Join Jason Hartman at a recent live seminar as he reviews “The Ten Commandments of Successful Investing”.
© Copyright 2005, The Hartman Media Company
1. Thou shalt become educated.
Knowledge is a powerful tool. Do your due diligence so that you are your own best advisor.
2. Thou shalt have a professional Investment Counselor.
Only invest with investment professionals who stay with you for the long-term so that you have a single point of contact to coordinate your entire investment plan. Advisors should buy for themselves what they sell, putting their money where their mouth is, and get paid for producing results rather than simply for advice.
3. Thou shalt maintain control.
Never leave your financial future in the hands of incompetent, unethical or greedy brokerage houses, fund managers or corporations. Always be a direct investor.
4. Thou shalt use prudent financial planning techniques.
Always invest with your goals in mind (retirement, financial freedom, creating wealth) and abide by your risk tolerance and investing style.
5. Thou shalt not gamble.
Be a prudent long-term value investor, never a get-rich-quick gambler, speculator or flipper by investing only in properties that make good financial sense the day you buy them.
6. Thou shalt diversify.
Reduce risk and maximize returns by investing in several areas as every market is different.
7. Thou shalt be Area Agnostic™.
Only invest with an advisor who is not partial to any one area or investment to avoid a conflict of interest. Consider a variety of opportunities.
8. Thou shalt borrow to maximize leverage and accelerate wealth creation.
Use as much borrowed money and as little of your own money as possible so long as the borrowed money can be repaid by the tenant. Let other people’s money work for you, reduce your risk and make you wealthy.
9. Thou shalt only invest where there is universal need.
No one needs stocks, bonds or gold but EVERYONE needs a place to live and with growing affluence around the world, consumption of raw materials will continue to cause upward price pressure on improved real estate.
10. Thou shalt invest only in tax-favored assets.
Non-cash write-offs and deductions are money in your pocket and real estate offers the best of both.
Announcer:
Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Newport Beach, California. During this weekly program, Jason is going to tell you some really exciting things that you probably haven’t thought of before, or a new slant on real estate, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in nine states. This program will help you follow in Jason’s footsteps on the road to financial freedom through real estate. You really can do it. And now, here’s your host, Jason Hartman.
Jason Hartman:
Hi. This is Jason Hartman with Platinum Properties Investor Network in Newport Beach, California. Welcome to Podcast No. 15. Today I’d like to do something a little different where I’d just like to share a recent seminar that I conducted here in Newport Beach where I discussed the Ten Commandments of Successful Real Estate Investing. I think you’ll enjoy this as it sums up a lot of our methodologies and techniques, although it’s not a complete picture, but it is helpful in understanding some of our basic principles. So here we are as we go live for the Ten Commandments of Successful Real Estate Investing.
What we like to do is start our seminars with our Ten Commandments of Real Estate Investing. This kind of sums our investment philosophy in pretty much ten easy steps. You have a copy of this in your folder, but I’ll elaborate quite a bit.
The first one is what we’re doing today. Thou shalt become educated. It’s definitely important to become educated. One of the things we say is that we want you to be your own best advisor. Don’t rely on anybody else. Don’t even rely on us. Be educated so you’re your own best advisor.
Next one, thou shalt have a professional Investment Counselor. I will introduce to you in a little bit some of our investment counselors. They’re not all here today, but you’ll meet them. And one of the things that I’ve noticed over the years in talking to various investment advisors for my own portfolio, I cannot tell you the number of times I have walked into a company like a Merrill-Lynch and I sat down across the table with a 28-year-old guy, who’s wearing a nice suit, graduated from a great school, all of that stuff, but he isn’t doing what he is telling me to do. And I didn’t like that very much. It didn’t make me feel very confident in his advice.
So one of the first quality control measures we have here is that all of our investment counselors and all of our area managers must buy their own product. See two and a half years ago when I launched this new division of the company, I had a problem. We’re in 32 markets nationwide, by the way, that we recommend. But one of the challenges I had starting the company is that various people who worked here would constantly say, “Hey, Jason, I wanna open this area; I wanna open that area. I think that’s a good market.” And I had to sort of have some quality control here, so the first, most easily defined quality control step was if you think it’s a good deal, go buy one yourself and then we’ll talk about recommending it to our clients.
