the land developer will be with the construction side of this thing from start to finish because we don’t just work in a marketing capacity on this project.  We have ownership in it as well.

Jason Hartman: Okay, so construction occurs.  Now, what’s the approximate date of closing here, and I know it’s a rough estimate?

Dan: That’s a bit of a moving target, Jason, because it’s dependent on when we get SRAP approval.  We can’t start even delivering materials to the site until SRAP approval has been granted to everyone.

And the state has a few things that they have to do.  They do a complete environmental review of the site.  They want to make sure that there are no wetlands that need to be protected and that there’s no environmental hazards that, for example, some sites might have had a previous life as a gas station and there might be underground tanks or some sort of thing.  Or there might have been old buildings on a particular site that had potentially lead based paint and that kind of thing.

None of those things are applicable to our site because it’s raw land and it hasn’t been built on, with the exception of one home that was built just a few years ago, brick construction, and obviously, no lead paint there.  So the environmental thing will be a formality for us.  We still have to go through it like everybody else, but it will be just simply a formality.

Jason Hartman: But let’s all agree that we’re not going to hold you to this specifically.  Give us some sort of estimate of when the person is closing.

Dan: I would say about three months.

Jason Hartman: Three months from today, for example?

Dan: Yes.

Jason Hartman: So about three months, and then the construction begins three months after closing, right?

Dan: Correct.

Jason Hartman: And how long does that take?

Dan: Six to seven months.

Jason Hartman: Six to seven months.  And so in six to seven months, they’ll have a certificate of occupancy and they’ll be able to rent their units out, right?

Dan: That is correct.

Jason Hartman: So who’s making the payments for those six to seven months, the construction loan?

Dan: Well, the construction loan covers those payments and some people will choose to build them into the construction loan.  Others will choose to pay them independent of the construction loan.  That’s just a personal preference.  The amount of money isn’t all that much because you’re only paying interest on the funds that have been released to the builder, and the way they do the releases is your initial release might be $15,000.00 or something and your next release might be $20,000.00 or $30,000.00.  It goes in pieces like that.

Jason Hartman: But you’re paying on the land too, though, right?

Dan: You’re paying on the land.

Jason Hartman: And the land is cheap, right?

Dan: Yes.  This is some very nice land, so I wouldn’t categorize it as particularly cheap, but the point is in our conversations with the lender, they’re guestimating the total construction interest cost during that period of time to be about $9,000.00.

Jason Hartman: So $9,000.00 for six to seven months carrying, and you can build that into the loan so you don’t have to pay that out directly.

Dan: Right.

Jason Hartman: Okay, good.  So in six to seven months, they have their deal closed.  So six to seven, plus three, so about ten months they’re closing this deal, right?

Dan: That’s correct.

Jason Hartman: Then they just rent their units out.  They hire their property manager and rent them out and everything is sort of normal, other than following the SRAP guidelines, right?

Dan: That’s correct.

Jason Hartman: Okay, what else does someone need to know?

Dan: That’s pretty much all they need to know.

Jason Hartman: I want to ask you two more questions that relate to this and then talk a little bit about the area and the property itself.  Financing.  As all of our listeners know, financing for investors is getting – it’s actually getting a little easier at the moment, but it got pretty challenging last fall.  It’s starting to thaw a little bit.  There are programs and availabilities and the Fannie Mae guideline, where it was just four properties financed now is ten.  So this is all helpful.

But do you have any solutions in terms of financing?  Say someone owns 11 properties and they want to buy one of these.

Dan: It’s going to be a tough deal to do.

Jason Hartman: A tough deal, okay.  What type of financing is available for someone that owns, say, six properties?

Dan: We have 80 percent LTV loans available, 20 percent down.  Rates are obviously going to vary with the market, but we’ve seen them go in the last four months from as low as the high fives to probably as high as the mid to high sevens, depending on when the quote was obtained.

Jason Hartman: And also the quality of the borrower, of course.

Dan: Sure, that obviously has an impact on it as well.  But I think if you mentally figure mid sixes, you’re not going to be disappointed.

Jason Hartman: Which is pretty darn good, folks, considering a 30-year, fixed-rate loan and the fact that –well, we think, at least that’s our opinion that there is going to be significant inflation in our future.  That rate will probably look very cheap a few years hence, right?  I don’t know if you agree with that or not, but that’s how I look at it.

Dan: Yeah, I do.

