Announcer: Please note disclaimers at end of show. Welcome to Creating Wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’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: Welcome to the Creating Wealth Show, Episode No. 164. This is your host, Jason Hartman. Thank you so much for joining me today. It is almost 7:00 p.m. here in Irvine, California, and boy, I love these longer days, don’t you? Most people around the country had a time change and everybody likes the later days when the sun sets later, so it’s really good. I don’t know why we just don’t have that all year round like Arizona does. They have it right over there.
Anyway, I’m on my way to Arizona this weekend, coincidentally, and I’ll be looking at some properties out there and reporting back on that. I was just there a couple of weeks ago, so I’m going again to take another look.
What do we have today for you? Well, first of all, a couple of announcements. Join us on May 22nd for the Creating Wealth Bootcamp. That will be live and you can register for that www.JasonHartman.com. Masters Weekend is in October and we’ve had a few people sign up for that nice and early. They get the early-bird pricing, and remember that pricing does keep continuing to increase as we get closer and closer to the event, so we really want to encourage you to register early like an early bird because it is much less expensive to do our business planning and plan for the event properly when you register early. So we’re incentivizing you to do that. Please register early for Masters Weekend at www.JasonHartman.com as well for that one.
Also, we have our Masters Weekend audio product. It is over 15 hours long and it features, I believe, 22 speakers, where we’ve combined together two different Masters Weekends and we took kind of the best of both and combined them together. So that product is available at www.JasonHartman.com in the store. Go and take a look at that. Purchase that. We’d love to have you get a hold of that. You’d be one of the first people to do it if you do it right away, and it’s just a great program. I think you’ll really like the audios as a home study course and it comes with a whole bunch of materials as well. And that’s all digital download, so go check it out.
Today, we have a profile on the Dallas market and we’re going to start hearing from a client and hearing from their experience. We just recently talked to one of our clients who really liked what they saw in Dallas, so you’ll learn some stuff about that. And then you’ll hear Phil talk about the Dallas market. He’s involved with our local market specialist there. And then we will play the professionally narrated Dallas overview as well. So we’ll have all three of those for you. Here we go with all of them. We’ll just go right from one to the other in the interest of time and convenience.
Join us for the next show, where we’re going to have a very good guest, and again, like I mentioned before, we have a whole bunch of great shows in the can, so to speak, that have been recorded that we’re going to get out to you as quickly as possible. Anyway, here we go. Let’s listen in.
Client Interview on Dallas
Jason Hartman: It’s my pleasure to welcome Elton to the show. He’s one of our clients and we just wanted to get some feedback from him on his experience with our company and our investments and so forth. And he just recently took a trip to Dallas that he’ll be telling you about as well. Elton, how are you?
Elton: Good. Awesome, thank you.
Jason Hartman: Hey, thanks for offering to come on the show. That was very nice of you. We always love to hear clients on the show especially, with good experiences and so forth, and just maybe tell the listeners a little bit about your experience with us as a company if you would.
Elton: Well, I guess about nine months ago, I was referred by a friend to the Platinum Properties website, www.JasonHartman.com, and I started listening to all the posted podcast, the essential podcasts, and learning from there. And then from there, I kind of spent some time, maybe a few months, going through all of the podcasts, and then started getting into and looking at actually going into a deal and getting my feet wet.
So I started with Indianapolis. I’m actually working with Angela. Unfortunately, two properties that I was interested in fell through and there’s nothing to be said against Angela or that process at all. They just fell through and it just so happened after that, during that process, you had Masters Weekend, in which you showcased a bunch of other areas. And Dallas was one of them. We were impressed with Dallas. A friend and I went to Masters Weekend and we were impressed with Dallas and wanted to check it out.
Jason Hartman: Now you were just at the last Masters Weekend we had in March, a month ago, right?
Jason Hartman: Great. So Elton, you recently moved from Hawaii, didn’t you? And your old house there, you kept it and rent it out, right?
Jason Hartman: And so you live in the Los Angeles area now and came to Masters Weekend, listened to the podcasts for several months beforehand. Anything you want the listeners to know about the podcasts? Maybe someone is just joining us and this happens to be the first show they’ve heard and they haven’t spent the time yet to go back and listen to some of the other episodes. Have you listened to other real estate podcasts or looked at other real estate educational opportunities out there?
Elton: Not at that time. A few maybe. A few actually, maybe like ten years ago, my friend had the No-Down-Payment 10-CD package. He lent that to me, so I heard that. I didn’t really get much out of that at that time. But then yours would be the first podcast I actually started listening to and I was impressed. It was the first one I listened to. There’s so much content and it wasn’t just a sales pitch. And from there, I just wanted to listen to more and more, and ended up listening to all of them over like a three-week span.
Jason Hartman: Good to hear that. I’m glad to hear there was a lot of good content on there. We just try to really make them content rich and not be overbearing. Of course, we do want people to buy things. That’s how we stay in business. But we want them to feel comfortable and what we find, Elton, is that a client who is listening to this show is just a much better client because they come pre-educated and they get it. And we don’t have to convince them this is the right way to invest because they’ve really done their homework. And there are a lot of different opinions out there, aren’t there, of how you should do this? Some people say you’re going to get rich in your first month and we don’t believe that. We think the buy and hold strategy is the best one.
Elton: Right and I think that’s what really sold me was that real approach and that you’re not going to be a millionaire overnight. It’s a long process and you just have to stick with it and keep your nose to the grindstone, and if you do the right thing, things will happen. I think that’s really what sold me.