So we practice what we preach in real life. I own 23 properties in 12 states, so I’m gonna talk to you about diversification, and this is one of my favorites, No. 3. Thou shalt maintain control. Many investments out there, ones that have not done well for me over the years, are investments where I relinquish control to somebody else, whether it be a partnership – my 92-year-old grandmother has a great quote. You should write this down. It’s really good, a lot of wisdom in this quote. She said to me a long time ago, she said, “Jason, the hardest ship to sail is a partnership.” Would you agree with that? Isn’t that true? The hardest ship to sail is a partnership.
So I like being in control. Call me a control-freak, but I don’t wanna be in anybody else’s deal. I wanna do my own investments. I wanna control my own investments. We do not recommend any LLCs, partnerships, tenant-in-common deals, real estate investment trusts, and we certainly don’t recommend Wall Street and stocks because in any of those things, you relinquish control to somebody else. Think about what happens when you relinquish control. You leave yourself susceptible to three major problems.
First problem, you might be investing with a crook. We’re all familiar with the Enrons, the World Comms, the Global Crossings, and all of these companies out there. Certainly, there are a lot of scams in the real estate world where there’s some sort of partnership set up or a limited liability company and the promoter goes and gets money from investors and rips them off. So assume you’re investing with someone who’s honest.
Second problem, you might be investing with someone who’s incompetent. Now either of these can cause major trouble. So assume that they’re competent. Next problem, they’re honest, they’re competent, but they take a very large handling fee off the top to manage the investment or manage the deal. The reason I like being a direct investor, and that’s what we recommend to you is that you be a direct investor, is that when you are a direct investor, you retain the profits for yourself.
I read a book in January. I was up in Colorado skiing and I discovered this book. It’s by Lou Dobbs. He’s kind of a controversial guy. My mom says he’s a socialist. I think he’s great, whatever. My mom’s the one who went to Berkeley, so what right does she have to talk. But anyway, Lou Dobbs wrote this book called War on the Middle Class. You’ve seen him on CNN, right? Well, in Chapter 2, he talks about what happens in the corporate world, what the managers of corporations are doing with your money. When you invest in someone else’s stock, here’s how they’re spending it. Mostly on themselves. He says that median CEO compensation went from $1.8 million in 1992 to $6.1 million in 2000. CEO pay increased 340 percent from ’92 to 2002, while compensation for rank and file employees increased a mere 36 percent.
Listen to this. In the past few years, we’ve seen levels of pay for individual CEOs that is beyond most people’s comprehension, numbers that look like they belong on a company’s revenue column, rather than on a paycheck. The greed on Wall Street, to me, is disgusting and I just don’t like losing control of my investments. I want these profits to flow to me and I hope you do, too.
So here’s a couple of examples. Terry Semel, Chairman and CEO of Yahoo! was paid $120 million in 2004. Lew Frankfurt, head of Coach, well, the head of their company got $58 million in ’02. Robert Nardelli, kind of the infamous CEO of Home Depot, made $36 million. Ed Zander of Motorola got $32 million. Meg Whitman of eBay received $26 million.
Then he goes on to say, and I’ll skip ahead, “The standard rationalization for these astronomical salaries by CEOs, their boards of directors, and their consultants is that these CEOs are worth it because the companies they run benefit from their leadership and they bring great value to their shareholders. How then do they explain the fact that over the past five years, the CEOs of AT&T, BellSouth, Hewlett Packard, Home Depot, Lucent, Merck, Pfizer, Safeway, Time Warner, Verizon, and Wal-Mart were paid an aggregate of $865 million in compensation, almost a billion dollars, while their shareholders lost a total of $640 billion? Clearly, these CEOs were not being paid for benefiting their shareholders.
And then there’s Larry Ellison, founder and CEO of Oracle. From 2000 to 2002, in two years, Larry’s personal take from the company was $781 million. In two years, almost a billion dollars, but shareholder return was negative 61 percent. Folks, we’ve gotta stop giving up control of our investments. We’ve gotta retain the profits for ourselves. So maintain control. Be a direct investor.
No. 4, thou shalt use prudent financial planning techniques when investing. The financial firms on Wall Street can teach us some very good stuff. They are very good at using financial planning techniques. So everybody in this room has a different risk tolerance. Everybody in this room has a different goal, a different time horizon for achieving that goal. Some investors are conservative; some are aggressive risk takers. Everybody wants something different out of their investment. Some want cash flow, some want capital appreciation, some want tax benefits. So we help you tailor a portfolio to meet your specific goals and needs, and we’ll talk about that as the day goes through, okay. But use prudent financial planning techniques.