Jason Hartman: Okay, so that’s the financing thing.  Whenever there’s a program like this and I’ve noticed it with the Go Zone, the Go Zone is not real inexpensive.  When you look at our other Go Zone markets – of course, the Go Zone is largely on the Gulf Coast – but the developers seem to sort of price in these special programs to some extent, and it seems like you’re paying a little bit of a premium on the property sometimes, which may well be worth it.  I want to make that statement to everybody, considering the benefit of Go Zone, SRAP, or Go Zone and SRAP together.  What do you say about the value of the properties and the comparables and so forth?

Dan: That’s an opinion I hear an awful lot and while there may be some truth to it, let me tell you why I don’t think that’s the case.  The best barometer that I can use to compare value, we had both four-plexes and duplexes, and I’m going to talk about the duplexes, even though we don’t have any available right now, but I want to talk about them because there are lots of duplexes by which to make comparison.

Our duplexes were selling for $270,000.00.  They had a $20,000.00 credit from the builder.

Jason Hartman: So $250,000.00

Dan: Yeah, they’re basically $250,000.00.  That credit can come right off the price and go in your pocket.  You can do whatever you want with it.  So $250,000.00 for a duplex, and then you ask yourself the question, well, is that really overpriced?  And I go to Houston, Texas.  We’ve been active out there for 16 years and we’ve done a lot of duplexes in Houston just in the last two years, all of them $250,000.00 a piece.  No Go Zone benefits, no SRAP benefits, no benefits at all, but they’re $250,000.00.

So using that as a yardstick, I don’t see an overpriced situation.  Does that mean that you can’t find a duplex for less than $250,000.00?  Yeah, you can.  But it’s probably not going to be new construction.  It’s probably not going to be located in some of the premier spots in town.  This spot in particular that I know you want to talk about is one of those premier spots.

Jason Hartman: What can you tell us about the large area, and then zero in on the small area?  We’ll kind of go down the funnel there.

Dan: Well, first of all, the large area, which includes all of the Biloxi area, a lot of good things going on economically there.  A lot of casinos that are coming in, a total of 14 either on the ground or planned for construction, and that bodes well I think for the long term because those casinos bring a number of job opportunities to the region, and those job opportunities create housing demand, and that’s exactly what we look for in this kind of environment.

In addition to that, the Biloxi area is a pretty dynamic area, a resort community, that kind of thing, and has been insulated from rip, roaring, runaway real estate explosions over the past five years, unlike a lot of other markets from Florida to California.  And what didn’t go up dramatically is not going to go down dramatically.  In fact, the forecast for Biloxi is that that market will actually appreciate this year, depending on whose numbers you’re looking at.  So that’s a good thing.

But I think more importantly, as we look to the long term in term of what the Biloxi market offers, is it offers a good steady number of tenants.  You have Keesler Air Force base there.  They have very little on-base housing.  You have thousands of people out of Keesler, which is just two miles away from our property, that need that housing.

Jason Hartman: Well, one of the things about the military is – maybe we ought to mention the rule – is they have to be within like 20 minutes, I believe, of the base, so if they need to get their fast, they can do that.

Dan: Right, and that’s one of the nice things again, the fact that we’re so close to Keesler is a good thing.

Jason Hartman: And I’ve had good experience over the years with military tenants before.  They seem to be very respectful tenants, take good care of the properties, pay rent on time.  They do have an exclusion and I believe it’s a federal law actually where they can break a lease if they’re called to move somewhere or called up to duty.  But other than that, I’ve had great experience with military tenants personally.  Have you, Dan?

Dan: Not had any military tenants.  Not had any, but that may change.  Who knows?

Jason Hartman: Last time I was there in D’Iberville, I saw all sorts of retail development, new stores, new shopping centers.  I was very impressed by the activity.  What do you want to tell us about that?

Dan: It’s massive what’s going on there.  The interchange of I10 and the 110, and the 110 is the principle egress and ingress into the Biloxi area and it has been expanded dramatically to help people in the event of evacuation being required in the future.  They’re all set up for that.  But that interchange is going to have Houston, Texas, like numbers, in terms of the number of cars that come through there, and it’s obviously attracted the interest of a lot of major national tenants.

You have already a big Wal-Mart there.  You have Target Supercenter going in there.  Multiple restaurant chains, in the order of Outback Steakhouse, Red Lobster, that kind of stuff.  You also have Kohl’s department store going in there.  Each corner of that interstate exchange is going to be home to a large shopping complex, so we’re going to get a lot of traffic from there.  They’re going to employ a lot of people.  And we are 1.3 miles from shopping centers where the site is right now, so we’re ideally located from a job perspective, and moreover, the property is located right on a bus route.  So if you have a SRAP family that’s a one-car family and a two-income earning family, one of them has to take public transportation, it’s right outside the door.  That’s another good pull for the community there.