And just for you, you can feel that genuineness in what you’re presenting. I quickly got sold on that. I didn’t feel that it was a sales pitch any of the time that I was listening to the podcasts.
Jason Hartman: That’s good. Thank you for that. Tell us about your recent trip to Dallas. Now you met with our team there and they showed you around and you looked at properties. You bought a couple of them, right?
Elton: Actually, I bought one and the buddy I went with, he actually bought two. So we went for one week and we came home with three properties.
Jason Hartman: Excellent! Well, congratulations. Tell us about your experience there. What did you see and what did you like and dislike, and what was it like?
Elton: It was just a great trip. Phil met us out there. We took like a 12:30 pm red-eye from L.A. to get there, so we got there at like 9:30am, bloodshot.
Jason Hartman: Oh, I hate those flights. I’ve taken them to New York before and I just do not like them.
Elton: Yeah, it was tough, but it definitely worked out because it gave us a full day Friday to look at properties. And again, Phil picked us up. He took us straight to the office. We met all the players, everybody from each section of the –
Jason Hartman: I’ve met all those guys, too, so yeah.
Elton: Good guys. They sat us down and said, okay, this is the inventory property we have available. Basically, talk a little bit about what kind of property you’re looking at, and we just hit the road all day with Phil himself. Totally dedicated to us and it was a great experience.
Jason Hartman: Excellent. So you probably drove around in one of their big trucks I assume, right?
Elton: Exactly, yeah.
Jason Hartman: I was amazed at how big those trucks are when I was there.
Elton: It was huge.
Jason Hartman: Tell me about some of the neighborhoods and some of the properties and all of that stuff.
Elton: Dallas was a pretty amazing place in general. I thought that, both my buddy and I, coming from L.A., we thought it was a very clean environment and a very new environment. You see a lot of new restaurants all over the toll ways, which is like their freeways there. And then the neighborhoods, we started in South Dallas, which was kind of a more established, older – not older; I don’t want to say like real old. Like the properties we were looking at were between 2002 and 2004.
Jason Hartman: Yeah, certainly not older, but not brand new.
Elton: More established is probably what I’m looking for. That’s in the southern side of Dallas. And then Saturday we spent looking at the northern Princeton and McKinney areas, and that’s definitely newer development. You can just feel it kind of ready to pop up there.
Jason Hartman: I’m very impressed with Dallas myself and I drove all around both of those areas with them in their big, high trucks and was impressed with the business model, and our affiliation with them has been very good. I love the way they really process their operation in terms of using the same parts and the same colors and styles and flooring in each house so that there’s a really nice economy of scale there.
Elton: Right. I think that’s the biggest draw for us was that single source, one stop shop that these guys have good relationships with the lender. They have an in-house property manager. They do their own contracting as far as their renovation of the REO itself, and like you said, they do it very cleanly in terms of they use all the same paint, all the same flooring and finishes, and they do it with class. It’s very clean. The finished product is very, very clean. It’s impressive, especially when you go, like a lot of properties we were looking at were just properties that they just picked up. So then you couldn’t really feel anything because it’s just a picked up REO at that time.
And then they took us to one or two that were actually finished and their completed product was ready, almost rent-ready, and you could just feel the difference and feel value in what they had done.
Jason Hartman: Good stuff. Anything else you’d like people to know about your experience with us or any of our local agents?
Elton: Yeah, for you guys at Platinum Properties, Sara has been our contact and she’s been a great help making sure things get done for us, and those guys have just been very, very helpful, very responsive. They made it easy for us to get everything done. You go through the whole preapproval process before the trip so that come the last year of the trip, you’re ready to make a deal with them. It’s easy in that sense.
Jason Hartman: And they’ve got some good deals. Do you want to talk about that actual deals themselves, like the property you bought, the two properties your friend bought, and how much they cost, how much they’re going to rent for, etc?
Elton: Yeah, the property I bought, it’s on the north side; square footage at 1681. And bought it for $130,000.00, about $77.00 per square foot.
Jason Hartman: That’s good.
Elton: The lot size on this one, it was a corner lot, so I want to say it’s listed at .4 acres, so pretty big lot for a single-family home.
Jason Hartman: It sure is. That’s over 20,000 square feet probably.
Elton: Yeah, it’s pretty big. And then the rent that they’re looking at is $1325.00.
Jason Hartman: So you’re renting at more than 1 percent of the purchase price, which is great. That’s a very good RV ratio, which, of course, we told you all about on the podcast, so you know you got a good deal, right?
Elton: That’s right.
Jason Hartman: Good stuff. How about your friend’s deals?
Elton: It’s hilarious. He bought one three homes down from that one that I bought. The one I had is a four-bedroom, two-bath. His is a three-bedroom, two-bath, smaller square footage. I don’t have that on me. I know he paid $120,000.00. So the big joke is when we get kicked out of our houses in L.A., when our wives kick us out, we’re going to be neighbors in Texas.
Jason Hartman: That’s what we always say, the investment counselors and the staff here at Platinum. We own houses, some of us, around the country in the same neighborhoods and some on the same street, and I always joke with the people here that someday we’re going to be neighbors in one of these other neighborhoods.
Elton: Really, especially in Dallas. It’s so enticing with how cheap property is and the cost of living is so much cheaper. We had a funny just going in there. We ate breakfast at the airport for like $5.00 a head. And then my friend was leaving for Hawaii on vacation the other day and he texted me back. He said, “Oh, my God, I just spent $20.00 for breakfast at LAX.