No. 5, thou shalt not gamble. We do not speculate. We do not flip properties. We do not gamble. Over the last 21 years that I’ve been in the real estate business, I have made millions of dollars locally in real estate, just right here in Orange County. Some homes I’ve bought and held for a while. Some I bought and flipped right away. Some I flipped rather quickly, rented out for maybe a short time. So I’ve done all of that different stuff, but one thing I have noticed with the clients and the investors that I have met over the last 21 years is this. The people who flip properties have spending money. The people who buy and hold properties have real wealth. Big difference. I’d rather have real wealth and I hope you would, too, than a little bit of pocket spending money.
All right, No. 6, thou shalt diversify. Any prudent financial advisor will tell you diversify, diversify, diversify. The problem is they will tell you to diversify in amongst a fairly, to use a technical term, lame assets, okay? Stocks, bonds, mutual funds, things that really don’t work, are not proven, and have not created wealth for tens of millions of people, like real estate has. You know, if I ask you, how many of you know of someone who’s gotten rich in real estate? Come on. Everybody does, right?
Okay, wait, not everybody’s raising their hand, though. So I’ve gotta do another survey to see whose really participating. How many are married? How many are single? How many aren’t sure? Okay. See, not everybody even voted then, okay? I tried to make it easy for you.
Well, you know, you all know people who have made a lot of money in real estate, mostly starting with very little capital. But how many of you know someone who’s made a lot of money in the stock market starting with very little capital? Twenty grand, $20,000.00. Rarely a hand goes up, occasionally, and it’s a day trader who got lucky or someone who buys options and frankly, has been pretty lucky. So there’s an old saying, I’d rather be lucky than good. Well, I’d certainly rather be lucky than good, too, but I’m just not a gambler. I’m a pretty conservative person when it comes to investing. So thou shalt diversify.
Diversify into many, many markets. Back in 1989, I owned several rental properties here in Orange County and I was a busy, successful realtor in Orange County, running around listing and selling properties for people, and we went into this seven-year downturn in the real estate market here when Reagan ended the Cold War. Thank you for that. There was a hangover from it when all of the defense contractors got laid off. We all remember that mostly, right? I decided this time I was not going to go through that downturn again. The best way to do that is to not have all eggs in one basket. So don’t have all your eggs in one basket. Take the best asset class, the one that is most proven, real estate, and diversify in amongst several markets and areas.
There’s an old saying in real estate that all real estate is local. All real estate is local. It really is. When you look at the news media, when you watch CNBC or whatever news media, or open a magazine or a newspaper, the gurus and the experts on the real estate market try to paint real estate with a broad national brush and you can’t do that. Real estate is a local type of investment, so it’s a bunch of difference localities that make up the real estate market.
How many of you believe there’s a bubble market in real estate? Yeah, yeah, I do. It just depends where. There are bubble markets in California, largely in Arizona and Nevada now, Oregon mostly. These markets are pretty over valued at this time. Hawaii, New York, Massachusetts, Washington D.C., most of Florida now is over valued. So there are a lot of bubble markets that are over valued. We don’t recommend those markets and the reason is that we are area agnostic. We are not attached to any one market. We go where the properties make sense.
By the way, speaking of making sense, one thing I didn’t say a couple of commandments ago, which was “Thou shalt not gamble,” is that the property must make sense the day you buy it. Nothing extraordinary should have to happen for you to make a nice return on your money. Now what do we consider a nice return on your money? Forty percent annually. Don’t try that in a mutual fund. Forty percent annualized return on investment, and we’ll talk about that throughout the day, how to make sure the property makes sense the day you buy it. So be area agnostic. Don’t be attached to any one area.
Currently, we have agreements with developers and real estate brokers in 32 markets, but we only recommend about a dozen or maybe 15 of those markets right now because we are constantly moving around dynamically and in a fluid manner. When the market makes sense, we recommend it. When it doesn’t make sense, we just go somewhere else and recommend something else. So be area agnostic.