So location-wise, we’re ideally suited.  We’re on one of the highest pieces of land in the area.  Elevation, while it may not sound high, is high for that area at about 49 feet above sea level.  And what many people may not know is that while Katrina was the second largest natural disaster in U.S. history, it had the largest storm surge of any hurricane in the entire history of the United States.  And that storm surge peaked in the high 20s, low 30s.

Jason Hartman: So still 20 feet below the level of this project.

Dan: Exactly, yeah.  And this project is surrounded by single-family homes that frankly were there in the area pre-Katrina, and obviously, they’re there post-Katrina, with no damage.  Maybe some small wind damage, but nothing evident to the eye when I go through there.  You don’t see any new shingles on the roof that stand out as newer than the others.  I mean largely untouched.

Jason Hartman: Yeah, I think people tend to be sometimes over concerned about the hurricane risk with these newer properties that are really built to the higher spec level and the new rules and regulations, whereas a lot of these houses that were destroyed were really older, kind of junky properties, built in places they should have never built them probably, etc, etc.  Do you agree with that?  Is that a reasonable thing to say?

Dan: Oh, I absolutely do.

Jason Hartman: I do, too.  What about insurance?  It depends where you are.  There’s a wind pool.  Do you want to talk about the wind pool real quick and then talk about insurance rates and so forth?

Dan: Well, the wind pool is something that we don’t want to participate in because it’s very expensive, and there are a lot of areas that can’t get wind insurance because of where they’re located, and they’re forced to use the wind pool.

Jason Hartman: And that’s like sort of a government assigned risk pool.  Would you put it that way?

Dan: That is correct.  So the wind pool is not something we really want because of the expense, but as we look at this project, the fact that we are close in to the I10 area, which is a major line of demarcation for whether or not you’re in a good hurricane area or a bad hurricane area, allows us to get private wind insurance and that wind insurance is a lot less expensive.  So these properties, bottom line, are going to have the kind of insurance that they need to be able to protect the investor in the event of another hurricane that has wind and you see those sorts of damages.  So that we’re happy about.  It’s literally a fraction of the cost.

Jason Hartman: Any estimates on what it costs to insure a four-plex?

Dan: Oh, about $5,000.00 a year, $6,000.00 a year.

Jason Hartman: And that’s a $500,000.00 or so property, so yeah, that’s pretty reasonable actually.  And the last thing I want to just mention to all the listeners is you can go to and Dan has uploaded a pro forma on one of these properties that you can see.  But I want to just mention to everybody that there is no way in this pro forma, where it has some projections as to how the investment will perform and again, these are always just projects, there’s no way to account for the special benefits of the Small Rental Assistance Program.  So there’s a note that explains what you’ll get at the bottom, and of course, you’ve heard a detailed explanation on the show here today.  But it can’t be counted into the rate of return, so there’s no way the formula does that.  Do you want to speak to that at all, real quickly?

Dan: I think that’s really important because we’re trying to put sort of a square peg in a round hole when we put the information up on your site because it doesn’t allow us to insert Go Zone type benefits and SRAP benefits and that kind of thing.

Jason Hartman: Actually, Go Zone it does account for.  I don’t know if it’s on there.

Dan: Well, I don’t know if we plugged that in or not.

Jason Hartman: Okay, we’ll go back and check.

Dan: Yeah, please do.  But it doesn’t certainly account for the SRAP benefits and that really is the reason to take a look at this thing.  So as you look at the numbers, keep in mind that you’re going to be getting back a total of $176,000.00 between the builder credit and the money that comes to you from the State of Mississippi.  And if you’re at all interested in this, it’s a great program.  As we mentioned earlier, only eight of these available and if it’s something that interests you, you need to call Jason’s office today and ask for some more information, and we’ll take it from there.

Jason Hartman: Thank you so much for the wealth of information today.  This has been very informative.  It is technical and it has complexities to it, but when you hear it from a pro like yourself, it gets a lot simpler and a lot clearer as to what it’s all about.  So listeners, go to  Take a look at the pro forma on this property.  Just click on Mississippi when you see the map, and then click on Biloxi, and you’ll see the pro forma for these particular properties that we’re talking about.  And you can talk to any of our investment counselors here at Platinum Properties Investor Network as well.  Thanks so much for joining us today and Dan, appreciate it.

Dan: Great, Jason.  Glad to be here.

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Duration:  57 minutes