Jason Hartman: It’s just unbelievable how much less expensive everything is there. Gasoline, rent, houses, everything, and part of the reason is you’ve got a business-friendly environment. I mean in California, they cut red tape lengthwise. You can’t sneeze here without buying a permit for something. It’s beyond ridiculous. And there, you can just do stuff and make stuff happen and that’s why all the companies are flocking there. They really are.
Elton: And just being there you can see all the Fortune 500 companies coming up and, I’ll tell you, it was a totally different environment here. You don’t see too many “For Lease” signs on the commercial properties yet or hopefully not ever. So yeah, like you said, a very different environment, business environment to it.
Jason Hartman: Well, business there is moving in and here business is moving out. And that really applies to every place like this. I know we only mention California because both of us happen to be in California, even though you’re up in Pasadena and I’m here in Orange County right now. But states like New York, Hawaii where you came from, I mean those are pretty tough states to do business in. Oregon is not easy. The government just gets in the way. They’ve got to get out of the way and let stuff happen.
Well, hey, that’s good experience, so you’re on your way to building your portfolio it looks like. You’ve got your old property in Hawaii. You’ve got one in Dallas.
Elton: Yes, sorry. I don’t know if you want to hear about one of the other properties that my buddy got. It was 3,640 square feet for $160,000.00.
Jason Hartman: For how much?
Elton: For $160,000.00. That’s $44.00 a foot.
Jason Hartman: That’s incredible, $44.00 a square foot. It would probably cost almost double than that to rebuild it today.
Elton: Yeah, exactly. And it’s in Balch Springs, which is another pretty established good neighborhood.
Jason Hartman: And how old is that house?
Elton: Four years old.
Jason Hartman: And how old was yours, the one you bought?
Elton: Mine was 2004. I’m sorry. It was 6 years old.
Jason Hartman: Six years. So these are newer homes, which means you aren’t going to be buying a money pit and you’ve got a warranty on them and everything. And this is just great. Well, it sounds like you guys cleaned up over there. What’s next for you and your real estate portfolio?
Elton: I don’t know. We’re hopefully looking at going back there again. One good thing for them was that for your debt-to-income ratio, if you get a property and it cash flows and you have the funds to invest in another property, you only have a two-month period and then you can invest in another one. So that’s not like you have a big – I don’t know what the correct term for that is. Not seasoning, but like a maturity period. So that’s a pretty quick turnaround. If you have the funds, you can invest in there within two months of renting your new property out.
Jason Hartman: That’s great. And what I say to you and all of our investors is I’m glad you had a great experience in Dallas, but diversify. Maybe pick up one or two in Atlanta and then pick up another one or two in Indy and another one or two in Phoenix, and don’t have all your eggs in one basket, even if that basket looks very attractive because if you think about it, there was a time in very recent history here when everybody thought California, the streets were lined with gold and it was the only place to be investing. And of course, we saw that way before it crashed and told people get out now. And those who listened did well.
So diversify. Take the most historically proven asset class, but diversify geographically. Be area agnostic. Don’t be attached to any one market. Just go where it makes sense.
Elton, thank you so much for joining us today. Anything else you’d like the listeners to know?
Elton: No. I think I just want to give appreciation to you and your staff. You guys are doing a great service to everybody. Awesome podcast and good markets. I think you guys bring a lot of value to investors like me who don’t have much time to do a lot of the legwork by ourselves.
Jason Hartman: Yeah and we should say that your profession is you’re an engineer, right?
Jason Hartman: Good. So you have your own stuff to do and that keeps you busy, and we’ll help you with the investment side, make building that portfolio easy for you. Elton, thanks so much for joining us today. We really appreciate the kind words.
Elton: Thank you.
End of Client Interview
Jason Hartman: Let’s talk about Dallas. Dallas is a market that we’ve been active in for many years and we just formed a new relationship last year in that city and it’s got some great characteristics. Our clients are having some great experiences there and we thought we would give you another update on the Dallas market. We have on old shows quite a while back, but we haven’t talked about it much lately. So Phil is here with me. Phil, welcome.
Phil: Thank you. Thanks for having me.
Jason Hartman: Tell us what is going on in Dallas and let’s talk all about the city, the opportunities, the product that you represent. You have some unique opportunities there on foreclosure and bank REO deals. So tell us more.
Phil: I think I’ll just kind of start with some new statistics that we just got within the last couple month here, and one of them that’s kind of the most impressive here in my mind is that we added 180,000 jobs in the last 12 months in Dallas, Texas. I know everybody’s talking about the recession and the jobs report comes out all the time and it’s always how many jobs did we lose. Texas is actually gaining jobs. So we gained 180,000 jobs and almost 500,000 residents just in the last 12 months.
Jason Hartman: That’s amazing how Texas is bucking the national trend, isn’t it?
Phil: Yeah, it really is. I just traveled there. I was just there for a week, last week. And as we were talking about before that it’s kind of amazing how the buzz, even on a Tuesday night when you’re out there, there’s people out and about, and they’re going out to dinner and spending their money. It’s kind of a nice change of pace from what we see on the news.
Jason Hartman: And what we see in California, certainly. I know that a lot of those jobs that have been created in Dallas actually left Orange County, and we’re talking about the Fluor Corporation. Countrywide opened up a big new call center there a few years ago. Texas is a business-friendly climate and companies find it easy to do business there, easy to expand. The government isn’t getting in their way all the time. So in those types of places, you have growth and you have good things happen when Uncle Sam gets out of the way, don’t you?