No. 8, thou shalt borrow to maximize leverage, accelerate wealth creation, and reduce risk. Today, I’m going to challenge a lot of your long-held beliefs about debt. I love debt. There are certain types of debt that make you incredibly wealthy when used properly. Now debt, or leverage, another way to say debt is leverage, is a powerful tool. It can be used to destroy or to create. Either way, it’s like nuclear weapons. Some people say, oh, nuclear weapons are awful. They could destroy the entire human race. That’s certainly true. But they are also a huge deterrent to war, so maybe nuclear weapons have saved a lot of lives over the years, okay, depending on which way you look at it. So we use leverage in a careful, prudent manner to make sure that we can reduce our risk through leverage, through debt, and accelerate our wealth creation.
No. 9, thou shalt only invest where there is universal need. Every time we do one of these seminars, at the break, someone comes up and asks me, “Well, you know, Jason, what do you think about commercial real estate?” And I say it’s okay, but I don’t think it’s nearly as good as residential real estate. The reason is if any of you have called tech support lately for anything, you were probably talking to Mike in Bangalore, right? You’re familiar with this. At 3:00 a.m. in Bangalore, right. They can outsource the call centers to India; they can outsource the manufacturing to China. They can even outsource retail to the internet, lessening the demand for industrial properties, for office space, and for shopping centers. But the one thing we know for sure is that everybody needs a place to live and a place to sleep. That’s why I like housing the best because there is universal need.
No. 10 and finally, thou shalt only invest in tax-favored assets. Real estate is the most tax-favored asset in America. Now, when I start talking about taxes, people kinda start looking bored. I can see it in your face. Taxes, nobody likes taxes, but it’s such a boring subject. Any accountants in the room or CPAs? Yeah, one. Okay. What do you think? Are taxes exciting or boring?
Audience Member:
I love them.
Jason Hartman:
You love taxes. This is spoken by the guy who loves tenants, okay? Well, let me tell you something, folks. How many of you, when you go to buy a product or a service, how many of you shop around? You like to get the best deal. Do you check online to get the best prices? By the way, I’ve got a recommendation, nothing at all to do with real estate. Pricegrabber.com. I love that website. I bought this plasma TV on it a while back. Saved like $800.00. It’s terrific. So there’s a little non-real estate tip for you.
But I shop around. I like to get the best deal like anybody, but why not shop around on something that has the highest upside savings potential for us. Taxes. Taxes are the largest expense in any person’s life, about 40 percent just in income taxes. Probably more for most of you, but about 40 percent of your income goes to taxes. Then if you add on all the other types of tax, a good 70 percent probably, sales tax, auto registration, all the other various government fees. So we want to invest in tax-favored assets because it can make a tremendous, tremendous difference in our lives.
My corporate tax returns have been filed. My personal tax return is on extension. I hope to get it next week from my tax person, and she’s working on it now. But the preliminary numbers look like, and this is real money, I saved about $207,000.00 in taxes because of my real estate. That’s real money. I saw the James Bond movie. I’m thinking I want an Aston Martin. That’s a cool car, $207,000.00; buy the car, $40,000.00 in change. Taxes. Save on taxes, life’s largest expense. Very important. Do not be bored by taxes. Super, super important.
Thank you for joining us today as you listen in on a recent live seminar on the Ten Commandments of Successful Real Estate Investing. Please join us for an upcoming event. Visit www.jasonhartman.com or www.creatingwealthpodcast.com for details about the Platinum Properties Investor Network and our unique and complete solution for real estate investors. Talk to you soon.
I’m here with Senior Area Manager, Karam, and we wanted to talk to you quickly about his recent trip. He just returned yesterday from Jackson, Mississippi. Karam, what did you find there?
Karam:
Well, Jason, it was a very interesting trip. Unlike other areas, this is a very unique area in the sense that we live here in California, and we go to all these markets and every market is different. Jackson, Mississippi, on the other hand, the way it is different from the other areas is they don’t have the apartment complexes like we have in most of our metro areas.
Jason Hartman:
Yeah, so you don’t have that high density attached housing, huh?
Karam:
That’s correct. So what happens is all these houses have high demand of rental and on the rental side, there is not too many houses available for rentals, so there’s a quick rental and you get the high rents. So the cash flow is better. But you have to drill it down to the micro area, the communities that we want to invest in, buy the investment properties. The first thing we look at is the school system. Now, if you look at any particular city and suburb, it may have a good school system or it may not be in the good school system. Now, one particular city may be half in one county and the other half is in a different county.
Jason Hartman:
So that was true of Hattiesburg, right?
Karam:
That’s correct, yes.
Jason Hartman:
So if you look at Hattiesburg, you can’t choose by just Hattiesburg. Some of the area is not so good –
Karam:
Not so good.