Phil: Yeah, that’s exactly right. We have more Fortune 500 companies headquartered in the Dallas/Ft. Worth area than any other city in the entire United States. I think that number is at 27 or 28 and growing.
Jason Hartman: That’s just not a coincidence. It’s not a coincidence. Tell us a little bit about your process there. I know the firm that we’ve been working with is sourcing a lot of properties at foreclosure sales and with banking relationships in their real estate owned, foreclosure properties, etc. But tell us about how they’re sourcing inventory and then, in turn, what they’re providing for our clients.
Phil: Sure, absolutely. We’ve been doing this in the Dallas, Texas area for about 11 years now, and over that time, our founders have created long-lasting relationships with the majority of the offset managers of the large banks. That’s really where the whole thing starts. We have a system in place where we have quite a large amount of capital that we’re able to purchase these properties in foreclosure from the banks for cash, and they close in a couple of days with no contingencies.
So basically what happens is the offset manager of the banks tend to send their list to us first and they allow us to kind of cherry pick off these lists and kind of identify some properties before they actually go out for sale to the general public. So that relationship is key and allows us to get our inventory at a better price because we’re buying in bulk for cash, so that’s where we really get the deals and make the whole thing start.
Jason Hartman: Let’s just talk about that for a moment if we may. You just made me think of this and I want our listeners to hear this. People talk about buying foreclosure properties. They talk about buying REOs. That’s an acronym that means real estate owned, in other words, real estate owned by a bank. And they view these as though they’re all the same. They use that term generically. Oh, I got a great deal on a foreclosure property.
But the reality is that the foreclosure properties vary pretty dramatically and what you just said made me think of it and I just want my listeners to really understand that. It’s not just about buying a property that happens to be labeled a foreclosure or a short sale or an REO or bank repo or a government repo or whatever. It’s about really the relationships and the ability to acquire these properties. And that’s what our relationship with your group in Dallas does is they have those banking relationships. Same with people in other markets. Atlanta comes to mind, but many other markets that we’re in.
And sourcing those properties right, anyone can go on the MLS and buy foreclosure property, but that doesn’t mean it’s a good deal. In fact, sometimes it’s worse than the deal on the regular market because it sort of gets bid up because there may be just a lot of hype around that word, “foreclosure.” So I just wanted to kind of point that out. Any thoughts on that?
Phil: Yeah, that’s exactly right. If you look on the MLS and you have a typical agent that is representing a foreclosure, then you’re getting in bidding wars and all kinds of other things with other buyers. See, we take that step out of the process. We’re getting them first and a lot of these properties are already sold to us before the list even goes out. So that relationship right there and you hit the nail on the head. It’s all about the relationship. And you know Texas is a good ole boys’ club and it’s kind of who you know just as much as anywhere else in the country and those relationships that we have are a true value. And without that, to be honest, we couldn’t do what we do at the prices that we do because we’d be out there buying them with everyone else. We really need that advantage of being able to buy them before they hit the market in bulk for cash.
Jason Hartman: Yeah, and it’s not just about getting better prices. It’s also about getting better properties and having first pick at the list really.
Phil: Well, that’s exactly right. I mean obviously price is key because we’re going to go in and rehab these properties and they’ll still be a good value to the investor, but that’s right. We could buy properties a lot cheaper in other areas, but we know the areas really well and we’re going to stay away from those. That’s exactly right. It’s what you know; it’s who you know, and you can really get in trouble just going off the MLS or Realtor.com or whatever the case may be, looking for foreclosure.
Jason Hartman: More about your process. That’s how you’re acquiring the properties and then talk a little about the rehab process and bringing these properties up to snuff. What kind of inventory do you look for? I know these are newer homes. Talk a little bit more about these if you would.
Phil: Sure. We have a long history in construction background. That’s kind of where we started about 15 years ago is the contracting background. I did a lot of custom remodels and builds and then we got into building strip centers and multi-families, and decided a few years ago that this was going to be the best value for our investors. So we went back into the foreclosure market. So we basically buy these properties and our cookie cutter deal is going to be something between 2003 and 2007, so we like the newer construction models, mostly brick exteriors on slab foundations. We do that for maintenance issues. It gets hot and windy in Texas, so we want to make sure the properties are strong going in.
And then we rehab all of them identical. We go into every single one of them and we replace all the major systems. That’s your heat and air conditioning, water heaters, all of the appliances get replaced. We use the same carpet, the same paint, the same linoleum in every single house. And what that does for us is it allows us to use economies of scale again, just like we buy them in bulk, the properties in bulk, we can buy our materials in bulk and we can save money and pass that along as well.
Jason Hartman: One of the things that I liked when I was there and I was looking at properties with your group is where you really had, down to the exact science, the flooring. The flooring that they use in the kitchen, for example, will be this vinyl flooring that looks like wood. And the reason they choose that is because you can take a little piece out of it if it gets gashed up and just apply another piece in, like a new plank of wood, if you will, but it’s really vinyl. It looks good and it can be replaced in a small patch without replacing the whole floor. If someone puts a ding in your floor, you don’t have to go through the cost of a whole floor. This stuff, when it’s really done sort of mechanized, assembly line, economy of scale fashion, the efficiencies are fantastic for the investor, aren’t they?
Phil: That’s exactly right, not only because we can buy them by the truckload and save money that way, but our crews, we have 75 guys that work for us full time and they can go into a house and get started. They don’t need anybody to tell them what to do. They’ve already done it 300 times. They know exactly what to do. After you keep doing it over and over and over, it becomes very efficient.
And exactly, we’re looking down the road for our investors, too, so if you have a tenant move out and we get that rent ready and there’s a little knick in the linoleum, well, we can fix that for about $15.00, rather than having to go in there to replace the whole floor. Or if a wall has a scratch in it or a mark that can’t be removed, we can paint that one section, or worse case, just that one wall. We don’t have to paint the whole room. The same with the carpet and it just goes on and on and on. So it allows our holding cost moving forward to be as low as possible.
Jason Hartman: Good. What else on acquisition, rehab process, types of properties?
Phil: Our typical deal is going to be a three- or four-bedroom. We won’t go anything smaller than a three-bedroom, two-bath, so we go three, four, and five bedrooms. That seems to be the best rental market in our area. They’re going to be, like I said before, anywhere from built in 2003 to 2007. Typically, 1,300 to 1,700 square feet. We do have some a little smaller. We do have some a little bit larger. But these are going to be nice, newer construction homes in new construction areas. They still have new construction going on in the majority of the areas that we buy properties in and we like that for a whole other reason. That’s looking at cost per square foot and the comps that we’re going to get to be able to pass these along with some built in equity as well.
Jason Hartman: What are the typical prices of the properties?
Phil: Typical prices are going to be anywhere between $110,000.00 and $140,000.00, and the rent is going to be from about $1,175.00 to $1,600.00 a month.
Jason Hartman: Pretty good ratios there. Definitely good RV ratios, the rent-to-value ratios. And do you want to talk about the areas because like most cities, Dallas can be spotty. The areas vary greatly. In a big city like Dallas, you have this huge Metroplex there. If you just took Dallas, not including Ft. Worth, I’d almost subdivide Dallas into four big, giant quadrants. Remember folks, everything is big in Texas and it’s a sprawling metropolis there. Do you want to talk about some of the areas and what you’re looking for there?
Phil: Oh, absolutely. When we look through our inventory list, like we talked about before, we’re looking for all kinds of things. We know the area better than anybody else and we’re investors ourselves, so we really go in with investors’ eyes. We want to buy properties in areas where the price point is obviously low enough, the rental rates are going to justify, and give us some nice cash flow. We also look at the school districts, the crime statistics, all those other factors that you want to look at when you want to look at an investment property.
We could buy properties cheaper. We definitely have cheaper areas in Dallas that, on paper, should cash flow a little bit higher, but lose tenants a little more frequently, and you’re going to have a few more problems with the area. So we like the newer construction, up and coming neighborhoods, and the good school districts, where people not only want to rent properties, but they want to buy properties as well.
And we really like to stay under 20 percent renter-occupied property in any given area, so we want at least 80 percent of our neighbors owning their properties. And we all know when you drive down a street and there are four or five “For Rent” signs per neighborhood that the chances of those values going up anytime soon are a lot slimmer because the tenants are going to be occupying the majority of those properties.
Jason Hartman: How do you know how many renters are in a neighborhood?
Phil: Well, there are a couple ways we can do it. We pull the public records. They’ll typically say who the owner is and where they live, so you can do it that way. But for the most part, we have a pretty good idea because we have a pretty large property management company and we work hand in hand with a couple other very large property management companies. So we know the areas where they’re becoming saturated with tenants.
Jason Hartman: Do you want to mention anything about just the general economy there, the quality of life, things like that as just sort of the overview of why an investor would be attracted to it more?
Phil: Absolutely. The first one that comes to mind is that on a national average, Dallas/Ft. Worth ranks No. 1 in the highest rate of returns for investment properties. It’s been that way for about the last ten years and simply put, all that really means is that our rents in Dallas are higher on a percentage basis versus the purchase price in anywhere else in the nation. Our tenants are accustomed to paying these nice high rents, so that helps. That gets our cash flow numbers up to where they need to be.
A couple other things, moving forward as far as the growth in the area, another statistic that just came out was pre-owned single-family residential home sales were up 31 percent between November 2008 and 2009. So 31 percent increase in just sheer numbers of houses that are being sold. So there’s a lot of activity going on there.
Overall cost of living: almost 30 percent below the national average, so one big factor in that is we don’t have a state income tax, so people can move. If they can do a lateral move with their employer, they come and they get about a 10 percent pay raise because we don’t have that state income tax.
Jason Hartman: And I found that’s kind of an interesting one there because there’s no state income tax and that’s one of the reasons I want to live in Texas because California is just killing me. But not just that. The tenants kind of think they’re sort of beating the system in Texas. I found that interesting because we’ve done so much business in really all of the major Texas cities, mostly Dallas, Houston, and Austin, a little bit in San Antonio. Not quite as much.
But the mentality of the tenants because the way Texas really gets its revenue is through property taxes and there’s no state income tax. So the tenants think if they rent, they’re really beating the system because they don’t pay property taxes they think, although what I’m going to say is that passes through because you see higher rents there to offset the property tax. And they don’t pay income tax on their job, so it really equalizes where the tenant thinks they’re getting the better end of the deal, but you really do see higher rents than many other markets to offset the cost of that tax for the investor/owner. Just kind of a funny thought there I’ve noticed with tenant perception over the years.