Jason Hartman:
And some is a desirable investment area.
Karam:
Right.
Jason Hartman:
You were telling me about how they gave you a list of 131 properties that the broker thought would be good for our investors and the process of you narrowing it down and what you narrowed it down to. Why don’t you tell everybody about that?
Karam:
Well, I just narrowed it down to 21 properties.
Jason Hartman:
Out of 131.
Karam:
Out of 131, and that’s all I will sell from, 21 properties, and they are in a good school system, good quality product. Looking at the communities, the location of the communities, location of the properties, and that’s all I came up with.
Jason Hartman:
Excellent. So Karam, talk to us about this specific property you’ve got in front of me. This one is $179, 760.00, so we’ll call it $180,000.00. It’s almost 1700 square feet. The projected rent is $1500.00 a month and return on investment, Karam?
Karam:
Yes, 42 percent believe it or not.
Jason Hartman:
Forty-two percent projected ROI and if you qualify for all that goes on tax benefits, projected first year ROI is 128 percent. Don’t try that in the stock market, huh?
Karam:
That’s correct. The reason is these areas, not only the high rent, but the property tax is very, very low.
Jason Hartman:
Only $195.00 a month on that property. Wow.
Karam:
Right.
Jason Hartman:
Good stuff. Okay, Karam, anything else you wanna talk to us about. Let’s – you’ve got one more property. Maybe this one in Indianapolis, that looks kinda interesting. There’s some big discounts on this.
Karam:
Yes, Indianapolis really surprised us, that market, and we are getting great deals.
Jason Hartman:
Yeah, we weren’t expecting this one to be so good.
Karam:
Yes. Great deals and I’ll give you an example of the property that I saw yesterday. Twenty one hundred and one square feet, four bedroom, two and a half bath, brand new single family house, comes with a rent-ready package, meaning washer, dryer, refrigerator, blinds, garage door opener, front and back yard sodded, for only $127,000.00. You know what that means, Jason, per square feet price?
Jason Hartman:
Yeah, that’s amazing. You’re buying like very close to the cost of actual construction here. How much?
Karam:
$60.00 per square feet only.
Jason Hartman:
$60.00 per square foot. That is unbelievable. It’s like the downside risk is almost nothing. Go back and listen to our podcast on risk evaluation.
Karam:
And again, return on investment is 41 percent.
Jason Hartman:
So 41 percent projected return on investment and these are some good properties. Give us a call or check out our website for more properties and all the details are listed there, and we will look forward to talk to you on the next podcast.
Hey, I just wanted to announce a couple of quick things for you. If you are able to come to one of our live events, we would love to see you and meet you in person. We’ve had people fly in from all over the U.S. for them. So hopefully, you can join us for some of those events. Also, remember our rental coordinator is here to help with your rental properties. If you need assistance with your rentals, your property managers, your advertising, remember we’re here to help and we stay with you through the life of the investment. So feel free to call our office anytime and ask for the rental coordinator for assistance on your rentals.
Also wanna remind you, listen to our old podcasts. At least go back to podcast No. 13 forward and listen to all the podcasts after that. You’re welcome to listen to all of them. The ones before No. 13 are older, but they’re also good, but the newer ones are No. 13 and forward, which are really good ones to listen to, so please take advantage of that.
And remember, the overall market commentary right now, due to the mortgage meltdown, the subprime issues that are going on out there in the market, is that rents are going up all across the nation. When people cannot qualify as easily to buy a property, they are forced to rent. So let that work in your favor by accumulating more rental property assets and don’t be afraid to ask for more rent and raise your rents. That’s a good thing to do.
Also, if you are interested in career opportunities with us, our company is growing quickly and we would love to talk with you about career opportunities. We’re in the process of getting approved for franchising. If you’re interested in a Platinum Properties Investor Network franchise, we’d be happy to talk with you about that and get you set up there once we are finished with our approval process.
Be sure to see appropriate disclaimers and disclosures on our website at www.jasonhartman.com. Remember that we are not tax or legal advisors. So give us a call on any of these issues, and remember, we are here to help, and we will look forward to talking to you on the next podcast.
This material is the copyrighted creative work of either Jason Hartman, the Hartman Media Company, Platinum Properties Investor Network, Incorporated or the J. Hartman Company, all rights reserved.
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Duration: 27 minutes