Phil: That’s a great point. We like to compare our market to Oklahoma City, which is only about a two-hour drive north of us there in Dallas. And the same house, if we bought a house in Oklahoma City for $115,000.00, it would probably rent for about $1,000.00. So you come north into Dallas and that’s about $1,250.00, so that more than offsets the difference in the property taxes that we as an investor have to pay, but yeah, the tenants are definitely paying the tax and they can think they don’t, that they’re not. That’s fine with us. But we’re not going to be supplementing that.
Jason Hartman: What else on quality of life? Here’s an interesting point that we should probably cover, sort of the mentality of a Dallas resident, and that’s kind of the sort of “live for today, no urgency to buy a house” type of mentality. A lot of renters, people that like to spend money, but not necessarily always invest money. And I think that’s reflected a little bit in the credit scores. Do you want to address that?
Phil: Absolutely. Texas, when you look at the averages across the United States, I think they typically rank anywhere from 40th to 45th in the nation for credit scores.
Jason Hartman: Now, that’s not good. On the face of it, Phil, that does not sound attractive to me as an investor. What do you say to that objection?
Phil: Well, yeah, I would agree, and when I first heard that, I was a little taken aback myself. But the fact of the matter is what that creates is you have this huge mass of people there in Dallas that don’t have necessarily the credit they might need to go out and buy a new house. Although they still make a lot of money. The median family income in Dallas/Ft. Worth is $90,000.00.
Jason Hartman: When you get housing that is so inexpensive, that’s a pretty good quality of life for someone there.
Phil: And it seems like everywhere you go in the country, people kind of act like the people around them and for some reason in Dallas, they just don’t have this pride of ownership outside the house. They definitely take pride in their cars and their shoes and clothes and all the rest of that stuff. But for some reason, they just don’t think that it’s very important for them to buy a house and keep their credit nice and clean.
But what that makes for the great consumer market, people in Dallas make a lot of money and they spend a lot of money. Our restaurants are full, our shopping malls are full; it’s hard to get a place to park. There’s no talk of recession when you’re in the city of Dallas. Nobody even thinks it’s going on.
Jason Hartman: That’s a great market for investors and you should let it be known that you personally own nine properties there, so you’ve put your money where your mouth is and you’re investing in that area as well. A good thing to note.
I wanted to talk to you a little bit about financing on the properties. We talked about this before offline, but I don’t know if we kind of resolved it. Are you recommending that people use buy-down financing? Sometimes that makes a lot of sense and I’ve done it on a few of my properties that I’ve purchased, where I’ll pay more points up front to buy the rate down, and I usually find that the breakeven point for that is about two and a half years or so, about 28 – 30 months, where, as long as I own the property that long, which I’m pretty a buy-and-hold investor, so it will actually be a better deal to do that buy-down. Do you recommend that?
Phil: Absolutely. And we put that in pro formas. We usually put a point or two in there for a rate buy-down for a couple of reasons. No. 1, Texas has always been a buy-and-hold state. We never recommend that somebody comes in this year and looks to sell in a year or two years.
As you know, you always have some closing costs and some other things that you need to absorb. It takes a little bit of time. So when we’re looking at a 5 – 10-year minimum investment, it makes so much more sense to put one, two, maybe even three points more down to buy that rate down because you have to remember we’re talking one, two, three points on about $100,000.00 – $115,000.00 property. So it’s not a lot of money to be able to lower and lock in that interest rate for 30 years.
When you look at it from long-term financing, it always makes sense, unless you’re tight on your cash to close, then we can work it back and forth a little bit, but we always recommend putting a little bit more down up front and lowering that interest rate for the life of the loan.
Jason Hartman: So points or loan points are just prepaid interest and so you can lower the interest rate for 30 years if you do that type of a buy down by paying a little bit extra up front. But in the long term, that really pays you back. But you have to plan on holding it because if you sell it too soon, you’re just going to lose that money, so it’s a buy-and-hold thing and typically 28 – 30 months is what I found is where it really starts to pay off.
A couple notes on quality of life here. DFW cost of living on my stats about 9 percent below the U.S. average. There are 175 museums and galleries there. Fifty theaters. Four hundred public parks. Sixty lakes and reservoirs. Eight major league sports teams. Average commute time, which is kind of interesting, 25.6 minutes. Two major hospitals. You’ve got some pretty well known universities there, of course, Baylor, SMU.
And then the business climate, of course, vibrant. We talked about very low unemployment. I used to say there’s no recession in Texas. I guess it’s feeling it just a little bit compared to how well it was doing before, but really no recession to speak of in comparison to the rest of the country or for that matter, the rest of the world.
It ranks fifth. Dallas ranks fifth and Ft. Worth sixth as the best places for entrepreneurs to start a business in the Southwest. Just a lot of really positive things about this city in terms of the business friendly type of market.
Phil: That’s exactly right. Another point that I would kind of like to make is a lot of people who haven’t traveled to Texas, we all see things on TV and they think of this as vast, cow pastures everywhere. Dallas is really no different than L.A. or any other major city.
Jason Hartman: It’s very cosmopolitan.
Phil: It is. You could be sitting downtown in Dallas or be sitting downtown in New York or be sitting downtown in L.A. and you wouldn’t be able to tell the difference unless you knew better. There are a lot of things going on socially.
Jason Hartman: Actually, I want to take issue with you on that. I think you could tell the difference, and you know why? The people are a lot more polite.
Phil: That’s true.
Jason Hartman: They’re much more friendly.
Phil: Take the person element out of it, I just kind of meant the general feel.
Jason Hartman: Right, I know. But the other thing, the cost of everything is so much lower. You go out to a nice dinner there, you go out for drinks – I’ve spent a lot of time in Dallas and it’s just amazing. You get a martini, a nice glass of wine, and it’s 30 – 40 percent less expensive, maybe 50 percent less expensive than it is here in Orange County, California. It’s the same quality of place and venue and food or drink. It’s just an amazing difference. It really is.
Anything else you’d like people to know in wrapping up?
Phil: No, I think we covered it all. So I appreciate the time to explain what’s going on down here in Texas.
Jason Hartman: All right. Thanks for joining us, Phil.
Phil: Okay, Jason. Have a great day.
Male Announcer: People who follow Jason Hartman’s Creating Wealth Show know how much he likes markets with good affordability and attractive cash flows. When you add a favorable tax environment with an inviting business climate, you have an accurate description of Dallas. As a nexus point for business relocation and expansion, Dallas represents a very favorable opportunity for investors who are looking to get ahead of future growth trends.
Dallas, with an estimated population nearing 1.3 million, is the third largest city in Texas, behind Houston and San Antonio respectively. It’s the main city and economic center of the 12-county Dallas-Ft. Worth-Arlington metropolitan area, that according to the March 2009 U.S. Census Bureau release had a population of 6,306,000 as of July 2008, making it the fourth largest and No. 1 fastest growing metropolitan area by population in the nation last year. It’s also the center of largest metro area in Texas.
Female Announcer: Founded in 1841 and formerly incorporated as a city in February, 1856, the city’s economy is primarily based on banking, commerce, telecommunications, computer technology, and energy and transportation.
Located in north Texas and a major city in the South and Southwest, Dallas is the core of the largest inland metropolitan area in the United States that lacks any navigable link to the sea. The city’s prominence despite this comes from its historical importance as a center for the oil and cotton industry, its position along numerous railroad lines, a strong industrial and financial sector, and its status as a major inland port, due largely to the presence of Dallas-Ft. Worth International Airport, one of the largest and busiest in the world.
Male Announcer: Dallas, like many other cities in the world, was founded along a river. The city was founded at the location of a wide rock crossing of the Trinity River, where it was easier for wagons to cross the river in the days before ferries or bridges. The Trinity River, though not usefully navigable, is the major waterway through the city. Its path through Dallas is paralleled by Interstate 35E along the Stemmons Corridor, then south alongside the western portion of downtown and past South Dallas and Pleasant Grove, where the river is paralleled by Interstate 45 until it exits the city and heads southeast towards Houston.
The river is flanked on both sides by 50-foot tall earthen levies to protect the city from frequent floods.
Female Announcer: The city of Dallas has many characteristics that make it a nexus for investment. These three vectors are demographics, quality of life, and the business climate. The demographics of Dallas support growth because of the large in-migration of people seeking a more attractive business climate.
The affordable housing, ample access to the arts and entertainment, and plentiful shopping options create an attractive quality of life in Dallas. The business climate in Dallas is extremely attractive due to the favorable tax environment in Texas. The concentration of business in the Metroplex area and availability of transportation from both the freeway network and the airport.
Male Announcer: U.S. Census estimates released in 2007 indicated that there were 1,240,499 people living in Dallas proper. According to census data compiled between 2005 and 2007, there were 440,633 households and 257,339 families residing in the city. The combined population of Dallas-Ft. Worth is 6.1 million people, which is expected to grow to 7.7 million by 2025. In the city, the population was spread out with 26.6 percent under the age of 18 and 8.5 percent who were 65 years of age or older. The median age was 32.1 years.
The median income for a household in the city was $40,147.00 and the median income for a family was $42,670.00. The per capita income for this city was $25,904.00. About 18.7 percent of families and 21.7 percent of the population were below the poverty line, including 33.6 percent of those under the age of 18 and 13.4 percent of those age 65 or over.
For more information, contact an investment counselor at www.JasonHartman.com.
Female Announcer: The Dallas-Ft. Worth area has a cost of living that is 8.6 percent below the national average. The Arts District in the northern section of downtown is home to several arts venues, both existing and proposed. Notable venues in the district include the Dallas Museum of Art, The Morton H. Meyerson Symphony Center, the Trammell and Margaret Crow Collection of Asian Art, the Nasher Sculpture Center, the Dallas Contemporary, and the Dallas Children’s Theater.
The city of Dallas maintains and operates 406 parks on 21,000 acres of parkland. Its flagship park is the 260-acre Fair Park, which hosted the Texas Centennial Exposition in 1936.
The city is also home to Texas’ first and largest zoo, the 95-acre Dallas Zoo, which opened at its current location in 1888.
Dallas is home to the Dallas Mavericks and Dallas Stars. Both teams play at the American Airline Center, as did the Dallas Desperados of the Arena Football League before that league’s demise in 2009. The Major League Soccer team, FC Dallas, formerly the Dallas Burn, used to play in the Cotton Bowl, but moved to Pizza Hut Park in Frisco upon the stadium’s opening in 2005. The college Cotton Bowl football game was played at the stadium through its 2009 edition, but has moved to the new Cowboy’s Stadium in Arlington.
Nearby Arlington, Texas, is the new home to the Dallas Cowboys of the National Football League. Since joining the league as an expansion team in 1960, the Cowboys have enjoyed substantial success, advancing to eight Super Bowls and winning five. Known widely as “American’s Team,” the Dallas Cowboys are financially the most valuable sports “franchise” in the world, worth approximately $1.5 billion. They are also the second most valuable sports organization in the world. The Cowboys are only out-valued by Manchester United, a soccer club from England, who are valued at $1.8 billion. The Cowboys are relocating to their 80,000-seat stadium in suburban Arlington.
Also in Arlington is Rangers Ballpark, home of the Texas Rangers of Major League Baseball.
Male Announcer: The Dallas-Fort Worth Metroplex has one of the largest concentrations of corporate headquarters in the United States. With an unemployment rate of only 4.7 percent and over 128,000 businesses, Dallas represents a highly attractive business environment. It’s also highly attractive for entrepreneurs and has ample access to transportation with direct flights to most major U.S. cities in four hours or less.
Female Announcer: A recent study ranked the Dallas-Fort Worth area No. 2 in job growth for the nation. This makes Dallas an extremely attractive nexus for investment, specifically for income properties since the strong job growth in the area will help to keep the rental markets strong for a considerable length of time. This will create tremendous opportunities for investors.
Male Announcer: The Dallas-Fort Worth area has a broad diversity of employment, ranging from transportation to technology and education. This base of employment fuels the rapid job growth that has come to epitomize Dallas-Fort Worth over recent years and is expected to create job market stability into the foreseeable future.
Female Announcer: Dallas-Fort Worth also plays host to many foreign-owned corporate subsidiaries, further adding to its attractiveness as a business nexus. This represents another key characteristic of the Metroplex that makes it a magnet for commerce. By attracting both domestic and foreign business, Dallas-Fort Worth has established itself as a key growth area for both the present and the future.
Male Announcer: The city of Dallas has 12 Fortune 500 companies, the third most in the United States, while DFW as a whole has 22. New additions to the list include AT&T, which announced plans in June of 2008 to relocate its corporate headquarters to downtown Dallas from San Antonio. And Comerica Bank, which relocated in 2007 from Detroit. Irving is home to four Fortune 500 companies of its own, including Exxon Mobile, the most profitable company in the world, and the second largest by revenue, Kimberly-Clark, Fluor Engineering, and Commercial Metals.
Additional companies internationally headquartered in the Metroplex include Southwest Airlines, American Airlines, Radio Shack, Neiman Marcus, 7-Eleven, Brinker International, AMS Pictures, id Software, ENSCO Offshore Drilling, Mary Kay Cosmetics, Chuck E. Cheese’s, Zales, and Fossil. Corporate headquarters in the northern suburb of Plano include Electronic Data Systems, Frito Lay, Dr. Pepper Snapple Group, and JCPenney.
For more information, contact an investment counselor at www.JasonHartman.com.
Female Speaker: The Dallas area freeway system is set up in the popular hub and spoke system, shaped much like a wagon wheel. Starting from the center of the city, a small freeway loops around downtown, followed by the Interstate 635 loop about ten miles outside downtown, and ultimately the tolled President George Bush Turnpike. Inside these freeway loops are other boulevard and parkway style loops, including Loop 12 and Beltline Road. Another beltway around the city upwards of 45 miles from downtown is under plan in Collin County. This has helped to make Dallas the equivalent of an inland port for trucking and transportation.
Male Speaker: The migration to Dallas-Fort Worth is not limited to employees, startup enterprises, and small businesses. There are multiple Fortune 500 companies that are moving to the Dallas area because of its low taxes and favorable business environment relative to more expensive business environments, such as California.
Female Speaker: Dallas represents a highly attractive real estate market with home prices that are 23 percent below the national average. In addition to this, Dallas has a large amount of existing office and industrial space to absorb continued expansion. While most markets are contracting in value, the Dallas market is actually going up. In addition to this, apartment occupancy rates are over 90 percent. These factors lead to excellent cash flow, attractive return on investment, and the potential for long-term value appreciation.
Male Speaker: The real estate market in Dallas exhibits many attractive characteristics, with good housing supply at all price ranges, a very reasonable average home price, excellent price stability, attractive occupancy for rental units, and tremendous prospects for long-term appreciation.
Female Speaker: The Dallas-Fort Worth area is going through a business and building boom that has become the envy of the nation. The net migration of people and businesses toward Dallas is a trend that is likely to continue into the foreseeable future, as people move out of high tax environments, such as California, and relocate to more attractive business climates.
If you are interested in the investment opportunities available with the Dallas market, contact your investment counselor for a one-on-one consultation. In addition to the investment properties, ask your counselor about our coaching programs, where they will work alongside you to develop a holistic strategy that merges attractive investments, solid financial planning, exceptional education, and a strong focus on personal values to help you achieve your goals now and into the future. We are ready to help you realize the success that you have dreamed of. Are you ready to take the next step?
Announcer: Copyright The Hartman Media Company. For publication rights and interviews, please email media@JasonHartman.com. This show offers very general information concerning real estate for investment purposes. Opinions of guests are their own. Jason Hartman is acting as president of Platinum Properties Investor Network exclusively. Nothing contained herein should be considered personalized personal, financial, investment, legal, or tax advice. Every investor’s strategy and goals are unique. You should consult with a licensed real estate broker or agent or other licensed investment, tax, and/or legal advisor before relying on any information contained herein. Information is not guaranteed. Please call (714) 820-4200 and visit www.JasonHartman.com for additional disclaimers, disclosures, and questions.
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Duration: 51 minutes